- Insourcing (in-house-development) – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems
- Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house
- Reasons companies outsourcing
- Onshore outsourcing – engaging another company within the same country for services
- Nearshore outsourcing – contracting an outsourcing arrangement with a company in a nearby country
- Offshore outsourcing – using organizations from developing countries to write code and develop systems
Factors driving outsourcing growth include:
- Core competencies
- Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.
- Financial savings
- It is typically cheaper to hire workers in China and India than similar workers in the United States.
- Rapid growth
- an organization is able to acquire best-practices process expertise. This facilitates the design, building, training, and deployment of business processes or functions.
- Industry changes
- High levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies.
- The Internet
- The pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing.
- Globalization
- As markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services
- According to Pricewaterhouse Coopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”
- Most organizations outsource their noncore business functions, such as payroll and IT
- Outsourcing Benefits
- Increased quality and efficiency
- Reduced operating expenses
- Outsourcing non-core processes
- Reduced exposure to risk
- Economies of scale, expertise, and best practices
- Access to advanced technologies
- Increased flexibility
- Avoid costly outlay of capital funds
- Reduced headcount and associated overhead expense
- Reduced time to market for products or services
- Outsourcing Challenges
- Contract length
- Most outsourcing contracts span several years and cause the issues discussed above
- Difficulties in getting out of a contract
- Problems in foreseeing future needs
- Problems in reforming an internal IT department after the contract is finished
- Competitive edge
- Effective and innovative use of IT can be lost when using an outsourcing service provider
- Confidentiality
- Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors
- Scope definition
- Scope creep is a common problem with outsourcing agreements
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