BUSINESS B6

Strategic Outsourcing

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Learning Outcomes

Explain the business benefits of outsourcing Identify the three primary outsourcing options Describe the benefits and challenges of

outsourcing Compare offshore outsourcing and nearshore

outsourcing Summarize a list of offshore outsourcing countries Describe the future trend of multisourcing and how

it can support a business need for outsourcing

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Introduction

Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

Typically, the outsourced process or function is a noncore business activity

The worldwide IT outsourcing market will reach $164 billion by 2005

Businesses that outsource are growing faster, larger, and more profitable than those that do not

Most organizations outsource theirnoncore business functions, such as payroll and IT

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Outsourcing growth drivers

Globalization The Internet Growing economy and low unemployment

rate Technology Deregulation

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Outsourcing Benefits

Increased quality and efficiency Reduced operating expenses Outsourcing non-core processes allows businesses to focus on

their core competencies Reduced exposure to risk Access to outsourcing service providers economies of scale and

expertise and best-in-class practices Access to advanced technologies Increased flexibility Avoid costly outlay of capital funds Reduced headcount and associated overhead expense Reduced frustrations and expense related to hiring and retaining

employees in an exceptionally tight job market Reduced time to market for products or services

Outsourcing models and cost savings

Who’s Who in Offshore Outsourcing

Big selling point for offshore outsourcing “inexpensive good work”

Canada

India

Ireland

Israel

Philippines

Brazil

China

Malaysia

Mexico

Russia

South Africa

Argentina

Chile

Costa Rica

New Zealand

Thailand

Ukraine

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Outsourcing Challenges

Contract length■ 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 Confidentiality Scope definition

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Future Trends

Outsourcing is becoming less of a cost-saving strategy and more an overall context for business

Outsourcing is approaching commodity status Companies should look for value-based pricing

rather than the lowest possible price Multisourcing – a combination of professional

services, mission-critical support, remote management, and hosting services that are offered to customers in any combination needed

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Closing Case One:Mobile Travel Guide Mobil Travel Guide decided to outsource to IBM all of its

Web applications and database servers Mobile Travel Guide avoided up-front capital investment

without sacrificing scalability, reliability, or flexibility

1. What are the main reasons Mobil Travel Guide used an outsourcing option?

2. What other areas would you recommend Mobile Travel Guide outsource?

3. What advantages and disadvantages would offshore outsourcing or nearshore outsourcing have for Mobile Travel Guide?

4. Make a list of the countries where Mobil could outsource its Travel Guide

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Closing Case TwoOutsourcing Brew Coors Brewing Company needed to improve access to

information, consolidate systems, and reduce costs Coors outsourced its day-to-day management of its

technical operations, conversion of legacy applications, and system to EDS

1. Describe an alternative approach that Coors could have used instead of outsourcing to EDS

2. What would be the advantages of offshore outsourcing Coors’ IT department?

3. What are some other reasons Coors outsourced its information technology functions that were not mentioned in the case?

4. Describe some of the factors causing Coors to be “forced” to outsource its information technology functions

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Closing Case Two: Demanding Chocolate

Ghirardelli is the longest continuously operating chocolate manufacturer in the Untied States

Ghirardelli improved inventory management and profitability through the implementation of an ERP system

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Closing Case Two Questions

1. Which additional core ERP components would you recommend Ghirardelli implement?

2. Which additional extended ERP components would you recommend Ghirardelli implement?

3. How can implementing an Advanced Planning ERP component help Ghirardelli’s business?