Information Management Assignment

018800006882 ASSIGNMENT ON INFORMATION MANAGEMENT - OUTSOURCING

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STANLEY-KEMUEL LLOYD SALVATION INFORMATICS COMPUTER SCHOOL (IADIC)

TABLE OF CONTENT

1. INTRODUCTION 3

2. HOW THE WORLD SAW OUTSOURCING IN THE PAST 4

3. DEFINITION 5

4. WHY WOULD COMPANIES WANT TO OUTSOURCE? 7

DEVELOPMENTS IN INFORMATION AND COMMUNICATION TECHNOLOGIES 7

GLOBALIZATION 8

MORE DEMANDING CONSUMERS 8

PUBLIC SECTOR REFORMS 8

5. ORGANIZATION BENEFITS OF OUTSOURCING 9

IMPROVED SERVICES 9

IMPROVED COST 9

NEW SERVICES 9

ALLOCATION OF RISK 10

OTHER BENEFITS 10

IMPROVED PLANNING 10

IMPROVED PREDICTABILITY 10

6. DRAW BACKS OF OUTSOURCING 11

MANAGEMENT AND CONTROL PROBLEMS 11

FAILURE TO DELIVER 11

EXPOSURE 11

NEGATIVE REPUTATION 11

COMPANY VALUE 12

OTHER DRAW BACKS 12


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7. TYPES OF OUTSOURCING APPROACHES 13

APPLICATION SOFTWARE OUTSOURCING 13

INFRASTRUCTURE OUTSOURCING 14

BUSINESS PROCESS OUTSOURCING 14

MANUFACTURING OUTSOURCING 15

8. REAL LIFE EXAMPLE OF OUTSOURCING – A BRIEF LOOK AT INDIA 16

9. CONCLUSION 18

10. REFERENCES 19

WORKS CITED: 19

WEB 19


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1. INTRODUCTION

Outsourcing practices originated in the late 1950’s, but it strategy became widely

adopted in the organization in the 1980’s, ever since, its strategy has statically

evolved from a strictly cost focused towards more cooperative nation.

Organizations worldwide have been outsourcing IT due to the following reasons;

Cost and quality of products and services, innovative solution, pressure from

supplies, dismal IT performance and many other factors.

Today the world experience outsourcing in virtually all parts of information system .

World statistics have shown that the rapidly growing market trend/trade is estimated

to hold $500 million in year 1996.


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2. HOW THE WORLD SAW OUTSOURCING IN THE

PAST

Presently, outsourcing presents a tremendous grip to the worlds’ economy with its

rapidly growing strength. Outsourcing varies from market to market which is a

determinant factor in a nation’s growth rate. Map estimation from world forecast

findings says many jobs would be outsourced as the year goes by in the year 2000.

New findings have proven that jobs are outsourced from industrialized world to under

developed nations, e.g., need for oil riggers in certain part of Britain has called for

recruitment of 35,000 Philippines.

Recent studies by Mekinsy, 1states that more and more jobs in major sectors such

as Engineering, IT, import and exports etc. would shift bases from industrialized

countries to developing nations such as India and China.

Due to outsourcing, global market tables shows increase in the integration of

production and servicing.

1 Current market trend s in the world shows increase in outsource in countries like India and China.


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3. DEFINITION

Gupta & Gupta, (1992) refers to outsourcing as “the concept of having external

professional services to meet the in-house needs of an organization or an agency”.

The definition of outsourcing is been seen not to be straight forward one as times

have changed worlds’ economy. Each scenario to which it has been presented into

has given it at unique definition and meaning.

A more formal definition of the term outsourcing is an activity where the suppliers

provides for the delivery of goods and services that would have been offered in-

house by the buyer organization in predetermined agreement. (Kenneth Dam, 2001)

Another definition of outsourcing says, “It is the alternative of risk that are

responsibilities for performing a function or services to another entity” (Ashley,

2003). An in-depth understanding into the definition would explain the term

outsourcing as a process of making a company or organization to perform a function,

process or services in your behalf. An example of the above explanation could be

applied in our ordinary day to day life.

Taking your clothes to the dry cleaners rather than washing them

yourself.

Rather than driving your own car to school, boarding a cab to take you

down.

Simply putting outsourcing in a more complete level, such as outsourcing a business

from organization to another organization it is imperative that its risks and stakes are

high, it is pertinent to note that the cost of providing the outsourced services or

failure to provide it are much higher. Yet, companies successfully outsource some of

their services in several different ways. Some of these methods are:

Outsourcing pay checks to a special payroll companies.

Outsourcing of maintenance, office equipment provisions, etc. to other

organization.

IT outsourcing, sales force outsourcing.


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Variation in the approach became obvious as new objectives are used in its

definition to convey little differences in its meaning. Other terms that has been used

synonymously with “outsourcing” are words such as out-tasking and contracting , in

other to establish differences in process models, terms like in-sourcing co-sourcing

have been recognized.

In the early 70’s and 60’s, the United State of America companies, states

outsourcing much of its manufacturing to companies overseas and since they have

not stopped. The primary aim was derive lower cost by taking advantage of low

wages in the international area, reason of outsourcing been popular is because of

white collar job are being outsourced.


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4. WHY WOULD COMPANIES WANT TO

OUTSOURCE?

There are number of reasons why companies or employers would outsource benefit

administration. Most common of the reasons are that organization may not lack the

technical and regulatory expertise to perform some of the necessary function

needed at that moment e.g. few employers or organization have work force with the

expertise to perform utilization review, labour such as these, are often left to form

that are specialized to handle these tasks.

While it is known that outsourcing is cost constraint as an organization, it is often

cheaper to give out task than performing same functions in-house; some of these

saving are because of the high cost of hardware and software that are increasingly

demanded. Vendors are known to spread the cost over many customers, another

precise reason for outsourcing may be better services to employees, focusing

organizational attraction on core activities which enable companies to lower

increasing prominence of outsourcing across private and public sector of many

countries has led to the concept reviewing a significant amount of future. The drivers

of why it has become a widely used approach are listed as follow advances in

information technology, globalization, more demanding consumers reform in public

sector, which are changes that have forced an organization to become flexible and

responsible customer needs. As a result of the above mentioned, many organization

that perform business functions internally are now been forced to create more

network oriented organizational structure, that involves outsourcing functions to

specialized suppliers.

DEVELOPMENTS IN INFORMATION AND COMMUNICATION TECHNOLOGIES

Advancement have been seen in the areas of ICT as a major propellant of the

outsourcing trend, they are drastically affected by global economy societies as well

as on the way industries compete (Fitzgerald, 1998). Companies cannot compete

favourably in the world market today except they employ the use of information

technology, which creates efficiencies in many business areas, enabling

globalization of production.


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Advances in ICT’s have also acted as a key movement in the enablement of

organizations adopting radically altered structures which in itself is the major driving

force behind the trend of outsourcing.

GLOBALIZATION

The phenomenon “outsourcing” has become more and more associated with

globalization, time have seen business environment become increasingly global.

Globalization has led many companies to expand their geographical scope of their

business activities in terms of market reach out and the production sources for

product manufactured & services delivery.

Globalization is also known to have significant economic effects which have now

brought about liberalization of trade which has led to lose of many jobs because

developed economics continually outsource manufacturing services related activities

to developing economics with lower labour cost of a trend referred to an off shoring.

MORE DEMANDING CONSUMERS

Business sectors have seen consumers demand becoming sophisticated with

increase knowledge on users such as price, reliability and availability. They have

fostered the demand for customized product and services at a lower price by

customer changes in customer demands are not just affecting commercial

organization but also training major implementations for public sector organization. In

other for organization to meet specialized needs of consumers, the needs for

dedicated vendors who can efficiently perform these duties are called in hand.

PUBLIC SECTOR REFORMS

An argument of proponent of competitive market mechanism states that assets and

activities be transferred from public sector to private sector in order to improve

performance has led to outsourcing. Further arguments have it that public sectors

aspire to meet the level performance as that of the private sector.


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5. ORGANIZATION BENEFITS OF OUTSOURCING

Even though outsourcing has its benefits, there are risks around but for many entry

premiers the benefits of outsourcing outweighs its risk. Multitudes of benefits have

been seen with the implementation of outsourcing for years and this is the sole

reason for organizational implementation of the function.

To achieve this, organization must understand that services & benefits do not just fall

in place; to succeed work on the part suppliers of these services are needed, the

following headings below describe most common benefits of outsourcing.

IMPROVED SERVICES

Outsourcing increases the quality of services delivered, this is possible due to

suppliers and for the following reasons. Experience is seen on the part of the

vendors than employers who supply their services within an organization. Example;

in other to meet the challenges of a certain project, organizational department with

task of project may employ additional handles to facilitates project progress.

Economy of sales may be created, which procures organization to invest more in the

people, processes & technology to deliver the services.

IMPROVED COST

Another benefit of outsourcing is improved low cost saving; suppliers may

sometimes provide services at lower cost or price to consumers. This is enabled by

the longer size and scale of the business function, a reason outsourcing became

popular was due to the promise of reduced cost, nowadays cost savings can be

achieved, but should not stand as the sole focus of outsourcing.

NEW SERVICES

Vendors may have the capacity such as size and scale that enable the delivery

services you have been unable to deliver, or simply that services require

infrastructure that would be cost consuming to invest in. They can spread their loss

for infrastructural development across many customers, this makes easy for the

vendors to invest in delivery of the services efficiently, and these services may be

delivered in various ways, customized and packaged etc.


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ALLOCATION OF RISK

Outsourcing does not diminish risk, but significantly allows for the transfer of risk to

another organization (vendor) in lieu of taking another risk. Though risk may have

been transferred to an organization that can still face the problem of making sure

that vendors deliver services in the right fashion

e.g., a company may be in the computer business, but have a large information technology

department and would want to see the problems of dealing with computer maintenance and

services away; this is an option for allocation of such to a vendor who can deliver services at

a beneficial cost.

OTHER BENEFITS

Organization may also benefit in other ways in outsourcing its business activities

number of ways for the benefit of employers is unique to organization however, other

benefits could be:

IMPROVED PLANNING

Services can be planned to be delivered at a certain time, you can predict the time of

completion of task with outsourced services, making it easier for activities to be

scheduled.

IMPROVED PREDICTABILITY

Because services are consistent and there is a dedicated services vendor, times of

delivery for outsourced function are predictable.


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6. DRAW BACKS OF OUTSOURCING

Outsourcing presents a scenario where organizations are dependent on vendors and

control business function is out of the reach of the organization itself. Question such

as: What if vendors fail to deliver? What if services suffer? What would be the impact

of managerial change on the side of vendors, all these things are potential set back

to outsourcing by organization. Outsourcing as has been know can be beneficial to

organisation and at the same time provide its draw backs. These drawbacks are

needed in other for organisations to make good assessment. They include:

MANAGEMENT AND CONTROL PROBLEMS

Organisations face the problem of managing operations of a department effectively.

To control and offshore operation is difficult task due to distance, time zone

difference and lack of face to face communication.

FAILURE TO DELIVER

The option of outsourcing brings together trust between the organisations and

vendors. Third parties are now entrusted with the power to deliver a certain

quantity/quality of deliverables. Failure to provide on time delivery, will lead to

tremendous consequences despite service level agreements you had in place.

EXPOSURE

The power that outsourcing gives the vendor is but tremendous because vital and

sensitive information may be shared to respective vendor by the firm. The risk of this

be done is that third party and vendors are previewed to certain part of

organisational business. And this can be hampered by shielding business to third

party, preventing a possible breach of confidentiality, the malicious use of system

access, and other vulnerabilities in our organization.

NEGATIVE REPUTATION

The negative reputation gained by outsourcing despite its proven successes in

elevating business who cannot afford certain expertise to stay in business is but

overwhelming. Studies have shown that offshoring eliminates domestic jobs, and this

may be insatiable with employees, clients and partners who may have a negative


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overview of offshoring certain business processes especially if it means that you are

terminating a part of your domestic operation.

COMPANY VALUE

The major risk of outsourcing is that you may not be building the value of your

company in terms of personnel, in-house knowledge, and infrastructure. In this case,

the value of an outsourcing agreement with a provider will be less effective than an

internal department.

OTHER DRAW BACKS

Other drawbacks include:

Cost may become higher than expected due to an unanticipated work that is

required by an outsourcing staff.

Outsourcing may increase cost overtime than its estimated cost and this may

add to the consumption of more resources and failure to deliver on time.

Inflexibility of organization to change a response to new request may be

limited because of the labour to do the work not under the control of the

organization.

Outsourcing firm are the non-functional tools which makes it more difficult to

move activities either back inside to another firm.

To overcome these drawbacks, firms or Organisation will have to rely on effective

information in other to identify the right business processes for outsourcing, finding

the best outsourcing provider, and setting up a good structure for your offshore

operation.


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7. TYPES OF OUTSOURCING APPROACHES

The various approaches to outsourcing are to be discussed in 4 different broad

categories; they are as follows;

1. Application software outsourcing

2. Infrastructure outsourcing

3. Business process outsourcing

4. Manufacturing outsourcing

APPLICATION SOFTWARE OUTSOURCING

It is the most sophisticated and skilled category of outsourcing which has had its

popularity for over twenty years now and counting. The reason for its popularity is:

Software development now reduces time and expenditure now making companies

efficient and productive. A critical look at the Western Europe and American firms,

they had their software development done internally at first; but as the demand for

software resources became high, they were faced with the problem of meeting to the

demands of software resources. While America and Western Europe are bedevilled

by this plague, developing countries like the China’s and India’s were seeing a large

pool of computer scientist under nurture. This is proving of the fact that a huge

investment strategy by their government in the education sector is producing a good

number of computer scientists. Their services were soon explored to be cheaper

than their neighbours in the Western Europe and the Americas’ and still are so till

date. Transfer of software development burden to these nations was the next big

agenda.

The application software outsourcing entails that organisation that wants to

outsource have to make decision on various options that have emanated over a

period of time. Organisation can decide whether to outsource all of its software

application or just a part of it to vendors. Outsourcing is a means by which firms

strengthen the software that they already have in their company. If the

aforementioned is not possible companies will rely on their own resources to develop

and create their own software application but do outsource maintenance services to

other vendors.


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Other choices that outsourcers may make while thinking of its options to outsource

may be the proximity and location of its vendor. Decision may boil down to the fact of

an outsourcer and the vendor working in the same location at a very close proximity

or at distance from each other. Sometimes, the outsourcer and the vendor may work

from the same location at close proximity from each other or at a distant place.

Usually, both options are combined.

As cost is important determinant in the decision to outsource software application,

companies or organisations may choose to outsource their application software to a

certified vendor or not. For them to do this to a certified vendor, organisations that

may choose this alternative will have to seek for certificate of maturity to prove that

these firms can handle this. Or simply, may choose the other which is an uncertified

company. Services like maintenance and enhancement of older software develop

new ones, and quality assurance testing may be provided by outsourcing firms.

INFRASTRUCTURE OUTSOURCING

Operation of firms in this approach involves the connection of various sites in the

organisation. Outsourcer in this approach concerns their activities or responsibilities

for relevant software and hardware components, installation and maintenance of the

software, data communication, data storage and recovery, security, internet

connection, printers, laptops, etc. infrastructure outsourcing firms may sometimes be

located on shore.

BUSINESS PROCESS OUTSOURCING

This is an IT enabled outsourcing and may possible be the broadest form of the

approaching approaches. Business Process Outsourcing perform a wide variety of

activities.

Processing of tax transactions, checking tax claims,

Accounting bills (receivables and payable billing),

Customer support,

Telemarketing,


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Medical transcription,

Market research and analyses,

Language translations,

Warehousing,

Keeping track of human resources- their recruitment, training, and payment.

MANUFACTURING OUTSOURCING

This may be the oldest form of outsourcing. This outsourcing approach relates

production of parts manufactured. This may be done either offshore or onshore.

Companies in USA are dependent on firms in other countries for components used

in the manufacture of specific goods. These companies may outsource the

manufacture of these components or even build manufacturing sites in other

countries were raw materials can be found to meet this needs.


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8. REAL LIFE EXAMPLE OF OUTSOURCING – A brief

look at India

Daily forecast on outsourcing today talks about huge growth in outsourcing,

particularly about offshoring. Major firms are now hiring a tremendous pace in India

and the numbers are truly mind boggling. Examples of the above mentioned:

IBM, which has about 39,000 employees in India, plans to take its India

headcount to 55,000 by the end of 2007.

Dell India is expected to hire about 10,000 additional professionals over the

next two years, taking its total India strength to 20,000 by 2009.

Accenture announced in 2005 that it would hire 30,000 professionals in India,

China and the Philippines, with the majority in India, by 2008.

JP Morgan Chase intends to double its Indian workforce in the next year,

which is currently just under 4,000.

In 2006, EDS acquired a controlling stake in MphasiS, an Indian IT-services

company, adding 9,500 to its rolls in India.

Capgemini acquired Kanbay, an Indian IT company, and added another 6,000

to its India staff. The two company’s together plan to create 23,000 jobs in the

next four years.

These figures are merely samples of the kind news that we must read daily. But it is

most surprising that India is on the brink of manpower crisis. Their educational

system is now not able to produce enough quality workers which is as a result of

short-sighted political leaders who aren’t doing enough to reform the educational

system.

In parallel, the widening difference in earning capacity between the educated middle

class and upper classes and those that are unable to participate in India's economic

boom are worsening social tension. This manifests in outbreaks of violence, such as

what has been seen in some Indian cities recently. It's further fuelled by political


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exploitation of rising tensions along the lines of caste and religion. If this trend

accelerates, the risk perception of US customers will worsen.2

What could India's outsourcing scene be like in 10 years? The possibilities range

from exhilarating to frightening.

2 An extract form http://www.sourcingmag.com/content/c070117a.asp


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9. CONCLUSION

Outsourcing trend is seen to linger on as many organizations are expected to do

more with little resources at their disposal. Outsourcing today has brought about

much impact on business that has contributed to significantly competitive

advantages. Studies have shown that organization are becoming more sophisticated

in both their objectives and approach towards outsourcing. With benefits and

drawbacks tied around outsourcing it has been that the principal motive behind

employers outsourcing business activities are technological and strategic, with less

concern for cost reduction. It also enables organization adopt new technologies and

respond quickly to consumer’s needs.

Increasingly, facts for organizational move towards outsourcing has its focus on cost

reduction


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10. REFERENCES

WORKS CITED:

Ashley, E. (2003). Overview of Outsourcing. In E. Ashley, Outsourcing for Dummies (pp.

11-12). Indianapolis, Indiana: Witley Publishing Inc.

Barthelemy, J. (1996). The Academy of Management Executive. In B. J., The seven deadly

seens of outsourcing (pp. 87-98, no.2, Vol.17). Chicago: Adventure Work Press .

Fitzgerald, E. (1998). Risk Analysis & Management. In A. A. Taylor, Engineering

Construction and Architectural Management (pp. 9-21, no.1, vol 5). United States.

Gupta. (Summer 1992). Outsourcing the IS Functions. In A. Gupta, Information Systems

Management (pp. 44-50).

Kenneth Dam. (2001). The Rules of the Global Game. In M. Slaughter, A New Look at U.S.

International Economic Policymaking. Washington: Institute for International

Economics.

Lientz, B. P. (1998). Draw Backs to Outsourcing. In K. P. Rea, Transform your Business into

E: Going beyond the dot com disasters (pp. 141-142).

Schniederjans, D. G. (2005). Introduction to outsourcing. In Ashly M. Schniederjans,

Outsourcing & Outsourcing (p. 8). Newyork: Mc Graw Hills.

WEB

http://www.microsourcing.com/info/outsourcing-drawbacks.asp

http://www.roseindia.net/services/outsourcing/various-approaches-outsourcing.shtml

http://www.sourcingmag.com/content/what_is_bpo.asp

http://www.microsourcing.com/info/outsourcing-drawbacks.asp

http://www.roseindia.net/services/outsourcing/various-approaches-outsourcing.shtml

http://www.sourcingmag.com/content/what_is_bpo.asp

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Information Management Assignment