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McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

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Page 1: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved

CHAPTER 19

Outsourcing in the 21st Century

Page 2: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-2

Learning Outcomes

19.1 Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing

19.2 Describe why outsourcing is a critical business decision

Page 3: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-3

OUTSOURCING PROJECTS

• 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

Page 4: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-4

OUTSOURCING PROJECTS

Page 5: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-5

OUTSOURCING PROJECTS

• Reasons companies outsource

Page 6: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-6

OUTSOURCING PROJECTS

• 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

Page 7: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-7

OUTSOURCING PROJECTS

• Big selling point for offshore outsourcing “inexpensive good work”

Page 8: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-8

OUTSOURCING PROJECTS

• Factors driving outsourcing growth include:– Core competencies– Financial savings– Rapid growth– Industry changes– The Internet– Globalization

Page 9: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-9

OUTSOURCING PROJECTS

• According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”

Page 10: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-10

OUTSOURCING PROJECTS

• Most organizations outsource their noncore business functions, such as payroll and IT

Page 11: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-11

Outsourcing Benefits

• Outsourcing benefits include:– 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

Page 12: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-12

Outsourcing Challenges

• Outsourcing challenges include– Contract length

1. Difficulties in getting out of a contract

2. Problems in foreseeing future needs

3. Problems in reforming an internal IT department after the contract is finished

– Competitive edge– Confidentiality– Scope definition

Page 13: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-13

CHAPTER NINETEENOpening Case Study Questions

1. What are the benefits and risks associated with outsourcing?

2. What are the ethical issues associated with outsourcing government applications?

3. What are the security issues associated with outsourcing government applications?

Page 14: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-14

CHAPTER NINETEEN CASEUPS in the Computer Repair Business

• Toshiba is handing over its entire laptop repair operation to UPS Supply Chain Solutions, the shippers $2.4 billion logistics outsourcing division

Page 15: McGraw-Hill/Irwin © The McGraw-Hill Companies, All Rights Reserved CHAPTER 19 Outsourcing in the 21 st Century

19-15

CHAPTER NINETEEN CASE QUESTIONS

1. Do you think UPS’s entrance into the laptop repair business was a good business decision? Why or why not?

2. Explain why Toshiba decided to outsource its computer repair business to UPS

3. What are some advantages UPS can offer Toshiba in the outsourcing arrangement?

4. Explain the advantages of forming an outsourcing relationship with a parcel delivery company such as UPS


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