CHAPTER 19: OUTSOURCING IN THE 21^ST CENTURY

·         Insourcing (in-house development)

o   Is a common approach using the professional expertise within an organization to develop and maintain the organization’s information technology system

·         Outsourcing

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

·         3 different forms out sourcing options a project must consider are:

o   Onshore outsourcing- engaging another company within the same country for service

o   Nearshore outsourcing- contracting an outsourcing arrangement with a company in a nearby country. Often this country will share a boarder with native country

o   Offshore outsourcing- using the organizations from developing countries to write code and develop systems

·         Outsourcing benefits

o   No costly outlay of capital funds

o   Reduced operating expenses

o   Access to advance technologies

o   Reduced head count and associated overhead expense

·         Outsourcing challenges:

o   Contract length- most of the outsourced IT contracts are for a relatively long time period (several years). This is because of the high cost of transferring assets and employee as well as maintaining technological investment. The long contract causes 3 particular issues:

§  Difficulties in getting out of a contract if the outsourcing service provider turns out to be unsuitable

§  Problems in foreseeing what the business will need over the next 5 or 10 years

§  Problems in reforming an internal IT department after the contract period is finished

·         Competitive edge- effective and innovative use of IT can give an organization a competitive edge over its rivals. A competitive business advantage provided by an internal IT department that department that understand the organization and is committed to its goals can be lost in an outsourced arrangement

·         Confidentially- in some organizations, the information stored in the computer systems is central to the enterprise’s success or survival such as about information about pricing policies

·         Scope definition- most IT projects suffer from problems associated with defining the scope of the system