Outsourcing involves transferring internal activities and decision rights to external providers as specified in a contract. Companies outsource to reduce costs, focus on core competencies, access new technologies and skills, and improve performance. Common functions outsourced include IT, customer support, and accounting. While outsourcing can provide benefits, it also carries risks such as loss of control and security issues that require careful management.
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Startgic outsourcing
1. What is Outsourcing?
Outsourcing is the act of transferring
some of an organization’s recurring
internal activities and decision rights
to outside providers, as set forth in a
contract.
2. What is Outsourcing?
Outsourcing -
“the strategic use of outside resources to
perform activities traditionally handled by
internal staff and resources” Dave Griffiths
Why Outsource?
Provide services that are scalable, secure,
and efficient, while improving overall
service and reducing costs
4. Reasons for Outsourcing
Traditional role - reaction to
problem
Reduction and control of costs
Avoid large capital investment costs
Insufficient resources available
Modern role – business strategy
Allows company to focus on their core
competencies
Keeping up with cutting-edge
technology
Creating value for the organization and
5. What Can be Outsourced?
system integration
data network
mainframe data center
voice network,
internet/intranet
maintenance/repair
applications development
e-commerce
end-user support system
6. Reasons and Benefits
Organizationally - focus, flexible,
transformation, customer service
Improvement - performance, manage
& control, risk manage, new ideas,
image
Financially - reduce investment,
generate cash
Revenue - gain market access, expand
Cost - reduce cost, from fixed to
variable cost
Employee – incentive, motivate.
7. Levels of Outsourcing
Individual – moving specific positions
out of the organization.
Functional – having specialized
knowledge and responsibilities.
Process – how products or services
actually flow through the organization.
8. Michael Porter’s “value chain”
Page 6
Processes and Functions
Functions
Processes Purchasing Receiving Accounts Payable Inventory Control Inventory Distribution
Inbound logistics X X X X
Operations X X
Procurement X X X
Technology development X X X X X
Human resources management X X X X X
Infrastructure X
9. How to Implement Outsourcing
Program initiation
Opinions and ideas shared to form
draft contract
Program implementation
Transferring staff
Service Level Agreement (SLA)
Establish communications between
partners
Actual transfer of the service
Establish management procedures
Contract agreement
10. Problems With Outsourcing
Loss of Control
Increased cash outflow
Confidentiality and security
Selection of supplier
Too dependent on service
provider
Loss of staff or moral
problems
Time consuming
Provider may not
understand business
environment
Provider slow to react to
changes in strategy
13. History, Trend, and Growth
To describe the growing trend of large
companies transferring their
information systems to providers
(WWII).
Trend in larger organizations is to
outsource entire processes.
Expected to grow at double-digit rates
over the coming decade.
15. Risks Related to…
Risks relating to Project Design
Risks relating to Managing the Project
Risks relating to the Transition to the
Provider’s Services
Risks relating to Managing the
Provider’s Services.
16. Why Outside Advisers are Needed?
Because they :
help manage risks
level the playing field with provider
expertise
assist the project manager in focusing on
outsourcing issues
act as a paradigm buster (challenge
established thinking)
offer independent observations on the
outsourcing environment.
17. Reasons Not To Outsource
If there are reasons to Outsource,
there are reasons NOT to Outsource:
Uncertainty
Loss of Control
Conflict
Employee Unhappiness
Financial
Excuses