What is Outsourcing?
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Transcript of What is Outsourcing?
What is Outsourcing?
Process
Of subcontract a business function to an external third party
Based on a contract:
• Term: 3-5 years or 10 years• Service descriptions• Service levels (measures)• Non performance penalties• Financial cost breakdowns• Clear IP, privacy & other legal conditions
Insourcing Vs Outsourcing Models
On-shore outsourcing
Off-shore outsourcing
On-shore insourcing
Off-shore insourcing
Australia based in-house IT operations
Outside Australia in-house IT operations
Multi-site In-House Models Multi-site Out of House Models
Contract IT services from Australia Based
Providers
Contract IT services from overseas
Providers
Global Outsourcing Trend – 7.21 m https://www.youtube.com/watch?v=dLjKPpXU0CQ
When IT Outsourcing is Most AppropriateBusiness Strategy IT Sourcing Model Comments
Defender Full IT outsourcing islikely to be preferred
Outsourcing of IT helpsdefenders to attain COSTEfficiency
Prospector IT Insourcing ispreferred
IT function is kept in-house to keep firms flexible
Analyser Selective IT outsourcing For core product lines:• relevant IT systems
can be outsourced to attain efficiency.
For new and unstable product lines:• IT systems remain in-
house
Examples of Types of ICT Outsourced
Source: http://www.eu.ntt.com/en/about-us/our-global-strengths/extensive-service-line-up.html
Strategic Outsourcing
ICT = Enterprise Resources
Maximise Value for MoneyHigh Value for Least Costs
Offers Cost AdvantageOffers Value Advantage
Shares RisksMitigate Risks
Why Outsource?
Service Providers & locations may offer new and advance factor endowments such as:• Skilled people• Strong technology base• Strong knowledge base• Government support• Complementary culture• Cost Advantage• Infrastructure amenities• etc
Lecture presented benefits:For enterprises:• Reduced IT Costs• Enable enterprise to focus on core
business• Facilitates down sizing
For vendors:• Enhanced reputation• Economies of scale• Transfer of skills – learning client
problems & operations setup
Why Outsource – Theory 1 Core Competencies
Core CompetenciesStrategic service capabilities that bring competitive advantage and :• Are hard to duplicate• Are reusable in many
products/services• Give value-adds to
customer experience
Non Core CompetenciesLike operating functions and services
Why Outsource – Theory 2 Transaction Cost Economies
Transaction CostsOf ICT service deliveryProduction Costs
Of ICT service dev & support
Cheaper via
Why Outsource – Theory 3 Political Model
1. IT Long term cost-benefits uncertain
2. IT Political power plays
Why Outsource – Theory 4 Resource Based Theory
IT Capacity 1. Resources2. Capabilities
strong weak
Why Outsource – Theory 5 Agency Theory
PrincipleClient
AgentsVendor
Both parties must act in the interest of each otherCommon goals
Risk sharing agreementTransparent operations & management
How – outsourcing modelsTaxonomy 1
IT Function Outsourced
Vendors’ Software Application
Services
Vendors’ ICTInfrastructure
Services
BOTHOn clients’
Operating clients’
How – outsourcing modelsTaxonomy 2
In-houseIn-source
At least 80% to be
deemed in house
Inhouse becomes
OutsourcerQUASI
OUTsourceAt least 80%
to be deemed
outsourced
How – outsourcing modelsTaxonomy 3
Selective outsourcingBecause enterprise
ICT is complex
Multiple outsourcing
TOTAL outsourcing
PARTNERSHIP MODELS
How – outsourcing modelsTaxonomy 3
Local Rural Locations
Offshore Locations
Social responsibility Image
How – outsourcing modelsTaxonomy 4
Retro Sourcing
Some Outsourcing
Arrangements
1
2.1
2.2
Example Fujitsu ICT Infrastructure Services
Source: http://www.fujitsu.com/id/services/ict/
Example - Outsourcing Implementation Plan
Source: http://rome-sourcing.com/english/
Managing Outsourcing
Controlling the Vendors – 3.54 mhttp://www.youtube.com/watch?v=MJo_nsDQZNQ
Issues & Trends – 5.26 http://www.youtube.com/watch?v=dZlcbGNC_3g
Tips for Outsourcing Software & IT – 7.16 mhttps://www.youtube.com/watch?v=MEtBVTXHv3E