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

3. Why do Companies Outsource?

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

11. Problems With Outsourcing

12. Types of Outsourcing
 Tactical
 Strategic
-future vision consideration
-current and future core competencies
-structure
-costs
-performance
-competitive advantages.

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.

14. 7 Steps to Successful Outsourcing
1. Planning initiatives
2. Exploring strategic implications
3. Analyzing costs/performance
4. Selecting providers
5. Negotiating terms
6. Transitioning resources
7. Managing relationships

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