1. Outsourcing in the 21st Century
CHAPTER 19
Outsourcing in the 21st Century
CLASSROOM OPENER
GREAT BUSINESS DECISIONS – Rupert Murdoch Builds a Printing Plant without a Union
Rupert Murdoch built a new printing plant in the East of London that, for the first time, did not require union labor. On January 28, 1986, four million newspapers were produced at the plant. Thousands of picketers, from the print unions and others, attempted to close the plant and end nonunionized printing. The violent protests raged throughout most of the 1990s. Eventually, Murdoch paid the union $96 million to disappear and was left with a highly efficient and effective printing plant, which substantially reduced costs. Valuations of his company soared from $300 million to $1 billion. Murdoch’s confrontation with the union is a defining moment in his career and in the history of British unions. Murdoch’s win over the unions changed the face of the British newspaper industry and catapulted his empire.
Regardless of what you are outsourcing, where you are outsourcing, or how you are outsourcing, there are advantages and disadvantages.

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
19.1 Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing
Answers to this question will vary
19.2 Describe why outsourcing is a critical business decision
Outsourcing can give the right combination of people, processes, and technology to operate efficiently and effectively in the global marketplace without burdening time and budge

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
Discuss the Allied Office Products example in the text
Insourcing has been instrumental in creating a viable supply of IT professionals and in fact in creating a better quality workforce combining both technical and business skills
This is an interesting lecture given by Tom Friedman at MIT on his book The World is Flat and the power of outsourcing
CLASSROOM EXERCISE
Mail Bombing
If you are discussing outsourcing remember to discuss how it affects the employees and the culture. Here is a scary article 
Outsourcing May Not Be Popular, But Letter Bombs?

4. OUTSOURCING PROJECTS
In some cases, the entire IT department is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations
This is an interesting clip on outsourcing and tutoring kids in the United States

5. OUTSOURCING PROJECTS Reasons companies outsource
Tom Friedman on the Daily Show
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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
Discuss the three different types of outsourcing options and determine which one would be ideal for each of the following:
Production of a new cereal
Development of a new CRM system
Development and maintenance of a KM system
Production of a new sneaker
Deployment of a logistics system

7. OUTSOURCING PROJECTS
Big selling point for offshore outsourcing “inexpensive good work”
Does outsourcing always guarantee inexpensive good work?
CLASSROOM EXERCISE
Categories
In a group research the Internet and find examples of outsourcing arrangements that have gone bad
Was the arrangement onshore, nearshore, or offshore
If offshore, was the arrangement a leader, up-and-comer or a rookie?

8. OUTSOURCING PROJECTS Factors driving outsourcing growth include:
Core competencies
Financial savings
Rapid growth
Industry changes
The Internet
Globalization
CLASSROOM EXERCISE
The Outsourcing Debate
Print and cut out the below companies. Assign the companies to your students. Each company has an argument for or against outsourcing. Have your student’s debate for or against outsourcing. Team size can vary. Review the IM for additional details.
Core competencies
Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure. Outsourcing enables an organization to maintain an up-to-date technology infrastructure while freeing it to focus on revenue growth goals by reinvesting cash and human capital in areas offering the greatest return on investment.
Financial savings.
It is typically cheaper to hire workers in China and India than similar workers in the United States. Technology is advancing at such an accelerated rate that companies often lack the resources, workforce, or expertise to keep up. It is close to impossible for an IT department to maintain a “best-of breed” status, especially for small and medium-sized enterprises where cost is a critical factor.
Rapid growth.
A company’s sustainability depends on both speed to market and ability to react quickly to changes in market conditions. By taking advantage of outsourcing, an organization is able to acquire best-practices process expertise. This facilitates the design, building, training, and deployment of business processes or functions.
Industry changes.
High levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies. The significant increase in merger and acquisition activity created a sudden need to integrate multiple core and noncore business functions into one business, while the deregulation of the utilities and telecom industries created a need to ensure compliance with government rules and regulations. Companies in either situation turned to outsourcing so they could better focus on industry changes at hand.
The Internet.
The pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing. Barriers to entry, such as lack of capital, are dramatically reduced in the world of ebusiness due to the Internet. New competitors enter the market daily.
Globalization.
As markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services

9. OUTSOURCING PROJECTS
According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”
Best Buy is the number one U.S. specialty retailer for consumer electronics, personal computers, entertainment software, and appliances
Best Buy outsourced its enterprise systems to Accenture
The results of this outsourcing arrangement included a 20 percent increase in revenue which translated into a $25 million profit

10. OUTSOURCING PROJECTS
Most organizations outsource their noncore business functions, such as payroll and IT
For each industry, determine the benefits and challenges of outsourcing
CLASSROOM EXERCISE
Outsourcing Issues
There are many issues and obstacles to outsourcing such as time zone differences and accents. Break your students into groups and ask them to research the Internet to find examples of companies that have experiences issues with outsourcing. Ask your students to present their findings to the class and offer a small prize to the team that finds the most outrageous example.
There is also a great video by Thomas Friedman on his famous book The World is Flat. The video can be found at The video lasts around 40 minutes.

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
Are there any additional outsourcing benefits not mentioned in the text?
Outsourcing Benefits
The many benefits associated with outsourcing include:
Increased quality and efficiency of a process, service, or function.
Reduced operating expenses.
Resources focused on core profit-generating competencies.
Reduced exposure to risks involved with large capital investments.
Access to outsourcing service provider’s economies of scale.
Access to outsourcing services provider’s expertise and best-in-class practices.
Access to advanced technologies.
Increased flexibility with the ability to respond quickly to changing market demands.
No costly outlay of capital funds.
Reduced head count and associated overhead expense.
Reduced frustration and expense related to hiring and retaining employees in an exceptionally tight job market.
Reduced time to market for products or service

12. Outsourcing Challenges
Outsourcing challenges include
Contract length
Difficulties in getting out of a contract
Problems in foreseeing future needs
Problems in reforming an internal IT department after the contract is finished
Competitive edge
Confidentiality
Scope definition
Contract length – Most outsourcing contracts span several years and cause the issues discussed above
Competitive edge – Effective and innovative use of IT can be lost when using an outsourcing service provider
Confidentiality – Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors
Scope definition – Scope creep is a common problem with outsourcing agreements

13. CHAPTER NINETEEN Opening Case Study Questions
What are the benefits and risks associated with outsourcing?
What are the ethical issues associated with outsourcing government applications?
What are the security issues associated with outsourcing government applications?
1. What are the benefits and risks associated with outsourcing?
There are numerous advantages to outsourcing including:
Focus on unique core competencies
Exploit the intellect of another organization
Better predict future costs
Acquire leading-edge technology
Reduce costs
Improve performance accountability
The risks associated with outsourcing include contract length, competitive edge, confidentiality, and scope definition.
2. What are the ethical issues associated with outsourcing government applications?
If an unethical contractor builds a government application they could sell the information or the application to someone outside of the government.
3. What are the security issues associated with outsourcing government applications?
If the wrong person is on the team that builds the outsourced application they could add accessibility to the application that nobody knows about and have a backdoor into the government system. They could also steal the information and the application to sell to non-government organizations.

14. CHAPTER NINETEEN CASE UPS 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

15. CHAPTER NINETEEN CASE QUESTIONS
Do you think UPS’s entrance into the laptop repair business was a good business decision? Why or why not?
Explain why Toshiba decided to outsource its computer repair business to UPS
What are some advantages UPS can offer Toshiba in the outsourcing arrangement?
Explain the advantages of forming an outsourcing relationship with a parcel delivery company such as UPS
1. Do you think UPS’s entrance into the laptop repair business was a good business decision? Why or why not?
Yes. UPS is now entering many businesses where it is taking over the logistics of the company including Papa John’s pizza and Nike. Outsourcing logistics to UPS is a highly successful business and has provided UPS with a new revenue stream.
2. Explain why Toshiba decided to outsource its computer repair business to UPS
Since the primary challenge of computer repair is more logistical than technical, Toshiba’s business decision seems brilliant. Outsourcing its computer repair business to UPS was cheaper and more efficient than Toshiba could perform the same tasks itself. The company is receiving excellent service and has reduced fix times from weeks to days making customers happy.
3. What are some advantages UPS can offer Toshiba in the outsourcing arrangement?
UPS can offer Toshiba other logistic services such as managing inventory, ordering, and custom processes. It can also provide advantages in transportation and freight, logistics, international trade, and consulting services
4. Explain the advantages of forming an outsourcing relationship with a parcel delivery company such as UPS
UPS is an expert in logistics and the supply chain. Partnering with a company like UPS that has facilities, equipment, and employees located around the globe can be a huge advantage for a company. For a detailed overview of the benefits of partnering with UPS review the UPS Supply Chain solutions Web site at .