IT Outsourcing Advantages Labor Low Cost Definition/Overview Try & expenditures by 30% Competitive Advantage Trends Core competencies Gov’t outsourcing Global competition Lower overhead Future Globalization Current IT to be outsourced most Maintenance Lower Inventory cost/ Reduced Management time/ Improved Production flow etc. Disadvantages Economies of Scale Which leads to Competitors’ competition Suppliers become competitors Pay per month Data Storage Black Water Bugs in software Lose of control Poor quality Trade secrets Communication issues Vendors to many projects False advertisement

IT Outsourcing By: Nick Sanders Leila Hemenway

Overview Outsourcing – definition and overview Outsourcing – definition and overview Advantages to you and your business Advantages to you and your business Disadvantages - what to watch out for Disadvantages - what to watch out for Trends: Current/Future Trends: Current/Future Outsourcing Process Outsourcing Process Is it right for my company? Is it right for my company?

What is Outsourcing? Outsourcing - “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources”. Sometimes known also as “facilities management”, outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers, who become valued business partners. Outsourcing - “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources”. Sometimes known also as “facilities management”, outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers, who become valued business partners. Definition from: Supply Chain Management: An information digest for the SCM professional. “A Brief History of Outsourcing”.

History of Outsourcing Outsourcing dates back to Roman times Outsourcing dates back to Roman times Evident in U.S. after the Industrial Revolution Evident in U.S. after the Industrial Revolution Companies wished to exploit their competitive advantage Companies wished to exploit their competitive advantage 1950’s – 1960’s companies began diversifying 1950’s – 1960’s companies began diversifying Economies of scale Economies of scale

History of Outsourcing Cont’d Became a business strategy in 1989 Became a business strategy in 1989 Due to companies being non self-sufficient Due to companies being non self-sufficient Outsourced functions which they could not handle in-house Outsourced functions which they could not handle in-house Support services began in 1990 Support services began in 1990 Due to cost saving measures Due to cost saving measures In 1989 (Eastman) Kodak began outsourcing IT In 1989 (Eastman) Kodak began outsourcing IT

Advantages Low Cost Low Cost Labor Labor Lower overhead Lower overhead Reduce and control operating costs Reduce and control operating costs Share in risk with a partner company Share in risk with a partner company Competitive advantage Competitive advantage Economies of scale Economies of scale Focus on core competencies Focus on core competencies

Disadvantages Hidden Cost Hidden Cost Bugs in software Bugs in software Communication issues Communication issues Labor Labor Lose of control Lose of control Quality problems Quality problems Slow resolution time Slow resolution time

Trends: Current Global competition Global competition Pressure on margins Pressure on margins Political debate Political debate Invest in multiple locations Invest in multiple locations reduce risk and control quality reduce risk and control quality Mobile applications Mobile applications Improving effectiveness Improving effectiveness

Trends: Future Differentiation Differentiation Core competencies Core competencies Cost per month Cost per month Global sourcing of personnel Global sourcing of personnel Long term relationships Long term relationships Suppliers as competitors? Suppliers as competitors?

Outsourcing Process Program Initiation Program Initiation Identifying what you want and composing a draft contract Identifying what you want and composing a draft contract Service Implementation Service Implementation Defining the project, transferring staff, define Service Level Agreement, Define service reporting, Implementation of service, implement procedures Defining the project, transferring staff, define Service Level Agreement, Define service reporting, Implementation of service, implement procedures

Outsourcing Process Cont’d Final Agreement Final Agreement Draft amended and final contract produced Draft amended and final contract produced Program closure Program closure Formal close down of old program Formal close down of old program

Do I Outsource? No simple criteria No simple criteria Consider projects individual merits Consider projects individual merits Relationship management Relationship management Short term vs. long term Short term vs. long term Costs of training and fixing ‘bugs’ Costs of training and fixing ‘bugs’

Conclusion Advantages – Cost effective Advantages – Cost effective Disadvantages – Hidden costs Disadvantages – Hidden costs Current and future trends – More companies are outsourcing Current and future trends – More companies are outsourcing Process – Program initiation to closure Process – Program initiation to closure Decision making – what’s best for your company Decision making – what’s best for your company