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

When IT Outsourcing is Most Appropriate Business StrategyIT Sourcing ModelComments DefenderFull IT outsourcing is likely to be preferred Outsourcing of IT helps defenders to attain COST Efficiency ProspectorIT Insourcing is preferred IT function is kept in- house to keep firms flexible AnalyserSelective IT outsourcingFor 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:

Strategic Outsourcing ICT = Enterprise Resources Maximise Value for Money High Value for Least Costs Offers Cost Advantage Offers Value Advantage Shares Risks Mitigate 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 Competencies Strategic 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 Competencies Like operating functions and services

Why Outsource – Theory 2 Transaction Cost Economies Transaction Costs Of ICT service delivery Production 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.Resources 2.Capabilities strong weak

Why Outsource – Theory 5 Agency Theory Principle Client Agents Vendor Both parties must act in the interest of each other Common goals Risk sharing agreement Transparent operations & management

How – outsourcing models Taxonomy 1 IT Function Outsourced Vendors’ Software Application Services Vendors’ ICT Infrastructure Services BOTH On clients’ Operating clients’

How – outsourcing models Taxonomy 2 In-house In-source At least 80% to be deemed in house Inhouse becomes Outsourcer QUASI OUTsource At least 80% to be deemed outsourced

How – outsourcing models Taxonomy 3 Selective outsourcing Because enterprise ICT is complex Multiple outsourcing TOTAL outsourcing

How – outsourcing models Taxonomy 3 Local Rural Locations Offshore Locations Social responsibility Image

How – outsourcing models Taxonomy 4 Retro Sourcing Some Outsourcing Arrangements

Example Fujitsu ICT Infrastructure Services Source:

Example - Outsourcing Implementation Plan Source:

Managing Outsourcing Controlling the Vendors – 3.54 m Issues & Trends – Tips for Outsourcing Software & IT – 7.16 m