Title: Global IT Outsourcing
1Global IT Outsourcing
2What is Global Outsourcing?
- Migration of white-collar IT jobs to overseas
technology firms - The average value of an IT outsourcing contract
is 47 million (Gartner Group, May 2003) - By 2005, spending is likely to top 260 billion
- Source ARIASYS
3Areas covered by IT outsourcing
- Information Processing services
- Highly structured and routine
- Little interaction required between outsourcer
and vendor - Includes payroll, claims and credit card
processing - 60 of all IT outsourcing spending worldwide
4Outsourcing Areas
- Contract programming
- Covers software development and maintenance
- Includes design, testing, porting, and conversion
- Wages in Philippines may be a fifth of those
offered to US programmers
5Other Outsourcing Areas
- Facilities Management
- Entire operation and support of system is placed
in the hands of a vendor - Covers hardware, software, networking, and
personnel - EDS is dominant in this area
6Other outsourcing areas
- Systems Integration
- Covers entire SDLC from design to implementation
- Sometimes referred to as turn-key projects
- Support operations
- Specialized services
- Includes maintenance, training, help desk
support, PC support
7Advantages of IT Outsourcing
- Cost Reduction
- Wages much lower outside the US
- Reduced need for IT people nice in tight IS
market - Predictability
- Cost overruns become responsibility of the vendor
- Vendor contractually required to meet deadlines
8Advantages of Outsourcing
- Improved focus of current IT staff
- With daily, mundane issues taken care of, IT
staff can focus on strategic issues - Access to cutting-edge technology
- Know-how not always available in-house
- E.g. SAP implementation at Perdue Farms by Price
Waterhouse Coopers
9Outsourcing Advantages
- Increased availability of outsourcing vendors
- No longer dominated by just a few consulting
companies - In 1996, IBM, EDS, and CSC represented 65 of the
outsourcing revenues - Now many small to mid-size IT firms with PC and
networking skills
10More Advantages
- Easy (relatively) method to create a global
network - Vendors may have branches in many countries
- Access to global pool of skilled IS personnel
- Access to foreign markets
- A means of bypassing local protectionist policies
11Some Disadvantages
- Coordination of activities
- Potential loss of confidential company
information - Vendors with access to system may offer systems
specs to competitors - Lack of control over software quality control
- Lack of control over project timetable
- Role of government in controlling transborder
data flows (TDFs)
12Disadvantages
- Perceived threat to outsourcers own IT
department - Perceived irreversibility of outsourcing decision
- Outsourcers potential loss-of-touch with
technology
13So, when do you outsource?
High
Strategic value of IT In organization
Low
High
Low
Organizations IS capabilities
14So, when do you outsource?
High
Insource
Strategic value of IT In organization
Low
High
Low
Organizations IS capabilities
15So, when do you outsource?
High
Insource
Strategic value of IT In organization
Outsource
Low
High
Low
Organizations IS capabilities
16So, when do you outsource?
High
Strategic partnership
Insource
Strategic value of IT In organization
Outsource
Low
High
Low
Organizations IS capabilities
17So, when do you outsource?
High
Strategic partnership
Insource
Strategic value of IT In organization
Establish spin-off to offer function in
marketplace
Outsource
Low
High
Low
Organizations IS capabilities
18When choosing a vendor
- Check their track record
- Determine human and technology resources at
vendors disposal - Determine viability of vendor
- Should not go bankrupt during the outsourcing
period
19Other issues to keep in mind
- Stability of host country
- Attitude of host country to FDI and
collaborations - Foreign currency restrictions
- Mostly in case of a spin-off can the revenues be
repatriated? - Size of IS professionals pool
- Telecommunications infrastructure
- Time zone differences
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