This presentation outlines popular outsourcing models, outsourcing benefits and challenges and critical analysis. www.ifour-consultancy.com

1. iFour ConsultancyIT Outsourcing
Its’ advantages vs disadvantages

2. TERMINOLOGY IN OUTSOURCING
OUTSOURCING
 Outsourcing can be defined as turning over all or part of an organizational activity
to an outside vendor.
OR
 IT outsourcing describes a process whereas an organization decides to contract-
out or sell the firm’s IT assets, people and/or activities to a third party vendor, who
in exchange provides and manages these assets and services for an agreed fee
and over an agreed time period.
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3. TERMINOLOGY IN OUTSOURCING
CLIENT
 The buyer (client, customer) is a firm that desires the technology. This
firm is sometimes called the sourcing firm.
VENDOR
 The seller (vendor, supplier) is a firm that has the technology. This firm
is sometimes called the source firm or the outsourcer.
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4. Theories of Outsourcing
Theory of Core Competencies
 Organizations focus only on internalizing those components critical to the
product or service in which the organization has distinctive competency, and
outsourcing components that are peripheral to the organization. Outsourcing
is then used to reap cost savings from suppliers with clear comparative
advantages. Such savings can then be redeployed towards competence
more central to the core skills and abilities of the organization.
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5. Theories of Outsourcing contd.
Resource-based Theory
 Outsourcing is a strategic decision which can be used to fill gaps in the
firm’s resources and capabilities. Strategic resources are valuable, rare,
non-substitutable, inimitable and manageable. All organizations find
themselves dependent on some elements in their external environment.
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6. Theories of Outsourcing contd.
Transaction Cost Theory
 Organizing an organization’s economic activities is to balance production
cost advantages with costs involved in negotiations and market exchange.
Transaction costs refer to effort, time, and costs incurred in searching,
creating, negotiating, monitoring, and enforcing a service contract between
buyers and suppliers.
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7. BENEFITS
 Lower costs
 Improved productivity
 Improved technology and services
 Higher quality
 Higher customer satisfaction
 Time to market
 Ability to focus on core areas
 Downsizing and rightsizing
 Access to knowledge
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8. IT Outsourcing Risks
 Unexpected transition and management costs
 Switching costs (including lock-in, and repatriation and transfer to another
supplier)
 Disputes and litigation
 Service debasement
 Loss of organizational competencies
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9. IT Outsourcing Risks
 Cost of delayed delivery/non-delivery
 Poor quality and reliability
 Damages due to security breach
 Loss due to vendor’s opportunism, including loss in future revenue
 Vendor lock-in
 Lack of trust
 Business uncertainties
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10. Challenges
 Vendor selection
 Vendor management
 What to outsource
 Commitment
 Cultural barriers
 Set up governance
 Contract design
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11. Best practices
 Empowerment/escalation
 Strategic issues review
 Peer relationships
 Informal communications
 Establish a special entity
 Prioritize action items
 Steering committees
 Stakeholder buy-in
 Corporate communications
 Additional managers
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12. Thank You