IT OutsourcingBy: Ian McCulley, Andy Vu, Kyle WilsonDr. René F. Reitsma2/19/2006Page 1 of 22Table of ContentsTitle Page numberAbstract 1Introduction 2Results of research 5Outsourcing: A Definition 5Types of Geographical Outsourcing 5Business Process Outsourcing 6Pros and Cons 6Minimizing Risk 7The Major & Key Players 7-11Leader of the Pack 9Birth & Growing Popularity 10What Jobs Can Be Outsourced? 11Why So Big? 12Table 1: New jobs in the US 13Why Companies Outsource 14Trends in Outsourcing 14The Process for Outsourcing 15The Future of Outsourcing 17Conclusion 17References 19Page 2 of 22AbstractWhat started small in the 1980s as a cost effective business technique, has slowly grown in popularity and now has exploded across the world. With few business models and core competencies revolving around TQM or six sigma, corporations and companies are quickly adapting a new technique, IT outsourcing. Not restricted just to outsourcing overseas, many outsourcing is done right here in the country or to neighboring nations. However, there are billions of dollars being transferred offshore in order to finance this growing trend in today’s companies. Page 3 of 22IntroductionWithin this report, we will explain and define the terminology used in IT outsourcing along with the methods organizations use to minimize risks when outsourcing their technology and work. Though there are many benefits to outsourcing a company’s work force, there is an equal amount of reason why not to outsource. It is difficult to find a developed country today that is not somehow involved with IT outsourcing. Some economies even thrive and promote their countries in order to attract foreign companies to come and do business within their own nation. The main players who are most well known for this will also be mentioned and discussed, along with why organizations are seeking out these countries and the reason for the growing popularity and its effects. In order to outsource, organizations must come up with simple and effective processes and reasons why to. The benefits of doing so must outweigh the risks and costs, so which sectors of the economy are doing so will also be discussed. As time moves forward along with business models and methods, certain trends will be developedand can be observed. Therefore, we will run over what can be expected from US organizations, regarding outsourcing, in the short future. Page 4 of 22Results of ResearchOutsourcing: a definition According to searchcio.com the term outsourcing is defined as “an arrangement in which one company provides services for another company that could also be or usually have been provided in-house.” There are several types of geographical outsourcing: onshore, nearshore, and offshore. Types of Geographical Outsourcing Onshore outsourcing, which may also be called domestic outsourcing, is “the obtaining of services from outside a company but within the same country.” An example of this could be a car manufacturing company building its cars in Kentucky, but getting its pre-made engine assemblies from a company in Detroit. Nearshore outsourcing is “thepractice of getting work done or services performed in neighboring countries.” This would be a company in the United States getting work done or services performed in either Canada or Mexico. Offshore outsourcing is “the exporting of work from the home country to other countries.” An example of this is a computer company in the United States outsourcing IT-related work to another country such as India or China. The main difference between offshore and nearshore outsourcing is that offshore outsourcing is a term generally used when the outsourcing is done in a faraway country. Page 5 of 22Business Process OutsourcingSome companies that are being contracted to perform an outsourced service are allowed more decision making freedom than others. Business process outsourcing (BPO) is defined as “the long-term contracting out of non-core business processes to an outside provider to help achieve increased shareholder value.” This means that a company that is providing an outsourced service has the liberty to change parts of the original business model in efforts to increase the shareholders value. Pros and ConsWeighing the pros and cons of each type of outsourcing is an important job withina company. Onshore outsourcing poses the least security risks and provides ease of travel and communication. The company also does not have to account for cultural differences such as language or customs. However, the price of onshore may be higher and the talent pool is much smaller. Nearshore outsourcing is very similar to onshore outsourcing. Travel isn’t expensive, and the companies are very likely to share the same language. However, there is a bigger security risk and a loss of domestic jobs for the country outsourcing the work. Offshore outsourcing provides lower labor costs or tax savings, a large talent poolto choose from, and the ability to be more price competitive because of cost savings. Page 6 of 22However, language barriers and cultural differences, can pose problems. Home-grown IT talent might dry up, and there is a bigger security risk. Minimizing Risk There are several ways to reduce the risk of outsourcing, including the use of ISO 9000 and the SEI-CMM model. ISO 9000 is an international standard of quality assurance written by members of a worldwide delegation (The International Organizationfor Standards). The SEI-CMM model is the Software Engineering Institute’s Capability Maturity Model. The model includes five maturity levels in which “each level facilitates a layer in the foundation for continuous process improvement.” (offshorexperts.com) Offshorexperts.com also says “Achieving each level of the model institutionalizes a different component in the software process, resulting in an overall increase in the process capability of the organization. These two organizations provide a way to minimize risk and to help create standards in the IT outsourcing venture.The Major & Key PlayersAs organizations are catching on to the growing trend of IT outsourcing and realizing the true potentials, many jobs are being shipped overseas. There are many reasons for this including the cheaper labor force, experience in certain industries, little orno regulations to interfere with the businesses progress and many other factors. Most of the eastern hemisphere is a
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