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Title: Outsourcing and Offshoring IT Category: International Business Description: APA Format, 15+ Sources, 10 Pages, This research project discusses the topic of outsourcing information and technology or IT applications and functions to overseas locations. See Chinadollpublishing.com for all of your prewritten paper needs. For custom writing visit www.china-doll.org Keywords: essays, term papers, theses, thesis, dissertations, dissertation, literature review, custom writing, prewritten papers, pre-written, pre-written papers, school paper, business paper, academic paper, academic writing, free papers, book review, papers online, article review, annotated bibliography, case study, case studies, research paper, research papers, research writing, essay writing, article writing, mba coursework, outsourcing, offshoring, globalization, information and technology, outsourcing IT,
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Executive Summary This research documents the concepts of outsourcing, offshoring, and insourcing as they relate to the IT industry and IT dependent industries. Most corporations have considered, if not already undertaken, outsourcing or off-shoring solutions vis-àvis back office functions and automated HR tasks. Many more have outsourced core IT activities such as research and development as well as content development. Future trends indicate that
outsourcing and off-shoring will increase although organizations are reconsidering outsourcing business critical functions and thus, insourcing those back into the organization. The
conclusions are that outsourcing and off-shoring are vital to achieve organizational efficiency but that great care must be taken in determining which business IT functions to shift
outside the company. The recommendation is that a value chain analysis be undertaken to determine which IT functions are key revenue drivers and those must stay in-house.
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Table of Contents I. Introduction Overview Hypothesis II. Globalization Outsourcing/Off-shoring Insourcing III. Case Studies Southwest Dell IV. Future Trends V. Conclusions & Recommendations Conclusions Recommendations References 4 4 5 5 5 6 7 7 8 9 11 11 11 12
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Outsourcing IT Related Activities I. Introduction Overview To be considered globally integrated and, in fact, to adopt globalization as an operational paradigm, one of the greatest necessities is infrastructure; both technological and physical. Many countries, in a drive to join the global economy and take advantage of the benefits globalization offers, are in a mad rush to develop, for as researchers have noted, technology networks have been one of the most heavily invested in areas of commerce over the last twenty years and this investment is increasing rather than decreasing (Brynjolfsson & Urban, 2001, pp.14-21). Countries and companies know that to join the world’s economy they must first have the technology channels in place to handle the communication and transaction workload of international commerce, and must then have the physical infrastructure in place to handle transportation and logistics of goods and services through a supply chain channel. Such extensive global investment in technology has allowed companies to actually move back office functions as well as core business functions to remote locations with minimal impact on operational integrity.
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Hypothesis Outsourcing and insourcing of IT related activities within the business sphere has become commonplace, especially in the field of human resources (HR) (Khanna & Randolph, 2005, paras.27). This research poses the question of whether outsourcing IT related and IT dependent business functions is sustainable in the mid to long-term and whether companies will ultimately resort to insourcing solutions in order to remain competitive. II. Outsourcing/Off-shoring The global economic infrastructure relying as it does on integrated electronic communication networks has created the technological infrastructure channels required to allow companies shift almost any business function to remote locations. Outsourcing is shifting a business or organization’s IT related activities or other business functions to a 3rd party which may or may not be overseas but usually is while offshoring is moving an entire business function overseas and outside of the company, typically to a contract manufacturer (Luftman, 2003, p.39). Areas such as network management, engineering, as well as digital animation and modelling are all the types of functions that are moving overseas. However, outsourcing and off-shoring are also affecting entire industries Globalization
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that rely on IT solutions and platforms but in themselves are not necessarily core IT activities. Among some of the most prominent IT dependent industries that have shifted overseas through either outsourcing or off-shoring are (Hunter & Saunders, 2004): Customer service departments and companies Finance and finance related companies In terms of back office functions, India and to a lesser degree, China, have been catering to increased amounts of remote HR department functions, payment services, administrative tasks, and content development (Hunter & Saunders, 2004, p.88). This degree of IT migration is enabled not only by the IT infrastructure channels that have been built up over time but also to these particular markets’ initiatives at developing internal work forces that are technically trained, competent, and bilingual. Insourcing Insourcing or the trend to reincorporate previously outsourced IT business functions back into a company is also on the rise. Although outsourcing and off-shoring show no signs of ending, companies have begun to realize that outsourcing simply for outsourcing’s sake is not cost effective; especially in an industry that is just now recovering in full following the dot.com crash in the United States (High, 2004). Research has
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shown that many IT companies that previously outsourced core business functions suffered drops in vendor satisfaction metrics and while outsourcing was shown to save as much as 50% on the cost of IT human capital, in many instances this barely offset the increased costs related to quality issues and lost revenue from customer complaints (Brynjolfsson & Urban, 2001). Where an IT related activity might not be considered a core business competency, such as customer service, it might represent a primary business driver which, in the final analysis, is the same thing. Businesses have recognized that business tasks that have become essentially automated and do not represent strategic business functions are all targets for off-shoring or outsourcing. This realization has become a veritable movement
where many companies see only their help desk functions and raw data entry tasks being outsourced. Additionally, companies have taken to insourcing IT related tasks as a way of protecting their intellectual property (IP) and core business competencies (Teece, 2002). Companies and industries move work overseas, either through outsourcing or off-shoring, almost completely to achieve cost savings. Estimates place the rate of cost savings for the average IT related company to be between 25 and 40% of costs which are a substantial savings (Economics, 2004). With
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companies that have revenues in the millions of dollars this represents a massive increase in operating and profit margins. III. Case Studies—Success & Failure Southwest—HR & IT Southwest has outsourced its HR training and development programs to an application solutions provider to deliver its training and development programs: “Southwest is leveraging the Pathlore Learning Management System to bring learning to its employees...LMS has grown to “a substantial physical and manpower infrastructure to help us manage...all the learning events from the departments...”(Southwest, 2005). The Pathlore
Learning Management System (LMS) was a serendipitous choice for Southwest because it could be implemented across the company (scalable) as it expanded and also easily facilitated online learning strategies. Southwest seemed to anticipate certain
needs in human resource practice, relevant to training and development that often require outside assistance in establishing and maintaining cutting edge IT solutions: “...outsourcing can increase an organization's access to expertise...Because of rapid changes in technology and legislation...HR departments lack the internal resources and expertise to keep abreast of...changes in the external environment”(Gainey, 2002, para.4). By outsourcing its training
and development channels to a 3rd party IT solutions provider,
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Southwest was able to quickly build a competent and responsive training program that, by all industry accounts, is one of the best in the nation. Dell & its Call Centres Dell Computers has been one of the most visible computer companies locating its customer service call centres to overseas locations. It currently has call centres in India and the Philippines as well as the United States and shows no overall inclination to end this strategy because the cost savings is enormous. However, one of Dell’s most lucrative divisions is its corporate account division and its corporate accounts were complaining vociferously that the foreign call centres were underperforming (Edwards, 2004). Call centres are, outside of the human component on the phone, almost completely IT related solutions. Call centre technology involves active integration of enterprise resource applications (ERPs), tracking and solutions software, as well as telephony solutions integrated into the overall IT platform (Mikdashi, 2001). Dell Computers reduced the amount of foreign customer service call centres that it was outsourcing to due to a spike in customer, mostly corporate, complaints. While Dell still employs overseas call centres its recall of most of its corporate customer service functions is a cautionary tale for the corporate world because poor customer
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service metrics related to IT driven customer service platforms can shrink revenues dramatically. IV. Future Trends
Future trends in outsourcing, off-shoring, and insourcing will reflect the growing attention paid to IP and core business competencies. Business process outsourcing that relies on automated IT solutions will continue to be grow in outplacement while some business transformation IT activities, such as customized business solutions and optimized IT platforms will be insourced or simply kept in-house (Hormozi, Hostetler & Middleton, 2003). Another is that outsourcing that will grow relative to IT applications is application management outsourcing where duplicate applications are brought under the management of single applications and platforms through the use of a 3rd party provider (Taylor, 2002). These trends will increasingly crystallize into core business strategies. V. Conclusions Outsourcing, off-shoring, and insourcing are all still in their formative stages with foreign markets fighting for market share and developing their core skills in terms of workforce and IT infrastructure. Major international companies have learned that outsourcing strategies are not cost-effective across the Conclusions & Recommendations
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board if core business strategies are essentially sold off and foreign companies allowed to acquire the skills to come back and compete on the market gratis of that original company’s outsourcing its IT solutions. This realization has led corporations to repatriate core IT solutions in order to optimize and improve their operating profile while still outsourcing automated tasks such as data entry and simple help desk architectures (Lissack, 2002, pp.63-68). In fact, repatriating or insourcing key business functions is a core strategy in its own right. Recommendations All business organizations considering an outsourcing or off-shoring solution must first undertake an internal valuechain analysis. A value chain analysis identifies a company’s key revenue generators and these business functions, no matter how automated or mundane, should never be outsourced or offshored (Bounfour, 2003, p.112). However, everything else is fair game so to speak and should be considered for outsourcing or off-shoring because of the significant competitive edge that can be gained in doing so.
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References Bounfour, A. (2003). The Management of Intangibles: The
Organisation's Most Valuable Assets. London: Routledge. Brynjolfsson, E. & Urban, G. L. (Eds.). (2001). Strategies for E-Business Success. San Francisco: Jossey-Bass. The Economics of Outsourcing. (2004, March 12). The Washington Times, p. A22. Edwards, L. (2004). Overseas call centers can cost firms goodwill. Marketing News, 38/7, p.21. Gainey, T. (2002). Outsourcing the Training Function: Results from the Field. Human Resource Planning 25.1,p.16+. High-Tech Rebound. (2004, October 27). The Washington Times, p. A16. Hormozi, A., Hostetler, E., & Middleton, C. (2003). Outsourcing Information Technology: Assessing Your Options. SAM Advanced Management Journal, 68(4), 18+. Hunter, I., & Saunders, J. (2004). The Future of HR and the Need for Change: Thorogood. Khanna, S., & Randolph, J. (2005). An HR Planning Model for Outsourcing. Human Resource Planning, 28(4), 37+. Lissack, M. R. (Ed.). (2002). The Interaction of Complexity and Management. Westport, CT: Quorum Books. Luftman, J. N. (Ed.). (2003). Competing in the Information Age: Ian Hunter and Jane Saunders. London:
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Align in the Sand (2nd ed.). New York: Oxford University Press. Mikdashi, Z. (Ed.). (2001). Financial Intermediation in the 21st Century. New York: Palgrave. Southwest annual report. (2005). Southwest Corporate Website (online). Retrieved October 4, 2006 from: http:// www.southwest.com Taylor, T. (2005). In Defense of Outsourcing. The Cato Journal, 25(2), 367+. Teece, D. J. (2002). Managing Intellectual Capital: Organizational, Strategic, and Policy Dimensions. Oxford, England: Oxford University Press.