What is Outsourcing?

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 https://www.youtube.com/watch?v=dLjKPpXU0CQ

When IT Outsourcing is Most AppropriateBusiness Strategy IT Sourcing Model Comments

Defender Full IT outsourcing islikely to be preferred

Outsourcing of IT helpsdefenders to attain COSTEfficiency

Prospector IT Insourcing ispreferred

IT function is kept in-house to keep firms flexible

Analyser Selective IT outsourcing For 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: http://www.eu.ntt.com/en/about-us/our-global-strengths/extensive-service-line-up.html

Strategic Outsourcing

ICT = Enterprise Resources

Maximise Value for MoneyHigh Value for Least Costs

Offers Cost AdvantageOffers Value Advantage

Shares RisksMitigate 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 CompetenciesStrategic 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 CompetenciesLike operating functions and services

Why Outsource – Theory 2 Transaction Cost Economies

Transaction CostsOf ICT service deliveryProduction 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. Resources2. Capabilities

strong weak

Why Outsource – Theory 5 Agency Theory

PrincipleClient

AgentsVendor

Both parties must act in the interest of each otherCommon goals

Risk sharing agreementTransparent operations & management

How – outsourcing modelsTaxonomy 1

IT Function Outsourced

Vendors’ Software Application

Services

Vendors’ ICTInfrastructure

Services

BOTHOn clients’

Operating clients’

How – outsourcing modelsTaxonomy 2

In-houseIn-source

At least 80% to be

deemed in house

Inhouse becomes

OutsourcerQUASI

OUTsourceAt least 80%

to be deemed

outsourced

How – outsourcing modelsTaxonomy 3

Selective outsourcingBecause enterprise

ICT is complex

Multiple outsourcing

TOTAL outsourcing

PARTNERSHIP MODELS

How – outsourcing modelsTaxonomy 3

Local Rural Locations

Offshore Locations

Social responsibility Image

How – outsourcing modelsTaxonomy 4

Retro Sourcing

Some Outsourcing

Arrangements

1

2.1

2.2

Example Fujitsu ICT Infrastructure Services

Source: http://www.fujitsu.com/id/services/ict/

Example - Outsourcing Implementation Plan

Source: http://rome-sourcing.com/english/

Managing Outsourcing

Controlling the Vendors – 3.54 mhttp://www.youtube.com/watch?v=MJo_nsDQZNQ

Issues & Trends – 5.26 http://www.youtube.com/watch?v=dZlcbGNC_3g

Tips for Outsourcing Software & IT – 7.16 mhttps://www.youtube.com/watch?v=MEtBVTXHv3E