Is Outsourcing Strategic

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Is Outsourcing Strategic?

• July 8, 2005

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Question

• Is outsourcing a strategic advantage, and why?
• It can be, but it depends on the organization and
  goals
• Outsourcing itself is a tool, and an option not a
  complete solution
• Offshoring as an outgrowth of outsourcing can
  promise lower cost, but is often not delivered

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Outsourcing Drivers

• General managers concerns about costs and quality
• Breakdown in IT performance
• Intense vendor pressures
• Simplified general management agenda
• Financial factors
• Corporate culture
• Eliminating an internal irritant

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When do the benefits outweigh the risks?

• Position on the strategic grid (see following)
• Development Portfolio
• The higher of staff working on maintenance or
  high-structured projects, the greater it is a
  candidate for outsourcing
• Organizational Learning
• What stage are you in? If BPR efforts are
  underway, may not be a good candidate
• The more experienced the firm is at
  re-engineering, the better candidate they are

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When benefits outweigh risks

• Firms position in the market
• The further a company is from the network era in
  its internal use of IT, the more useful
  outsourcing can be to close the gap
• Outsourcer can provide expertise not available
  inside
• Current IT organization
• The more IT activities are already segregated
  into organizational and accounting terms, the
  easier it is to outsource
• Bottom Line
• It is unwise to outsource a problem
• You must know what you are outsourcing

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Sourcing Strategies
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Strategic Grid for Outsourcing
High

• Factory-uninterrupted service-oriented
• information resources management
• Outsourcing Presumption Yes,
• unless company is huge
• and well managed
• Reasons to consider outsourcing
• Higher -quality services and backup
• Management focus facilitated

• Strategic information resources
• management
• Outsourcing Presumption No.
• Reasons to consider outsourcing
• Rescue an out-of-control internal IT unit
• Tap source of cash
• Facilitate cost flexibility
• Facilitate management of divestiture

Current Dependence on Information

• Support -oriented information
• resources management
• Outsourcing Presumption Yes.
• Reasons to consider outsourcing
• Access to consider IT professionalism
• Access to current IT technologies
• Risk of inappropriate IT architecture
• reduced

• Turnaround information resources
• management
• Outsourcing Presumption No.
• Reasons to consider outsourcing
• Internal IT unit not capable in required
• technologies
• Internal IT unit not capable in required
• project management skill

Low
Importance of Sustained, Innovative Information
Resources Development
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Case Study General Dynamics

• General Dynamics, headquartered in St. Louis,
  Missouri, was the second largest defense
  conglomerate in America. GD provided a variety of
  products to the US government. Examples include
  military aircraft, submarines, missiles and
  electronics systems, armored vehicles and space
  launch vehicles.
• During a conference on information systems
  outsourcing GD met Computer Sciences Corporation.
  CSC is headquartered in El Segundo, California
  and is a leader in information technology systems
  and the service industry. CSC had clients in both
  the private sector and the federal government.
• GD was looking for a solution in which they can
  be able to focus on their core competencies while
  CSC was looking for an opportunity to get into
  the commercial sector. GD was facing a big
  challenge since the demand for their products had
  decreased dramatically after the Cold war. They
  were downsizing and looking for a solution to be
  able to focus on the future and their core
  competencies, which were defense technologies.

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Case Study - Xerox

• Xerox was a global enterprise that developed,
  manufactured, marketed, and financed a complete
  range of document products and services to make
  office around the world more productive. In 1994,
  Xerox has outsourced Global information
  technology resources to Electronic Data Systems
  (EDS). A 10year 3.2 billion contract was the
  largest computer outsourcing deal in the history.
  Despite its historical size of the deal and its
  intention of integrating two companies, the
  outsourcing deal did not contribute the companys
  success.