Is Outsourcing Fools Gold MGS 3040 05 Marni

Is Outsourcing Fool’s Gold? MGS 3040 -05 Marni Mc. Sween-Farmer Marco Luzuriaga Annmarie Yoos Opposing Forces Guide pages 446 -447 Ross Ryan 1

What is Outsourcing? Organizations contracts with an outsourcing vendor to provide services. These services may be jobs that might otherwise have been completed by the organization’s employees. An organization may outsource work to vendors within the same country or overseas. Opposing Forces Guide pages 446 -447 2

Advantages of Outsourcing for the Organization �Cost Savings – no need to spend money and time on recruiting, interviewing and training, especially for short-term projects �Ability to have expertise from experienced workers without paying high salaries and benefits �Vendor is in charge of making sure organization receives top quality services �Vendors are contracted to provide services and have increased liability Opposing Forces Guide pages 446 -447 3

More Advantages of Outsourcing for the Organization �The onus is on the vendor to meet the organization’s deadlines �The outsource vendor may have access to expensive technology that the organization is unable to afford. �The time gained from outsourcing can be utilized on other more time-consuming projects. �Organization has more flexibility. Opposing Forces Guide pages 446 -447 4

Disadvantages for the Organization �High risk – holes in security can damage organization’s entire network �Exposure of customer information can lead to identity theft and fraud �Final bills for work may be higher than expected �Organization may have a higher tax liability �Loss of control over quality and procedures �Conflicts between the organization and vendor can lead to delays and loss of production �Satyam Scandal Opposing Forces Guide pages 446 -447 5

2009 Satyam Scandal �Read about it here: �http: //www. businessweek. com/globalbiz/content/jan 2009/gb 2009017_807784. htm �Satyam, an Indian outsource vendor, engaged in accounting fraud. �Chairman Ramalinga Raju falsified profits. �The company provided services to Nestle, General Motors, General Electric, and Bank of America. �Scandal lead to some mistrust of Indian outsource vendors, however there are higher standards for corporate accountability than in other countries Opposing Forces Guide pages 446 -447 6

Advantages of Outsourcing for the Outsource Vendor �Outsource vendors in other countries are able to employ people who have specialized skills but will work for longer hours at a low wage �Outsource vendors can hire workers on a contract basis which eliminates the obligation to pay benefits like health care, vacation pay and sick pay Opposing Forces Guide pages 446 -447 7

Disadvantages of Outsourcing for the Outsource Vendor �If the Organization wants a long-term contract and full ownership, there are up-front capital expenditures involved. �An Outsource Vendor may not see a profit from their agreement for several years. �There is also the possibility of the Organization merging or being acquired by another company. This might void the initial contract and the Outsource Vendor may suffer an economic loss. Opposing Forces Guide pages 446 -447 8

Manager Motivation Some managers who work for outsource vendors may only care about pleasing their employer. They may overestimate hours required to complete a job to gain profits for themselves and the outsource vendor. Other managers care about pleasing both parties. Working to the best of their ability can lead to future placements and wage increases. Opposing Forces Guide pages 446 -447 9

Economies of Scale for Outsource Vendors �Outsource Vendors may operate in a developing country with lower wage rates, costs of living, and overhead expenses which keeps their costs low. �Outsource Vendors have the ability to offer specialized services which helps to keep their capital expenditure low. Opposing Forces Guide pages 446 -447 10

Should Managing IS Infrastructure be Outsourced? �Yes, if there are costs vs. savings benefits, companies should outsource the following services: �Helpdesk Services, Network Management, Server Management, Storage Services, Desktop Services & Application Services �Other services like Disaster Recovery & Hardware Repair should be kept in-house Opposing Forces Guide pages 446 -447 11

Is Outsourcing IS Infrastructure the best option? �Outsourcing can work for both parties. �There should be a fully disclosed contract outlining the infrastructure plan, ownership control, monitoring, network security and trouble shooting. �Contracts should be on a short term basis, a maximum of 2 years. This will motivate vendors to give their best work. Organizations also have the opportunity to change vendors if the agreement doesn’t meet their needs. Opposing Forces Guide pages 446 -447 12

Best Option…Continued �Organizations should use different vendors and not put all their services with one vendor. �This reduces their exposure to risk �Using specialized outsource vendors helps to reduce their capital expenditure and allows other vendors to enter the market. This competition will also help to keep vendor prices low and increase savings to the Organization. �Organization can also keep their costs low, without having to raise consumer prices. Opposing Forces Guide pages 446 -447 13