MIT SCHOOL OF BUSINESS

ASSIGNMENT ON BUSINESS INFORMATION SYSTEM

OUTSOURCING
By: Apurva Kher 2/15/2011

PART I

Outsourcing- What is Outsourcing

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers. The process of outsourcing generally encompasses four stages: 1) Strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) Evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) Contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) Outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers. Outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change. Wipro outsourcing: Wipro Technologies, the global IT services business of Wipro Limited and Citibank N.A. have signed an agreement for Wipro to take over the operation and management of Citis data center in Meerbusch Germany, a suburb of Dusseldorf. Wipro has taken the data center from Citi and intends to use the site to support other outsourcing clients. Citi will lease back office and data center space from Wipro for at least 30 months and Wipro will provide Citi with facilities management and physical infrastructure management services during the period. Dell Outsourcing: Dell Inc. which is worlds second largest maker of personal computers has outsourced its computer support operations to India and had set up major call center operations in cities like Bangalore and Chennai. It will outsource more to companies in India, China and Taiwan to cut costs and accelerate
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the introduction of new models. Dell widened its range of computers to boost sales to consumers, reducing the companys dependence on business clients after it lost the market-leading position to Hewlett Packard Co. They will be giving more focus in regional areas of North America, Europe and Asia, to meet the customer requirements so giving more orders to Asian manufacturers will help Dell to remain cost effective. Hon Hai Precision Industry Co., the worlds largest maker of electronics makes desktop computers for Dell. Microsoft Outsourcing: India's Infosys Technologies has bagged a three-year IT outsourcing deal with technology giant Microsoft that covers 104 countries. Infosys will manage Microsoft's global internal IT services including helpdesk, desk-side services, IT infrastructure and applications support. The value of the deal was worth more than 100 million dollars. Infosys will run Microsoft's in-house services for applications, devices and databases in 450 locations. It has partnered with Unisys to provide global desk-side support and service desk services. Microsoft has been on a cost-cutting drive due to dwindling sales in several major divisions. The software giant is expected to have completed plans to lay off 5000 workers, to save 1.5 billion US dollars annually. Accenture Outsourcing: Accenture has been awarded a 6-year outsourcing contract to provide application management services to Germany-based Henkels North American operations. It will provide management services to Henkel that are expected to reduce costs and streamline its activities. In 2009, it won a 7-year outsourcing contract from Scandinavian Airlines for providing financial management services.

PART II  Benefits Associated with Outsourcing IT Services

1. Cost Savings: Cost efficiency is the main purpose of outsourcing IT services. It helps in releasing capital for investment and also reduces additional costs and expenditures. The released capital can be used elsewhere in the organization. It can also help in pumping more capital into revenue producing activities. 2. Strategic Flexibility: Outsourcing of IT services fills the gap for resources and skills. All these resources cannot be developed in the existing firm. Outsourcing restructures the services and increases the flexibility in services. Companies get flexibility in choosing their partners to outsource services. An organization can flexibly handle their human resource through outsourcing. 3. Greater focus on Core Competencies: Outsourcing helps companies to focus on core business rather investing more in developing IT services. It helps in building better customer relations by providing their customers the best services in lower cost. 4. Better Control: Outsourcing helps companies in defining the objective, what is expected out of them by the customers. On outsourcing services the company can control its cost efficiency. It can help prevent the relations with employees and partners in the company by managing the service levels to all its customers. 5. Improved Quality of Services: Outsourcing of IT services helps companies to focus on its core business so that it can provide better quality services to its customers. A better control on the services helps in providing quality services to customers. Better management of human and other resources can improve the quality of services provided by the company

y Risks Associated with Outsourcing IT Services

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1. Finding and attracting people of the right quality: There is always a risk associated in outsourcing the task as it is done by somebody else in others supervision. It is very important in attracting right kind of people to outsource the services. Outsourcing actually supports choice, as it can level the technology playing field for smaller players. Choosing the right partner is important while outsourcing or else it can lead to failure of the company. 2. Deteriorating quality of services: Outsourcing the services to the right people is important any error can deteriorate the quality of services. As the job is done in others supervision to maintain the stated quality level is difficult. There is a risk involved in quality of services from outsourcing companies. 3. Cultural differences between home and host countries: While outsourcing the cultural differences has to be taken care of. When the services are outsourced in different countries special care has to be taken of their culture for success in the project. It is a big risk and can lead to failure by neglecting the cultural factor. 4. Loss of productivity: Outsourcing business to other company has the risks of low productivity. In times of critical systems failure there is potential loss of productivity involved. It can also happen when the worker leave idle and can cause loss of revenue to the company. 5. Loss of personal touch: As the services are outsourced to other companies there is no personal touch of in-house company IT specialists. Outsourcing deliver results efficiently and quickly but company can never provide personal touch in outsourcing IT services. Because of these risks many managers reject the plans of outsourcing even with so many other benefits associates to it.

Analysis
A company outsources jobs to another company which is non-core function of the company. Companies reshape and restructure their IT functions. Outsourcing these functions helps the firms to access cheaper labor force. In India it is a trend of outsourcing IT services these days. We have BPOs, KPOs working at a fast pace. There are many foreign companies outsourcing IT services in India. We find Fortune 500 companies like Microsoft, Oracle, Citibank, Morgan Stanley, Wal-Mart, AT&T, General Electric, Reebok, General Motors, Sony, Boeing, Coca-cola, Pepsi, Swissair, United Airlines, Philips, IBM, Lucas and British Aerospace beneficiaries. All these companies outsource its IT services to India According to me, India has many factors attracting outsourcing of IT services. y Outsourcing to India gives many cost benefits and economical benefits. The personal costs are very less in India than any other developed countries. y The standards set in India for every product is acceptable world-wide. The ISO standards and many others like SEI-CMM standards give guarantee to the companies to outsource in India. y India has communication facility all over the world which reduces the connection hurdles with another companies y y y Advanced technologies are available in India which attracts firms to outsource in India. India is growing at a fast pace with a positive growth in Indias economy The government policies are supporting the growth of IT in India. Government supports software firms and provides all the facilities required to them. This is the reason behind flourishing of software industries in India. According to me, now the companies have to built their unique strength and capabilities and create a different perspective of Indian IT service outsourcing from the past. IT firms has to accept the challenges and overcome them in order to minimize their failure.

Conclusion Outsourcing of IT services and development of software is growing rapidly. After considering the benefits and risks outsourcing there are many areas of expertise where outsourcing is possible. Outsourcing of IT services becomes cost effective and but also risks the organizations in the hands of other companies. There lies an infinite opportunity in India.