Marni McSween-Farmer Marco Luzuriaga Ross RyanAnnmarie Yoos

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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.

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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

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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.

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Disadvantages for the OrganizationHigh risk – holes in security can damage

organization’s entire networkExposure of customer information can lead to

identity theft and fraudFinal bills for work may be higher than expectedOrganization may have a higher tax liabilityLoss of control over quality and proceduresConflicts between the organization and vendor

can lead to delays and loss of productionSatyam Scandal

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2009 Satyam ScandalRead about it here:http://www.businessweek.com/globalbiz/conten

t/jan2009/gb2009017_807784.htmSatyam, 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

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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

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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.

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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.

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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.

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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

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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.

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Best Option…ContinuedOrganizations should use different vendors

and not put all their services with one vendor.This reduces their exposure to riskUsing 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.

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