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Slide 1: Software Outsourcing Why, When, What www.softheme.com
Slide 2: Table of Contents     Preface Historical Background Why Do Firms Outsource? When to Outsource?  Factors that Support Outsourcing  The Risks of Outsourcing  What to Do and Not Do   Core Competencies and Critical Success Factors Outsourcing Trends and Future Projections www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 3: Preface Today’s business environmental, organizational, and technological factors require businesses to operate efficiently and effectively in order to be competitive. Toward those goals, managers employ many strategies to improve productivity, including standardization, automation, and business process reengineering. Additionally, they restructure the business organizations to be lean and flat so that they can become flexible in responding quickly to changes in environment and customers’ needs. Outsourcing is another valuable strategy managers use to achieve the above goals. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 4: Historical Background The predominant supply chain model for several decades was vertically integrated. Each member of a supply chain was considered to be part of the same industry. All the ancillary activities that support the supply chain directly or indirectly were included. Steadily, products became complex and the scale of operations increased and management of entire operations within one corporation became less feasible. This resulted in the increasingly popular use of outsourcing and has resulted in vertical disintegration of corporations and supply chains. As travel and communication became easier in the 1970s and 1980s, as trade restrictions increased, and as the gap in wages between developed and developing countries increased, outsourcing began to move off-shore. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 5: Historical Background In 2002, for instance, India had 90% of U.S. organizations’ information technology (IT) off-shore business. China looms as India’s biggest competitor, although some consider the two as noncomparable at this time. Other countries considered to be attractive as off-shore outsourcing sites include Malaysia, the Czech Republic, Singapore, the Philippines, Brazil, Canada, Chile, Poland, Hungary, Russia, and Vietnam. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 6: Historical Background In the age of the Internet and World Wide Web, a company’s location hardly matters. In the past, the educated and skilled labor from low-cost countries immigrated to the U.S. During the last decade, faster communications and improved information allow companies to easily send information oriented work to any location on the globe. Ultimately, countries with low-paid but well-educated workers will benefit greatly. However, the country of origin of the outsourcing also benefits. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 7: Why Do Firms Outsource? Companies outsource functions for reasons that are organizationally driven, improvement driven, financially driven, revenue driven, or cost driven. Outsourcing can be viewed as a component of corporate and industry international expansion and restructuring. Five horizons of the global industry value chain Market entry Product specialization Value chain disaggregation Value chain reengineering New market creation www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 8: Why Do Firms Outsource? Market entry Entering a country for purposes of market expansion Product specialization Specialization takes place in different locations. Each location may engage in final goods trade with each other Product specialization Value chain disaggregation Product components are manufactured in a certain location and assembled elsewhere Value chain reengineering Reengineering processes to capture additional advantages from production cost differentials New market creation New market segments are penetrated as a matter of capturing the full value of the company’s global activities. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 9: When to Outsource? Factors that Support Outsourcing Characteristics of today’s outsourcing environment are many and varied. The strategic change to outsourcing is highly evident in the software industry. Frequent changes to software especially often result in an organization turning to outsourcing as a solution. Reasons studied for this can be generalized to all outsourcing, and include:     The turbulent market will Product specialization to be customer need corporations focused There are pressures on corporations to continuously develop new product at reduced cost Extensive customization customization is enabled by IT through mass The market need can be fulfilled by flexible and adaptable organizational structure which is possible with IT-enabled processes www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 10: When to Outsource? Factors that Support Outsourcing Previously identified factors include Product specialization time compression, short product life cycles, strategic discontinuity, increase in knowledge intensity, and customer-focused approach. These changes are: www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 11: When to Outsource? Factors that Support Outsourcing 1 2 3 4 Customer focus Shrinkage in product/systems life cycle Product specialization Societal, political, and ethical factors Competition and real-time operations 5 6 7 8 www.softheme.com Changing workforce and job loss Technological innovations and obsolescence Organization structure and corporate culture Global economy Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 12: What to Outsource? The Risks of Outsourcing Despite the purported benefits of outsourcing and the wide range of success stories that have stimulated an unprecedented growth rate, there are potential risks as well. An outsourcing project might fail Product specialization because of poor selection of the vendor, mismanagement of the outsourcing contract, inferior performance by the vendor, lack of acceptance by the end consumer, or other reasons Lack of Acceptance by the End Consumer Inferior Performance by the Vendor Selection of the Vendor Mismanagement of the Outsourcing Contract www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 13: What to Do and Not Do? Core Competencies and Critical Success Factors Product specialization Decisions as to what and whether to outsource should be tied to an identification and understanding of an organization’s core competencies and its critical success factors. Such an identification and understanding can be a lengthy process. However, it is the one true way to determine whether a project should be or should not be outsourced. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 14: What to Do and Not Do? Core Competencies and Critical Success Factors If a task is a both a core competency and a critical success factor, it should not be Those tasks which are not core competencies considered for outsourcing. Such tasks are at are the most likely candidates for outsourcing. Product specialization the heart of the company. Tasks that are core competencies but not critical success factors should be reassessed. If an organization intends to bring an outsourced task back in-house a some future time, managers should be cautious. Once the expertise has been released to the outsourcer, it is difficult — if not impossible — to regain such expertise in-house. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 15: What to Do and Not Do? Outsourcing Trends and Future Projections       Outsourcing of information technology functions Outsourcing of pharmaceutical functions Outsourcing of customer care functions Product specialization Outsourcing finance and accounting (F&A) functions Outsourcing of human resource (HR) functions Outsourcing of research and development (R&D) functions www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 16: What to Do and Not Do? Outsourcing Trends and Future Projections Outsourcing of information technology functions is a huge marketplace. IT outsourcing Product a cost-reduction tool, but has evolved into began asspecialization a component of businesses’ overall corporate strategies. It has grown from simple applications to a much wider set of business functions: logistics, payroll, human resources, legal, and so forth. It has become pervasive and strategic. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 17: What to Do and Not Do? Outsourcing Trends and Future Projections “Back-sourcing” Product specialization Application service provider (ASP) industry Growth Areas in IT Outsourcing IT off-shoring Web-based and e-business outsourcing partnerships www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 18: What to Do and Not Do? Outsourcing Trends and Future Projections Outsourcing of pharmaceutical functions traditionally has taken the form of outsourcing drug development and manufacturing to contract research organizations (CROs) and contract manufacturing organizations (CMOs). Outsourcing of customer care functions by moving entire contact centers off-shore has become very popular. The functions performed by customer service centers are more important than their location. The discrepancy between labor, real estate and infrastructure costs on-shore vs. off-shore, makes this a logical function to outsource. Customer contact centers are a $650 billion industry (Cleveland, 2003). Product specialization www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 19: What to Do and Not Do? Outsourcing Trends and Future Projections Outsourcing of human resource (HR) functions, such as payroll, recruitment, hiring, training, benefits management, employee assistance programs, executive compensation, as well as health, safety, Product gaining momentum. and regulatory compliance, isspecialization Outsourcing finance and accounting (F&A) functions have been prevalent since the beginning of business. Now, there is a growing trend for F&A functions to be outsourced off-shore, primarily to save labor costs. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 20: What to Do and Not Do? Outsourcing Trends and Future Projections Outsourcing of research and development (R&D) functions takes various forms. Drug companies contract with outside firms to explore new compounds for possible testing and launching. A different form of R&D outsourcing is used by companies such as Dell, Motorola, and Philips which buy Product specialization complete design of digital devices from Asian developers, tweak them to their own specifications, and attach their own brand names. Another approach is that used by Boeing Co. which contracts with India’s HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. www.softheme.com Outsourcing to Softheme™ Software Outsourcing: Why, When, What
Slide 21: Thank you! Questions? → info@softheme.com 2010 | Softheme Team | Kyiv, Ukraine | Software Outsourcing Solutions www.softheme.com » Outsourcing to Softheme™