ISDS 351 Chapter 4 Notes
ISDS 351 Chapter 4 Notes ISDS 351
Cal State Fullerton
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This 4 page Bundle was uploaded by Melinda Chou on Thursday September 15, 2016. The Bundle belongs to ISDS 351 at California State University - Fullerton taught by Malini in Fall 2016. Since its upload, it has received 12 views. For similar materials see ISDS in Business at California State University - Fullerton.
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Date Created: 09/15/16
CHAPTER 4: Business Process and IT Outsourcing WHY MANAGERS MUST UNDERSTAND OUTSOURCING Outsourcing is used as a strategy to achieve lower costs, improve organizational focus, and upgrade capability Unfortunately, outsourcing projects often encounter challenges like quality problems, legal issues, negative impact on customer relationships, and data and security leaks Managers must be able to choose projects and activities that are appropriate for outsourcing and avoid those that are not WHAT ARE OUTSOURCING AND OFFSHORE OUTSOURCING? Outsourcing: an arrangement in which one company contracts with another organization to provide services that could be provided by company employees Offshore Outsourcing: When the people doing the work are located in another country o The responsibility for control of the outsourced business function or process is shared between the firm contracting for services and the outsourcing service provider Outsourcing can cover large and small projects alike Many organizations contract with service providers to handle complete business processes such as o Accounting, Finance, Customer Services, Human Resources, and Resource Development in business process outsourcing (BPO) o Also outsource selective components of business processes such as benefits management, claim processing, customer call center services, and payroll processing, IT component Outsourcing can involve the sale of hardware, software, facilities, and equipment o The outsourcing provider then uses these assets to deliver services back to the client. o Sale may result in significant cash payment from service provider to the customer o Employees that work in-house are transferred as employees of the service provider Global Service Provider (GPS): An outsourcing firm that can provide services like business contacts, capabilities, experience, intellectual property, global infrastructure, or geographic presence o Fills a higher need than outsourcing firms that simply provide lo-cost staff augmentation services o Core Business Process: Provides valuable customer benefits, is hard for competitors to imitate, and can be leveraged widely across many products and markets Direct impact on the organization’s customers, major cost drivers, essential for providing services WHY DO ORGANIZATIONS OUTSOURCE? To Cut Costs o Outsourcing service providers typically have a lower cost structure due to greater economies of scale, specialization, or expertise o Fundamental cost of doing business in a developing country are much lower than those in a developed country Employee health care, retirement, and unemployment, taxes and environmental and regulatory compliance o Organizations that do not outsource probably have greater recruiting, training, research, development, marketing, and deployment expenses Problem of employing offshore outsourcing is language barriers To Improve Focus o Ineffective to divert the time and energy of key company resources to do routine work that doesn’t require unique skills or intimate knowledge of the firm o Outsourcing frees up resources and management effort that can be redirected to more strategic issues within the company o Ex. Agencyport – outsourced activities to continue to focus building its core products To Upgrade Capabilities and Services o The outsourcing provider might be highly efficient, with world-class capabilities and access new technology, methods, and expertise that would be cost effective for its clients to acquire and maintain o Many organizations outsource their logistics operations to third-party logistics providers to manage complex global supply chains Accelerate Time to Marker o In high competitive global marketplace, a delay in the introduction of a new product or service can negatively impact customer satisfaction, brand image, and cash flow o Outsourcing can accelerate and smooth out the start-up ISSUES ASSOCIATED WITH OUTSOURCING Employee Morale o Controversial because the end result is that some people lose their jobs while others gain jobs, often at lower wages Ex. IBM offshore outsourced so many jobs that it now employs more workers in India o Managers must consider the trade-offs between using outsourcing firms and devoting time and money to retain and develop their own staff o Companies that begin outsourcing often result in lay off portions of their own staff, affecting the morale of the remaining employees becoming bitter and nonproductive Quality Problems o Outsourcing complications lead to severe quality challenges Legal Issues o Outsourcing arrangements are documented in a formal contract The contract describes how responsibilities are divided between the client and the outsourcing firm Like what service levels must be met and how problems between the two firms will be resolved Multiyear and multimillion-dollar deals that require approval by a board of directors o Ending outsourcing agreements prematurely can generate expensive legal fees Usually has a termination clause that defines the conditions under exit of either party Reasons for termination – Termination for convenience, Termination for failure to meet service and performance levels, Termination for material breach of contract, Termination for financial crisis Termination for Convenience: Gives a party the right to unilaterally terminate the contract at any time with or without giving a reason Other party generally entitled to a negotiated settlement for a an equitable recovery of costs and losses incurred Material Breach of Contract: A failure to perform that strikes so deeply at the heart of the contract that it renders the agreement irreparably broken and defeats the purpose of making the contract in the first place If this occurs, the other party can end the agreement an go to court to try to collect damages caused by the breach Negative Impact on Customer Relationships and Satisfaction o Reduce the amount of direct communication between a company and its customers Ex. Dell stopped routing U.S. technical support calls for computers to a call center in India. This led to customers complaining about language difficulties and delays in support personnel Data Security an Integrity issues o Concern over maintaining data security and integrity to safeguard against data security lapses Special issues Associated with Offshore Outsourcing o Issues on how to control and manage the work being performed when your outsourcing partner may not speak your language and is guided by different cultural values and industry standards o Issues with time zones and difficulty of meeting face to face o Jurisdiction Which country will have jurisdiction over disputes and which country’s substantive law will apply to disputes o Data Privacy Customer data that is submitted to the service provider is to be kept strictly confidential o Diminishing Cost Advantages Salaries in developing countries are increasing rapidly and cost advantages to outsource to these countries is being reduced o Turnover High potential that key employees at the service provider for your account of project might leave the company or be transferred from your project to another project, causing delays o Intellectual Property Rights Must consider whether the country has laws that will protect your firm’s intellectual property and determine if the laws are actually enforced o Important Technology Issues Outsourcing firm must be able to provide a high level of system availability and network uptime and guarantee all processing applications operate efficiently and reliability IT OUTSOURCING Public Cloud Computing: A service provider organization owns and manages the infrastructure (computing, networking, and storage devices) with cloud user organizations (tenants) accessing slices of shared hardware resources via the Internet o Amazon, Cisco Systems, IBM, Microsoft, Rackspace, Verizon Communications o Faster, cheaper, and more agile approach to building and managing your own IT infrastructure o Data security is a key concern when using public cloud computing z
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