MGT300, Chapter 15: Outsourcing in the 21st Century


  • In sourcing (in-house-development) – A common approach using the professional expertise within an organization to develop and maintain the organization’s information technology systems
  • Outsourcing – An arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

  • Onshore outsourcing – engaging another company within the same country for services
  • Near shore outsourcing – contracting an outsourcing arrangement with a company in a nearby country
  • Offshore outsourcing – using organizations from developing countries to write code and develop systems

Big selling point for offshore outsourcing “inexpensive good work”

Factors driving outsourcing growth include;

  • Core competencies
  • Financial savings
  • Rapid growth
  • Industry changes
  • The Internet
  • Globalization

-According to Pricewater house Coopers “Businesses that outsource are growing faster, larger and more profitable than those that do not”
-Most organizations outsource their non core business functions, such as payroll and IT


Outsourcing benefits include:-

  • Increased quality and efficiency
  • Reduced operating expenses
  • Outsourcing non-core processes
  • Reduced exposure to risk
  • Economies of scale, expertise and best practices
  • Access to advanced technologies
  • Increased flexibility
  • Avoid costly outlay of capital funds
  • Reduced headcount and associated overhead expense
  • Reduced time to market for products or services


Outsourcing challenges include:-

  • Contract length

1.       Difficulties in getting out of a contract
2.       Problems in foreseeing future needs
3.       Problems in reforming an internal IT department after the contract is finished

  • Competitive edge 
  • Confidentiality
  • Scope definition