As a student, you were invited by the Dean of the Institute of Computing to attend a seminar-workshop on information systems planning with some of the faculty members. In one of the sessions, a discussion of outsourcing came up. You have been asked to present your evaluation about outsourcing the information systems functions of the school.

Required:

You are to take a position- outsource or in-source and justify your position. (3000words)

Before I start on my explanations and discussions, I would define first the meaning of outsourcing and in-sourcing.

-------------------------------------------------------------------------------------

In-sourcing vs. Outsourcing

What is Outsourcing?

Outsourcing is subcontracting a service such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering cost or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources. Outsourcing became part of the business lexicon during the 1980s. It is essentially a division of labour. Outsourcing in the information technology field has two meanings.[2] One is to commission the development of an application to another organization, usually a company that specializes in the development of this type of application. The other is to hire the services of another company to manage all or parts of the services that otherwise would be rendered by an IT unit of the organization. The latter concept might not include development of new applications.

Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider. The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract. Business segments typically outsourced include information technology, human resources, facilities, real estate management, and accounting. Many companies also outsource customer support and call center functions like telemarketing, CAD drafting, customer service, market research, manufacturing, designing, web development, print-to-mail, content writing, ghostwriting and engineering. Offshoring is the type of outsourcing in which the buyer organization belongs to another country.

Reasons for outsourcing

Cost savings.
The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.

Cost restructuring.
Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
Improve quality.
Achieve a step change in quality through contracting out the service with a new service level agreement.

Knowledge.
Access to intellectual property and wider experience and knowledge.
Contract.
Services will be provided to a legally binding contract with financial penalties and legal redress.
Operational expertise.
Access to operational best practice that would be too difficult or time consuming to develop in-house.
Access to talent.
Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.
Capacity management.
An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
Catalyst for change.
An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.
Enhance capacity for innovation.
Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.
Reduce time to market.
The acceleration of the development or production of a product through the additional capability brought by the supplier.
Commodification.
The trend of standardizing business processes, IT Services and application services enabling businesses to intelligently buy at the right price.
Risk management.
An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.
Venture Capital.
Some countries match government funds venture capital with private venture capital for startups that start businesses in their country.
Tax Benefit.
Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.

Activites for Outsourcing

Research and Development
The competitive pressures on firms to bring out new products at an ever rapid pace to meet market needs are increasing. As such, the pressures on the R&D department are increasing. In order to alleviate the pressure, firms have to either increase R&D budgets or find ways to utilize the resources in a more productive way. There are situations when a firm may consider outsourcing some of its R&D work to a contract research organizations or universities. Reasons why a firm could consider outsourcing are:
• new product design does not work
• project time and cost overruns
• loss of key staff
• competitive response
• problems of quality/yield.
The key drivers for R&D outsourcing are emerging mass markets and availability of expertise in the field. In this context, the two most populous countries in the world, China and India, provide huge pools from which to find talent. Both countries produce over 200,000 engineers and science graduates each year. Moreover both countries are low cost sourcing countries. Other strategic drivers for outsourcing R&D are access to expertise and intellectual property, filling gaps in the capabilities of the R&D function, managing risk better, reducing the time to market, and focusing on the core competence or activities of the firm.
Manufacturing
Often companies will develope and market products but leave the manufacturing to other compaines that specialize in it. Thus a factory can do manufacturing for several companies and keep a large manufacturing plant operating at nearly full capacity when no individual contract could justify the expense of maintaining the infrastructure. An example of this would be Fabless semiconductor companies which do design etc but do not have their own, extremely expensive, fabrication facilities. Other examples would be companies that specialize in the tasks of procurting parts, assembly, QA, etc. and market this skills as their primary business to compaines that outsource manufacturing to them.


The Advantages of Outsourcing

* Outsourcing your non-core activities will give you more time to concentrate on your core business processes
* Offshoring can give you access to professional, expert and high-quality services
* With outsourcing your organization can experience increased efficiency and productivity in non-core business processes
* Outsourcing can help you streamline your business operations
* Offshore outsourcing can help you save on time, effort, manpower, operating costs and training costs amongst others
* Outsourcing can make your organization more flexible to change
* You can experience an increased control of your business with outsourcing
* Your organization can save on investing in the latest technology, software and infrastructure as your outsourcing partner would be investing in these
* Outsourcing can give you assurance that your business processes are being carried out efficiently, proficiently and within a fast turnaround time
* Offshoring can help your organization save on capital expenditures
* By outsourcing, your company can save on management problems as your offshore partner will be managing the team who does your work
* By outsourcing, you can cater to the new and challenging demands of your customers
* Outsourcing can help your organization to free up its cash flow
* Sharing your business risks is possible with outsourcing
* Outsourcing can give your business a competitive advantage as you will be able to increase productivity in all the areas of your business
* Outsourcing can help your organization to cut is operational costs to more than half

Criticism of outsourcing

Quality Risks
Quality Risk is the propensity for a product or service to be defective, due to operations-related issues. Quality risk in outsourcing is driven by a list of factors. One such factor is opportunism by suppliers due to misaligned incentives between buyer and supplier, information asymmetry, high asset specificity, or high supplier switching costs. Other factors contributing to quality risk in outsourcing are poor buyer-supplier communication, lack of supplier capabilities/resources/capacity, or buyer-supplier contract enforceability. Two main concepts must be considered when considering observability as it related to quality risks in outsourcing: the concepts of testability and criticality.
Quality fade is the deliberate and secretive reduction in the quality of labor in order to widen profit margins. The downward changes in human capital are subtle but progressive, and usually unnoticeable by the out source/customer. The initial interview meets requirements, however, with subsequent support, more and more of the support team is replaced with novice or less experienced workers

Quality of service
Quality of service is measured through a service level agreement (SLA) in the outsourcing contract. In poorly defined contracts there is no measure of quality or SLA defined. Even when an SLA exists it may not be to the same level as previously enjoyed. This may be due to the process of implementing proper objective measurement and reporting which is being done for the first time. It may also be lower quality through design to match the lower price.
There are a number of stakeholders who are affected and there is no single view of quality. The CEO may view the lower quality acceptable to meet the business needs at the right price. The retained management team may view quality as slipping compared to what they previously achieved. The end consumer of the service may also receive a change in service that is within agreed SLAs but is still perceived as inadequate. The supplier may view quality in purely meeting the defined SLAs regardless of perception or ability to do better.
Quality in terms of end-user-experience is best measured through customer satisfaction questionnaires which are professionally designed to capture an unbiased view of quality. Surveys can be one of research. This allows quality to be tracked over time and also for corrective action to be identified and taken.

Language skills
In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is exacerbated when outsourcing is combined with off-shoring to regions where the first language and culture are different. The questionable quality is particularly evident when call centers that service the public are outsourced and offshored. The public generally find linguistic features such as accents; word use and phraseology different which may make call center agents difficult to understand. The visual clues that are present in face-to-face encounters are missing from the call center interactions and this also may lead to misunderstandings and difficulties.[23] In addition to language and accent differences, a lack of local social and geographic knowledge is often present, leading to misunderstandings or mis-communications.[citation needed]
Public opinion
There is a strong public opinion regarding outsourcing (especially when combined with offshoring) that outsourcing damages a local labor market. Outsourcing is the transfer of the delivery of services which affects both jobs and individuals. It is difficult to dispute that outsourcing has a detrimental effect on individuals who face job disruption and employment insecurity; however, its supporters believe that outsourcing should bring down prices, providing greater economic benefit to all. There are legal protections in the European Union regulations called the Transfer of Undertakings (Protection of Employment).
Security
Before outsourcing an organization is responsible for the actions of all their staff and liable for their actions. When these same people are transferred to an outsourcer they may not change desk but their legal status has changed. They no-longer are directly employed or responsible to the organization. This causes legal, security and compliance issues that need to be addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and requires a specialist third party adviser.
Social responsibility
Outsourcing sends jobs to the lower-income areas where work is being outsourced to, which provides jobs in these areas and has a net equalizing effect on the overall distribution of wealth. Some argue that the outsourcing of jobs (particularly off-shore) exploits the lower paid workers. A contrary view is that more people are employed and benefit from paid work. Despite this argument, domestic workers displaced by such equalization are proportionately unable to outsource their own costs of housing, food and transportation.
Company knowledge
Outsourcing could lead to communication problems with transferred employees. For example, before transfer staff have access to broadcast company e-mail informing them of new products, procedures etc. Once in the outsourcing organization the same access may not be available. Also to reduce costs, some outsource employees may not have access to e-mail, but any information which is new is delivered in team meetings.
Qualifications of outsourcers
The outsourcer may replace staff with less qualified people or with people with different non-equivalent qualifications.[28]
In the engineering discipline there has been a debate about the number of engineers being produced by the major economies of the United States, India and China. The argument centers around the definition of an engineering graduate and also disputed numbers. The closest comparable numbers of annual graduates of four-year degrees are United States (137,437) India (112,000) and China (351,537).


What is Insourcing?

Insourcing is the opposite of outsourcing; that is insourcing (or contracting in) is often defined as the delegation of operations or jobs from production within a business to an internal (but 'stand-alone') entity that specializes in that operation. Insourcing is a business decision that is often made to maintain control of critical production or competencies. An alternate use of the term implies transferring jobs to within the country where the term is used, either by hiring local subcontractors or building a facility.
Organizations involved in production usually opt for insourcing in order to cut down the cost of labor and taxes amongst others. The trend towards insourcing has increased since the year 2006. Organizations who have been dissatisfied with outsourcing have moved towards insourcing. Some organizations feel that they can have better customer support and better control over the work outsourced by insourcing their work rather than outsourcing it. According to recent studies, there is more wok insourced than outsourced in the U.S and U.K. These countries are currently the largest outsourcers in the world. The U.S and U.K outsource and insource work equally.

When outsourcing first burst on to the scene a few years back, there was a stampede of companies hungry to cut costs and streamline their business processes. Outsourcing was seen as the cure-all for business ills - what could be nicer than outsourcing a problematic process to a supplier at an apparently lower cost?
In this haste to outsource, and given the focus on short term cost-cutting, many companies paid too little attention to the medium term or what would happen should the relationship not work out.
Problems occur with outsourcing for various reasons, from client dissatisfaction to loss of control and know-how, so it stands to reason that insourcing is a pattern that will inevitably develop. It's an attractive solution - at the heart of which is regaining control. Insourcing could remedy a failing service, when transitioning to a new supplier would be too costly or difficult.
However, insourcing is inescapably a difficult and costly process, particularly if an organisation hasn't properly provided for this eventuality at the outsourcing stage. If a company insources a problematic process that the supplier can't handle, they must ensure they will have the capability, systems and know how in place to better the supplier's service once it's back in-house.
So, in deciding to insource, what are the legal precautions to manage the insourcing process that organisations should take?
Leveraging the existing agreement:
Organisations have to conduct very thorough needs analysis in order for the transition to be as seamless as possible. Like the mantra for outsourcing, don't insource your 'mess for less', certainly not before you've considered re-engineering the relationship with the supplier instead.

Personnel provisions:
This tends to get overlooked in the outsourcing agreement. The transfer of staff expertise and knowledge of the operation is crucial to successful insourcing. Staff transfer back in-house will need planning and meaningful incentives to be effective, including providing for the transfer of necessary intellectual property rights the staff have produced or gained.

Flexibility:
Companies embarking upon outsourcing need to approach it from a realistic perspective - it isn't necessarily going to last forever - so from a legal perspective, organisations need to build flexibility into the contract to allow them to insource should they have to.

Insourcing complex processes: Insourcing complex processes high in the value-chain - such as value-add services and service management - will need careful analysis as to whether the organisation has the in-house capability to provide these services. A gradual, planned handing-back is crucial to ensure an organisation can manage the insource whilst safeguarding quality.

Third party analysis:
Getting objective third-party advice on service levels and total cost of ownership can help to assess that the service is meeting its objectives, not just from the organisation's viewpoint but also that of its clients.

Measurement:
Benchmarking and key performance indicators (KPIs) are an integral part of helping organizations decide whether they should stay with their supplier, change supplier or in-source.

Advantages:
• High degree of control.
• Ability to oversee the entire process.
• Economies of scale and/or scopepe.


Disadvantages
• Reduces strategic flexibility.
• Requires high investment.
• Potential suppliers may offer superior products and services.

____..:**#**:..____

Both in-sourcing and outsourcing has own advantages and disadvantages. I think almost of the company and organizations are using outsourcing because aside from low investment risk, it is good regarding commodification. But, in our adopted company, Lapanday Foods Corporation, they are In-source and I agreed on that kind of set-up. According to the MIS manager we interviewed, they just bought the software system (SAP ERP) and their programmers designed and develop the system. I am in In-source because it can avoid in showing some confidential information about the company and aside from that, their will be a lot of job opportunities be obtainable.

____..:**#**:..____

http://whatis.techtarget.com/definition/0,,sid9_gci1185946,00.html


http://en.wikipedia.org/wiki/Outsourcing
http://en.wikipedia.org/wiki/Insourcing
http://services.silicon.com/itoutsourcing/0,3800004871,39156077,00.htm