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Chapter 4

Chapter 4 - Business Process and IT Outsourcing.docx

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Information Technology Management
ITM 505
Bharat Shah

Chapter 4Business Process and IT OutsourcingOutsourcing is an arrangement in which one company contracts with other organization to provide services that could provide by company employeesoWhen the people doing the work are located in another country the arrangement is called offshore outsourcingoThe responsibility for control of the outsourced business function or process is shared between the company and the outsourcing provideroThe employees which were performing the work internally are transferred and become employees of the service provideroIn some cases the entire IT operation of the companyincluding planning business analysis and the installation management and servicing of the network and workstations is outsourced to a single firmBusiness Process Outsourcing BPO many organizations have contract with service providers to handle complete business processes such as accountingfinance customer service HR RD payroll call centre processes Outsourcing can involve the sale of hardware software facilities and equipment used in current operations to the outsourcing service provider oThey uses the assets to impart service back to the clientoThe sale may result in a significant cash payment from the service provider to the customer or vice versaA more advanced stage of outsourcing involves evaluating all aspects of an organizations business activities to take advantage of an outsourcers best practises business contracts capabilities experiences intellectual property global infrastructure or geographic presence by tapping resources and providing capabilities anywhere around the globeoThe firms that provide these services are known as global service providers GSPA core business process is one that provides valuable customer benefits is hard for competitors to imitate and can be leveraged widely across many products and marketsoIt typically has a direct impact on the organizations customers are major cost drivers or are essential for providing servicesExample a core business process for Honda is the design for enginesWhy Do Organizations OutsourceTo Cut or Stabilize CostsOutsourcing service providers typically have a lower cost structure due to greater economy of scale specialization or expertise when mean they can perform the work at a much lower cost than their clientsoThe fundamental costs of doing business in a developing country are much lower than those in a developed country
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