April 25, 2010 [MODULE 8: OUTSOURCING] Page |1

MODULE 8: OUTSOURCING

Prepared by
Scott Lewis, Jessica Mead, and Branden Stamper

Prepared for
Terry Linkletter
Chief Executive Officer

April 25, 2010

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Table of Contents
Executive Summary: ................................................................................................................................ 3
Introduction ............................................................................................................................................ 4
Hire new employees or Outsource........................................................................................................... 4
Potential Solutions and Recommended Solutions ................................................................................ 5
Outsourcing Locally versus Overseas ....................................................................................................... 5
Potential Solutions and Recommended Solutions ................................................................................ 6
Where is IT going in the U.S.? Will we continue to outsource or do you think it will change ..................... 7
Potential Solutions .............................................................................................................................. 8
Recommended Solutions ..................................................................................................................... 8
Conclusion............................................................................................................................................... 8
References .............................................................................................................................................. 9

List of Illustrations/Figures
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Executive Summary:

This report covers three different topics that are all based around IT outsourcing. In each topic we posed
a question to our fellow IT 486 classmates and wrote a brief overview of that topic as well as gave a
suggested potential or multiple potential solutions and recommended one or multiple solutions. The
three topics were, Hiring New Employees or Outsource, Outsourcing Locally Versus Overseas, and
Where is IT going in the U.S?

The topic Hiring New Employees or Outsource comes to the conclusion that there is no clear cut way to
decide when to hire new employees or to outsource. All projects can be outsourced, the decision to can
be based on several different factors. We have suggested that you look at things like, the length of the
project, how much support will be necessary during and after the project is completed, is the project
part of the business core, whether it would benefit long term to hire employees for a short term project,
know if existing staff can take the project on, and consider going half and half, hire part new employees
here, and outsource a portion of the project.

The topic Outsourcing Locally Versus Overseas comes to the conclusion that there are four main factors
to consider when you make the decision to outsource within the U.S. versus outsourcing overseas.
Those factors are costs, culture, privacy/security, and image. We suggest that you break down your
project and consider each of the factors in order to make an informed and beneficial decision for the
company.

The last topic covered was, Where IT is going in the U.S. The conclusion for this topic was that
businesses currently and in the near future were going to continue to outsource. What this topic
suggested is that even though there is a shortage of jobs, and many are continuing to be outsourced,
that in time, the businesses that begin to thrive and grow will make more jobs available back here in the
U.S.

Overall this analytical report was to explore different aspects of outsourcing and when and how to make
decisions about outsourcing as well as how it effects our nation currently.
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MODULE 8: OUTSOURCING

Introduction

Outsourcing is used by 80% of the Information Technology Industry. Businesses have found that it cuts
costs and increases profits. But what does that mean for jobs here in the U.S? How do you make
decisions as a CIO to keep jobs available here in the U.S. or to cut costs considerably and outsource? The
following will go through and discuss some scenarios and suggest some considerations to be made as
the CIO when faced with outsourcing.

The three topics that are covered are hiring new employees or to outsource, outsourcing within the U.S.
or outside the nation, and a discussion on where the future of outsourcing IT is going. Each topic
includes a brief overview of the problem, and proposes a few potential solutions as well as a few
recommended solutions.

Hire new employees or Outsource

It is not always easy to know when it is the right time to outsource and when it is the right time to
hire new people. The viewpoints expressed by the IT 486 students bring to light several factors to take
into consideration when deciding on whether to hire new people or outsource the work.

It is easy for a company to use funds inefficiently if they do not plan their resources correctly. There
are factors to consider when managing these resources to get the most out of a project without
unnecessary waste. Is the project going to be short term or long term? It may be beneficial to hire
somebody on for long term projects. If a project is short term, then the company will have an extra head
that is not being used efficiently. Another thing to consider is whether or not your company has the
expertise on hand. If you do, you can leverage that expertise. If not, then this is a good opportunity to
outsource the work. When considering whether or not to outsource, ask yourself what your company
does. Theorem Inc.'s CEO, Jay Kulkarni, explains it well in this excerpt below:

“Identify what is core to your business and focus on it. The tasks that are peripheral and not
revenue generating, yet are still overwhelming your employees, are key candidates. For
instance, a creative shop spending a great deal of time testing action script for Flash is obviously
not using resources intelligently.” (Kulkarni, 2006)

Besides just considering the length of the project, you may also need to consider whether the project
will require support. Does it require enough additional support that it would be necessary to hire on a
new person after the project has been completed or will the necessary support only be needed through
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the length of the project? Not hiring on enough support staff to support the outcome of a project may
be detrimental to the long term success of that project. It is clear from the above that there are many
factors to consider when deciding whether or not to outsource.

Potential Solutions and Recommended Solutions

Like it was stated previously, it is not easy to know when to outsource or hire on new people.
There are many factors to consider. Below are some possible solutions and some recommended
solutions.

• All the work can be outsourced. This will depend on the length of the project,
how much support will be necessary during and after project has completed,
and whether or not the project is something that is core to the business or not.
• Hire on new workers for the project. This solution largely depends on the length
of the project. It wouldn’t make sense to hire on new full time employees for a
short term project.
• Leverage existing staff. If your company already has the expertise then it may be
beneficial to utilize the staff you already have on hand.
• Outsource some of the work, hire on new employees, and utilize existing staff.
This way, a company will be able to manage a project as efficiently as possible.

The possible solutions above can all be used to complete a project depending on the
circumstances and needs of that project. The recommended solution for most projects would be
the hybrid solution. For instance, if you have a short term project that will require support after
the completion date it may be smart to outsource much of the work while hiring on a couple of
full time workers who can stay to support it. With this solution, a company will be able get the
people resources they need for a project while retaining some of those resources for the long
haul, but only as much as is needed. It is efficient and will benefit the company by managing
resources and costs. So, while it is not always easy to know when to outsource the work or hire
on new workers, the proper solution can be achieved by knowing the needs of a project and
addressing those needs efficiently by acquiring those resources in the necessary manner.

Outsourcing Locally versus Overseas

When deciding between outsourcing in the local area versus overseas outsourcing there are several
considerations when making a decision on either case especially in the Information Technology
Organization. Looking at information and viewpoints expressed by the IT 486 students there are several
things that fall under this category of considerations.

With overseas outsourcing an IT organization has several benefits that can be gained. The primary
benefit for an organization is overall the cost/bottom line. Overseas outsourcing enjoys concepts such as
lower cost of living in other countries, and as a business/industry becomes larger it becomes more cost
efficient at producing goods/services, in other words economies of scale. “Wages for labor in countries
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like India and the Philippines, which have large workforces, can be 80 percent to 90 percent lower than
[those] of U.S. labor,” says Data monitor analyst Daniel Hong. Certain departments also benefit from the
local expertise of a highly educated workforce offered in certain locales around the world. The
negatives of overseas outsourcing are mainly the following, you have local customer reacting negatively
to the loss of local jobs, hurting the area’s economy. Additionally the cultural aspects and the workforce
you outsource too can have an impact.

“One concern we had about outsourcing overseas was the issue of culture, and control. We
were concerned that by outsourcing to places like China or Russia, that any developers we
worked with may either share our code with other projects they are working on or vice
versa.”(John Yocum,2009)

Outsourcing locally you have several of the following benefits and disadvantages. Your organization
does not need to worry as much with language compatibility, security and privacy constraints, negative
connotations of outsourcing overseas, and is at location that your organization understands culturally.
The main disadvantage being that overall costs are higher locally in most instances.

Potential Solutions and Recommended Solutions

With outsourcing throughout the information provided by the students it is very easy to see that
there exists no uniform way to approach outsourcing from either a local or global approach.
Instead there are several things that an organization has to decide.

• Costs, how much does an organization plan to save with overseas outsourcing?
• Culture, where we outsource as an organization does it have a culture that our
company can work with effectively? Is it a stable location?
• Privacy/Security, is our companies information and customers safe with this
outsourced company? This is both a local/overseas question.
• Image, How will outsourcing overseas affect our organizations image, what
should we outsource that won’t affect our image?

These are all questions that an organization need to ask themselves when they outsource, if a
company cannot risk the damage to its image via overseas outsourcing then it shouldn’t. If the
overseas outsourcing lowers costs, has a culture that will work for the company, if its customers
and its information safe with the outsourced company then overseas outsourcing may be the
correct choice and policy for certain departments, if not then locally may be the way to go.
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Where is IT going in the U.S.? Will we continue to outsource or do you

think it will change

The problem: Outsourcing is taking away jobs that the U.S. is currently in desperate need of. My
group and I posted an article that discussed the future of outsourcing and then posed the question,

“After reading this article, where do you feel that IT is going in the U.S.? Do you think that we will
continue to outsource or do you think it will change?”

This article was chosen so that we could give insight on what businesses have to say in response
to why they are outsourcing, as well as to give a jump point for classmates to think about whether we
will continue in the direction we’ve been going, or if we will start to bring the businesses back home.

The article, The Future of Outsourcing- How it’s transforming whole industries and changing the
way we work, in BusinessWeek.com, gives the opinion of what the future is to be of IT and its current
association with outsourcing IT. The primary point that the article is trying to make is that, “off shoring is
really about corporate growth, making better use of skilled U.S. staff, and even job creating in the U.S,
not just cheap wages abroad.” (The Future of Outsourcing, 2010)

The companies in the article are trying to point out is that when you can revive a business by
increasing outsourcing, you are able to increase sales, which leads to increasing profits, then leading to
expansion of business, thus allowing room for more employees. It’s a big cycle right now, as our nation
is crying out for the need for jobs, the jobs we have to give, are being shipped out, and at some point
are hoping to receive back eventually in return. As Daniel Marcovitz, technology managing director for
Deutshe Bank’s business, says, “The issue is that if you don’t do it [outsource], you won’t survive.” (The
Future of Outsourcing, 2010)

This article created a range of responses from our fellow classmates in the debate on whether
they agreed with the article or and whether they felt it was right, or what should change. I found that
the most responses indicated that outsourcing was always going to be profit driven – a hard concept to
argue given that business who outsource concur. A few other responses I found interesting were, as the
article had stated, in America, we are currently so focused on where our money has gone, and where
our jobs have been lost that we are looking for a scapegoat, and that is outsourcing for a moment. A fact
that the article brings up, and many classmates agreed upon was that most European countries engage
in outsourcing as well. We (American’s) suggest that if we want a healthy economy that we have to stop
outsourcing and bring all jobs back. This argument, however strongly felt, is lost on the facts of it all.
When you look at other nations that also outsource, we can see that they have healthy running
business, with the jobs that are available being those that you have received your degrees for.
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Potential Solutions
So can there be a solution to outsourcing, or is outsourcing the solution? It’s another
area to explore, but we will only be able to see the results as the years continue on and we watch as
businesses continue to export. As the article suggests and all students in the discussion agreed upon,
outsourcing is here to stay. Another site called rttsweb.com also states that after research done,
"According to a mid-2009 report by AMR Research Inc. on the state of IT outsourcing, roughly 80% of
enterprises plan to increase their amount of IT outsourcing or keep it the same." (Statistics Related to
Offshore Outsourcing , 2010) Outsourcing may in the future provide jobs back here in the U.S. if it goes
as planned, and increase business, or it may continue to provide jobs for other nations. The proposed
solutions to outsourcing are to bring back the jobs.

The problem with this proposed solution is that when you bring back the jobs from these other
countries, you will not be able to employ as many people as you can in another company, which
increases amount of work needed to be done, by one individual, instead of the three that will work for a
1/3 of the price that a U.S. employed worker works for.

Recommended Solutions
The recommended solution is to observe the next couple of years and look for the changes that
the companies say will happen. Look for the jobs that they say will start to open up as the business
begins to come back to life, or even starts to thrive.

This problem is a no real solution area. It is a test and result driven question that will take years
of watch and wait to be able to come up with a real solution to job loss, and whether it is attributed to
outsourcing, market crash, or etc. etc. For now businesses are going to continue to outsource. And
businesses may even increase outsourcing. All we can do is watch and wait, and hope that this increases
business for all around.

Conclusion
In conclusion, the topic of when to outsource or hire new employees has no easily
defined methodology of approach when deciding what is appropriate for your organization and
what’s appropriate for a country. We have come up with attributes for an organization. These
attributes are varied but in general can fall under a few categories Cost, Culture, Image, and
Security.

For the USA and its IT being outsourced, again we couldn’t come up with a clear
conclusion. And in decision have decided that observation at this point is preferred. The
economic incentives to outsource overseas are massive and it’s in this groups opinion that there
currently isn’t any appropriate way to bring those jobs back to the USA.
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References
• Bovée, Courtland, & Thill, John. (2009). Business communication today. 2009-07.
• http://www.supplychaindigital.com/industry-focus/outsource/outsourcing-hubs-china-
india-eastern-europe
• Engardio. (2010). Business Week. 2010-00.
http://www.businessweek.com/print/magazine/content/06_05/b3969401.htm?chan=gl
• Kulkarni, Jay. “When to Outsource.” iMedia Connection. June 22, 2006.
[http://www.imediaconnection.com/content/10107.asp]
• Hoffman, Robert. “When is it Time to Hire More Employees?” Inc., Oct 23, 2001.
[http://www.inc.com/articles/2001/10/23559.html]
• “Statistics Related to Offshore Outsourcing.”(2010). Rttsweb.com. March, 2010.
http://www.rttsweb.com/outsourcing/statistics/