Unit VII Case Study: Outsourcing
Instructions for Unit VII Case Study: Outsourcing
- Define what is meant by outsourcing.
- Explain how Peter Drucker’s statement (covered in the textbook) about how one company’s back room is another company’s front room pertains to outsourcing. Use an example.
- Summarize the management advantages, cost reduction, and risk reduction of outsourcing.
- Summarize the outsourcing risks concerning control, long-term costs, and exit strategy.
- Discuss which company you would outsource to and why. Does distance matter?
Outsourcing occurs when you hire another
company or organization to perform a service. The
textbook uses a good example of how outsourcing
can be used to help an organization perform a
service. In this example, Google, known as an
organization, that provides search and mobile
application services did not have the resources to
provide cafeteria services to its employees. In
order to provide this service to its employees, the company hired an outside vendor that specialized in food
services to manage and maintain the employee cafeteria at Google. This way, Google can use its resources
for its main function, providing search and mobile services (Kroenke & Boyle, 2020).
The same concept applies to many organizations that do not specialize in information systems. Instead of
obtaining and maintaining IS resources, organizations can outsource IS activities so that they can concentrate
on their essential function or front-room activities.
Outsourcing provides several advantages such as obtaining expertise in an area in which the company lacks.
In the textbook example, management for the Augmented Reality Exercise System (ARES) understood that
they needed to build an application for this system but recognized that they did not have the staff or the
expertise to do this. To solve the staff and management problem, they outsourced this activity (Kroenke &
Outsourcing can also help reduce costs. In the Google example from the textbook, by outsourcing the
cafeteria activities to another company, Google will not have to deal with the costs of training new cafeteria
employees or deal with the day-to-day costs of maintaining the cafeteria. All of these costs would generally be
covered under a fixed price cafeteria contract (Kroenke & Boyle, 2020).
There are types of outsourcing such as nearshore, offshore, and onshore (work-at-home) that can provide
solutions for organizations that do not have the resources to perform certain activities outside the realm of
their corporate function. Each of these will be discussed in the following paragraphs.
Nearshore outsourcing occurs when a company outsources to a nearby country such as from the United
States to Canada, Mexico or Puerto Rico (Figure 2).