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438 Chapter 11 Information Systems Management
Q3 What Are the Advantages and Disadvantages

of Outsourcing?

Outsourcing is the process of hiring another organization to perform a service. Outsourcing is
done to save costs, to gain expertise, and to free management time.
The father of modern management, Peter Drucker, is reputed to have said, “Your back room
is someone else’s front room.” For instance, in most companies, running the cafeteria is not an
essential function for business success; thus, the employee cafeteria is a “back room.” Google
wants to be the worldwide leader in search and mobile computing hardware and applications,
all supported by ever-increasing ad revenue. It does not want to be known for how well it runs
cafeterias. Using Drucker’s sentiment, Google is better off hiring another company, one that
specializes in food services, to run its cafeterias.
Because food service is some company’s “front room,” that company will be better able to
provide a quality product at a fair price. Outsourcing to a food vendor will also free Google’s
management from attention on the cafeteria. Food quality, chef scheduling, plastic fork acqui-
sition, waste disposal, and so on, will all be another company’s concern. Google can focus on
search, mobile computing, and advertising-revenue growth.

Outsourcing Information Systems

Many companies today have chosen to outsource portions of their information systems activi-
ties. Figure 11-4 lists popular reasons for doing so. Consider each major group of reasons.

Management Advantages

First, outsourcing can be an easy way to gain expertise. As you’ll learn in Chapter 12, PRIDE
Systems wants to build an Xbox prototype, but no one on their staff knows the particulars of
coding for that device. Outsourcing can be an easy and quick way to obtain that expertise.
Another reason for outsourcing is to avoid management problems. At PRIDE Systems,
building a large development and test team may be more than the company needs and require
management skills that neither James nor Jared have. Outsourcing the development function
saves them from needing this expertise.
Similarly, some companies choose to outsource to save management time and attention.
Lucas at AllRoad Parts has the skills to manage a new software development project, but he may
choose to not invest the time.

• Management advantages
– Obtain expertise.
– Avoid management problems.
– Free management time.
• Cost reduction
– Obtain part-time services.
– Gain economies of scale.

• Risk reduction
– Cap financial exposure.
Risk
Figure 11-4 – Improve quality. without Risk
with
Popular Reasons for Outsourcing – Reduce implementation risk. outsourcing outsourcing
IS Services