INTRODUCTION
In business, outsourcing is the contracting out of a business process to another party. The
term "outsourcing" became popular in the United States near the turn of the 21st century.
Outsourcing sometimes involves transferring employees and assets from one firm to another,
but not alays. Outsourcing is also used to describe the practice of handing over control
of public services to for!profit corporations.
Outsourcing includes both foreign and domestic contracting, and sometimes includes off
shoring or relocating a business function to another country. "inancial savings from loer
international labor rates is a big motivation for outsourcing#off shoring.
To organi$ations may enter into a contractual agreement involving
an e%change of services and payments. Outsourcing is said to help firms to perform ell in
their core competencies and mitigate shortage of s&ill or e%pertise in the areas here they
ant to outsource.
In the early 21st century, businesses increasingly outsourced to suppliers outside their on
country, sometimes referred to as offshoring or offshore outsourcing. Several related terms
have emerged to refer to various aspects of the comple% relationship beteen
economic organi$ations or netor&s, such as nearshoring, crodsourcing, multisourcing and
strategic outsourcing.
Outsourcing can offer greater budget fle%ibility and control. Outsourcing lets organi$ations
pay for only the services they need, hen they need them. It also reduces the need to hire and
train speciali$ed staff, brings in fresh engineering e%pertise, and reduces capital and operating
e%penses.
One of the biggest changes in the early 21st century came from the groth of groups of
people using online technologies to use outsourcing as a ay to build a viable service
delivery business that can be run from virtually anyhere in the orld. The preferential
contract rates that can be obtained by temporarily employing e%perts in specific areas to
deliver elements of a pro'ect purely online means that there is a groing number of small
businesses that operate entirely online using offshore contractors to deliver the or& before
repac&aging it to deliver to the end user. One common area here this business model thrives
is in providing ebsite creation, analysis and mar&eting services. (ll elements can be done
remotely and delivered digitally, and service providers can leverage the scale and economy of
outsourcing to deliver high!value services at reduced end!customer prices.
DEFINITION OF 'OUTSOURCING'
( practice used by different companies to reduce costs by transferring portions of or& to
outside suppliers rather than completing it internally.
)Outsourcing is an effective cost!saving strategy hen used properly. It is sometimes more
affordable to purchase a good from companies ith comparative advantages than it is to
produce the good internally. (n e%ample of a manufacturing company outsourcing ould be
*ell buying some of its computer components from another manufacturer in order to save on
production costs. (lternatively, businesses may decide to outsource boo&!&eeping duties to
independent accounting firms, as it may be cheaper than retaining an in!house accountant+.
OBJECTIVES
,lear motives, ob'ectives, and e%pectations broadly define as ell as focus on hat matters
most to the customer organi$ation during the outsourcing evaluation and selection process,
providing the foundation on hich the re-uest for proposal ./"01 is structured. ,lear
ob'ectives help lead to a sound decision on hat to outsource and hat not to outsource, and
they provide the basis for selecting, negotiating ith, and managing suppliers.
The ob'ectives for outsourcing often are derived directly from the motives for outsourcing.
These motivations can be grouped into a fe summary categories2
? Organi$ational transformation !! using outsourcing to improve information systems
services and related business processes
? 3fficiency !! the desire to obtain information systems services at a loer cost
? 3ffectiveness !! the desire to obtain better service
? "le%ibility !! agility
? Shifting the burden of IS investment and delivery from the customer organi$ation to
an outside firm
Specifying outsourcing ob'ectives that are more specific than motives provides a basis for
developing selection criteria for the suppliers and a set of common goals that need to be
understood and agreed to by various sta&eholder groups. 4noing hat is needed guides the
re-uirements and conditions in the /"0 and provides a common understanding for the
persons ho rite the /"0, evaluate the proposals, and recommend the selected supplier.s1.
Ob'ectives also provide the basis for evaluating supplier proposals and guide the inevitable
tradeoffs that must be made.
3%amples of outsourcing ob'ectives include2
? "i% operational inefficiencies in the IT organi$ation
? /educe annual operating costs by %5 in year one, y5 in year to
? Improve predictability of costs over the term of the contract
? ,onvert fi%ed costs to variable costs
? /eceive cash for assets based on boo& or mar&et value
? Share ris&s and reards beteen the customer and the service provider
? /edefine the ay services are delivered hile improving efficiency and effectiveness
? 6everage the e%pertise and economies of scale of the service provider
? /educe IT assets
It is also sensible to document the e%pectations of the supplier, even if they do not map to
specific and measurable ob'ectives or service levels. These e%pectations set the tone and
broadly define the customers7 e%pectations. 3%amples of suppliers7 e%pectations include the
folloing2
? 8or& closely ith the ,IO in defining IT priorities and IT enablement capabilities for
business initiatives and goals
? 3stablish trust and credibility ith the ,IO and others on the senior management team
? 9aintain an IT support structure that contributes to business goals as ell as financial
and operational resources
? 9anage and be accountable for ensuring that the outsourcing agreement achieves the
goals#ob'ectives
? (dvise the ,IO of current developments and future trends in technology and
recommend timely and affordable solutions
? ,ontinuously advise the ,IO .and through the ,IO, senior management1 on ays to
improve business processes ith emerging IT capabilities
? Implement appropriate changes to improve the effectiveness, productivity, and
efficiency of IT services in ays that support the overall goals of the customer
organi$ation
It is essential to &no and clearly define your ob'ectives and to document hat you e%pect
from outsourcing. (n outsourcing pro'ect ithout &ey sta&eholders7 understanding its motives
and its ob'ectives is a boat ithout a rudder, drifting aimlessly.
Common areas for Outsourcing
Outsourcing has been a constant theme in ban&ing technology over at least the past ten years,
as ban&ing has become more technology intensive and the re-uired scale of investment has
gron e%ponentially. 9any operations have been outsourced to Third party vendors
comprising e%ternal vendors and speciali$ed subsidiaries. Service providers today may be a
technology company or specialist outsourcing manager. This decision to outsource should fit
into the institution:s overall strategic plan and corporate ob'ectives.
,ommon areas here ;an&s have outsourced functions include2
• Technology Operations
o Technology Infrastructure 9anagement, 9aintenance and Support
o (pplication *evelopment, 9aintenance and Testing
• ;an&ing Operations
o Sourcing, 6eads
In business, outsourcing is the contracting out of a business process to another party. The
term "outsourcing" became popular in the United States near the turn of the 21st century.
Outsourcing sometimes involves transferring employees and assets from one firm to another,
but not alays. Outsourcing is also used to describe the practice of handing over control
of public services to for!profit corporations.
Outsourcing includes both foreign and domestic contracting, and sometimes includes off
shoring or relocating a business function to another country. "inancial savings from loer
international labor rates is a big motivation for outsourcing#off shoring.
To organi$ations may enter into a contractual agreement involving
an e%change of services and payments. Outsourcing is said to help firms to perform ell in
their core competencies and mitigate shortage of s&ill or e%pertise in the areas here they
ant to outsource.
In the early 21st century, businesses increasingly outsourced to suppliers outside their on
country, sometimes referred to as offshoring or offshore outsourcing. Several related terms
have emerged to refer to various aspects of the comple% relationship beteen
economic organi$ations or netor&s, such as nearshoring, crodsourcing, multisourcing and
strategic outsourcing.
Outsourcing can offer greater budget fle%ibility and control. Outsourcing lets organi$ations
pay for only the services they need, hen they need them. It also reduces the need to hire and
train speciali$ed staff, brings in fresh engineering e%pertise, and reduces capital and operating
e%penses.
One of the biggest changes in the early 21st century came from the groth of groups of
people using online technologies to use outsourcing as a ay to build a viable service
delivery business that can be run from virtually anyhere in the orld. The preferential
contract rates that can be obtained by temporarily employing e%perts in specific areas to
deliver elements of a pro'ect purely online means that there is a groing number of small
businesses that operate entirely online using offshore contractors to deliver the or& before
repac&aging it to deliver to the end user. One common area here this business model thrives
is in providing ebsite creation, analysis and mar&eting services. (ll elements can be done
remotely and delivered digitally, and service providers can leverage the scale and economy of
outsourcing to deliver high!value services at reduced end!customer prices.
DEFINITION OF 'OUTSOURCING'
( practice used by different companies to reduce costs by transferring portions of or& to
outside suppliers rather than completing it internally.
)Outsourcing is an effective cost!saving strategy hen used properly. It is sometimes more
affordable to purchase a good from companies ith comparative advantages than it is to
produce the good internally. (n e%ample of a manufacturing company outsourcing ould be
*ell buying some of its computer components from another manufacturer in order to save on
production costs. (lternatively, businesses may decide to outsource boo&!&eeping duties to
independent accounting firms, as it may be cheaper than retaining an in!house accountant+.
OBJECTIVES
,lear motives, ob'ectives, and e%pectations broadly define as ell as focus on hat matters
most to the customer organi$ation during the outsourcing evaluation and selection process,
providing the foundation on hich the re-uest for proposal ./"01 is structured. ,lear
ob'ectives help lead to a sound decision on hat to outsource and hat not to outsource, and
they provide the basis for selecting, negotiating ith, and managing suppliers.
The ob'ectives for outsourcing often are derived directly from the motives for outsourcing.
These motivations can be grouped into a fe summary categories2
? Organi$ational transformation !! using outsourcing to improve information systems
services and related business processes
? 3fficiency !! the desire to obtain information systems services at a loer cost
? 3ffectiveness !! the desire to obtain better service
? "le%ibility !! agility
? Shifting the burden of IS investment and delivery from the customer organi$ation to
an outside firm
Specifying outsourcing ob'ectives that are more specific than motives provides a basis for
developing selection criteria for the suppliers and a set of common goals that need to be
understood and agreed to by various sta&eholder groups. 4noing hat is needed guides the
re-uirements and conditions in the /"0 and provides a common understanding for the
persons ho rite the /"0, evaluate the proposals, and recommend the selected supplier.s1.
Ob'ectives also provide the basis for evaluating supplier proposals and guide the inevitable
tradeoffs that must be made.
3%amples of outsourcing ob'ectives include2
? "i% operational inefficiencies in the IT organi$ation
? /educe annual operating costs by %5 in year one, y5 in year to
? Improve predictability of costs over the term of the contract
? ,onvert fi%ed costs to variable costs
? /eceive cash for assets based on boo& or mar&et value
? Share ris&s and reards beteen the customer and the service provider
? /edefine the ay services are delivered hile improving efficiency and effectiveness
? 6everage the e%pertise and economies of scale of the service provider
? /educe IT assets
It is also sensible to document the e%pectations of the supplier, even if they do not map to
specific and measurable ob'ectives or service levels. These e%pectations set the tone and
broadly define the customers7 e%pectations. 3%amples of suppliers7 e%pectations include the
folloing2
? 8or& closely ith the ,IO in defining IT priorities and IT enablement capabilities for
business initiatives and goals
? 3stablish trust and credibility ith the ,IO and others on the senior management team
? 9aintain an IT support structure that contributes to business goals as ell as financial
and operational resources
? 9anage and be accountable for ensuring that the outsourcing agreement achieves the
goals#ob'ectives
? (dvise the ,IO of current developments and future trends in technology and
recommend timely and affordable solutions
? ,ontinuously advise the ,IO .and through the ,IO, senior management1 on ays to
improve business processes ith emerging IT capabilities
? Implement appropriate changes to improve the effectiveness, productivity, and
efficiency of IT services in ays that support the overall goals of the customer
organi$ation
It is essential to &no and clearly define your ob'ectives and to document hat you e%pect
from outsourcing. (n outsourcing pro'ect ithout &ey sta&eholders7 understanding its motives
and its ob'ectives is a boat ithout a rudder, drifting aimlessly.
Common areas for Outsourcing
Outsourcing has been a constant theme in ban&ing technology over at least the past ten years,
as ban&ing has become more technology intensive and the re-uired scale of investment has
gron e%ponentially. 9any operations have been outsourced to Third party vendors
comprising e%ternal vendors and speciali$ed subsidiaries. Service providers today may be a
technology company or specialist outsourcing manager. This decision to outsource should fit
into the institution:s overall strategic plan and corporate ob'ectives.
,ommon areas here ;an&s have outsourced functions include2
• Technology Operations
o Technology Infrastructure 9anagement, 9aintenance and Support
o (pplication *evelopment, 9aintenance and Testing
• ;an&ing Operations
o Sourcing, 6eads