Transcript of + Offshoring David Adams Heather Stockeland. + What is Offshoring? Form of outsourcing that involves...
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- + Offshoring David Adams Heather Stockeland
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- + What is Offshoring? Form of outsourcing that involves moving
work overseas Different Forms 3 rd Party vendor Subsidiary company
Relevance Political Globalization Cost/Benefit of moving work
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- + Arguments For Offshoring Profitability and Market Share
Production Efficiency Alignment of Information Systems Advanced
Processes Risks to consider Mitigating Risks
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- + Profitability and Market Share Profitability 2009 study by
Dunn et al. Profitability is delayed due to costs incurred at
beginning After approximately 2 years, company will experience
significant gain Market Share 2009 study showed market share
increased more when offshoring 2005 study by LogicaCMG showed 1.7%
increase in stock price in month after announcement of
offshoring
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- + Production Efficiency Output per labor-hour from 1990-2000
(Houseman, 2006) Increased by 45% in manufacturing Increased by
426% in computer and electronics manufacturing 11-13% of growth in
manufacturing due to offshoring (Houseman, 2006) Positive side
effects on other companies that do not utilize offshoring
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- + Alignment of Information System Offshoring allows a company
to align IS and strategic goals Utilize third-party knowledge of
different information systems Information System Primary way of
gathering and analyzing company data Benefits More reliable
information Information that more effectively achieves company
goals
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- + Offshoring Advanced Processes Trend to offshore more advanced
processes will greatly increase over the next decade (Jensen &
Pedersen, 2011) Increased confidence by businesses already
offshoring Basic Processes Payroll Manufacturing Call Center
Administration Knowledge-intensive businesses benefit most:
Research & Development Unique knowledge bases
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- + Risks that must be considered Long-term effects Examples:
Loss of trade secrets Non-alignment with strategic goals Uncertain
ROI Immediate effects Examples: Decreased quality Decreased speed
of business functions Employee turnover Inadequate methods of
measuring performance Strategic RiskOperational Risk
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- + Mitigating Risks Perform a risk assessment Identify necessary
security measures Evaluate all costs incurred, both financial and
non- financial Maintain strict control over offshored processes
Develop and maintain objective methods by which performance can be
measured Create standard operating procedures to maintain quality
Implement rigid measures to gauge product quality Mitigating
Strategic RiskMitigating Operational Risk
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- + Arguments Against Offshoring Stakeholder Focus Employee
concerns Ethical considerations Data and Information Security
Hidden financial costs Cultural costs
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- + Stakeholder Focus attention to stakeholder concerns may help
a firm avoid decisions that might prompt stakeholders to undercut
or thwart its objectives (Robertson, Lamin, & Livanis, 2010)
Investors Main concerns: profitability and firm competitiveness
Will offshoring negatively impact the bottom line? Will offshoring
impact market share? How will the market react to the company
announcing transition of work overseas? Consumers Main concerns:
product quality, safety, and information security Will sales
decrease or will existing customers leave as a result of the
company offshoring? Is my information secure from overseas hackers?
Will the quality of the products I purchase decrease because they
cost less to produce?
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- + Employee Considerations Surviving employee syndrome Concern
over potential job loss Decreased morale Decreased productivity
Training provided to offshore replacements Poor practices
Inefficient training Offshore employee Resent being paid less for
doing the same job
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- + Ethical Considerations Working conditions of offshoring
vendor Worker protection laws Domestic job loss Product safety
Protecting consumer information Environmental laws
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- + Information and Data Security Survey of CFOs found that one
of the top two reasons for not outsourcing is the perceived risk of
losing confidential information (Aronson, 2008) Need for additional
network bandwidth and security technologies Intellectual property
right laws
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- + Hidden Costs Vendor selection costs Selection of an
appropriate vendor can take up to a year Travel expenses and expert
fees Transition period costs (6-12 months) Travel costs of offshore
employees Double salaries for reduced productivity Employee layoff
costs Severance packages Retention bonuses Ramping costs Decreased
productivity during initial ramp phase of new workers Technology
costs Cost of quality: rework, returns, lost sales Contract
management costs Increasing labor costs of offshore markets
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- + Cultural Costs IT organizations that choose offshoring
experience a twenty percent decline in efficiency during the first
two years as a result of cultural differences (Overby, 2003) High
turnover National holidays increase downtime Communication
barriers
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- + Conclusion Impact of Offshoring on all areas of the business
mustbe carefully considered Key: perform thorough risk assessment
Offshoring clearly has incredible benefits but can haveimmense
consequences Areas of future research Track long-term stock price
and earnings changes ofcompanies that Offshore Investigate whether
companies continue to Offshoreadvanced processes Examine long-term
challenges since this is a new trend
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- + Open Discussion Does anyone have experience with their
employer offshoring activities? Is it worth the risk to offshore?
What are some additional arguments for and against offshoring?