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270 Chapter 10 • Global, Ethics, and Security Management

cost savings when management considers outsourcing as a business strategy. Some of the key
benefits of outsourcing are as follows:

• Economics. Outsourcing provides a predictable monthly payment. A company can solve
all of the problems of running an application at a lower cost. Outsourcing enterprise appli-
cations can save a company anywhere from 30 to 50 percent, depending on the task,
method, location, and how the relationships are structured. 5
• Market agility. Outsourcing the ERP function offers a faster time to solution and
removes a major distraction from a company’s core competence.
• Breadth of skills. Many organizations do not have in-house personnel with ERP imple-
mentation and maintenance skills. Outsourcing provides an avenue to access these
advanced expertise areas quickly.
• Technical expertise. Outsourcing arrangements cost-effectively enable a company to
provide access to cutting-edge IT solutions to its employees and clients. Such service
providers as Accenture and IBM typically have alliances with such key ERP vendors as SAP
and Oracle, which puts them in the loop of the newest and latest changes in the applications.
• Multiple feedback points. Outsourcing provides an organization with an outside or exter-
nal perspective during implementation and maintenance.
• Best practices. Outsourcing can provide companies with access to best practices in ERP
planning, implementation, and maintenance.
• Scalability. One secondary benefit to outsourcing is flexibility for the company to grow
or shrink quickly, depending on the market demand for its products and services.
Outsourcing agreements allow companies to scale their service agreements with minimal
disruption as opposed to doing them in-house.
• Process-oriented. Outsourcing, by default, forces process perspective (i.e., cross-functional
teams, customer focus) rather than a functional perspective, which is common inside
organizations. This ensures timely delivery of quality solutions at lower costs.
• Solution centric. Outsourcing allows companies to work with both third-party
components and custom-developed code to meet ERP requirements at the best-
possible value.
• Upgrade crunch. ERP systems are high-maintenance software that requires constant
upgrading and patching after implementation. It is hard for most businesses to keep
up with these constant maintenance cycles, especially if they have customized the ERP
application during installation.
• Fear of distraction. Outsourcing allows the company employees to focus on their core
competencies and not get distracted by activities that lower employee productivity.

Outsourcing Drawbacks

Many organizations do not want to trouble themselves with outsourcing. For example,
Allegiance Healthcare Corp. of McGaw Park, Illinois, a 20,000-employee, $4.5 billion medical
products company, decided to go in-house on its ERP implementation and maintenance. CIO
Kathy White did give the outsourcing option serious consideration, but found it wanting for both
reliability and cost-effectiveness. What is there not to like about outsourcing? ERP outsourcing
is still a relatively new concept compared with IT outsourcing, which is simpler and involves

5 Travis. Offshoring Decisions for 2005.