Slide 1:

Good day everyone.

I am Mary Rose Nones and today I am going to discuss the risks inherent to IT outsourcing.

But before we proceed on our topic for today, lets have a quick overview again about outsourcing.

So when we say Outsourcing, it refers to the practice of hiring individuals, teams, or organizations
outside the company to perform services that were originally performed by an in-house team. It
includes a wide range of roles, industries, and niches, from customer support and sales, to design and
development. The benefits of outsourcing is very substantial - from cost savings and efficiency gains to
greater competitive advantage.

As you can observe, there are numerous benefits that we can get in outsourcing but we all know that in
every advantages there is always a correlated risk or disadvantages and that will be the focus of our
topic for today.

Slide 2:

So IT Outsourcing.

As you can see on the slide, we can say that IT Outsourcing is very risky.

Not only because, IT can access our personal data

But also, because of the risk associated with it.

So, I have 5 different pictures here.

Do you have any idea what is the meaning of this?

Well, you will know that in the following slides, so listen carefully because it can help you in your future
decisions when you are operating a certain business

Slide 3:

So what are the risks to IT Outsourcing?

First, we have Failure to perform, vendor exploitation, outsourcing costs exceed benefits, reduced
security, and lastly, loss of strategic advantage.

Slide 4:

Let’s start with the failure to perform.

For example, you own a company and you need technology that will help you to store the data of your
company.

So you need to give all the information to the IT company.

And the requirements you needed them to accomplish.

Once they failed to provide those requirements that you asked for, that means they failed to perform.

Well, It’s a big loss to a company, right? and no one wants that to happen.

So what are the reasons why some IT outsourcing companies failed to perform?

Slide 5:

So first is due to financial problem.

This is where the IT company was unable to support its financial stability and suffered financial losses.

Once they are not financially stable, it is not easy for them to commit to several projects.

Next is cost-cutting.

Since their company is not financially stable, one of the solutions is to cut the cost of manufacturing or
manpower.

This reduced the effectiveness of the company since they are insufficient in manpower.

Last is the technical problem.

These are technical difficulties such as unforeseen equipment problems.

This will be a major impact not only on the IT company but also on their clients.

Slide 6:

I have several examples here were some famous companies failed to perform with their clients.

I am going to explain also what are the reasons why they failed.

Slide 7:

First, we have EDS or electronic data systems corporation.

So how come they failed?

The major factor of their failure is a financial problem.

Since they are out of budget, they terminated seven thousand employees.

And also because they lack manpower, it impacted their ability to serve other clients.

In short, they failed to satisfy the needs of their clients.

Not only their clients but also their stockholders.

They suffer from an 11-year low stock price.

Which yields to a class-action lawsuit of the EDS stockholder against their company.

Since then, their clients have doubted their performance, resulting in major losses.

Slide 8:

Next, we have IBM.

I don’t know if you are familiar with this company.

But IBM stands for International Business Machine Corporation.

It is also a multinational technology corporation with operations in over 171 countries.

It is a quite large company but how come they failed?

It happened last December 2007.

It is called the IBM-Queensland Disaster.

So the company Queensland granted a contract to IBM to create an application to manage payroll for
Queensland’s health department.

IBM offered $6 million to finish the project by mid-2008.

But IBM suffered from technical problems resulting in to increase in the price from $6 million to $27
million.

For several years IBM kept failing its client.

Their platform failed to work correctly, which results in thousands of employees of Queensland were not
paid, while others were overpaid.

This is a very big disaster.

Slide 9:

Last we have Accenture.

Accenture is a world-renowned firm with the ability to develop websites and mobile applications.

Hertz hired Accenture to develop a technology platform for the company

However, when Accenture started, it didn’t meet Hertz’s requirements and only allowed those
applications to apply only to a certain region.

This makes it impossible for the company to adopt it outside of North America and many brands like
Dollar and Thrifty.

As you can notice, failure to perform is a very big problem in IT outsourcing.

It is a big loss to the IT company as well as their client.

Slide 10:

The next risk is vendor exploitation.

Large-scale IT outsourcing involves transferring to a vendor ‘‘specific assets’’ such as the design,
development, and maintenance of unique business applications that are critical to an organization’s
survival.

Because the vendor assumes risk by acquiring the assets and can achieve no economies of scale by
employing them elsewhere, the client organization will pay a premium to transfer such functions to a
third party.

once the client firm has divested itself of such specific assets it becomes dependent on the vendor.

The vendor may exploit this dependency by raising service rates to an exorbitant level.

This dependency may threaten the client’s long-term flexibility, agility, and competitiveness and result in
even greater vendor dependency.

Slide 11:

Next is Outsourcing costs exceed benefits.

I have a pie graph here on the left side.

It is a result of a survey wherein it revealed that 47 out of 66 firms surveyed reported that the costs of IT
outsourcing exceeded outsourcing benefits.

Which is 71.2%

One reason for this is that outsourcing clients often fail to anticipate the costs of vendor selection,
contracting, and the transitioning of IT operations to the vendors.

Slide 12:

The next risk is reduced security.

Once you have to outsource for your company it will raise awareness about some internal control and
the protection of sensitive personal data.

To a large degree, U.S. firms are reliant on the outsourcing vendor’s security measures, data-access
policies, and the privacy laws of the host country.

To further understand it, I will give 2 examples in the succeeding slides.

Slide 13:

The first scenario is a woman in Pakistan who obtained patient-sensitive medical data from the
University of California Medical Center in San Francisco.

She gained access to the data from a medical transcription vendor for whom she worked.

The woman threatened to publish the records on the Internet if she did not get a raise in pay.

You see? Since she can access those personal data, she used it for blackmailing.

Slide 14:

Terrorism in Asia and the Middle East raises additional security concerns for companies outsourcing
technology offshore.

For example, on March 5, 2005, police in Delhi, India, arrested a cell of suspected terrorists who were
planning to attack outsourcing firms in Bangalore, India.

Slide 15:
Last but not the least is loss of strategic advantage.

IT outsourcing may affect incompatibility between a firm’s IT strategic planning and its business planning
functions.

Organizations that use IT strategically must align business strategy and IT strategy or run the risk of
decreased business performance.

To promote such alignment, firms need IT managers and chief information officers (CIOs) who have a
strong working knowledge of the organization’s business.

To accomplish such alignment necessitates a close working relationship between corporate

This fundamental underpinning of IT outsourcing is inconsistent with the client’s pursuit of strategic
advantage in the marketplace.

Slide 16:

This will end my presentation.

I hope you understand a lot about the Risk inherent to IT Outsourcing.

Thank you so much.