Transcript Managing IT Outsourcing Chapter 9

Managing IT Outsourcing
Chapter 9
Outsourcing in Retrospect
• Major drivers for outsourcing in the 1990s
– Cost effective access to specialized skills or
occasionally needed computing power or skills
– Avoidance of building in-house IT skills.
– Access to special functional capabilities.
Outsourcing in the
st
21
Century
• Acceptance of Strategic Alliances
• IT’s Changing Environment
IT Markets
Location
Internal
External
Physical Aspects
Automating : Computerizing physical and
clerical processes.
DP era (1960 -1980)
• Dominant use of mainframe and
minicomputers.
• Operational level systems automated
primarily with COBOL.
• Process controls automate primarily with
machine language.
• Standard packages for payroll and general
ledger.
• Applications portfolio consists of millions of
lines of code with 50% typically
purchased from outside.
Embedding : Integrating computers into
products and services.
Information
Informating : Leveraging knowledge workers
with computers.
• User tasks leveraged through direct use of
micro -computers enabled by graphical
use interfaces (GU) and purchased
software such as word processing,
spreadsheet, graphics, and CAD/CAM.
• Local area networks (LANs) --user -oriented
software for e -mail, database sharing, file
transfer, and groupware for work teams.
• Microcomputer software consists of millions
of lines of code --almost 100% purchased
from other companies.
Networking : “The Information Highway”
Micro era (1980 -1995)
Network era (1990 -?)
• Specialized code embedded in products and
services to enhance function.
• Microcomputers in physical products such
as automobiles and “smart cards” in
services.
• Thousands of lines of code developed by
both specialized internal programmers
and outside contract programmers.
• Wide area networks (WANs) networking
workers, suppliers, and customers.
• Internet for commercial use.
• Millions of lines of code, almost 100%
purchased and maintained from outside
software firms.
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.
What Drives Outsourcing?
• General Managers’ concerns about costs and
quality.
• Breakdown in IT performance.
• Intense vendor pressures
• Simplified general management agenda
• Financial factors
• Corporate culture
• Eliminating an internal irritant
• Other factors
Strategic Grid for Information Resource Management
High
Factory--uninterrupted service
-oriented
information resource management
Strategic information resource management
: Mixed
Outsourcing Presumption
: Yes, unless
Outsourcing Presumption
company is huge and well managed
Reasons to consider outsourcing:
• Possibilities of economies of scale for
small and midsize firms.
• Higher quality service and backup.
• Management focus facilitated.
• Fiber op tic and extended channel
technologies facilitate international IT
solutions.
Current Dependence
on Information
Support-oriented information resource
management
Outsourcing Presumption: Yes
Low
Reasons to consider outsourcing:
• Rescue an out -of-control internal IT unit.
• Tap source of cash.
• Facilitate cost flexibility.
• Facilitate management of divestiture.
Turnaround information resource management
: Mixed
Outsourcing Presumption
Reasons to consider outsourcing:
Reasons to consider outsourcing:
• Access to higher IT professionalism
• Interna l IT unit not capable in required
• Possibility of laying off is of low priority
technologies.
and problematic.
• Internal IT unit not capable in required
• Access to current IT technologies.
project management skills.
• Risk of inappropriate IT architecture
reduced.
Importance of Sustained, Innovative
High
Information Resource Development
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.
When to Outsource
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Position on the strategic grid
Development portfolio
Organizational learning
A firm’s position in the market
Current IT organization
Structuring the Alliance
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Contract flexibility
Standards and control
Areas to outsource
Cost savings
Supplier stability and quality
Management fit
Conversions problems
Managing the Alliance
• The CIO function
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Partnership/contract management
Architecture planning
Emerging technologies
Continuous learning
• Performance measurement
• Mix and coordination of tasks
• Customer-vendor interface