Chapter 8 Slide 1 Chapter 8 Managing IT Outsourcing.
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Transcript of Chapter 8 Slide 1 Chapter 8 Managing IT Outsourcing.
Chapter 8 Slide 1
Chapter 8
Managing IT Outsourcing
Chapter 8 Slide 2
Overview Companies outsource for a variety of reasons
Cost and qualityLagging IT performanceAccess to special technical application skills
Strategic alliances are common and acceptedLike marriages, outsourcing deals are easier to enter
into than to sustain or dissolveLong-term management of the alliance is a challenge
Chapter 8 Slide 3
Difficulties
Why are outsourcing alliances difficult (who could have thought that they would be ease?)
Many are designed for the long-term in a fast changing world 8-10 year contracts Chip performance improves by 20-30% per year
Many upper level IT department executives lack the exposure to decipher technology trends
Timing of benefits Initial benefits (first year) accrue to the customer Outsourcing firm makes it up on the back end
Chapter 8 Slide 4
There are few outsourcing firms that can handle really big jobsLow competitionThese firms have more experience setting up
deals than their customers (the car salesman problem)
Insourcing can be a NIGHTMARE scenarioShipping employees out of the areaLoyalty lost
The strategic relevance of IT to a firm can shift
Difficulties
Chapter 8 Slide 5
Popular since the 1960sComputer service bureaus ran financial and
operations support programs (general ledger, payroll, inventory control)
Mainframes were expensive Expertise in programming was rare and costly Popular with small and mid-sized firms
ADP was one of the first started with punch-card payrolls in 1949 Now does $4 billion
Outsourcing History
Chapter 8 Slide 6
Outsourcing History
Kodak outsourcing in 1990Turning point in the industry
The CIO had been a general manager, not technical Outsourced Mainframes, Telecom, and PCs
Businessland went under, damaging the dealKodak had not internal IT personnel to
forewarn them of the impending digital photo explosion
IT outsourcing is reminiscent of Accounting firms moving outside the organization
Chapter 8 Slide 7
Acceptance of Strategic AlliancesFinding a strong partner to complement an area
of weaknessMust be a WIN-WIN situation
Changing IT EnvironmentPressure to keep legacy systems running while
optimizing new technology and techniquesComfort with packaged software (e.g. PCs)
Operating systems, email, browsers, office automation, compilers
Y2K
2 Factors Affecting Outsourcing Growth
Chapter 8 Slide 8
General Manager concerns about Cost and Quality
IT performance breakdown (Intense) Supplier pressure (i.e., lobbying) Simplified General Management Agenda
Firm does not see IT as a core competencyIntense environmental pressureSee no future IT upside
Financial FactorsQuick cash infusionGet a large cost off the books
Factors Driving IT Outsourcing
Chapter 8 Slide 9
Factors Driving IT Outsourcing Financial Factors (contd.)
Lowers personnel costs (IT people are very expensive vis-à-vis the rest of the firm)
Costs are left for a successor in some firms
Corporate Culture Eliminating an Internal irritant
Solve (?) end-user frictionHigh cost of IT staffCareer path concerns of the IT staff
OtherAttracting and retaining staff
Chapter 8 Slide 10
Position on the Strategic GridOutsource
The contract is critical to the outsourcer Maintenance is a large part of the portfolio
Keep IT is critical to the firm New systems are critical to success
Development Portfolio Organizational Learning
You must adapt to the contractBPR
5 Factors: When Not to Outsourcing
Chapter 8 Slide 11
5 Factors: When Not to Outsourcing Firm’s Position in the Market
If your technology is very old, outsourcing is a good way to catch-up
If you are fairly current, outsourcing gains you little
Current IT OrganizationIf IT development and IT operations are
separate, outsourcing is easyIt is also easy to negotiate and manage the
contractIntegrated IT makes outsourcing difficult
Chapter 8 Slide 12
Structuring the Alliance This is a contract
Established parameters at the beginningA proper structure is a necessary but not sufficient
requirement for success
Contract FlexibilityMust be able to deal with evolving technologyOutsourcer wants a contract as structured and close-
ended as possible
Standards and ControlSome areas are common: water, power, phoneIt is a loss of creative control and future thoughts
Chapter 8 Slide 13
CIO FunctionPartnership/contract managementArchitecture planningEmerging TechnologiesContinuous learning
Performance management Customer-Outsourcer Interface
Oversight can not be delegatedManagers for the relationship on both sides of
the deal
Managing the Alliance
Chapter 8 Slide 14
Questions on Chapter 8?