MIS 5241 Chapter 9 Managing IT Outsourcing It’s like dinner out!

MIS 5242 Agenda  So What? Who Cares?  What’s Happening with Outsourcing: Direction and Definition  Why “Alliances” are Hard  Outsourcing Drivers…why outsource?  Outsourcing Timers…when to outsource?  Outsourcing Recipes…what to outsource?  Outsourcing Agendas…how to outsource?  Outsourcing Management

MIS 5243 So What, Who Cares? Follow the Logic:  IT is strategic for many firms.  IT is difficult to cost, predict, manage  Others do that better; IT is not our core business  But we don’t trust them with our family jewels  So we are in an approach-avoidance syndrome

MIS 5244 Direction  In-House  Work is done by a “captive” IT department using internal corporate resources to produce a corporate product  Outsource  Work done by outsiders using outsiders’ resources to produce a useful product  Insource  Work is done by insiders using semi-private corporate and outside resources to produce a potentially proprietary product

MIS 5245 What’s Happening with Outsourcing: Direction Traditional All IT activities are kept in-house. New System Development Operations & Maintenance Exploratory New systems are obtained from outside. New System Development Conservative New system development is done in- house Operations & Maintenance Extreme No IT activities are performed in- house New System Development Operations & Maintenance

MIS 5246 Definition  Class  1: Traditional business wishing to improve efficiency, productivity, performance  2: Business wishing to change structure, strategy, nature of business  Old House  Existing outsourcing vendor  New House  Vendor used by the insider IT dept. or is created using corporate or shared resources

MIS 5247 What’s Happening with Outsourcing: Definition Vendor Old-House New House Customer Class 2 Class 1 Traditional Business uses existing vendor to solve problem. Conservative Business uses vendor to generate oppties Exploratory Business reengineered by spin-off Extreme Business redefined by outsourcing

MIS 5248 Why Outsourcing Relationships are Difficult  Time: Long relationship cuts across many IT “generations”  Timing: Vendor and Customer achieve benefits at different times because of investment  Pareto’s Law  Strategic Life Cycle Most “muscle” is concentrated in a small group of vendors Today’s competitive advantage is certainly going to be tomorrow’s commodity. 80/20 !

MIS 5249 Drivers toward Outsourcing  Cost and Quality Concerns (saving $)  Breakdown in IT Performance  Vendor pressures  Simplified Management Agenda (taking care of [core] business]  Financial factors (time, timing, etc.)  Corporate culture  Ethnic cleansing!

MIS Deadlines to Outsource  Position on the Strategic Grid  Composition of development Portfolio (maintenance, high-tech work, see Ch. 10)  Organizational learning possibilities  Market position (cellar dweller syndrome)  IT Department Health (“’Til death do we part, or whenever it becomes feasible”)

MIS Dinner at the Outsource Inn  Lots of things can be outsourced: eg., operations, a single function, a single application, all development, system management, outsourcing itself?  Rules of thumb:(Yes→Outsource)  Easily separated?  Requires skills we don’t have?  Not intimately related to our strategy?

MIS Debut: “Coming out”  Outsourcing is not a gift. Certain “style” aspects must be handled:  Contract flexibility (why?)  Standards  Who has control?  Evaluation, assessment  Supplier stability and quality  Management fit between orgs  Conversion (esp. if existing IT dept.)

MIS Diners’ Club: Management  The CIO’s role  Performance Measurement  Mix and Coordination of Tasks  Customer-Vendor Interface