MIS 648 Lecture 131 MIS 648 Presentation Notes: Lecture 13 Managing IT Offshoring: Is it a good thing?

MIS 648 Lecture 132 AGENDA  Introduction to the lecture  Goals of the Lecture  Outsourcing: Definition and Context  Offshoring: Definition and Context  Business Models of IT Offshoring (Khan & Fitzgerald)  Managing the relationship (Oza & Hall)  Economic Challenges

MIS 648 Lecture 133 Goals of the Lecture  Understand the distinctions among outsourcing, insourcing and offshoring  Develop a critical view of outsourcing and offshoring as solutions to business challenges  Evaluate offshoring in an economic context  Develop aids to outsourcing and offshoring decisions to lower risk

MIS 648 Lecture 134 The Structure of the Issue Strategic Management Outsourcing General issues IT Outsourcing Implementation Issues Managing IT Outsourcing

MIS 648 Lecture 135 Outsourcing Defined  A partnership between one firm (client) and another (vendor) for the vendor to perform services for the client according to a predefined contract.  Services may include any aspect of the client firm value chain or support services.  Support services are the most likely target for outsourcing  Nothing new here.

MIS 648 Lecture 136 Variations on Outsourcing  “Insourcing” = Internal departments compete among themselves or with outside vendors for contract  “Offshoring” = a form of outsourcing where vendors are located in another country

MIS 648 Lecture 137 Aspects of Outsourcing  Determining the services to be outsourced  Selecting the vendor  Negotiating the terms of the contract  Managing the contract on both sides  Evaluating the contract delivery

MIS 648 Lecture 138 Advantages of Outsourcing  Economies of scale  Sticking to the knitting  Latest technology, skills, knowledge  Lowered costs  Less investment in hardware, people

MIS 648 Lecture 139 Outsourcing IT Services  IT services are simply another form of support services for the firm  What makes IT service outsourcing complex and challenging:  Type of service (technical, technological)  Type of people  Type of product (intangible, “unseen”)  Let’s make it more challenging by going global! Do you agree?

MIS 648 Lecture 1310 Type of Service  Data center operation  Website design, hosting, operation  Communication services  System development (analysis, design, implementation, maintenance)  IT planning Remember this list.

MIS 648 Lecture 1311 Offshoring Defined  Outsourcing to another country  Historically offshoring has involved a few notable vendor countries:  IS Development: India  Specialized software: Israel  IT Services: Ireland  In essence, offshoring is an extension of the Maquiadora idea.  A “spot” of production in one country aimed entirely for export to another, except in real time  A negativenegative

MIS 648 Lecture 1312 Advantages of Offshoring  Historically the advantages of offshoring have been almost completely economic  Savings can run up to 90% or more  Recently thanks to the Internet and technological advances, other advantages are appearing, such as development of markets, increased innovativeness, etc.  Business for IT and IT-enabled offshoring services

MIS 648 Lecture 1313 Challenges of Offshoring  Strategic impact (“size”?)  Technological uncertainty (“gap”)  Functional complexity  Procedural knowledge/uncertainty (“stability”)  Asset specificity  Culture differences  Interdependency

MIS 648 Lecture 1314 Models of Outsourcing  Khan and Fitzgerald (2005) studied four British firms’ offshoring experience  They developed a four-dimensional model of the outsourcing decision  These are descriptive dimensions rather than predictive ones (i.e., they help us describe what happens rather than predict what will happen

MIS 648 Lecture 1315 Khan and Fitzgerald Model These factors influence offshoring decisions and shape the resulting relationship Organizational Who initiates SWOT issues Who implements Potential for reengineering Technological Org’l capabilities Key requirements & usage Support & maintenance Environmental Domestic vs. overseas Resources & Expertise Standard quality Ability to network Trade law; political stability Culture Market entry advantage Process Requirements Project management Contract Trust & security Communication Standard quality Offshoring Decision Culture

MIS 648 Lecture 1316 A qualitative method in which the ideas “emerge” from the comments of the interviewers rather than from a predefined theory of the researchers CMM level 4 or 5 (/5) Culture IS important, it turns out  Concerns on the vendor side  Oza and Hall studied 18 high maturity Indian software companies  They wanted to know what difficulties do the vendors experience  They used interviewing and grounded theory

MIS 648 Lecture 1317 Difficulties  Concerns on the vendor side  Oza and Hall studied 18 High Maturity Indian software companies  They wanted to know what difficulties do the vendors experience

MIS 648 Lecture 1318 Full List of Concerns  Cultural Issues  Expectation management  Language  Loss of control  Loss of jobs at client company  Transition  Lack of client’s experience  Distance/access  Getting maturity  Loss of business knowledge by client  Time zones  Lack of domain knowledge

MIS 648 Lecture 1319 The Broader View  Offshoring means the exportation of jobs  Offshoring carries all the downside of outsourcing, perhaps magnified  Offshoring is a natural outcome of the assumptions of capitalism; but it does put strain on the jobs system, forcing home country workers to increase their skill levels and to employ increasing levels of capital-intensive technology.