Chapter © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Outsourcing has become an integral part of IT strategy. Operations, Help Desks, Maintenance and Development are all IT activities that have been outsourced. Outsourcing may provide a wider range of skills and lower costs. 10-2

© 2012 Pearson Education, Inc. Publishing as Prentice Hall 1. Outsourcing for operation efficiency 2. Outsourcing for tactical support 3. Outsourcing for strategic impact 10-3

© 2012 Pearson Education, Inc. Publishing as Prentice Hall The most common outsourcing strategy Utility functions are transferred to an outsourcer. The objective is to save money and/or provide better service. 10-4

© 2012 Pearson Education, Inc. Publishing as Prentice Hall IT managers seek to rapidly add to their capacity. Outsourcing is used to free up development staff to eliminate peaks and valleys in the IT staffing cycle. Outsourcers used to introduce new technologies. 10-5

© 2012 Pearson Education, Inc. Publishing as Prentice Hall As companies have become more focused on core competencies, entire non-core business processes can be outsourced. Supported by greater connectivity Right-sourcing can change with time; non-core processes can become core processes. 10-6

© 2012 Pearson Education, Inc. Publishing as Prentice Hall 10-7 Table 10.1

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Use selective sourcing. Have joint Business-IT sponsorship. Ensure a thorough comparison with internal operations. Develop a detailed contract. Limit the length of the contract. 10-8

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Labor rates are cheaper. Some countries offer significant tax breaks. Availability of skilled labor Indian companies have better software and risk management processes than many other companies. 10-9

© 2012 Pearson Education, Inc. Publishing as Prentice Hall 10-10

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Language – including understanding customer needs. Hidden Costs – including costs of finding a vendor, drafting a contract, managing the relationship, transitioning the work, travel, and visas

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Reduced Control – greater liability exposure to issues such as confidentiality, security, and time schedules

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Legal and Political Uncertainties – governments in third world countries are less stable, legal disputes are more difficult to cope with, work in other countries means you have to deal with rules and regulations that may be unfamiliar

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Cultural Differences – misunderstandings can occur as a result of differences in pace of daily life, employee’s relationship to authority, security attitudes, and adherence to social principles. (Overby, 2003b) 10-14

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Social Justice – government organizations are sensitive to moving jobs out of the country

© 2012 Pearson Education, Inc. Publishing as Prentice Hall What are our industry dynamics, and where are we in the food chain? What are we good at? What do we want to be good at? What should we be good at? Do we want to invest in this function/activity? How many vendors do we want to deal with?

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Develop an in-depth understanding of business drivers and strategy before sourcing. IT managers should develop a detailed understanding of their functions, processes, and overall IT portfolio. Apply particular sourcing criteria to IT activities. Test and reevaluate the sourcing strategy

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Detailed planning is essential. Incorporate monitoring and an audit trail into the contract. Rate risks on likelihood of occurrence and impact. Take steps to reduce/manage these risks. Develop an exit strategy. Exercise caution

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Governance problems are heightened when they are off-shored. “You can’t outsource good project management”; this is one reason why off- shore vendors set up local offices. Ideally an offshore venture should be set up so that risks are shared

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Companies must understand the complete cost of outsourcing. They need to understand the total cost of ownership for each IT activity prior to making financial decisions

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Solution delivery Task decomposition Task costing analysis Right-sourcing decision making Designing for collaboration and connectivity 10-21

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Supplier relationship management Contract management and monitoring Sourcing marketplace analysis 10-22

© 2012 Pearson Education, Inc. Publishing as Prentice Hall Sourcing has become an integral part of many IT organizations. Sourcing has evolved into a means to produce optimal IT value. Increasingly, it is IT’s job to guide the organization in sourcing decisions. As a result, sourcing is changing the way IT work is done

© 2012 Pearson Education, Inc. Publishing as Prentice Hall 10-24