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 21
st
Century
Acceptance of Strategic Alliances
ITs Changing Environment
IT Markets
Location Physical Aspects

Information
Internal 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.
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.
External Embedding : Integrating computers into
products and services.

Micro era (1980 - 1995)

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.
Networking : The Information Highway


Network era (1990 - ?)

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













Current Dependence
Factory - - uninterrupted service - oriented
information resource management

Outsourcing Presumption : Yes, unless
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.
Strategic information resource management

Outsourcing Presumption : Mixed



Reasons to consider outsourcing:
Rescue an out - of - control internal IT unit.
Tap source of cash.
Facilitate cost flexibility.
Facilitate management of divestiture.
on I nformation Support - oriented information resource
management

Outsourcing Presumption: Yes

Reasons to consider outsourcing:
Access to higher IT professionalism
Possibility of laying off is of low priority
and problematic.
Access to current IT technologies.
Risk of inappropriate IT architecture
reduced.
Turnaround information resource management


Outsourcing Presumption : Mixed

Reasons to consider outsourcing:
Interna l IT unit not capable in required
technologies.
Internal IT unit not capable in required
project management skills.
Low I mportance of Sustained, I nnovative High
I nformation 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
Position on the strategic grid
Development portfolio
Organizational learning
A firms position in the market
Current IT organization
Structuring the Alliance
Contract flexibility
Standards and control
Areas to outsource
Cost savings
Supplier stability and quality
Management fit
Conversions problems
Managing the Alliance
The CIO function
Partnership/contract management
Architecture planning
Emerging technologies
Continuous learning
Performance measurement
Mix and coordination of tasks
Customer-vendor interface