Management Information Systems,

Sixth Edition

Chapter 13:
Choices in Systems Acquisition

Objectives
Explain the differences among the alternatives to
tailored system development: outsourcing,
licensing ready-made software, using software
as a service, and encouraging users to develop
their own applications
List the business trade-offs in the various
methods of acquiring systems

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Objectives (continued)
Describe which systems acquisition approach is
appropriate for a particular set of circumstances
Discuss organizational policies on employee
computer use

Management Information Systems, Sixth Edition

Options and Priorities

There are four alternatives to in-house
development:

Outsourcing
Licensing
Using software as a service (SaaS)
Having users develop the system

The deciding factor is usually cost when the desired

application is available from multiple sources
Licensing is preferred due to low cost and
immediate availability
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Options and Priorities (continued)

If licensing is not available:
Application service provider (ASP) is the next
best choice
System is immediately available for a small startup fee

Third best choice is allowing users to develop

their system
Last choice is to outsource, if non-IT employees
cannot develop IS
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Options and Priorities (continued)

Many factors must be considered in addition to
cost and quality
Alternatives are not fully comparable, and often
cannot be simply prioritized

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Options and Priorities (continued)

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Outsourcing
Outsourcing has two meanings in the IT arena:
To commission the development of an application
to another organization
To hire the services of another company to
manage all or parts of the services usually
rendered by an IT unit in the organization
May not include development of new applications

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Outsourcing Custom-Designed
Applications
Custom-designed (tailored) software:
software developed specifically for the needs of
an organization
Several advantages:

Good fit to need

Good fit to culture
Dedicated maintenance
Smooth interface
Specialized security
Potential for strategic advantage

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Outsourcing Custom-Designed
Applications (continued)
Disadvantages:

High cost
The organization must fund all development costs
Staff may be diverted from other projects
Software is less likely to be compatible with other
organizations systems

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Outsourcing Custom-Designed
Applications (continued)

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Outsourcing Custom-Designed
Applications (continued)
Must deal with an inherent conflict when
outsourcing software development:
Client wants a firm contract and set of
requirements
Specific requirements may mean that no deviation
is allowed if changes are needed later as
development progresses
Changes may involve hefty additional charges

Offshoring: outsourcing to other countries such

as India, China, Philippines, etc.
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Outsourcing IT Services
Many businesses turn to IT companies for long-term
services, including:

Purchasing and maintaining hardware

Developing, licensing, and maintaining software
Installing communications networks
Maintaining and operating Web sites
Staffing help desks
Running IT daily operations
Managing customer and supplier relations

Business process outsourcing: outsourcing

routine processes, such as order entry or HR
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Outsourcing IT Services (continued)

Some companies realize IT is not their core
competency and should not be a focus of their
efforts
Pace of development in IT requires a high level of
expertise
A growing portion of IS budgets are being
allocated for outsourced services
Popular IT service providers include:

IBM
EDS
Accenture
Unisys

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Outsourcing IT Services (continued)

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Outsourcing IT Services (continued)

Outsourcing companies are known as vendors
IT outsourcing contracts are typically long-term
contractual relationships, usually for seven to 10
years
Clients sometimes find themselves bound by
obsolete contracts, and must renegotiate

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Advantages of Outsourcing IT Services

Several advantages of outsourcing:
Improved financial planning
Client knows the exact cost of IS functions

Reduced license and maintenance fees

IS professional firms pay discounted prices for
tools and can pass on the savings to their clients

Increased attention to core business

Executives can concentrate on their companys
core business

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Advantages of Outsourcing IT Services

(continued)
Advantages of outsourcing
Shorter implementation cycles
IT vendors can complete new applications faster

Reduction of personnel and fixed costs

Increased access to highly qualified know-how
Availability of ongoing consulting as part of
standard support

Sometimes outsourcing does not save the client

money
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Advantages of Outsourcing IT Services

(continued)

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Risks of Outsourcing IT Services

Disadvantages of outsourcing:
Loss of control
High risk in a quickly changing industry

Loss of experienced employees

Usually involves transferring employees to vendor

Risks of losing a competitive advantage

May disclose trade secrets

High price
Can be more expensive than keeping the tasks inhouse
Important to clearly define contract terms
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Risks of Outsourcing IT Services

(continued)

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Risks of Outsourcing IT Services

(continued)
Service-level agreement
The most important element of an outsourcing
agreement
Lists all services expected of the vendor
Defines the metrics to be used to measure
vendor performance

The client must develop the service level and

metrics list, not the vendor

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Licensing Applications
Purchasing software usually means purchasing
licenses to use the software
There is a large selection of high-quality packaged
software available
Two groups of ready-made software:
Relatively inexpensive software that helps in the
workplace, such as office suites
Large applications that support entire organizational
functions, such as HR or financial management
Typically cost millions of dollars
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Software Licensing Benefits

Licensing benefits include:

Immediate system availability

High quality
Low price (license fee)
Available support

Beta version: a prerelease version of software to be

tested by companies who want to use it
Often includes a period of up to one year of free
service
Large applications require installation specialists
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Software Licensing Risks

Software licensing has risks including:
Loose fit between needs and features
Must determine if the software will comply with
company needs and organizational culture

Difficulties in undertaking custom modifications

Dissolution of the vendor
May be left without support and maintenance

High turnover of vendor personnel

Turnover among IS professionals is high
May result in lowered support expertise from vendor
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Steps in Licensing
Ready-Made Software
Selecting software involves a large money
investment and a long-term commitment
Project management team responsibilities:
Identify problem or opportunity
Define functional requirements

Identify potential vendors

Solicit vendor information
Request for information (RFI): request for
informal information about a vendors product

Define system requirements

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Steps in Licensing
Ready-Made Software (continued)
Project management team responsibilities
(continued):
Request vendor proposals
Request for proposal (RFP): a document that
specifies all requirements and solicits a proposal

Review proposals and screen vendors

Visit sites where the application is in use
Select a vendor
Benchmark the application by comparing actual
performance against specific quantifiable criteria

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Steps in Licensing
Ready-Made Software (continued)
Project management team responsibilities
(continued):
Negotiate a contract
Should define performance expectations and
penalties for failure to meet expectations

Implement the new system

Manage postimplementation support

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Steps in Licensing
Ready-Made Software (continued)

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Steps in Licensing
Ready-Made Software (continued)

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Software as a Service
Application service provider (ASP): an
organization that offers software through
communication lines (such as the Web)
Software as a service (SaaS): applications
available through the Web
No software is installed on a clients computers
Files may be stored on local storage devices

ASPs may rent the software they offer

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Software as a Service (continued)

Renting software has benefits:

No need to learn how to maintain the software

No large start-up fee
Storage hardware is unnecessary
Software is usually available sooner
A good option for small companies
Is considered a software on demand approach

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Software as a Service (continued)

Renting software also has risks:
Lack of control may be an issue, as the clients
data is managed by the vendor
Vendor is unlikely to make many customized
changes to the software
Response time is impacted by traffic levels
May be security risks through a public network
Many clients used leased lines instead of the
Internet to limit security risks

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Software as a Service (continued)

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Caveat Emptor
ASP may be disappointing in some areas:
Scope of services provided
Level of reliability

Manager guidelines when selecting an ASP:

Check the ASPs history: get references

Check the ASPs financial strength
Ensure you understand the price scheme
Get a list of the providers infrastructure
Craft the service contract carefully

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Caveat Emptor (continued)

Uptime: proportion of time that the ASPs
systems and communications links are up
No ASP has 100% uptime
99.9 % uptime = up to 500 minutes/year of
downtime
99.999% uptime = less than 5 minutes/year of
downtime
Recommended for critical applications

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Caveat Emptor (continued)

Four categories of typical users of ASP services:
Rapidly growing companies that rely on software for
deployment of their operations
Small companies without cash to pay up-front costs
for software
Medium-sized companies that need expensive
software
Organizational units at remote locations

Storage service provider (SSP): rents storage

space for remote storage of client files
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User Application Development

User application development:
nonprogrammer users write their own business
applications
User-developed software is usually:
Simple and limited in scope
Small applications developed for immediate or
brief needs
Maintained by end users

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User Application Development

(continued)

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Managing User-Developed Applications

Challenges of user-developed applications
include:

Managing the reaction of IT professionals

Providing support
Compatibility
Managing access

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Managing User-Developed Applications

(continued)

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Advantages and Risks

Advantages of user development of applications:

Shortened lead times

Good fit to needs
Compliance with culture
Efficient utilization of resources
Acquisition of skills
Freeing up IS staff time

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Advantages and Risks (continued)

Disadvantages of user-developed applications:

Poorly developed applications

Islands of information
Duplication
Security problems
Poor or no documentation

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Summary
Several alternatives to having applications
developed in-house include outsourcing, licensing
ready-made software, using software as a
service, and allowing users to develop their own
software
Outsourcing can mean commissioning
development or assigning services to vendor
Outsourcing custom-designed applications might
afford the organization a good fit of software to
need
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Summary (continued)
Outsourcing IT services has great benefits, such
as reduced cost and allowing the organization to
focus on its core competency
Outsourcing IT services has potential risks, such
as loss of control, loss of experienced
employees, and loss of competitive advantage
Licensing software advantages include software
being immediately available and low-priced
Disadvantage of licensing software is often a
loose fit to the organizations needs
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Summary (continued)
Software as a service, from an ASP, is a popular
method of obtaining software for a monthly fee
User application development advantages include
short lead time, good fit, freeing IT staff
User application development disadvantages
include poor quality, islands of information, security
problems, and poor documentation
Over half of Americas office workers have rich
computer resources
Policies must be established to prevent computer
abuse by employees
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