Chapter 8: IT Sourcing, IT Off-Shoring Flashcards
1
Q
IT Governance and Key Issues of IT Leadership
A
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What services should be provided?
- Determining IT Strategy
- Reference models for service providing
- IT business value
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Who provides the services where?
- Organization structure
- IT sourcing and shoring
- Human resource management
- Are the services provided in the “right” way?
- Service level agreements
- Objectives and tasks of IT controlling
- IT Risk management
2
Q
IT Sourcing
A
- A highly debated global topic
- It has important implications for IT strategy & policy
- Various stakeholders
- Organizations outsourcing their IT functions & processes
- Vendors providing the services (IBM Global Services, EDS)
- Policy makers
- Governments (of countries which outsource, countries where it is outsourced)
3
Q
Outsourcing – a working Definition
A
- Outsourcing is a composition of the words outside, resource and using. That means that execution of certain in-house tasks are completely transfered to one or several external companies for a certain period of time based on the contractual Service Agreements” (Krcmar 2015: 428)
- In the context of IT it means that single IT-tasks or the whole IT- tasks are given to another company.
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It is a question of make or buy
- Whether to do everything internally or hire the services of specialists?
4
Q
Outsourcing – a working Definition - Paramters
A
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Four fundamental parameters determine the types of outsourcing arrangement that a firm may choose:
- Degree (total, selective, and none);
- Mode (single vendor/client or multiple vendors/clients);
- Degree of Ownership (totally owned by the company, partially owned, externally owned); and
- Time Frame (short term or long term)
5
Q
Classification of Outsourcing Approaches
A
6
Q
Major Domestic Sourcing Models
A
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“contract labor”, “consulting”, “staff augmentation”
- A client buys in labor to supplement in- house capabilities, but the client manages the person, usually onsite at client site.
- “fee-for-service” or “exchange-based” or “traditional” outsourcing
- A client pays a fee to a supplier in exchange for the management and delivery of specified IT products or services.
- “joint ventures”, “strategic partnerships”
- “A specific type of contract entered into by two or more parties in which each agrees to furnish a part of the capital and labor for a business enterprise, and by which each shares in some fixed proportion in profits and losses.” – American Heritage Dictionary
7
Q
Major Offshore Sourcing Models
A
8
Q
Overview of IT-Sourcing Decision
A
- The most fundamental organizational decision in IT is insourcing vs. outsourcing. There exist many forms in between.
- Reason for and risks of outsourcing and/or offshoring
- Next to the decision „who“ (sourcing) is the decision „where“ (shoring)
- A set of IT core competencies should remain inside the organization. If an organization decides to outsource an maximum of economically sensible products and services, there needs to remain a core inside the IT-department. This core is called IS-Lite.
9
Q
Reasons for Outsourcing
A
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Costs
- cost reduction
- conversion of fixed costs to variable costs
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Personnel
- avoiding the problem of obtaining qualified IT-employees
- less internal IT routine work
- risk prevention concerning a potential future shortage of qualified IT-personell
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Risks
- reduction/shift of risks of growing technological dynamics
- reduction/shift of risks from increasing complexity of the application of modern information and communication technology
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Concentration
- concentration of funds to the company ́s core business
- improvement of competitiveness by focussing the own IT-resources to the most essential tasks
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Finances
- increase of the liquidity by supply of liquid funds from the sale of IT-facilities to the outsourcing-vendor.
- possibility of positive influence on a company‘s EBIT
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Technology/Know-how
- access to special know-how (e.g. CASE-tools, expertise) that would be difficult and expensive to build up or maintain.
- usage of latest technologies without own investment.
10
Q
Risks of Outsourcing
A
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Cost
- one-time switching costs
- risks of fixed prices
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Employees
- personnel related / legal problems
- loss of key personalities and their know-how
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Technology
- fixed commitment to the outsourcing-vendor ́s technology
- danger of too much standardisation
- Privacy
- maintaining privacy of confidential data
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Know-how
- know-how transfer and the competitive advantage to competitors involved
- increasing outsourcing activities inevitably result in loss of IT-competence and know-how
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Return to the own IT / own data processing
- rebuilding of know-how after failed outsourcing projects
- log-term commitment to outsourcing contracts
11
Q
Application service provider (ASP)
A
An Application Service Provider (ASP) is a third party service firm that deploys, manages and remotely hosts a pre-packaged software application through centrally located servers. The services are delivered to a group of customers and provided over the internet or other networks for rent/lease. The ASP services are available for a - in most cases monthly use-related - fee.
12
Q
Success factors of outsourcing contract negotiations
A
- 1.) Reject standard contracts of the outsourcer
- 2.) Do not sign unfinished contracts.
- 3.) Include external outsourcing expert.
- 4.) Measure and evaluate everything during the initial phase
- 5.) Develop service level operating figures
- 6.) Develop and implement service level reports
- 7.) Specify crisis plan
- 8.) Agree on penalties for insufficient performance
- 9.) Include growth (partially cost free)
- 10.) Link prices to business volume (changes)
- 11.) Select + evaluate the customer manager of the outsourcer
- 12.) Include conditions for contract termination
- 13.) Avoid clauses on changing the nature of the service and resulting higher cost
- 14.) Think about consequences for your own IS-staff? (Early information and fair treatment).
13
Q
9 IT capabilities customers need in-house to make outsourcing successful
A
14
Q
12 capabilities suppliers need to make outsourcing
successful
A
15
Q
Managing the Contract
A
- The outsourcing of IT may result in the subcontracting of the technological specialist role
- But without a specialist who will supervise and evaluate the services received?
- In these circumstances the organisation would be well served by a CIO who is an executive with real IT experience with up-to-date understanding of technology
17
Q
Relevant areas of IT-service management for outsourcing
A
19
Q
Outsourcing vs. Offshoring
A
20
Q
Offshoring is driven by external and company-internal business factors.
A
