IS IT Outsourcing GP Dhillon Virginia Commonwealth University

IS/IT Outsourcing GP Dhillon Virginia Commonwealth University

A Typical MIS Department Budget 33% Systems and Programming n n 70% Maintenance 30% New Development 10% Administration and Training 57% Operations n n Includes PCs, printers, off the shelf software, network hardware/software Involve more $ than any other part of the MIS department

Reasons to Outsource Organizationally-driven Improvement-driven Financially-driven Revenue-driven Cost-driven Employee-driven

What is Outsourcing? Defined Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers.

Three solutions to operations problems Problems: downtime, obsolescence, unresponsive systems Solutions: n n n Buy more equipment Continuously fight fires and rearrange priorities, getting people to solve the problems at hand Continually document and measure what you are doing, to find out the real problems, not just the apparent ones. Then set standards - the preferred solution

What does a business process look like? Supplier The Company Supplier

What does a business process look like? Supplier ERP or equiv I N T E R or I N T R A N E T The Company ERP or equiv I N T E R or I N T R A N E T Supplier ERP or equiv

Outsourcing Information Systems Functions: Customer-Vendor Changes as IT has moved from the more traditional professional services category to outsourcing: n IS Management loses an increasing amount of control n Vendors take more risk n Vendors’ margins improve n Choosing the right vendor becomes more important

Outsourcing Information Systems Functions: Two Driving Forces Focus on core businesses: Global competition in 1970 s-2002 have forced efficiencies Shareholder value: Companies “priced” based on shareholder value, and focus on short term profits. Management must stress value, they must consider outsourcing in all their nonstrategic functions.

What does a business process look like? St HP Supplier KO Sup ERP or equiv St I N T E R or I N T R A N E T The Company ERP or equiv St HP KO Sup I N T E R or I N T R A N E T HP Supplier KO Sup ERP or equiv St HP Supplier KO Sup ERP or equiv

Strategic Key Operational High Potential Support

Nature of contracts

Strategic Key Operational High Potential Support

Outsourcing Alternatives IT outsourcing n n Single outsourcer Big bang (common pre-1990) Sell IT assets to outsourcer Move personnel to outsourcer Get fixed costs off books and change to variable costs Outsourcers took loss for 2 years and then got economy of scale to keep costs down Many problems with transition and culture shock of exemployees being treated like “temps”

Outsourcing Alternatives Best-of-breed outsourcing (common throughout 1990 s) n n n Multiple outsourcers Choose each outsourcer based on their expertise Alternatively, could be “collaborative outsourcing” General contractor and subcontractor system

Outsourcing Alternatives Shared services n n Insourcing within organization Across large organization, create centralized service unit that deals with services of all sorts (like a spin off company that has its own management and autonomy and in some cases is legal corporate entity) Specialties within types of service (like IT or mailroom or legal) have autonomous subunits within service unit Insource group can subsequently outsource

Outsourcing Alternatives Business process outsourcing (late 1990 s) n n Margins for routine IT services shrank as they became commodities BPR became lucrative niche and is more art than science BPO is buying strategic process and administration of new processes for use of IT instead of just cutting costs of existing IT processes Is risky and sometimes risks and rewards are shared in joint ventureship