Models for Acquiring IS Capabilties Part 2 - Outsourcing

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Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Models for Acquiring IS Capabilties

Part 2
-

Outsourcing

70
-
451 Management Information Systems

Robert Monroe

October 6, 2010

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Agenda


Assignment #2


Outsourcing, Offshoring, Software as a Service (SaaS)


Mid
-
semester course feedback

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Assignment #2


Questions?



Clarifications?



Reminders:


Office hours this afternoon, 4:00


5:30


A lot of people want to have me review their papers and meet with
me in the last 24 hours that the assignment is due. I am happy to
meet with you to discuss your assignment and recommend that you
set up a meeting time with me to go over it before you hand it in.



but

if you wait until the last minute to try to meet with me,
expect that there will be limited time available to do so!

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Goals For Today

By the end of today's class you should:


Be able to explain what the terms
outsourcing

and
offshoring

mean, how they are similar, and why they are different.


Be able to explain the basic concepts of
Utility Computing

and
Software as a Service

(SaaS)


Understand some of the core challenges to outsourcing IS
development, processes, and management.


Understand some of the advantages and disadvantages of:


The ‘traditional’ IS model of buying or building your own systems


The 'Software as a Service' (SaaS) and 'Utility Computing' models


Outsourcing IS services to professional service providers

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Definitions: Insourcing, Outsourcing, Offshoring


Insourcing
, also known as
in
-
house development
, is the
traditional SDLC model in which each step in the SDLC is
conducted primarily by a company’s own staff, possibly
with on
-
site guidance and assistance from consultants and
contractors



Outsourcing

is an arrangement in which part or all of an
organization’s IS capabilities are provided by an outside
contractor



Offshore outsourcing
, also known as
offshoring
, is an
outsourcing arrangement in which the contractor provides
the outsourced IS capabilities from a lower
-
wage country



Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

SDLC Stages and Tasks

Source
: diagram derived from [OM08] page 467.

Implementation
Activities

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Plan

Analyze

Design

Implement

Maintain

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Acquire Hardware and Software


Key question at this stage:


How do we acquire the Information System capabilities that
we have identified as needed in the previous stages?



We will look at three models for doing so this week:


Traditional model: Buy and/or build your own system


(Re)emerging models: Utility Computing and Software as a
Service (SaaS)


Outsourcing model: Hire another organization to do much or
all of the work for you

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Emerging Model > Utility Computing


In the
Utility Computing

model, a business contracts with a service
provider for agreed upon IT infrastructure capacity and capabilities



Service provider owns and manages the computing infrastructure



Business customer uses (and pays for) computing resources as needed



Computing resources are generally accessed over a network



Service provider is responsible for:


Providing a robust, highly available, and scalable IT infrastructure


Managing those resources efficiently


Handling peak loads


Meeting guaranteed service levels (specified by a Service Level Agreement)


Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Emerging Model > SaaS


The Software as a Service (SaaS) model extends the utility
computing model such that the service provider also provides the
software that the business needs for its information system


Business / customer subscribes to application as a service


Service provider provides all hardware, networking, software, etc.


Customer accesses application over the network


Appealing pricing model


generally subscription based



SaaS examples


Consumer: Gmail, Google Docs, MobileMe, browser
-
based games


Business: Google Apps, Blackboard, Dropbox, Salesforce.com, NetApps,
ADP, online exchanges, Amazon.com storefronts

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Develop and Integrate Software

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Tasks


Programming


Configuration


Unit testing


Integration


Technical roll
-
out plan


Project management

Goal


Convert the requirements
and design into a
functioning information
system

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Testing

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Tasks


Make test plans


Execute tests


Identify defects


Report, track, and repair
defects


Prioritize defect repair


Recommend whether to
release / roll
-
out

Goal


Confirm (or disprove)
that the system delivered
meets:


Business requirements


System requirements


Functional design
specification

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Testing > Types of Testing


Unit test



does this software module work properly?



Systems integration test



can we integrate system modules?



Performance / load testing



does it work under heavy load?



Usability testing



can people easily use the system?


Should be done starting very early in SDLC, continue through past release
to maintenance stages



User Acceptance Testing



Does the system meet the requirements laid out originally?


Can people use the system to solve their business problems?

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Training and Documentation


Technical


Run books, operations manuals, configuration settings,
installation practice / dry
-
runs, user support preparations



Business


End user training, documentation of all process changes, dry
-
run for process switch
-
over, change management plan written
and implemented, user support ready to assist

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Implementation > Installation and Roll
-
Out Tasks

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out


Implement business
process changes


Track performance
carefully


Troubleshoot



Install software and
hardware


Populate / migrate data


Sponsor sign
-
off


Adapt / cut
-
over other
systems

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

SDLC Stages and Tasks

Source
: diagram derived from [OM08] page 467.

Implementation
Activities

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Plan

Analyze

Design

Implement

Maintain

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Outsourcing and Offshoring


Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Definitions: Insourcing, Outsourcing, Offshoring


Insourcing
, also known as
in
-
house development
, is the
traditional SDLC model in which each step in the SDLC is
conducted primarily by a company’s own staff, possibly
with on
-
site guidance and assistance from consultants and
contractors



Outsourcing

is an arrangement in which part or all of an
organization’s IS capabilities are provided by an outside
contractor



Offshore outsourcing
, also known as
offshoring
, is an
outsourcing arrangement in which the contractor provides
the outsourced IS capabilities from a lower
-
wage country



Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

There Are Different Approaches To IS Outsourcing


Outsource it all!


Hire another company to handle all of your company’s IS needs



Outsource certain aspects of your IS organization’s
responsibilities, such as:


Systems administration, hosting, and maintenance


Testing


Help desk / user support


Etc...



Outsource on a project
-
by
-
project basis


Full project, beginning to end


Selected pieces of the project



All of these approaches can be effective under certain conditions
(and will likely be ineffective under other conditions)

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Why Would You Want To Outsource IS?

Benefits


Your company focuses on
its core competencies (and
profit centers)


Your IS provider focuses
on its core competencies


Lower total costs
(hopefully)


Better overall outcomes of
IS projects


Increased agility and
ability to leverage new
technologies




Costs and Risks


Loss of control


Loss of agility and
flexibility


Many opportunities for
disagreement between
contractor and customer
(you)


High likelihood of higher
costs


Security and
confidentiality concerns

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Offshoring Risks


Offshoring amplifies the benefits, as well as the costs
and risks, of in
-
country outsourcing


Generally a much stronger focus on cost savings


Pool of competent and capable outsourcing firms grows


Communication difficulties are amplified


Risks grow, especially for protection of IP and confidential
information



Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Exercise


For The Carnegie Airlines Project:

Implementation
Activities

Acquire hardware,
software, and
services

Develop,
customize, and
integrate software

Testing

Training and
documentation

Installation, data
migration, roll
-
out

Plan

Analyze

Design

Implement

Maintain

1.
Order the stages and tasks from easiest to outsource, to
hardest to outsource


2.
Order the stages and tasks from lowest
-
return from
outsourcing to highest
-
return from outsourcing

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Some Thoughts On How To Outsource Effectively


You need to be
more

disciplined to outsource IS
effectively than to do your IS processes in house



Learn to work with your outsourcing partner/provider
gradually, starting with smaller, lower
-
risk projects



Be very clear of what your goals are in pursuing an
outsourcing arrangement



Devise the outsourcing agreement carefully


make sure
that both parties have incentives to make it work, and
the flexibility to execute

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Further Thoughts On How To Outsource Effectively


Have an outsourcing strategy and make sure that your
tactical outsourcing and offshoring decisions are consistent
with that strategy



Go into your outsourcing program with clear, well defined
metrics that both parties agree on, as well as how they will
be monitored, and what actions will be taken if the metrics
show problems



Outsourcing is not a panacea (cure
-
all). If you have a poorly
run IS organization, and the rest of your company does a
poor job managing IS, then simply asking an outsourcing
company to take over is not likely to fix those problems

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Discussion Question


Think back to the Cisco ERP case.



Do you think that Cisco should have considered using an
offshore IT provider to complete their ERP implementation
project?



If so, why?



If not, what if anything could they have done differently to
make the project better suited to using an offshore IT
provider?

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Comparing Different IS Acquisition Models

Benefits (+)

Drawbacks (
-
)

Traditional

Build / Buy

SaaS

/
Utility

Offshore

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

Mid
-
Semester Course Feedback


Please complete the course feedback forms



Your feedback is important!


I review it carefully and use it to improve the course



If you have suggestions to improve the course, now is
the time to offer them (though I’m happy to hear them
at other times as well)



Your responses are confidential


I only receive a
typed
-
up summary of all of the comments. I don’t ever
see the original papers

Carnegie Mellon University





©2006
-

2010 Robert T. Monroe


70
-
451 Management Information Systems

References


[VV06] Atul Vashistha and Avinash Vashistha, The
Offshore Nation, McGraw
-
Hill, 2006

ISBN: 0
-
07
-
146812
-
9.


[OM08] James A. O'Brien and George M. Marakas,
Management Information Systems, 8th Edition,
McGraw
-
Hill Higher Education

ISBN: 978
-
0
-
07
-
351154
-
2.