Week 10
Monday, April 3
• Strategic Outsourcing
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
1
Drivers of Outsourcing
• General management’s concern about costs and quality
– Tighter overhead cost control of fringe benefits
(leaner overhead structures of outsourcer)
– More aggressive use of low-cost labor pools by using
geography creatively
– Tough world-class standards applied to the company’s
staff (appointed at time of contract)
– More effective bulk purchasing and leasing
arrangement for all aspect of the hardware/software
configuration through discounts and better use of
capacity
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
2
Drivers of Outsourcing
• General management’s concern about costs and quality
(cont.)
– Better management of excess hardware capacity
– Better control over software licenses through both
negotiated and realistic examination
– More aggressive management of service and
response time to meet corporate standards
– Hustle
– Ability to run with a leaner management structure
– Ability to access higher levels of IT staff skills
– Creative and more realistic structuring of leases
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
3
Drivers of Outsourcing
• Breakdown in IT performance
– Need to retool lacking technology
• Intense supplier pressures
– Sales of surplus supplier capacity
• Simplified general management agenda
– Outsource non-core competence operations
• Financial factors
– Reduce sporadic capital investments in IT
– Downsizing IT operating costs
– Greater organizational awareness of IT’s costs
– More appealing for takeovers
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
4
Drivers of Outsourcing
• Corporate culture
– Resistance to change within the organization
– Labor unions
• Eliminating an internal irritant
– Conflicts between users and IT staff
• Other factors
– Quick access to current technology and skills
– Need to quickly response to changes in the market
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
5
Outsourcing Benefits
Benefits
Initial problem
“solved”
Low cost to
maintain the
initial
investments
Changes in
business
environment
Large initial
investments
Time
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
6
Sunset Period
Performance
Requirements
Organizational Needs
(Outsourcee)
Widening gap
and benefits
decrease
System Performance
(Outsourcer)
Upgrades
Time
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
7
Focus of Outsourcing through Time
Location:
Internal Automating:
Computerizing physical
and clerical processes,
Data processing era
(1960-1980)
Embedding: Integrating
computers into
products and services,
Micro era (1980-95)
External
Physical aspects
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Informating:
Leveraging knowledge
workers with
computers, Networking
era (1990-present)
Networking:
Information
superhighway,
Network era (1990present)
Information
8
Framework for Outsourcing
1. Position on the strategic grid
Product differentiation
High
Yes
Strategic Depends
Strategic IT plan,
initiatives
Yes
Depends
Turnaround
Gradual adoption
Factory
Operational IT
Impact of
Existing IT
applications
Support
Basic elements
Low
Low
Impact of Future IT
applications
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
High
9
Strategic Grid: Outsourcing
High
Impact of
Existing IT
applications
Factory
Operational IT
• Economies of scale
• Higher-quality service and
backup
• Management focus
facilitated
Support
Basic elements
• Access to IT professionals
• Focus on core
competencies
• Access to current IT
• Reduce risk in IT
investments
•
•
•
•
Strategic
Strategic IT plan, initiatives
Correct internal problem
Tap cash source
Cost flexibility
Divestiture
Turnaround
Gradual adoption
• Internal IT shortfalls
• Internal IT development
skill shortfalls
Low
Low
Impact of Future IT
applications
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
High
10
Framework for Outsourcing
1. Position on strategic grid (cont.)
– Outsource operational activities
• More operationally dependent organizations
– Need for greater analysis when large IT budgets
involved
2. Development portfolio
– Maintenance vs. development projects
• High structured vs. low structured development
work
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
11
Framework for Outsourcing
3. Operational learning
– Organizational assimilation of technology
4. Organization’s IT architecture and infrastructure
– Currency of architecture
5. Current technology in the organization
– Segregated operations more easily outsourced
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
12
Structuring the Alliance between Outsourcer
and “Outsourcee” (Customer)
• Factors
– Contract flexibility
– Standards and control
– Areas to outsource
– Cost savings
– Supplier stability and quality
– Management fit
– Conversion problems
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Alliance
13
Structuring the Alliance between Outsourcer
and “Outsourcee” (Customer)
• Contract flexibility
– Accommodating changes in the environment
• Information needs
• Competitive needs
• Advances in IT
• Standards and control
– Risk (i.e., lost of control, disruptions) in operations
– Risk in introducing innovations to the organization
– Risk in revealing internal secrets
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
14
Structuring the Alliance between Outsourcer
and “Outsourcee” (Customer)
• Areas to outsource
– Determine
• Are operations segregated or tightly embedded?
• Can specialized competencies be acquired in the
long run?
• Are operations core to the organization?
• Cost savings
– Objective evaluation of costs and savings
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
15
Structuring the Alliance between Outsourcer
and “Outsourcee” (Customer)
• Supplier Stability and Quality
– Financial stability
• Difficult to insource
• Difficult to change outsourcers
– Incompatibility between the organization and
outsourcer
• Technology
• Organization culture
• Between technology and organization’s strategy
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
16
Structuring the Alliance between Outsourcer
and “Outsourcee” (Customer)
• Management fit
– Compatibility between management styles and
cultures
• Conversion problems
– Mergers and acquisitions
• Incompatibilities
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
17
Managing the Alliance
• Critical areas:
– CIO Function
• Management (balance between organization and
outsourcer)
• Planning (vision)
• Awareness of emerging technologies
• Continuous adaptation (evolution)
– Performance measurements
• Essential standards, measurements and
interpretations
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
18
Managing the Alliance
– Mix and coordination of Tasks
• Development versus maintenance (portfolios)
– Associated risks inherent to each
– Customer-outsourcer interface
• Delegation of authority, not responsibility
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
19
Information Security
Protecting the Information Resource
• Five security pillars
– Authentication – verifying the authenticity of the user
• Something you know, have or are (i.e., physical
attribute)
– Identification – identifying users to grant them
appropriate access
– Privacy – protecting information from
being seen
Encryption
– Integrity – keeping information in its
original form
– Nonrepudiation – preventing parties from denying
actions they have taken
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
20
Management and Technical
Countermeasures
Management countermeasures
• Evaluate return on their security expenditures
• Conduct security audits
• Do not outsource cybersecurity
Expense
• Security awareness training
Likelihood
Technical countermeasures
• Firewalls
Balancing between expense
• Encryption
and likelihood of a threat
• Virtual private networks (VPN)
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
21
Planning for Business Continuity
• Recognize threats
• Contingency plans if a threat is realized
– Alternate workspaces for people to resume work
– Backup IT sites
– Up-to-date evacuation plans
– Backed up computers and servers
– Helping people cope with disaster
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
22
Internal and External Resources
Internal
• Multiple data centers
• Distributed processing
• Backup communications facilities
• LANs
External
• Integrated disaster recovery services
• Specialized disaster recovery services
• Online and off-line data storage
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
23