Managing IT Outsourcing

1
Managing IT Outsourcing

• Chapter 9

2
The Issues

• Why Outsourcing Alliances are So Difficult
• Outsourcing in Retrospect
• Outsourcing in the 21st Century
• What Drives Outsourcing
• When to Outsource
• Structuring the Alliance
• Managing the Alliance

3
Why Outsourcing Alliances Are So Difficult?

• Major Outsourcing contracts are long term 8-10
  years
• The Timing of Benefits to customer and vendor
  vary
• Critical Mass Needed
• Access to Capital Needed

4
Outsourcing in Retrospect

• Outsourcing IT has been used by organizations for
  a long time
• ADP (1949)
• CSC
• EDS
• Drivers Cost effectiveness, Avoidance of
  building in-house IT Skills, Access to special
  skills and functional capabilities

5
Outsourcing in the 21st Century

• Acceptance of Strategic Alliances
• ITs Changing Environment
• Technological Awareness

6
What Drives Outsourcing?

• General Managers concerns about Cost and Quality
• Breakdown of IT Performance
• Intense Vendor Pressure
• Simplified General Management Agenda
• Financial Factors
• Corporate Culture
• Eliminating the Internal Irritant
• Other Factors

7
When to Outsource

• Position on Strategic Grid Figure 9.1
• Development Portfolio
• Organizational Learning
• A firms position in the market
• Current IT Organization

8
Structuring the Alliance

• Areas To Outsource
• Cost Savings
• Supplier Stability and Quality
• Management Fit
• Conversion problems

9
Managing The Alliance

• The CIO Function
• Performance Measurement
• Mix and Coordination of Tasks
• Customer-Vendor Interface

10
The IT Business

• The analogy

11
The Analogy

• IT Strategic Importance in Business
• Computing, telecommunications, desktop
  technologies merging
• Organizational Learning critical
• Make or Buy Shifting toward external sources
• Systems Life cycle still valid but transformation
  occurring

12
Business pressures

• IT Management
• User Management
• General Management
• Customers
• Vendors

13
The IT Market Mix

• The Products
• The IT Customer
• Costs
• Channels of Distribution
• Competition
• Promotion
• Price

14
The Role of the Board Of Directors

• Appoint and continually assess the IT Chief
  Executive
• Assure that appropriate standards are in place
  being adhered to Use the IT auditor to help
  monitor
• Ensure the board is constructed to provide
  overall guidance to the IT Business
• Provide strategic Directions

15
The Role of the IT Chief Executive

• Maintain Board relationships personally
• Ensure that the Strategy-formulation process
  evolves
• Pay close attention to Salary, personnel
  practices, employee quality of life issues
• Give high Priority to manufacturing security
• Give appropriate balance to marketing,
  manufacturing and control of IT Business