MIS 648 Presentation Notes: Lecture 13

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MIS 648 Presentation Notes Lecture 13

• Managing IT Offshoring Is it a good thing?

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AGENDA

• Introduction to the lecture
• Goals of the Lecture
• Outsourcing Definition and Context
• Offshoring Definition and Context
• Business Models of IT Offshoring (Khan
  Fitzgerald)
• Managing the relationship (Oza Hall)
• Economic Challenges

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Goals of the Lecture

• Understand the distinctions among outsourcing,
  insourcing and offshoring
• Develop a critical view of outsourcing and
  offshoring as solutions to business challenges
• Evaluate offshoring in an economic context
• Develop aids to outsourcing and offshoring
  decisions to lower risk

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The Structure of the Issue
Managing IT Outsourcing
IT Outsourcing Implementation Issues
Outsourcing General issues
Strategic Management
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Outsourcing Defined

• A partnership between one firm (client) and
  another (vendor) for the vendor to perform
  services for the client according to a predefined
  contract.
• Services may include any aspect of the client
  firm value chain or support services.
• Support services are the most likely target for
  outsourcing
• Nothing new here.

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Variations on Outsourcing

• Insourcing Internal departments compete among
  themselves or with outside vendors for contract
• Offshoring a form of outsourcing where
  vendors are located in another country

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Aspects of Outsourcing

• Determining the services to be outsourced
• Selecting the vendor
• Negotiating the terms of the contract
• Managing the contract on both sides
• Evaluating the contract delivery

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Advantages of Outsourcing

• Economies of scale
• Sticking to the knitting
• Latest technology, skills, knowledge
• Lowered costs
• Less investment in hardware, people

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Outsourcing IT Services

• IT services are simply another form of support
  services for the firm
• What makes IT service outsourcing complex and
  challenging
• Type of service (technical, technological)
• Type of people
• Type of product (intangible, unseen)
• Lets make it more challenging by going global!

Do you agree?
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Type of Service

• Data center operation
• Website design, hosting, operation
• Communication services
• System development (analysis, design,
  implementation, maintenance)
• IT planning
• Remember this list.

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Offshoring Defined

• Outsourcing to another country
• Historically offshoring has involved a few
  notable vendor countries
• IS Development India
• Specialized software Israel
• IT Services Ireland
• In essence, offshoring is an extension of the
  Maquiadora idea.
• A spot of production in one country aimed
  entirely for export to another, except in real
  time
• A negative

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Advantages of Offshoring

• Historically the advantages of offshoring have
  been almost completely economic
• Savings can run up to 90 or more
• Recently thanks to the Internet and technological
  advances, other advantages are appearing, such as
  development of markets, increased innovativeness,
  etc.
• Business for IT and IT-enabled offshoring
  services

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Challenges of Offshoring

• Strategic impact (size?)
• Technological uncertainty (gap)
• Functional complexity
• Procedural knowledge/uncertainty (stability)
• Asset specificity
• Culture differences
• Interdependency

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Models of Outsourcing

• Khan and Fitzgerald (2005) studied four British
  firms offshoring experience
• They developed a four-dimensional model of the
  outsourcing decision
• These are descriptive dimensions rather than
  predictive ones (i.e., they help us describe what
  happens rather than predict what will happen

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Khan and Fitzgerald Model
These factors influence offshoring decisions and
shape the resulting relationship
Organizational Who initiates SWOT issues
Who implements Potential for reengineering
Technological Orgl capabilities Key
requirements usage Support maintenance
Process Requirements Project management
Contract Trust security Communication
Standard quality
Environmental Domestic vs. overseas Resources
Expertise Standard quality Ability to
network Trade law political stability
Culture Market entry advantage
Culture
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Culture IS important, it turns out

• Concerns on the vendor side
• Oza and Hall studied 18 high maturity Indian
  software companies
• They wanted to know what difficulties do the
  vendors experience
• They used interviewing and grounded theory

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Difficulties

• Concerns on the vendor side
• Oza and Hall studied 18 High Maturity Indian
  software companies
• They wanted to know what difficulties do the
  vendors experience

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Full List of Concerns

• Cultural Issues
• Expectation management
• Language
• Loss of control
• Loss of jobs at client company
• Transition
• Lack of clients experience
• Distance/access
• Getting maturity
• Loss of business knowledge by client
• Time zones
• Lack of domain knowledge

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The Broader View

• Offshoring means the exportation of jobs
• Offshoring carries all the downside of
  outsourcing, perhaps magnified
• Offshoring is a natural outcome of the
  assumptions of capitalism but it does put strain
  on the jobs system, forcing home country workers
  to increase their skill levels and to employ
  increasing levels of capital-intensive technology.