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Managing IT Outsourcing

Managing IT Outsourcing. Chapter 9. Outsourcing in Retrospect. Major drivers for outsourcing in the 1990s Cost effective access to specialized skills or occasionally needed computing power or skills Avoidance of building in-house IT skills. Access to special functional capabilities.

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Managing IT Outsourcing

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  1. Managing IT Outsourcing Chapter 9

  2. Outsourcing in Retrospect • Major drivers for outsourcing in the 1990s • Cost effective access to specialized skills or occasionally needed computing power or skills • Avoidance of building in-house IT skills. • Access to special functional capabilities.

  3. Outsourcing in the 21st Century • Acceptance of Strategic Alliances • IT’s Changing Environment

  4. Location Physical Aspects Information : Computerizing physical and : Leveraging knowledge workers Internal Automating Informating clerical processes. with computers. DP era (1960 - 1980) • User tasks leveraged through direct use of • Dominant use of mainframe and micro - computers enabled by graphical minicomputers. use interfaces (GU) and purchased • Operational level systems automated software such as word processing, primarily with COBOL. spreadsheet, graphics, and CAD/CAM. • Process controls automate primarily with • Local area networks (LANs) -- user - oriented machine language. software for e - mail, database sharing, file • Standard packages for payroll and general transfer, and groupware for work teams. ledger. • Microcomputer software consists of millions • Applications portfolio consists of millions of of lines of code -- almost 100% purchased lines of code with 50% typically from other companies. purchased from outside. : Integrating computers into : “The Information Highway” External Embedding Networking products and services. Micro era (1980 - 1995) Network era (1990 - ?) • Specialized code embedded in products and • Wide area networks (WANs) networking services to enhance function. workers, suppliers, and customers. • Microcomputers in physical products such • Internet for commercial use. as automobiles and “smart cards” in • Millions of lines of code, almost 100% services. purchased and maintained from outside • Thousands of lines of code developed by software firms. both specialized internal programmers and outside contract programmers. IT Markets Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw - Hill/Irwin, 2002.

  5. What Drives Outsourcing? • General Managers’ concerns about costs and quality. • Breakdown in IT performance. • Intense vendor pressures • Simplified general management agenda • Financial factors • Corporate culture • Eliminating an internal irritant • Other factors

  6. - High Factory - uninterrupted service - oriented Strategic information resource management information resource management : Mixed Outsourcing Presumption : Yes, unless Outsourcing Presumption company is huge and well managed Reasons to consider outsourcing: Reasons to consider outsourcing: • Possibilities of economies of scale for • Rescue an out - of - control internal IT unit. small and midsize firms. • Tap source of cash. • Higher quality service and backup. • Facilitate cost flexibility. • Management focus facilitated. • Facilitate management of divestiture. • Fiber op tic and extended channel technologies facilitate international IT solutions. Current Dependence on Information Support - oriented information resource Turnaround information resource management management Yes Outsourcing Presumption: : Mixed Outsourcing Presumption Reasons to consider outsourcing: Reasons to consider outsourcing: • Access to higher IT professionalism • Interna l IT unit not capable in required • Possibility of laying off is of low priority technologies. and problematic. • Internal IT unit not capable in required • Access to current IT technologies. project management skills. • Risk of inappropriate IT architecture reduced. Importance of Sustained, Innovative High Low Information Resource Development Strategic Grid for Information Resource Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw - Hill/Irwin, 2002. -

  7. When to Outsource • Position on the strategic grid • Development portfolio • Organizational learning • A firm’s position in the market • Current IT organization

  8. Structuring the Alliance • Contract flexibility • Standards and control • Areas to outsource • Cost savings • Supplier stability and quality • Management fit • Conversions problems

  9. Managing the Alliance • The CIO function • Partnership/contract management • Architecture planning • Emerging technologies • Continuous learning • Performance measurement • Mix and coordination of tasks • Customer-vendor interface

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