1 / 19

Outsourcing

Outsourcing. Prof. Eddy Vandijck. Reasons for IT-outsourcing. Companies are increasingly outsourcing IT aspects for several reasons: Concern for cost and quality Lagging IT performance Supplier pressure Access to special technical and application skills Other financial factors

Télécharger la présentation

Outsourcing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Outsourcing Prof. Eddy Vandijck

  2. Reasons for IT-outsourcing Companies are increasingly outsourcing IT aspects for several reasons: • Concern for cost and quality • Lagging IT performance • Supplier pressure • Access to special technical and application skills • Other financial factors Outsourcing fits very well with a tendency towards strategic alliances.

  3. Problem The outsourcing arrangements are easier to set up than to maintain or dissolve. Long-term, sustained management of a strategic alliance is the dominant challenge of effective outsourcing.

  4. Why is it difficult ? • A standard contract takes 8 to 10 years, but: • Chip performance is growing by 25% per year • Switching cost issues • New situation after 3 years From the client point of view: • The first year payments fit very well with the planned output, but after a few years the payments do not fit anymore with the anticipated outputs. • This leads to new negotiations and misunderstanding.

  5. Why is it difficult ? From the supplier’s perspective: • First year often a capital payment • High cost for switching responsibility to them • High cost for appropriate cost-reduction initiatives • When the outsourcer is finally moving into its earning stream, the customer feels the need for new services. • Only few outsourcers have the critical mass and the financial means to handle larger outsourcing contracts.

  6. Changing IT Environment • High pressure due to keeping the old system running while moving to a new architecture • Outsourcing can give access to the required skills • Outsourcing can speed-up the transition • Part of the code is already outsourced (WP, Spreadsheets, …) • Transition of legacy systems Integrating Internal systems with those of customers and suppliers Internal transaction Processing systems

  7. Drivers for outsourcing • General managers’ concern about cost and quality • Easier planning • Use of low-cost labor force • Application of world-class standards and re-qualify IT personnel • Better management of excess hardware capacity • SLA’s • Higher level IT staff skills sometimes via advanced packages • Breakdown in IT performance via new approach • Intense supplier pressure • Simplified general manager agenda • Financial factors (intangible IT assets, fixed-variable cost) • Corporate culture • Elimination of internal irritant

  8. Uninterrupted service-oriented IRM Outsourcing: yes, unless company is huge and well managed Economy of scale for small firms Higher quality service and backup Management focus facilitated Easier international IT solutions Support-oriented IRM Outsourcing: yes Access to higher IT professionalism Access to current IT technologies Risk of inappropriate IT architecture reduced Strategic IRM Outsourcing: no Reasons to consider outsourcing Rescue an out-of-control internal IT-unit Facilitate cost flexibility Facilitate management of divestiture Turnaround IRM Outsourcing : no Reasons to consider outsourcing Internal IT-unit not capable in required technologies Internal IT-unit not capable in required project management skills Information Resource ManagementStrategic grid High Current dependence on information Low High Importance of sustained, innovative Information resource development Source: Corporate systems Management

  9. When to outsource IT • Development portfolio • The higher the percentage of system development portfolio in maintenance or high-structured projects (outputs well defined), the more the portfolio is candidate for outsourcing (labor, skills) • High-technology, highly-structured work (skills) • Low-structured projects difficult to outsource • Organizational learning • Sophistication of organizational learning facilitates the ability to manage outsourcing arrangements • Responsibility for BPR difficult to outsource • The more experience a company has in BPR the easier outsourcing will be • Position in the market • The farther a company is from the network era, the more useful outsourcing can be to close the gap • Current IT-organization • The more IT-development and operations are separated, the easier it will be to specify a enduring outsourcing contract

  10. Smart sourcing Technical help desk Skill sourcing Network management Security management Configuration mngt Performance mngt Fault management Simple contracts Hardware maintenance Cabling Moves/adds/changes Non-candidates Personal help-desk Service level management IT product management Research and development Legacy outsourcing Mainframe COBOL programs System programming Software maintenance Physical site management How to Outsource High Technology Transfer Strategic Value Low Low In-house skills High From: Chapter 12 Wendy Robson

  11. Structuring the Alliance • Contract flexibility • 10-year contract cannot be written without flexibility • Evolving technology, changing business/economic conditions • Mutual interest in the relationship is important • Standards and control • With IT, an important part of the firm’s operation is handed over to a third party • Must be handled carefully but can be accepted (e.g. electricity) • A company should carefully develop detailed performance standards for system response time, availability of service, responsiveness to system requests, … • Penalty clauses for not respecting SLA’s coherent with real loss

  12. Important questions • Can proposed outsourced piece be separated easily from the rest of the firm? • Does the piece requires particular specialized competencies that we do not have or lack the time to get them? • How central are the proposed outsourced pieces to our firm? • What about the stability and quality of the supplier? • Is there compatibility between the technology used by the client and the outsourcer’s skill base? • Is there a potential conflict of interest? • Time to finish

  13. Application Outsourcing • Topics • Application development • Package integration • Conversion and migration • Integration • Application portfolio renewal • Vendor criteria • Has the vendor similar contracts for a long time? • Is application outsourcing his main business? • Is it his only business? • Has the vendor useful methodologies? • Has the vendor experience in your business? • Has the vendor a strategic plan and vision? • Has the vendor good alliances? • Has the vendor an organized R&D unit?

  14. Concerning the benefits Save Money is Relative ! The easiest way to save money through outsourcing, is to spend too much money beforehand.

  15. Enterprise budgetBefore and after outsourcing Source: Gartner group July 2000 Before Staff After Client final cost reduction Old Client Retained cost New Needed Reduction of Direct costs Software VAT Outsourcer’s Margin Hardware Outsourcer’s Overhead Telecom Outsourcer’s direct cost Staff Software Hardware Telecom Other Depreciation (assets, Investments, goodwill) ESP’s Invoice Other expenditure Depreciation (assets, investments)

  16. Enterprise budgetOutsourcing budget model Source: Gartner group July 2000 • Price is baseline rate for certain resources and services to be delivered through the contract’s duration. • Consider initial migration cost (during a year) • Do not underestimate retained cost (difficult to estimate) • Assets transfer cost • Taxes might be higher (VAT) • Outsourcing risk and effect on internal and external cost • Anticipate cost at the end of the contract

  17. Where can we save money • Economy of scale • Purchasing advantages via increased buying capacity • Sharing indirect costs • Better usage of assets and resources • Best practices • Management • Processes • Procedures • Tools • Know-how and feedback • Standardization

  18. Vendors prefer long-term contracts • Biggest possible contact (salesman) • Loock the customer for many years • Amortize first-year investments • Dilute the risk of acquiring assets and people • Exploit infrastructure cost decrease

  19. Enterprise Risk • Overall risk (service in-house) • Cost to reduce that risk early on (lawyers, consultants, …) • Residual risk after contract is signed • Possible economic impact of that risk

More Related