Lecture 1: IT Strategy 2/2

Question 1

Make or buy for when high proficiency and low business importance?

Answer 1

Grow and offer

Question 2

Make or buy for when low proficiency and high business importance?

Answer 2

Managed Partnering

Question 3

When to make by yourself?

Answer 3

High own proficiency and high business importance

Question 4

What is a spin-off in IT?

Answer 4

Set up the internal IT provider as an independent (subsidiary) enterprise with P&L responsibility.

Question 5

What are the 4 expectation categories when spinning-off?

Answer 5

Financial, state-of-the-art, performance pressure, separation of concerns

Question 6

What are the financial expectations of a spin-off?

Answer 6

• Profit contribution through third-party business
• cost reduction by further consolidation

Question 7

What are the state-of-the-art expectations of a spin-off?

Answer 7

• increased attractiveness for managers and staff with IT as primary purpose rather than a support function.
• know-how infusions by joint ventures

Question 8

What are the performance pressure expectations of a spin-off?

Answer 8

• achieve market comparability by competitive pressure
• transparent utilization of funds

Question 9

What are the separation of concerns and expectations of a spin-off?

Answer 9

• relieving IT people of service/governance dichotomy.
• budget relocation to the customer side

Question 10

What are some spin-off design decisions?

Answer 10

For example the subsidiary might be (not, not with competitors, free) in conducting business with third-parties.
As a provider of the parent company the spin-off might have a turnover guarantee being the first offer or last-bid, or the parent company has the obligation to contract the spinn-off.

Question 11

Outsourcing

Answer 11

Medium- or long-term relocation of a significant part of value creation to an external provider, often including employee and asset transfer.

Question 12

What are the 3 expectations from outsourcing?

Answer 12

State-of-the-art, financials, performance pressure

Question 13

State-of-the-art expectations from outsourcing?

Answer 13

• relieve management of competency requirements
• focus on core business

Question 14

Financial expectations from outsourcing?

Answer 14

• cost reduction by economies of scale
• variabilization of fixed costs

Question 15

Performance pressure from outsourcing?

Answer 15

• transparency by fixed contractual terms
• market compatibility of the service provider

Question 16

What is the typical cost development of IT outsourcing?

Answer 16

Beginning: 100% = IT cost before outsourcing
10% cost increase in the transition phase
-30% cost because of increase in the IT efficiency
–> Long-term -20% of costs

Question 17

Is there a worldwide growing outsourcing market?

Answer 17

Yes. CAGR around 8%

Question 18

What are the typical reasons that expectations are often disappointing in outsourcing?

Answer 18

• Strategic objective
• partner selection
• contract design
• governance
• monitoring

Question 19

Which strategic aspects are disappointing in outsourcing?

Answer 19

• no strategic context
• no alignment with business goals

Question 20

Which partner selection aspects are disappointing in outsourcing?

Answer 20

• inadequate due diligence
• missing competences
• cultural discrepancies

Question 21

Which contract design aspects are disappointing in outsourcing?

Answer 21

• lack of incentives and penalties
• imprecise SLAs

Question 22

Which governance aspects are disappointing in outsourcing?

Answer 22

• unclear roles and responsibilities

Question 23

Which monitoring aspects are disappointing in outsourcing?

Answer 23

• no continuous performance measurement
• hard to measure SLAs

Question 24

What are the 3 expectations in offshoring?

Answer 24

financial, quality, capacity

Question 25

What is the basic rule in outsourcing?

Answer 25

• You can only successfully outsource what you can successfully manage yourself

Question 26

What are the 3 expectations in offshoring?

Answer 26

financial, quality, capacity

Question 27

What are the financial expectations in offshoring?

Answer 27

35-50% cost savings in offshoring

Question 28

What are the quality aspects in offshoring?

Answer 28

• high process standards for software development
• additional services that are not affordable domestically

Question 29

What are the capacity aspects in offshoring?

Answer 29

• leveling capacity bottlenecks (India graduates 100,000 new IT professionals every year)

Question 30

Offshoring definition

Answer 30

relocation of labour-intensive services into countries with lower factor costs

Question 31

Which cost savings in offshoring are realistic?

Answer 31

40%. Employee costs are cheap but then there is the mark-up by the vendor, learning curve, communication costs etc.

Question 32

What are the risks in offshoring?

Answer 32

• you need an appropriate project size (costs of initiation)
• language barriers
• projects with high technical complexity
• lack of specific project management skills

Question 33

When the location is domestic and responsibility is the own then it is:

Answer 33

spin-off

Question 34

When the responsibility is external and the location domestic.

Answer 34

Onshore outsourcing

Question 35

When the location is offshore and the responsibility is own

Answer 35

captive offshoring