Lecture 1: IT Strategy 2/2 Flashcards
Make or buy for when high proficiency and low business importance?
Grow and offer
Make or buy for when low proficiency and high business importance?
Managed Partnering
When to make by yourself?
High own proficiency and high business importance
What is a spin-off in IT?
Set up the internal IT provider as an independent (subsidiary) enterprise with P&L responsibility.
What are the 4 expectation categories when spinning-off?
Financial, state-of-the-art, performance pressure, separation of concerns
What are the financial expectations of a spin-off?
- Profit contribution through third-party business
- cost reduction by further consolidation
What are the state-of-the-art expectations of a spin-off?
- increased attractiveness for managers and staff with IT as primary purpose rather than a support function.
- know-how infusions by joint ventures
What are the performance pressure expectations of a spin-off?
- achieve market comparability by competitive pressure
- transparent utilization of funds
What are the separation of concerns and expectations of a spin-off?
- relieving IT people of service/governance dichotomy.
- budget relocation to the customer side
What are some spin-off design decisions?
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.
Outsourcing
Medium- or long-term relocation of a significant part of value creation to an external provider, often including employee and asset transfer.
What are the 3 expectations from outsourcing?
State-of-the-art, financials, performance pressure
State-of-the-art expectations from outsourcing?
- relieve management of competency requirements
- focus on core business
Financial expectations from outsourcing?
- cost reduction by economies of scale
- variabilization of fixed costs
Performance pressure from outsourcing?
- transparency by fixed contractual terms
- market compatibility of the service provider
What is the typical cost development of IT outsourcing?
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
Is there a worldwide growing outsourcing market?
Yes. CAGR around 8%
What are the typical reasons that expectations are often disappointing in outsourcing?
- Strategic objective
- partner selection
- contract design
- governance
- monitoring
Which strategic aspects are disappointing in outsourcing?
- no strategic context
- no alignment with business goals
Which partner selection aspects are disappointing in outsourcing?
- inadequate due diligence
- missing competences
- cultural discrepancies
Which contract design aspects are disappointing in outsourcing?
- lack of incentives and penalties
- imprecise SLAs
Which governance aspects are disappointing in outsourcing?
- unclear roles and responsibilities
Which monitoring aspects are disappointing in outsourcing?
- no continuous performance measurement
- hard to measure SLAs
What are the 3 expectations in offshoring?
financial, quality, capacity
What is the basic rule in outsourcing?
- You can only successfully outsource what you can successfully manage yourself
What are the 3 expectations in offshoring?
financial, quality, capacity
What are the financial expectations in offshoring?
35-50% cost savings in offshoring
What are the quality aspects in offshoring?
- high process standards for software development
- additional services that are not affordable domestically
What are the capacity aspects in offshoring?
- leveling capacity bottlenecks (India graduates 100,000 new IT professionals every year)
Offshoring definition
relocation of labour-intensive services into countries with lower factor costs
Which cost savings in offshoring are realistic?
40%. Employee costs are cheap but then there is the mark-up by the vendor, learning curve, communication costs etc.
What are the risks in offshoring?
- you need an appropriate project size (costs of initiation)
- language barriers
- projects with high technical complexity
- lack of specific project management skills
When the location is domestic and responsibility is the own then it is:
spin-off
When the responsibility is external and the location domestic.
Onshore outsourcing
When the location is offshore and the responsibility is own
captive offshoring
