Lecture 5 - ITO Practice Flashcards
Outsourcing strategies
- Insourcing
o companies retain the management and provision of more than 80% of the IT budget internally. - Outsourcing
o firms transfers IT assets, leases, staff, and management responsibility to an external IT provider which correspond to more than 80% of its IT budget. - Selective Outsourcing (SelectOut)
o firms select IT function from external provider(s) while still providing between 20% and 80% of the IT budget internally.
It’s about making the decision to outsource a large chunk, that decision is made at the top. It’s not about buying some application.
Relationship between ITG and SS
See them side-by-side
IT governance:
- Strategic alignment
- Delivery of business value through IT
- Performance management
- Risk management
- Control and accountability
Strategic Sourcing:
- Contracts as an important tool to align expectations and strategies
- Vendors ability to realize economies of scale increases the value delivered through IT; Transform fixed into variable costs; performance-based and flexible-priced contracts
- SLAs help to manage the vendor’s behavior (service availability and timeliness, repsonse in emergencies, accuracy, and minimization of systems’ downtime); Balanced Scorecard
- Loss of control over outsourced services, loss of flexibility, and unexpected high costs are among the most feared outsourcing risks
- Standards and controls (e.g. cost controls) in general can strengthen an outsourcing relationship
The Balanced Scorecard
- Performance evaluation framework
- Reflects a balance between short-and long-term objectives, financial and non-financial measures, lagging (when I invest now, value is made in 3 years) and leading (I can measure value now) indicators, and external and internal measures.
- A manager must establish the strengths of all relationships and determine their relative importance.
- Financial perspective (how do we look to shareholders?)
- Customer perspective (how do customers see us?)
- Internal business perspective (are we working effectively and efficiently?)
- Innovation and Learning perspective (what are the emerging opportunities and challenges?)
Those perspectives also need to work together
Each of these objectives are quantifiable and clearly recognized by both service receiver and service provider. It is a visual aid for everyone to be on the same page.
TRPIT (BSC 2.0)
Roadmap variant of The Balanced Scorecard
- Learning & Growth perspective
- Internal process perspective
- Partner perspective
- Financial perspective
Organized around the overall theme of moving from an emphasis on providing competency to one that balances competency with contributing to business unit value creation.
Each objective answers the question, “What do we have to do to be successful?” and demonstrates how the IT organization expects to create value in the future.
The map reflects how the IT organization sees itself, and how it expects to be seen by its stakeholders
Contract structures for ITO partnership
- Strategic level
o Define the overall issues: such as objectives; IT services; contract periods; exclusiveness; price and change (payment term and rate structure); liabilities, damages, and jurisdiction; (Framework Agreement)
o Transfer including IT Dept staff, assets, service contracts (Transfer Agreement) - Tactical level
o Project and service elements: milestones, conditions, resources allocated
o Secondment: rate per hours - Operational level
o The levels at which these services are to be delivered and the variations allowed, specifications
Difference in risks between Software Development and Infrastructure Management
ITO – Software Development
- Application development encapsulates three types of activities (enhanced functionality, integration/detailed design/implementation of management service, deployment services to support implementation and rollout). Mainly project-based.
Risks: Cultural, language and communications, time-zone, human capital, understanding the recipients’ business process, managing scope changes, size of the contract.
ITO – Infrastructure Management
- Infrastructure management can be defined as preventative and remedial services that physically repair or optimize computing and communications hardware. (technical troubleshooting, setup/installation assistance, helpdesk management). All continuous services with stable requirements.
Risks: Infrastructure, geopolitical risk, security and privacy, rotating onshorer resources (staff rotation), knowledge transfer, length of the contract
Almost everything is right opposite of each other. You need different kind of contracts and controls for each type of outsourcing.
Criteria for the country of choice
Language, Government Support, Labor Pool, Infrastructure, Educational System, Cost, Political and Economic Environment, Cultural Compatibility, Global and Legal Maturity, Data and Intellectual Property, and Security and Privacy
Resource-based view (RBV)/knowledge-based theory (KBT)
Firms using KBT seek to best allocate existing resources and obtain new resources in order to achieve economic efficiency
Native (traditional external) service providers
Companies such as Atos, Capgemeni, IBM etc. provide services from local operations in different developing countries all over the globe while having their headquarters in the developed regions.
Foreign (offshore) service providers
Major players in offshore application development such as Cognizant, Tata CS etc. They are mainly based in developing countries (commonly limited to sales offices). These companies are currently exploring opportunities in infrastructure management.
