Keys to Outsourcing and On Demand Computing

Comprehension Questions

1. Why do companies hire an outside computer company? (to take over some or all of its development and operations activities. The outsourcing com­pany will hire some people who will be laid off, to increase services and reduce costs);

2. What activities can an outside computer company perform? (programming jobs, to manage Web sites, network servers, data storage devices, and help desk operations, to perform many of the systems development and operations activities, to provide guidance on cutting costs and improving efficiency; to develop a cellular phone system; sales ordering system can be outsourced.)

3. What are the reasons that companies have used the outsourcing and on demand computing approaches? (Reducing costs, obtaining state-of-the-art technology, eliminating staffing and personnel problems, and increasing technological flexibility);

4. What are the disadvantages to Use Outsourcing for Systems Development? (Companies may be asked to sign complicated and restrictive legal contracts that may be difficult to change. Internal expertise can be lost and loyalty can suffer under an outsourcing arrangement. Some companies outsource critical activities to foreign countries which could jeopardize security; Because the foreign workers were not familiar with the company, some software features were omitted and some of the development took months instead of weeks );

5. What are the companies that specialize in consulting and outsourcing? (A number of companies offer outsourcing and on demand computing services—-from general systems development to specialized services. IBM's Global Services, for example, is one of the largest full-service outsourcing and consulting services. Electronic Data Systems (EDS) is another large company that specializes in consulting and outsourcing. Accenture, which was once part of Arthur Andersen, is another company that specializes in consulting and outsourcing.

True or false

1. (t);

2. (t);

3. (f – imports);

4. (f - Reducing costs);

5. (f - with expertise in technical and business functions are no longer needed);

6. (t)

7. (t);

Matching

1. – d (On-demand (OD) computing is an increasingly popular enterprise model in which computing resources are made available to the user as needed);

2. – g (Outsourcing is the contracting out of a business process, which an organization may have previously performed internally or has a new need for, to an independent organization from which the process is purchased back as a service);

3. - f (backlash - An antagonistic reaction to a trend, development, or event);

4. - a (deal - a business transaction;

5. – h (private-sector jobs - The part of the economy that is not state controlled, and is run by individuals and companies for profit);

6. - j (surplus - is when there is an excess supply of a product);

7. – e (jeopardize - pose a threat to; present a danger to);

8. – c (Internal expertise - special skill, knowledge, or judgment);

9. – b (sales ordering system - is a full-featured Order Entry system that automates the entire sales process from creating a quote to generating backorders. It is user friendly and allows for quick accurate information retrieval);

10. - i (a competitive advantage gives a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders).

Fill in the gaps

1. outside

2. on demand computing

3. management consulting

4. security

5. consulting

6. bringing

Questions for Discussion

1. Think over some benefits and some disbenefits associated with IT outsourcing and explore the case for applying outsourcing to business intelligence. Describes the circumstances in which outsourcing is a good idea (Table 12.5 describes the circumstances in which outsourcing is a good idea. Benefits of general IT outsourcing

Before I plunge into the world of BI, it is perhaps worth revisiting the general reasons for IT outsourcing, some of the most regularly quoted are as follows:

Reduction in costs

The provider of outsourcing (I’m just going to say “the provider” from now on to save typing) can carry out the same tasks at a cheaper cost to the client organisation (while still presumably turning a profit). There can be a number of bases for this; the one that generally comes to mind is wage arbitrage between different economies. However, it could also be that the provider has economies of scale; for instance, less people being required to run the consolidated data centres of several companies, than is required to run each separately. Also the provider may have staff who are more productive than at the client.

Ability to scale-up and scale down resource

The nature of business is such that sometimes all hands are required on the IT deck and at others there is spare capacity (this is something I address in my two articles on Problems associated with the IT cycle and Mitigating problems with the IT cycle). Now IT departments are normally quite good at finding (hopefully) useful things for people to do, but the issue remains. The promise of an outsourcing arrangement is that the tap of resource can be adjusted to meet demand without having to either fire and rehire staff, or rely on bringing in expensive contract resource. It is often hoped that this feature of outsourcing will also help to speed IT products to market.

Making IT provision a contractual relationship

An arrangement with a provider, depending on how the contract is drafted, can make the provision of IT services subject to penalties and claw-backs when service levels drop below those that have been agreed. While there are clearly some sanctions that can be applied to underperformance by internal IT departments, the financial benefit to the organisation is likely to be less (unless your CIO is a multi-billionaire of course). Companies are used to these contractual relationships, they are often the lifeblood of business, and it is a more familiar way of dealing with issues for them.

Access to skills

The nature of IT is that it does tend to evolve, sometimes quickly, sometimes slowly. For organisations this means keeping their IT people’s skills up to date though courses, or continually looking to bring people with new skills into an organisation (such people generally not being the cheapest). The idea with an outsourcing arrangement is that these issues become the headache of the provider, not the client. This area can be particularly pertinent when there is a technology change or a significant upgrade; these are times at which the prospect of being shot of IT worries may seem very attractive. The effort and cost of, as it were, upgrading your in-house IT staff may seem prohibitive in these circumstances.

Focus on core competencies

This has been a business mantra for many years, why should a company engaged in a wholly separate area of human endeavour want to become experts in building and supporting complex IT systems, when they can get a specialist organisation to do this for them? This moves towards the idea of a lean, or even virtual, organisation.

Failure of in-house IT

It is sad to have to add this item, but it is often the implicit (and sometimes even the explicit) driver of a desire to outsource. CEOs, COOs or CFOs may be so fed up with the performance of their IT people that they feel that surely someone else could not be worse. There is an adage that you don’t outsource a problem, but this is often honoured more in breech than observance.

I am sure that there are other advantages, claimed or real, for IT outsourcing, but the above list at least covers many of the normal arguments. At this stage a fully-balanced article would probably present arguments against IT outsourcing. However, my objective here is not to provide a critique of IT outsourcing in general, but to see whether the above benefits apply to business intelligence. Because of this, and I should stress purely for the purposes of this article, I am going to accept that all of the above gains are both realisable and desirable for general IT. There will therefore you will find no comments here about arbitrage (of its very nature) resulting in differentials of pricing closing over time.

The only benefit that I am going to rule out is the final one; addressing failed IT departments. Applying outsourcing in these cases is only likely to make things worse, and probably more expensive. Far better in my opinion to work out why IT is failing (most typically due to poor leadership it has to be said, see also my article: Some reasons why IT projects fail) and draw up plans for addressing this. If outsourcing is a strong element of this, then so be it, but thinking that it will resolve this type of issue is probably naive in most circumstances.

So, as always seems to be the case in these types of articles, we have five potential benefits against which to assess outsourcing BI. Before I look at each in turn, I wanted to make some general observations.

2. Information Systems Outsourcing Reasons and Risks.

Reasons for outsourcing. The main reasons given by departments in the 2006 Outsourcing Survey included:

1 Unavailability of service in-house 9 Policy changes

2 Focusing on core services 10 Achieving defined service levels

3 Making up for staff shortages 11 Improving service output

4 Access to skills 12 Access to information

5 Reduction in costs 13 Facilitating organisational changes

6 Flexibility in service delivery 14 Converting fixed costs into variable costs

7 Improving service quality 15 IT legacy system support

8 Access to technology 16 Risk diversification

Expected benefits sought from outsourcing

Cost savings

Reduced capital expenditures

Capital infusion

Transfer fixed costs to variable

Quality improvement

Increased speed

Access to latest technology/infrastructure

Access to skills and talent

Augment staff

Increase focus on core functions

Get rid of problem functions

Reduce politic pressures or scrutiny

Legal compliance

Better accountability/management

Potential risks of outsourcing

Unrealized savings or hidden costs

Less flexibility

Poor contract or poor selection of partner

Loss of knowledge/skills and/or corporate

memory and the difficulty in reacquiring a

function

Loss of control/core competence

Power shift to supplier

Supplier problems (poor performance or bad relations, opportunistic behavior, not giving access to best talent or technology)

Losing customers, opportunities, or reputation

Uncertainty/changing environment

Poor morale/employee issues

Other:

Loss of synergy

Create competitor

Conflict of interest

Security issues

False sense of irresponsibility

Legal obstacles

Skill erosion

3. What are the key strategies for development? What approaches help companies develop solid, tough systems? The differences between the traditional systems development life cycle and …(Prototyping, rapid application development, agile development or extreme programming (XP), and joint application envelopment; the outsourcing and on demand computing approaches. In addition to these systems development approaches, there are a number other systems development approaches, including adaptive software development, lean soft­ware development, the Rational Unified Process (RUP), Feature-Driven Development (FDD), and dynamic systems development method, Rational Unified Process (RUP), Feature-Driven Development (FDD)); These approaches are used to overcome some of the perceived disadvantages of the traditional systems development life cycle. These approaches all attempt to deliver better systems.

A software development methodology or system development methodology in software engineering is a framework that is used to structure, plan, and control the process of developing an information system.

There are the following methodologies:

Agile Software Development

Crystal Methods

Dynamic Systems Development Model (DSDM)

Extreme Programming (XP)

Feature Driven Development (FDD)

Joint Application Development (JAD)

Lean Development (LD)

Rapid Application Development (RAD)

Rational Unified Process (RUP)

Scrum

Spiral

Systems Development Life Cycle (SDLC)

Waterfall (a.k.a. Traditional)

http://www.itinfo.am/eng/software-development-methodologies/

http://www.journalofaccountancy.com/Issues/1998/Jun/antonuci.htm

The literature review presented above began with a brief discussion of traditional SDLC methodologies. These models are often viewed as cumbersome, bureaucratic, and unsuited to the rapid pace of many software development projects. This discussion was followed by a review of new lightweight SDLC methodologies. Lightweight methodologies were developed to efficiently manage software projects subjected to short timelines and excessive uncertainty and change. Nine types were summarized. These included ASD, ASP, Crystal, DSDM, XP, FDD, RUP, SCRUM, and Wisdom.

Heavyweight vs. lightweight methodologies: Key strategies for development;

In software development, “lightweight” methodologies are gaining ground on more traditional “heavyweight” methodologies. Both have their advantages and disadvantages, and which one you choose depends in large part on your needs. I’ll examine some key differences between lightweight and heavyweight development methodologies from the project manager’s perspective.

Here are some of the advantages of lightweight methodologies:

They accommodate change well.

They are people oriented rather than process oriented. They tend to work with people rather than against them.

They are complemented by the use of dynamic checklists.

The project teams are smaller.

They rely on working in a team environment.

They foster knowledge sharing.

Feedback is almost instantaneous.

The project manager doesn’t need to develop “heavy” project documentation but instead is able to focus on the absolute necessary documentation (e.g., the project schedule).

They are learning methodologies. After each build or iteration, the team learns to correct issues on the project, forming an improvement cycle throughout the project. http://www.techrepublic.com/article/heavyweight-vs-lightweight-methodologies-key-strategies-for-development/5035285

4. The Pros and Cons of IT Outsourcing

Panacea or poison? Advantages and Disadvantages of On Demand Computing.

Advantages of On Demand Computing

The ASP model is a good fit for small companies that do not have the IT staff or infrastructure in-house to manage information systems. Implementation is typically quicker than with systems deployed in-house, and the in-house support requirements are fewer. The ASP is responsible for all necessary software upgrades and system maintenance. The ASP also relieves the customer of having to worry about IT infrastructure requirements, such as security, backups, and disaster recovery. The ASP model also makes good sense for systems that support employees that are frequently on the road—applications such as sales force automation, expense reporting, and field service support are proving to be good choices to deploy on a hosted basis.

My own consulting firm, Strativa, is a good example of a company that benefits from using an ASP. We use a professional services automation system on a hosted basis that takes care of all our CRM, time and expense tracking, and billing requirements. Even though we do technology consulting, we'd rather have our staff spend their time delivering consulting services than maintaining an internal information system. Therefore, the ASP model is perfect for us. For a flat monthly fee, it gives our consultants instant access to the system anywhere, any time, through a Web browser, and it requires zero internal technical staff.

There is one other application that is well suited to the on demand model, and that's e-commerce systems. Because such systems can experience sudden and huge variations in transaction volume, it makes sense to host such systems under an on demand model that can flex to provide the computing power needed to accommodate such spikes. For example, if you host your own Web storefront and you're selling a product that suddenly gets favorable press in the Wall Street Journal, your sudden good fortune can bring down your Web storefront. Not a good thing for customer service. Similarly, few small companies can afford the IT security and recovery measures that need to be in place to provide secure e-commerce. Therefore, small and mid-sized companies ought to consider the on demand model for any Internet-based applications that are critical to the business. Even larger companies should consider this approach.

Disadvantages of On Demand Computing

Where the ASP model does not make a lot of sense, however, is in large companies that have multiple systems that must be integrated with each other or with custom systems written internally. Someday, with widespread adoption of a service-oriented architecture (SOA) by software vendors, it might become easier for customers to integrate in-house systems with ASP-hosted systems. But today, if you have a mix of systems from different vendors, or a combination of packages and custom software, it's better to locate such systems within the same corporate data center.