IT Outsourcing Issues

1
IT Outsourcing Issues

• John Bentley
• BCO6653
• Gina Reyes
• Andrew Stein

2
Outline Outsourcing

• Definitions
• Why and why not outsource
• Outsourcing case studies
• Outsourcing in Australia

3
What is IT outsourcing?

• Contracting IS service providers to IT functions
  such as
• Analysis and strategy
• Application development, implementation and
  maintenance
• Desktop services
• Network services
• Data centre operations
• Help desk operations
• Hardware maintenance
• Asset management
• Operating business systems (such as payroll)

4
Why do organizations outsource?

• Reduced IT costs
• Risk avoidance
• Concentration on core business activities and
  competencies
• Avoidance of cultural problems
• Access to skills
• Costa Beaumont 2001

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10 Reasons to Outsource

• Tactical Reasons(short term)
• Function out of control
• Resources not available internally
• Reduce/control operating costs
• Cash infusion
• Make capital funds available

Ref http//www.outsourcing.com
6
10 Reasons to Outsource

• Strategic Reasons(long term)
• Free resources for other purposes
• Share risks
• Accelerate re-engineering benefits
• Improve company focus

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Reasons Not to Outsource

• Loss of control of IT/IS function
• Threat of supplier opportunism
• Loss of corporate IT expertise
• Loss of corporate memory
• Decline in morale of employees
• Loss of distinctive competencies and dependence

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Outsourcing Drivers and Disadvantages
Fig. 8.6, Pearlson (2001)
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Outsourcing Models

• Classic Model
• Application Service Provider (ASP) Model
• Full Outsourcing Models
• Selective Outsourcing Models

Read British Petroleum example selective
outsourcing Pearlson Ch.8 (p.203, 2nd Edition)
10
Case Challenge Bank (Beer)

• Medium sized Perth based bank
• Decision to outsource
• needed to focus on move to open systems
• felt mainframe data centre was a routine
  operation
• benchmarking suggested the need to improve
  competitive performance
• Outsourcing chosen to be more cost efficient way
  to achieve IT goals
• In October 93 mainframe data centre outsourced to
  Ferntree

11
Case Challenge Bank

• Challenge Bank estimates the cost saving
  achieved so far.are running at around 1million
  a year.an average saving of more than 20

12
CaseBendigo Bank (Jones)

• From Building Society to Bank
• business doubled in size in 3 years
• account base doubled
• transaction volume increased by 50
• number of branches increased 44 to 74(compare
  with the move in banks currently)
• Service bureau struggled under the effect of size
  expansion
• Bank bore the effect of increased contract cost
• Bank felt that IT/IS was core business
• Bank felt control over IT/IS was crucial.

13
Case Bendigo Bank

• Reversed outsourcing trend after 15 years
• The finance industry is a dynamic and highly
  competitive business. We need to be able to
  implement new features in the shortest possible
  time frame so we can remain ahead of our rivals.
  Taking control in-house allows us to do this

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Study on outsourcing

• 277 of 3000 Australian organizations surveyed
• Results
• Most firms perform most IT functions in-house
• 25 outsourced applications development and
  maintenance
• Reasons for outsourcing
• Not cost savings
• More on access to skills
• Focus on core business
• Improved service quality

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Outsourcing success factors

• Tight contracts rights and responsibilities of
  both parties were explicit
• Include service level agreements (SLAs)
  specifying performance criteria and penalties for
  non-performance
• Partnering
• Human Resource and Change management
• Presence of an IT resource manager

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References

• Beer. S., Champion of the Challenge, MIS Dec
  1995.
• http//www.outsourcing.com
• Jones. A., The Aiming High Society, MIS, Oct,
  1994.
• Pearlson, K., Managing and Using Information
  Systems A Strategic Approach, 2001, New York
  John Wiley Sons, Inc.
• Costa, C and Beaumont, N. Information Technology
  Outsourcing in Australia, Working Paper 45/01,
  Monash University, Faculty of Business and
  Economics, July 2001.