Alternative Avenues for Systems Acquisitions

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Chapter 16

• Alternative Avenues for Systems Acquisitions

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Learning Objectives

• When you finish this chapter, you will
• Recognize the differences among the alternatives
  to in-house system development.
• Be able to list the business trade-offs inherent
  in the various methods of acquiring systems.
• Understand why the alternatives to in-house
  development have become so popular.
• Know which systems acquisition approach is
  appropriate for a particular set of circumstances.

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Sources for Information
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Sources for Information

• Outsourcing
• Contractual relationship with an outside company
  for part or all of an organizations IS
  operation.
• IS subsidiaries
• Independent corporations offering services to
  other companies in addition to the parent
  company.
• How do IS managers learn about alternatives?
• Who offers them?
• Which is best suited to their particular needs?
• The best initial source is paper and online trade
  journals

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Sources for Information
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Outsourcing
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Outsourcing

• Advantages of Outsourcing
• Improved financial planning
• Reduced license and maintenance fees
• Increased attention to core business
• Shorter implementation cycles
• Reduction of personal and fixed costs
• Increased access to highly qualified know-how
• Availability of ongoing consulting as part of
  standard support
• Increased security

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Outsourcing
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Outsourcing

• Risks of Outsourcing
• Loss of control
• Loss of experienced employees
• Risks of losing a competitive advantage
• High Price

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Outsourcing
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Purchased Applications

• Why Purchase?
• Immediate system availability
• High quality
• Low price
• Available support

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Purchased Applications
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Purchased Applications

• Steps in Purchasing Ready-made Software
• Identifying the problem
• Identifying potential vendors
• Soliciting vendor information
• Defining system requirements
• Requesting vendor proposals

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Purchased Applications

• Reviewing proposals and screening vendors
• Visiting sites
• Selecting the vendor
• Benchmarking
• Negotiating a contract
• Implementing the new system
• Managing post-implementation support

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Purchased Applications
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Purchased Applications

• Benchmarking
• Codified comparison of performance measures
  between systems
• Ensures adopted application satisfies the
  organization's minimum requirements
• Learning from Experience
• Can save time and headaches

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Purchased Applications

• Purchasing Risks
• Loose fit between needs and features
• Bankruptcy of the vendor
• High turnover of vendor personnel

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Purchased Applications

• Licensing under .NET (Microsofts new business
  model)
• Microsoft announced in 2000 that as of 2001 it
  would begin licensing some of its software
  instead of selling it.

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Renting Software

• Many IS executives would prefer renting software
  for a limited period
• Costs less than owning the software
• Rental rate determined by number of users and
  length of time rented.
• Major advantage flexibility of choice and lower
  sums of money committed up front.

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Renting Software

• Renting software not the same as using software
  under Microsofts .NET
• Companies renting out software do not have to be
  the publishers
• Licenses purchased for use may be rented out
• Unlike the .NET approach, software offered for
  rent can usually be purchased or used in an
  arrangement with an application service provider.

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Renting Software
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The Application Service Provider (ASP) Industry
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Renting Software

• Caveat Emptor
• Commandments for managers in organizations
  considering ASPs
• Check the ASPs history
• Check the financial strength
• Ensure you understand the price scheme
• Get a list of providers infrastructure
• Craft the service contract carefully
• In 2001 the storage service provider (SSP)
  started to catch the attention of businesses
• Contract to store files remotely

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The InformationSystems Subsidiary

• IS service companies that are owned by and served
  by one large company
• Some grow large enough to service the market at
  large
• Some corporations purchase an IS consulting firm

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User Application Development
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User Application Development

• Factors Encouraging User Application Development
• The programming backlog
• The widespread use of PCs
• The emergence of 4GLs
• Increasing popularity of prototyping
• Increasing popularity of client/server
  architecture

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User Application Development
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User Application Development

• Managing User-developed Applications
• Managing the reaction of IS professionals
• Providing support
• Compatibility
• Managing access

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User Application Development

• Advantages of user application development
• Shortened lead times
• Good fit to needs
• Compliance with culture
• Efficient utilization of resources
• Acquisition of skills
• Free IS staff time

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User Application Development

• Risks of user application development
• Poorly developed applications
• Islands of information
• Duplication
• Security problems
• Poor documentation