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Outsourcing of Information Technology: Future Adoption Plans of U'S' Corporations

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Bandwagon Affect. Expectations - mixed results. Risks of Outsourcing ... Bandwagon affect: 77.1% U.S. companies outsourced domestically (Apte et al., 1997) ... – PowerPoint PPT presentation

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Title: Outsourcing of Information Technology: Future Adoption Plans of U'S' Corporations


1
Outsourcing of Information Technology Future
Adoption Plans of U.S. Corporations
  • Dissertation Proposal Presentation

Presented by Rodney R. Yates Smith
2
Summary of Presentation
  • Introduction
  • The Problem
  • Background
  • Purpose and Importance of Study
  • Research Questions
  • Literature Review
  • Methodology
  • Projected Research Time-line
  • Conclusion

3
Introduction
  • Professional Background
  • Interest in Outsourcing
  • Outsourcing Management Experiences
  • Market Research Corporation
  • On-line Advertising Corporation
  • ASP Faith-based Educational Organizations
  • Presenting Researching

4
The Problem
  • Impact of Information Technology (IT)
  • What is Outsourcing?
  • Why Outsource?
  • Kodak 1989 Landmark Outsourcing Agreement
  • Bandwagon Affect
  • Expectations - mixed results
  • Risks of Outsourcing
  • Purpose and Importance of Study
  • Research Questions

5
The Problem Impact of IT
  • Large Budgets
  • (Apte, Sobol, Hanaoka, et al., 1997)
  • Improve corporate bottom line and competitive
    advantage
  • (Ahles, 2003)
  • Expectations
  • Deliver projects on-time
  • Within or under budget
  • Without degradation of quality or service

6
The Problem What is Outsourcing? Definitions
  • Information Technology (IT)
  • Computer technology (hardware software) with
    telecommunications technology (data, image and
    voice networks)
  • (Whitten et al., 2004)

7
The Problem What is Outsourcing? Definitions
  • Outsourcing
  • Transfer goods or service to a third party
  • Contract or selling
  • Hardware, software, communications network,
    systems, activities, processes, procedures and
    management
  • Third party consulting firm, contractor or
    hardware vendor
  • (Due 1992 Hirschheim and Lacity, 2002 Kern et
    al., 2002 Lacity et al., 1996 Loh and
    Venkataraman, 1992 McLellan and Marcolin, 1994
    Quinn and Hilmer, 1994 Ramarapu, Parzinger and
    Lado, 1997 Takac, 1993 and Willcocks and
    Lacity, 1995)

8
The Problem What is Outsourcing? Definitions
  • Offshore (Global) Outsourcing
  • Sending work to overseas locations
  • (Marshall and Cohan, 2003)
  • Selective Outsourcing
  • Outsourcing selected IT applications or functions
    to vendors while retaining other IT applications
    or functions in-house.
  • (Lacity et al., 1996)

9
The Problem Why Outsource?
  • Reduce Costs
  • 10 to 50
  • (Lacity and Hirschheim, 1994)
  • Competitive advantage
  • Increased service level
  • Access to new technology and technical expertise
  • Focus on core competencies
  • (Lacity et al., 1996 Udo, 2000)

10
The Problem Why Outsource?
  • Examples of Domestic Outsourcing
  • Enron, Freeport-McMoran, Continental Airlines,
    General Dynamics, National Car Rental and
    Continental Bank
  • Examples of Offshore (Global) Outsourcing
  • Citibank, Texas Instruments, New York Life
    Insurance and Boeing
  • (Shereff, 1989)

11
The Problem Landmark Outsourcing Agreement
  • 1989 Kodak Total outsourcing of IT function
  • Anticipating a 50 cost savings
  • IBM, DEC and Businessland
  • (Apte et al., 1997 Earl, 1996 Lacity, 2002 Loh
    and Venkatraman, 1992)
  • Bandwagon affect
  • 77.1 U.S. companies outsourced domestically
  • (Apte et al., 1997)
  • Mixed results
  • 48 early adopters (1984 1991) met their
    expectations
  • 51 did not meet or experienced mixed results
  • (Apte et al., 1997)

12
The Problem Risks of Outsourcing
  • Weak internal IT management
  • Outsource vendors staff inexperienced
  • Unclear future direction
  • Outsource vendors skills remain current
  • Inherent uncertainty of IT
  • Hidden costs
  • Lack of training
  • Loss of innovation capacity
  • Lack of IT and business communication
  • Technology integration
  • Unclear focus
  • Earl (1996)

13
The Problem Purpose and Importance of Study
  • Extend Sobol and Aptes 1995 research
  • The extent of outsourcing being practiced
  • The advantages and disadvantages of outsourcing
  • Which functions or activities are appropriate for
    outsourcing
  • Which hosting countries are appropriate for
    outsourcing
  • Provide additional empirical evidence that
    supports selective global outsourcing
  • 30 - 60 cost savings potential (Ahles, 2003)

14
The Problem Research Questions
  • Which IT functions are appropriate for global vs.
    domestic outsourcing?
  • Can corporations that enter into selective global
    outsourcing contractual agreements realize larger
    cost savings than corporations that enter into
    total domestic outsourcing agreements?
  • Can corporations that enter into selective global
    outsourcing agreements retain control over their
    technology options better than corporations that
    enter into total domestic outsourcing agreements?

15
The Problem Research Questions - continued
  • Can technical employees who remain with a
    corporation that has a selective global
    outsourcing partner maintain or improve their
    technical skills?
  • Can corporations that have a selective global
    outsourcing partner control project schedules, or
    does the global outsourcing partner control the
    schedules?
  • What are the reasons given by companies for
    discontinuing domestic or global (offshore)
    outsourcing?

16
Literature Review
  • The Evolution of Outsourcing
  • Outsourcing Drivers
  • IT Outsourcing Functions
  • Total vs. Selective Outsourcing
  • The Outsourcing Contract
  • Impact on Employees Technical Skills Job Loss
  • Control of Technical Options and Schedules
  • Outsourcing Markets
  • Future Trends

17
Literature Review Evolution of Outsourcing -
Domestic
  • Domestic Outsourcing
  • Common practice for U.S. and industrialized
    nations
  • (McLellan and Marcolin, 1994 LaLonde, 2004)
  • Scope and scale of outsourcing agreements have
    changed
  • The Evolution
  • 1960s Hardware Service and Facility
    Management
  • 1970s Software Facility or Operations
    Management
  • 1980s Hardware and Software Standardization
    Customization Management
  • 1990s Total Solution Asset Management
  • 2000s Application Service Providers (ASP)
  • (Lee et al., 2003)

18
Literature Review Evolution of Outsourcing -
Global
  • Global Outsourcing
  • Three significant periods
  • 10 15 years old Reduce cost of maintaining
    legacy systems
  • Resolve Y2K deficiencies
  • Budget pressures, transfer non-core competencies,
    specialized services
  • (Sobol and Apte, 1995 Perkins, 2003)

19
Literature Review Outsourcing Drivers
  • Primary reasons for outsourcing (1988 1999)
  • Cost reductions/improved profitability
  • Technological and strategic considerations
  • (Costa, 2001 DiRomualdo Gurbaxani, 1998 Loh
    and Venkatraman, 1992 Takac, 1993and Al-Qirim,
    2003)
  • Change in reasons for outsourcing (2003 - 2004)
  • Improving the quality of service
  • Access to new technology
  • Flexible and responsive systems
  • Focus on core business competencies
  • (Al-Qirim, 2003)

20
Literature Review IT Outsourcing Functions
  • Software development maintenance
  • Data center operations
  • Data communication network
  • Disaster recovery
  • Training and education
  • Data entry
  • (Apte et al., 1997)
  • Business Processes
  • 73 U.S. companies outsourcing 1 or more
  • Call centers
  • Help desk services
  • Insurance claims processing
  • (Al-Qirim, 2003 Yourdon, 2005)

21
Literature Review Total vs. Selective Outsourcing
  • Total Outsourcing
  • Less flexibility
  • Anticipated results, not realized
  • Selective Outsourcing
  • More flexibility
  • Anticipated results, realized
  • (Lacity et al., 1996 King 1994)

22
Literature Review The Outsourcing Contract
  • The most important document in the outsourcing
    relationship
  • Mutually benefits both customer and outsourcing
    vendor
  • Examples
  • 14 Fortune 500 Companies
  • Detailed, tight contracts 75 success rate
  • Vague, loosely written contracts 18 success
    rate
  • (Lacity and Hirschheim, 1993)
  • 12 Highly-publicized
  • Detailed, tight contracts 58 partial or total
    success
  • Loose contracts 34 total failures
  • (Saunders et al., 1997)

23
The Literature Review The Outsourcing Contract -
Elements
  • Specificity
  • Penalties
  • Ownership
  • Liability
  • Disputes
  • Contingencies
  • Confidentiality
  • Responsibility
  • Intellectual property
  • Period
  • (Takac, 1993)

24
Literature Review Impact on Employees Skills
  • Selective Outsourcing
  • Flexible project teams that utilize in-house and
    outsourcing resources
  • In-house staffs skills are maintained or
    enhanced
  • Ensures new technology is learned by in-house
    staff
  • Hire vendor to teach in-house staff
  • Outsource old technology and staff focus on
    learning new technology
  • Incorporate incentives in the contract for vendor
    to teach in-house staff
  • (Lacity and Hirschheim, 1994)

25
Literature Review Job Loss
  • HUGE political issue 2004 U.S. Presidential
    Elections
  • Jobs moving offshore (2004 2015)
  • 500,000 (1) 2004 3.4 million (6.4) 2015
  • (Forrester Research, 2004)
  • Jobs lost due to open markets
  • 12 million jobs over the past 10 years
  • 17 million jobs have been created
  • William Hunter (as cited in Fishman-Lapin, 2004)
  • 2004 Q1 - Jobs lost
  • 240,000 American jobs lost
  • 4,633 (2) global offshore outsourcing
  • Bureau of Labor Statistics (Santousus, 2004)

26
Literature Review Control Technical
Options/Schedules
  • Giving up control of quality and timetables of
    deliverables
  • Most cited disadvantage by U.S. companies
  • Median rating of 7 (1 unimportant 9 very
    important)
  • (Apte et al., 1997)
  • Selective IT outsourcing provides the most
    flexibility and controllable IT environment.
  • Use multiple vendors to provide services
  • Easier to switch suppliers or bring services back
    in-house
  • Four models
  • Time and materials exchange-based netsourcing
    or joint venture
  • (Lacity et al., 1995 Lacity, 2002)

27
Literature Review Outsourcing Markets
  • There are many countries competing for
    outsourcing clients
  • Datz (2004) summarized 24 countries based on
  • Maturity level rating (leader, up-and-coming or
    rookie)
  • The size of the market
  • The availability and cost of skilled labor
  • The infrastructure of government and technology
  • The geopolitical risks political, financial and
    economic risks
  • Leaders
  • Canada, India, Ireland, Israel and Philippines

28
Literature Review Future Trends
  • Outsourcing is not going away!
  • India will continue to be the outsourcing leader.
  • King (2004) suggests that more than 50 of
    organizations will use IT outsourcing.
  • Yourdon (2005) suggests that the scope and depth
    of outsourcing will continue to expand.
  • U.S. payments to outsourcing vendors continue to
    rise
  • 1990 U.S. paid outsourcing vendors 25 billion,
    estimated to grow to 45 billion in 1994 (Takac,
    1997).
  • 2002 154 billion growing to over 200 billion by
    2005 (Willcocks et al., 2004)

29
Methodology
  • Purpose and Objectives
  • Survey Methodology
  • Survey Instrumentation
  • Survey Testing
  • Target Population
  • Selection of Subjects
  • Respondent Data Preparation
  • Survey Distribution
  • Statistical Testing

30
Methodology Purpose and Objectives
  • Demonstrate organizations utilizing selective
    outsourcing
  • Realize cost savings
  • Control their technical environments
  • Control their project schedules
  • Employees maintain or improve their technical
    skills
  • Compare the experiences of 1995 most effective IS
    Users with my population, 10 years later.
  • Any significant differences in their outsourcing
    experiences?

31
Methodology Survey Methodology
  • Self-administered Survey Questionnaire
  • Other IT Survey Studies
  • Downing, Field and Ritzman (2003)
  • Elmuti (2003)
  • Sandhill Group (2003)
  • Apte et al., (1997)
  • Apte and Sobol (1995)

32
Methodology Target Population
  • Outsourcing Strategies 2004 Global IT
    Outsourcing Business Processing Outsourcing
    Forum
  • Centric Events Group
  • March 3 5, 2004, Las Vegas, NV
  • Strategy Population of convenience and purposive

33
Methodology Selection of Subjects
  • 209 out of 287 attendees
  • U.S. based organizations
  • 97 (204) U.S. based organizations
  • 3 (5) outside of U.S.
  • Disbursed throughout the U.S.

34
Methodology Respondent Data Preparation
  • Titles of Respondent data 192
  • Normalized titles 10
  • CEO
  • CFO
  • CIO
  • COO
  • Director
  • Manager
  • Other
  • Partner
  • President
  • Vice President

35
Methodology Selection of Subjects - Location
36
Methodology Survey Distribution
  • U.S. Mail distribution
  • Cover letter
  • Informed Consent Agreement
  • Survey Questionnaire Instrument
  • 3 Starbucks gift card
  • Eligible for raffle one of two 50 Visa Gift
    Cards
  • Response Options
  • Fax
  • U.S. Mail
  • Online www.itoutsourcingsurvey.com
  • Zhang (2000)

37
Methodology Statistical Testing
  • Descriptive statistics
  • Describe patterns in the respondent database and
    response data
  • Analysis of Variance
  • Understand the influence of IV on DV
  • Discriminate Analysis
  • Determine the attributes or variables that
    differentiate the decision to outsource
    domestically or globally
  • Factor Analysis
  • Determine the impact or influence of one factor
    across other factors

38
Projected Research Time-Line
  • April 2005 IRB Application Process
  • May 2005 Data Collection
  • June 2005 Chapter 4 Results
  • July 2005 Chapter 5 Summary Conclusions
  • August 2005 Dissertation Defense

39
Conclusion
  • Questions?
  • Comments?
  • Thank You!!
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