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Information Systems Outsourcing/ASP/ERP


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Title: Information Systems Outsourcing/ASP/ERP

Information Systems Outsourcing/ASP/ERP
  • MIS 503
  • Management Information Systems
  • MBA Program

Global Sourcing
  • The process of deciding where in the world a
    firms activities will be performed and who will
    perform the activities.
  • Fundamentally any activities that does not
    require direct customer contact, extensive local
    knowledge, or complex interactions can be sourced

Global Resourcing
Outshoring and Outsourcing
Definition of Outsourcing
  • IS outsourcing is the commissioning of part or
    all of the IS activities an organization needs,
    and/or transferring the associated human and
    other IS resources, to one or more external IS
  • IS Offshoring is the commissioning of part or all
    of the IS activities an organization needs to one
    or more other countries
  • IS Insourcing is the sourcing of a business
    function within the firm (e.g., Kingland Systems)

IS Outsourcing
  • Four Types of Outsourcing Relationships
  • Support
  • Reliance
  • Alignment
  • Alliance

Outsourcing Grid
Extent of Substitution by Vendors
Strategic Impact of IS Applications
Outsourcing Decision Variables
  • Relationships
  • Division Among Suppliers and Contracts
  • Management Structure
  • Operational Structure
  • Internal Organization of Outsourcing Coordination

Backward Vertical Disintegration
  • Car manufacturer purchasing pre-assembled engines
    instead of purchasing and assembling the
    component parts themselves
  • Decreasing the number of phases a firm performs
    by commissioning another entity within the
    production chain to perform those functions

Horizontal and Vertical Integration
  • Diversification - increasing the number of
    products and services
  • Differentiation - aka disintegration -
    decreasing the number of subsequent phases in the
    production chain
  • Specialization - reducing the number of products
    and services
  • Integration - performing a larger number of
    phases in the production chain

What is ASP?
  • ASP- Application Service Provider
  • ASPs buy, install, and manage enterprise
    applications at remote data centers and host them
    for customers via a broadband connection, usually
    over the Internet.
  • User only purchases use of application not an
    installation license
  • User pays for use depending upon the specific
    arrangement with the ASP

Lee, Huynh, Kwok, and Pi, 2003
ASPs Necessary Changes
  • Enable existing client/server apps with multiuser
    display technology
  • Web-enabled applications, adding browser access
  • Rewrite applications specifically for a rental or
    ASP model using OO technology
  • Add business-to-business technology such as XML,
    Enterprise Javabeans

App Provider Concerns
  • The delivery model is only as strong as the
    service-level agreement for each component, they
    all have to work in harmony. Jeff Anderson,
    Vice President Strategic Development, Sprint
  • Is there a need for 99.9999 uptime?
  • The cost of going from 99.5 to 99.9999 can be

Determinants of Competitive AdvantageMichael
  • Threat of New Entrants
  • Intensity of Rivalry Among Direct Rivals
  • Degree of Concentration
  • Rate of Industry Growth
  • Lack of Switching Costs
  • Pressure of Substitute Products
  • Bargaining Power of Buyers
  • Bargaining Power of Suppliers

Porters Competitive Forces Model How the
Internet Influences Industry Structure
The Death of CompetitionJames F. Moore
  • Business Ecosystem. An economic community
    supported by a foundation of interacting
    organizations and individuals.
  • The economic community produces goods and
    services of value to customers, who are
    themselves members of the ecosystem.
  • Members include suppliers, competitors, and
    other stakeholders.

The Death of CompetitionJames F. Moore
Over time, they coevolve their capabilities and
roles, and tend to align themselves with the
directions set by one or more central companies.
Those companies holding leadership roles may
change over time, but the function of ecosystem
leader is valued by the community because it
enables members to move toward shared visions to
align their investments, and to find mutually
supportive roles.
Scope of Strategic Management
Challenges Across Stages of Ecosytem Development
What is ERP?
  • Continuation of MRP development
  • Connects legacy applications, critical business
    systems and custom applications within a single
    set of software modules.
  • Runs on client-server networks
  • Generally has multi-site management capabilities
  • Involves migrating from an internally developed
    supported legacy system to commercially packaged

ERP Systems
  • Integration of all business areas of company
  • -Manufacturing
  • -Distribution
  • -Human Resources
  • -Finance

Functions of ERP
  • Product Planning
  • Purchasing
  • Inventory Management
  • Order Processing and Order Tracking
  • Customer Service
  • Financials
  • Human Resources
  • Supply Chain Management

Potential Benefits of ERP
  • Cost Savings
  • More Efficient Sharing of Information
  • Increased Customer Responsiveness
  • Supporting decision making through access to
    consolidated data/information
  • Transparency across the entire organization
  • Integration of all standard business process
    (human resources, financials, operation)

Potential Benefits of ERPCost Savings
  • Reduced Data Entry
  • Reduction of Process Duplication
  • Centralized Data Yields
  • Better Data Integrity
  • Lower Data Redundancy
  • System Training Synergy and Simplification

Potential Benefits of ERPInformation Sharing
  • Simultaneous information processing facilitates
    cycle time reductions
  • Streamlined Budgeting
  • Information Inventories Replace Physical

Potential Benefits of ERPCustomer Responsiveness
  • Integrated data provides more accurate and more
    timely information for customer queries
  • Problem resolution is expedited and service
    levels are increased

Potential Disadvantages of ERP
  • ERPs can be expensive to install and maintain
  • ERPs are occasionally too rigid and difficult to
    adapt to an organizations workflow and business
  • ERPs can be difficult to use
  • ERPs are integrated systems, so a problem in one
    module or department will affect all the other

ERP Implementation Requirements
  • Alignment with firms strategic plan
  • Top management support
  • Process re-engineering prior to software
  • Adequate employee training is needed
  • Needs to be developed as an Enterprise-wide
  • Abundant testing is needed prior to conversion

ERP Venders
  • Epicor
  • Exact Software
  • Lawson Software
  • Microsoft Business Division
  • NetSuite Inc.
  • Oracle Applications
  • The Sage Group
  • SAP
  • SSA Global Technologies
  • QAD

Quotes from the Field
  • What was your firms primary objective in
    implementing an ERP system?
  • Our major focus was on our total supply chain
    costs. We wanted to drive down the cost of our
    inventories and improve our customer service. It
    was our belief that an integrated information
    system could provide the functionality required
    to accomplish this goal.

Director Global Transportation, Amway Corporation
Quotes from the Field
  • What problems did you experience that you didnt
    initially anticipate about the implementation?
  • Our first objective was to standardize our
    processes, leverage that standardization and
    provide that global set of information across all
    modules. We wanted a fully integrated
    manufacturing, financial, as well as sales and
    marketing system. We phased in a full scope of
    modules, by location, over a 4 year period. This
    required complete replacement of legacy systems
    at each location over 6 to 9 months. We probably
    underestimated the need and effort required to
    ensure the cleanliness of data. The information
    driving your ERP system today demands accurate
    data from the start. Additionally, I dont think
    we understood the scope of training, not only how
    to push the buttons, but how do I teach someone
    ERP and how to use it from start to finish.
    Moving people from a stand-alone task orientation
    to a fully integrated process orientation. The
    diversity of firm expertise in sites around the
    globe added to the complexity of this task.

VP - Information Systems, Molex Corporation
Quotes from the Field
  • What problems did you experience that you didnt
    initially anticipate about the implementation?
  • Some of the problems were getting around
    traditional ways of thinking versus complete
    supply chain . . . what I call dust to dust.
    The ERP system is a multifaceted, multifunctional
    system, so the people working with the system on
    a daily basis need to be multi-skilled to ensure
    their decisions and data input reflect a total
    supply chain perspective, in terms of both costs
    and functionality.

Director Global Transportation, Amway Corporation
Quotes from the Field
  • Are there benefits the ERP system provided that
    you didnt expect? If so, what were they?
  • We, like everyone, did not fully anticipate the
    explosion of e-commerce, but having a single
    system platform has substantially helped our
    ability to implement e-commerce applications.
    You have all your data in one spot, you have one
    set of interfaces to write, and you arent
    dealing with 20 different legacy systems. We
    think the ERP system will allow us to expand
    into the e-commerce area more quickly.
    Additionally, we have been able to create a
    quality notification system that gives us ability
    to see returns and problems from customers
    anywhere in the world. We have been able to
    centralize that within our customer service and
    field sales groups. Our ability to fully
    integrate that within our workflow has been much
    easier given our single system ERP application.

VP - Information Systems, Molex Corporation
Quotes from the Field
  • Are there benefits the ERP system provided that
    you didnt expect? If so, what were they?
  • The system allows us to make decisions quicker
    and to make better decisions. With customers
    being more demanding it was imperative that data
    we provide customers is accurate and our
    responses are fast. We are getting into a
    click, click, and ship environment. It is no
    longer JIT, JIT just isnt good enough. So in a
    click, click, and ship environment if you dont
    manage effectively and efficiently your inventory
    costs, your distribution costs, and your
    transportation costs will deteriorate your
    margins. So the ERP system allows us to make
    better short and long term decisions in
    supporting our customers.

Director Global Transportation, Amway Corporation
Quotes from the Field
  • What advice would you have for others
    contemplating an ERP implementation?
  • You have to make sure what your business
    strategy is and then drive to that. I give our
    executives credit, they had a vision and they
    stuck with it in spite of some rough rides. ERP
    systems dont provide everything, they are not a
    panacea. If we had to do it over we probably
    would have implemented some of the systems data
    warehousing and reporting functionality earlier
    in the process. We eventually created a site
    readiness review process that we should have
    implemented in the beginning. We also could have
    centralized the management and development of the
    system faster. Finally, management support and
    the dedication of the firm to provide adequate
    resources are both key to making an
    implementation successful.

VP - Information Systems, Molex Corporation
Quotes from the Field
  • What advice would you have for others
    contemplating an ERP implementation?
  • All systems are great, but you still need people
    to perform the functions within the systems. The
    key is the people you have working with these
    systems. These people have to be multi-skilled
    and multi-talented in working with the entire
    supply chain. Its just that simple.

Director Global Transportation, Amway Corporation
Future of ERP Systems
  • Integration of the entire supply chain
  • Integration of ERPs across multiple organizations
  • Wireless access
  • Real-time updates throughout the system
  • Outsourcing via ASPs