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IT Sourcing - Coggle Diagram
IT Sourcing
Considerations of Where to Outsource
Time zone: Overlapping or follow-the-sun spacing?
Skill sets in region, for that project?
Israel & Russia for embedded
Canada, India, and Ireland for custom apps
Country profile: Politically stable? Who’s already there? # vendors?
Cultural and language differences?
Legal sophistication: IP protection & legal track record?
Unstrategic IT Sourcing Decisions
Business process outsourcing enable by IT (routine)
customer support, call centers, remote workers, crowdsourcing
consequences of IT use ~ operations resourcing ≠ IT
Commodity IT infrastructure and services
Commodity software
– Negotiating price, service, and contracts is IT unit’s job
Non-IT managers’ involvement needed in IT sourcing of
Software embedded in your firm’s products or services
Custom-built apps into which your business processes are baked
One-off, non-recurring IT tasks
Challenges in Outsourcing IT
Integration problems - the pieces don’t fit
Must play well with your other IT assets
Patchwork of inhouse systems, spanning generations
Often uses or sends data to them
Actual costs can wipe out obvious savings
Receiving the wrong system
Latent needs create volatile requirements
Outsourcing adds extra translator layer between users and vendor
Double whammy: Business-IT chasm + cultural barrier
Might get what your IT unit asked for but not what you needed
Lowering Integration Costs (Strategies)
Concurrent sourcing: Simultaneously insourcing and outsourcing the same sort of IT work
Just a little (~10%) suffices
Prevents outsourcing from being irreversible
Helps write better contracts and better specifications
Fosters healthy competition between inhouse IT and vendors
Verify-then-trust approach
Japanese-style screening using dummy projects
Avoiding the Wrong System (Strategies)
Tapered Outsourcing
(Demands business-savvy inhouse IT design skills)
(American approach) 1. Gather requirement
↓
design it
↓
(Japanese approach) 2. Code it
↓
tets it
↓
roll it out
Match Requirements Ambiguity with Contract Choice
Fixed-price contracts: Predicable but inflexible
Time-and-materials contracts: flexible but greater cost variability
Lean towards T&M when project requirements ambiguous
what should not be outsourced
Mission criticality and differentiation potential
Operational necessity
Concurrently source (mission critically - yes)
Need enforceable SLAs
Strengthens inhouse skills
Outsource (mission critically - no)
Competitive differentiator
Insource (mission critically - yes)
Jeopardizes aprimary activity
Embedded software
Insource (mission critically - no)
Thwarts imitation
Surfaces latent needs
Interaction intensity and labor intensity
Business-IT interaction requirements (high)
Tapered outsourcing (labor intensity - high)
Insource (labor intensity - low)
Business-IT interaction requirements (low)
Outsource (labor intensity - high)
Ideal outsourcable project
Outsource for expertise (labor intensity - low)
If no inhouse skills
Can write specs
Chain of Responsibility in IT Outsourcing
Line functions ← Meeting business objectives -
Your IT unit
← Meeting technical specifications -
vendor firm
Ensuring it requires rudimentary appreciation of two things…
Formal controls used by IT unit on vendors
-Output metrics reward/ penalize vendor for meeting predefined, targets
-Process controls dictate methods a vendor should follow
CMM ratings (1-5; CMU) ~ eBay ratings; trustworthy but imperfect