chapter 16 alternative avenues for systems acquisitions

Management Information Systems, 4th Edition1

Chapter 16Alternative Avenues for

Systems Acquisitions


Learning Objectives• Explain the differences among the alternatives to

professionally tailored system development: outsourcing, purchasing ready-made software, encouraging users to develop their own applications, and contracting with an application service provider

• List the business trade-offs inherent in the various methods of acquiring systems


Learning Objectives (Cont.)

• Explain why the alternatives to tailored development have become so popular

• Describe which systems acquisition approach is appropriate for a particular set of circumstances


• Outsourcing– Short-term contractual relationship with a service

firm to develop a specific application

– Long-term contractual relationship with a service firm to take over an organization’s IS functions

• Application Service Provider– Allows use of applications via the Internet

• In-house use of development tools to create applications

Sources of Information


Sources of Information (Cont.)


Outsourcing• An organization trusts all activities associated with

its ISs to another company– Purchasing and maintaining hardware

– Developing, purchasing, and maintaining software

– Installing and maintaining communications networks

– Developing, maintaining, and operating Web sites

– Staffing help desks

– Running the IS daily operations

– Managing customer and supplier relations


• Considerations– What are our core business competencies? Of the

business we conduct, what specialties should we continue to practice ourselves?

– What do we do outside our specialties that could be done better for us by organizations that specialize in that area?

– Which of our activities could be improved if we created an alliance with IS organizations?

– Which of our activities should we work to improve internally?

Outsourcing (Cont.)


• Outsourcing means two different things:

– A short-term contractual relationship with a service firm to develop a specific application for an organization

– A long-term contractual relationship with a service firm to take over all or some of an organization’s IS functions

Outsourcing (Cont.)


Outsourcing (Cont.)


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


Advantages of Outsourcing (Cont.)


Risks of Outsourcing

• Loss of control

• Loss of experienced employees

• Risks of losing a competitive advantage

• High price


Risks of Outsourcing (Cont.)


Purchased Applications• The first alternative to consider

• Huge variety of ready-made applications

• Two classifications of ready-made software:

– Inexpensive applications to help in the office

– Expensive, large applications that span an entire organization

• Human resource management

• Financial management


• Immediate system availability

• High quality

• Low price

• Available support

The Benefits of Purchased Applications


Steps in purchasing ready-made software

• Identifying the problem

• Identifying potential vendors

• Soliciting vendor information

• Defining system requirements

• Requesting vendor proposals

• Reviewing proposals and screening vendors


Steps in purchasing ready-made software (Cont.)

• Visiting sites

• Selecting the vendor

• Benchmarking

• Negotiating a contract

• Implementing the new system

• Managing post-implementation support


Purchased Applications


Purchased Applications (Cont.)



• Benchmarking

– Codified comparison of performance measures between systems

– Ensures adopted application satisfies the organization's minimum requirements

• Learning from Experience



• Purchasing Risks

– Loose fit between needs and features

– Bankruptcy of the vendor

– High turnover of vendor personnel


Application Service Providers

• An organization that offers the use of software applications through communication lines

• Software is not installed on client’s computers

• Application, databases, and other files stored at ASP’s location

– Option to store files produced at own site


Application Service Providers (Cont.)



• The ASP

Industry


• Caveat Emptor– Industry has been very unstable

– Managers considering ASPs should follow these “commandments” for best results

• Check the ASPs history

• Check the ASP’s financial strength

• Ensure you understand the price scheme

• Get a list of the provider’s infrastructure

• Craft the service contract carefully



• ASP clients are:

– Fast growing companies relying on software for their operations

– Small companies without the cash to pay up front, but need office, telecommunications, and basic business operations applications



• ASP clients are:

– Medium-sized companies that need expensive software, such as enterprise applications, for their operations, but cannot afford the immediate payment of large sums

– Organizational units located where it is difficult to obtain desired software or personnel to install and maintain the software



User Application Development• Factors Encouraging User Application

Development– The programming backlog and chargeback system

– The widespread use of PCs

– The emergence of 4GLs and Visual Programming Languages

– Increasing popularity of prototyping

– Increasing popularity of client/server architecture and intranets


User Application Development (Cont.)


• Managing User-developed Applications

– Managing the reaction of IS professionals

– Providing support

– Compatibility

– Managing access




• 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



• Risks of user application development

– Poorly developed applications

– Islands of information

– Duplication

– Security problems

– Poor documentation


Ethical and Societal IssuesComputer Use Policies for Employees

• End-user computing encourages increased productivity, but business computers are often used for unproductive personal activities

• Most state statutes do not address unauthorized use of computers

• Employers should provide clear guidelines stating acceptable and unacceptable use of company computers


Summary• There are several options available for systems

acquisition:– Outsourcing– Ready-made software– User-developed applications– ASP

• There are trade-offs for each option• Each set of circumstances will dictate the

appropriate approach

chapter 16 alternative avenues for systems acquisitions

Documents

service firm

functionsoutsourcing

readymade softwareidentifying

tailored system development

inexpensive applications

tailored development

large applications

core business competencies