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IT and IT-enabled Business Process Outsourcing

ISM 6305Information Resources

Management



Core IT Activities

►IT operations planning and management.►Anticipating new technologies.

▼ IT must keep an eye on emerging technologies.▼ Work closely with management to make

appropriate decisions.▼ Weigh risks and benefits of new technologies.

►Strategic direction.▼ IS can act as consultants to management.▼ Educate managers about current

technologies/trends.►Process innovation.

▼ Review business processes to innovate.▼ Survey best practices.


Core IT Activities (continued)

►Supplier management.▼ Carefully manage outsourced IT.

►Architecture and standards.▼ Be aware of incompatibilities.▼ Inconsistent data undermines integrity.

►Security▼ Important to all general managers.▼ Much more than a technical problem.

►Business continuity planning▼ Disaster recovery.▼ “What if” scenarios.

►Human resource management.▼ Hiring, firing, training, outsourcing, etc.


IT Activity Categorization


Outsourcing

► IT Outsourcing▼ Data network management; data center management; data

entry; application hosting; software-as-a service (SaaS); etc.▼ IBM; EDS; TCS; Wipro; Infosys, etc.

► IT-enabled Business Process Outsourcing (BPO)▼ Call center; medical transcripts; insurance claims processing;

accounts reconciliation; content management▼ ADP; Convergys; GE Services; ICICI OneSource; HCL;

Genpact; MphasiS, etc.► IT-enabled Knowledge Process Outsourcing (KPO)

▼ High value addition; knowledge-intensive processes▼ Tax return preparation and audit; legal research; financial

research; patents filling services; business intelligence services; technology R&D; animation design; gaming, etc.

• Accenture; Gartner; Evalueserve; IPPro; Scope; Corbus


IT Outsourcing Services► Level 1 – IT physical space (real estate) services

▼ Floor space and physical facility maintenance; specialized HVAC plant maintenance

► Level 2 – Network services▼ Internal and external connectivity (local area networks and wide

area networks); network management; firewall and other data security services

► Level 3 – Platform services▼ Support for hardware and operating systems; reboot services;

data backup and disaster recovery► Level 4 – Application support services

▼ Application hosting and Web Services; application performance monitoring; application design and development

► Level 5 – Business operating services▼ Administering and operating applications; Overall IT operations

management


Drivers of IT and BP Outsourcing

►Cost savings►Strategic focus on core competences►Improve performance/ fix broken IT►Instant adoption of best practices►Access to IT resources►Access to technical staff and special skills►Transition to new technologies►Handle peak demands►Consolidation of IT services►Other financial reasons (cash flow; asset management;

fixed to variable cost)


When to Outsource

Internal versus External IT Service Delivery


When to Outsource

Uninterrupted service-oriented IRM (Factory)

Outsourcing Presumption:Yes

Support-oriented IRMOutsourcing Presumption:

Yes

Turnaround IRMOutsourcing Presumption:

Mixed

IRM = Information Resource Management

Strategic IRMOutsourcing Presumption:

Mixed

Impact of IT on Core Strategy

Impa

ct o

f IT

on

Cor

e O

pera

tions

High Low

Hig

h Lo

w


Support-Oriented IRM

►Impact on Core Strategy and Operations▼ Low and Low, respectively

►Outsourcing presumption: YES►Reasons to consider outsourcing

▼ Access to higher IT professionalism▼ Ability to lay off a low-priority, problem-laden area to

experts▼ Access to current IT skills▼ Better IT planning▼ Reduce the risk of inappropriate IT

architecture/conform to industry practices


Uninterrupted Service-Oriented IRM

►Impact on Core Strategy and Operations▼ Low and High, respectively

►Outsourcing presumption: YES ►Reasons to consider outsourcing

▼ Economies of scale for SMEs▼ Higher quality of services and backup▼ Reduce IT risks▼ Facilitate management focus on core business


Turnaround IRM

►Impact on Core Strategy and Operations▼ High and Low, respectively

►Outsourcing presumption: MIXED ►Reasons to consider outsourcing

▼ Access to technologies and skills not available with the internal IT department

▼ Instant improvement in IT performance▼ Transition to new technologies


Strategic IRM

►Impact on Core Strategy and Operations▼ High and High, respectively

►Outsourcing presumption: MIXED ►Reasons to consider outsourcing

▼ Rescue and out-of-control internal IT unit▼ Assure high level of IT reliability▼ Tap source of cash▼ Facilitate cost flexibility▼ Divestiture of management attention


Managing Outsourcing

VendorSelectionVendor

Selection

Outsourcing Contract

Outsourcing Contract

ImplementationImplementation

Operations/ RelationshipOperations/ Relationship

EvaluationEvaluation

Decision to Renew

Decision to Renew

Decision to OutsourceDecision to Outsource


Structuring Offshoring


Offshoring Agreement

►Three types▼ Third-party agreements

• Arms-length• Tight control

▼ Captive agreements• Subsidiaries• Acquisitions

▼ Build-operate-transfer (BOT) agreement• Reverse BOT


Legal Contractual Components

►Scope of service►Service level and fees►Managing service providers►Coordination of project activities►Intellectual property rights►Privacy and data protection►Non-compete and non-solicitation►Labor/HR issues►Representations, warranties, and indemnities►Disaster recovery, limited liabilities, and insurance►Termination and transition►Tax implications►Jurisdictions and arbitrations


Risks in Outsourcing

►Loss of control►High switching costs►Complex cost conversion (production costs versus

coordination costs)►Vendor incompetencies/ instability/ stagnancy►Contract inflexibility►Knowledge loss►Over reliance on vendor


Avoiding Outsourcing Pitfalls

►Do not focus negotiation solely on price►Craft full life-cycle services contracts that occur in stated►Establish short-term supplier contracts►Use multiple, best-of-breed suppliers►Develop skills in contract management►Carefully evaluate your company’s own capabilities


Avoiding Outsourcing Pitfalls (continued)

►Thoroughly evaluate outsourcers’ capabilities►Choose an outsourcer whose capabilities complement

yours►Base a choice on cultural fit as well as technical

expertise►Determine whether a particular outsourcing relationship

produces a net benefit for your company►Plan transition to offshoring

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Business

outsourcing access

outsourcing services

outsourcing rescue

core business

business operating services

outsourcing economies

operations management

process innovation