MIS 648 Lecture 14 1

MIS 648 Presentation Notes: Lecture 14

Selecting Offshoring Sites

MIS 648 Lecture 14 2

AGENDA

Introduction to the lecture Goal of the Lecture Evaluating Offshoring Decisions (Palvia) Comparing Countries (Gurung) Wrap-Up

MIS 648 Lecture 14 3

Goals of the Lecture

Examine and evaluate several models of selection of offshoring sites

Develop a critical viewpoint on offshoring in an economic and cultural context

Wrap up the course

MIS 648 Lecture 14 4

Choosing an Outsourcee

Palvia explores the choice of country (outsourcee)

Functions that can be offshored include almost all of IT, accounting, HR, much of R&D, CRM, tax prep, radiology, entertainment content, etc.

Palvia distinguishes between on-shore, near shore (such as among NAFTA countries), off-shore and far-shore

MIS 648 Lecture 14 5

Examples

Near shore: Canada, Mexico, might also include West Indies

Off shore: European and near-european countries such as Ireland, Israel, Belarus

Far shore: China, Russia, Philippines, Malaysia, Taiwan, Pakistan

Cost drives distance both physical as well as cultural

MIS 648 Lecture 14 6

Country Selection Model

Political

GovernmentRegulation

Infra-structuralResources

HumanResources

LegalSystem

LanguageCulture

COST

QUALITY

SPEED

Country andCompany

Destination

MIS 648 Lecture 14 7

Decision Factors

Cost: Obviously per hour costs are lowest in “undeveloped” countries, but is the quality high?

Quality: Many “developing” countries have very high quality IT workers because of universities, gov’t policy, etc.

Speed depends on infrastructure, time zones, worker flexibility

MIS 648 Lecture 14 8

Cost vs. Quality tradeoff

Hungary

China Russia

Philippines

Malaysia

Mexico

Ireland Israel

Singapore

India

Low Q U A L I T Y High

C O

S T

Lo

w

Hig

h

MIS 648 Lecture 14 9

Outsourcing Software Development: The Location

Decision

GSD Decision

LocationDecision

IT Manager

Size of Company

Availability of Software Engineers

and their Wages

Home Country Factors

Trained and skilled SW engineers

Level of IT labor cost

Risk

Infrastructure

Exchange Rate

Host Country Factors

Educational Institutions

Training Facilities

S/W Piracy Rate

Political Stability

MIS 648 Lecture 14 10

Additional Factors

GSD Decision

LocationDecision

IT Manager

Size of Company

Availability of Software Engineers

and their Wages

Home Country Factors

Trained and skilled SW engineers

Level of IT labor cost

Risk

Infrastructure

Exchange Rate

Host Country Factors

Educational Institutions

Training Facilities

S/W Piracy Rate

Political Stability

MACRO LEVEL(Country)

MICRO LEVEL(Project)

MIS 648 Lecture 14 11

Macro-Level Considerations

Language Quality (Bang for buck/Quality vs. Cost) Certification

ISO 9000 SEI Level 2, 3, 4, or 5 CMM or SPICE or other

MIS 648 Lecture 14 12

Micro-Level Considerations

About the project or application McFarlan Risk Factors

Size Stability/Specificity/Structure “Gap”

Time Structure (sequential, parallel, overlapped)

MIS 648 Lecture 14 13

Finally, Culture

Guring and Prater explored the impact of culture on virtual team performance in an outsourcing setting.

Global virtual team: “temporary, culturally diverse, geographically dispersed, electronically communicating work group” (Kristoff, Brown, et al 1995).

All signs point to the centrality of culture in outsourcing success whatever the theoretical perspective taken and whatever phase of outsourcing or activity pinpointed.

MIS 648 Lecture 14 14

Outsourcing, a critical view

While there are many success stories, the failures are often ignored.

Problems seem objective (underestimation of costs, unsatisfactory delivery of services, uncooperative vendors, etc.)

But they all seem to have cultural components unstudied and unmeasured.

MIS 648 Lecture 14 15

Why Culture?

Relationships are all important Compatibility is key in relationships Culture is a driver of [in]compatibility Cost is the primary motivator Contract preparation is the key to cost

control; this depends on relationship and disclosure as well as business practices

All of these are sensitive to culture.

MIS 648 Lecture 14 16

How to Manage Cultural Differences

Carmel and Agarwal describe four methods:

Bridgehead (onshore+offshore) Contracting virtual teams Cultural liaison (SWAT team) Language training

Virtual teams are susceptible of course to all influences such as group life cycle.

MIS 648 Lecture 14 17

Cultural/Psychic Distance

A construct or concept that indicates differences between pairs of “cultures”

Simplest: Hofstede mismatch More complex: “Psychic difference”

Perception and understanding of cultural and business differences

Not the same as cultural distance, which functions at a national level

Trust (org’l level), experience (ind’l level) figure into psychic difference

MIS 648 Lecture 14 18

Offshoring Success

OffshoringSuccess

Impacted by TrustBenefitRisk sharingBusiness understandingCommitment

Attainment of strategic, economic and technological benefitsFit between customer’s requirements and outsourcing outcomes

MIS 648 Lecture 14 19

Offshoring Success and “Culture”

Culture Experience

RelationshipQuality

PsychicDistance

OffshoringSuccess

MIS 648 Lecture 14 20

Offshoring Success and “Culture”

Culture Experience

RelationshipQuality

PsychicDistance

OffshoringSuccess

Each arrow generates a proposition

Eg. The better the quality of the

relationship, the better the chance

of success

Eg. The greater the experience of

virtual team members, the

better the chance of success

MIS 648 Lecture 14 21

Do You Work on Such a Team?

Evaluate: Relationship between client and vendor Relationship among team members Experience of outsourcing partners Differences in national, organizational

cultures Psychic differences Level of international experience

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Trends and Implications

Rao, Poole, Raven and Lockwood (2006) wondered where global IT offshoring (GITS) was going.

They interviewed 10 CIOs of relatively large firms (sales from $M315 to $B52) in the western US.

Asked about their perceptions of where GITS is going, the implications and what should be done.

MIS 648 Lecture 14 23

Primary Drivers

Lower cost Access to expertise not available inhouse Flexibility to meet capacity demands Accessing a global skills base Access to new markets Improved product quality Develop external collaboration experience Assist in improving domestic IT processes

MIS 648 Lecture 14 24

Primary Concerns

Proj. mgmt skills needed inhouse Lack of domain knowledge among vendor

personnel Managing vendor team composition (not

stable) Protection of intellectual property Geopolitical stability in vendor countries Language barriers Internal employees’ unrest Loss of IT training ground (no entry level)

MIS 648 Lecture 14 25

Implications

Large projects more easily cost justified IT labor resources redirected domestically Knowledge transfer to domestic staff Lowered morale and raised perception of layoffs

domestically Declining US enrolments in science and

technology Loss of US entry-level positions in coding and

testing.

MIS 648 Lecture 14 26

To Be Done or Avoided

Avoid gov’t legislation limiting GITS Provide assistance and training and

unemployment benefits to displaced workers (?)

Make changes to CS (and MIS) curricula to include business foundation

Stress importance of math and science in K-12

MIS 648 Lecture 14 27

Course Roundup

Culture is important; global influences it Teamwork is important; mediator IT influences economic development Economic development influences IT

deployment, use E-commerce, system development,

Outsourcing are three forms of the same thing: creation and deployment of business tools.

MIS 648 Lecture 14 28

Evaluate Your Own Situation

Does IT influence or determine some or all of your work?

Do you work globally? Do you work in teams? If the answer is “Yes” to all of these, then

applying the lessons learned in this course can increase the quality of your work and your working life.