pressures faced in it it departments face growing pressure to improve their business value by...
TRANSCRIPT
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Pressures Faced in IT
• IT departments face growing pressure to improve their business value by accelerating the delivery of new applications and technologies and improving service to users
• At the same time, basic maintenance and support of the existing application portfolio consumes up to 50% to 80% of IT resources —posing a serious roadblock to new initiatives and services that can enhance an organization’s competitive position
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Decision Making Model
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Business Strategy
• It enables the business to better manage the human and financial resources required to support current applications while positioning itself to realize competitive advantage
• Acceptance of outsourcing as a business strategy extends well beyond IT, with outsourcing of business functions like customer service, human resources, and finance and administration projected to grow at 30% annually in coming years
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Types of Sourcing Arrangements
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Types of Projects Outsourced
• Ongoing Software Maintenance
• Software Conversion Projects (i.e. Y2K)
• Original Application Development
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What is Being Outsourced?
• No area of the development lifecycle is immune to outsourcing
• In-house teams still do the majority of higher-abstraction activities, such as project management, requirements gathering, architecture, design, modeling, R&D and deployment
• However, offshore teams aren't simply being tasked with writing code
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Outsourcing Literature Sources
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Outsourcing Objectives
• Outsourcing arrangements are not typical purchaser/vendor relationships, and confidence that the vendor can work in a partnership is vital to a successful arrangement
• It is essential that the objectives and success criteria for outsourcing are clearly understood within the organization
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Outsourcing Agreements
• Any outsourcing arrangement must be tailored to create a win/win deal that balances potential risk between the client and the vendor and creates an incentive for the vendor to work with the customer organization
• It’s becoming increasingly common for outsourcing arrangements to be structured for ‘gain-sharing’: once targeted benefits are achieved, benefits beyond the target are shared
• Arrangements such as these promote a true partnership
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Characteristics of Outsourcing Contracts
• In outsourcing contracts, the client retains ownership of the IT strategy while the vendor assumes responsibility for management processes and day-to-day supervision of the resources
• A well-structured outsourcing contract makes the vendor responsible not only for a defined package of services, but for the delivery of business value from those services
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Service Metrics
• Performance related service-level metrics are a key component of most outsourcing contracts
• Growing emphasis is being placed on measuring and evaluating the services’ business value
• Accordingly, metrics demonstrating continuous improvement and business value are becoming a more common component of outsourcing agreements
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Service Level Agreements
• In order to offer a competitive service that, at the same time, is objectively measurable, the maintenance organization must commit itself to accomplish its services according to some indicators
• These Service Level Agreements can also be used for planning the non-plannable maintenance
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Risks
• There are many good works analyzing the problem of risks once the maintenance process has started, but there is a lack of guidelines to help managers identify and estimate the risks in the initial stages of projects
• One situational factor may affect one or more risk factors, and each risk factor may affect on one or more business areas
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Theoretical Foundations
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6 Characteristics of Describing Software Development
1) Complexity
2) Degree of Commitment
3) Compatibility
4) Efficiency
5) Benefit
6) Risk and Uncertainty
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Complexity vs Radicalness
Complexity is a measure of the number and variety of elements and their interconnections in a system
Radicalness is largely a perceptual measure which describes the perceived amount of change in the system at each level of abstraction
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Developing Applications
• Internal staff already understands legacy applications, time spent transferring that knowledge would eat any potential savings
• New applications are driven by new opportunities that require rapid response, and the internal staff is too busy to provide that response.
• New projects can be started quickly because there is no need to recruit people. This lets the company respond swiftly to unexpected developments with minimal risk.
• If a new application fails to pan out, then the design cost will have been significantly less than in-house.
• If the application bears fruit, then offshore developers are in an ideal position for support, reducing the cost of maintenance.
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Efficiency and Effectiveness in the Application Management Environment
• A clear picture of the desired, or ‘target’ application management environment is crucial to understanding the potential business value of outsourcing application management
• Well run environments have:– User Satisfaction– Accountability– Adequate Staffing
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Maintenance
• Outsourcing of software life cycle activities is a growing business area
• Lack of planning and high costs of software maintenance invite many organizations to outsource
• Even the most unexpected organizations, such as the US Department of Defense, have decided to outsource significant portions of their Information Systems
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Maintenance
• Among the activities that comprise the software life cycle, maintenance is the most costly; estimated at 67-90%
• By not planning for change, companies are faced with higher costs than if they were to imbed that cost in the original development plan
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Benefits of Outsourcing Maintenance
• Employees focus on the core business
• Releasing resources for strategic developments
• Decreasing costs
• Increasing productivity
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Drawbacks of Outsourcing Maintenance
• Loss of control
• Loss of a learning source
• Loss of knowledge of the software
• Dependencies on the supplier
• Variations in the product quality
• Problems among personnel
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Planning the Non-Plannable
• “Non-plannable” maintenance requires urgent corrective action
• It is the more problematic type of maintenance, due to its lack of planning possibility
• The use of predictive models are used to try to determine the quantity of resources needed for error corrections.
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Benefits of Outsourcing
• Competitive Advantage
• Speed-To-Market
• Improved Quality
• Overcome cultural barriers to improving methods and processes
• Access to skills and resources
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According to One CIO…
• "We see little value in offshoring legacy work," Ross says. "Next-generation applications is where the payoff's the greatest."
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The Quality Question
• A large percentage of respondents rated the quality of work done by the offshore team as worse than in-house efforts
• 46% of respondents considered the work of the offshore teams to be of poor quality, and an additional 14% reported that their offshore team's work was "unusable or a setback to progress."
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The Quality Question
• 51% of respondents reported that their current or most recently outsourced project was critical to daily operations
• Despite the reports of poor quality, 93% disclosed that their company plans to keep using their offshore vendor
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Skill Sets for the New Worker
• Teamwork and communication skills remain important, but an understanding of other cultures and languages may also be helpful in this global economy
• More attention must be paid to large applications, standard tools and platforms that will be used by IT workers around the world, such as J2EE or .NET.
• In addition, a more global perspective should be taken
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Generalized Application Packages
• There has been a growing trend towards the use of generalized application packages in IS development, largely due to the fact that in-house development has turned out to be costly and risky in terms of development costs and schedules and the quality of the resulting systems
• The impression is that there is a common-sense belief that application package based information systems are easier to implement than in-house developed systems
• It should be observed, however, that the results are not very conclusive in this respect
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Questions?