Chapter 13: Choices in Systems Acquisition

1. Management Information Systems, Sixth Edition Chapter 13: Choices in Systems Acquisition

2. Objectives • Explain the differences among the alternatives to tailored system development: outsourcing, licensing ready-made software, using software as a service, and encouraging users to develop their own applications • List the business trade-offs in the various methods of acquiring systems Management Information Systems, Sixth Edition

3. Objectives (continued) • Describe which systems acquisition approach is appropriate for a particular set of circumstances • Discuss organizational policies on employee computer use Management Information Systems, Sixth Edition

4. Options and Priorities • There are four alternatives to in-house development: • Outsourcing • Licensing • Using software as a service (SaaS) • Having users develop the system • The deciding factor is usually cost when the desired application is available from multiple sources • Licensing is preferred due to low cost and immediate availability Management Information Systems, Sixth Edition

5. Options and Priorities (continued) • If licensing is not available: • Application service provider (ASP) is the next best choice • System is immediately available for a small start-up fee • Third best choice is allowing users to develop their system • Last choice is to outsource, if non-IT employees cannot develop IS Management Information Systems, Sixth Edition

6. Options and Priorities (continued) • Many factors must be considered in addition to cost and quality • Alternatives are not fully comparable, and often cannot be simply prioritized Management Information Systems, Sixth Edition

7. Options and Priorities (continued) Management Information Systems, Sixth Edition

8. Outsourcing • Outsourcing has two meanings in the IT arena: • To commission the development of an application to another organization • To hire the services of another company to manage all or parts of the services usually rendered by an IT unit in the organization • May not include development of new applications Management Information Systems, Sixth Edition

9. Outsourcing Custom-Designed Applications • Custom-designed (tailored) software: software developed specifically for the needs of an organization • Several advantages: • Good fit to need • Good fit to culture • Dedicated maintenance • Smooth interface • Specialized security • Potential for strategic advantage Management Information Systems, Sixth Edition

10. Outsourcing Custom-Designed Applications (continued) • Disadvantages: • High cost • The organization must fund all development costs • Staff may be diverted from other projects • Software is less likely to be compatible with other organizations’ systems Management Information Systems, Sixth Edition

11. Outsourcing Custom-Designed Applications (continued) Management Information Systems, Sixth Edition

12. Outsourcing Custom-Designed Applications (continued) • Must deal with an inherent conflict when outsourcing software development: • Client wants a firm contract and set of requirements • Specific requirements may mean that no deviation is allowed if changes are needed later as development progresses • Changes may involve hefty additional charges • Offshoring: outsourcing to other countries such as India, China, Philippines, etc. Management Information Systems, Sixth Edition

13. Outsourcing IT Services • Many businesses turn to IT companies for long-term services, including: • Purchasing and maintaining hardware • Developing, licensing, and maintaining software • Installing communications networks • Maintaining and operating Web sites • Staffing help desks • Running IT daily operations • Managing customer and supplier relations • Business process outsourcing: outsourcing routine processes, such as order entry or HR Management Information Systems, Sixth Edition

14. Outsourcing IT Services (continued) • Some companies realize IT is not their core competency and should not be a focus of their efforts • Pace of development in IT requires a high level of expertise • A growing portion of IS budgets are being allocated for outsourced services • Popular IT service providers include: • IBM • EDS • Accenture • Unisys Management Information Systems, Sixth Edition

15. Outsourcing IT Services (continued) Management Information Systems, Sixth Edition

16. Outsourcing IT Services (continued) • Outsourcing companies are known as vendors • IT outsourcing contracts are typically long-term contractual relationships, usually for seven to 10 years • Clients sometimes find themselves bound by obsolete contracts, and must renegotiate Management Information Systems, Sixth Edition

17. Advantages of Outsourcing IT Services • Several advantages of outsourcing: • Improved financial planning • Client knows the exact cost of IS functions • Reduced license and maintenance fees • IS professional firms pay discounted prices for tools and can pass on the savings to their clients • Increased attention to core business • Executives can concentrate on their company’s core business Management Information Systems, Sixth Edition

18. Advantages of Outsourcing IT Services (continued) • Advantages of outsourcing • Shorter implementation cycles • IT vendors can complete new applications faster • Reduction of personnel and fixed costs • Increased access to highly qualified know-how • Availability of ongoing consulting as part of standard support • Sometimes outsourcing does not save the client money Management Information Systems, Sixth Edition

19. Advantages of Outsourcing IT Services (continued) Management Information Systems, Sixth Edition

20. Risks of Outsourcing IT Services • Disadvantages of outsourcing: • Loss of control • High risk in a quickly changing industry • Loss of experienced employees • Usually involves transferring employees to vendor • Risks of losing a competitive advantage • May disclose trade secrets • High price • Can be more expensive than keeping the tasks in-house • Important to clearly define contract terms Management Information Systems, Sixth Edition

21. Risks of Outsourcing IT Services (continued) Management Information Systems, Sixth Edition

22. Risks of Outsourcing IT Services (continued) • Service-level agreement • The most important element of an outsourcing agreement • Lists all services expected of the vendor • Defines the metrics to be used to measure vendor performance • The client must develop the service level and metrics list, not the vendor Management Information Systems, Sixth Edition

23. Licensing Applications • Purchasing software usually means purchasing licenses to use the software • There is a large selection of high-quality packaged software available • Two groups of ready-made software: • Relatively inexpensive software that helps in the workplace, such as office suites • Large applications that support entire organizational functions, such as HR or financial management • Typically cost millions of dollars Management Information Systems, Sixth Edition

24. Software Licensing Benefits • Licensing benefits include: • Immediate system availability • High quality • Low price (license fee) • Available support • Beta version: a prerelease version of software to be tested by companies who want to use it • Often includes a period of up to one year of free service • Large applications require installation specialists Management Information Systems, Sixth Edition

25. Software Licensing Risks • Software licensing has risks including: • Loose fit between needs and features • Must determine if the software will comply with company needs and organizational culture • Difficulties in undertaking custom modifications • Dissolution of the vendor • May be left without support and maintenance • High turnover of vendor personnel • Turnover among IS professionals is high • May result in lowered support expertise from vendor Management Information Systems, Sixth Edition

26. Steps in Licensing Ready-Made Software • Selecting software involves a large money investment and a long-term commitment • Project management team responsibilities: • Identify problem or opportunity • Define functional requirements • Identify potential vendors • Solicit vendor information • Request for information (RFI): request for informal information about a vendor’s product • Define system requirements Management Information Systems, Sixth Edition

27. Steps in Licensing Ready-Made Software (continued) • Project management team responsibilities (continued): • Request vendor proposals • Request for proposal (RFP):a document that specifies all requirements and solicits a proposal • Review proposals and screen vendors • Visit sites where the application is in use • Select a vendor • Benchmark the application by comparing actual performance against specific quantifiable criteria Management Information Systems, Sixth Edition

28. Steps in Licensing Ready-Made Software (continued) • Project management team responsibilities (continued): • Negotiate a contract • Should define performance expectations and penalties for failure to meet expectations • Implement the new system • Manage postimplementation support Management Information Systems, Sixth Edition

29. Steps in Licensing Ready-Made Software (continued) Management Information Systems, Sixth Edition

30. Steps in Licensing Ready-Made Software (continued) Management Information Systems, Sixth Edition

31. Software as a Service • Application service provider(ASP): an organization that offers software through communication lines (such as the Web) • Software as a service (SaaS): applications available through the Web • No software is installed on a client’s computers • Files may be stored on local storage devices • ASPs may rent the software they offer Management Information Systems, Sixth Edition

32. Software as a Service (continued) • Renting software has benefits: • No need to learn how to maintain the software • No large start-up fee • Storage hardware is unnecessary • Software is usually available sooner • A good option for small companies • Is considered a “software on demand” approach Management Information Systems, Sixth Edition

33. Software as a Service (continued) • Renting software also has risks: • Lack of control may be an issue, as the client’s data is managed by the vendor • Vendor is unlikely to make many customized changes to the software • Response time is impacted by traffic levels • May be security risks through a public network • Many clients used leased lines instead of the Internet to limit security risks Management Information Systems, Sixth Edition

34. Software as a Service (continued) Management Information Systems, Sixth Edition

35. Caveat Emptor • ASP may be disappointing in some areas: • Scope of services provided • Level of reliability • Manager guidelines when selecting an ASP: • Check the ASP’s history: get references • 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 Management Information Systems, Sixth Edition

36. Caveat Emptor (continued) • Uptime: proportion of time that the ASP’s systems and communications links are up • No ASP has 100% uptime • 99.9 % uptime = up to 500 minutes/year of downtime • 99.999% uptime = less than 5 minutes/year of downtime • Recommended for critical applications Management Information Systems, Sixth Edition

37. Caveat Emptor (continued) • Four categories of typical users of ASP services: • Rapidly growing companies that rely on software for deployment of their operations • Small companies without cash to pay up-front costs for software • Medium-sized companies that need expensive software • Organizational units at remote locations • Storage service provider (SSP): rents storage space for remote storage of client files Management Information Systems, Sixth Edition

38. User Application Development • User application development: nonprogrammer users write their own business applications • User-developed software is usually: • Simple and limited in scope • Small applications developed for immediate or brief needs • Maintained by end users Management Information Systems, Sixth Edition

39. User Application Development (continued) Management Information Systems, Sixth Edition

40. Managing User-Developed Applications • Challenges of user-developed applications include: • Managing the reaction of IT professionals • Providing support • Compatibility • Managing access Management Information Systems, Sixth Edition

41. Managing User-Developed Applications (continued) Management Information Systems, Sixth Edition

42. Advantages and Risks • Advantages of user development of applications: • Shortened lead times • Good fit to needs • Compliance with culture • Efficient utilization of resources • Acquisition of skills • Freeing up IS staff time Management Information Systems, Sixth Edition

43. Advantages and Risks (continued) • Disadvantages of user-developed applications: • Poorly developed applications • Islands of information • Duplication • Security problems • Poor or no documentation Management Information Systems, Sixth Edition

44. Summary • Several alternatives to having applications developed in-house include outsourcing, licensing ready-made software, using software as a service, and allowing users to develop their own software • Outsourcing can mean commissioning development or assigning services to vendor • Outsourcing custom-designed applications might afford the organization a good fit of software to need Management Information Systems, Sixth Edition

45. Summary (continued) • Outsourcing IT services has great benefits, such as reduced cost and allowing the organization to focus on its core competency • Outsourcing IT services has potential risks, such as loss of control, loss of experienced employees, and loss of competitive advantage • Licensing software advantages include software being immediately available and low-priced • Disadvantage of licensing software is often a loose fit to the organization’s needs Management Information Systems, Sixth Edition

46. Summary (continued) • Software as a service, from an ASP, is a popular method of obtaining software for a monthly fee • User application development advantages include short lead time, good fit, freeing IT staff • User application development disadvantages include poor quality, islands of information, security problems, and poor documentation • Over half of America’s office workers have rich computer resources • Policies must be established to prevent computer abuse by employees Management Information Systems, Sixth Edition