Pressures Faced in IT

2. 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

3. Decision Making Model

4. 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

5. Types of Sourcing Arrangements

6. Types of Projects Outsourced • Ongoing Software Maintenance • Software Conversion Projects (i.e. Y2K) • Original Application Development

7. 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

8. Outsourcing Literature Sources

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. Theoretical Foundations

16. 6 Characteristics of Describing Software Development • Complexity • Degree of Commitment • Compatibility • Efficiency • Benefit • Risk and Uncertainty

17. 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

18. 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.

19. 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

20. 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

21. 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

22. Benefits of Outsourcing Maintenance • Employees focus on the core business • Releasing resources for strategic developments • Decreasing costs • Increasing productivity

23. 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

24. 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.

25. Benefits of Outsourcing • Competitive Advantage • Speed-To-Market • Improved Quality • Overcome cultural barriers to improving methods and processes • Access to skills and resources

26. According to One CIO… • "We see little value in offshoring legacy work," Ross says. "Next-generation applications is where the payoff's the greatest."

27. 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."

28. 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

29. 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

30. 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

31. Questions?