Sourcing and Project Managment

Report
SOURCING AND
PROJECT MANAGEMENT
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258 USA
[email protected]
Dr. Chen, Special Topic: Project Management
Learning Objectives
• Describe the Sourcing Decision Cycle Framework
and its impact to Project Management
• Explain the differences between - insourcing and
outsourcing, inshoring and offshoring, and
nearshoring and farshoring.
• List the major drivers for outsourcing.
• Describe how offshoring must be managed.
• Define the different ways of outsourcing including
ASPs.
• Understand the difference between full and selective
outsourcing.
Dr. Chen, Special Topic: Project Management
2
Types of Sourcing
In
_______
Out
_______
Crowd
_______
Sourcing
shoring
_Off_______
Dr. Chen, Special Topic: Project Management
3
Discussion Question
• #1. The make-versus-buy decision is
important every time a new application is
requested of the project management group.
What, in your opinion, are the key reasons
an IS organization should make its own
systems? What are the key reasons it should
buy an application? [MAKE-versus-BUY]
Dr. Chen, Special Topic: Project Management
4
• The key drivers to insource (Make) are:
– Good for core competencies;
– Good for confidential or sensitive IS services or software
development;
– Time available in-house to complete software development projects;
– In-house IT professionals have adequate training, experience or skills
to provide service or develop software.
• The buy decision will also depend upon things such
as cost, availability of resources (human, technical,
etc.), and other drivers. The drivers are:
–
–
–
–
–
–
–
Offers costs savings;
Eases transition to new technologies;
Offers opportunity for better strategic focus;
Provides better management of IS staff;
Offers better ability to handle peaks;
Makes it easier to consolidate data centers;
Provides a cash-infusion
Dr. Chen, Special Topic: Project Management
5
SOURCING DECISION
CYCLE FRAMEWORK
Dr. Chen, Special Topic: Project Management
6
Sourcing Decision Cycle Framework
• Sourcing involves many decisions (Figure 1).
• The first step is the make or buy decision.
• If buy is selected then the company must decide
where.
• If the company decides to go offshore it must decide
if the offshore company is near or far.
• Periodic evaluation must take place.
• Continual evaluation is needed to determine if the
arrangement is satisfactory or not (either for
outsourcing or insourcing).
Dr. Chen, Special Topic: Project Management
7
Where?
Where & how the sourcingOFFSHORING
should be delivered?
(distant land)
NEARSHORING
In or Out of
Country?
Make or Buy?
CAPTIVE CENTER
FARSHORING
OUTSOURCING
BUY
(overseas subsidiary)
(proximate)
INSHORING
Status Quo or
Change?
MAKE
Backsourcing
INSOURCING
FIGURE 1 SOURCING DECISION CYCLE FRAMEWORK
Dr. Chen, Special Topic: Project Management
8
INSOURCING
Dr. Chen, Special Topic: Project Management
9
Insourcing
• A firm provides IS services or develops IS in its own
in-house IS organization.
• This is the “______” decision.
• Drivers that favor this decision:
–
–
–
–
Keep ______ competencies in-house.
IS service or product that requires considerable security or confidentiality.
Time available in-house to complete IS projects.
In-house IT personnel.
• Challenges to insourcing (Figure 7.2):
– Getting needed IT resources from management.
– Finding a reliable competent outsource provider.
Dr. Chen, Special Topic: Project Management
10
Insourcing Drivers
Insourcing Challenges
Good for core competencies
Dealing with Inadequate support
from top management to acquire
Good for confidential or sensitive needed resources
IS services or software
development
Finding a reliable, competent
outsourcing provider that is likely
Time available in-house to
to stay in business
complete software development
projects
In-house IT professionals have
adequate training, experience or
skills to provide service or
develop software
Figure 2 Insourcing drivers and challenges
Dr. Chen, Special Topic: Project Management
11
INSOURCING
What is the example(s)
mentioned in the Friedman’s
Video (The World is Flat)?
Dr. Chen, Special Topic: Project Management
12
OUTSOURCING
Dr. Chen, Special Topic: Project Management
13
OUTSOURCING
• What company was the first one
propose/promote the concept of
Outsourcing? And When?
• Author Andersen in 1972
Dr. Chen, Special Topic: Project Management
14
Outsourcing
• The phenomenon that appeared in the information
systems field in the late 1980s was ________, which
means turning over a firm's computer operations,
network operations, or perhaps other information
systems functions to a vendor for a specified time generally, at least for ______years.
• “…IT outsourcing is a harbinger of traditional IT
department transformation and provides a glimpse at
the emerging organizational structures of the
information economy. “
• Definition: The purchase of a good or service that was
previously provided internally, or that could be
provided internally.
Dr.Chen,
Chen,Managing
Special Topic:
Project
Dr.
IT Reos.
Thru Management
Strategic Partnerships; A Portoflio Approach to IT Development
15
TM -15
Outsourcing
• The purchase of a good or service that was previously
provided internally.
• Drivers include:
Reducing _______;
Transition to new __________;
Focus on core ________ _________;
Provide better management and focus of IT personnel.
• Disadvantages are present in outsourcing and include
 Losing _________,
 Expensive to undue decisions, etc.
• Backsourcing is when a company brings back
previously outsourced IS functions.
Dr. Chen, Special Topic: Project Management
16
Outsourcing As an Economic
Strategy
• ________ competencies
• Which sources are _______ expensive
• How much ________ is needed
Dr. Chen, Special Topic: Project Management
17
The Driving Forces Behind
Outsourcing
• Two main drivers
– _________
• on core business
– _______
• shareholder
Dr.Chen,
Chen,Managing
Special Topic:
Project
Dr.
IT Reos.
Thru Management
Strategic Partnerships; A Portoflio Approach to IT Development
18
TM -18
Outsourcing Models
• _____________
– Outsource only those functions that do not give the
company competitive advantage (prevailing method of the
70s and 80s).
• _____________
– Put ALL functions of IS up for “grabs” (can include
offshoring).
• New models:
– Application Service Provider – rents the use of an
application to the customer.
– Full vs. Selective Outsourcing – complete outsourcing vs.
only outsourcing specific functions.
Dr. Chen, Special Topic: Project Management
19
Why Outsourcing Alliances are So
Difficult?
• Exacerbating the situation is the timing of benefits
– Customer
– Outsourcer
• Only a few outsourcers have the critical mass and
access to capital markets to undertake large
contracts
• Evolution of technologies often changes the
strategic relevance of IT service to a firm.
Dr. Chen, Special Topic: Project Management
20
The Expanding Scope of
Vendor Options
•
•
•
•
To buy professional services
To buy a product
To buy a transaction
To use a systems integrator - project
based
• Outsourcing - time based
Cost Speed Capacity Quality Reliability
Products/
Services
Dr. Chen, Special Topic: Project Management
Expertise
21
When to Outsourcing?
• Which IS activities are strategic to our
company's business?
• Will outsourcing save us at least ____
percent?
• Does our firm have access to the needed
technology and expertise?
– If not, outsourcing may be the answer to
acquiring these resources.
• Does outsourcing increase our firm's
flexibility?
Dr.Chen,
Chen,Managing
Special Topic:
Project
Dr.
IT Reos.
Thru Management
Strategic Partnerships; A Portoflio Approach to IT Development
22
TM -22
What Activities that Management
should not Outsource?
• _________
• _________
• the decisions about when to introduce
information systems into the organization
• the management of the vendor
• when the system (IS) department is well
managed, and where IT is a core
competency
Dr.Chen,
Chen,Managing
Special Topic:
Project
Dr.
IT Reos.
Thru Management
Strategic Partnerships; A Portoflio Approach to IT Development
23
TM -23
Outsourcing Recommendations
• Write shorter contracts - less than ___ years
• Subcontract control
• Selective outsourcing
Dr. Chen, Special Topic: Project Management
24
Figure 3 Outsourcing Drivers and challenges
Outsourcing Drivers
Outsourcing Challenges
Offer cost saving
Abdication of control
Ease transition to new technologies
Lack of technology innovation
Offer opportunity for better strategic
Loss of strategic advantage
focus
Provide better management of IS
staff
Offer better ability to handle peaks
Make it easier to consolidate data
center
Provide a cash infusion
Dr. Chen, Special Topic: Project Management
Reliance on outsourcer
Mitigating outsourcing risks
Ensuring cost savings while protecting
quality
Working effectively with suppliers
25
Avoiding Outsourcing Pitfalls
• Do not negotiate solely on price.
• Craft full life-cycle service contracts that occur in stages.
• Establish short-term supplier contracts.
• Use multiple, best-of-breed suppliers.
• Develop skills in contract management.
• Carefully evaluate your company’s own capabilities.
• Thoroughly evaluate outsourcing providers’ capabilities.
• Choose an outsourcing provider 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.
• Use SOAs to increase agility.
Dr. Chen, Special Topic: Project Management
Figure 4 – Steps to avoid pitfalls
26
OUTSOURCING ABROAD
Dr. Chen, Special Topic: Project Management
27
Offshoring
• Short for outsourcing offshore
• Definition:
– When the MIS organization uses contractor services, or
even builds its own data center in a distant land.
• Substantial potential cost savings through reduced
labor costs.
• Some countries offer a very well educated labor
force.
• Implementation of quality standards:
– Six Sigma
– ISO 9001
Dr. Chen, Special Topic: Project Management
28
Going Offshore for IS Development
• When the MIS organization uses contractor services, or
even builds its own data center in a distant land, it is
engaged in _______, which is short for outsourcing
offshore.
• The types of tasks that are outsourced are usually those
that can be well-specified; however, nowdays, the
functions sent offshore range from routine IT
transactions to increasingly higher end, knowledgebased processes.
• Countries such as India, the Philippines, etc, offer
“offshoring”, an alternative to in-house systems
development
• It raises the issue of what to send offshore, and what to
keep within your enterprise MIS organization.
Dr. Chen, Special Topic: Project Management
29
Selecting Offshoring Destination
• About 100 countries are now exporting software services
and products.
• What makes countries attractive for offshoring?
–
–
–
–
–
–
High English language proficiency.
Countries that are politically stable.
Countries with lower crime rates.
Countries with friendly relationships.
Security and/or trade restrictions.
Level of technical infrastructure available.
• Once a country is selected which city in that country needs
to be assessed as well.
• Countries like India make an entire industry of offshoring.
Dr. Chen, Special Topic: Project Management
30
Government Involvement with Offshoring
• Government actions to support offshoring.
– Countries must invest in infrastructure and in human capital,
particularly in IT education.
– Can offer specific incentives to countries offshoring.
– Assure political stability for their country.
• Government actions to protect against offshoring.
– Loss of jobs in countries offshoring (500,000 US jobs in
2004, expected to reach 3.4 million in 2015).
– US congress proposed 20 federal law proposals to restrict
offshoring.
– States have proposed laws to limit and or restrict offshoring.
Dr. Chen, Special Topic: Project Management
31
Nearshoring
• Definition: sourcing service work to a foreign, lowerwage country that is relatively close in distance or time
zone or both.
• Client company hopes to benefit from one or more ways
of being close:
– geographically, temporally, culturally, linguistically, econociamlly,
politically or from historical linkages.
• Distance and language matter.
• There are three major global nearshore clusters:
– 20 nations around the U.S., and Canada
– 27 countries around Western Europe
– smaller cluster of three countries in East Asia
Dr. Chen, Special Topic: Project Management
32
Captive Centers
• An overseas subsidiary that is set up to serve the
parent company.
• Alternative to offshoring or nearshoring.
• Four major stategies that are being employed:
– Hybrid Captive – performs core business processes for parent
company but outsources noncore work to offshore provided
– Shared Captive - performs work for both parent company and external
customers.
– Divest captive - have a large enough scale and scope that it is wellpositioned to be sold for a profit by the parent company.
– Terminated Captive - has been shut down, usually because its inferior
service was hurting the parent company’s reputation.
Dr. Chen, Special Topic: Project Management
33
BACKSOURCING
Dr. Chen, Special Topic: Project Management
34
Backsourcing
• When a company takes back in-house assets, activities,
and skills that are part of its IS operations and were
previously outsourced to one or more outside IS providers.
• Partial or complete reversal of an outsourcing contract.
• Many companies have backsourced such as Continental
Airlines, Cable and Wireless, and Halifax Bank of
Scotland.
• 70% of outsourcing clients have negative experiences and
25% have backsourced.
• 4% of 70 North American companies would not consider
backsourcing.
Dr. Chen, Special Topic: Project Management
35
Backsourcing Reasons
•
•
•
•
•
Mirror reason for outsourcing.
Higher than expected costs.
Poor service.
Change in management
Change in the way IS is perceived within the
company.
• Sometimes was not problems but provided
opportunities (mergers, acquisitions, etc.).
Dr. Chen, Special Topic: Project Management
36
Crowdsourcing
• Definition:
– Taking a task traditionally performed by an employee or
contractor, and outsourcing it to an ________, generally
large group of _______, in the form of an open call.
• Used by companies to increase productivity, lower
production costs, and fill skill gaps.
• Can be used for a variety of tasks.
• Companies do not have control over the people doing
the work.
• Has cost more than traditional methods.
Dr. Chen, Special Topic: Project Management
37
OUTSOURCING MODELS
Dr. Chen, Special Topic: Project Management
38
ASP Model
• Application service provider (ASP) is a company
that “rents” the use of an application to the customer.
• Outsourcing occurs application by application.
• Useful for the IS that are necessary, but not core.
• May use to:
–
–
–
–
Free up IT staff
Combine data resources
Rapidly deploy new applications
Implement new technologies.
Dr. Chen, Special Topic: Project Management
39
Full vs. Selective Models
• Once outsourcing has been determined, then must
determine if it is to be complete (full) or partial
(selective).
• Full implies that all IS can be outsourced.
• Selective picks certain functions to outsource.
• Sometimes a company may outsource all or most
of its IS but selectively (to multiple companies).
– BP did this with their IS function (IT staff shrink by
80%).
Dr. Chen, Special Topic: Project Management
40
Single vs. Multiple Vendors H/S W Support
• Multiple vendors allows client companies to
distribute work to the “best in breed.”
– Requires more coordination.
– If problems may be a tendency to finger point.
• Single vendor model is simpler but riskier.
– Only one company to coordinate.
– All IS “eggs” are in one basket.
Dr. Chen, Special Topic: Project Management
41
Strategic Grid for
Decisions on Outsourcing
Strategic Importance
Y
N
Competitive Advantage
Y
N
Dr. Chen, Special Topic: Project Management
42
HW
• 1) GoogleDocs assignment
• 2) mini-case: Medical Outsourcing
– May conduct in the class if time allowed
Dr. Chen, Special Topic: Project Management
43
SUMMARY
Dr. Chen, Special Topic: Project Management
44
Summary: Factors driving outsourcing
1. Cost savings
2. Qualified IT staff are difficult to find and retain
3. By bringing in outside expertise, management
needs to focus less on IS operations and more on
the information itself.
4. Outsourcers are specialists, should understand
how to manage IS staff more effectively.
5. Outsourcers may have larger IS resources that
provide greater capacity on demand.
6. Outsourcing can help a company overcome
inertia to consolidate data centers that could not
be consolidated by an internal group, or
following a merger or acquisition.
Dr. Chen, Special Topic: Project Management
45

similar documents