Factors in the Outsourcing Decision

Chapter 10 – MGT 651
 Outsourcing Historic View
 Kellwood Outsourcing Review
 Sourcing Decision Cycle Framework
 Factors in the Outsourcing Decision
 How to Outsource Successfully?
 Where to Outsource?
 Keep as Is ? Re-Assess the Decision
 Crowdsourcing
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Top 3 Outsourcing Trends 2018
 Why Outsourcing in past?
 What’s driving trends?
 Top 3 Trends
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 Original Outsourcing Decision (EDS) – goal was to integrate
different systems into one
 Acquired by Sun Capital Partners, COO made
consolidation/cost savings the top priority
 How IT Services were sourced came under review Analysis Done with help of outside firm
 Results & Action Plan/Communication Strategy
 Kellwood Article  3 times the savings
â—¦ Kellwood Saves Millions
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 How – scope of the outsourcing & steps that should be taken Where – work with an outsourcing provider in your own
country, offshore, or in the cloud
 Starting the Cycle: Make or Buy (insource vs. outsource)
 Insourcing – most traditional way to source IT work
ï‚– Keep core competencies in-house
ï‚– Security concerns
ï‚– Reasons not to insource
 Outsourcing – purchase of good or service previously
provided internally but is now provided by outside vendors6
7 Initial Goal was cost savings
 Multi-vendor approach – “the Kodak effect”
◦ Data Center  IBM
◦ Desktop  BusinessLand
◦ Network  DEC (Digital Equipment Company)
 Many others followed Kodak’s lead
 Kodak Moment to Reconsider IT Value
8 Primary Reasons (Historically)
â—¦ Cheaper Costs due to Economies of Scale
â—¦ Ability to handle peaks in processing
◦ Client company’s need to consolidate Data Centers
 Other Factors Leading to Outsourcing
â—¦ Frees up resources
â—¦ Transition to newer technology
â—¦ Shortage of resources (from earlier video)
9 Yes to These  Suggest Insourcing
â—¦ Does it involve a core competency?
â—¦ Confidential or sensitive IS services?
â—¦ Adequate training for in-house IS Professionals?
◦ Time available to complete software development in-house? Yes to These  Suggest Outsourcing
â—¦ Reliable outsourcing providers who will likely stay in business for length of the contract?
â—¦ Outsourcing provider that has culture and practices that are
compatible with the client
 Surrender Control
 OP may not recommend newer technologies
 Lose ability to develop IS functions for competitive advantage Risk of over reliance – locked into an arrangement they no
longer want  DHL example – 90% of IT Development/Maintenance projects
to Infosys (lot of money tied into this decision)  IM Example with Infosys – lights on/maintenance only
 Cultural Differences  Sense of urgency, commitment to completion/deadlines
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 Selection
â—¦ Identify key requirements/selection criteria
â—¦ See SW Vendor Example (canvas)
 Contracting
â—¦ Length is important, need for SLAs
 Scope
â—¦ Full or Selective?
â—¦ Jetblue example
 Multi-sourcing
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 On-shoring
â—¦ Also called in-shoring
 Off-shoring
â—¦ Outsourcing offshore
 Cloud Computing
â—¦ Dynamic provisioning of 3rd party provided IT services over the
internet
◦ Different Flavors – Private, Community and Public
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 Is it Working?
â—¦ Solution Decision Cycle (Figure 10.1)
 Factors to Consider
◦ Service Delivery, Costs, Competition, & Value/Partnership Backsourcing
 Continuous Improvement
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 Outsourcing Bad for Business
 Seemed like a good idea at the time
 Savings originally conceived aren’t what they once were Skilled workers still there but intense competition for
their services
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