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| By N2H | ||||||||||||||||||||||
Suitability of Outsourcing
November 9, 2007
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Are all Applications Equally Suitable for Outsourcing?
Those organizations that view IT outsourcing unfavorably are usually those that regard IT services a standard commodity with low strategic value. On the other hand, companies that believe in the strategic value of IT (that IT gives them special leverage) don’t generally like to outsource.
Applications that are more suitable for outsourcing will usually have the following properties
a) They are of a commodity type i.e. they are of transaction type and have low strategic relevance.
b) They have relatively low uncertainty i.e. Their workings are well understood and the success of the outsourcing contract is not subject to high risk.
c) The application exhibits low system inter-connectedness within other business applications. i.e
an application that has few interfaces with other applications systems can easily be operated on a stand alone basis and can therefore be outsourced easily.
d) Internal skills and capacity: If an organization doesn’t have adequate technical skills and operating capacity to handle a particular Information System application then outsourcing may be the foremost option.
Applications that are more frequently outsourced have the following:
- Payroll
- Downsizing project
- Network management
Outsourcing Contract and Negotiations:
A carefully structured outsourcing contract is the only way to ensure that the anticipated benefits are achieved. The common problems cited in setting up such a contract revolves around:
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Defining service levels
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Managing the contract and its details
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Staffing of the contract (what to do with the IS staff)
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Cost control within the contract (cost criteria)
In drawing up a contract the following guidelines may be useful.
a) Always discard the vendors standard contract and insist on negotiating your own.
b) Do not sign incomplete contracts
c) Seek the advise of outsourcing experts
d) Develop service level measures and insist on service level reports
e) Specify evaluation procedures
f) Include penalties for non performers
g) Select an account manager to be in charge of the outsourcing contract
h) Include early termination process
i) Take care of your IS staff within the contract.
General Lessons on Outsourcing
1. Public information services (the media) tend to portray an over-optimistic view of IS outsourcing
2. Outsourcing appears to be a symptom of the problem of demonstrating the value of IS to management.
3. Organizational members may initiate outsourcing for reasons other than cost efficiency.
4. Outsourcing vendor may not inherently be more efficient than an internal IS department.
5. The internal IS department may be able to achieve similar results without vendor assistance.
6. If a company decides to outsource, a contract is the only mechanism to ensure that expectations are realized.
7. The metaphor (assumption) that Information System is merely a utility is misguided.
Facilities Management (FM)
The terms outsourcing and facilities management are commonly used interchangeably, the term outsourcing is of British origin while FM is American. Closer examination indicates that the term facilities management has a more restricted meaning – the management of a computer installation entails the subcontracting of a firm’s traditional data processing activities to the market place (facilities management vendors).
The primary impetus for FM seems to be cost control and certainty of service. In addition facilities management contracts provide for management expertise as well as technical skills. FM deals are legally binding equivalent of an internal service level agreement. For most organizations, it is this certainty of service that makes FM attractive.
Facilities management occasions issues to do with the organization and management of data center. The vendor will usually appoint a data centre manager (account Manager) with the overall responsibility of managing the activities of the centre. The persons duties will include planning, organization, staffing, control, innovation representation and communication.
Organization of work will usually cover data preparation, job scheduling, output dispatch procedures, data communication support, setting and overseeing operation shifts etc. One critical aspect of operations is computer centre security, its access controls, backup procedures or disaster recovery planning. The data center manager has the special responsibility of ensuring that the standards of operations work are in line with the clients expectations as expressed in the service level agreement.
This calls for well trained highly productive staff with a clear focus on results. The recruitment and training aspects of such staff will therefore need to be addressed very carefully. Such staff will normally be expected to meet world class standards. Most of the other roles of the data centre manager are similar to the roles of a conventional IS/IT manager.
When an FM contract is in place, this leaves the in-house IS unit with ample time to deal with strategy and policy issues in addition to managing a vendor. Facility management may be more involving than it seems mainly because quality in the provision of service is often difficult to agree upon. The IS unit should also guard against becoming closer to the service vendor than the service consumer.
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