Assignment 8(MIS) IT Outsourcing of the University

As a student, you were invited by the Dean of the Institute of Computing to attend a seminar-workshop on information systems planning with some of the faculty members. In one of the sessions, a discussion of outsourcing came up. You have been asked to present your evaluation about outsourcing the information systems functions of the school.

Outsourcing IT

Perhaps the most crucial contemporary issue of information management is whether to outsource all or some of the information technologies to specialized-services firms. The issue is not a transient phenomenon; the shift from company-management computing to outsourcing is accelerating. The decision when, how, and where to outsource is likely to be one of the few information-management issues that will be coming up for review at board meetings.
So far, there is only one good explanation that fits almost every case of outsourcing information technologies: The outsourcing corporations are trying to return to profitability by cutting employment.
That is not, however, the rationale one finds in press releases announcing the transfer of most information-processing assets to an outsourcer. One hears assertions about computers no longer being a core competency. "Partnership for innovation" is another oft-quoted phrase. The plain fact is that top executives have become disenchanted with their capacity to digest information technologies. Massive divestment of a corporation's IT resources appears to be more like an emetic than a miracle cure.
One would expect outsourcing to be a widely spread occurrence throughout the Fortune 1,000 if it does indeed improve strategic fit, realizes lower costs, takes advantage of vendor's skills, and overcomes the dearth of technical expertise. Outsourcing should be an equally good solution for anyone. It would work well for all corporations, without regard to size, industry, assets, profitability, or growth, as each finds that one or more of the many claimed benefits satisfy their needs.
Applying such reasoning, outsourcing would show up as a random phenomenon, modestly biased in favor of growth corporations seeking added resources to enhance their capabilities. Statistical analysis would then reveal whether outsourcing is a random, evenly spread phenomenon or clustered around some causal connection.
//Outsourcing is, in reality, only one aspect of a currently popular downsizing trend among troubled corporations. It takes place under a more palatable label, just as reengineering is, in most cases, a euphemism for cutbacks.
The IT community has consistently ranked, in a wide range of surveys, as one of the least admired corporate functions and therefore becomes an attractive target when there is a new quota regarding how many bodies must leave.
Cutting staff, divesting business, and getting rid of hundreds of person-years of accumulated skill seems to be a prevailing compulsion among large firms that are seeking to improve profitability by shrinking their size. Although the number of papers that deal with outsourcing is considerable, only a 1993 work by MIT researchers Erik Brynjolfsson and Loren Hitt has studied the relationship between outsourcing and profitability.
They noted that, "Companies that try to jump on the outsourcing bandwagon may be chasing a parked car. We found no association between outsourcing and success. If anything, companies that outsourced more of their information systems work tend to have lower productivity and profitability. The only performance measure heavy outsourcers did well on was stock-market returns. In the short term, the market reacts favorably to outsourcing. Whether the market will continue to react favorably, especially if productivity doesn't improve, remains to be seen."
One could say that outsourcing has many of the attributes of anorexia nervosa. People with anorexia have a distorted self-image that makes them feel fat even when emaciated; preoccupation with food, low self-esteem, and emphatic denial of the problem characterize most anorexics. Similarly, executives in companies with poor financial performance seem to concentrate on downsizing as the preferred method for restoring competitiveness.
Unfortunately, shareholders and investors don't have a clue about the losses to the firm whenever knowledgeable workers leave in droves. There is no such thing as a balance-sheet write-off for human capital. When machinery or buildings become scrap, the auditors reflect that cost with a great deal of precision. The government even allows taking decisions to scrap as a tax deduction. Because outsourcing always takes computers off the list of financial assets, the accountants see that reduction in costs while neglecting the loss of the employees' know-how and commitment to serve the enterprise.
There's always a test to see if a corporation did or did not abandon its essential information capabilities, and it's a simple one: Does the firm retain the choice to repatriate, or move its systems to another vendor without excessive expense, no matter what has been outsourced? If that exit option from outsourcing has an executable plan, then the essential managerial competence of the firm remains intact.
I am in favor of outsourcing for any of the good reasons that would take advantage of somebody else's capacity to accumulate knowledge faster than when it remains homegrown. It should not be a substitute for the corporate version of an emetic. I shall find encouragement about the prospects for outsourcing when I see a large list of prosperous and growing organizations that use this option to enhance their mastery of information management.


There are good and sufficient reasons for selectively outsourcing:
• The organization is incapable of attracting or retaining talent for specialized technologies, especially for innovative uses. It is increasingly true in the public sector.
• The budgeting and capital-investment process is spasmodic, short-term-oriented, and subject to reversals in top management's goals, objectives, and preferences. Increasingly, this characterizes much of the industry, as well as most of the public sector.
• The learning curve for a new or risky technology is especially steep. Therefore, it pays to have an experienced firm introduce the technology at a much lower cost. If the new service becomes attractive, one can always reconsider the outsourcing decision. I have used this strategy over the years with considerable success by negotiating a favorable licensing and technology-transfer agreement as a clause in the initial agreement.
• The organization is internally in turmoil and cannot manage IT because its managerial energies are concentrating on the survival of the firm.
• The organization is very profitable but does not wish to devote scarce managerial resources to managing IT. This calls for inventing new forms of relationships that may not be arm's-length commercial contracts.
Reference: http://www.strassmann.com/pubs/outsourcing.shtml

In-sourcing IT

IT insourcing, or bringing previously outsourced IT functions back in-house, is on the rise, experts say, as the global economic recession, IT outsourcing scandals and the potential cost savings of decreasing the number of outsourced contracts have caused companies to give insourcing another look.
"The pros of insourcing are the speed and control of business change," said Ben Trowbridge, CEO of Alsbridge Inc., a Dallas-based IT outsourcing and business process optimization consulting firm. Trowbridge said his company's IT insourcing evaluations have increased about 15% this year. "There's a sense of intimacy with the business users that's hard to achieve with outsourcing. And it can mean saving jobs."
Dave Rice, previously global CIO at Insight Enterprises Inc., said he once pulled IT help desk and customer service functions back in-house when outsourcing companies were not properly meeting his organization's needs.
"We had some unpleasant experiences -- our customers were unhappy," said Rice, currently CEO at True Cloud LLC, a cloud computing services firm. "I wasn't satisfied that we were getting the same proximate IT services. You have to be very, very careful with anything that affects the broader perception of IT, and make sure you don't diminish that service -- people will immediately notice."
Only 9% of CIOs said they planned to increase IT outsourcing this year, according to the latest update to Gartner Inc.'s 2009 CIO Agenda survey, and many are considering insourcing previously outsourced functions.
In most cases, the newly insourced work previously involved contract programmers and consultants, according to Mark McDonald, group vice president and head of research at the Stamford, Conn.-based consultancy and author of the CIO Agenda study. "For the average company, the cutback is temporary as investments are delayed or postponed," McDonald said.
Rice said a slowdown in outsourcing activities this year could stem from companies reaching a "saturation point." He also posited that it is very difficult to get sustainable cost savings out of outsourcing.
"It's intriguing, because of the initial cost benefit -- you look like a hero in the short term," Rice said. However, when it comes time for clients to renew their contracts, their companies have often grown or added requirements that might drive up the price of the IT outsourcing contract.
Rice said he takes a good, hard look at which functions to outsource and which to keep in-house in the first place. In his experience, when moving toward outsourcing a hosted infrastructure, "that's a step you don't come back from," he said. To bring it back in-house would basically entail hiring and training an entire in-house workforce.
Trowbridge said insourcing is strongest around applications and development, although it varies from company to company. In addition, virtualization has given infrastructure outsourcing less of an edge.
"Virtualization could take the upside out of outsourcing and make it more effective to do it yourself," Trowbridge said.
Doing so, of course, demands a lot of work, and Trowbridge warned that it's a difficult task involving application and server work. Plus, given the number of layoffs over the past year, many companies are currently short on skill sets if not the number of employees that would be needed to insource previously outsourced IT functions.

Why IT insourcing appears to be on the upswing?

Insourcing has been attractive in the past for businesses in the throes of change, but market conditions are ripe these days as well. The economic recession and the scandal at IT outsourcing firm Satyam Computer Services Ltd. have led some companies to renegotiate lower prices in exchange for more flexibility in how outsourcers complete the work.
These same factors are also causing companies to look in-house to see if internal staff could do the work for even less money or greater benefits than a renegotiated outsourcing contract could provide. A company's decisions should largely depend on whether the right labor is located in its geographic marketplace. "If the labor's not there, you could get into a pretty high-cost game," Trowbridge said. "The question is, is it more efficient?"
Rice said that good candidates for insourcing are smaller, auxiliary services that affect the external perception of the business. Whenever renewing an outsourcing contract, "it's certainly worth a conversation" whether to bring the work in-house, Rice said.
Trowbridge advises companies to benchmark prices in the market before making any decisions.
"Look at what you would spend to do it yourself, and make a good, measured decision on this," Trowbridge said.

Reference: http://searchcio.techtarget.com/news/article/0,289142,sid182_gci1359601,00.html

In-Source Benefits

Reduced Costs

-The cost of an In-Source professional could be 75% lower than the total cost for an IT worker in the U.S.

Increased Professional Resources

-Integrate 3 or 4 In-Source professionals for the total cost of one U.S employee.

Direct Management

-Our clients choose in-sourcing because they prefer hands-on control through the development life cycle of their projects. Instead of relinquishing control to an outsourcing firm who does not understand your business as you do, In-Source allows your knowledge and direction to more effectively impact the development process.

Turnkey Services

-In-Source provides a turnkey solution including facilities, recruitment, human resource management, payroll and benefits administration, tax filings, and communication tools, so you can spend more time focused on your core business.

Reduced Operational Expenses

-We operate a state-of-the-art IT facility in Bangalore, the Silicon Valley of India, at a significantly reduced rate compared to U.S. facilities.

Extended Productivity Hours

-Because of the time difference between the United States and India, your projects could be developed and supported nearly 24/7, including many of the major U.S. holidays, which are not holidays in India. In-Source offers flexible shift times to allow overlap and coordination with your IT professionals.

Faster Time to Market

-Complete projects faster with a larger IT development team.
Increased Company Profitability
-With reduced costs, increased development resources at an affordable price, and faster development periods, In-Source clients can significantly increase profitability.

Reference: http://www.in-source.com/benefit.html

Information Technology (IT) is a critical part of the business process that can require technical competence beyond the scope of the current management. In this case, a third party should manage the IT function.
Here are some of the reasons why outsourcing is a better choice for managing the IT department, rather than maintaining IT internally:

Improve Cost Management Control

•IT costs become more visible as all billable hours must be accounted for
•Outsourced services are utilized as needed, and organizations pay only for what services are actually used
•An outsourced IT department can reduce costs by utilizing its extensive knowledge base of various IT specialists, as opposed to an organization maintaining a comprehensive in-house staff

Improve Service Quality

•Outsourced companies make performance reports and measurements available to their clients
•Communications between business functions improve at all levels and ensure that IT resources are not being misused
•Outsourced companies can provide 24x7 support at a fraction of the cost
•Outsource staff tend to drive planning and budgeting improvements
•Service Level Agreements (SLAs) can be established

Staffing

•Staffing levels can be adapted quickly to client requirements, thereby avoiding gaps due to attrition, business growth or economic downturns
•IT consultants are fully trained on the latest technologies
•Retention of technically qualified in-house personnel is more difficult when external job opportunities are rapidly changing
•Continuous IT support coverage without having to rely on only one or two key people

Equipment and Software Tools

•Outsourced services use established standards for equipment and software requirements, saving time and money
•Outsourced services use approved lists of reliable vendors, which improves the quality of goods and services received
Client can focus on business core Competencies
•Client management can concentrate on core competencies and revenue generating activities, while leaving technology management to IT professionals
•Management of non-essential core functions is transferred to the outsourcer

Reference: http://www.unameits.com/why_it/benefits_advantages_outsourcing_information_technology.jsp

INSOURCING

Advantages Disadvantages
• High degree of control. • Reduces strategic flexibility.
• Ability to oversee the entire process. • Requires high investment.
• Economies of scale and/or scope. • Potential suppliers may offer superior products and services.

OUTSOURCING
Advantages Disadvantages
•High strategic flexibility. • Possibility of choosing a bad supplier
•Low investment risk. • Loss of control over the process
•Improved cash flow. • & core technologies
•Access to state-of-the-art • "Hollowing out" of the corporation
products and services.

Reflections:

As an IT student of the University, if the dean would invite me to attend a workshop-seminar on Information system planning it will be an advantage to me to enhance my knowledge about information system strategies and plans. This workshop is a very important thing to IT personnel because of the techniques and the information that you can get.

As the workshop goes on, in one of the sessions, a discussion of outsourcing came up. I have been asked to present your evaluation about outsourcing the information systems functions of the school. In my own, evaluating the outsourcing of the information system of the University is really a big task to me as an IT student. If I’m going to evaluate the IT outsourcing of the University I would first need to know the outsource of their information system. I am really thinking what are the things need to learned by outsourcing. As you have seen the data above about the outsourcing and the in-sourcing of the information system is nearly or almost opposite on its advantages and disadvantages. To evaluate it, the University has a very good choice of information system strategy because it is public University or under government services therefore by expecting the capacity of the University about the cost to be needed in the implementation of the information system, outsourcing of its information system is a very good solution. The university has a low risk of investment and had choose the right supplier or a right information system outsourcing, therefore there is nothing to worry about security of the data.
In choosing the position about the plan of the implementation of information system of the University I choose outsourcing. As to categorize the company status or the profile of the University, in-sourcing is not capable or the right plan for the university. Outsourcing is the best pick because University is just a school and besides a government establishment. In-sourcing is just good if the company is private and owned by a single person or manage by a single management that can afford the cost.