Pressures Faced in ITIT 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 organizations competitive position

Decision Making Model

Business StrategyIt 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

Types of Sourcing Arrangements

Types of Projects OutsourcedOngoing Software Maintenance

Software Conversion Projects (i.e. Y2K)

Original Application Development

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

Outsourcing Literature Sources

Outsourcing ObjectivesOutsourcing 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

Outsourcing AgreementsAny 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

Its 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

Characteristics of Outsourcing ContractsIn 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

Service MetricsPerformance 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

Service Level AgreementsIn 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

RisksThere 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

Theoretical Foundations

6 Characteristics of Describing Software DevelopmentComplexity

Degree of Commitment

Compatibility

Efficiency

Benefit

Risk and Uncertainty

Complexity vs RadicalnessComplexity 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

Developing ApplicationsInternal 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.

Efficiency and Effectiveness in the Application Management EnvironmentA 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 SatisfactionAccountabilityAdequate Staffing

MaintenanceOutsourcing 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

MaintenanceAmong 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

Benefits of Outsourcing MaintenanceEmployees focus on the core business

Releasing resources for strategic developments

Decreasing costs

Increasing productivity

Drawbacks of Outsourcing MaintenanceLoss 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

Planning the Non-PlannableNon-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.

Benefits of OutsourcingCompetitive Advantage

Speed-To-Market

Improved Quality

Overcome cultural barriers to improving methods and processes

Access to skills and resources

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

The Quality QuestionA 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."

The Quality Question51% 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

Skill Sets for the New WorkerTeamwork 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

Generalized Application PackagesThere 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

Questions?