Outsourcing

**Models for Acquiring IS Capabilities II: Outsourcing**
Wednesday, October 6, 2010 <>

**Topic overview:**
Over the past decade there has been a significant trend in large corporations to shift the development and management of their information systems away from in-house IT organizations to third parties with specialized expertise in IS. In many cases, this shift has been driven by the rapid rise of IS capabilities in low wage countries and the rapid improvements in communications technologies. For many of these companies this move seemed like a no-lose proposition: hire an IS specialist to do the company's IS work at a fraction of the cost it would cost to do it by themselves. In many cases, the companies outsourcing their IS functions came to the conclusion that because they had not been very effective at managing their own IS organization so they would be better off focusing on their company's core competencies and hiring another firm to manage their information systems. Unfortunately, as many of these companies have learned, outsourcing IS capabilities tends to require //greater//discipline in IS project management, business analysis, and IS portfolio management than the same efforts require in-house.

Many companies that have had realistic expectations for the efforts, been strategic in how they approached outsourcing projects, and managed the projects carefully have found that outsourcing is an effective way for them to get the IS capabilities they need. Other companies, especially those who have failed to set realistic goals or who have not started with highly disciplined IS processes, have had a much more difficult time getting their outsourcing projects to succeed.

By the end of today's class you should:
 * Be able to explain what the terms 'outsourcing' and 'offshoring' mean, how they are similar, and why they are different.
 * Understand some of the core challenges to outsourcing IS development, processes, and management.
 * Know some of the most important questions to consider when your business is evaluating whether to outsource IS processes and infrastructure.
 * Understand that IS outsourcing is one example of the broader phenomenon of Business Process Outsourcing

**Preparation for class:** For class on Wednesday, October 6th you are responsible for reading the selection from the book:
 * [VV06] Atul Vashistha and Avinash Vashistha, The Offshore Nation, McGraw-Hill, 2006, ISBN: 0-07-146812-9.

That are posted on digital reserve in the 'Course Documents' section of Blackboard .

Reference materials:
Slides:

**Pre-class exercise:**
After completing today's readings, think back to the Cisco ERP case. Do you think that Cisco should have considered using an offshore IT provider to complete their ERP implementation project? If so, why? If not, what if anything could they have done differently to make the project better suited to using an offshore IT provider? Please answer in no more than one paragraph that gets the main idea across quickly and clearly.

[Omar El-Zoheery] They could have considered it, because it would have been designed and created by specialized staff that have more experience designing and setting up such systems. It would also cost less. On the other hand the system dealt with very important and custom processes. They could have off-shored some of the processes that were not of the core components.

[ Shazia Haq ] Cisco should have considered opting for an offshore IT provider; since this could have provided better results for implementing their ERP project. Firstly, an offshore provider would have better expertise and the required resources to carry out the task at hand. Secondly, this would have been comparatively less costly for Cisco, in terms of spending on the necessary human, time, financial and capital resources required for their ERP project. If offshoring the whole process was not feasible due to reasons such as data privacy policies, Cisco could have offshored the peripheral processes to service providers outside, who were better equipped to do the jobs again at possibly lower costs, time and glitches.

[Saoud Faiadh ] Cisco should have considered using an offshore IT provider to complete their ERP implementation project; Because that will help them to reduce the startup costs. Furthermore, by using an offshore IT provider Cisco will have more time to concentrate on its core businesses.

[Abdallah Darwish]: Cisco could have done better if it used an offshore IT provider to implement ERP: it triggers cost-efficiency, time-efficiency and effectiveness to the system.

[Aeshah Anani]: Cisco could have used an offshore IT provided as it would have reduced their startup costs and benefited from the offshore supplier’s experience. However, I actually agree with their decision to build their own system. That is because it gave them a great deal of control as well as ownership, and an eventual reduction in their costs in the long-run. Moreover, it saved them the hassle of going into contracts and deals that could lead to failure if not maintained properly. [Rawan Agha]

=
I believe that choosing an outsourcing IT provider, in Cisco’s situation, was a much better choice than choosing an Offshore IT provider. Firstly, Cisco IS department and other departments had the opportunity to meet and work with KPMG employees and learned from them. Secondly, choosing an offshore IT provider might have be risky because what if that company gets bankrupt or had the chance to compromise the information to an offshore companies. Cisco wouldn’t have had full control on an offshore company especially that the legal laws of one country differ from others. In my opinion both the outsourcing and offshoring IT provider share advantages and disadvantages, but because Cisco had a very limited period of time, KPMG was a good choice especially that it operates within the same country and Cisco has a good background on the facilities and IS capabilities that KPMG would provide to them.=====

[Rand Agha]: Cisco should have considered using an offshore IT provider when implementing the ERP system because it would be useful in both short and long terms. In short terms it has lower costs for cisco and it would allow them to focus on their business more. In the long terms, it will still have a lower average cost. It will also be useful because they will have a designated account manager and a well-defined manager that maintains a tight focus on the scope, goals and objectives of the project.

[Ushna Amer] Before chosing an offshore model, we need to consider the amount of flexibility required, the importance of security, how much risk the company is willing to take, the extent of control that is desired, and how long term the offshoring needs are. For Cisco, since the ERP project was related to the core functions of the business, I think they could have acquired a captive center beforehand for critical business areas and as a result gain more cost efficiencies and stricter quality control. [Marie-Joe Khachan] Cisco could have considered using an offshore IT provider to complete the ERP system if they had more time to execute it. It could have been better because the outsourced-to company would have more experience in doing an ERP system as well as reducing startup costs and operating risks. However, Cisco would have less control and would have a greater risk of the project succeeding.

[Nada Mohsin] Since it costs less, it should be considered using an offshore IT provider to set up such a system. Its also considered very important for great Implementation of their ERP project.

[Waleed Ali Khan] Despite the cost advantages, I do not believe that outsourcing Cisco's development of the ERP project would have been the best idea. This is because with offshore investment comes more uncertainty, and a more barriers in communication. I believe that a JAD-type format with immediate action for the decisions being made was required

[Maryam Al-Buhendi] Cisco should have offshore an IT system to implement its ERP system, and the type of offshore is captive center. Because this type suits their demand well, and is it is going to provide them with good advantages. Using this strategy will allow them to have more control over the quality of the project and gain more cost efficiencies. Despite the fact that it’s highly risky and it has higher startup cost it is going to benefit Cisco since they will have low operational risk, strong control, and solid strong management team to do it.

[Fatima Nadeem] I believe that Cisco could have considered using an offshore IT provider; in particular the Dedicated center off shoring model. This way, they would have had tight control over the quality, cost, as well as the time frame that the project is being completed in; while at the same time, have dedicated specialists working on the ERP project; which would have allowed Cisco’s workers to concentrate more on their actual work; rather than dedicate most of their time to the ERP system. Moreover, with off shoring this way, those helping Cisco with the ERP system, would have had more experience and knowledge with implementing IS systems; therefore, increasing the efficiency of the project.

[Mohammad Dauleh] Given the tight time constraint that the company had to complete the project and the different communication obscurity associated with offshore services, I believe that Cisco had made the right decision of not depending on an offshore IT provider. Also, the team had a limited amount of time given for this project; the reliance on someone from outside would have caused them to lose time in choosing the right IT provider.

[ Aisha Al-Hail ] The system needed a time efficient plan to complete the ERP project, so Cisco should have considered the offshore IT provide. Moreover, one advantage is the reduced cost

[Mohamed Hussain] I think that Cisco should have used an offshore IT provider to complete their ERP implementation project. Since it was a re-engineering system, using a specialized IT provider would've reduced the risks of implementing the project. Cisco would've been better off keeping their best staff focussed in their original positions by hiring another company, with its own specialized staff, to work on the project. That would've also lowered start up costs and reduced the time taken to implement the project.

[Layal Ishaq] I believe that Cisco should adapt the offshore model and that is because Cisco was going to implement a whole system which would change almost all applications of the company. Implementing such a system could take a long time, energy and costs especially at the beginning of establishing it. Although this model could at the end be more expensive than doing it themselves but it would just be a tedious long process which they would go through especially that the new sytsem had to go through various testings and serious modifications. However, I do believe that there has to be a representing team has as a part of that process and checking the system especially in the customization process but not in the general software applications initiation. That is because the company has been depending on this group of experts to gain their profits and function the whole company so it was a very risky decision just to take them for a whole year and involve them into that process while we could offshore at least the basics of that software.

[Muna abuholayqah] For good control over the cost, quality and startup efficiencies, I believe that Cisco should have considered the off-shore IT provider since it will benefit the core business functions.

[Maria Khan] Cisco should have considered using an offshore IT provider. By using this option Cisco would have had better control over the time span of the project. In the actual situtaion in order to keep the time within a limit Cisco had to make some sacrifices on quality, customer satisfaction (for some time) and the risk level. Moreover there was a lot of chaos in the company because of employees being taken for the ERP system which lead to the IT department especially having a lot of workload.