IT in Control
Week 1 (Screencast 1; Outsourcing):
The environment in outsourcing and cloud computing has changed over time. Right now we see the
Internet Service Provider 5.0 (ISP 5.0); the cloud. The files and the desktop are both in the cloud;
there is no data on your location or on your device anymore, its all situated in a cloud.
Due to this changing environment there is a shift from doing things yourself to outsourcing things.
Doing it yourself means that the infrastructure is more specific (no outsourcing). You can organize
and configure your systems and applications exactly as you want them to be.
When you start outsourcing, you are using a so called datacentre. On such a datacentre, you are
still configuring your own storage, your own database etc. The more you outsource, the more
generic your IT-infrastructure becomes. But, still on top of the generic outsourced infrastructure,
you have room of creating your own specific applications. You can choose between the following
parts of the infrastructure to outsource (in gray).
The more outsourcing you do as a company, the more dependent you are for the organization to
which you have outsourced the parts of your infrastructure.
The nine-plane model:
The nine-plane model is a framework used to understand and align the interactions between
three core domains: the business domain, information domain, and the technology domain. Each
domain is analyzed across three perspectives: strategy, structure, and operations.
When we, for example, consider the impact of cloud computing, we observe that it primarily affects
the technology domain, which is often outsourced. For example, in the case of SAAS, the software
itself firmly belongs to the technology domain. However, the management of the information
processed and stored within the SAAS solution remains an internal responsibility. This task falls
under the roles from the CIO, information manager, and the functional manager, as the business
continues to rely on this information for its operations and decision-making. In summary, mostly the
technology domain is outsourced.
1
,Sourcing Strategy:
Sourcing is a strategic choice, it’s a policy. There are different types of sourcing:
- In-sourcing = the process of assigning tasks, functions, or projects to an organizations
internal resources rather than outsourcing them to external vendors or third parties. In-
sourcing utilizes internal capabilities for activities such as design, development,
maintenance, execution, and support of services. Another form of in-sourcing is known as
“captive division”, where a company sets up and manages an outsourcing entity off-shore.
o Advantages are:
Direct control (competitive advantage).
Freedom of choice.
Rapid prototyping of leading-edge services.
Familiar policies and processes.
Company-specific knowledge.
o Disadvantages are:
Scale limitations.
Cost/time to market for services readily available outside.
Dependent on internal resources, skills/competencies.
- Outsourcing = engaging an external organization for the design, development,
maintenance, execution, and/or offering of support of the service.
o Advantages are:
Economies of scale.
Purchased expertise.
Focus on company core competencies.
Test drive/trial of new services.
Access to innovative resources.
o Disadvantages are:
Less direct control.
Exit barriers.
Solvency risk of suppliers.
Unknown supplier skills and competencies.
More challenging business process integration.
Increased governance required.
- Co-sourcing or multi-sourcing = often a combination of insourcing and outsourcing,
using a number of organizations. Generally involves external organizations working
together in designing, developing, transitioning, maintaining, operating, and or/supporting a
portion of a service.
o Advantages are:
Time to market.
Leveraged expertise.
Control.
Use of specialized providers.
o Disadvantages are:
Project complexity.
Intellectual property and copyright.
Culture clash between companies.
- The Cloud = cloud service providers offer specific pre-defined services, usually on-
demand. These services can be offered internally, but generally refer to outsourced service
provisioning. Clouds can be private or public.
o Advantages are:
Services are easily defined.
Sourcing is straightforward.
Mapping between the service and business outcome is relatively
straightforward.
Greater customer control of the service.
o Disadvantages are:
2
, Internal clouds are still complex.
Focus could mask the relationship between IT activities and business
outcomes.
Difficulty coordinating insourced offerings with external cloud services.
Security and privacy of information and business continuity management.
- Application service provider = computer-based services are offered to the customer
over a network.
o Advantages are:
Access to expensive and complex solutions.
Low-cost location and pay on-demand.
Support and upgrades included.
Security and ITSM operations included.
o Disadvantages are:
Culture clash between companies.
Access to facilities only, not knowledge.
Often usage-based charging models.
- Multi-vendor sourcing = this category involves sourcing different services from different
vendors, often representing different sourcing options from the above.
o Advantages are:
Less risk as the organization is not tied to single vendor (do not put all your
eggs in one basket).
Leverage if specialized skills in different organizations ensures a more
complete support model.
o Disadvantages are:
Difficulty in coordinating activities and services from different vendors;
governance – more difficult.
Requires a very clear understanding of the overall value chain and each
vendor’s role.
- Partnership = formal arrangements between two or more organizations to work together
on strategic initiatives that leverage critical expertise or market opportunities.
o Advantages are:
Time to market/.
Market expansion/entrance.
Competitive response.
Leveraged expertise.
Trust, alignment, and mutual benefit.
“Risk and reward” agreements.
o Disadvantages are:
Project complexity.
Intellectual property and copyright protection.
Culture clash between companies.
- Crowd sourcing = obtain service ideas and problem solving by outsourcing the problem
through social networks and the internet to an unidentified entity or the “crowd”. This may
also be considered as a new form of collaborative alliance.
o Advantages are:
Provides innovative solutions (open model) from diverse crowd outside an
organization.
Can be a source of competitive advantage.
Can be enabled by contacts collaborative communities.
o Disadvantages are:
Difficult to protect new potential intellectual property and research ideas.
Quality of ideas may be suspect.
The value and impact of ideas may be limited due to insufficient financial
incentives.
Outsourcing drivers and challenges:
3
, There are seven primary drivers of global sourcing; the reasons or needs that push companies to
look beyond their local or domestic suppliers and operate on a global scale (outsourcing).
1. Economics: focuses on finding the best mix of resources to deliver quality products or
services while reducing costs. This often involves leveraging labor cost differences through
offshore or nearshore sourcing.
2. Resource Management: aims to access the best resources (e.g. expertise, specialized
skills, or scarce capabilities) needed to achieve organizational goals efficiently.
3. Decreasing Time to Market: emphasizes sourcing strategies that help organizations
deliver products or services faster to remain competitive in a rapidly evolving marketplace.
4. Flexible and Scalable Operations: allows organizations to adapt to market changes by
scaling operations up or down as needed without long-term commitments.
5. Transformation and Innovation: encourages innovation by utilizing external resources to
bring in new ideas, processes, and technologies, supporting organizational growth.
6. Regulatory and Legal Issues: addresses legal considerations, such as intellectual
property protection and cross-border logistics, that influence sourcing decisions.
7. Enabling Mechanisms: highlights the importance of tools, global communication systems,
and advisory services that facilitate effective sourcing practices.
Build versus buy:
There are many reasons why organizations choose to outsource or in-source or deploy a
combination of both strategies. Motivations for outsourcing (buy) or in-sourcing (build) are:
- Outsourcing; buy:
o Cost reduction, containment, and/or avoidance.
o Speed up time-to-market.
o Assist a rapid growth situation or overflow situation.
o Aggressive schedule.
o Politically correct.
o Share risk.
o Improve flexibility & scalability.
o Leverage new skills/resources/management/process/technologies.
o Avoid major capital investments.
o Improve performance.
o Enable innovation and transformation.
- In-sourcing; build:
o Competitive advantage (proprietary requirements).
o Expertise available in-house.
o May be less expensive than buying.
o Can be completed on time.
o Opportunity costs trade-offs.
o No suitable vendors available.
o Core competences (fundamental business of the firm).
o Security, privacy, and control are critical.
o Strategic initiative or function or process.
o Threat to intellectual property theft.
o Lower risk.
Today, virtually any IT function can be outsourced such as:
- IT architecture = includes database management, data architecture, etc.
- IT infrastructure = includes computer center, network management and operations, etc.
- Systems and software applications development and maintenance.
- Web development and hosting.
- Training, education, and certification.
Outsourcing barriers and risks:
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