Managing Operations

Chapter 8
Information Systems Management in Practice 8th Edition

2009 Pearson Education, Inc. Publishing as Prentice Hall

Chapter 8

Introduction What Are Operations?

Why Talk About Operations? Solving Operational Problems: A Portfolio Approach Operational Measures The Importance of Good Management Whats New in Operations?

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Chapter 8 contd

Outsourcing Functions

The Driving Forces Behind Outsourcing Changing Customer-Vendor Relationships Outsourcings History Managing Outsourcing Offshoring Insourcing

Conclusion

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Introduction

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What Are Operations?

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Why Talk About Operations

Typical IT Budget:

Administrative and planning: 20% Technology, networks, PCs: 44% Maintenance: 11%
Systems development and enhancement: 25% Consistently apply best practices Involve all stakeholders in IT-related operations Adopt partnerships perspective
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Effective Management of IT Operations

Solving Operational Problems: A Portfolio Approach

Typical Operations Problems:

Slow response times Down networks Data unavailability and integrity compromise

Three Strategies to Improve Operations

Buy more equipment Regulate and prioritize computer workload and activities Implement operational measurements, set standards and benchmarks
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Operational Measures

External Measures

System uptime (downtime) Response and turnaround time Program failures Computer usage as percentage of capacity Disk storage used Job queue length

Internal Measures

External problems can be explained by deviations in internal operations

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The Importance of Good Management

IS management must create an organizational culture that values good operations Key to managing operations is the same as in any management job

Set standards or goals and manage accordingly

Monitor performance Respond quickly to problems

Hire a good manager (certain skill sets)

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Whats New in Operations?

Managing open source

New options to develop cost-effective applications Managing information security becomes prevalent in organizations with the proliferation of insecure network-based systems Content management will be a critical daily operation
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Getting serious with security

Large-scale data warehousing

Whats New in Operations? contd

Enforcing Privacy

Striking the right balance when disseminating data within organization Retaining talented workers Constantly redefine job of IT professional Managing outsourcing e.g., Web hosting, headhunting for IT talents

Dealing with Talent Shortage

More operations managers are managing outward

Operations are being simplified

Centralizing operations

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Microsoft
Case Example: Offloading of Operations (Webcast)

Launch of new version of Windows included a private Webcast to original equipment manufacturers (OEM) in 83 countries

Handled by Akamai

Specializes in Web hosting

More than 12,000 servers in 66 countries

Windows launch set a record for attendance, global reach and audience participation
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Outsourcing IS Functions

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The Driving Forces Behind Outsourcing

Two drivers are leading companies to restructure and thus outsource:

Added value in products and services for the customer Based on the value proposition, focus on core competences and businesses

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Changing Customer-Vendor Relationships

Relationships have evolved over the years (in chronological order)

Buying professional services

Consulting, training

Buying products Integrating systems (project-based)

Planning, development, maintenance and training

Outsourcing (time-based)

Contracting most of certain IT activities

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Five-Option Continuum

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Outsourcings History

Monolithic Outsourcing (1989)

Huge outsourcing contracts that involved almost entire IT operations Choice of outsourcing of maintenance of legacy systems or development of new client-server systems Outsource retrofitting of old systems for Y2K compliance

Transitional Outsourcing (1990s)

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Outsourcings History contd

Best-of-Breed Outsourcing

Selective outsourcing based on vendor specialty Desktop support, data center operations, network management Coordination is a challenge here

Shared Services

Consolidate all non-core activities to one shared services functional group to be outsourced
Outsourcing all or most of a reengineered process (BPR) that has large IT component

Business Process Outsourcing (BPO)

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ANZ Banking Group Ltd.

Case Example: Business Process Outsourcing

Australian bank outsourced procurement function to improve service levels and increase scale of operations Lessons learned from experience

Be prepared to change the contract as your environment changes Make step changes in technology and processes to save time and money, focus on having an effective transition Do your best to make the outsourced group appear seamless to your employees Focus early on what you want and dont get sidetracked Keep incentive mechanism simple and transparent Be able to benchmark performance Understand, to a fair degree of detail, the value chain you plan to embrace

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Outsourcings History contd

E-business Outsourcing

With arrival of business use of Internet, outsourcing has been one way that companies can quickly get Web sites up and handling business

Preferred mode of operations in Internet-based firms Allow a company to move fast, remain flexible and minimize fixed costs in computer hardware On-demand pricing model (pay for what you use)
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Utility Computing

Managing Outsourcing

Numerous aspects need to be handled well to create a successful working relationship

Organizational structure Governance Day-to-day working Supplier development

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Organizational Structure

Outsourcing is a joint effort between parties that may not have the same goals Layers of joint teams typically established

Top-level team: Final word in conflict resolution Operational team: Oversees day-to-day operations Joint special purpose teams: Created periodically to solve pressing issues Committees: Oversee the use of formal change management Relationship manager(s): look after the relationship
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Eastman Kodak Company

Case Example: Managing outsourcing Selective outsourcing from vendors

Data centers and networks Managing telecommunications PC support Voice messaging

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Eastman Kodak Company contd

Management Structure (an outsourcing best practice)

Management board (senior management)

Meets twice a year (strategic issues) Meets monthly (technical and operational issues) Manages long-term relationships and contracts Focal point between Kodak and supplier Deal with specific technology areas Sent out twice a year to 5,000 internal users

Advisory council (15-member)

Supplier and alliance management group

Relationship manager

Working groups

Client surveys

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Governance

Foundations of outsourcing relationship laid out in a contract

Service Level Agreements (SLAs) important component:

Responsibilities Performance requirements Penalties Bonuses Metrics (of performance)

Can be tricky
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Governance contd

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Day-to-Day Working

Recommendations for managing daily interactions:

Manage expectations, not staff Realize that informal ways of working may disappear Loss of informal ways adds to rigor and thus work quality Integration of two staffs require explicit actions
Grant outsourcing staff appropriate access Hold joint celebrations and social events Invite each other to meetings Communicate frequently

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Supplier Development

Topic receiving increased attention in the production sourcing area

Buying parts and services that go into ones own products and services

Assisting ones suppliers to improve their product and services by improving their processes

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Offshoring

Companies turn to offshoring to tap lower labor costs and an ample supply of qualified people Offshore outsourcing differs from domestic outsourcing in a number of unique ways

Offshoring options are broadening Customer service, back-office processing, BPO etc. Cultural differences Address communication issues and provide cultural training Local country laws need to be followed

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Hewitt Associates
Case Example: Offshoring Provides HR services to Global 500 companies Outsource maintenance of core HR computer systems to two Indian companies

Choosing the provider

Hired consultants to review, rank and select vendors

Negotiating the deals Drew up contract and detailed SLAs Migration and ongoing management (workload and staff)

70% based in India; 15% posted to Hewitt; 15% own staff

Hewitt had to adjust to Indian vendors high standards of maintenance and engineering discipline

Positive outcome
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Offshoring contd

Use offshoring to advantage

A major criticism is that it decreases skills and knowledge of clients IS organization

Need not be so develop different competences

Redefine services using offshoring

Understand customers Understand demographics Office end-to-end service Dominate the screen

Controlling where the information ends up

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Insourcing

Generally interpreted as the delegation or contracting of operations or jobs within a business to an internal, but mostly independent sub-contractor

Parent-subsidiary model

Parent company outsources all operations to subsidiary IT firm

Maintain tight control of contract job execution Protect intellectual property and business knowhow

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Conclusion

Subject of managing IT operations is especially important today

E-commerce Increasing use of outsourcing Information and computer security (viruses) Terrorism

Whether operations take place in-house or outsourced, the modus operandi is based on partnerships
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Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

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