Information System

Information System
mation ystem

Factors considered when outsourcing an IS system:

An empirical examination of the impacts of organizational size, strategy and the object of a decision

Presented By: Devraj Rada Chirag Agrawal Abhinav Chowdhary Sanket Thakker

Firm strategy and outsourcing decisions

firm s strategy should drive its actions Porter s three fundamental competitive strategies  Low-cost provider of products and services  Niche player  Differentiator what is to be outsourced ?

Firm strategy and outsourcing decisions

Others have argued that the first step in outsourcing is to create a strategic objective of the transaction

Supplier factors
Considered during vendor selection Supplier factors are also an important part of the decision Whether to outsource at all. No of realistic choices Organizations may look at established success models

Supplier factors
The supplier s expertize with the client s IS operations IS operations in general, and outsourcing The supplier s investment in the outsourcing process Supplier s human resources specificity The external relatedness of the organizations Number of available suppliers on an outsourcing decision

Supplier factors
Supplier s demonstrated understanding of organizational needs Apparent trustworthiness of the supplier s employees The supplier s prior experience with the object being outsourced Companies have reported that obtaining access to a country s skilled workforce

Supplier factors
Taking advantage of a supplier s host country s universities Multiple country-specific markets Multichannel enablement. Customize Global delivery capability

Supplier factors
The vendor has forward-looking architectural plans. Process execution Deployment and operations Services and support Vendors commitement to business

Internal factors
Include the need to sustain 24/7 operations Perceived improvements in IS flexibility and agility The internal relatedness of the processes being outsourced

Technology factors
Uncertainty around technology choice Task complexity Companies want to get access to the ERP technology without making formal software or hardware purchases Product configurator Cross-channel capabilities Document management integration. Implementation support Supplementary functionality

Technology factors
Is the deployed technology future proof? Is the technology stable and user-friendly? Does the vendor have a clear roadmap for ongoing research, development, upgrade and support? The biggest impediment to a smooth implementation is the migration path from the old to the new Data migration is an extremely critical and at times a painful Phase during the implementation process

Cost factors
A driving factor of outsourcing has been to reduce costs while being able to provide the same level of service The outsourcer has better economies of scale, Tighter control over fringe benefits Better access to lower cost labor pools A more focused expertise in managing IS

Cost factors
Labor costs reduction and Overall costs reduction

The object of the outsourcing decision

Firms have to make two core decisions to make. First, should they outsource at all, and second, should they outsource the transaction processing system (SAP R/3) and or the DSS (Net Weaver).

Outsourcing Decision
What has to be outsourced?

OLTP or DSS?
Link b/w strategy and object of the outsourcing decision?

Object of Outsourcing Decision

Outsourcing of OLTP allows IS to
 Focus on important and strategic IT applications  Not be distracted by routine transaction processing

DSS is at heart of firm s differentiation strategy

 Seldom highly standardized  Supplier factors may be more important

Competitive Strategy
For long term success
High Transaction Efficiency

Low cost

OLTP

Market Information

Niche and Differentiation

DSS

HYPOTHESES AND FINDINGS

Supplier factors and outsourcing DSS

Unique strategic importance recognized? Supplier factors

3.16

2.97

3.04

Differentiator

Low cost

Niche

Connection between Object and Factors

Cost Technology Supplier Internal

Object of outsourcing decision crucial

Differentiator

Low cost

Niche

Size: Supplier factors

Significant differences between all sizes
Less important

Supplier Factors

Fortune 500

Fortune 1000

Smaller organizations

Size: Internal Factors

Significant differences between all sizes
Internal Factors

Most important

Fortune 500

Fortune 1000

Smaller organizations

Size: Technology Factors

Less important than other factors
Least important

Technology Factors

Fortune 500

Fortune 1000

Smaller organizations

Size: Cost Factors

Differences b/w Fortune 500 and Fortune 1000
Most important

Technology Factors

Fortune 500

Fortune 1000

Smaller organizations

Different sizes, different attitudes

Significant difference between Fortune 500 and others Little difference between Fortune 1000 and smaller organizations

IT Budgets and Size

Fortune 500 Fortune 1000

Smaller organizations

Fortune 1000

IT budgets and Size

Great increase in planned expenditure in future

Supplier factors and outsourcing DSS

Cost factors

Most important

Differentiator

Low cost

Niche

Weightage of factors

Most important factors for OLTP Outsourcing

Most important factors for DSS Outsourcing

Conclusion
Significant differences between outsourcing of OLTP and DSS Competitive strategy and company size matter Results useful for practitioners especially sellers of outsourcing services Targeted focus on objects, strategy, size

Future Research

Large scale surveys, not anecdotal evidence Defining firm size differently across industries Exploring more decision factors and consistency for object types Relationship b/w performance of organizations and decision making factors

THANK YOU