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Chapter 5 - Topic - Managing IT Operations



Table Content

1. Introduction

2. Outsourcing
- Case Studying - Outsourcing IS Functions
3. Insourcing
- Case Study - Cable & Wireless (C&W)
4. Service level agreement
5. Supplier Development
6. Inshoring & Offshoring
7. Information Security
8. Supplementary Reading
9. Case Study - Offshoring, Hewitt Associates


1. Introduction



Typically, IT Operations base on budget to provide an effective IT of environment. Los of purposes develop an IT Operation, including increasing business values, increasing competition, smooth processing. Oppositely, we will not get a unlimited resources to develop IT operating, so we have to balances for that. It is a well-known fact that, the business vales drive the IS/IT Strategic, but the IT Operations totally be driven by business values is?
Outsourcing which term is a sensitive word for companies, especially Hong Kong, because that always is made to use as some bad methods, for example, make it as shield to prevent from the responsible of law, unreasonable reducing cost to make the bad services. Actually, the set up of Outsourcing is base on lots of positive reasons to build up that, for example, make part of services in company can be became to more professional. I do believe Outsourcing is good thing and not a bad thing.



What are IT Operation management?

Operation management is one of the core functions in any organization. Many well known, world class companies are famous for their excellence in managing their operations processes.

References: http://ihome.ust.hk/~bbaom/intro/main.html

IT Operations management is an area of business concerned with the production of goods and services, and involves the responsibility of ensuring that IT operations are efficient in terms of using as little resource as needed, and effective in terms of meeting requirements. It is concerned with managing the process that converts inputs (in the forms of materials, labour and energy) into outputs (in the form of goods and services).

Rreferences: http://en.wikipedia.org/wiki/

IT operations management needs to built-up a perfect and effective institution for the IT operation. Operations management should ensure the institution has sufficient personnel (in knowledge, experience, and number), system capacity and availability, and storage capacity to achieve strategic objectives. The institution can establish and support an appropriate control environment for providing guidance, accountability, and enforceability while mitigating risk. There are two common types of control environment: cost-effective and risk-focused control environment.

Besides the institution, IT operations management should select and suggest some kind of technology solutions to control capital expenditures and operating costs.

Reference: http://www.ffiec.gov/ffiecinfobase/booklets/operations/02.html686869687069716872707369747175

Information technology operations, or IT operations, are the superset767277707873796980748171827583 of all processes and services that are both provisioned by an IT847685728677877088788973907991 staff to their internal or external clients928093749481957196829775988399 and used by themselves, to run themselves as a business10084101761028510372104861057710687107.

(http://en.wikipedia.org/wiki/Information_technology_operations)

Actually, some IT Operations problems are existed. For example, slow responses times, down networks or data unavailability can let the IT services not reliable. As a result, the productivity and the efficiency of the staffs will be affected. Also, the data integrity will be influenced due to the poor IT operation performance.

Therefore, some strategies should be introduced for solving these problems. For example, the company should prepare much more budget to buy more new and efficient equipment for improving the IT operation performance. Besides, the company should prepare the schedule for regulating the computer works. Furthermore, some guidelines for checking IT operation performance should be introduced in order to maintain the service standard for the staffs and customers--operational measures.

Two type of operational measures:
-External Measures
  • system service time(uptime/downtime)
  • response and turnaround time(loading time)
  • Program fault rate(failure)

-Internal Measures
  • System storage utilization rate
  • No. of job queue
  • Cpu utilization rate
  • RAM utilization rate
  • Network utilization rate

On the other hand, IT portfolio management follows a multi-step process to ensure investments are aligned with corporate objectives. These steps include:
-  Determining the needs of the business.
-  Evaluating the costs, risks and benefits of potential IT investments.
-  Prioritizing and selecting those investments that best align with business objectives.
-  Setting schedules and balance resource requirements.
-  Measuring and managing the value of the investment over time.

A strong portfolio management approach can turn all that around and do the following:


·
Maximize value of IT investments while minimizing the risk
· Improve communication and alignment between IS and business leaders
· Encourage business leaders to think "team," not "me," and to take responsibility for projects
· Allow planners to schedule resources more efficiently
· Reduce the number of redundant projects and make it easier to kill projects

What skills are necessary to work in the field of IT Operations management?

IT Operations managers need a broad range of skills. They should be usderstanding people and they also possess:
Strong leadership ability
Strong analytical and problem-solving skills
Strong interpersonal communication skills

References: http://ihome.ust.hk/~bbaom/intro/main.html

Just like a case, a million-dollar projects, which may or may not match the company’s objectives, are awarded to business units headed by the squeakiest executives; weak IT governance structures mean that business executives don’t have clear ideas of what they’re approving and why; the CIO ends up selling projects that should be generated and sold by line-of-business heads; the company doesn’t build good business cases for IT projects or it doesn’t do them at all; and there are redundant projects. So, good managment is very important for the IT operations.

Information technology Management Operatons: It is the most applications, the internal information technology organization is respond for the selection, management and support of the technology un the business. the information technology must be to organized and running with optimum efficiency, aligned with business needs, vision, and objectives.

What is operations?
reference: http://www.youtube.com/watch?v=XZqSqOL0b1w&feature=related


Case study - Operation Measures
Bankinter
Bankinter is a multichannel bank that provides a broad range of financial services. In Spain, it pioneered the use of internet and mobile terminals for banking channels.
It use Intel Core 2 Processor with vPro technology to reduce the time required to restore computers failure from about eight hours to two hours. IT manager have more time to dedicate other tasks or strategic IT projects. Moreover, remote switch on/off capability may also help save energy and increase end-user product.

It buy more equipment to reduce the down time (External Measure).

reference: http://media.techtarget.com/Syndication/NATIONALS/BankinterSB.pdf


Integrated IT Operations Management Services

IT Infrastructure & applications are not standalone elements of your IT operations, they represented interrelated elements of your business operations. Symphony manages the entire IT stack closely linking application management and infrastructure support services.
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Symphony’s Integrated IT Operations Management suite of services include:

  • Network Design and Implementation
  • Network Management Services
  • Telecom Asset Management
  • Server Management Services
  • Datacenter Management Services
  • Storage Management Services
  • Database Management
  • Middleware Application Management
  • IT Infrastructure Capacity Optimization
  • ITIL Certification Readiness

Symphony Advantages

  • Manage Mission-Critical network communications infrastructure
  • Customized SLA driven
  • Plan and optimize infrastructure capacity
  • Reduce investments on businesses resources
  • Improve uptime for data and VoIP network
  • ITIL compliant tools to manage your Network

Symphony Credentials

  • ISO 27001(ISMS) certified Centralized Network Operations Center
  • ISO 20000 Certified Service Delivery
  • Experienced and Certified resources– CCIE, CCNP
  • Support across WAN, LAN, and WLAN platforms
  • Industry-certified professionals\

Network Design and Implementation

  • Network Management Services
  • Provides end-to-end support by monitoring, managing, and administering your network Data and VoIP 24/7, in a year.
  • Generates Capacity analysis and forecasting reports.
  • Trouble-shoot problems and perform Root Cause Analysis.
  • Update and upgrade IOS.
  • Remotely monitors your network 24/7, in a year.

Telecom Asset Management

Telecom Asset Management is aimed at enhancing your control and reducing the cost of telecommunications. Symphony telecom expense management provides an intuitive and unified way to gain visibility into and control over nearly all aspects of telecom expense management—Voice, Data, and Wireless. This service includes:
  • Evaluation of appropriate telecom plan
  • Review of local and long-distance services.
  • Telecom billing analysis and optimization.
  • VoIP consulting, planning, and implementation.

Server Management Services

Symphony server maintenance and support services are designed to address client’s entire server platform needs from design, deployment and migration to optimization. Symphony will ensure better server utilization, better performance and availability. Symphony team will work as part of client team to help regain and retain control over server infrastructure and reduce over all cost. Server management includes:
  • 24x7 monitoring
  • Administration of multiple flavors of operating system (Windows, Unix and Linux)
  • Performance monitoring and fine-tuning of servers (CPU, Disk space, Memory utilization)
  • Backup management and restoration drill exercises
  • Configuration management, Capacity analysis and Forecasting
  • Patch management, Trouble shooting and Root cause analysis
  • Problem management and vendor co-ordination
  • Server virtualization

Datacenter Management Services

Symphony Data Center Consulting/Management Services helps customer’s in various aspect to adapt the changing business environment. Symphony’ holistic approach to data center services considers not just the technology, environmental conditions and optimization, but also business objectives. DMS services include:
  • Network Device Management
  • Server Management and Consolidation
  • Security Device Management
  • Application Performance Management

Storage Management Services

Symphony provides comprehensive storage and backup management services to your existing backup infrastructure, ensuring that your business runs efficiently. SMS also enable you to get the best out of your existing data storage infrastructure by aligning capacities and performance demands with important business continuity parameters like availability and compliance in a cost-effective manner. Symphony will also recommend data storage and backup solutions to addresses your current challenges and optimize the existing infrastructure. We are established in providing SAN/NAS solutions and execute the critical services-inline, near line and offline backups.

Database Management

Symphony’s Database Management services achieve the highest possible level of database maintenance and protection. Provides proactive, remote database support and maintenance, enabling you to focus your resources and improve productivity. The services spans across different database technologies such as Oracle, Progress, IBM DB2, and Microsoft SQL server.
Symphony’s continuous database monitoring results, any performance degradation issue is promptly identified and an effort is made to get to the root cause and recommend feasible solutions to ensure optimal performance and availability.

Symphony’s continuous database monitoring results, any performance degradation issue is promptly identified and an effort is made to get to the root cause and recommend feasible solutions to ensure optimal performance and availability.
Symphony provides expert remote DBA support 24/7, by proactively monitoring and managing mission critical DB sizing to very large setup. Service involve, creating & maintaining database, performing pro-active Capacity Planning and Performance Tuning of the database instances. Symphony can also create and implement Backup/Recovery strategies, adhering to predefined Database security.

Middleware Application Management

Symphony’s Middleware Application Management services ensures high availability and improved performance of your high scale web servers—Apache, IIS, Tomcat, iPlanet, Application servers—WebSphere, WebLogic, JBoss Portal Servers—WebLogic Portal Server, WebSphere Portal Server, Messaging services—JMS, Sonic MQ, Tuxedo Secure Servers—Tivoli Identity Manager, Tivoli Access Manager, Tivoli Federated Identity Manager which in turn enables the scalability of the enterprise critical applications built on Sun Microsystems Enterprise J2EEand Microsoft Technologies. Symphony engineers use ITIL process for application installation and fixes, security patches, server upgrades, and server installation.
Details about the performance of your servers can be viewed at any time, from anywhere, by authorized personnel. Parameters reported include JVM Memory, JDBC, JMS, JTA, Server threads, Application Threads, Application EJB’s, and server uptime.

IT Infrastructure Capacity Optimization

Proper capacity management ensures a healthy IT infrastructure that is ready to meet your existing and future needs with optimized investment. Symphony Capacity management service monitors and ensures that your IT infrastructure is utilized to its best with quality performance. It also provides various reports like utilization and trend analysis. Based on this you can justify your ROI and take decisions to continue, upgrade, or discontinue a service or device.

ITIL (ISO 20000) ITSM Certification Readiness

Symphony’s ITSM service is aimed at standardizing IT operational processes and aligning them with the best practices in the areas of people, processes, and technology. Symphony’s ITSM readiness service will prepare you for ITSM/ISO 20000 certification. Symphony emphasizes on areas like Service Catalog development, Change Management governance and control, Configuration and Release Management Control and CMDB development, Asset Management, and Problem management.

Referenced by: Symphony Services White Paper: ITIL‐compliant Infrastructure Management using SUMMIT

Network, Telecom, Server, Datacenter, Storage, Middleware Application, Capacity which are typical matters for IT operations; are linked together. Lots of critical thinks have to consider. I think you cannot do those typical aims as the same time, because this involved a large of risks and budgets. "Putting all these things together somertiomes gave me more excitement" quips Congleton. "plus they were more expensive than I wanted. Therefore, achieving a 10 percent reduction in operations had a far greater effect that a 10 percent reduction in any other area. That is why operations are important."

What’s New in Operations?
Companies Have “Cleaned Their Operational House” – Y2K and the Internet forced companies to “clean house” in their data and network center operations. The resulting changes have led to far better operational structures because management took the time to define the rules for operations and put better policies and procedures in place. Had they not gone through Y2K, most companies would not be operationally prepared for the Internet.

More Operations Managers are Managing Outward – A growing number of companies are turning to a third party to run their data centers. Even for companies keeping their own data centers, an increasing number are taking advantage of operational services provided by third parties, especially for e-business operations.

Operations are Being Simplified – Operations are frequently simplified by centralizing programs – via server-based computing – rather than distributing them on PCs.

Certain Operations are Being Offloaded –Web “event management” means hosting a real-time event on the Web. When successful, these “Webcasts” lead to huge spikes in Website hits. To avoid being swamped and having the Website crash, companies offload the operational aspects of these events to third parties that specialize in hosting such activities.




2. OutSourcing


Outsourcing is contracting with outside consultants, software houses or service bureaus to perform IT operations. Outsourcing implies that a third-party service provider takes over the business and IT process and runs them based on service-level agreements in various countries. The most service outsourceing are information technology outsourcing (ITO) and business process outsourcing (BPO).

The Driving Forces Behind Outsourcing
Outsourcing descended on IS departments as a follow-on to the merger and acquisition activities in the 1980s. Companies faced global competition, so they had to focus on their core competencies, and do some restructuring. Outsourcing is part of the drive for focus and value, and it is not solely an IT issue.

Accourding to Global Outsourcing report 200510888109781108911173112901137911491115, India is the most competitive and popular IT-outsourcing destination in the world. China is the second. The report examines the risk and costs profile of the world's leading outsourcing destinations by proposing two different indexes-- the Global Outsourcing Index (GOI). With the Future Outsourcing Index (FOI), China will become the most likely become the largest and most competitive outsourcing destination in the future.
Outsouring in IT's Functions
  • Overall business trend: Most of time, business trend do not foucs on the IT, so you maybe need make the IT in companies to outsourse.
  • Global competition: Nowsadays, the technologies make the change with each passing day and IT services will be provided profession, who will make the IT services as a global competition.
  • Value-added criterion: The future customers will expect the top of serices in IT. If you cannot provide the best, you will eliminate through competition. You cannot build in all the value-added services for your customers, because thos services will be changed day-by-day, so you need take the outsoursing services for your customers.
  • Need for technical specialist: As a company, lots of problem will exist and that will use popular system as the same, e.g. Microsoft, Linux. Outsoursing can provide the specialist because those specialist face lots of different problem in differnt company, comparing with in-house.
  • Employee Costs: A company cannot afford all the best IT services, because the budget is limit, so make the critical outsourcing is important thinkings, especially Employee Costs, so that always outsourcing employee that reason why.
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Outsourcing non-critical value chain activities offers such advantages as?
dominating depth in those activities that are outsourced, enhanced product quality, and better customer service
lower costs, less internal bureaucracy, speedier decision-making, more flexibility, and heightened strategic focus
facilitating the use of best practices and total quality management
eliminating the need to empower employees and rely on team-based organizational arrangements
helping a company capture cross-functional strategic fits and resource fits

Managing Customer-Vendor Relationships:

In order to maintain a healthy Customer/Vendor relationship an ongoing process needs to be established. It should ensure the customer that they are receiving the appropriate professional products and services as contracted from the vendor such as IT training, etc. From the vendor's perspective, the process should help to manage quality, productivity and costs which are critical to the success of the relationship. In total, processes are required to track performance, communicate status and document results.

The vendor should provide a great care for making decision to ensure that the products or services used will fit the current development environment and allow for future maintenance. When outsourcing the complete development function the vendor usually prefers to use their own methods and techniques. In the event that the customer requires the vendor to use an in-house methodology they must realize that the use of unfamiliar techniques may have a negative impact on quality and productivity and, as a result, the ongoing relationship. Typically, modifications to the selected methodology are often necessary to satisfy the needs of both parties.

To concern with Project Management that associated with outsourcing arrangements, standard management techniques often require modifications due to the addition of the outsourcing organization. Changes may include that tighter control over project deliverables; formal budget/schedule variance analysis; well documented Customer/Vendor roles and responsibilities; and a change control process that quantifies impact on time and cost.

Additionally, most software accounting processes in use today were not designed with outsourcing in mind. As a result a companies' entire software accounting process may have to be revamped for outsourcing. The accuracy of the time accounting often requires improvement as well as the incorporation of quality and productivity measures. The company should push this concept further by redesigning their processes to use function points as the basis for budgeting software services by business area.

Lastly, Software Measurement is required to effectively manage the Customer/Vendor relationship and ultimately measure success. Actually, measurement will help identify the need for outsourcing and is often the basis for contract payment. Measurement should also be the primary tool for evaluating the quality of deliverables, quantifying changes in scope and identifying process improvements. If measurement used properly, it can become the most effective communications tool available to customers and vendors.

So, it is important to recognize that establishing the processes take time. Many companies require a full year to implement these ongoing processes. Time is required to develop the processes, train personnel and integrate the techniques into the daily software development and support activities. In addition, management will need to monitor, modify and mandate as appropriate.


History of Outsourcing


Monolithic Outsourcing (1989)
Huge outsourcing contracts that involved almost entire IT operations. e.g. outsoure the company' s data center operations for ten year involved selling existing equipment to the outsourcer, transfer all the software license and moving significant numbers of in-house IS personnel to the outsourcer 's payroll.

Transitional Outsourcing (1990s)
In 1990, a new type of computing arose: client-server computing, some company want to transfer their legacy system to new client-server computing by outsourcing. There are two method, one is outsourced their maintenance of the legacy and their staff are develop new client-server system. and other way is outsourced the development of new client-server system and kept maintenance in-house.

Then, in the late 1990s most company outsourced their retrofitting of old systems for Y2K compliance to some country like India, Ireland. The contracts of this kind of job were generally shorter and did not include operations. This project-based outsourcing has been called transitional outsourcing.

Best-of-Breed Outsourcing
All through the 1990s, IS departments outsourced different pieces of their work - mainly infrastructure support, However, CIOs learned that although selecting one outsourcer with broad capabilities might be easiest to manage but no single company was best in all area. so the company select the outsourcing base on vendor specialty. This concept was good for getting best-of-breed providers, but the coordination of the vendor is a great challenge.

Shared Services
A Department or division formed by consolidating and centralizing services formerly operated by business units. This services can include legal, travel, finance, IT ,food service,fleet management, accounting, telecom and others. It is a form of insourcing; business units draw on the expertise in shared service when needed.

Business Process Outsourcing (BPO)
When IT outsourcing area become a commodity services, the increase of the number of competitors are making the profit margins down. To move into higher-margin service, External Service Providers began specializing in specific functional areas, offering to handle specific business processes as well as their underpinnings. This business process outsourcing (BPO) is defined as outstanding all or most of a reengineered process (BPR) that has large IT component.

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
  1. Preferred mode of operations in internet-based firms
  2. Allow a company to move fast, remain flexible and minimize fixed costs in computer hardware.
  • Utility computing is a pay-as-you-go model frequently likened to the electric industry. Just as end-users tap into their local electric grid and pay only for the power they use, utility computing customers will be able to tap into a mammoth computer grid and be charged on the same basis for their IT services. Transforming fixed costs into variable costs has long been one of the key objectives of IT outsourcing, and utility computing promises to provide a more granular and flexible way to achieve that end, notes Bill Martorelli, vice president, enterprise services strategies, at the Hurwitz Group, an information technology industry research and consulting firm.

Reference: INFORMATION SYSTEMS MANAGEMENT IN PRACTICE ( Ch .8 Managing Partnership-Based IT Operations)

Offshoring:

Offshoring is a type of outsourcing.Offshoring simply means having the outsourced business functions done in another country. Frequently, work is offshored in order to reduce labor expenses. Other times, the reasons for offshoring are strategic -- to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically.
Move business processes to a lower cost location, usually oversea.
China emerged as Production offshoring, India emerged as services offshoring.
With a clear understanding of immediate objectives and planning, offshoring can deliver significant strategic and business value over time.

Businesses with the right offshoring strategy and the right outsourcing partner can reap substantial rewards, as many have already discovered. In today’s challenging economic environment offshore outsourcing is even more strategic than ever before and can help you stay competitive and survive the challenging market conditions.


Reference: http://www.fdic.gov/regulations/examinations/offshore/background.html11692117801189311974120941218112295123
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Nearshoring:

Moving business process to lower cost location that are in close geographical proximity. The most common service works will be sourced in nearshoring are business process or software development.

In recently year, the major change in the world that make nearshoring become more competitive is the rise of fuel costs. Moreover, with nearshoring , the customer can gain a benefit from the constructs of proximity such as geographic, temporal, cultural, linguistic, economic, political, or historical linkages at lower outsourcing cost compare with offshoring. With the geographic proximity, not only lowing the cost, but also saving the time and effort on the nearshoring process. Because there are at least some commonalities between the cultures and languages, the communications will be easier.

Example, the logistics company DHL has been operating a computer centre in Prague employing 800 staff since the end of 2004. Along with other centres in the US and Malaysia it serves as an operations centre for global data traffic. Since early 2004 Commerzbank has also been offshoring in Prague, where it has payment transaction receipts checked. Skype, an internet telephony provider, operates a development centre in the Estonian capital, Tallinn, with a staff of around 130. Even Indian companies are arriving in CEE. Progeon, a subsidiary of the Indian IT service provider Infosys, offers BPO services to Western European clients from Brno in the Czech
Republic.

Benefits of Nearshore Outsourcing
Nearshore outsourcing offers many benefits over domestic and offshore outsourcing alternatives. In general, nearshore outsourcing falls in the middle of these other two alternatives in terms of cost and risk. There is little argument that certain tasks can be performed well at a lower cost overseas and that there are certain tasks that simply require a person onsite for an extended period of time. However, the vast majority of IT tasks fall somewhere in the middle, where direct interaction with resources is necessary on a regular basis and where the level of risk and priority is high enough that an overseas solution is not viable.

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Nearshoring VS Offshoring
Nearshore Outsourcing has many advantages over offshore solutions. The biggest advantages of nearshore over offshore outsourcing include:
  • Lower risk (geographical, political)
  • Same Time Zones
  • Proximity. Face to Face Meetings Common
  • Virtually Identical Culture and Language
  • Cooperative Legal Systems
  • Identical Education Standards
  • Insight AND Execution


Inshoring:

Picking services within the U.S. or E.U.

Smartshoring:

Picking the "best shore" based on various criteria and dimensions

Business Process Outsourcing:

Outsourcing arrangements when entire business functions are outsourced

References: http://www.scribd.com/doc/773322/Global-Outsourcing-Report12496125821269712775128981298313099131


What is Outsourcing?

Outsourcing is contracting with another company or person to do a particular function that is not a core to the bussiness.
Outsourcing takes many forms. Companys hire service providers to handle distinct business processes and some companys outsource whole operations. The information technology and business process are the common forms of outsourcing.
Business process outsourcing includes call center, human resources, finance and accounting, claims processing. These outsourcing deals involves multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people work internally for the client firm are transferred and become employees for the service provider.
Some small size of companies apply multisourcing that using both internal and service provider staff.
On the other hand, when companies attempt to focus on core competencies many are considering outsourcing various aspects of their in-house operations. The driving force behind this decision is typically cost reduction and organizational restructuring. In the Information Systems organization outsourcing can range from buying a software package to outsourcing all software development, support and data center operations.

Types of IT Outsourcing
The following table shows examples of IT outsourcing services and the related sectors. As the strategic use of IT can add values to business, IT outsourcing has been introduced in many sectors of various kinds.


Examples of Services
Examples of Sectors
Software development and maintenance services
Administration
Contacted management services
Customer Service
Data services
Finance
Financial services
Human Resources
Health-care services
Real Estate & Physical Plants
Creative Services
Sales and Marketing
Telecommunication Services
Most of business




Outsourcing IT as part of you can:
- Prevent failure with constant monitoring.
- Combat network threats.
- Ensure your technology supports your business processes.
- Gain productivity with expert installations.
- Maintain compliance.
- Slash IT costs to maximize profitability.

The process of outsourcing can divided into four stages:
1. Strategic thinking
- the role of outsourcing in its activities
2. Evaluation and selection
- decide the appropriate outsourcing projects
- potential locations for the work
3. Contract development
- to make a legal, pricing and sevice level agreement terms
4. Outsourcing management or governance
- to refine the working relationship between the client and outsourcing service providers

Three factors for successful of outsourcing:
1. Executive-level support in the client organization for the outsourcing mission
2. Have a good communication to affected employees
3. The client's ability to manage its service providers.

reference http://www.sourcingmag.com/content/what_is_outsourcing.asp132100133841341011357613610213785138103139

Outsourcing management consists of many worldwide IT groups, universities, consulting firms and software companies. Outsourcing management is becoming more important to companies, because IT outsourcing are using external service providers treat as a part of their internal department. So, managing outsourcing becomes a business process that has involved outsourcing models which it changes to more complex. Outsourcing governance defines the organizational relationships, decision-making processes, and communication mechanisms required to ensure the success of outsourcing. Outsourcing governance also ensures effective communication between those responsible for delivering the services and those to whom the services are being delivered.

Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers140104141861421051437714410614587146107147 in the information technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, ACS, Accenture and Capgemini.

The following is the advantage and disadvantage of IT outsourcing.

Advantage:
- Easy management
- Flexibility - can change vendor if the performance is not good
- Efficient response to increased competition and agility
- Better customer relationship management
- Cost saving - vendor can offer relatively good price,
- Higher operational efficiency
- IT performance and service levels improvement
- Optimal resources allocation to core business
- Effective project management
- Temporary headcount fulfillment
- Using standards based tools
- Technology infusion
- Skills upgrade
-
increasing innovation
- Save the time and foucus their own business
- Reduce employee turnover and training costs


Disadvantage:
- The quality of the services does not meet the requirement
- Security risk - disclose company information
- Difficult to manage the people, as the people is hire from outside


Benefits of outsourcing to Softwire

In comparison to offshore outsourcing the benefits of working with Softwire are as follows.
  1. We can provide our consultancy services to scope out and write detailed specifications for projects, where customers don’t have these skills in-house. This is in fact one of our biggest differentiating factors as an organisation – we work closely with our customers to really understand what they are trying to achieve from a business perspective, and make sure that our proposed technical solutions are both fit for purpose and cost effective in that context.
  2. We continue to work very closely with our customers throughout the project lifecycle. Therefore, we can handle change requests and even (where the commercial framework is sufficiently flexible) ‘feature creep’ during the course of the development project itself, to ensure that our customers are delivered a solution that optimally matches their changing requirements.
  3. We can deliver extremely complex projects on schedule and to budget, both because we have extremely bright staff and because our project management methodology allows for the change management that inevitably occurs when implementing such complex projects. Again, effective communication with the customer is essential in achieving this goal.
  4. We can operate as a truly autonomous development team, freeing the customer from the requirement of providing a technical development manager (and saving the associated cost). Our customers are never left in the dark because we communicate regularly, clearly and openly throughout the project.
  5. We deliver to an extremely high level of quality, and we always deliver. We provide peace of mind that, once commissioned, the required software will be delivered on time, work to specification and, importantly, meet the business requirements it was designed to address.

Outsourcing Workflow

Seven Step to Successful Outsourcing

1.Planning initiatives
2.Exploring strategic implications
3.Analyzing cost/Performance
4.Selecting Providers
5.Neogtiating terms
6.Transitioning resources
7.Managing relationships





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Seven phases in the IT services' outsourcing:

Phase 1. Outsourcing Strategy – suggest, review and evaluate outsourcing software development
Phase 2. Outsourcing Scope – define the work for IT services outsourcing
Phase 3. Negotiation – negotiation of the contracts, associated agreements and sign the contract
Phase 4. Outsourcing Implementation – start to plan transition and implementation of outsourcing software development
Phase 5. Outsourcing Management – required to manage the development outsourcing program, and achieve the contracted results
Phase 6. Completion – complete activities including product delivery and deployment
Phase 7. Maintaining & Supporting – maintenance and support for its outsourcing software development services and developed products

outsourcingWorkflow.jpg

(References: http://www.intechno.com.cn/English/Process/Outsourcing%20Workflow.html148108149881501091517815211015389154111155)

Outsourcing Management

In order to obtain the successful result from the outsourcing project, the outsourcing management team need to handle several aspects as well, otherwise the company may not be able to avoid the hazards of outsourcing. The several aspects are as follow:

1. Governance Management
Governance in outsourcing acts as “foundation of outsourcing relationship and would be the laid out in a contract” [lecture 5 ppt slide 26]. Good outsourcing governance can ensure the responsibility of each party and can define a structure of effective communication method, organization structure between supplier and the client. Some activities should implemented within the governance management, they are:
l Scheduling meeting with stakeholder
l Invoice review meeting
l Project status meeting
l Ensure problem and issues are acknowledged by appropriate parties
l Ensure contract scopes are properly managed and communicated

2. Contract Management
Contract is used to binding legal agreement such as promise between supplier and client which is enforceable in a court of law. Some obligations between supplier and client and the matters will write down in the contract. Contract management is used to ensure the obligations are properly carried out by both supplier and client, and ensure the contract objectives are being met by both parties.

However, during the course of the outsourcing, changes are always take place. Therefore the items in initial contract may not be valid anymore. In order to cope with those changes, all changes should be documented clearly, organized in manner and is easy access by stakeholder.

Some activities should implemented within the contract management, they are:
l Develop a project plan that indicate deliverables and obligations by both supplier and client
l Develop a change control process to cope with changes

3. Service Management
An effective service management is one of the critical outsourcing management activities. It should be carefully handle, if the service level is not reach the industry standard and get acceptance by client. Then it should take a prompt action to move back to correct track and make sure the service can reach the objective that indicate in contract.

Consequently, the client always creates a report that contains an accurate and objective assessment of the supplier's performance. This report not only to keep track the service from supplier is on the right track, but also may help to improve the supplier performance and the satisfactory by end user.

The component of Service Level Agreements (SLAs) [lecture 5 ppt slide 26]
l Responsibilities
l Performance requirements
l Penalties
l Bonuses
l Metrics

metrics_report.gif
Example of metrics report

4. Financial Management
Financial management is used to ensure the charges from supplier are reasonable, forecasting the outsourcing budget, and also explaining the deviation between budget and forecast.

financial_report.gif
Example of financial report

5. Transition Management
Transition management acts as preliminary project management from project start and project end between supplier and client. The activities in transition management are as follow:
l Organizing transition meeting between supplier and client
l Develop a transition plan with detail
l Scheduling the activity
l Outsourcing transition status and financial reporting

transition_planning_chart.gif
Example of transition planning chart

6. Technology Procurement
Technology is one of the important components of the project, by choosing the correct technology will led the project to achieve better performance. Sometimes the client will perform their technology procurement function to supplier for ensuring the technology is timely and cost effective.

Some activities should implemented within the technology procurement management, they are:
l Ensuring favorable term with technology supplier
l Obtain the competitive price of technology asset

7. Supplier Development
As the client side of the outsourcing project, it is important to build a good relationship with the supplier. The benefit of this action is not only can build a good relationship with supplier, but also can assist the supplier to improve their product or process to achieve better result of the outsourcing project.

(Reference: http://outsourcing-management-services.com/156112157901581131597916011416191162115163)

Outsourcing Management Problem


1. Communication:
i) Inaccurate communication - Erroneous or unnecessary information exchanged between parties may lead to incorrect and extra jobs done.
ii) Insufficient communication - The lack of communication leads to unsatisfied project outcome. Many surveys showed that on the one hand, vendors do not know what exactly the clients want. One the other hand, clients do not know how to express their needs to vendors. Also, many clients even do not know the project progress.
iii)Inefficient communication - Communication is often not efficient so that more and more time or follow-up works are needed. For example, receiving a vague email without specify the actions wanted. Apart from poor communication, security risks could jeopardize a project success. An outsourcing relationship implies that a third party service vendor may be given access to internal information of the client. For example, the vendor may handle confidential information or sensitive personal information of the organization which causes a leakage. Also, a vendor may have authorized to access a highly critical system. It is not difficult to imagine how irredeemable the effect would cause.

OutsourcingManagementProblem.jpg

The risks of outsourcing


There are three kind of risks:
Operational risks
1. The quality of process may be decrease
2. The cost of process may be affect by the climate of market
3. It may cause the loss of talent and knowledge of the business process.
4. Data Security problem

7260.gif
reference http://www.outsourcing-information-technology.com/wipro2.html164116165921661171678016811816993170119171

People Risks
Personnel turnover is a key metric that predicts the success or failure of your outsourced business process, because the behaviour of empolyee may influence the whole performance.
And the chance of the human failure is existing.

Technology Risks
1. Reliability of system
2. Network uptime and capability
3. Application of system

Process Risks
Overall high customer satisfaction is the goal of customer-facing processes,
Included the quality, quantity, system response time, and overall turnaround time.
outsourcerisk.jpg

References: http://www.sourcingmag.com/content/c060802a.asp172120173941741211758117612217795178123179



The Benefits using Outsourcing
  • To reduce the costs and internal staffing commitments
  • To liberate capital to more productive uses
  • To obtain access to specialized knowledge.
  • To build up and enhance strategic business relationships.
  • To increased the efficiency and the business competitive edge.
  • Frees up management time
  • Core Business Focus - clients to focus their time, energy and resources on the core business of increasing sales and market share and expanding into new markets
  • Access to Cutting-edge Technologies - using immense hands-on experience and extensive technological
  • Effective Performance - help clients operate in a better, quicker, smarter and profitable mode, and at a lower cost.
  • Win-win Partnership - work in secure and confidential relationships to ensure mutually beneficial cooperation

http://www.outsource2india.com/why_outsource/articles/benefit_outsourcing.asp180124181961821251838218412618597186127187
http://www.intechno.com.cn/English/Process/Outsourcing%20Benefits.html188128189981901291918319213019399194131195

The Advantages using of Outsouring

Economy

Better service quality

Making fixed costs variable
Advantages of the employee view
-Give employees a stronger career path.
-Increase Commitment and energy in noncore areas.
refer by Book:A structured Approach to Outsourcing Decisions and Initiatives(Maurice F.Greaver II)

The disadvantage using of Outsouring 1
  • Loss of managerial.
  • Hidden cost.
  • Threat to security and confidentiality.
  • Quality problems.
  • Tied to the financial well being of another company.
  • Bad publicity and ill will.
  • Data Security problem

References: http://operationstech.about.com/od/outsourcing/tp/OutSrcDisadv.htm19613219710019813319984200134201101202135203

The Disadvantage using of Outsouring 2

By outsourcing a business process, we tend to loose the managerial control. This happens because it is harder to manage the outsourcing service provider as compare to managing one's own employees. Also because we generally tend to skip (or miss to calculate) the
potential hidden costs of outsourcing which includes legal costs of putting together a contract between companies and time spent on coordinating the contracts, we feel that outsourcing reduces the overall expenditure of a business process, one of the major reasons why a company goes for outsourcing. This hidden and missed out costs of outsourcing is hard to predict causing overall costs to be underestimated.

Another disadvantage is that outsourcing can also prove to be a threat to the security and confidentiality of issues of a company. If your company is outsourcing business process such as payroll, confidential information such as salary will be known to the outsourcing service provider. Therefore one must be very careful in choosing which business process to outsource and which one not.

Outsourcing may also result into the possible loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings. Loss of internally generated talent is yet another problem associated with the outsourcing as it may hamper the growth of an employee by depriving him from the experience he would have gained by handling the business issue himself then by passing it over to some other external party.

Thus before a company decides to outsource its business process, it must examine all the factors carefully. It may not happen that outsourcing becomes a reason for company to regret later.

(Ref : http://www.softwareprojects.org/disadvantages-outsourcing.htm)

Disadvantage of Outsourcing 3

Outsourcing often eliminates direct communication between a company and its clients that causes the weak relationship between their customers and cannot satisfy them.

Disadvantage of Outsourcing 4

Outsourcing will loss managerial control, because it is more difficult to manage outside service providers than managing own employees.

Disadvantage of Outsourcing 5
Outsourcing can impact to security and confidentiality. If your company is outsourcing processes like payroll, medical transcriptions or other confidential information, a company must be very careful in choosing which process it wants to outsource and to which provider.
(Ref: http://www.indiainfoit.com/blogs/disadvantages__to_outsource.html20413620510220613720785208138209103210139211)


reference http://www.wisegeek.com/what-is-outsourcing.htm21214021310421414121586216142217105218143219


Therefore, excellent outsourcing governance requires many components: leadership, tools, processes, personnel, skills and principles.

Balance stakeholder needs - Stakeholder groups include senior executives, IT personnel in both the retained and outsourced groups, the service provider and the "users" of the services (employees, customers, suppliers and others). Learn more about its business needs and timing, and adjust the prioritization schema or timing so its needs can be acknowledged and met.

Pursue stakeholder involvement - Formal governance boards and steering committees as well as informal stakeholder involvement are necessary for the successful relationships. Also, superior governance requires regular interaction, information exchange and meaningful action for more effectively meet stakeholder needs.

Seek cultural synergy - Governance groups can achieve improved results by identifying and building on strengths both cultures share.

Drive out false agreement - False agreement occurs when someone agrees to do something without any intention of actually doing it. Although not unique to outsourcing relationships, this can be particularly damaging to them. Since the governance group operates predominantly through influence rather than authority, its members must be able to rely on commitments made by others, whether internal employees or service provider staff. Driving out false agreement requires diligence -- documenting agreements, consistently following up on commitments and holding others accountable. By asking others only for what they really need and following up diligently on all commitments, the governance group will build the trust and credibility needed to deliver results.

Remember that the "customer" is not always right - Governance group members must keep their minds open and reach across organizational boundaries to understand the motivations of all stakeholders. By taking special care to develop a deep understanding of stakeholders' motivations and expectations, governance group members can communicate and negotiate more creative and mutually beneficial solutions.

Experience matters - When governance group members are drawn exclusively from the client company, they begin with an experience deficit that puts them at a real disadvantage. Moving from management to governance with little or no training on the critical differences between the two can lead to costly mistakes that can contribute to the failure of the outsourcing relationship.

SLA - Service-level agreement are extremely important and should be continuously refined and improved over the life of the agreement. Lastly, customer satisfaction depends on the relationship between the governance group and the service provider. If trust and commitment can be achieved, customer satisfaction becomes a key success ingredient that's jointly nurtured by both sides.

Outsourcing Failure Reasons

Outsourcing provides a various of benefits, but if it fails, it could be a nightmare for a company.
Based on the survey report of Outsourcing Center in 2004, there were a number of reasons caused outsourcing failures.
  1. The buyer's unclear expectations up front as to its objectives
  2. The parties' interests are aligned up front but become misaligned as the buyer's business environment or needs change
  3. The provider's poor performance against service level agreements
  4. The parties do not consider each other's interests to ensure their relationship is mutually beneficial
  5. Poor governance structure for managing the ongoing relationship
  6. Poor cultural fit compatibility of the parties
  7. Poor communication; the parties do not proactively share necessary information with each other
  8. Challenges arising because of the buyer's multi-supplier environment
  9. Other


OutsourceCenterSurvey.png

Reference: http://www.outsourcing-center.com/22014422110622214522387224146225107226147227

Problem of Quality of service


Quality of service is measured by SLA(Service level agreement) in the contract. but many outsourcing defined without measure the quality or defined by SLA . Even when an SLA exists it may not be to the same level as previously enjoyed. the project or job may not achieved to the expecting result and serivce. Therfore It may also be lower quality through design to match the lower price.
There are a number of Stakeholder who are affected and there is no single view of quality. The CEO may view the lower quality acceptable to meet the business needs at the right price. The retained management team may view quality as slipping compared to what they previously achieved. The end consumer of the service may also receive a change in service that is within agreed SLAs but is still perceived as inadequate. The supplier may view quality in purely meeting the defined SLAs regardless of perception or ability to do better.

Solution Sugesstion
1)depend on previous experience do the quality measurement.
2)Make a Customer_satisfaction_questionnaires to capture an unbiased view of quality. Surveys can be help our research and improve our outsourcing quality.


Problem of Qualifications of outsourcers

if the outsourcer and often replace the staff lways . in this reason the qulification is very difficult control and always different non-equivalent qualifications.
References: http://en.wikipedia.org/wiki/Outsourcing22814822910823014923188232150233109234151235

The Outsourcing Lifecycle depicts key phases in a typical outsourced deal.
outsourcing_diag.jpg
References: http://www.systems-plus.com/business_consulting/bizcon_sourceadvisory_lifecycle.html23615223711023815323989240154241111242155243

Case Studying - Outsourcing IS Functions

Company : Ericsson
Date : Sep 2002

[Case of Business Process Outsourcing (BPO)]

Story :
Mobile communications giant Ericsson is looking at outsourcing its IT operations and the possibility of halting funding of Sony Ericsson Mobile Communications, its joint venture with Sony, in a bid to cut costs.
Ericsson is restructuring its business and aims to cut staff levels from 76,000 to fewer than 60,000 employees.
As part of that restructuring, the company is looking for an outsourcing company to take over its global IT operations, which employ about 4,000 staff at present.

Advantage :
Loss of £243m ONLY, it improvement on the loss of £970m for the same period last year.
Dis-advantage :
About 4,000 staff loss their jobs
product quality is very difficult control.

how to solve this problem:when fire the 4000 staff we also using these 4000 staff to hold another company, and then using the lower price outsourcing to their company.the advantage is save the quality. the reason is they have a experience sony Ericsson mobile production.

References: http://www.computerweekly.com/Articles/2002/09/02/189362/ericsson-considers-outsourcing-it-operations.htm24415624511224615724790248158249113250159251


Example: Software Outsourcing



This is one of the types of outsourcing. Today most of the companies, their software continue to meet a business need and it needs to be high cost. So they will purchase most of their new software by outsourcing.

There are three external outsourcing for software: software packages form a commercial software vendor, software services from an application service provider and outsourcing custom software development to an outside software firm. Often the companies’ offshore firms in low cost areas of the world, e.g. Indian.

Software package and enterprise software:
A software package means the software is written by other firm for some certain functions, such as payroll processing or order handling.

Enterprise software means vendors such as SAP or Oracle have developed powerful software packages. So the companies buy the enterprise software form them, than the primary business process can support by these software.

Application service providers:
Application service providers (ASPs) means a business that delivers and manages applications and computer services form remote computer centers to multiple users using the Internet or a private network.

No need to buy and install software programs, the companies can rent the same functions from these services.

Outsourcing custom software:
It means the companies contracts custom software development or maintenance of existing program to outside companies. Often the companies offshore it to the low cost areas of the world.

Case for Outsourcing to China:




Outsource?

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.
Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.


Why do we need outsource?


The business case for outsourcing have different situation, but reasons for outsourcing often include one or more of the following:
  • lower costs, reduce case (due to economies of scale or lower labor rates)
  • variable capacity
  • the ability to focus on core competencies by ridding yourself of peripheral ones
  • lack of in-house resources, a better way to rearrange resources
  • getting work done more efficiently or effectively, outsourcing different part to another professional company
  • increased flexibility to meet changing business and commercial conditions, focus on the feature of business model
  • tighter control of budget through predictable costs
  • lower ongoing investment in internal infrastructure
  • access to innovation and thought leadership
*

Why is outsourcing so different?

There’s no debate about it. Outsourcing is difficult because the failure rate of outsourcing relationships remains is very high. But it is depending on whom you ask, According some reference which I found on interest .them most problem is the inherent conflict of interest in any outsourcing arrangement. The client is seeking to get better service and using lower costs, than it would get by doing the work themselves. However vendor also wants to make a profit. That tension must be managed closely in order to ensure a successful outcome for both client and vendor.
Another cause of outsourcing failure is the rush to outsource in the absence of a good business case. Outsourcing is increasingly pursued by organizations as a "quick fix" cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage.


Why is offshoring ?

Offshoring is a one of outsourcing. Offshoring simply means having the outsourced business functions done in another country. Frequently, work is offshored in order to reduce labor expenses. Other times, the reasons for offshoring are strategic -- to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically.

offshoring does have financial advantages for businesses, these advantages are often far smaller than first anticipated due to hidden costs. There are also non-financial costs to businesses from offshoring, including lowered public perception and reduced morale/productivity from remaining staff. Offshoring can be beneficial for workers of the companies because their employers will be financially stronger and better able to compete.


Management Outsourcing Services

3 categories of services :
Governance Management - Organization structure are outlining the organizational relationships that exist between the sourcing supplier and the client. Authorization matrix defining specifically the types of decisions required, financial limits, and the person (or function) who is authorized to make that decision. Project Plan outlining governance tasks, such as regular service delivery meetings, invoice review meetings. Communication plan outlining communication tasks that need to be completed. Escalation processes to give early warning of service delivery or project delivery problems.
Contract Management - A project plan will be developed and maintained, outlining outsourcing contract deliverables and obligations by both the supplier and buyer, including updates for status. We will develop, implement and manage a contract change control process to track changes, new service requests, or document contractual events in a manner that will allow efficient access by client personnel, including auditors. Outsourcing Management Services will ensure appropriate escalation processes are in place to notify client of activities, decisions or events that may have contractual consequence. It will develop, or assist in developing all the appropriate contract management documentation, including authorization processes for contract modifications and new service requests, including assessment of any new fees.
Financial Management - About Monthly variance reports highlighting and explaining deviations between supplier's charges and the forecast or budget. Development and implementation of a chargeback methodology to ensure proper allocation of supplier's charges to business units. Review and analyze invoice to validate all supplier's charges. Preparing annual budget for the outsourced service. Monthly forecasts (or at a frequency in line with client's accounting processes) of the supplier's charges, highlighting variances from annual budget.

Reference to http://en.wikipedia.org/wiki/Outsourcing
Reference to
http://management.about.com
Reference to http://outsourcing-management-services.com/


3. Insourcing


What is Insourcing?

When an organization delegates its work to another entity, which is internal yet not a part of the organization, it is termed as insourcing.
The internal entity will usually have a specialized team who will be proficient in the providing the required services. Organizations opt for insourcing in order to cut down the cost of labor and taxes amongst others.

References: http://www.outsource2india.com/why_india/articles/outsourcing-versus-insourcing.asp25216025311425416125591256162257115258163259


Delegating a job to someone within a company, as opposed to someone outside of the company. One reason for insourcing to occur is if a company had previously outsourced a certain task, but was no longer satisfied with the work being done on that task, so the company could therefore insource the task and assign it to someone within the company who they believe will do a better job.

Ref: http://www.businessdictionary.com/definition/insourcing.html26016426111626216526392264166265117266167267

The Benefits of Insourcing
  • Reduced costs
  • Increased professional resources
  • To enhance the direct management
  • Reduced the additional operation costs
  • Faster responce time to market
  • Incereased company profitability

References: http://www.in-source.com/benefit.html26816826911827016927193272170273119274171275

The advantages of Insourcing
  • Globalent erprises can get significant cost benefits from centralizing processes in a geographic location.
  • Process control remain in-house
  • Process knowledge remains with the organization.
  • Better security
  • Faster tunaround of processes

The limitations of Insourcing
  • Higher costs compared to outsouring
  • Slower response to change
  • Lack of motivation to change
  • Risks of transferring inherent inefficiencies to the insourced center
  • Commitment to manage remotely located delivery center is intense

Case study - Cable & Wireless (C&W)

Cable & Wireless (C&W) is one of the world’s leading international communications companies. Recently year, C&W moved the external services such as customer care and billing contract back to home.

C&W started to terminate an outsourcing agreement with IBM. A 10 years outsourcing agreement signed in 1998 which covered IT infrastructure and customer billing systems. At the same time, the customer care and billing contract also move back to home.

C&W chief information officer Martin Taylor, who joined the company in 2003, says C&W realized insourcing would provide more influence over technology decisions. This insourcing activity was a complex process and found difficulty in the beginning. But there is benefit to the company. In the beginning, the company should design and implement the suitable system for the billing system. After that, the company discovered that there is an improvement in operational efficiency and customer service. The obvious change can be observed is that the cost did not increase but have fallen.

This case study showed that insourcing also has its benefit. But not applicable to all case. CEO should have clear consideration that the company can be suitable.

Reference: http://www.computing.co.uk/computing/features/2072478/insourcing-trend-bringing-back-home27617227712027817327994280174281121282175283


Real Example in Outsourcing – DHL
DHL looks for ways of increasing efficiency any reducing costs. One strategy is that of outsourcing. Although DHL has long been a company that has provided outsourcing for other businesses in terms of logistics, it also outsources some functions. For example, DHL Express in Singapore has outsourced its production and delivery of documents to Australian company ConnXion (Australasian Business Intelligence, 2005). This may be seen as a small example.
A more significant outsourcing strategy is one that is currently being implemented in the US. It has been announced that the company are planning on outsourcing the domestic airlift services for DHL Express. The company to provide the outsourcing is the competitor UPS, making this a controversial move. The contract that will be ten year in length is projected at costing a total $10 billion and saving DHL $1.3 billion over the ten year period. However, although this outsourcing agreement is proposed it is not certain that it will go ahead, there is political opposition with Ted Strickland, the governor of Ohio where many jobs will be lost as a result of the agreement is calling for an investigation under anti trust laws and union are threatening to try and block the deal. This is an outsourcing agreement that is part of a restructuring of the US Express business which has been under performing for sometime.



Insourcing
Insourcing is the use of external resources (not employees of the organization)/ in-house personnel/ an internal department to achieve and carrying out some functions/services at the client's site. Therefore, the function is sourced, but not outsourced. An insourcing strategy is chosen where it appears that a better service can be provided from internal resources than from an external supplier.
Insourcing also involves bringing in specialists to fill temporary needs or training existing personnel to perform tasks that would otherwise have been outsourced.
In some cases, organizations combine outsourcing and insourcing, in which external service providers work in cooperation with in-house personnel.


Benefits of insourcing

1/ Get close contact with the person you are hiring & so create a good environment.
2/ As insourcing carrying out functions/services at client’s site, the client can manage these resources more closely and directly with little management involvement from the supplier.
Also, the insourcers can improve responsiveness over contract partners.
3/ increase control. The control that comes with insourcing in product quality, delivery lead times, and chain of custody is a significant benefit for participants.
4/ protect intellectual capital
5/ enhance competitive advantages

6/ insourcers control and manage needed, process changes, and material changes; each of them can affect product costs and performance.
7/ reduce variability and help the manufacturer develop and test with a higher degree of security than with outsourcing.
8/ With the control of insourcing, relationships can be leveraged for additional cost savings

Trend towards insourcing
There is an increasing number of outsourcing customers are revisiting their strategies and bringing back selected services in-house. The trend towards insourcing, is growing not only among high value services such as software development and product design but also among non-core operations such as customer service and technical support.
The growing popularity of insourcing results from a variety of factors, including acquisition of outsourced companies by insourced companies, clients' disillusionment with their outsourcing deal, an increased focus on selective sourcing (and retaining strategic services in-house), and a growing confidence within companies in their ability to efficiently manage an IT operation.

Bringing service back may be riskier and more complex than outsourcing. Below are the concerns and actions must be considered in companies’ insourcing decisions.
1/ insourcing is a business decision, the business owners of the services would be involved every step of the way. They understand how insourcing could add efficiency, provide enhancement or support innovation. Make sure they are aware of the risks and share decisions on how you can mitigate them.
2/ identify the knowledge and skills required. When you insource, make sure you identify the people who have this knowledge to design the processes.

3/ Companies considering insourcing need to have the internal technologies and capabilities to support the plans. That includes solid supply-chain management, appropriate infrastructure, regulatory compliance, and the engineering and technical resources to support manufacturing.
4/ build an organisation that supports the insourcing team, integrate them in the organisation and manage them differently. A change management programme may be necessary to ease the transition. You have more control of the process, you can drive the implementation of whatever changes you think the company requires.
5/ remember to focus on the people, it is the most important part of the transition.

Key issues in making the decision to outsource or insource
There are three key issues in making the decision to outsource or insource manufacturing, as follows:
  • The complexity of the product design
  • The maturity of the product design
  • The stability of the market need

mddi0703gop40b.jpg
Conclusion
It’s important to avoid business fads and trends in approaching the decision to outsource or insource. Each approach has its advantages and drawbacks. It must be evaluated on a case-by-case basis to ensure that companies are leveraging corporate strengths for the best possible positioning. Any decision should be based on solid analysis and not the latest business trend.
Ref. Link:
http://whatis.techtarget.com/definition/0,,sid9_gci1185946,00.html28417628512228617728795288178289123290179291
http://baan.ittoolbox.com/documents/difference-between-outsourcing-offshoring-insourcing-1051029218029312429418129596296182297125298183299
http://ezinearticles.com/?Why-Outsourcing-Instead-of-Insourcing?&id=262252230018430112630218530397304186305127306187307
http://www.asiaone.com/Business/SME%2BCentral/Dollars%2B%2526%2BSense/Story/A1Story20080915-87915.html30818830912831018931198312190313129314191315
http://www.devicelink.com/mddi/archive/07/03/027.html31619231713031819331999320194321131322195323


(Added by g2-3445)

Soeren Dressler, Professor of International Accounting at Berlin's University of Applied Sciences, talks to SSON about the future of administrative professions in high-cost countries; key locations for offshoring going forwards; the captive versus outsourcing debate; and success factors in offshoring and nearshoring.

Outsourcing Vs Offshoring


Generally these questions strikes up when you have a project to outsource or offshore. We often mix both the terms though they have technical differences. Outsourcing is when a company hires some expert or professionals to complete a certain task. This can happen in many cases, including minimizing capital expenditure, high productivity, improved customer support and specialized skill. Outsourcing means corresponding with the provider or an expert within his area of expertise and getting the work done for the same. However, in offshoring a company can outsource its work or project outside the country or anywhere across the globe. The benefit of low cost, educated labor pool and pleasing time zones are diverting the attraction of many SMB’s to offshore their work around the globe. It indicates towards the assigning some particular function of a company to another country, which could be forever or for some given period of time.



Small medium organizations can outsource and offshore their business to compete with the large businesses across the global while cutting down on their expenses. This also brings good news for many freelancers and part-timers as they can get a chance to exhibit their expertise while earning a few bucks too.

But there is a lot of hidden cost involved in offshoring or outsourcing the project. Language barriers, cultural barriers and sometimes timezone challenges can be a hindrance in successfully executing the project. To overcome these barriers and to ensure successful outsourcing and offshoring there are many new online services which are coming to the online market. Elance, Guru, Rentacoder and LimeExchange are some of the interesting names which are coming into the business of outsourcing as well as offshoring. These services are affordable as they are not too heavy on pockets. They charge decent percentage of the amount paid to the provider after the completion of a project. Elance charges 8 to 10%, Rentacoder rates 15% but LimeExchange takes only 8% of the total amount, wherein it provides free registration and some impressive features to mitigate the risks related to outsourcing and offshoring.



4. Service level agreement


Introduction of Service-Level Agreement (SLA)

What is Service-Level Agreement(SLA)
This is the document that confirm and sign by customer that after negotiate with the service provider.
In the early stage, SLA is a contract between a network service provider and a customer. With this agreement, provider specifies what services can be furnished to their customer. For example, many Internet service providers (ISP)s provide their customers with an SLA. Nowsdays, IT departments have adopted the idea of writing a service level agreement for their customer (users in other departments within the enterprise). Therefore, the services for their customers can be measured, justified, and perhaps compared with those of outsourcing network providers.

Some metrics that SLAs may specify include:
  • What percentage of the time services will be available
  • The number of users that can be served simultaneously
  • Specific performance benchmarks to which actual performance will be periodically compared
  • The schedule for notification in advance of network changes that may affect users
  • Help desk response time for various classes of problems
  • Dial-in access availability
  • Usage statistics that will be provided.

References: http://searchitchannel.techtarget.com/sDefinition/0,,sid96_gci213586,00.html324196325132326197327100328198329133330199331

The SLA usually includes the following understanding:
  • services
  • priorities
  • responsibilities
  • guarantees
  • warranties

Each area of above service must have the "level of service" defined. The "level of service" provides a measurable or average target value that shows the level of organization performance. With this measurable standard, it allows customers to be informed what to expect or minimum they can obtain. the following attributes of the service should be included in "level of service":
  • availability
  • serviceability
  • performance
  • operation

Reference: http://en.wikipedia.org/wiki/Service_level_agreement332200333134334201335101336202337135338203339


Service Level Agreement of fujitsu:
external image ict01.jpg



external image cerd01.jpg

Ref: (http://www.fujitsu.com/id/services/professional/index.html)

Service Level Areement metrics
external image SLA_Picture.jpg
(ref: http://www.clarity-consulting.com/metrics_article.htm340204341136342205343102344206345137346207347)

Four major categories of SLA metrics
1. Volume of work
2. Quality of work
3. Responsiveness
4. Efficiency

Service Level Agreement

There are two major parts
in SLA: the document and the process.

The SLA Document describing the level of service expected by a customer from a supplier, laying out the metrics by which that service is measured, the remedies or penalties, and objectives to be met. Usually, SLA is between companies and external suppliers, but also between two departments within a company.

The SLA Process represents the methods that the outsourcing vendor will use to support the SLA document. These processes should be discussed and identified during SLA contract negotiation. Also, it is important that both parties understand the processes and methods of support. The processes in creating the SLA can ease the management of the project.

It is up to the outsourcing vendor and company to choose the correct people to manage the systems and the best technology for implementation. The people involved in managing the process must also manage the technologies and understand the importance of reporting and monitoring the entire system. System management can provide a supporting environment for tracking, escalation, and management of service metrics. End user satisfaction surveys can also provide input that will help target appropriate service levels and cost controls.

Here attached a chart as an example for easy understanding:
Clipboard01.jpg


The first four sections require the input of company management or end-user surveys. The next four sections require the input of the out-sourcing company in order to ensure all requirements have been identified. Next, the evaluator assembles the data in a document that can be easily read and understood and the final SLA will be based on this document - some sections will be added or removed during negotiation. Finally, there is negotiation & process determination with outsourcing vendors.

Service Level Agreements are often categorized in the following manner:

Basic: A single level service agreement. Metrics are established and measured, possibly requiring manual collection of data for management reporting. Objective is to justify the technical support operation.

Medium: The automation of metrics data enables more comprehensive less labor intensive reporting of service level achievement. Objective is to match service and cost levels with long term goal to increase service levels while decreasing costs.

Advanced: Service levels are embedded enabling dynamic allocation of resources either external or internal to meet changing business conditions. Goal is to provide a seamless mix of services, costs and service providers at better than competitive rates. Often enterprises at this level are ready to extend services to the open market.


Service Level Creation Criteria

1. Must be measureable and meaningful as service levels will focus on a measurable outcome.

2. Limitations established with vendors under contract and address client SLA requirements. Metrics will include unscheduled vendor downtime.

3. Recognize limits of the facility and specific hardware platform.

4. Focus on “what” the service is, but not “how” the service is delivered.

5. A new product offering can provide a higher level of service should be part of a later phase and allow development of a new product and service through the inclusion process.

6. Availability of devices and services based on having adequate maintenance windows to complete scheduled maintenance activities.

7. Availability of devices and services to be measured over a monthly period.

8. Be consistent from period to period. Customers will need Service Levels that
account for their peak business cycles versus a variable service level offering.

9. Software support criteria needs to be explained in the SLA to ensure technology currency for how many software release versions need to be supported.

10. Service levels will be reviewed to ensure that service levels are adjusted when there are changes to the technology cycle.

11. Keep ongoing improvement.

12. Increase & improve the relationship, communications and trust with the clients.

13. The SLA should include expectations for communication protocols (i.e.
frequency, distribution etc…).


Contract Specifics and Context


- Contacts and Role assignment

- Reporting

- Finances

- Review Process

- Performance Level Guidelines

- Uptime Requirements

- Equipment Support Requirements
Ref. Link: http://www.msexchange.org/tutorials/Blueprint_for_an_Exchange_Service_Level_Agreement.html#348208349138350209351103352210353139354211355
http://www.oregon.gov/DAS/SDC/docs/sla_criteria.pdf (added by g2-3445)

Additional point of view:

Because of the rapidly changing of IT market-place, more and more organization tend to transfer the delivery of services to third parties by outsourcing. In order to assure the IT function able to reflect the desires of the business and services provide them advantage. Therefore, service level agreement must be implement to monitor in terms of user satisfaction and performance.

Service Level Agreement act as the improvement expectation that associated with penalties and rewards in the outsourcing contracts. The S.L.A. must meet the expectation of end-user through interview, survey and attaining the business objectives with IT operation through defining set of responsibilities, roles and control requirements of third-party provided services. Apart from that, necessary information, relationships and control must be identified and exchanged among the stakeholders across both parties.For example, improvement of the system availability by fixing the system error and providing better help-desk support.



5. Supplier Development

What is Supplier Development?
Assisting one’s suppliers to improve their product and services by improving their processes(from lecture notes). That means, any effort from a buying firm to a supplier the purpose is to increase the performance and capabilities of a supplier to meet the firm's needs.
In fact, there is some supplier development program that's purpose to get Supplier Quality Award, award for a certain level of quality and on-time delivery etc.
The following is quote from http://lean-supply-chain.blogspot.com/2006/10/what-is-supplier-development.html356212357140358213359104360214361141362215363 state that this type of program need to achieve and does the program do:

  • Lower supply chain total cost
  • Increased profitability for all supply chain participants
  • Increased product quality
  • Near-perfect on-time-delivery at each point in the supply chain
A supplier development program must be aimed at improving suppliers performance, not browbeating them into charging less or simply auditing and rewarding them. Instead, supplier development is all about providing suppliers with what they need to be successful in the supply chain. Two of the most important functions of a supplier development program are:
  • Providing information about products, expected sales growth, etc. Poor communication is one of the biggest wastes with a lean supply chain. Lack of information translates into additional costs (usually in the form of just-in-case inventory). Suppliers need to become extensions of their customers.
  • Training in the application of lean and quality tools. Asking suppliers to drop their price without giving them the know-how to lower their costs through lean implementation is not sustainable long-term. In other words, this will drive suppliers out of business, which goes against the purpose of supplier development.
If suppliers had more information about the entire supply chain and had a true lean transformation underway, they would become more profitable and provide a better quality ane lower-cost product on-time.
That means whatever supplier development or supplier development program, they have the same goal, to let the supplier provide better service quality by increase their performance or low down the cost ,etc. In order to finally, give the buying firm better service with the same cost.

6. Inshoring & Offshoring

Offshoring describes the relocation by a company of a business process from one country to another -- typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring
http://en.wikipedia.org364216365142366217367105368218369143370219371
Offshoring is a type of outsourcing. Offshoring simply means having the outsourced business functions done in another country. Frequently, work is offshored in order to reduce labor expenses. Other times, the reasons for offshoring are strategic -- to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically.
(ref: http://www.sourcingmag.com/content/what_is_offshoring.asp372220373144374221375106376222377145378223379)

external image europe-offshore.jpg

Production offshoring

Production offshoring also know as physical restructuring of established products involves relocation of physical manufacturing processes to a lower-cost destination. Examples of production offshoring include the manufacture of electronic components in China, production of apparel, toys, and consumer goods in Costa Rica.
There is a relationship between offshoring and patent system strength. Because company under a strong patent system are not afraid to offshore work because their work will remain their property. Contrarily, companies in country with weak patent systems have an increased fear of intellectual property theft from foreign vendors or workers,therefore, have less offshoring.
Services offshoring
Offshoring has been going on for many years.The growth of services offshoring is linked to the availability of large amounts of reliable and affordable communication infrastructure following the telecommunication and Internet expansion of the late 1990s. Coupled with the digitization of many services, it was possible to shift the actual production location of services to low cost countries in a manner theoretically transparent to end-users.

http://www.plunkettresearch.com/Industries/OutsourcingOffshoring/OutsourcingOffshoringTrends/tabid/183/Default.aspx380224381146382225383107384226385147386227387
external image Offshoring.gif

Key success factors for offshore outsourcing

There are many horror stories about offshore software development projects going badly wrong, but also some notable successes. Our view is that for an offshore software development project to be successful the following ‘key offshoring success factors’ must all be in place.
  1. The technical specification must be clear, detailed and unambiguous.
  2. The project requirements (and hence the technical specification) must not change significantly during the course of the project.
  3. The project must not be too complex in scope.
  4. The customer must employ a capable in-house development manager to manage the project.
  5. The offshore developer must have a good track record at delivering projects for UK customers, and provide references to prove it.
These key factors all arise from the single issue that communication with an offshore development company – one in a different time zone, often with quite different business practices and perhaps lacking in a good understanding of the client’s business environment – is a very difficult thing to manage well.
We believe that making such a project succeed depends upon keeping the communications simple. To look at each key offshoring success factor in turn:
  1. The technical specification has to be watertight, otherwise the offshore developer won’t know what the customer wants and will end up building the wrong solution. If the customer doesn’t have an in-house capability to create a good technical specification then it is vital to find a third party to provide some consulting expertise to assist in its creation.
  2. Change requests and feature creep during a project are difficult enough to manage when both customer and developer are in the same country and communicating effectively and frequently. When the developer is offshore and the specification is continually changing, the risk of failure goes up dramatically. And with the best will in the world, many customers find it difficult to resist changing the specification part-way through a project – especially given that business needs and priorities do change over time.
  3. The more complex a project is, the more need there will be for discussion and dialogue during the project to refine requirements, agree functionality and take design decisions. So with complex projects the technical requirements are almost guaranteed to change somewhat during the course of the project, and hence point (2) applies. The best way to avoid this is to keep the project as simple and well-defined as possible in the first place.
  4. With all of the development work being performed out of sight, it is essential for the customer to have a good in-house development manager to keep on top of the project. Their (crucial) role is to proactively identify where communication issues are occurring and take steps to resolve them quickly, before any harm is done. This requires a decisive, capable and technically knowledgeable individual who should ideally already be an employee of the customer and fully understand the business requirements (to avoid another opportunity for miscommunication). Note also that this represents a significant additional cost to the project.
  5. It can be extremely difficult to find a good offshore development partner. Quality is extremely variable and whilst there are no doubt good organisations out there, they can be hard to find amongst the sea of mediocrity. The communication issue works the other way around here – it can be very difficult to make a good judgement on whether an offshore developer is up to the job on the back of a review of their website and a couple of teleconference calls. Hence, a proven track record of delivering to the UK and some good references to back it up are extremely important.
Note that all of the potential issues raised above can also occur on software development projects outsourced to onshore developers as well. However, their effect is greatly magnified when dealing with an offshore organisation due to the inherent communication difficulties, hence the reason why we believe that all five success factors must be firmly in place before a software development project is outsourced offshore.
Even when all five key success factors are met there is still likely to be a somewhat higher risk of failure when offshoring a software development project, as compared to keeping the development work onshore. However, this risk may be offset by any cost savings made by using an offshore company. The right decision then depends upon the business case for the new software and the potential cost associated with any failure to deliver.

Advantage of Offshoring
Here are some advantages of Offshoring :
  • lower cost for the business offshoring the work to cheaper locations like India, China
  • can create local job and employ local people
  • can develop other market place for the bussiness
  • can work 24 hours per day as two countries are different time zone, increase the business efficiency

offstore.JPG

Global Services of 40 countries
service0.JPG

Global Services Location Index in asia
service1.JPG

Global Services Location Index in South America
service2.JPG


Global Services Location Index in Europe
service3.JPG
Ref: (www.atkearney.com/res/shared/pdf/GSLI_2007.pdf)

Definition of Inshoring
Inshoring may be thought of as the 'opposite' of Offshoring. It is the business process outsourcing work domestically. This process typically applies to the US and the UK.
It is also a type of outsourcing, but it takes advantage of cost disparities within the domestic market, which is opposite to Outshoring.

Example
For software companies not located in metropolitan areas with high costs of living, there is a real opportunity to compete on price with other domestic software companies. It simply costs less to do business in the Midwest than it does in New York or Los Angeles. A Midwest company can charge more than it does locally and yet still undercut the competition on the coasts. If work can be shipped overseas, it can just as easily be shipped across the Mississippi.

Reference: http://en.wikipedia.org388228389148390229391108392230393149394231395

The business of finding low-cost substitutes for American workers is getting more complex — and so is the terminology. They don't just call it "offshoring" anymore.
At a recent conference in the palatial Venetian resort, the people who help U.S. companies shift white-collar work overseas offered potential clients a Vegas buffet of outsourcing options: "nearshoring," for those willing to stray no farther than Canada or Mexico; "inshoring," for those who prefer to bring foreign workers to America, and "rightshoring," for those desiring a custom package of in-house and offsite, foreign and domestic.
Reference: Warren Vieth, "Outsourcing Variations Have Some Appeal," Los Angeles Times, April 27, 2004

Offshoring


Offshore outsourcing is a type of business process outsourcing.
It generally refers to an organization’s replacement of goods and services produced domestically with imports from foreign sources.
For example, if a U.S.-based company decides to move its computer programming activities to an overseas supplier, this would be considered offshoring. The supplier may be unrelated to the domestic company, in which case the company has outsourced its computer programming activities, as well as offshored them.


In IT, it is the exporting of IT-related work from developed countries to other areas where there are political stability, tax savings, lower labour costs, stable global economy, and rapidly growing local markets. These factors lead China, India and Malaysia became favoured manufacturing locations. Their labour rates can be 50-80% lower.

Domestic companies interested in offshore outsourcing not only try to reduce the cost, but also want to be more price-competitive against each other, enable them to compete with businesses in other countries.

Offshoring requires higher demands on firms’ internal management skills. Managers must be able to lead teams with cultural differences, establish metrics to assess contract performance, and manage teams located around the world.



Offshoring Risks
1/
Country Risk - geographic distance from the function and timing lags heighten the potential risk exposures, including political, socio-economic, cultural differences, infrastructure adequacy, foreign government requirements

2/ Credit risks - vendor may not be able to fulfil its contract due to financial losses



3/ Unforeseen costs - while offshoring does have financial advantages for businesses, these advantages are often far smaller than first anticipated due to hidden costs. There are also non-financial costs to businesses from offshoring, including lowered public perception and reduced morale/productivity from remaining staff.


4/ Since financial service companies send customer data to foreign countries, which will raise privacy risks by following ways:
- countries have weak controls and so affect customer privacy

- different country laws may not protect "trade secrets"
- offshore vendors may not have adequate privacy regulations

The relatively lower-risk activities include computer source coding or application development and maintenance, whereas higher-risk activities include any function using personal data, such as call centres or transaction processing.
Software industries increasingly produce in India

Indian has the most important postion in global offshore outsourcing.

During the past ten years, the
production of high-tech goods has moved steadily from the developed countries to developing counties. Software services that firms have offshored have become progressively more complex, so they require highly skilled workers. More complex offshored services include advanced software design and development activities and researching, designing, developing, and testing new software technology.

They found that the firms in India have the capabilities to produce high-end software services, such as software design at a low cost.
The firms either invested in overseas in India to directly provide software services for the firm or hired Indian programmers to work temporarily on-site at firms’ locations.

In addition, firms often combine highly skilled labor available in India with skilled labor in other countries to create global teams with specific skill sets. For example, one firm in India begins a high-end software development project and then transfers the work to a team in another place for further development before delivery to clients.


Conclusion

About half of the organizations have shifted processes offshore failed to generate the expected financial benefits, so many businesses have had mixed results - ‘Rightshore’ model. The company leverages a range of locations – offshore, nearshore and onshore – to provide a broader spectrum of services to its strategic partnership programmes.

http://searchcio.techtarget.com/sDefinition/0,,sid182_gci924479,00.html396232397150398233399109400234401151402235403
http://management.about.com/cs/people/a/offshoring104.htm404236405152406237407110408238409153410239411
http://www.fdic.gov/regulations/examinations/offshore/412240413154414241415111416242417155418243419
http://www.information-age.com/channels/it-services/features/280831/is-offshoring-still-good-value.thtml420244421156422245423112424246425157426247427

http://www.gao.gov/new.items/d06423.pdf428248429158430249431113432250433159434251435

NEWS about offshoring

1/ http://www.offshoringtimes.com/436252437160438253439114440254441161442255443
2/ http://www.businessweek.com/globalbiz/content/oct2009/gb20091014_163749.htm444256445162446257447115448258449163450259451

(added by g2-3445)





Outsourcing has cost and quality control issue

Nowadays, most of company and government have been outsourcing non-core part(excluding system logic) to vendor.Most of time, outsourcing software development and system supporting. In software development, most of vendor just focus on the end result,therefore we can imagining the quality quite garbage.Generally,it hard to returning to inside company and that made people downcast. besides,once the contract is signed, this is hard to modify the content of software. each request changing is money and time.

Finally, IT worker is suffered by outsourcing mechanism.

(my own words)

Productivity of outsourcing

Offshore outsourcing for the purpose of saving cost can often have a negative influence on the real productivity of a company. Rather than investing in technology to improve productivity, companies gain non-real productivity by hiring fewer people locally and outsourcing work to less productive facilities offshore that appear to be more productive simply because the workers are paid less. Sometimes, this can lead to strange contradictions where workers in a developing country using hand tools can appear to be more productive than a U.S. worker using advanced computer controlled machine tools, simply because their salary appears to be less in terms of U.S. dollars.

In contrast, increases in real productivity are the result of more productive tools or methods of operating that make it possible for a worker to do more work. Non-real productivity gains are the result of shifting work to lower paid workers, often without regards to real productivity. The net result of choosing non-real over real productivity gain is that the company falls behind and obsoletes itself overtime rather than making investments in real productivity.

referenced by http://en.wikipedia.org/wiki/Outsourcing#Public_opinion

Open source project

Nowadays , too many open source projects are contributed by enthusiast volunteers.They spend their time to working on the project It allows us to easily integrated within our IT project,so it can reduce cost and time,but we can't guarantee any good quality document and immediately bug fix in open source. it maybe over 2 or 3 years do have any updating(no bug fixing and new features).
(my own words)


7. Information Security

Why are information systems vulnerable?
Information resources (physical resources, data, software, procedures, and other information resources) are scattered throughout the firm.Information is transmitted to and from the firm’s components. Therefore vulnerabilities exist at many points and at any time.

Threats can be classified as Unintentional and Intentional.

IS_Vulnerability_.jpg
Information System Vulnerability

Ref: Figure 15.2, Page 645 - Information Technology For Management 5th Edition, Turban, Leidner, McLean, Wetherbe

Protecting Information Resources

Information security problems are increasing rapidly, causing damage to many organizations. Protection is expensive and complex. Therefore, companies must not only use controls to prevent and detect security problems, they must do so in an organized manner. An approach similar to TQM would have the following characteristics:


  • Aligned - The program must be aligned with organizational goals.

  • Enterprisewide - Everyone in the organization must be included.

  • Continuous - The program must be operational all the time.

  • Proactive - Use innovative, preventive, and protective measures.

  • Validated - The program must be tested to ensure it works.

  • Formal - It must include authority, responsibility and accountability.

Corporate Security Plan
CSP.JPG
Corporate Security Plan

Difficulties in protecting information resources
  • Hundreds of potential threats exist, and they keep changing.
  • Computing resources may be situated in many locations.
  • Many individuals own or control information assets.
  • Computer networks can be outside the organization and difficult to protect.
  • Rapid technological changes make some controls obsolete as soon as they are installed. New threats appear constantly.
  • Many computer crimes are undected for a long period of time, so it is difficult to learn from experience.
  • People tend to violate security procedures because procedures are inconvenient.
  • Many computer criminals who are caught go unpunished, so there is no deterrent effect.
  • The amount of computer knowledge necessary to commit computer crimes is usually minimal. As a matter of fact, one can learn hacking, for freem on internet.
  • The cost of preventing some hazards can be very high. Therefore, most organizations simply cannot afford to protect against all possible hazards.
  • It is difficult to conduct a cost-benefit justification for controls before an attack occurs since it is difficult to assess the value of a hypothetical attack.

Information Security : Security's Five Pillars
  1. Authentication
  2. Identification
  3. Privacy
  4. Integrity
  5. Non-repudiation

CSI_Fig16.JPG
CSI_Fig16_2.JPG

Ref: 2008 CSI Computer Crime and Security Survey452260453164454261455116456262457165458263459

8. Supplementary Reading


Video: The Other Side of Outsourcing

An interesting and worthy video about outsourcing in India.

As mentioned in Section 2, India is the most competitive and popular IT-outsourcing destination in the world. In the video, you will find what they have done or have to be done, in order to be competitive and gain the benefits from outsourcing. For example, training English communication skills (at around 7:50 in the video).
It also showed the impact to Indian culture.





Governance, Management and Testing in an Outsourced Model (Part 1) - AppLabs




Governance, Management and Testing in an Outsourced Model (Part 2) - AppLabs




Governance, Management and Testing in an Outsourced Model (Part 3) - AppLabs




Case study:

The case is about Shanghai-based low-cost airline, Spring Airlines Ltd. (Spring), and its low cost business model. As of 2009, Spring was the only low-cost carrier (LCC) in China. The airline which began its operations in 2005 had to face many challenges in its initial year of operation but by 2006, it emerged as a successful LCC. Analysts attributed its success to its extremely low-cost business model. The case discusses in detail the operational strategies adopted by Spring to maintain its low-cost business model.

The airlines' operations were based on the operational model of the most successful discounter of all time - the Dallas-based Southwest Airlines (Southwest).

Spring was struggling to meet the increase in passenger demand. In June 2009, the airline planned to offer standing-only tickets to passengers on its flights and speed up the ticket system. The move was expected to cut down costs for the airline further while increasing the seating capacity.
Moreover, it would lower the airfares for passengers who opted to stand during flights. Customers can buy the tickets through their ticket system. The idea received mixed reactions from industry analysts, experts, and consumers. Some aviation experts dismissed the idea in view of safety concerns. Some experts pointed out that while major carriers were making efforts to recoup their losses by offering luxury services to the passengers, Spring was planning to make flying even less comfortable.


Effective Management :
-Spring adopted most of the operational policies which had made Southwest successful -Spring use ticket system to keep costs down
-Spring speed up the ticket system, customer would more peaceful to use it.
-Spring adopt partnerships perspective




Outsourcing

Contracting with another company or person to do a particular function is Outsourcing.

The process of outsourcing including four stages:
1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities
2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it
3) development, to work out the legal, pricing and service level agreement terms
4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.


Outsoursing2397.jpg

Outsourcing can expend less capital, say if information technology requirements is outsourcing, a company does not have to buy expensive hardware and software. Also, company can more focus on its core competencies - Outsourcing non-core related processes will allow a business to focus more on its core competencies and strengths.
For example, part of cameral of HKSAR had outsourcing IT service to a company “Unisys”. Unisys will support application program, basic framework of network, helps automation office
etc. Unisys provides professional option; it helps to increase the effective of cameral of HKSAR. Moreover, HKSAR can save cost.

On the other hand, company is harder to manage the outsourcing service provider as compared to managing company own employees. Other companies may not provide good quality of employees or services. It may damage the image of company. Also, confidential information such as salary will be known to the outsourcing service provider. security and confidentiality may not keep.





9. Case Study - Offshoring, Hewitt Associates



Hewitt Associates, based in Lincolnshire, Illinois is a global human resources (HR) outsourcing and consulting firm delivering a complete range of integrated services to help companies manage their total HR and employee costs, enhance HR services, and improve their workforces

Hewitt Associates is a global management consulting firm specializing in the outsourcing of corporate human resources (HR) programs such as healthcare benefits, payroll administration, stock options and investment accounts, retirement programs, and severance packages. Hewitt represents many Fortune 500 companies, administering their investment and benefit programs and offering their clients a host of related services, many of them online. Hewitt not only pioneered the use of automated benefit programs, but brought the HR industry into the Internet age by launching a series of online programs and software packages.

In 1974, Hewitt began offering its clients an increasing number of innovative products, including its trademarked Benefit Index to track the performance of benefit programs. The Benefit Index was another industry first and soon became the standard to which all aspired. Hewitt also offered its clients several flexible investment strategies for employee benefit packages, which led to the formation of a new consulting firm, the Hewitt Investment Group.

Hewitt continually sought to better its programs. The company began to conduct in-depth surveys to find out which benefit programs worked best and which ones needed improvement. In the 1980s Hewitt researched numerous issues and began issuing its findings industry-wide on subjects such as offering benefits to part-time employees, full versus partial hospital reimbursement, fluctuating profit-sharing percentages, mental health benefits. Another topical issue was computer use for automated benefit calculations.


In 2000, Hewitt was poised for further growth both domestically and abroad. Not only was the company broadening the scope of its operations, but it offered clients advanced tools to outdistance their competitors. Hewitt's HR management services had become known for their cutting-edge technology and the company's ongoing commitment to offer newer, faster, and more comprehensive programs would take it to the top of the industry in the next century.