Pressures Faced in IT
• IT departments face growing pressure to
improve their business value by accelerating the
delivery of new applications and technologies
and improving service to users
• At the same time, basic maintenance and
support of the existing application portfolio
consumes up to 50% to 80% of IT resources —
posing a serious roadblock to new initiatives and
services that can enhance an organization’s
competitive position
Decision Making Model
Business Strategy
• It enables the business to better manage the
human and financial resources required to
support current applications while positioning
itself to realize competitive advantage
• Acceptance of outsourcing as a business
strategy extends well beyond IT, with
outsourcing of business functions like customer
service, human resources, and finance and
administration projected to grow at 30% annually
in coming years
Types of Sourcing Arrangements
Types of Projects Outsourced
• Ongoing Software Maintenance
• Software Conversion Projects (i.e. Y2K)
• Original Application Development
What is Being Outsourced?
• No area of the development lifecycle is immune
to outsourcing
• In-house teams still do the majority of higherabstraction activities, such as project
management, requirements gathering,
architecture, design, modeling, R&D and
• However, offshore teams aren't simply being
tasked with writing code
Outsourcing Literature Sources
Outsourcing Objectives
• Outsourcing arrangements are not typical
purchaser/vendor relationships, and
confidence that the vendor can work in a
partnership is vital to a successful
• It is essential that the objectives and
success criteria for outsourcing are clearly
understood within the organization
Outsourcing Agreements
• Any outsourcing arrangement must be tailored to create
a win/win deal that balances potential risk between the
client and the vendor and creates an incentive for the
vendor to work with the customer organization
• It’s becoming increasingly common for outsourcing
arrangements to be structured for ‘gain-sharing’: once
targeted benefits are achieved, benefits beyond the
target are shared
• Arrangements such as these promote a true partnership
Characteristics of Outsourcing
• In outsourcing contracts, the client retains
ownership of the IT strategy while the vendor
assumes responsibility for management
processes and day-to-day supervision of the
• A well-structured outsourcing contract makes the
vendor responsible not only for a defined
package of services, but for the delivery of
business value from those services
Service Metrics
• Performance related service-level metrics are a
key component of most outsourcing contracts
• Growing emphasis is being placed on measuring
and evaluating the services’ business value
• Accordingly, metrics demonstrating continuous
improvement and business value are becoming
a more common component of outsourcing
Service Level Agreements
• In order to offer a competitive service that,
at the same time, is objectively
measurable, the maintenance organization
must commit itself to accomplish its
services according to some indicators
• These Service Level Agreements can also
be used for planning the non-plannable
• There are many good works analyzing the
problem of risks once the maintenance process
has started, but there is a lack of guidelines to
help managers identify and estimate the risks in
the initial stages of projects
• One situational factor may affect one or more
risk factors, and each risk factor may affect on
one or more business areas
Theoretical Foundations
6 Characteristics of Describing
Software Development
Degree of Commitment
Risk and Uncertainty
Complexity vs Radicalness
Complexity is a measure of the number and
variety of elements and their
interconnections in a system
Radicalness is largely a perceptual measure
which describes the perceived amount of
change in the system at each level of
Developing Applications
• Internal staff already understands legacy applications, time spent
transferring that knowledge would eat any potential savings
• New applications are driven by new opportunities that require rapid
response, and the internal staff is too busy to provide that response.
• New projects can be started quickly because there is no need to
recruit people. This lets the company respond swiftly to unexpected
developments with minimal risk.
• If a new application fails to pan out, then the design cost will have
been significantly less than in-house.
• If the application bears fruit, then offshore developers are in an ideal
position for support, reducing the cost of maintenance.
Efficiency and Effectiveness in the
Application Management Environment
• A clear picture of the desired, or ‘target’
application management environment is crucial
to understanding the potential business value of
outsourcing application management
• Well run environments have:
– User Satisfaction
– Accountability
– Adequate Staffing
• Outsourcing of software life cycle activities is a
growing business area
• Lack of planning and high costs of software
maintenance invite many organizations to
• Even the most unexpected organizations, such
as the US Department of Defense, have decided
to outsource significant portions of their
Information Systems
• Among the activities that comprise the
software life cycle, maintenance is the
most costly; estimated at 67-90%
• By not planning for change, companies
are faced with higher costs than if they
were to imbed that cost in the original
development plan
Benefits of Outsourcing Maintenance
• Employees focus on the core business
• Releasing resources for strategic
• Decreasing costs
• Increasing productivity
Drawbacks of Outsourcing
• Loss of control
• Loss of a learning source
• Loss of knowledge of the software
• Dependencies on the supplier
• Variations in the product quality
• Problems among personnel
Planning the Non-Plannable
• “Non-plannable” maintenance requires urgent
corrective action
• It is the more problematic type of maintenance,
due to its lack of planning possibility
• The use of predictive models are used to try to
determine the quantity of resources needed for
error corrections.
Benefits of Outsourcing
• Competitive Advantage
• Speed-To-Market
• Improved Quality
• Overcome cultural barriers to improving
methods and processes
• Access to skills and resources
According to One CIO…
• "We see little value in offshoring legacy
work," Ross says. "Next-generation
applications is where the payoff's the
The Quality Question
• A large percentage of respondents rated
the quality of work done by the offshore
team as worse than in-house efforts
• 46% of respondents considered the work
of the offshore teams to be of poor quality,
and an additional 14% reported that their
offshore team's work was "unusable or a
setback to progress."
The Quality Question
• 51% of respondents reported that their
current or most recently outsourced
project was critical to daily operations
• Despite the reports of poor quality, 93%
disclosed that their company plans to keep
using their offshore vendor
Skill Sets for the New Worker
• Teamwork and communication skills remain important,
but an understanding of other cultures and languages
may also be helpful in this global economy
• More attention must be paid to large applications,
standard tools and platforms that will be used by IT
workers around the world, such as J2EE or .NET.
• In addition, a more global perspective should be taken
Generalized Application Packages
• There has been a growing trend towards the use of
generalized application packages in IS development,
largely due to the fact that in-house development has
turned out to be costly and risky in terms of development
costs and schedules and the quality of the resulting
• The impression is that there is a common-sense belief
that application package based information systems are
easier to implement than in-house developed systems
• It should be observed, however, that the results are not
very conclusive in this respect

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