Information Technology Importance In Strategic Planning

Discussion 1: 300 words two references

Read and listened to the attachment lecture read Case Study 10-1 Crowdsourcing at AOL Answer below question

Describe the advantages and disadvantages  of crowdsourcing.

Discussion 2: 300 words two references

Think about a company with which you are affiliated or familiar and some kind of data or micro-labor need the company might have.  Compose an initial response that addresses the following:

• What is the data or micro-labor need?

• Could it be crowd-sourced?  How and why?

• What would be the benefits and drawbacks for crowdsourcing this particular thing?

• What would be the incentive for “the crowd” to help the company address its need?

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© 2016 John Wiley & Sons, Inc.

Chapter 10 Information Systems Sourcing


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Kellwood Opening Case

Why did Kellwood outsource?

Why did Kellwood decide to backsource after 13 years?

What was the result?


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They wanted to integrate 12 acquisitions with different systems

Kellwood was purchased by Sun Capital Partners. COO wanted to consolidate to reduce costs and standardize

Result was savings of $3.6 million per year, or 17% of total IS expenses


Sourcing Decision Framework


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Sourcing Options

Insourcing Outsourcing
Domestic Domestic in-house production Company produces its products domestically without any outside contracts Domestic outsourcing Company uses services supplied by another domestic-based company
Offshore Offshore in-house sourcing Company uses services supplied by its own foreign-based affiliate (subsidiary) Offshore outsourcing Company uses services supplied by an unaffiliated foreign-based company

Figure 10.3. Different Forms of Sourcing. (Source: servlet/reweb2.ReWEB?rwsite=DBR_INTERNET_EN-PROD)


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A firm provides IS services or develops IS in its own in-house IS organization


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IT Outsourcing

With IT, there is equipment and personnel involved

Equipment and facilities are sold to outside vendors

Personnel might be hired by outside vendors

Services are hired from the vendors

Common length of agreement: 10 years


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Insourcing Drivers Insourcing Challenges
Core competencies related to systems Confidentiality or sensitive system components or services Time available in-house to develop software Expertise for software development in-house Inadequate support from top management to acquire needed resources Temptation from finding a reliable, competent outsourcing provider

Insourcing drivers and challenges


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Economics of Outsourcing


Sell equipment, buildings (large cash inflow)

Downsized payroll – outsourcer hires employees


Services provided for a fee

Fixed costs usually over 10-year term



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Drivers Disadvantages
Offer cost savings Offer service quality Ease transition to new technologies Offer better strategic focus Provide better mgmt of IS staff Handle peaks Consolidate data centers Infusion of cash Abdication of control High switching costs Lack of technological innovation Loss of strategic advantage Reliance on outsourcer Problems with security/confidentiality Evaporation of cost savings

Drivers and disadvantages of outsourcing


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Decisions about How to Outsource Successfully

Decisions about whether or not to outsource need care and deliberation.

Requires numerous other decisions about mitigating outsourcing risks.

Three major decision areas: selection, contracting, and scope.

Selection: find compatible providers


Try for flexible management terms

Try for shorter (3-5 year) contracts

Try for SLAs (service level agreements on performance)

Scope – Determine if full or partial outsourcing


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Short for outsourcing offshore


When the MIS organization uses contractor services in a distant land. (Insourcing offshore would be your own dept offshore)

Substantial potential cost savings through reduced labor costs.

Some countries offer a very well educated labor force.

Implementation of quality standards:

Six Sigma

ISO 9001


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Selecting an Offshoring Destination

About 100 countries are now exporting software services and products.

What makes countries attractive for offshoring?

High English language proficiency.

Countries that are peaceful/politically stable.

Countries with lower crime rates.

Countries with friendly relationships.

Security and/or trade restrictions.

Protects intellectual property

Level of technical infrastructure available.

Good, efficient labor force

Once a country is selected, the particular city in that country needs to be assessed as well.


© 2016 John Wiley & Sons, Inc.



Selecting an Offshoring Destination

Countries like India make an entire industry of offshoring.

Software Engineering Institute’s Capability Maturity Model (CMM).

Level 1: the software development processes are immature, bordering on chaotic.

Level 5: processes are quite mature, sophisticated, systematic, reliable

Indian firms are well known for their CMM Level 5 software development processes, making them desirable



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Offshore Destination- Development Tiers

Carmel and Tjia suggest that there are three tiers of software exporting nations:

Tier 1: Mature.

United Kingdom, United States, Japan, Germany, France, Canada, the Netherlands, Sweden, Finland, India, Ireland, Israel, China, and Russia.

Tier 2: Emerging.

Brazil, Costa Rica, South Korea, and many Eastern European countries.

Tier 3: Infant.

Cuba, Vietnam, Jordan, and 15 to 25 others.

Tiers: based on industrial maturity, the extent of clustering of some critical mass of software enterprises, and export revenues.

The higher tiered countries have higher levels of skills and higher costs.

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Definition: sourcing service work to a foreign, lower-wage country that is relatively far away in distance or time zone.

Client company hopes to benefit from one or more ways:

Big cost savings due to exchange rates, labor costs, government subsidies, etc.

For the US and UK, India and China are popular

Oddly, India and China also offshore to other locations


© 2016 John Wiley & Sons, Inc.




Definition: sourcing service work to a foreign, lower-wage country that is relatively close in distance or time zone.

Client company hopes to benefit from one or more ways of being close:

geographically, temporally, culturally, linguistically, economically, politically or from historical linkages.

Distance and language matter.

There are three major global nearshore clusters:

20 nations around the U.S., and Canada

27 countries around Western Europe

smaller cluster of three countries in East Asia


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Captive Centers

An overseas subsidiary that is set up to serve the parent company.

Alternative to offshoring or nearshoring.

Four major stategies that are being employed:

Hybrid Captive – performs core business processes for parent company but outsources noncore work to offshore provider

Shared Captive – performs work for both parent company and external customers.

Divested captive – have a large enough scale and scope that it could be sold for a profit by the parent company.

Terminated Captive – has been shut down, usually because its inferior service was hurting the parent company’s reputation.


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When a company takes back in-house, previously outsourced, IS assets, activities, and skills.

Partial or complete reversal

Many companies have backsourced such as Continental Airlines, Cable and Wireless, and Halifax Bank of Scotland.

70% of outsourcing clients have had negative experiences and 25% have backsourced.

4% of 70 North American companies would not consider backsourcing.


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Backsourcing Reasons

Mirror reason for outsourcing (to reduce costs, increase quality of service, etc.)

Costs were higher than expected

Poor service

Change in management

Change in the way IS is perceived within the company

New situations (mergers, acquisitions, etc.)


© 2016 John Wiley & Sons, Inc.





Taking a task traditionally performed by an employee or contractor, and

Outsourcing it to an undefined, generally large group of people,

In the form of an open call.

Used by companies to increase productivity, lower production costs, and fill skill gaps.

Can be used for a variety of tasks.

Companies do not have control over the people doing the work.


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Partnering Arrangements

Strategic networks: arrangements made with other organizations to offer synergistic or complementary services

Example: The Mitsui Keiretsu contains over 30 firms spanning many industries. The members use each others’ services and don’t compete: Toshiba, Fujifilm, Sony are members

Business ecosystems (see chapter 9): Informal, emerging relationships


© 2016 John Wiley & Sons, Inc.

Deciding Where – Onshore, Offshore, or in the Cloud?

New option: cloud computing

See chapter 6 for basic definitions; advantages; disadvantages.

Works when outsourcing or insourcing


© 2016 John Wiley & Sons, Inc.

Cloud Computing Options


Private clouds

Data—managed by the company or offsite by a third party.

Community clouds.

Cloud infrastructure is shared by several organizations

Supports the shared concerns of a specific community.

Public clouds.

Data is stored outside of the corporate data centers

In the cloud provider’s environment

Hybrid clouds

Combination of two or more other clouds.


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Public Clouds – Versions

Infrastructure as a Service (IaaS).

Infrastructure through grids or clusters of virtualized servers, networks, storage, and systems software.

Designed to augment or replace the functions of an entire data center.

The customer may have full control of the actual server configuration.

More risk management control over the data and environment.

Platform as a Service (PaaS).

Virtualized servers

Clients can run existing applications or develop new ones

Provider manages the hardware, operating system, and capacity

Limits the enterprise risk management capabilities.




© 2016 John Wiley & Sons, Inc.

Public Clouds – Versions

Software as a Service (SaaS) or Application Service Provider (ASP).

Software application functionality through a web browser.

The platform and infrastructure are fully managed by the cloud provider.

If the operating system or underlying service isn’t configured correctly, the data at the higher application layer may be at risk.

The most widely known and used form of cloud computing.

Some managers shy away from cloud computing because they are concerned about:

security—specifically about external threats from remote hackers and security breaches as the data travels to and from the cloud.

data privacy.


© 2016 John Wiley & Sons, Inc.

To manage risk, an SLA needs to spell out these requirements.



After you have listened to this lecture and read Chapter 10 of your text

Go to Discussion Board 11 and answer the discussion prompt

Finally complete Quiz 10



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