Global Information Technology Outsourcing: In Search Of Business Advantage
by Mary Lacity and Leslie Willcocks
2001 John Wiley & Sons, New York
Review by Madanmohan Rao (email@example.com)
The IT outsourcing market is expected to grow to US$150 billion by 2004, and an average of 30-35 per cent of organizational IT budgets in US and UK companies is expected to be outsourced by that date.
What are the goals, returns, risks, rewards, roadmaps, best practices, trends, and innovations that are emerging in the realm of outsourcing across the world, across the corporate and government sectors? This book by Mary Lacity and Leslie Willcocks is an excellent guide to sensible and successful outsourcing, and is full of extensive case studies of outsourcing in action as well as surveys of managers involved in outsourcing practices.
The material is very informative and packed with tables and charts; nine chapters cover a wide spectrum of issues ranging from risk management and IT capabilities to relationship management and future trends. The authors (Mary Lacity of the University of Missouri, Leslie Willcocks of the University of Oxford) also include a useful six-page list of references. Some of the research has been systematically gathered over a period of ten years across a wide range of organizations, and is accessible online (www.umsl.edu/~lacity/cases.htm).
"While early deals focused on cost reduction, many organizations in their second or third generation of outsourcing are seeking significant business advantage. Customers expect IT outsourcing to dismantle bureaucratic IT organizations, to refinance fixed costs into variable costs, to meet global IT skill shortages, to access industry-specific applications, and even to generate revenue with their IT suppliers. In short, IT outsourcing promises to transform IT functions into lean, dynamic groups that respond quickly to business needs and opportunities," the authors begin.
Companies now expect to use their IT functions to leverage business performance, or even deliver new business models. Successful outsourcing in this regards involves identifying core and non-core IT capabilities, rigorous evaluation of market options, clearly defining outsourcing expectations, risk mitigation, contract negotiation, and effective post-contract management processes.
The authors identify several kinds of outsourcing options: value-added outsourcing, equity-based outsourcing, multi-sourcing, offshore/nearshore outsourcing, co-sourcing, business process outsourcing, spin-offs, and backsourcing.
IT outsourcing can include infrastructure maintenance, training, systems integration, applications development, applications maintenance, disaster recovery, and datacentre support. It is generally easier to outsource technically mature IT activities. Most companies tend to be successful with their selective outsourcing strategies, particularly if expectations and contracts are well negotiated.
Offshore programming and software development industries have emerged worldwide in countries such as Ireland, Hungary, Mexico, Philippines, and India ("the market leader"). "Many companies have followed up good experiences with offshore outsourcing Y2K work and signing further contracts. For example, UK's largest vehicle leasing company, Lex Vehicles, signed further contracts with Indian-based Mastek for a CTI integrated call centre," according to the authors.
Detailed case studies are provided of mega-deal outsourcing by Dupont (which outsourced to CSC and Andersen Consulting), the South Australia government (to EDS), British Aerospace (to CSC), and UK Inland Revenue (to EDS). The assessment framework covers contract overview (including variable costs, human resource impacts), responsibilities matrix, service levels, transition periods, managing additional service requests, and vendor performance. All four organizations defined hundreds of SLAs, distributed summary documents to employees, included a problem escalation/resolution scheme, and created joint customer-vendor teams.
One chapter covers the results of a detailed survey of 271 business executives, CIOs and outsourcing consultants in the US, Europe and Australia. "Senior executives and IT managers who made decisions together achieved success more often than when either stakeholder group acted alone," the authors discover. Outsourcing also gave customers better access to new technologies and technical expertise.
The authors advise outsourcing managers to analyse and categorise their IT activities into four groups: critical differentiators, critical commodities, useful commodities, and useful differentiators. Clients must also factor for risk via rapid technological change, management maturity to deal with outsourcing, and mismatched expectations.
This can get particularly tricky when juggling and balancing expectations and goals of stakeholders on both sides: customer (business managers, IT managers, IT staff, IT users) and vendor (senior managers, account managers, IT staff, subcontractors).
Future concerns in the outsourcing arena include security of proprietary information, performance concerns on availability and scalability, and adaptability of software to a Web arena.
"The development of the network-centric era has enabled suppliers to offer greater varieties of services, and can help organizations approach competing on a much more focused basis," the authors conclude.
The reviewer can be reached at firstname.lastname@example.org
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