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© 2016 John Wiley & Sons, Inc.
Chapter 10
Information Systems Sourcing
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© 2016 John Wiley & Sons, Inc.
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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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© 2016 John Wiley & Sons, Inc.
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
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Sourcing Decision Framework
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Sourcing OptionsInsourcingOutsourcingDomesticDomestic in-house production
Company produces its
products domestically without any outside contractsDomestic outsourcing
Company uses services supplied by another domestic-based companyOffshoreOffshore 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: http://www.dbresearch.com/ servlet/reweb2.ReWEB?rwsite=DBR_INTERNET_EN-PROD)
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INSOURCING
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 DriversInsourcing ChallengesCore competencies related to systems
Confidentiality or sensitive system components or services
Time available in-house to develop software
Expertise for software development in-houseInadequate 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
Benefits:
Sell equipment, buildings (large cash inflow)
Downsized payroll – outsourcer hires employees
Costs:
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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