Strategic Outsourcing - Essay Example

Strategic Outsourcing Finding the most cost-effective and efficient method of AD sourcing is a complex and monumental task. Many factors affect the cost of AD project sourcing, and there is a wide variety of sourcing options (such as on-site, off-site, offshore and "nearshore") from which to choose. The task is complicated by the nature of the factors involved — some of which are quantitative (such as billing rate), and others qualitative (for example, developer skills, experience, cultural differences and means of collaboration). Many Organizations jump into Outsourcing with a singular objective of cost reduction, while not giving substantial thoughts to other options and long term alternates. Most of them fail to examine how global sourcing integrates with and supports their broader sourcing strategy and business goals. As organizations evaluate sourcing options, there are many models with no "one size fits all" choice. Although the delivery of outsourcing options is maturing (making outsourcing less risky and potentially less costly), making an informed strategic sourcing decision is still complex. It requires a thorough qualitative analysis and a quantitative financial analysis (business case) of all the possible sourcing options. A balance between the two needs to be the foundation for the final sourcing decision. For the purpose of this research, I will concentrate on the quantitative analysis. The justification for outsourcing therefore looks very straight forward and in the early days the process was thorough and well thought through. By contracting out services to a third party, organisations could reduce their operating costs and refocus their efforts and remaining resources on their core competencies. And this is still true today, the two main reasons for outsourcing attested to by a number of scholars are 1. Improve Company focus, 2. Reduce and control operating costs (Mylot, 1995; Field, 1998; Greaver, 1999; Barthelemy, .2001). However, in recent times, organizations have become increasingly dissatisfied with their outsourcing contracts. An article from the MIT Sloan Management Review (1998) states that a survey by Cap Gemini Ernst & Young found that only 54% of companies are satisfied with their outsourcing, down from more than 80% a decade ago. The landscape of outsourcing has also changed dramatically in the last year with the increased popularity of SOA and raises questions such as 1. How will software vendors react to service-oriented architecture, real-time infrastructure and fusion? 2. How will enterprises achieve value on their investments in software? Similarly how the ESP are going to address to the questions such as 1. Transform their business models from highly custom one-to-one services to a one-to-many or many-to-many service model? 2. Effectively partner with ESP’s that are moving or have moved to a leveraged service model. Interestingly enough Gartner predicts that “by 2007, driven in part by SOA-based Web services, 18 percent of all IT professional services will be deployed in a multi enterprise, shared service environment. Enterprise application vendors are the likely beneficiaries of the SOA bounty when it comes to outsourcing. Vendors such as Oracle and PeopleSoft have grown their IT professional service organizations aggressively and, by 2007, the distinctions between these software vendors and ESP’s will begin to blur”. Although these software vendors have offered outsourced solutions, they have portfolios of outsourcing contracts that are more standardized and typically are already using a shared enterprise environment. As a result, it is possible for these types of software vendors to make the shift to application utility and process utility models. Furthermore, many software vendors have already been "burned" once by the application service provider market and realize that a one-size-fits-all approach to functionality does not work (Garaventa and Tellefsen, 2001). Enterprises are looking for mass-customization of business processes and application functionality, as well as reduced costs associated with a shared service model. Consequently, a few forward-thinking enterprise application vendors are investing heavily in adding vertical industry and business process specialization to their software stacks and are using SOA to make these offerings highly configurable in a process utility service model. From the literature review, a hypothesis will be developed which outline an effective balance between task and human integration, which maximises value from the Outsourcing. The field research will seek to confirm or disprove this hypothesis and finally arrive at the most appropriate integration strategy for the business. Project Specification Intention – there are no customers involved and the results will be used to research on the determinants of the successful outsourcing of software applications Project Title - Critical Success Factors for effective Outsourcing of Software Application Development and Implementation for Improved Business Performance. Project Topic Area Overview The topic of outsourcing captured lots of attention around the world in recent years. Some may say the attention was a byproduct of political rhetoric, while others say economic issues put outsourcing in the foreground. In fact, although both played a part, outsourcing is now a mainstream business practice, with consistent uptake in all geographies and all vertical industries. Even though there are several areas of Outsourcing such as Software Application Development, IT Infrastructure, Networking and Business Processes, for the purpose of Dissertation, this research is limited only to Software Application Development and Software Implementation. Secondly there may be many researches already being done or available about the IT Services Outsourcing, however considering the recent trends the hype and publicity the Service Oriented Architecture (SOA) gets these days the IT Outsourcing will be re-evaluated for its Success in future. In order to better clarify this, it is necessary to briefly define and discuss SOA. Service-oriented architecture (SOA) is the latest step in the evolution of software, aiming at greater simplicity, less effort, and more speed through modularity and simplicity. Over time, this evolution has seen the redefinition of "units of work" within software applications from low-level technical items to elements closer to work understood in a business context: from handling internal demands for storage access and output drivers, then later by transaction monitor and database services (commits and so forth), to the new level of addressing business steps or tasks. Standard tasks can be pre-defined, and new composite tasks of greater complexity can be supported by combining existing units with new ones as needed. Such architecture would enable not only fast development but also capability for easy modification to meet changing business demands. This moves beyond the traditional dichotomy between build and buy and shifts the equilibrium between flexibility and cost (Sparrow, 2003). The project shall use XYZ Systems as its case study. XYZ Systems is the largest Provider of SOA Solutions and other related software products for the last 10 years. However recently the company is struggling due to various issues and one of the steps, company is taking and betting is to enter into Custom Software Segment by changing the current smart web architecture to SOA and sell the Software as components. Situation Overview The research is set in Hong Kong and will focus on the efforts of XYZ Systems, the largest provider of SOA solutions and other software products throughout the past ten years. Presenting Problem Definition The problem for software outsourcers is the successful and efficient management of the outsourcees and the avoidance of failure. Real-World Target If the problem of software application outsourcing is solved, software providers will be able to engage in outsourcing relationships which would not only positively cost down on costs and the time customarily required to develop, test and finalise software applications but, software users will similarly benefit from cost, hence price, reduction. Research Question What are the critical success factors and failure traps when using outsourcing in a Service Oriented Architecture? Personal Theory Outsourcing is the key to survival in an increasingly competitive global economic environment and, has been widely exploited by software application developers (Lacity and Wilcocks, 2001). It holds the promise of speedy delivery of finished, quality applications at minimal cost. Nevertheless, the problems inherent in the management of outsourcing relationships, hs led to the identification of software application outsourcing as a risky venture, although a potentially lucrative one. According to a number of scholars the primary problem in the management of software application outsourcing relationships is the absence of a management model (Lacity and Wilcocks, 2001; Benn and Pearcy, 2002). Certainly, technological applications have been designed for the purpose of maintaining communication between outsourcer and outsourcee but they have proven themselves less than efficient. It is precisely for this reason that both Sparrow (2003) and Cullen and Wilcocks (2003) propose the design of a generic model for the management of software application outsourcing relations. From a personal point of view, this is a valid proposal and should the model in question be specifically designed pending an investigation and analysis of the critical successful factors which underpin outsourcing relationships which have proven successful, it could lead to the realisation of the benefits, both to customers and software application developers, which software application outsourcing promises. Intended Project Outcome Following an investigation of the critical successful factors unique to successful outsourcing relationships, and as deduced from published literature on the topic, the project intends to propose a generic model for the management of software application development outsourcing relationships which, upon implementation, would contribute to the realisation of the benefits of outsourcing the development of software applications. Strategic IT Value This dissertation will seek to answer what integration strategy should be adopted, which fosters business value creation by complementing activities within an Organization to Outsourced activities. With the help of SOA, once the business logic of processes is encapsulated within services, outsourcing non-critical processes becomes easier. The service boundary makes the location of the service execution seamless. With current business applications, interrupting a tightly integrated process to outsource some part of it is almost impossible. With Service Oriented Business Application (SOBA), the process steps are isolated, but users must still create the services (whether software or people) to tie that outsourced step back into the overall process. For many users, maintaining "plug and play" systems in which process elements can be outsourced and insourced with ease will require too much upfront investment to be worthwhile. Ethical Overview There are no identifiable ethical issues as regards the research and writing of the intended project. Certainly, outsourcing relationships are prevalent within the software application development industry but insofar as the project intends to research the reasons for the success and failure of these relationships and, thus, draw up a generic management model as would benefit the mentioned relationships, there are no ethical issues involved. Even so, when collecting data from respondents, the researcher shall inform them of the project intentions and the manner in which their responses shall be used to inform project outcomes. Aim The project aims towards the identification of the critical success factors (CSF) in successful and profitable outsourcing relationships. Doing so will require the study an analysis of a range of case studies from published literature, in addition to a critical analysis of empirical evidence supporting the identification of these factors as, indeed, CSFs. The identified CSF shall then be used for the design of a generic model for the management of outsourcing software development relationships. The presentation of this model is the ultimate aim of the study. Objectives The determination of emerging enterprise solutions and strategies? Determine how the traditional outsourcers exploit the SOA. Identification of the best integration steps available among insource activities, outsourced activities and SOA provided solutions. Investigation of whether ESPs should establish an innovation engine that continually offers unique and leading-edge services, or not. The identification of the risks that are associated by combining Outsourcing and SOA solutions. Research Design - Research Method As this study aims towards an understanding of the critical successful factors of successful software application development outsourcing relationships and, the proposal of a generic model for the more efficient management of the mentioned, it will adopt exploratory, explanatory and prescriptive research approaches. The exploratory approach will ask and respond to the related how, what, why, when and how questions; the explanatory approach will present the background of the topic and the prescriptive approach will be used for the presentation of a solution to the identified research problem (Creswell, 2003). The study will use a mixed methodological approach. This means that it will use both secondary and primary data collection tools and qualitative and quantitative data analysis instruments. Primary data will be collected trough both questionnaires and semi-structured interviews. Secondary data will be primarily used for background information on the topic and in order to attain a more comprehensive understanding of the problems which confront software application development outsourcing relationships and the critical success factors evident in successful outsourcing relationships. Case studies, obtained through academic literature on the topic, shall also be used. The reason is that the case study approach will help the researcher understand the reasons why some software development outsourcing relationships fail while others succeed. The CSFs identified will be used for the design of a generic model for the management of outsourced software application development projects. Following the collection of the data, both qualitative and quantitative data analysis methods will be used. The data analysis findings will inform the proposed generic model. Research Design - Phase 1: Primary Data Collection Process This section of the research will focus on the development of a reliable primary data collection instrument which will later be processed for the generation of the study’s findings. Basic Activity for Generating Data The basic idea is to identify the factors which influence the successful management of software application development outsourcing relations and those which contribute to failure. By identifying the factors which contribute to success, the researcher will be able to generate a list of critical success factors which can be integrated into a model for the management of software development outsourcing relationships. By identifying the factors which contribute to failure, the researcher will be able to generate list of the behaviours and activities which must be avoided. Primary Data The Survey Results are planned to be subjected to inferential statistics including one of the following four specific techniques such as Cluster analysis, Factor analysis, reliability analysis and regression analysis. Location – The study will focus on XYZ Systems, Hong Kong’s largest software application developer. Convenience damply shall be used and respondents shall be XYZ Systems’ employees. Collection Protocols – Preliminary readings indicate that there is no generic questionnaire that is suitable for this type of research. Questions will be designed to explore the critical success factors identified in the theory. Participants will be asked to indicate the level of total agreement through to total disagreement. A five-point Likert scale will be applied. The questionnaires will be distributed among employees at XYZ Systems following the consent of the HR department. In addition, semi-sructured interviews will be conducted with XYZ System’s director, its IT Department Manager, its Software Application R&D department manager and is HR director. Primary Data Collection Presentation The primary data will be presented in the project appendix. The data will be presented in the form of a five-column table, representing the levels of agreement to total disagreement expressed by respondents. The questions, ach dealing with the critical success factors identified through the literature, shall be presented in the table’s rows. Research Design - Phase 2: Processing and Presentation Data processing will be a three-step process. Firstly, the raw data will be manipulated. Secondly, the processed data will be presented in graphical format; thirdly, a manual inspection will extract the graph’s features. Design of Pre-Processing for Primary Data Collection The files produced during the first phase will be used for the reading of the metric data. Subsequent to that, the statistical manipulation of the data will yield results which establish the cross-similarities between the tested CSFs. The outcome will be the dependant critical success variables and the independent critical success variables. Design for Results Presentation The first data processing stage will generate a set of values. These values will subsequently be plotted along two dimensions. The results will lead to the identification of the critical success factors and shall be presented in the form of two graphs. Design for Generating the Intended Project Outcome Following the data processing and graph production stages, the identification of the outliers will be a straightforward task. In brief, the common CSFs will cluster together and those which are different will appear as outliers. Pending identification of the CSFs and the outliers, the researcher shall exploit the data analysis results to design a generic model for the management of software application development outsourcing relations. This will be the last step in the study. Logistics and Tools – Resources Required The resources required are time; library resources, Internet and online databases, newspapers and academic journal articles and business press. Most of these are available to the researcher, either independently or through the university. Outline Content List for Project Project Title: Critical Success Factors for effective Outsourcing of Software Application Development and Implementation for Improved Business Performance Chapter 1: Introduction Introduction and Situation Overview Data Quality Problem Definition and Target Speculation and Personal Theory Discussion and Research Question Project Scope, Aim and Objectives Project Constraints Chapter 4: Evaluation Outcome Evaluation Practice Evaluation Chapter 2: Literature Review Concept and Definition of SOA Concept and Definition of Outsourcing Challenges Confronting Software Application Development outsourcing Software Application Development Outsourcing CSFs Chapter 5: Conclusions Statement of Conclusions and Reflections Recommendations Chapter 3: Research Design Case Study Research Method Primary Data Collection Plan Data Specifications Data Locations and Expectations Collection Protocol Primary Data Processing Plan Outline Results Project Outcome References and Bibliography Appendices Project specification and project schedule Inclusions Questionnaires Summary interview transcripts References & bibliography Project Plan References Barthelemy, J. “Hidden Costs of IT Outsourcing” MIT Sloan Management Review, Spring 2001 Benn, I. with Pearcy, J. (2002) Strategic Outsourcing. London: Hodder & Stoughton. Creswell, J.W. (2003) Research Design: Qualitative, Quantitative and Mixed Method Approaches. California: Sage Publications. Cullen, S. and Willcocks, L. (2003) Intelligent IT Outsourcing. London: Elsevier Butterworth Heinemann. Garaventa, E, Tellefsen, T. (2001) “Outsourcing: The Hidden Costs” Review of Business, 22. Gartner Group (2005) www.gartner.com Field, T. “For Better or Worse, Vendor Relationships: Tying the Knot,” CIO Magazine 1 Aug 1998. Lacity, M.C. and Willcocks, L.P. (2001) Global Information and Technology Outsourcing. London: John Wiley & Sons Ltd. (2001) Mylott (1995) Computer Outsourcing. London: Prentice Hall 1995. Sparrow, E. (2003) Successful IT Outsourcing. London: Springer Verlag. Appendix A – Submission Check List for Assessment 1A Part 3 The organization of my completed project as below: Word Count 2,939 The maximum permitted word count is 3,000 excluding project plan and reference list. 1. v I have written down the word count and it does not exceed the permitted value 2. v I have used the correct margins of 2cm top, bottom, right and left 3. v The work presented is in A4, MS .doc format using portrait orientation (project plan may be in landscape) 4. v I have used Arial narrow font at 12pt size except in the project plan, reading list and page footer where I have used 10pt. 5. v I have used a line spacing of 6 lines/inch 6. v Pages have centred footers in the form - Page 1 of 5 - Submission Date: 2004/05 7. v I have not used page headers 8. v All main text is right and left justified 9. v Headings are NOT followed by a blank line 10. v Headings are in the same font as the main text but are shown in bold 11. v I have used a blank line to separate paragraphs 12. v I have not numbered any paragraphs or sections 13. v I understand that indented sentences can be used where appropriate but bullets are not to be used 14. v The first page uses the assessment heading lines shown on the specification sample in workbook 3 section 3.5.2 15. v I have used the correct format for a specification as found in the sample contained in workbook 3 section 3.5.2 16. v The submission file is named with only my HEMIS No. (if anything else is added your file will be automatically deleted) 17. v I have sent my personal profile to the Research Methods tutor 18. v I have looked up and studied ALL the Workbook references mentioned in this assessment 19. v I have included all citation sources used in my work in my list of references 20. v My short Literature Review is not be made up of just quotes and paraphrase but is an evaluative dialogue 21. v I have cited other people's work properly using the Harvard APA format 22. v I have included a references list of at least 10 literature sources 23. v My reference list contains no more than thee books covering Research Methods and Statistics 24. v I have only used the citation form (Creswell 2003) for passing references to texts 25. v I have included at least 3 sources covering the core topic area of this research 26. v In the reference list no more that 20% are internet sources 27. v The specification includes a plan to get original data (primary data) and I do not have that data already 28. v I have ensured that the primary data collected can be used to generate a Strategic Business IT outcome of some kind. 29. v My data processing design will generate the stated outcome form and the plan is clear enough to be executed by anyone 30. v The project has a significant learning potential in the IT/computing field 31. v I understand for this degree only the project style known as “Study” is allowed. 32. v I have attached a scanned letter of support from the organization where I intend to collect data (see appendix E) 33. v Plagiarism Declaration - I confirm that the enclosed written work is entirely my own except where explicitly stated otherwise. I further declare that wherever I used copying, paraphrasing, summarisations or other appropriate mechanism related to the use of another author's work it has been properly acknowledged in accordance with normal scholarly conventions. I further understand that wherever 6 or more consecutive words are extracted from a source they must be acknowledged and 10 consecutive words that are unacknowledged will be regarded as proof of plagiarism. Read More