Please find the question below. I have attached chapter 10 which have to be used for completing this discussion.Once you write the Initial Discussion i will provide with 2 other students Discussion posts which you have to comment at least one paragraph each.Please follow APA formatting and Cite all the resources and add reference page. In Chapter 10 of the text – Managing & Using Information Systems: A Strategic Approach, we discuss the sourcing of IT in business.Using the lessons learned in Chapter 10 of the text about the way Information Technology should sourced, evaluate the organization you work for or an organization you are familiar with. How is your IS/IT sourced? Does the organization use outsourcing? If so, what kind? Does this sourcing work? You must have 1 scholarly journal articles along with your text to support your analysis. Try to find articles that are less than 5 years old. Initial posts must be 300 words but no more than 500 words. Responses to classmates 200 words each (2 required).Please make sure you cite and support your posts. Please include a reference for each citation. Your post should use APA formatting.
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This chapter is organized around decisions in the Sourcing Decision Cycle. The first question
regarding information systems (IS) in the cycle relates to the decision to make (insource) or
buy(outsource) them. This chapter’s focus is on issues related to outsourcing whereas issues
related to insourcing are discussed in other chapters of this book. Discussed are the critical
decisions in the Sourcing Decision Cycle: how and where (cloud computing, onshoring,
offshoring). When the choice is offshoring, the next decision is where abroad (farshoring,
nearshoring, or captive centers). Explored next in this chapter is the final decision in the
cycle, keep as is or change in which case the current arrangements are assessed and modifications are made to the outsourcing arrangement, a new outsourcing provider is selected,
or the operations and services are backsourced, or brought back in house. Risks and strategies to mitigate risks are discussed at each stage of the cycle.
After 13 years, Kellwood, an American apparel maker, ended its soups-to-nuts IS outsourcing …,,J
arrangement with EDS. The primary focus of the original outsourcing contract was to integrate
12 individually acquired units with different systems into one system. Kellwood had been satisfied enough with EDS’s performance to renegotiate the contract in 2002 and 2008, even though
at each renegotiation point, Kellwood had considered bringing the IS operations back in house,
or backsourcing. The 2008 contract iteration resulted in a more flexible $105 million contract that
EDS estimated would save Kellwood $2 million in the first year and $9 million over the remaining
contract years. But the situation at Kellwood had changed drastically. In 2008, Kellwood had been
purchased by Sun Capital Partners and taken private. The chief operating officer (COO), who was
facing a mountain of debt and possibly bankruptcy, wanted to consolidate and bring the operations
back in house to give some order to the current situation and reduce costs. Kellwood was suffering
from a lack of IS standardization as a result of its many acquisitions. The chief information officer
(CIO) recognized the importance of IS standardization and costs, but she was concerned that the
transition from outsourcing to insourcing would cause serious disruption to IS service levels and
project deadlines if it went poorly. Kellwood hired a third-party consultant to help it explore the
issues and decided that backsourcing would save money and respond to changes caused by both the
market and internal forces. Kellwood decided to backsource and started the process in late 2009. It
carefully planned for the transition, and the implementation went smoothly. By performing streamlined operations in house, it was able to report an impressive $3.6 million savings, or about 17% of
annual IS expenses after the first year. 1
The Kellwood case demonstrates a series of decisions made in relation to sourcing. Both the
decision to outsource IS operations and then to bring them back in house were based on a series of
‘ For more information see Stephanie Overby. “Company Saves Millions by Ending Outsourcing Deal,”” CIO.com, http://www.cio.
com/article/549463/Company _Saves_Millions_B y_Ending_lT_ Outsourcing_Deal?page= I &taxonomyld=3 l 95 (accessed January
31, 2012); B. Bacheldor, “Kellwood Stayed on Top of Its Outsourcing All the Way to the End,” CIO.com, http://blogs.cio.com/
beth_bacheldor/kellwood_stayed_ on_top_of_its_outsourcing_all_the_way _to_the_end?page=O (accessed February IO, 2012).
Sourcing Decision Cycle Framework
factors. These factors, similar to those used by many companies in their sourcing decisions, are discussed later in
this chapter. The global outsourcing market has been growing steadily. Companies of all sizes pursue outsourcing
arrangements, and many multimillion-dollar deals have been widely publicized. As more companies adopt outsourcing as a means of controlling IS costs and acquiring “best-of-breed” capabilities, managing these supplier
relationships has become increasingly important. IS departments must maximize the benefit of these relationships
to the enterprise and pre-empt problems that might occur. Failure in this regard could result in deteriorating quality
of service, loss of competitive advantage, costly contract disputes, low morale, and loss of key personnel.
How IS services are provided to a firm has become an important strategic and tactical discussion. As briefly
mentioned in Chapter 6, there are numerous alternatives to sourcing computing power, applications, and infrastructure. This chapter examines the sourcing cycle to consider the full range of decisions related to who should perform
the IS work of an organization. The cycle begins with a decision to make or buy information services and products.
Once the decision to make or buy has been finalized, a series of questions must be answered about where and how
these services should be delivered or products developed. The discussion in this chapter is built around the Sourcing
Decision Cycle framework discussed in the next section. Considering the answers to sourcing questions can help
explain a number of terms associated with sourcing: insourcing, outsourcing, cloud computing, full outsourcing,
selective outsourcing, multisourcing, onshoring, offshoring, nearshoring, farshoring, and backsourcing. For each
type of sourcing decision, the risks, or likelihood of something negative occurring as a result of the decision, are
discussed, and some steps that can be taken to manage the risks are proposed.
Sourcing Decision Cycle Framework
Sourcing does not really just involve only one decision. It involves many decisions. The rest of this chapter is built
around the critical sourcing decisions shown in Figure 10.1. Many of the chapter headings are tied to key decisions
i in Figure 10.1. Although the Sourcing Decision Cycle starts anywhere, we choose to start with the original
. . , make-or-buy decision. If an organization decides to “make,” that means that it plans to create and run its own
applications. “Buy,” on the other hand, means the organization plans to obtain its applications from an outside
Note: lnsourcing can
include captive centers
Sourcing Decision Cycle framework.
Information Systems Sourcing
vendor or vendors. When the “buy” option is selected, the organization becomes a client company that must then
decide on “how” and “where” to outsource. The answers to the “how” question include the scope of the outsourcing
and the steps that should be taken to ensure its success. The answers to the “where” question focus on whether the
client company should work with an outsourcing provider (i.e., vendor) in its own country, offshore, or in a cloud.
If the client company decides to go offshore because labor is cheaper or needed skills are more readily available, it
must make another decision: It must decide whether it wants the work done in a country that is relatively nearby or
in a country that is quite distant. Finally, the client company chooses an outsourcing provider (or decides to do its
own IS work). After a while, the client company faces another decision. It periodically must evaluate the sourcing
arrangement and see whether a change is in order. If the in house work is unsatisfactory or other opportunities that
are preferable to the current arrangement have become available, then the client company may tum to outsourcing.
If, on the other hand, the outsourcing arrangement is unsatisfactory, the client company has several options to consider: to correct any existing problems and continue outsourcing with its current provider, to outsource with another
provider, or to backsource. If the company decides to make a change in its sourcing arrangements at this point, the
Sourcing Decision Cycle starts over again.
Starting the Cycle: The Make-or-Buy Sourcing Decision
Managers decide whether to make or buy information services and products. The products can include an application or a system, and services can range from help desk support, telecommunications, running data centers, and
even implementing and operating business processes as in business process outsourcing (BPO). A simple “make”
decision often involves insourcing some or all of the business’s IS infrastructure, and a simple “buy” decision often
involves outsourcing, although it could also include purchasing packaged software. In its simplest form, the makeor-buy decision hinges on whether to insource (“make”) or outsource (“buy”).
The most traditional approach to sourcing is insourcing, or providing IS services or developing them in the company’s own in house IS organization and/or in its local cloud. Several “yes” answers to the questions posed in
Figure 10.2 favor the decision to insource. Probably the most common reason is to keep core competencies in house.
Managers are concerned that if they outsource a core competency, they risk losing control over it or losing contact
with suppliers who can help them remain innovative in relation to that competency. Failing to control the competency
or stay innovative is a sure way to forfeit a company’s competitive advantage. On the other hand, by outsourcing
commodity work, a firm can concentrate on its core competencies. Other factors that weigh in favor of insourcing
are having an IS service or product that requires considerable security, confidentiality, or adequate resources in house
(e.g., time to complete the project with current staffing or IS professionals with the needed skills and training).
In some companies, the IS function is underappreciated by top management. As long as everything is running
smoothly, top managers may not notice the work done by or appreciate the services and products of the IS organization. Often an IS department that insources has found it necessary to compete for resources differently than
if it outsources. It is necessary for the department to have enough respect and support from top management to
acquire resources and get the department’s job done. A major risk of insourcing is that the complexities of running
IS in house requires management attention and resources that might better serve the company if focused on other
Captive centers are a new variation of insourcing. A captive center is an overseas subsidiary that is created to
serve its main “client,” the parent company, but it may serve other clients as well. Firms have set up such subsidiaries to operate like an outsourcing provider, but the firms actually own the subsidiaries. They are launched in
less expensive locations, usually away from the company’s headquarters or major operating units. The three most
common types of captive centers are basic, shared, and hybrid. 2 The basic captive center provides services only
to the parent firm. The shared captive center performs work for both a parent company and external customers.
‘ I. Oshri. J. Kotalarsky and C.-M. Liew, “What to Do with Your Captive Center: Four Strategic Options.”‘ The Wall Street Journal (May 12, 2008), http://
www.wsj.com/articles/SB 121018777870174513 (accessed September 2, 2015).
Sourcing Decision Cycle Framework
Make or Buy Questions
Does it involve a core competency?
··-··—-·– -···–··-· ·-·- ·-··-·····–·-·—··–· —-··-· ····-···-·
! Examples of Associated Risk in
I “outsourced: Loss of control over
Does it involve confidential or sensitive
IS services or software development?
. strategic initiatives; loss of strategic focus
If outsourced: Competitive secrets may
Is there enough time available to
complete software development
projects in house?
If insourced: Project not completed on
Do the in-house IS professionals have
adequate training, experience, or skills
to provide the service or develop the
If outsourced:Technological innovations
limited to what provider offers;
overreliance on provider’s skills
Are there reliable outsourcing
providers who are likely to stay
in business for the duration of the
If outsourced: Project not completed or,
if completed, is over budget and late
when another provider takes it over
Is there an outsourcing provider that
has a culture and practices that are
compatible with the client?
Does the provider have economies of
scale that make it cheaper to provide
the service or develop the software
than in house?
Most likely No
Most likely Yes
If outsourced: Excessive costs of project
or operations because of the way the
contract is written
Does it offer a better ability to handle
Most likely No
Most likely Yes
If insourced: Loss of business
Does it involve consolidating data
Most likely No
Most likely Yes
If insourced· Inefficient operations
If outsourced: Conflict between client
II and provider personnel
Make or buy? Questions and risks.
The hybrid captive center typically performs the more expensive, higher profile or mission-critical work for the parent company and outsources the more commoditized work that is more cheaply provided by an offshore provider.
Outsourcing means purchasing a good or service that was previously provided internally or that could be provided
internally but is now provided by outside vendors. In the early days of outsourcing, outside providers often took
over entire IS departments, including people, equipment, and management responsibility. Reducing costs was the
primary motivation for outsourcing. This classic approach prevailed through most of the 1970s and 1980s but then
experienced a decline in popularity. In 1989, Eastman Kodak Company’s multivendor approach to meeting its
IS needs created the “Kodak effect.” Kodak outsourced its data center operations to IBM, its network to Digital
Equipment Company, and its desktop supply and support operations to Businessland. 3 Kodak managed these relationships through strategic alliances. 4 It retained a skeletori IS staff to act for its business personnel with outsourcing providers. Its approach to supplier management became a model emulated by Continental Bank, General
Dynamics, Continental Airlines, National Car Rental, and many more. 5
Kodak’s watershed outsourcing arrangement ushered in new outsourcing practices that put all IS activities up
for grabs, including those providing competitive advantage. As relationships with outsourcing providers become
L. Applegate and R. Montealegre, “Eastman Kodak Co.: Managing Information Systems Through Strategic Alliances,” Harvard Business School case
192030 (September 1995).
‘ Anthony DiRomualdo and Vijay Gurbaxani, “Strategic Intent for IT Outsourcing,” Sloan Management Review (June 22, 1998).
Mary C. Lacity, Leslie P. Willcocks, and David F. Feeny, “The Value of Selective IT Sourcing,” Sloan Management Review (March 22, 1996).
Information Systems Sourcing
more sophisticated, companies realize that even such essential functions as customer service are sometimes better
managed by experts on the outside. Over the years, motives for outsourcing broadened beyond cost control. The
next section examines factors and risks to be considered in making the outsourcing decision. The sourcing strategy
suggested by the answers to the key how to source question and associated risks are listed in Figure 10.2.
Factors in the Outsourcing Decision
Under what conditions would an organization decide to outsource? There are three primary factors that are likely to
favor the decision to seek to buy the services or products of an outsourcing provider: lower costs due to economies
of scale, ability to handle processing peaks, and the client company’s need to consolidate data centers. These and
other factors are listed in Figure 10.2.
One of the most common reasons given for outsourcing is the desire to reduce costs. Outsourcing providers
derive savings from economies of scale that client companies often cannot realize. Outsourcing providers achieve
these economies through centralized (often “greener”) data centers, preferential contracts with suppliers, and large
pools of technical expertise. Most often, enterprises lack such resources on a sufficient scale within their own
IS departments. For example, a single company may need only 5,000 PCs, but an outsourcing provider might
negotiate a contract for 50,000 to spread over many clients and at a much lower cost per computer. Second, the
outsourcing provider’s larger pool of resources than the client company’s allows the provider leeway in assigning available capacity to its clients on demand. For instance, at year-end, an outsourcing provider potentially can
allocate additional mainframe capacity to ensure timely completion of nightly processing in a manner that would
be impossible for an enterprise running its own bare-bones data center. Third, an outsourcing provider may help
a client company to consolidate data centers following a merger or acquisition or when the internal group cannot
overcome the inertia of its top management. Outsourcing may also offer an infusion of cash as a company sells its
equipment to the outsourcing vendor.
If the service or product involves a core competency, then the organization should strongly consider insourcing
to protect the benefits the organization enjoys from its own competency. However, if the product or service is considered to be a commodity instead of a core competency, then there are some distinct advantages to outsourcing. By
bringing in outside expertise, client company management often can pay more attention to its core activities rather
than to IS operations. Further, if an organization does not have employees with the training, experience, or skills
in house to successfully implement new technologies, it should consider outsourcing. This is because outsourcing
providers generally have larger pools of talent with more current knowledge of advancing technologies and best
practices. For example, many outsourcing providers gain vast experience solving business intelligence problems
whereas IS staff within a single company would have only limited experience, if any. That is why client companies
tum to outsourcing providers to help them implement such technologies as Enterprise 2.0, Web 2.0 tools, cloud
computing, and enterprise resource planning (ERP) systems. However, it is important to remember that client
company managers are ultimately still responsible for IS services and products provided to their firm.
Outsourcing providers also have an added advantage because they can specialize in IS services. Outsourcing
providers’ extensive experience in dealing with IS professionals helps them to understand how to hire, manage,
and retain IS staff effectively. Often they can offer IS personnel a professional environment in which to work that
a typical company cannot afford to build. For example, a Web designer would have responsibility for one Web site
within a company but for multiple sites when working for an outsourcing provider. It becomes the outsourcing
provider’s responsibility to find, train, and retain highly marketable IS talent. Outsourcing relieves a client of costly
investments in continuous training to keep its IS staff current with the newest technologies and the headaches of
hiring and retaining highly skilled staff that easily can change jobs.
Opponents of outsourcing cite a c …
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