management information systems, sixth edition chapter 13: choices in systems acquisition

Management Information Systems, Sixth Edition

Chapter 13:

Choices in Systems Acquisition

Management Information Systems, Sixth Edition 2

Objectives

• Explain the differences among the alternatives to tailored system development: outsourcing, licensing ready-made software, using software as a service, and encouraging users to develop their own applications

• List the business trade-offs in the various methods of acquiring systems


Objectives (continued)

• Describe which systems acquisition approach is appropriate for a particular set of circumstances

• Discuss organizational policies on employee computer use


Options and Priorities

• There are four alternatives to in-house development:– Outsourcing– Licensing– Using software as a service (SaaS)– Having users develop the system

• The deciding factor is usually cost when the desired application is available from multiple sources

• Licensing is preferred due to low cost and immediate availability


Options and Priorities (continued)

• If licensing is not available:– Application service provider (ASP) is the next

best choice

– System is immediately available for a small start-up fee

• Third best choice is allowing users to develop their system

• Last choice is to outsource, if non-IT employees cannot develop IS


• Many factors must be considered in addition to cost and quality

• Alternatives are not fully comparable, and often cannot be simply prioritized



Outsourcing

• Outsourcing has two meanings in the IT arena:– To commission the development of an application

to another organization

– To hire the services of another company to manage all or parts of the services usually rendered by an IT unit in the organization

• May not include development of new applications


Outsourcing Custom-Designed Applications

• Custom-designed (tailored) software: software developed specifically for the needs of an organization

• Several advantages:– Good fit to need– Good fit to culture– Dedicated maintenance– Smooth interface– Specialized security– Potential for strategic advantage

Outsourcing Custom-Designed Applications (continued)

• Disadvantages:– High cost

– The organization must fund all development costs

– Staff may be diverted from other projects

– Software is less likely to be compatible with other organizations’ systems




• Must deal with an inherent conflict when outsourcing software development:– Client wants a firm contract and set of

requirements

– Specific requirements may mean that no deviation is allowed if changes are needed later as development progresses

• Changes may involve hefty additional charges

• Offshoring: outsourcing to other countries such as India, China, Philippines, etc.


Outsourcing IT Services• Many businesses turn to IT companies for long-

term services, including:– Purchasing and maintaining hardware– Developing, licensing, and maintaining software– Installing communications networks– Maintaining and operating Web sites– Staffing help desks– Running IT daily operations– Managing customer and supplier relations

• Business process outsourcing: outsourcing routine processes, such as order entry or HR


Outsourcing IT Services (continued)

• Some companies realize IT is not their core competency and should not be a focus of their efforts

• Pace of development in IT requires a high level of expertise

• A growing portion of IS budgets are being allocated for outsourced services

• Popular IT service providers include:– IBM– EDS– Accenture– Unisys



• Outsourcing companies are known as vendors• IT outsourcing contracts are typically long-term

contractual relationships, usually for seven to 10 years

• Clients sometimes find themselves bound by obsolete contracts, and must renegotiate


Advantages of Outsourcing IT Services

• Several advantages of outsourcing:– Improved financial planning

• Client knows the exact cost of IS functions

– Reduced license and maintenance fees• IS professional firms pay discounted prices for

tools and can pass on the savings to their clients

– Increased attention to core business• Executives can concentrate on their company’s

core business


Advantages of Outsourcing IT Services (continued)

• Advantages of outsourcing– Shorter implementation cycles

• IT vendors can complete new applications faster

– Reduction of personnel and fixed costs

– Increased access to highly qualified know-how

– Availability of ongoing consulting as part of standard support

• Sometimes outsourcing does not save the client money


Advantages of Outsourcing IT Services (continued)


Risks of Outsourcing IT Services• Disadvantages of outsourcing:

– Loss of control• High risk in a quickly changing industry

– Loss of experienced employees• Usually involves transferring employees to vendor

– Risks of losing a competitive advantage• May disclose trade secrets

– High price• Can be more expensive than keeping the tasks in-

house

• Important to clearly define contract terms


Risks of Outsourcing IT Services (continued)


Risks of Outsourcing IT Services (continued)

• Service-level agreement– The most important element of an outsourcing

agreement

– Lists all services expected of the vendor

– Defines the metrics to be used to measure vendor performance

• The client must develop the service level and metrics list, not the vendor


Licensing Applications• Purchasing software usually means purchasing

licenses to use the software• There is a large selection of high-quality packaged

software available• Two groups of ready-made software:

– Relatively inexpensive software that helps in the workplace, such as office suites

– Large applications that support entire organizational functions, such as HR or financial management

• Typically cost millions of dollars


Software Licensing Benefits

• Licensing benefits include:– Immediate system availability– High quality– Low price (license fee)– Available support

• Beta version: a prerelease version of software to be tested by companies who want to use it

• Often includes a period of up to one year of free service

• Large applications require installation specialists


Software Licensing Risks

• Software licensing has risks including:– Loose fit between needs and features

• Must determine if the software will comply with company needs and organizational culture

– Difficulties in undertaking custom modifications

– Dissolution of the vendor• May be left without support and maintenance

– High turnover of vendor personnel• Turnover among IS professionals is high• May result in lowered support expertise from

vendor


Steps in Licensing Ready-Made Software

• Selecting software involves a large money investment and a long-term commitment

• Project management team responsibilities:– Identify problem or opportunity

• Define functional requirements

– Identify potential vendors

– Solicit vendor information• Request for information (RFI): request for

informal information about a vendor’s product

– Define system requirements

Steps in Licensing Ready-Made Software (continued)

• Project management team responsibilities (continued):– Request vendor proposals

• Request for proposal (RFP): a document that specifies all requirements and solicits a proposal

– Review proposals and screen vendors

– Visit sites where the application is in use

– Select a vendor

– Benchmark the application by comparing actual performance against specific quantifiable criteria



• Project management team responsibilities (continued):– Negotiate a contract

• Should define performance expectations and penalties for failure to meet expectations

– Implement the new system

– Manage postimplementation support



Software as a Service

• Application service provider (ASP): an organization that offers software through communication lines (such as the Web)

• Software as a service (SaaS): applications available through the Web– No software is installed on a client’s computers

– Files may be stored on local storage devices

• ASPs may rent the software they offer


Software as a Service (continued)

• Renting software has benefits:– No need to learn how to maintain the software

– No large start-up fee

– Storage hardware is unnecessary

– Software is usually available sooner

– A good option for small companies

– Is considered a “software on demand” approach


• Renting software also has risks:– Lack of control may be an issue, as the client’s

data is managed by the vendor

– Vendor is unlikely to make many customized changes to the software

– Response time is impacted by traffic levels

– May be security risks through a public network • Many clients used leased lines instead of the

Internet to limit security risks



Caveat Emptor

• ASP may be disappointing in some areas:– Scope of services provided

– Level of reliability

• Manager guidelines when selecting an ASP:– Check the ASP’s history: get references

– Check the ASP’s financial strength

– Ensure you understand the price scheme

– Get a list of the provider’s infrastructure

– Craft the service contract carefully


Caveat Emptor (continued)

• Uptime: proportion of time that the ASP’s systems and communications links are up– No ASP has 100% uptime

– 99.9 % uptime = up to 500 minutes/year of downtime

– 99.999% uptime = less than 5 minutes/year of downtime

• Recommended for critical applications

Caveat Emptor (continued)

• Four categories of typical users of ASP services:– Rapidly growing companies that rely on software

for deployment of their operations

– Small companies without cash to pay up-front costs for software

– Medium-sized companies that need expensive software

– Organizational units at remote locations

• Storage service provider (SSP): rents storage space for remote storage of client files



User Application Development

• User application development: nonprogrammer users write their own business applications

• User-developed software is usually:– Simple and limited in scope

– Small applications developed for immediate or brief needs

– Maintained by end users


User Application Development (continued)


Managing User-Developed Applications

• Challenges of user-developed applications include:– Managing the reaction of IT professionals

– Providing support

– Compatibility

– Managing access


Managing User-Developed Applications (continued)


Advantages and Risks

• Advantages of user development of applications:– Shortened lead times

– Good fit to needs

– Compliance with culture

– Efficient utilization of resources

– Acquisition of skills

– Freeing up IS staff time


Advantages and Risks (continued)

• Disadvantages of user-developed applications:– Poorly developed applications

– Islands of information

– Duplication

– Security problems

– Poor or no documentation


Summary

• Several alternatives to having applications developed in-house include outsourcing, licensing ready-made software, using software as a service, and allowing users to develop their own software

• Outsourcing can mean commissioning development or assigning services to vendor

• Outsourcing custom-designed applications might afford the organization a good fit of software to need


Summary (continued)• Outsourcing IT services has great benefits, such

as reduced cost and allowing the organization to focus on its core competency

• Outsourcing IT services has potential risks, such as loss of control, loss of experienced employees, and loss of competitive advantage

• Licensing software advantages include software being immediately available and low-priced

• Disadvantage of licensing software is often a loose fit to the organization’s needs


Summary (continued)• Software as a service, from an ASP, is a popular

method of obtaining software for a monthly fee• User application development advantages include

short lead time, good fit, freeing IT staff• User application development disadvantages

include poor quality, islands of information, security problems, and poor documentation

• Over half of America’s office workers have rich computer resources

• Policies must be established to prevent computer abuse by employees

management information systems, sixth edition chapter 13: choices in systems acquisition

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