Strategic Information Management Challenges and strategies in managing information systems Third edition

Figure 20.4

Criteria for making sourcing decisions

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Information Technology and Organizational Performance

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Are there issues around ownership when transferring people and assets?

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Is a suitable vendor available?

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Does the organization have the management capability to deliver on the

decision?

Will significant human resource issues arise – during the change process,

and subsequently for in-house and vendor staff ?

Outsourcing is defined as the commissioning of third party management of

IT assets/activities to required result. This does not exclude another way of

using the market, of course, namely ‘insourcing’ – where external resources

are utilized in an organization under in-house management. There is also an

option to have long or short term contracts with suppliers. In situations of high

business uncertainty and/or rapid technological change shorter term contract

are to be preferred. We also found, together with Lacity and Hirschheim

(1995), that selective rather than total outsourcing (80 per cent or more of IT

budget spent on outsourcing), tended to be the lower risk, and more successful

option to take.

In more detailed work, we found outsourcing requiring a considerable

cultural change on evaluation. Before outsourcing any IT, the more

successful organizations measured everything in a three to six month

baseline period. This enabled them to compare more accurately the in-house

performance against a vendor bid. It also prefigured the setting up of a

tighter evaluation regime with more detailed and accurate performance

measures and service level agreements. In cases where an in-house vendor

bid won, we found that the threat of the vendor bid actually galvanized the

in-house staff into identifying new ways of improving on IS/IT perform-

ance, and into maintaining the improvement through putting in place, and

acting on the output from, enhanced evaluation criteria and measures. This

brings us full circle. Even where an organization does not outsource IT, our

case evidence is that increasingly it is good practice to assess in-house

performance against what a potential vendor bid might be, even if, as is

increasingly the case, this means paying a vendor for the assessment. By the

same token, benchmarking IT/IS performance against external comparators

can also be highly useful, in providing insight not only into in-house IT/IS

performance, but also into the efficacy of internal evaluation criteria,

processes and the availability or otherwise of detailed, appropriate assess-

ment information.