Choices in Systems Acquisition

Objectives
• Explain the differences among the alternatives to:

-Tailored System Development

- Outsourcing,
- Licensing (ready-made software),
- Contracting with an ASP
- Encouraging Users to Develop their Own Applications

• List the business trade-offs in the various

methods of acquiring systems
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 Options and Priorities

• Four alternatives to System development

– Outsourcing
– Licensing
– Using ASP
– Allow users to develop
• Deciding factor usually cost
• License low cost and immediately available
– Best choice
• ASP immediately available and small startup fee

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 Options and Priorities (continued)

• Third best option is allowing users to develop

• Outsource if non-IT employees cannot develop
IS

• Many factors in addition to cost and quality

• Alternatives not fully comparable

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 Outsourcing

• Outsourcing has two meanings:

– Commission development of application to other

organization

– Hire services of other company to manage

services
• May not encompass development

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 Outsourcing Custom-Designed
Applications
• Custom-designed: developed specifically for
organization
– More expensive
– Several advantages
• Good fit to need
• Good fit to culture
• Dedicated maintenance
• Smooth interface
• Specialized security
• Potential for strategic advantage

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 Outsourcing Custom-Designed
Applications (continued)

Disadvantages:

• High Cost
• Long wait time for development
• Application may be too organization specific to
interface with systems of other organizations

Advantages and disadvantages of custom-designed applications

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 Outsourcing Custom-Designed
Applications (continued)
• Tailored development requires organization to
fund all costs

• Offshoring: outsourcing to India, China,

Philippines, etc.

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 Outsourcing IT Services
• Many businesses turn to IT companies for long-
term services
– Purchasing and maintaining hardware
– Developing
– Maintaining and operating Web sites
– Staffing help desks
– Running IT daily operations
– Managing customer and supplier relations
• Business process outsourcing: outsourcing
routine processes

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 Outsourcing IT Services (continued)
• Some companies realize IT is not primary focus
• Pace of development in IT requires high level of
expertise
• Growing portion of IS budget allocated for
outsourced services
• Popular IT service providers
– IBM
– Accenture
– Unisys
– AT&T

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Outsourcing IT Services (continued)

Typical outsourced IT services

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 Outsourcing IT Services (continued)

• Outsourcing companies known as vendors

• Typically long-term contractual relationship

– 7-10 years

• Clients often bound by obsolete contracts

– Can renegotiate

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Advantages of Outsourcing IT Services
• Several advantages of outsourcing

– Improved financial planning

• Know exact cost of IS functions

– Reduced license and maintenance fees

• IS professionals pay discounted prices for tools

– Increased attention to core business

• Executives don’t have to manage

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 Advantages of Outsourcing IT Services
(continued)
• Advantages of outsourcing
– Shorter implementation cycles
• IT vendors 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

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 Risks of Outsourcing IT Services
• Disadvantages of outsourcing

– Loss of control
• High risk in quickly changing industry

– Loss of experienced employees

• Transfer employees to vendor

– Risks of losing a competitive advantage

• May disclose trade secrets

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Risks of Outsourcing IT Services
(continued)

Figure: Risks of outsourcing are higher at higher levels of decision making

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 Risks of Outsourcing IT Services
(continued)
• Disadvantages of outsourcing
– High price
• Outsourcing may cost more than in-house
development
• Important to clearly define contract terms

• Service-level agreement (SLA): most important

element of agreement
– List of services vendor will meet

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 Licensing Applications

• Purchased software usually licensed

• Large selection of high-quality packaged

software

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 Software Licensing Benefits
• Licensing benefits
– Immediate system availability
– High quality
– Low price
– Available support
• Beta version: software to be tested by
companies
• Up to 1 year of free service
• Installation/configuration specialists needed

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 Software Licensing Risks
• Software licensing has risks

– Loose fit between needs and features

• Comply with company needs

– Difficulty in modifications

– Bankruptcy of vendor
• Maybe left without support and maintenance

– High turnover of vendor personnel

• Turnover among IS professionals is high

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 Steps in Licensing Ready-Made
Software
• Selecting software involves large money
investment
• Project management team responsibilities
– Identify problem or opportunity
• Define functional requirements
– Identifying potential vendors
• Trade shows
– Soliciting vendor information
– Request for information (RFI): request
informal information about product

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Steps in Licensing Ready-Made
Software (continued)

Steps in licensing software

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 Steps in Licensing Ready-Made
Software (continued)
• Responsibilities of selecting vendor
– Defining system requirements
– Requesting vendor proposals
• Request for proposal (RFP): specifies system
requirements
– Reviewing proposals and screening vendors
– Visiting sites
– Selecting the vendor

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 Steps in Licensing Ready-Made
Software (continued)
• Responsibilities while selecting vendor
– Benchmarking
• Benchmarking: quantify performance
– Negotiating a contract
– Implementing new system
– Managing post-implementation support

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 Steps in Licensing Ready-Made
Software (continued)

How IT managers rank the importance of product purchase factors

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 Software As a Service

• Application service provider (ASP):

organization that offers software on Web
• Software as a service (SaaS): applications
through Web
• No software installed
• Files may be stored on local storage device
• ASP may rent software

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 Software As a Service (continued)

• Renting software has benefits and risks

– No need to maintain
– No large startup fee
– Storage hardware unnecessary
– Software available sooner
– Good option for small companies
– Software on demand approach
– Lack of control may be issue

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Software As a Service (continued)

Figure 13.8: Benefits and risks of ASP services

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 Caveat Emptor

• ASP may be disappointing

– Scope of services
– Reliability
• Manager guidelines
– Check ASP history
– Check ASP financial strength
– Ensure you understand price scheme
– Get list of provider’s infrastructure
– Craft service contract carefully

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 Caveat Emptor

• Uptime: proportion of time ASP systems up

– No ASP has 100 percent uptime
– 99.999 percent uptime recommended
• Less than 5 minutes a year
• Storage service provider (SSP): rents storage
space
– Store files remotely

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 User Application Development

• User application development:

nonprogrammer users write own applications
– Simple and limited in scope
– Develop small applications for immediate needs
– Maintained by end users

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 User Application Development
(continued)

Figure 13.9: Guidelines for end-user development of applications

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Managing User-Developed Applications

• Challenges of user-developed applications

– Managing reaction of IT professionals
– Providing support
– Compatibility
– Managing access

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 Advantages and Risks

• Advantages of user development

– Shortened lead times
– Good fit to needs
– Compliance with culture
– Efficient utilization of resources
– Acquisition of skills
– Freeing up IS staff time

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 Advantages and Risks (continued)

• Disadvantages of user-developed applications

– Poorly developed applications
– Islands of information
– Duplication
– Security problems
– Poor documentation

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 Summary

• Several alternatives to having applications

developed in-house
• Outsourcing can mean commissioning
development or assigning services to vendor
• Outsourcing custom-designed applications gives
good fit
• Outsourcing IT services benefits are great

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 Summary (continued)

• Outsourcing IT services has potential risks such

as loss of control
• Licensing software advantages are immediately
available and low priced
• Disadvantage of licensing software is loose fit to
organization
• ASP is popular method of obtaining software
• Client pays monthly fees for ASP

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 Summary (continued)

• User application development advantages are

short lead time and good fit
• User application development disadvantage is
poor quality
• Over half of America’s office workers have rich
computer resources
• Policies established to prevent computer abuse

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