IT Staff Sourcing Scenarios

Case questions Case 1: Outsourcing 1. Develop a table that captures the costs, benefits and risks of this sourcing decision for Southwest. Remember to consider the pricing model. Source: CIO Article (from BlackBoard) Laudon & Laudon Textbook Costs Cost of benchmarking/analysis to determine if outsourcing is right choice Cost of ongoing staffing/management of outsourcing relationship Cost of regularly reviewing metrics for the vendor's performance relative to SLAs Cost of reviewing customer complaints for services or products handled by the vendor or cost of conducting anonymous testing (if necessary) If need to fire vendor for underperformance, results in additional fees/cost of transitioning to new provider Outsourcing transition period= productivity slows down (transition costs) Cost of terminating/relocating employees (vendor hired most of Southwests IT staff but not all, also Southwests IT staff may need to be relocated to vendors location) Benefits Ability to focus on core competencies (running of successful IT services organization not core competency) Performance-based pricing and SLAs provide incentive for vendor to perform optimally and meet agreed-upon service levels Use of vendor that specializes in providing necessary range of IT services provides better results than if Southwest had used its internal resources Ability to immediately access superior expertise and industry best practices Lower ongoing investment in internal infrastructure Tighter control of budget through predictable prepared for MISM 2301 revd Nov 2012 Page 1

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Risks Source: http://www.cio.com/article/ 497323/IT_Outsourcing_W hy_You_Need_to_Reengine er_Your_SLAs? page=3&taxonomyId=3195 http://www.philadelphiafed. org/bankresources/publications/cons umer-complianceoutlook/2011/firstquarter/vendor-riskmanagement.cfm costs SLAs may be inadequate when looking for innovation from outsourcer SLA may fail to provide incentives for the supplier to learn how to use IT to innovate or create cost reduction/revenue enhancement opportunities Difficult to exit outsourcing relationship, may not have skills to repatriate work Outsourcing creates a potential dependency on the third-party service provider Individualized and timely attention from the service provider may be uncertain and may entail significant additional costs Risk that a vendor's operational system does not perform properly and negatively affects customers Vendors noncompliance with consumer laws and regulations creates reputational risk for a financial institution Legal risk that a vendor's operation does not comply with consumer protection laws and regulations Potential for violations of confidentiality by service provider employees (vendor has access to access to confidential data, strategic technology applications)

2. Assume there is minimum contract duration of three years (i.e., penalty to Southwest for early termination). Given your cost-benefit analysis in question one, would you recommend this deal to Southwest? Explain why or why not. Source: http://www.cio.com/article/128900/SLA_Definitions_and_Solutions http://www.ny.frb.org/banking/circulars/outsource.pdf I would recommend this deal to Southwest based on the following analysis: Performance-based pricing requires suppliers to pay a penalty for unsatisfactory service levels o Incentive for Southwests vendor to perform optimally o Maximize costs through performance requirements o Shifts the performance risk from the customer to suppliers since suppliers assume greater responsibility for the quality of performance prepared for MISM 2301 revd Nov 2012 Page 2

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Result may include fewer delays and performance deficiencies Service level agreement specifies the services the vendor will provide o Customer can charge the vendor a penalty fee if certain SLAs are not met o Should include performance metrics that prove the vendor is living up to the terms of the agreement o SLA clearly states metrics, responsibilities and expectations so in the event of issues with the service, neither party can plead ignorance o Ensures both sides have the same understanding of requirements Southwest is seeking to outsource a significant amount of its IT operation o Transformational outsourcing deal which will require more time to achieve benefits (need to be structured in a longer-term contract)

Case 2: Partnering Source: http://www.accenture.com/SiteCollectionDocuments/jpja/PDF/technology/systems-integration/sap-solutions/Accenture_idc_report.pdf 1. Describe the critical success factors (CSFs) in making this partnership work. Knowledge and information sharing should be required to create an environment of innovativeness and problem solving Need to establish a common language defining terminologies o Removes possible wrong assumptions being made between IT staff of Reliable Utilities, Inc. and personnel of vendor Identify objective and quantifiable performance measures that are well specified, relevant for the supported business units and agreed upon o Must establish metrics (implementation of quality programs) o Reliable Utilities Inc. must clearly state that is expects vendor to respond to IT staffing needs on short notice Determine value proposition for each member in the partnership Define governance structure Clearly define roles and responsibilities Ensure cultural fit among employees of Reliable and those of vendor Promote environment of information and knowledge sharing Need to maintain level of commitment and mutual trust Senior management involvement o Having the senior on-site partner executive operate as a member of the Reliable Utilities, Inc. o Senior management of Reliable must be involved (CIOs staff) in approving vendors assignment of external IT resources Case 3: Unwinding an outsourcing relationship

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1. Describe the major risks associated with this in-sourcing solution and how SRS mitigated each of these risks. Risk Solution to Risk Significant investment (large SRS required that possible costs, resources needed) vendors define and configure the hardware that would be needed to operate their product offering system (can anticipate costs of the specific hardware needed, keep from overspending) Loss in productivity due to Although the firms records on down time of training/system the old system were converted implementation to run on the new software, SRS did not began operations with the new system until parallel run results were certified by external auditors SRS staff may be reluctant to SRS requires the vendor to train change from legacy system to its staff on system operations new system User training System acceptance testing (ensures SRS staff are comfortable with the new system) Additional costs of maintaining RFP stated that vendor would new system (does SRS have the perform system maintenance capability internally to solve under a separate agreement system problems) Vendor's new operational SRS implemented a parallel run system may not perform between old and new system properly and negatively affects Once results were certified by customers (issues of system the auditors, SRS began compatibility) operations with new system and removed old system SRS required vendor to covert SRS data from the existing vendor-based system to the inhouse system (ensures system compatibility) Possible misunderstanding of SRSs RFP defined services required/requirements requirements of new system necessary of new system SRS required vendors to define and configure the hardware that prepared for MISM 2301 revd Nov 2012 Page 4

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would be needed to operate their product offering system

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