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Choices in Systems

Acquisition
Intech 410 – Management Information Systems
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
Options and Priorities (continued)
Outsourcing

• Outsourcing has two meanings in the IT arena:


1. To commission the development of an application to another
organization
2. 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
Outsourcing Custom-Designed
Applications (continued)
• 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
• Accenture
• Unisys
Outsourcing IT Services (continued)
Outsourcing IT Services (continued)

• 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
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
Steps in Licensing
Ready-Made Software (continued)
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)
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
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 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
Managing User-Developed Applications
(continued)

• Disadvantages of user-developed applications:


• Poorly developed applications
• Islands of information
• Duplication
• Security problems
• Poor or no documentation