Outsourcing in the Development Process - Essay Example

Outsourcing part of the development process is incompatible with effective stakeholder participation The last two decades has seen tremendous growth in the Information Systems development methods to ensure reliable and quality systems. On of the major developments in this sector has been contracting part or all of the company’s IS services to a third party. This is also called outsourcing. There have been many reasons for the companies to outsource there is business and some of them are trying to cut costs of IS services, the demand for good quality systems and the inability of the company to establish complex computer systems. The major hurdle in outsourcing lies in the incompatibility of effective stakeholder participation with outsourcing projects especially those who outsource globally because very often this outsourcing takes place in far-flung corners of the world and which the stakeholders find it difficult to handle because of clash of culture and work environment. Like any other business the outsourcing process has its own pros and cons which play a big hand in either the success or the failure of the project. If the management of the tow parties is excellent and there is mutual trust and understanding between the firm and the vendor during the ongoing outsourcing project, the entire process will be successful and not incompatible with effective stakeholder participation. 2 Introduction Technology in the information sector has progressed in leaps and bounds and entirely dominates modern life. From the lordly space shuttle to the lowly air conditioner appliance, computers are a part and parcel of every electronic system. To meet the needs of various types of systems and organizations dependent on those systems, different types of system development approaches have evolved. Some of them are: prototyping, rapid application development, system development life cycle or SDLC and object oriented methodology. The whole purpose of these methods is to enable the stakeholders to use reliable, steady and easy-to-maintain systems. The stakeholders may be technical supporters, direct managers, daily users and anyone who can participate in the system. Outsourcing is basically the result of the insistent demand for high quality information systems or IS along with the burden of paring down costs in the internal information technology or IT department of companies. As mentioned earlier, these last few years have seen the rapid development of Information System Outsourcing and many companies either outsource part or wholly of there is services to a third party which can be one or many vendors. This essay will briefly discus system development approaches with special emphasis on those which encourage stakeholder participation. It will also discuss the various motives and trends of outsourcing and weigh its pros and cons in light of the stakeholders, the development process and the project management. 3 System development approaches The modern age has made countries totally dependent on complex computer systems like insurance systems, financial systems and electricity systems to handle many aspects of daily lives and therefore the need for reliable and good quality computer systems has grown correspondingly to be able to utilize those systems. Here, the essay will discuss briefly the many approaches of computer systems like SDLC, prototyping, rapid application development and object oriented methodologies. Any one of these approaches is reliable to be used by a system developer. 3.1 System development life cycle (SDLC) SDLC is widely used, more so for huge systems but it is along process and can take many months or even years to perfect the system. This system basically comprises of activities which are laid out in steps or phases and are operated sequentially. (See Figure 1) These steps are preliminary investigations or studying the feasibility, systems analysis, requirement specifications, system design, development, installation and testing and finally, maintenance. Stakeholders participate in the systems analysis, implementation and installation and the test process but are not directly involved in the designing stage. The major disadvantage of this method is that since it takes so long to set it up, the business might change while the method is still under the old business model development and this badly affects the system.[7] The second problem which crops up is that the user representatives cannot satisfy the queries of all the users of the system and this may lead to some dissatisfaction amongst some of the users. Figure 1: System Development Life Cycle (SDLC) phases[17] 3.2 Prototyping Approach The prototyping approach is the shortened version of the SDLC so that the system can be readied in a shorter time span. A prototype is the initial version of any design system and in this context it attempts to figure out the concept and solutions to problems with the active participation of the users. Three steps form the core of this approach: a) lending an ear to customers to understand prototype functionalities, b) to design the first prototype or to develop prototype, c) allowing the users to use and test the prototype or evaluate the prototype. The big plus of this system is that the needs of the systems can be defined and customers can also see how far the system will be able to help them. Stakeholder involvement is more in this approach which results in good usability and quality of the system. The prototyping approach spends more time in the initial stages of designing but less in the implementation because all the core requirements have already been addressed in the initial phase. [13] Figure 2: Prototyping Approach [17] 3.3 Rapid application development RAD The RAD or the rapid application development is amore developed form of the prototype method and the whole aim is to further reduce the time of the system delivery to sixty or ninety days. Relatively simple applications which can be handled by small teams are right for this approach. The number of steps in the SDLC is reduced to four steps which include data modeling, business modeling, process modeling and application generation and testing. 3.4 Object-oriented method The traditional method steps of analysis, design, implementation and testing are followed in this developmental approach. The perspective is the object which directs the object-oriented concept. The object can be any person, place or thing. Object-oriented language like Java or C++ is used for coding this method. 4 Information System outsourcing 4.1 Outsourcing steps Outsourcing has many definitions and one of them is (kern: 2002), (loh: 1992) when a company decides to outsource a part or all of its IS services to a third party who agrees to provide the required services [6] [9] cited by [5]. The company is the client or customer and the third party is the vendor. This is done under legal contract and the whole outsourcing process comprises of threes stages as explained by [7]. 4.1.1 The analysis and evaluation This stage sees the company identify its goals and core strengths and decides what, when and where to outsource. The next logical step is to compare and evaluate the costs of outsourcing with its in-house service. The risks associated with outsourcing should also be discussed. 4.1.2 The needs assessment and vendor selection This stage involves a proposal (RFP) outlining detailed information of the needs and problems of the company and should be made in such a way so that the vendor can fully grasp the client’s requirements. It is the company’s discretion whether to go in for a local vendor or a global one. But, whichever is chosen, it should be well-qualified to meet the demands of the company. Along with the technical qualifications, it is also important to know the profile, any previous projects, the finances and the staff of the vendor. After the selection has been made a mutually benefiting contract is prepared and each should fully comprehend the terms and conditions of the contract. 4.1.3 Implementation The time frame should be clearly defined and regular monitoring and evaluation of the project by a previously agreed mechanism should be put in place during the implementation process. Any clash of interest or misunderstanding should be cleared during the implementation process. 4.2 The trend of outsourcing The trend of outsourcing started in 1963 with the signing of an agreement between Electronic Data Systems and Blue Cross of Pennsylvania to handle all of its data processing services [5]. For its times, it was a revolutionary step for a company to outsource its IS services. The next turning point came in 1998 when Kodak turned over its IS services to IBM [10]. From this time onwards the outsourcing industry grew rapidly and continues to expand at a fast pace. A survey by the outsourcing institute showed that out of 1200 companies which had information budgets of $5 million or more, almost half of them were outsourcing or were under the process cited by [5] According to the Dataquest report the revenue of IS outsourcing industry was $194 billion in 1994 and was poised to reach $ 531 billion by 2002[16] cited by[5]. IT outsourcing continues to ride a high mainly because many organizations want to pare down the costs of the local IS department and also to have the latest modern IT system. Off-shore outsourcing is becoming increasingly popular. It means that the outsourcing is taking place outside the organization’s country where the language and culture may be drastically different. The software development is taking place off-shores in countries where expenses are low and workers are aplenty. Most of the global outsourcing organizations have only a small office with the minimum of staff in the client’s country. Off-shore outsourcing has made the development and management process of outsourcing a bit more complicated for both client and vendor. Cultural differences may result in unexpected problems and working in tandem across countries is not very easy [8]. The lesser participation of stakeholders in the development process of outsourcing and the risks posed to the project have been the matter for countless debates and this essay will attempt to put across the advantages and disadvantages related to outsourcing and its subsequent effect on the stakeholders and the management. 5 The motivations and advantages of outsourcing The business environment has become fiercely competitive due to rapid globalization. This has made the companies sit up and focus more on their core competencies while outsourcing lesser services [11] [12]. The senior executives in recent times see the Is services of the company as non-core activities and are of the opinion that outsourcing these services cost less than in-house IT department. [3] This aspect can be considered as on of the main advantages of outsourcing a sot allows to company to concentrate on its core strengths instead of wasting time and money on internal IT department performances which may not be at par. 5.1 The financial motivation Another tempting aspect of outsourcing is the financial angle. Hardware and software costs, personal costs and business operation costs are reduced [2] as the vendor is able to provide better management and experience. A case study cited by [10] shows that there was a 19% reduction in expenses in the first year. 5.2 The IS department bad response Many a time the internal IT department does not give a proper response to organizational needs or when it does it takes an inordinately long time to finish the task. This attitude of the IT departments has hastened the expansion plans of outsourcing along with poorly trained staff in advanced technological matters and an inefficient management system. Also the fast changing advancements in the IT field and the exorbitant cost of training the entire staff to meet those advanced techniques prompts the organization to outsource instead of retraining the entire staff [10]. 5.3 Strategic motivations 5.3.1 Wide range of resources With technology advancing at breakneck speed sometimes it is not possible for the internal IT department to keep pace with a wide range of resources. This lessens the competitive abilities of the IS services of the organization. To combat this outsourcing is seen as a good way to increase the business performance profitably [10]. 5.3.2 Reduce the technological uncertainty and risk Companies save themselves the headache of trying to update their IT department by outsourcing through competent vendors who are under contract to deliver the goods. This partnership results in a mutually benefiting and reliable system. 5.3.3 Improving the management of the IS operations Another factor in the favor of outsourcing is that vendors very often have more skills and experience in the IS services than the internal IT department of the firm. This helps in better IS operations and IT management of the company which in turn leads to a solid business strategy and better competition. 6 The disadvantages of outsourcing We can now discus the disadvantages of outsourcing prime among them being the fact that outsourcing by its very nature is a complicated process and any errors in the first stages itself will cost the company dear (See Section 4.1). Why, what and when to outsource has no clear cut answers and it is precisely for this reason that a very careful study should be made prior to outsourcing so that the risks are minimized. 6.1 The challenge of cultural and social differences Offshore outsourcing comes with its own peculiar problems amongst which the cultural differences are paramount. Off shoring is seen as profitable by companies because as mentioned in section 4.2 it is easier to get workers there and the costs are low. But what they fail to realize is that the cultural differences can be vast and pose problems in communication and a working relationship between the vendor and the client. It is therefore essential for both parties to understand these cultural differences to sustain a working relationship through the process of outsourcing [14]. Going by [8] Indian software vendors are effective partners of British companies as they speak the same language and share an almost similar culture. Similarly, the Chinese can work in tandem with the Japanese but German companies have had major problems in working with Asian companies. The way to overcome this issue is to provide cultural training to their staff. 6.2 Total dependence on the outsourcing firm In outsourcing another problem is that initially the client is totally dependent upon the vendor to take care of all its IS services and it tends to ignore its own in-house IT sector. But later when the contract is over organizational glitches may happen and also at times the vendor may take unfair advantage of the total dependency of the client on itself by demanding higher rates [15]. Absolute dependency on the outsourcing firm can result in serious problems for the client if that firm goes bankrupt or stops servicing the client. 6.3 The security concern Security is a major issue while outsourcing Is services because the vendor is privy to all the information and emails of the firm. Even confidential matters like health records, financial information, salary data which are the bedrock of any firm is not left unseen by the vendor [15]. The firm’s strategies and competitive programs are also seen by the vendor and this may pose a very serious concern if this information goes to a competitor either by the vendor itself or by one of its employees. Such critical information because it is within reach of the vendor renders the client company vulnerable to loss of privacy and heightens the risks of it falling into the wrong hands. 6.4 Change problems Using outsourcing to replace the internal system can sometimes affect the total structure of the business leading to employees losing or changing their jobs [4]. It can get confusing to the extent that the employee feels insecure which affects his performance or he cannot come to terms with the new system. 7 The conclusion Computer systems today have become more and more sophisticated and firms may be running more than one systems all of them with different platforms and functions. The majority are Web Applications, Wide Area network Applications and Distributed Database Applications. These systems are easy prey to hackers, spies and being easily corrupted if not protected with high security. Such systems require qualified and experienced firms which have the resources and the expertise to manage them. Unfortunately most IT departments of firms are not equipped to handle it. The incompatibility of stakeholder participation in the developmental process during outsourcing results in increasing the risks associated with the success of the project. Globalization has breached the cultural barrier to a certain extent but the differences are still huge in off shoring outsourcing. Most global outsourcing firms have only a small office in the client country with a skeletal staff and the actual work is done far away in a different country. Understanding the cultural differences and trying to overcome them becomes very important in offshore outsourcing as both stakeholders and the vendor has to grasp each others needs thoroughly. Sometimes stakeholders feel uncomfortable in the changed set-up when the company starts outsourcing and this is reflected in their inability or reluctance to accept the changed system. The pros of outsourcing if taken into consideration are very important for the company to grow and perform better but on the other hand, the cons of outsourcing should also not be dismissed as it can put the company in a risky situation. The outsourcing steps referred in Section 4.1 are very essential for the success or failure of the outsourcing project. Mutual trust between the two parties is the prime factor for a successful partnership [1]. IS outsourcing is a rapidly expanding business and its demand is ever growing. Since the internal IT department cannot handle all the developmental work it is best to strike a balance between outsourcing and in-house workings. This means outsourcing what is not possible internally while at the same time developing what is possible in its own IT department. This minimizes the risks and total dependence on the vendor company while ensuring quality work from the vendor and the stakeholder participation also becomes more active which leads to a successful project. References [1] M. Ali Babar, J.M. Verner, and P.T. Nguyen. Establishing and maintaining trust in software outsourcing relationships: An empirical investigation. The Journal of Systems & Software, 80(9):1438–1449, 2007. 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