Outsourcing Development

  • In the high-speed global business environment, an organization needs to maximize its profits, enlarge its market share, and restrain its ever-increasing costs
  • This chapter focuses on businesses’ need to undertake every effort to re-think and re-adopt new processes


Insourcing (in-house-development) –a common approach using the professional expertise withinan organization to develop and maintain the organization's information technology systems


  • Outsourcingan arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house
  • The three different forms of outsourcing options a project must consider are:
          Onshore outsourcing –engaging another company within the same country for services.
          Nearshore outsourcing –contracting an outsourcing arrangement with a company in a nearby                                                    country. Often this country will share a border within the native                                                              country.
         Offshore outsourcing –using organizations from developing countries to write code & develop                                                systems. In offshore outsourcing the country is geographically far away.

  • Reasons companies outsource

  • Benefits from outsourcing include:
Financial savings
Eg. Ford, Chrysler & GM share CAD/CAM, e-mail msg & shipping comm-reduce cost of producing cars
Increased technical abilities
–More expense to upgrade system
–More time to install
–Increase complexity to master
–Market agility
•Ability to expand core buss more rapidly depending on outsourcers capabilities to provide:
–Efficient transition to new system
–Better info. Mgt for decision making
–Expansion to new geographical marketOutsourcing

  • Factors driving outsourcing growth include:
–Core competencies
•Maintain update tech. while freeing it to focus on core buss
–Rapid growth
•Mkt condition always change-outsourcing enable org. to acquire best practices process expertise
–Industry changes
•M&A force company to change their org. thus outsourcing can make it better for org. to focus on the core competencies
–The Internet
•Make outsourcing easier with the communication accessability

Developing Strategic Outsourcing Partnerships

  • Business process outsourcing (BPO)–contracting of a specific business task, such as payroll, to a third-party service provider
  • BPO is divided into two categories:
1.Back-office outsourcing include s internal buss. Function eg. Billing & purchasing
2.Front-office outsourcing includes customer-related services eg. Mktg & technical support

Sourcing’s New Surge -Offshoring

  • Offshore outsourcing using organizations from developing countries to write code and develop systems
  • According to Forrester Research, nearly half of all businesses use offshore providers, and two-thirds plan to send work overseas in the near future

Teams, Partnerships, and Alliances

  • Organizations create and use teams, partnerships, and alliances to:

         –Undertake new initiatives
         –Address both minor and major problems
         –Capitalize on significant opportunities
  • Organizations create teams, partnerships, and alliances both internally with employees and externally with other organizations
  • Collaboration system–supports the work of teams by facilitating the sharing and flow of information
  • Organizations form alliances and partnerships with other organizations based on their core competency
          –Core competency–an organization’s key strength, a business function that it does better than                                             any of its competitors
          –Core competency strategy–organization chooses to focus specifically on its core competency                                                           and forms partnerships with other organizations to handle                                                                       nonstrategic business processes
  • Information technology can make a business partnership easier to establish and manage
Information partnership–occurs when two or more organizations cooperate by integrating their IT systems, thereby providing customers with the best of what each can offer
  • The Internet has dramatically increased the ease and availability for IT-enabled organizational alliances and partnerships

Collaboration Systems

  • Collaboration solves specific business tasks such as telecommuting, online meetings, deploying applications, and remote project and sales management
  • Collaboration system –an IT-based set of tools that supports the work of teams by facilitating the sharing and flow of information
  • Two categories of collaboration
1.Unstructured collaboration (information collaboration) -includes document exchange, shared whiteboards, discussion forums, and e-mail
2.Structured collaboration (process collaboration)-involves shared participation in business processes such as workflow in which knowledge is hard coded as rules

  • Collaborative business functions

  • Collaboration systems include:

–Knowledge management systems
–Content management systems
–Workflow management systems
–Groupware systems

Knowledge Management Systems

  • Knowledge management (KM) –involves capturing, classifying, evaluating, retrieving, and sharing information assets in a way that provides context for effective decisions and actions
  • Knowledge management system –supports the capturing and use of an organization’s “know-how

Explicit and Tacit Knowledge

  • Intellectual and knowledge-based assets fall into two categories
          1.Explicit knowledge–consists of anything that can be documented, archived, and codified,                                                      often with the help of IT
          2.Tacit knowledge -knowledge contained in people’s heads
  • The following are two best practices for transferring or recreating tacit knowledge
          –Shadowing–less experienced staff observe more experienced staff to learn how their more                                       experienced counterparts approach their work
          –Joint problem solving–a novice and expert work together on a project
  • Reasons why organizations launch knowledge management programs

KM Technologies

Knowledge management systems include:
–Knowledge repositories (databases)
–Expertise tools
–E-learning applications
–Discussion and chat technologies
–Search and data mining tools

KM and Social Networking

  • Finding out how information flows through an organization

–Social networking analysis (SNA)–a process of mapping a group’s contacts (whether personal or professional) to identify who knows whom and who works with whom
–SNA provides a clear picture of how employees and divisions work together and can help identify key experts

Content Management

  • Content management system (CMS)–provides tools to manage the creation, storage, editing, and publication of information in a collaborative environment
  • CMS marketplace includes:

  1. Document management system (DMS)–supports the electronic capturing, storage, distribution, archival, and accessing of documents
  2. Digital asset management system (DAM)–similar to DMS, generally works with binary rather than text files, such as multimedia files types
  3. Web content management system (WCM)–adds an additional layer to document and digital asset management that enables publishing content both to intranets and to public Web sites

  • Content management system vendor overview


  • Wikis -Web-based tools that make it easy for users to add, remove, and change online content
  • Business wikis -collaborative Web pages that allow users to edit documents, share ideas, or monitor the status of a project

Workflow Management Systems

  • Work activities can be performed in series or in parallel that involves people and automated computer systems
  • Workflow–defines all the steps or business rules, from beginning to end, required for a business process
  • Workflow management system –facilitates the automation and management of business processes and controls the movement of work through the business process
  • Messaging-based workflow system–sends work assignments through an e-mail system
  • Database-based workflow system –stores documents in a central location and automatically asks the team members to access the document when it is their turn to edit the document

Groupware Systems

Groupware technologies

  • Groupware –software that supports team interaction and dynamics including calendaring, scheduling, and videoconferencing

Videoconference -a set of interactive telecommunication technologies that allow two or more locations to interact via two-way video and audio transmissions simultaneously

Web conferencing -blends audio, video, and document-sharing technologies to create virtual meeting rooms where people “gather” at a password-protected Web site


  • E-mail is the dominant form of collaboration application, but real-time collaboration tools like instant messaging are creating a new communication dynamic
  • Instant messaging-type of communications service that enables someone to create a kind of private chat room with another individual to communicate in real-time over the Internet
  • Instant messaging application


  • The Internet is a powerful channel that presents new opportunities for an organization to:

          –Touch customers
          –Enrich products and services with information

          –Reduce costs

  • How do e-commerce and e-business differ?

          –E-commerce the buying and selling of goods and services over the Internet

          –E-business –the conducting of business on the Internet including, not only buying and selling,             but also serving customers and collaborating with business partners

E-Business Models

  • E-business modelan approach to conducting electronic business on the Internet

Business-to-Business (B2B)

Electronic marketplace (e-marketplace)interactive business communities providing a central market where multiple buyers and sellers can engage in e-business activities

Business-to-Consumer (B2C)

  • Common B2C e-business models include:
          –e-shopa version of a retail store where customers can shop at any hour of the day without                                leaving their home or office
         –e-mall consists of a number of e-shops; it serves as a gateway through which a visitor can                                access other e-shops
  • Business types:
         –Brick-and-mortar business-operates in a physical store without an Internet presence.
         –Pure-play business-a business that operates on the Internet only without a physical store. Eg.                                                Amazon.com &Expedia.com.
         –Click-and-mortar business–a business that operates in a physical store and on the Internet.                                                                 Eg. Barnes and Noble.

Consumer-to-Business (C2B)

  • Priceline.com is an example of a C2B e-business model
  • The demand for C2B e-business will increase over the next few years due to customer’s desire for greater convenience and lower prices

Consumer-to-Consumer (C2C)

  • Online auctions
          –Electronic auction (e-auction) -Sellers and buyers solicit consecutive bids from each other                                                                     and prices are determined dynamically
         –Forward auction -Sellers use as a selling channel to many buyers and the highest bid wins
         –Reverse auction -Buyers use to purchase a product or service, selecting the seller with the                                                lowest bid

  • C2C communities include:
          –Communities of interest -People interact with each other on specific topics, such as golfing                                                           and stamp collecting
          –Communities of relations -People come together to share certain life experiences, such as                                                               cancer patients, senior citizens, and car enthusiasts
          –Communities of fantasy -People participate inimaginary environments, such as fantasy                                                                  football teams and playing one-on-one with Michael Jordan

E-Business Benefits and Challenges

  • E-Business benefits include:
         –Highly accessible-Businesses can operate 24 hours a day, 7 days a week, 365 days a year
         –Increased customer loyalty-Additional channels to contact, respond to, and access customers                                                           helps contribute to customer loyalty
         –Improved information content-In the past, customers had to order catalogs or travel to a                                                                         physical facility before they could compare price and product                                                                 attributes. Electronic catalogs and Web pages present                                                                             customers with updated information in real-time about goods,                                                                 services, and prices
         –Increased convenience-E-business automates and improves many of the activities that make                                                      up a buying experience
         –Increased global reach-Businesses, both small and large, can reach new markets
         –Decreased cost-The cost of conducting business on the Internet is substantially smaller than                                           traditional forms of business communication

  • E-business challenges include:
         –Protecting consumers
         –Leveraging existing systems
         –Increasing liability
         –Providing security
         –Adhering to taxation rules

  • There are numerous advantages and limitations in e-business revenue models including:
           –Transaction fees
           –License fees
           –Subscription fees
           –Value-added fees
           –Advertising fees


  • Web mashup-a Web site or Web application that uses content from more than one source to create a completely new service
Application programming interface (API) -a set of routines,protocols, and tools for building software applications
Mashupeditor -WSYIWYGs (What You See IsWhat You Get) for mashups
Enterprise Resource Planning (ERP)

  • At the heart of all ERP systems is a database, when a user enters or updates information in one module, it is immediately and automatically updated throughout the entire system

  • ERP systems automate business processes

Bringing the Organization Together



The Evolution of ERP

Integrating SCM, CRM, and ERP

  • SCM, CRM, and ERP are the backbone of e-business
  • Integration of these applications is the key to success for many companies
  • Integration allows the unlocking of information to make it available to any user, anywhere, anytime
  • SCM and CRM market overviews

  • General audience and purpose of SCM, CRM and ERP

Integration Tools

  • Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together

Middlewareseveral different types of software which sit in the middle of and provide connectivity between two or more software applications
Enterprise application integration (EAI) middlewarepackages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors

Enterprise Resource Planning (ERP)

  • ERP systems must integrate various organization processes and be:

Flexible-must be able to quickly respond to the changing needs of the organization
Modular and open-must have an open system architecture, meaning that any module can be interface, with or detached whenever required without affecting the other modules.
–Comprehensive-must be able to support a variety of organizational functions for a wide range of businesses
–Beyond the company-must support external partnerships and collaboration efforts

Customer Relationship Management (CRM)

  1. CRM enables an organization to:

  • Provide better customer service
  • Make call centers more efficient
  • Cross sell products more effectively
  • Help sales staff close deals faster
  • Simplify marketing and sales processes
  • Discover new customers
  • Increase customer revenues
Recency, Frequency, and Monetary Value

Organizations can find their most valuable customers through ―RFM‖ -Recency, Frequency, and Monetary value

  • How recently a customer purchased items (Recency)
  • How frequently a customer purchased items (Frequency)
  • How much a customer spends on each purchase (Monetary Value)

The Evolution of CRM

CRM reporting technology–help organizations identify their customers across other applications
CRM analysis technologies–help organization segment their customers into categories such as best and worst customers
CRM predicting technologies–help organizations make predictions regarding customer behavior such as which customers are at risk of leaving

The Ugly Side of CRM

Customer Relationship Management’s Explosive Growth

CRM Business Drivers

Forecasts for CRM Spending (in billions)
Using Analytical CRM to Enhance Decisions

  • Operational CRM –supports traditional transactional processing for day-to-day front-office operations or systems that deal directly with the customers
  • Analytical CRM –supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers
  • The primary difference between the two is the direct interaction between the organization and its customer

Customer Relationship Management Success Factors

  1. Clearly communicate the CRM strategy
  2. Define information needs and flows
  3. Build an integrated view of the customer
  4. Implement in iterations
  5. Scalability for organizational growth
Supply Chain Management

  • The average company spends nearly half of every dollar that it earns on production
  • In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains
Basics of Supply Chain

  • The supply chain has three main links:
  1. Materials flow from suppliers and their “upstream” suppliers at all levels
  2. Transformation of materials into semi finished and finished products through the organization’s own production process
  3. Distribution of products to customers and their “downstream” customers at all levels
  • Organizations must embrace technologies that can effectively manage supply chains
  • PLAN

  1.  Aim:plan for managing all the resources that go toward meeting customer demand for products or services.
  2. Activity: develop a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers.
  1. Aims:

–choose reliable suppliers that will deliver goods and services required for making products.
–develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships

  • MAKE
  1. Activity: include scheduling the activities necessary for production, testing, packaging, and preparing for delivery.
  1. commonly referred to as logistics.
  2. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers.
  3. Activity: companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.
  1. Activity: create a network for receiving defective and excess products and support customers who have problems with delivered products.

Information Technology’s Role in the Supply Chain

IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

 Factors Driving SCM

  • Visibility

  1. Supply chain visibilitythe ability to view all areas up and down the supply chain
  2. Bullwhip effectoccurs when distorted product demand information passes from one entity to the next throughout the supply chain
  • Consumer Behavior

  1. Companies can respond faster and more effectively to consumer demands through supply chain enhances
  2. Demand planning softwaregenerates demand forecasts using statistical tools and forecasting techniques
  • Competition

  1. Supply chain planning (SCP)softwareuses advanced mathematical algorithms to improve the flow and efficiency of the supply chain
  2. Supply chain execution (SCE) softwareautomates the different steps and stages of the supply chain
  3. SCP and SCE in the supply chain
  • Speed
Three factors fostering speed

Decision Making

  • Reasons for the growth of decision-making information systems

–People need to analyze large amounts of information
–People must make decisions quickly
–People must apply sophisticated analysis techniques, such as modeling and forecasting, to make good decisions

–People must protect the corporate asset of organizational information

  • Model – a simplified representation or abstraction of reality
  • IT systems in an enterprise

Transaction Processing Systems

  • Moving up through the organizational pyramid users move from requiring transactional information to analytical information

  • Transaction processing system -the basic business system that serves the operational level (analysts) in an organization
  • Online transaction processing (OLTP)the capturing of transaction and event information using technology to (1) process the information according to defined business rules, (2) store the information, (3) update existing information to reflect the new information
  • Online analytical processing (OLAP)the manipulation of information to create business intelligence in support of strategic decision making

Decision Support Systems

Decision support system (DSS)models information to support managers and business professionals during the decision-making process

Three quantitative models used by DSSs include:
  • Sensitivity analysisthe study of the impact that changes in one (or more) parts of the model have on other parts of the model
  • What-if analysis–checks the impact of a change in an assumption on the proposed solution
  • Goal-seeking analysisfinds the inputs necessary to achieve a goal such as a desired level of output

  • Interaction between a TPS and a DSS

Executive Information Systems

  1. Executive information system (EIS) – a specialized DSS that supports senior level executives within the organization
  2. Most EISs offering the following capabilities:

  • Consolidation–involves the aggregation of information and features simple roll-ups to complex groupings of interrelated information
  • Drill-down –enables users to get details, and details of details, of information
  • Slice-and-dice–looks at information from different perspectives

Interaction between a TPS and an EIS
Digital dashboard –integrates information from multiple components and presents it in a unified display

Artificial Intelligence (AI)

  • Intelligent system –various commercial applications of artificial intelligence
  • Artificial intelligence (AI) –simulates human intelligence such as the ability to reason and learn  –Advantages: can check info on competitor
  • The ultimate goal of AI is the ability to build a system that can mimic human intelligence
  • Four most common categories of AI include:
  1. Expert system –computerized advisory programs that imitate the reasoning processes of experts in solving difficult problems
  2. Neural Network –attempts to emulate the way the human brain works
  3. Genetic algorithm–an artificial intelligent system that mimics the evolutionary, survival-of-the-fittest process to generate increasingly better solutions to a problem
  4. Intelligent agent–special-purposed knowledge-based information system that accomplishes specific tasks on behalf of its users
Data Mining

  • Data-mining software includes many forms of AI such as neural networks and expert systems
  • Common forms of data-mining analysis capabilities include:
Cluster analysis -a technique used to divide an information set into mutually exclusive groups such that the members of each group are as close together as possible to one another and the different groups are as far apart as possible

Association detection -reveals the degree to which variables are related and the nature and frequency of these relationships in the information

Statistical analysis -performs such functions as information correlations, distributions, calculations, and variance analysis