Outsourcing and On Demand Computing

Many companies hire an outside consulting firm or computer company that specializes in systems development to take over some or all of its development and operations activities. As mentioned in Chapter 2, outsourcing and on demand computing are often used.² Sears, Roebuck, and Co., for example, is looking for an outside company to perform many of its systems development and operations activities.²⁸ Sears is hoping that the outsourcing com­pany it selects will hire some of its 200 people who will be laid off. Outsourcing has also become an important economic and political issue in today's economy for companies that outsource overseas.²'' A group of U.S. companies and organizations have formed the Coalition for Economic Growth and American Jobs to try to combat the outsourcing backlash отрицательная реакция. Com­panies can spend millions or even billions of dollars to hire other companies to manage Web sites, network servers, data storage devices, and help desk operations. In one outsourcing deal, a major phone company agreed to pay an outsourcing company about $3 billion to provide guidance on cutting costs and improving efficiency. MCI, for example, was given an out­sourcing deal worth $20 million to develop a cellular phone system in Baghdad, Iraq, by the U.S. Department of Defense.³" Companies such as Goodyear and Saks have used on demand computing to increase services and reduce costs.³¹

A report by the U.S. Commerce Department, however, reports that the United States imports more private-sector jobs from other countries than it exports.³² Private-sector jobs include computer programming, telecommunications, management consulting, legal work, and related jobs. The surplus of jobs coming into the United States from other countries is greater than $53 billion, according to the report. Table 12.5 describes the circumstances in which outsourcing is a good idea.

Outsourcing can involve a large number of countries and companies in bringing new products and services to market.³³ The idea for a new computer server can originate in Sin­gapore, be approved in Houston, designed in India, engineered in Taiwan, and assembled in Australia. The chain of events can be complex.

Reducing costs, obtaining state-of-the-art technology, eliminating staffing and personnel problems, and increasing technological flexibility are reasons that companies have used the outsourcing and on demand computing approaches. Reducing costs is a primary reason for -outsourcing. One American computer company, for example, estimated that a programmer with three to five years of experience in China would cost $12.50 per hour, while a programmer with similar experience in the United States would cost $56 per hour.

When to Use Outsourcing for Systems Development

There are disadvantages, however.³⁵ Companies may be asked to sign complicated and restrictive legal contracts that may be difficult to change. Internal expertise can be lost and loyalty can suffer under an outsourcing arrangement."¹ When a company outsources, key IS personnel with expertise in technical and business functions are no longer needed. Once these IS employees leave, their experience with the organization and expertise in information sys­tems is lost. Outsourcing and on demand computing can be very costly for that reason. Because of a faulty sales ordering system неисправные продаж системы заказа that had been outsourced, aviation parts company Aviall lost about $70 million in sales.³⁷ So, Aviall decided to develop its own systems for 40 million and saw a $430 million increase in sales. For other companies, it can be difficult to achieve a competitive advantage when competitors are using the same computer or consulting company. When the outsourcing or on demand computing is done offshore or in a foreign country, some people have raised security concerns.³⁸ A Gartner, Inc., study estimates that about 80 percent of U.S. companies outsource critical activities to India, Russia, Pakistan, and China, which could jeopardize security поставить под угрозу безопасность.³⁹ How will important data and trade secret be guarded? The Banking Industry Technology Secretariat (BITS) has developed a 33-page document describing how companies can develop security guidelines разработка рекомендаций по безопасности and proce­dures when outsourcing.⁴⁰ The guidelines are based on the International Organization for Standardization's ISO Международная организация по стандартизации 17799 information security code.

A number of companies offer outsourcing and on demand computing services—-from general systems development to specialized services. IBM's Global Services, for example, is one of the largest full-service outsourcing and consulting services полный спектр услуг аутсорсинга и консалтинговых услуг. IBM has consultants located in offices around the world. Electronic Data Systems (EDS) is another large compan;. that specializes in consulting and outsourcing.⁴² EDS has approximately 140,000 employees in almost 60 countries and more than 9,000 clients worldwide. In one year, the company signed $31.4 billion in new contracts for consulting and outsourcing. Accenture, which was once part of Arthur Andersen, is another company that specializes in consulting and outsourcing.⁴³ The company has more than 75,000 employees in 47 countries.

Some companies are giving customers the option to outsource work.⁴⁴ E-Loan, an Internet loan-processing company, gives customers the choice of having their loan processed in the United States or in India. If adopted by other companies, this approach would let customers decide important issues about outsourcing jobs, costs, and quality. In some cases, companies are bringing outsourced jobs back home.⁴⁵ A software company hoped to save millions of dollars by outsourcing programming jobs to other countries. Because the foreign workers were not familiar with the company, some software features were omitted and some of the development took months instead of weeks.