IS/IT outsourcing services – basic RNDr. Stanislav Michelfeit To replace the title / subtitle with your own: Click on the title block -> select all the text by pressing Ctrl+A -> press Delete key -> type your own text IS/IT outsourcing services – basic overview 11/17/2018

Goals of today‘s lecture To present concept of whole course To present trends that motivate establishment of Service Science, Engineering and Management ( Service Science, or SSEM) To define IT/IS outsorcing in context of SSEM IS/IT outsourcing services – basic overview 11/17/2018

Agenda Goals (5 min) Service Science (45 min) Current economic evolution Service definition Basic terms, content Break (10 min) IT/IS outsoursing (45 min) Definition of outsoursing IT stages, trends Current status outsourcing services Discussion (5 min) IS/IT outsourcing services – basic overview 11/17/2018

Why did you select informatics/computer science? It is cool. I enjoy it. I had no other idea. Parents decided instead of me. Parents prohibit me from studying it. There is good salary. IS/IT outsourcing services – basic overview 11/17/2018

Picturing Economic Evolution Delivery Form Products Services Machines, Chemicals Automotive Fashion Goods Consumer Products Tourism, Retail Transportation Construction Health Care Material End product For a sharper view: divide firms and sectors into four segments, based on product vs. service, and material vs. information dichotomies How big are these segments in a developed economy? Books, Magazines Computers, PDA’s Film, Music Software, Games Financial Services Radio, TV Telecommunication Legal, Consulting Information IS/IT outsourcing services – basic overview 11/17/2018

Why Now?: US GNP Today and in the Future From Uday Karmarkar: “Service industrialization in the global economy” Also author of HBR article: “Will you survive the services revolution?” Products Services 11% 30% Material Breakdown of the four quadrants in the US economy And this does not even count the informational part of the material manufacturing and service sectors! Plus: the employment figures are even more slanted towards the information and service components The biggest sector is Information Services sector More to the point, this is the way all developed economies will look in the future. How does ICT affect all these sectors? Different, but some common basic economic drivers 50% 9% Information IS/IT outsourcing services – basic overview 11/17/2018

Why Now? The world is becoming a service system. Top Ten Nations by Labor Force Size (about 50% of world labor in just 10 nations) A = Agriculture, G = Goods, S = Services Nation % WW Labor % A G S 25 yr % delta S China 21.0 50 15 35 191 India 17.0 60 17 23 28 U.S. 4.8 3 27 70 21 Indonesia 3.9 45 16 39 Brazil 3.0 24 53 20 Russia 2.5 12 65 38 Japan 2.4 5 25 40 Nigeria 2.2 10 30 Banglad. 63 11 26 Germany 1.4 33 64 44 2004 2004 United States (A) Agriculture: Value from harvesting nature (G) Goods: Value from making products (S) Services: Value from enhancing the capabilities of things (customizing, distributing, etc.) and interactions between things So why this workshop. Well,m for one reason the world needs service innovations like never before. In the US alone, the last two hundred years have seen an almost complete reversal in agriculture and services – with manufacturing peaking around WW II. And quickly looking at the top ten nations by size of labor force we see they are just time delayed versions of the US economy. Interestingly, Adam Smith and Karl Marx both agreed one thing – services were a parasite on the rest of the economy. Nevertheless the rise of the information economy and the rise of the service economy have come hand and hand… and so now we ask, since we need service innovations, do we need a service science. I will argue, yes. If we are to understand the connection between innovation and productivity, we need a service science. Innovation is more than technology, it can be business model innovation, organizational culture innovation, process innovation ,and even demand innovation. All of these types of innovation can drive productivity, and a service science, properly defined, will shed light on the causal connection of innovation to productivity. Why service science? Growing dominance of all world economies. Service science may ultimately be about understanding how to boost human-technology productivity via four types of innovation. Source: http://www.nationmaster.com OECD reports The largest labor force migration in human history is underway, driven by urbanization, global communications, low cost labor, business growth and technology innovation. IS/IT outsourcing services – basic overview 11/17/2018

Service Science: Why Now? IBM’s perspective Chart: ''Reinventing I.B.M.'' I.B.M.'s decision to sell its PC business last week was another in a series of steps it has taken in recent years to transform itself from a company that mostly sells hardware and software to one whose main function is selling its expertise. Graphs track revenue breakdown, figures in billions 1982 OTHER Federal systems contracts, other: $0.9 SERVICES Information processing: $2.5 Maintenance: $3.9 SOFTWARE: $1.7 HARDWARE Workstations: $6.4 Peripherals: $8.7 Processors: $10.2 TOTAL: $34.4 1988 OTHER Federal systems contracts, other: $2.1 SERVICES Information processing: $4.5 Maintenance: $7.3 SOFTWARE: $7.9 HARDWARE Workstations: $11.3 Peripherals: $11.3 Processors: $15.2 TOTAL: $59.7 1994 FINANCING: $4.1 SERVICES General: $9.7 Maintenance: $7.2 SOFTWARE: $11.3 HARDWARE Original equipment manufacturing: $3.3 Workstations: $13.0 Peripherals: $5.6 Processors: $9.8 TOTAL: $64.1 1998 INVESTMENTS: $2.6 FINANCING: $2.9 SERVICES: $28.9 SOFTWARE: $11.9 HARDWARE: $35.4 TOTAL: $81.7 2003 INVESTMENTS: $1.1 FINANCING: $2.8 SERVICES: $42.6 SOFTWARE: $14.3 HARDWARE: $28.2 TOTAL: $89.1 (Source by Company reports)(pg. C6) http://query.nytimes.com/search/restricted/article?res=F10711FE34550C708DDDAB0994DC404482 IS/IT outsourcing services – basic overview 11/17/2018

What is service? Service = performance pay Untangible output, heavily quantified and measurable No stockable Unmovable Consumtion is parallel with delivery Customer „on-line“ cooperate on result Customer is often „co-creator, co-supplier“ Specification is difficult IS/IT outsourcing services – basic overview 11/17/2018

Growth of services is having an impact on academics… Areas Revise Aggregate Integrate? Operations Research Service Operations Management Science Service Management Industrial & Systems Engineering Service Engineering (Enterprise Transformation) Marketing Service Marketing Contracts & Negotiations eSourcing Computer Science Service Computing, Web Services Management of Technology & Innovation Service Professions, PSM degrees Entrepreneurship degrees Service Design, Engineering, Management Service Excellence Multidisciplinary Centers Service Science IS/IT outsourcing services – basic overview 11/17/2018

Terms & Definitions, Service Science Definition 1: The application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another ("services“). Definition 2: The study of service systems. Evolution: Services systems evolve in difficult to predict ways because of naturally emergent and rationally designed interactions between economic entities, acting in the roles of clients and providers. Interactions & Value Coproduction: Service systems are made up of large numbers of interacting clients and providers coproducing value. Each economic entity is both a client and a provider. The economic value of knowledge distributed among people, organizations, technological artifacts, and relationships is in constant flux. Specialization & Coordination: One mechanism for creating value is specialization of clients and providers, which results in the need for coordination via markets, organizational hierarchies, and other mechanisms. Specialization creates efficiency. Efficiency creates profits and leisure. Profits and Leisure create investment (profits to innovation) and new demand (leisure to new aspirations). IS/IT outsourcing services – basic overview 11/17/2018

Service Science Core Questions: How do work systems reconfigure Service Science Core Questions: How do work systems reconfigure? What role does innovation play? Can integration relationships be found across different types of work system? Human System Tool System Collaborate (incentives) Augment (tool) The choice to change work practices requires answering four key questions: - Should we? (Value) - Can we? (Technology) - May we? (Governance) - Will we? (Priorities) Help me by doing some of it for me (custom) 1 2 Delegate (outsource) Automate (self-service) Help me by doing all of it for me (standard) Again service science will help boost productivity by accelerating our ability to have work systems absorb innovation – work systems seem to evolve through four stages – jobs are created and destroyed along the way, and that is one of the factors that must be factored in when designing innovative new ways to work. Source: IBM Research What could be called “theory Z” of work evolution is based on Doug Engelbart’s model of human system and tool system coevolution. Specialized new forms of work start out as collaborations of people, who over time developed specialized skills as well as incentives to tightly collaborate (1) Next they develop tools that allow more productivity as well as less skilled people to contribute to the work (2) Next, assuming sufficient demand for the product of the work, specialized organization form to do the work, and other people and organizations that want the work product can get it done by outsourcing it into a competitive economy (3) Finally, at some point one of the competitors figures out a way to automate the work, making the work a form of self service interacting with an automated service provider (4). Human intelligence is augmented by tools and organizations that “make us smarter” – from a services perspective, one can redistribute (“share”) work into the tool system or the human system, to a more (all) or lesser (some) degree. Collaborate: Skilled people Augment: Skilled people with tool Delegate: Specialized people in an organization that gets the business outsourced to them Automate: Client or user interacts with tool When the tool system does it all, that is automation – example ATM machine (use technology to advantage) When the human system does it all, that is outsourcing – example low cost call center businesses in India (use economy to advantage) When the tool system does some of the work, that is having capabilities augmented – example a calculator When the human system does some of the work, that is collaboration – example bonuses for cost saving ideas, incents people to share ideas. Many KM failures due to lack of incentive for sharing and knowledge reuse. When changing work, one needs to ask four key questions: Should we – is there demand and enough potential value to be created and captured (“make sure the goal has real value”) Can we – is it technologically feasible, and can processes be designed to accomplish the work (“make sure it can be done – a feasible plan”) May we – can any stakeholders block this, what incentive design could overcome this (“design a win-win game for all stakeholders – all player happy”) Will we – when staked up against other organizational priorities does the value justify the cost at this time (“is it the most important thing to accomplish now, can it wait”) 3 4 Organize People (Socio-economic models with intentional agents) Harness Nature (Techno-scientific models with stochastic parts) Example: Call Centers Collaborate (1970) Augment (1980) Delegate (2000) Automate (2010) Experts: High skill people on phones Tools: Less skill with FAQ tools Market: Lower cost geography (India) Technology: Voice response system IS/IT outsourcing services – basic overview 11/17/2018

Why Service Science? The world needs more service innovation & systematic approaches to service innovation must be interdisciplinary Technology Innovation Business Innovation Business Management &Administration Science & Engineering Service Science Global Economy & Markets Social Sciences Social-Organizational Innovation Demand Innovation SSEM = Service Sciences, Engineering, and Management IS/IT outsourcing services – basic overview 11/17/2018

Outsourcing - definition „Outside resource using“ Contractual relationship, which assign responsibility for some functional area to external resources It is delegation of some activities on specialized organization Company handover entire responsibility for certain activity to external supplier IS/IT outsourcing services – basic overview 11/17/2018

Outsourcing IT IT/IS Outsourcing is delegation of operation, maintenance and administration activities ITC IT/IS Outsourcing is prerequisite of industrialization/standardization of seservices Information services are dominant in advance economics IS/IT outsourcing services – basic overview 11/17/2018

Frankly, I’m more worried about the professors IS/IT outsourcing services – basic overview 11/17/2018

IT evolution stages 0 – 1982 1982 – 1999 1999 – Proper solution Standard solution 1999 – Outsourcing solution IS/IT outsourcing services – basic overview 11/17/2018

Characteristic and cost structure 0 – 1982 Characteristic Mainframes and terminals Punch cards data management Batch processing, proper application development Local cost (fix cost) High cost for development and maintenance of proper solution Dependence on lack of skilled resources High cost for availability and security IS/IT outsourcing services – basic overview 11/17/2018

Characteristic and cost structure 1982 - 1999 Charakteristika PC and PC Server Standard interactive application Data entered directly by users Internal and external cost (variable and fix cost) High investment to buy HW and SW Low recoverability (ROI) High cost for availability and security IS/IT outsourcing services – basic overview 11/17/2018

Characteristic and cost structure 1999 - Charakteristic Independence on HW (Shared datacentre) Standard services Distributed infrastucture External cost (variable cost) Only variable cost (performance pay) Independence on lack of skilled resources High availability and security IS/IT outsourcing services – basic overview 11/17/2018

IT Spending 2002-2007 (Gartner Dataquest (December 2003) 2002 ($B) 2007 ($B) CAGR (%) Agriculture, Mining and Construction 27.6 34.0 4.29 Communications 361.5 410.9 2.59 Discrete Manufacturing 229.1 274.1 3.65 Education 42.5 54.3 5.03 Financial Services 356.2 436.9 4.17 Healthcare 68.7 90.0 5.55 Local and Regional Government 106.3 135.8 5.02 National and International Government 143.7 184.9 5.17 Process Manufacturing 158.5 194.3 4.16 Retail Trade 103.3 125.8 4.03 Services 146.2 195.6 5.98 Transportation 85.4 103.8 3.99 Utilities 80.3 103.1 5.14 Wholesale Trade 72.3 87.3 3.84 Total 1,981.5 2,430.7 4.17 IS/IT outsourcing services – basic overview 11/17/2018

Outsourcing trends Outsourcing by towers IS/IT outsourcing services – basic overview 11/17/2018

Types of outsourcing Personal outsourcing Complexní outsourcing Staff and services providing Complexní outsourcing Staff, services and all resources providing Partial outsourcing Staff, services and some resources providing Business process outsourcing (BPO) Services providing IS/IT outsourcing services – basic overview 11/17/2018

IT-enabled Services Custom Specialized Interactive Cultural Literature Theater Advanced Web sites Basic Web site Product Design Education Medical Diagnosis Technical Hot-line Technical Research Graphic Arts Call Center Legal Research Document Mgt Custom Software Data Management Commodity Standard Technical Off-line Technical Publishing Data entry Simple Complex IS/IT outsourcing services – basic overview 11/17/2018

Benefits and opportunities of outsourcing Economical – financial Clarity and cost reduction Personal Availability of skilled staff Administrative – factual Risk delegation on outsourcing supplier IS/IT outsourcing services – basic overview 11/17/2018

Service Level Agreement Basic specification, conditions and rules Service description, metrics, payment conditions Hard metrics availability, response time Soft metrics Quality of outsourcing services IS/IT outsourcing services – basic overview 11/17/2018

Discussion Thank you for your attention IS/IT outsourcing services – basic overview 11/17/2018