SUBCONTRACTING TRENDS AND DIFFICULTY

Outsourcing is more complex and risky if the outsourcer (the prime contractor) outsources to subcontractors or utilizes overseas locations Outsourcing is more complex and risky if the outsourcer (the prime contractor) outsources to subcontractors or utilizes overseas locations 36% IT Outsourcing contracts and 25% of system integration contracts involve subcontractors 36% IT Outsourcing contracts and 25% of system integration contracts involve subcontractors Outsourcers go overseas for another important reason : significantly lower programming costs in countries like India, Israel or The Philippines. Outsourcers go overseas for another important reason : significantly lower programming costs in countries like India, Israel or The Philippines.

The Increased Risks To optimum use of subcontractors, clients should : Ensure that they are informed the use of subcontractors. (Some prime contractors fail to make this delegation open) Ensure that they are informed the use of subcontractors. (Some prime contractors fail to make this delegation open) Appraise subcontractors and their key personnel with the same diligence used for the prime contractor Appraise subcontractors and their key personnel with the same diligence used for the prime contractor Insist on having & maintaining direct relationships with the subcontractor. Insist on having & maintaining direct relationships with the subcontractor.

The Increased Risks Written contract is a rough outline of what needs to be performed. Written contract is a rough outline of what needs to be performed. The sense of commitment and the resources provided by key subcontractors are of major importance.

Does One Size Fit All ? Often contractors who have designed a system for one client will propose to include it in a package for another. 2 syst. development problems in its new usage : It is highly inefficient since the parts is mix together It is highly inefficient since the parts is mix together This mix system becomes more difficult to customize further. It’s very difficult for programmers to work with because so many complexities are fixed in it This mix system becomes more difficult to customize further. It’s very difficult for programmers to work with because so many complexities are fixed in it

Does One Size Fit All ? Designing systems with adaptable standards for multiple customer needs is difficult. If purchasing a previously developed “custom” system, client should anticipate more time for redesign and even restructuring of the system and make sure the programming team assigned to do the new “customized” system includes those who were intimately familiar with the model system’s details and faults.

Explicit Safeguards Client must choose prime contractor with critical systems expertise to add the most value, rather being subcontracted. Client must choose prime contractor with critical systems expertise to add the most value, rather being subcontracted. And the prime contractor should perform a good share of the work and not simply be the coordinator. And the prime contractor should perform a good share of the work and not simply be the coordinator. The contract should ensure the work is not subcontracted without the client’s knowledge and approval. The contract should ensure the work is not subcontracted without the client’s knowledge and approval.

Explicit Safeguards The outsourcer should only use subcontractors selected from a pre approved list. The client must give time, energy & resources assessing the competence and commitment of the key subcontractors and their key project people. The outsourcer should only use subcontractors selected from a pre approved list. The client must give time, energy & resources assessing the competence and commitment of the key subcontractors and their key project people. Subs need to understand the larger system, not just receive specifications for their part of the system as translated by the prime. Subs need to understand the larger system, not just receive specifications for their part of the system as translated by the prime.

Why Bypassing May Be Essential There are several reasons for doing this : Commitment level of professionals can be increased if there is a good personal relationship Commitment level of professionals can be increased if there is a good personal relationship Trade-offs will be made by programmers in developing a new system. The client wants them to favor the business needs and strategies, not technical convenience or shortcuts that minimize costs or time investments. Trade-offs will be made by programmers in developing a new system. The client wants them to favor the business needs and strategies, not technical convenience or shortcuts that minimize costs or time investments. During serious deadlock in the development effort there can be extended, even destructive conflicts between the sub and the prime contractor. During serious deadlock in the development effort there can be extended, even destructive conflicts between the sub and the prime contractor.

Appraising International Outsourcing : A High-Risk Strategy Clearly definable projects requiring relatively routinized programming (e.g., converting certain kinds of reports to a different format) are safer to have done overseas. Clearly definable projects requiring relatively routinized programming (e.g., converting certain kinds of reports to a different format) are safer to have done overseas. However, obvious cost saving and availability must be balanced against the enormous geographic, time & cultural barriers to frequent, easy interaction and coordination. However, obvious cost saving and availability must be balanced against the enormous geographic, time & cultural barriers to frequent, easy interaction and coordination. For some clients, the global nature of their operations may be significant factor in systems development and ongoing operation. For some clients, the global nature of their operations may be significant factor in systems development and ongoing operation.

Are There Cost Savings? Client’s multicultural projects are always high risk. And this must be factored into their outsourcing strategy. Client’s multicultural projects are always high risk. And this must be factored into their outsourcing strategy. In addition to the possibility of traumatic political change, substantial problems can be created by differences in legal systems and even in the importance of laws, contracts, property rights, and the like. In addition to the possibility of traumatic political change, substantial problems can be created by differences in legal systems and even in the importance of laws, contracts, property rights, and the like.

What a Client Should Demand and Understand The use of overseas resources or subcontractors must disclosed to client at initial discussions, so client have an opportunity to assess the risks and benefits of this factor. The use of overseas resources or subcontractors must disclosed to client at initial discussions, so client have an opportunity to assess the risks and benefits of this factor. Clients should know that can be additional costs and specialized resources associated with successfully managing a multicultural project. Clients should know that can be additional costs and specialized resources associated with successfully managing a multicultural project.

What a Client Should Demand and Understand If international resources are part of an IS outsourcing strategy, the client should consider the extent to which they will be willing to assign personnel to participate in the effort and manage the relations involved. If international resources are part of an IS outsourcing strategy, the client should consider the extent to which they will be willing to assign personnel to participate in the effort and manage the relations involved. ASSIGNMENT : p.97 – p.99 A Case Study ASSIGNMENT : p.97 – p.99 A Case Study