1. IS/IT outsourcing services – basic
RNDr. Stanislav Michelfeit
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IS/IT outsourcing services – basic overview
11/17/2018

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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:
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

8. 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 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: $ 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: $ 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: $ INVESTMENTS: $2.6 FINANCING: $2.9 SERVICES: $28.9 SOFTWARE: $11.9 HARDWARE: $35.4 TOTAL: $ INVESTMENTS: $1.1 FINANCING: $2.8 SERVICES: $42.6 SOFTWARE: $14.3 HARDWARE: $28.2 TOTAL: $ (Source by Company reports)(pg. C6)
IS/IT outsourcing services – basic overview
11/17/2018

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

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

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

18. 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

19. Characteristic and cost structure
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

20. 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

21. IT Spending 2002-2007 (Gartner Dataquest (December 2003)
2002 ($B) 2007 ($B) CAGR (%)
Agriculture, Mining and Construction
Communications
Discrete Manufacturing
Education
Financial Services
Healthcare
Local and Regional Government
National and International Government
Process Manufacturing
Retail Trade
Services
Transportation
Utilities
Wholesale Trade
Total 1, ,
IS/IT outsourcing services – basic overview
11/17/2018

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

23. 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

24. 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

25. 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

26. 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

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