1. © 2009 Pearson Education, Inc. Publishing as Prentice Hall Managing Operations Chapter 8 Information Systems Management in Practice 8 th Edition

2. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-2 Chapter 8 Introduction What Are Operations? Why Talk About Operations? Solving Operational Problems: A Portfolio Approach Operational Measures The Importance of Good Management What’s New in Operations?

3. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-3 Chapter 8 cont’d Outsourcing Functions The Driving Forces Behind Outsourcing Changing Customer-Vendor Relationships Outsourcing’s History Managing Outsourcing Offshoring Insourcing Conclusion

4. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-4 Introduction

5. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-5 What Are Operations?

6. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-6 Why Talk About Operations Typical IT Budget: Administrative and planning: 20% Technology, networks, PCs: 44% Maintenance: 11% Systems development and enhancement: 25% Effective Management of IT Operations Consistently apply best practices Involve all stakeholders in IT-related operations Adopt partnerships perspective

7. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-7 Solving Operational Problems: A Portfolio Approach Typical Operations Problems: Slow response times Down networks Data unavailability and integrity compromise Three Strategies to Improve Operations Buy more equipment Regulate and prioritize computer workload and activities Implement operational measurements, set standards and benchmarks

8. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-8 Operational Measures External Measures System uptime (downtime) Response and turnaround time Program failures Internal Measures Computer usage as percentage of capacity Disk storage used Job queue length External problems can be explained by deviations in internal operations

9. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-9 The Importance of Good Management IS management must create an organizational culture that values good operations Key to managing operations is the same as in any management job Set standards or goals and manage accordingly Monitor performance Respond quickly to problems Hire a good manager (certain skill sets)

10. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-10 What’s New in Operations? Managing open source New options to develop cost-effective applications Getting serious with security Managing information security becomes prevalent in organizations with the proliferation of insecure network-based systems Large-scale data warehousing Content management will be a critical daily operation

11. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-11 What’s New in Operations? cont’d Enforcing Privacy Striking the right balance when disseminating data within organization Dealing with Talent Shortage Retaining talented workers Constantly redefine job of IT professional More operations managers are managing outward Managing outsourcing e.g., Web hosting, headhunting for IT talents Operations are being simplified Centralizing operations

12. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-12 Microsoft Case Example: Offloading of Operations (Webcast) Launch of new version of Windows included a private Webcast to original equipment manufacturers (OEM) in 83 countries Handled by Akamai Specializes in Web hosting  More than 12,000 servers in 66 countries Windows launch set a record for attendance, global reach and audience participation

13. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-13 Outsourcing IS Functions

14. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-14 The Driving Forces Behind Outsourcing Two drivers are leading companies to restructure and thus outsource: Added value in products and services for the customer Based on the value proposition, focus on core competences and businesses

15. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-15 Changing Customer-Vendor Relationships Relationships have evolved over the years (in chronological order) Buying professional services Consulting, training Buying products Integrating systems (project-based) Planning, development, maintenance and training Outsourcing (time-based) Contracting most of certain IT activities

16. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-16 Five-Option Continuum

17. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-17 Outsourcing’s History Monolithic Outsourcing (1989) Huge outsourcing contracts that involved almost entire IT operations Transitional Outsourcing (1990s) Choice of outsourcing of maintenance of legacy systems or development of new client-server systems Outsource retrofitting of old systems for Y2K compliance

18. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-18 Outsourcing’s History cont’d Best-of-Breed Outsourcing Selective outsourcing based on vendor specialty Desktop support, data center operations, network management Coordination is a challenge here Shared Services Consolidate all non-core activities to one shared services functional group to be outsourced Business Process Outsourcing (BPO) Outsourcing all or most of a reengineered process (BPR) that has large IT component

19. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-19 ANZ Banking Group Ltd. Case Example: Business Process Outsourcing Australian bank outsourced procurement function to improve service levels and increase scale of operations Lessons learned from experience Be prepared to change the contract as your environment changes Make step changes in technology and processes to save time and money, focus on having an effective transition Do your best to make the outsourced group appear seamless to your employees Focus early on what you want and don’t get sidetracked Keep incentive mechanism simple and transparent Be able to benchmark performance Understand, to a fair degree of detail, the value chain you plan to embrace

20. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-20 Outsourcing’s History cont’d E-business Outsourcing With arrival of business use of Internet, outsourcing has been one way that companies can quickly get Web sites up and handling business Preferred mode of operations in Internet-based firms Allow a company to move fast, remain flexible and minimize fixed costs in computer hardware Utility Computing On-demand pricing model (pay for what you use)

21. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-21 Managing Outsourcing Numerous aspects need to be handled well to create a successful working relationship Organizational structure Governance Day-to-day working Supplier development

22. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-22 Organizational Structure Outsourcing is a joint effort between parties that may not have the same goals Layers of joint teams typically established Top-level team: Final word in conflict resolution Operational team: Oversees day-to-day operations Joint special purpose teams: Created periodically to solve pressing issues Committees: Oversee the use of formal change management Relationship manager(s): “look after” the relationship

23. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-23 Eastman Kodak Company Case Example: Managing outsourcing Selective outsourcing from vendors Data centers and networks Managing telecommunications PC support Voice messaging

24. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-24 Eastman Kodak Company cont’d Management Structure (an outsourcing “best practice”) Management board (senior management) Meets twice a year (strategic issues) Advisory council (15-member) Meets monthly (technical and operational issues) Supplier and alliance management group Manages long-term relationships and contracts Relationship manager Focal point between Kodak and supplier Working groups Deal with specific technology areas Client surveys Sent out twice a year to 5,000 internal users

25. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-25 Governance Foundations of outsourcing relationship laid out in a contract Service Level Agreements (SLAs) important component: Responsibilities Performance requirements Penalties Bonuses Metrics (of performance)  Can be tricky

26. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-26 Governance cont’d

27. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-27 Day-to-Day Working Recommendations for managing daily interactions: Manage expectations, not staff Realize that informal ways of working may disappear Loss of informal ways adds to rigor and thus work quality Integration of two staffs require explicit actions Grant outsourcing staff appropriate access Hold joint celebrations and social events Invite each other to meetings Communicate frequently

28. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-28 Supplier Development Topic receiving increased attention in the production sourcing area Buying parts and services that go into one’s own products and services Assisting one’s suppliers to improve their product and services by improving their processes

29. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-29 Offshoring Companies turn to offshoring to tap lower labor costs and an ample supply of qualified people Offshore outsourcing differs from domestic outsourcing in a number of unique ways Offshoring options are broadening Customer service, back-office processing, BPO etc. Cultural differences Address communication issues and provide cultural training Local country laws need to be followed

30. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-30 Hewitt Associates Case Example: Offshoring Provides HR services to Global 500 companies Outsource maintenance of core HR computer systems to two Indian companies Choosing the provider Hired consultants to review, rank and select vendors Negotiating the deals Drew up contract and detailed SLAs Migration and ongoing management (workload and staff) 70% based in India; 15% posted to Hewitt; 15% own staff Hewitt had to adjust to Indian vendors’ high standards of maintenance and engineering discipline Positive outcome

31. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-31 Offshoring cont’d Use offshoring to advantage A major criticism is that it decreases skills and knowledge of client’s IS organization Need not be so – develop different competences Redefine services using offshoring Understand customers Understand demographics Office end-to-end service Dominate the screen  Controlling where the information ends up

32. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-32 Insourcing Generally interpreted as the delegation or contracting of operations or jobs within a business to an internal, but mostly independent sub-contractor Parent-subsidiary model Parent company outsources all operations to subsidiary IT firm Maintain tight control of contract job execution Protect intellectual property and business know- how

33. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-33 Conclusion Subject of managing IT operations is especially important today E-commerce Increasing use of outsourcing Information and computer security (viruses) Terrorism Whether operations take place in-house or outsourced, the modus operandi is based on partnerships

34. © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-34 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall