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268 Chapter 10 • Global, Ethics, and Security Management

of a SAP R3 system, it was outsourced at Sebastian International, Inc., Woodland Hills, California.
“Confronted by unacceptable system performance and the loss of key IT personnel, we made the
decision to outsource,” said Dianne King, director of IT. “We probably would have saved quite a bit
1
if we had outsourced right at the beginning.” Companies thinking of outsourcing, however, need to
have a strategy that is appropriate for their organizations. Management needs to evaluate whether it
makes sense from both a cost and quality perspective and to make decisions on what should be
outsourced and how. Outsourcing should not be used to abdicate responsibility. It requires proper
oversight and a well-defined relationship with the outsourced partner.
In addition to outsourcing, this chapter will focus on the issues of ethics, legal environ-
ments, and security with ERP systems. ERP and other enterprise systems generally have a broad-
based impact on organization structure, process, and people. They can also change the ethical
and legal environment of the organization. Security is another major concern, both during and
after the ERP implementation. ERP systems, with their power of integration and their ability to
link with external systems, can create major havoc or disaster when a hacker or virus infiltrates
the system’s security perimeter.

OUTSOURCING
What Is Outsourcing?
Outsourcing occurs anytime a company decides to subcontract its business processes or functions
to another company; therefore, instead of hiring employees to perform a task, the company
(outsourcer) enters into an outsourcing arrangement with another firm (outsourcee) to provide
these services under contract for a certain price and period. As mentioned earlier, outsourcing in
the ERP area has been successfully used by organizations worldwide for some time. Peter
2
Drucker, the famous management guru, gave his blessing to outsourcing in 1995 when he
predicted that “in 10 to 15 years organizations may be outsourcing all work that is ‘support’ rather
than revenue producing, and all activities that do not offer career opportunities into senior
management.” Although he may be referring to outsourcing in general, Drucker’s prediction has
reached early fruition in the IT industry and ERP system.
Even as early as 2000, two respected IT research firms, Forrester Research, Inc.,
Cambridge, Massachusetts, and Syntacom IT-Services, Inc., Waltham, Massachusetts, had
predicted ERP outsourcing to become a $6.4 billion market by 2001 with 50 percent of all
3
ERP implementations outsourced by 2006, respectively. High IT spending has been on the
radar of top management in recent years, and the chief information officers (CIOs) are being
asked to do more with less. Several key trends exist in ERP deployments that are helping im-
plementation teams exploit technology in new ways to improve quality and reduce costs.
Offshoring capabilities have strengthened over the years through the emergence of new global
players, and they have allowed many organizations to take advantage of highly skilled labor at
more cost-effective prices. Outsourcing (i.e., the delivery of IT and application software via
service-oriented architecture (SOA) and Web services) is a new model that provides better
value for customers than the traditional model of purchasing software licenses, installing the

1 Teresko, J. (September 6, 1999). ERP Outsourcing: Can I Meet Market Demands? Industry Week Magazine.
2 Drucker, P. (1995). Why Buy When You Can Rent? Harvard Business Review.
3 Travis, L., and Stiffler, D. (2005). Offshoring Decisions for 2005 Time to Consider a New Model. www.amrresearch.com/
Content/View/asp?pmillid=17890 (accessed January 14, 2005).