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224 Part Two Information Technology Infrastructure
Software Outsourcing
Software outsourcing enables a firm to contract custom software develop-
ment or maintenance of existing legacy programs to outside firms, which
often operate offshore in low-wage areas of the world. According to the indus-
try analysts, spending on offshore IT outsourcing services was approximately
$251 billion in 2012 (Gartner, 2012). The largest outsourcing expenditures are
to domestic U.S. firms providing middleware, integration services, and other
software support that are often required to operate larger enterprise systems.
For example, Cemex, Mexico's largest cement manufacturer, signed a 10-year
$1 billion outsourcing deal with IBM in July 2012. Under the deal, IBM respon-
sibilities include application development and maintenance as well as IT infra-
structure management at Cemex company headquarters in Monterrey, Mexico,
and around the globe. IBM will take over and run Cemex's finance, accounting,
and human resources systems (McDougall, 2012).
Offshore software outsourcing firms have primarily provided lower-level
maintenance, data entry, and call center operations, although more sophisti-
cated and experienced offshore firms, particularly in India, have been hired
for new-program development. However, as wages offshore rise, and the costs
of managing offshore projects are factored in (see Chapter 13), some work that
would have been sent offshore is returning to domestic companies.
Cloud-Based Software Services and Tools
In the past, software such as Microsoft Word or Adobe Illustrator came in a box
and was designed to operate on a single machine. Today, you’re more likely to
download the software from the vendor’s Web site, or to use the software as a
cloud service delivered over the Internet.
Cloud-based software and the data it uses are hosted on powerful servers in
massive data centers, and can be accessed with an Internet connection and stan-
dard Web browser. In addition to free or low-cost tools for individuals and small
businesses provided by Google or Yahoo, enterprise software and other complex
business functions are available as services from the major commercial software
vendors. Instead of buying and installing software programs, subscribing compa-
nies rent the same functions from these services, with users paying either on a
subscription or per-transaction basis. Services for delivering and providing access
to software remotely as a Web-based service are now referred to as software as a
service (SaaS). A leading example is Salesforce.com, which provides on-demand
software services for customer relationship management.
In order to manage their relationship with an outsourcer or technology
service provider, firms need a contract that includes a service level agreement
(SLA). The SLA is a formal contract between customers and their service
providers that defines the specific responsibilities of the service provider
and the level of service expected by the customer. SLAs typically specify the
nature and level of services provided, criteria for performance measurement,
support options, provisions for security and disaster recovery, hardware and
software ownership and upgrades, customer support, billing, and conditions for
terminating the agreement. We provide a Learning Track on this topic.
Mashups and Apps
The software you use for both personal and business tasks may consist of large
self-contained programs, or it may be composed of interchangeable compo-
nents that integrate freely with other applications on the Internet. Individual
users and entire companies mix and match these software components to
create their own customized applications and to share information with others.
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