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542 Part Four Building and Managing Systems

specifications directly to user requirements, the design effort will consist of
trying to mold user requirements to conform to the features of the package. If
the organization’s requirements conflict with the way the package works and
the package cannot be customized, the organization will have to adapt to the
package and change its procedures.

Outsourcing
If a firm does not want to use its internal resources to build or operate infor-
mation systems, it can outsource the work to an external organization that
specializes in providing these services. Cloud computing and software as a
service (SaaS) providers, which we described in Chapter 5, are one form of
outsourcing. Subscribing companies use the software and computer hard-
ware provided by the service as the technical platform for their systems.
In another form of outsourcing, a company could hire an external vendor
to design and create the software for its system, but that company would
operate the system on its own computers. The outsourcing vendor might be
domestic or in another country.
Domestic outsourcing is driven primarily by the fact that outsourcing firms
possess skills, resources, and assets that their clients do not have. Installing
a new supply chain management system in a very large company might
require hiring an additional 30 to 50 people with specific expertise in supply
chain management software, licensed from a vendor. Rather than hire per-
manent new employees, most of whom would need extensive training in
the software package, and then release them after the new system is built, it
makes more sense, and is often less expensive, to outsource this work for a
12-month period.
In the case of offshore outsourcing, the decision tends to be much more
cost-driven. A skilled programmer in India or Russia earns about USD $10,000–
$20,000 per year, compared to $73,000 per year for a comparable programmer
in the United States. The Internet and low-cost communications technology
have drastically reduced the expense and difficulty of coordinating the work
of global teams in faraway locations. In addition to cost savings, many offshore
outsourcing firms offer world-class technology assets and skills. Wage inflation
outside the United States has recently eroded some of these advantages, and
some jobs have moved back to the United States.
Nevertheless, there is a very strong chance that at some point in your career,
you’ll be working with offshore outsourcers or global teams. Your firm is most
likely to benefit from outsourcing if it takes the time to evaluate all the risks
and to make sure outsourcing is appropriate for its particular needs. Any com-
pany that outsources its applications must thoroughly understand the project,
including its requirements, method of implementation, anticipated benefits,
cost components, and metrics for measuring performance.
Many firms underestimate costs for identifying and evaluating vendors
of information technology services, for transitioning to a new vendor, for
improving internal software development methods to match those of
outsourcing vendors, and for monitoring vendors to make sure they are fulfill-
ing their contractual obligations. Companies will need to allocate resources
for documenting requirements, sending out RFPs, handling travel expenses,
negotiating contracts, and project management. Experts claim it takes from
three months to a full year to fully transfer work to an offshore partner and
make sure the vendor thoroughly understands your business.

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