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  1. MIS 648 Presentation Notes: Lecture 14 Selecting Offshoring Sites MIS 648 Lecture 14

  2. AGENDA • Introduction to the lecture • Goal of the Lecture • Evaluating Offshoring Decisions (Palvia) • Comparing Countries (Gurung) • Wrap-Up MIS 648 Lecture 14

  3. Goals of the Lecture • Examine and evaluate several models of selection of offshoring sites • Develop a critical viewpoint on offshoring in an economic and cultural context • Wrap up the course MIS 648 Lecture 14

  4. Choosing an Outsourcee • Palvia explores the choice of country (outsourcee) • Functions that can be offshored include almost all of IT, accounting, HR, much of R&D, CRM, tax prep, radiology, entertainment content, etc. • Palvia distinguishes between on-shore, near shore (such as among NAFTA countries), off-shore and far-shore MIS 648 Lecture 14

  5. Examples • Near shore: Canada, Mexico, might also include West Indies • Off shore: European and near-european countries such as Ireland, Israel, Belarus • Far shore: China, Russia, Philippines, Malaysia, Taiwan, Pakistan • Cost drives distance both physical as well as cultural MIS 648 Lecture 14

  6. COST QUALITY SPEED Country and Company Destination Country Selection Model Political Infra- structural Resources Government Regulation Human Resources Legal System Language Culture MIS 648 Lecture 14

  7. Decision Factors • Cost: Obviously per hour costs are lowest in “undeveloped” countries, but is the quality high? • Quality: Many “developing” countries have very high quality IT workers because of universities, gov’t policy, etc. • Speed depends on infrastructure, time zones, worker flexibility MIS 648 Lecture 14

  8. Israel Ireland Singapore C O S T Low High Mexico Malaysia Hungary Philippines India China Russia Low Q U A L I T Y High Cost vs. Quality tradeoff MIS 648 Lecture 14

  9. Educational Institutions Training Facilities Trained and skilled SW engineers Level of IT labor cost Risk Infrastructure Exchange Rate Host Country Factors IT Manager Size of Company Availability of Software Engineers and their Wages Home Country Factors S/W Piracy Rate Political Stability Outsourcing Software Development: The Location Decision Location Decision GSD Decision MIS 648 Lecture 14

  10. MACRO LEVEL (Country) Educational Institutions Training Facilities Trained and skilled SW engineers Level of IT labor cost Risk Infrastructure Exchange Rate Host Country Factors IT Manager Size of Company Availability of Software Engineers and their Wages Home Country Factors S/W Piracy Rate Political Stability MICRO LEVEL (Project) Additional Factors Location Decision GSD Decision MIS 648 Lecture 14

  11. Macro-Level Considerations • Language • Quality (Bang for buck/Quality vs. Cost) • Certification • ISO 9000 • SEI Level 2, 3, 4, or 5 • CMM or SPICE or other MIS 648 Lecture 14

  12. Micro-Level Considerations • About the project or application • McFarlan Risk Factors • Size • Stability/Specificity/Structure • “Gap” • Time Structure (sequential, parallel, overlapped) MIS 648 Lecture 14

  13. Finally, Culture • Guring and Prater explored the impact of culture on virtual team performance in an outsourcing setting. • Global virtual team: “temporary, culturally diverse, geographically dispersed, electronically communicating work group” (Kristoff, Brown, et al 1995). • All signs point to the centrality of culture in outsourcing success whatever the theoretical perspective taken and whatever phase of outsourcing or activity pinpointed. MIS 648 Lecture 14

  14. Outsourcing, a critical view • While there are many success stories, the failures are often ignored. • Problems seem objective (underestimation of costs, unsatisfactory delivery of services, uncooperative vendors, etc.) • But they all seem to have cultural components unstudied and unmeasured. MIS 648 Lecture 14

  15. Why Culture? • Relationships are all important • Compatibility is key in relationships • Culture is a driver of [in]compatibility • Cost is the primary motivator • Contract preparation is the key to cost control; this depends on relationship and disclosure as well as business practices • All of these are sensitive to culture. MIS 648 Lecture 14

  16. How to Manage Cultural Differences • Carmel and Agarwal describe four methods: • Bridgehead (onshore+offshore) • Contracting virtual teams • Cultural liaison (SWAT team) • Language training • Virtual teams are susceptible of course to all influences such as group life cycle. MIS 648 Lecture 14

  17. Cultural/Psychic Distance • A construct or concept that indicates differences between pairs of “cultures” • Simplest: Hofstede mismatch • More complex: “Psychic difference” • Perception and understanding of cultural and business differences • Not the same as cultural distance, which functions at a national level • Trust (org’l level), experience (ind’l level) figure into psychic difference MIS 648 Lecture 14

  18. Offshoring Success Attainment of strategic, economic and technological benefitsFit between customer’s requirements and outsourcing outcomes Offshoring Success Impacted by Trust Benefit Risk sharing Business understanding Commitment MIS 648 Lecture 14

  19. Relationship Quality Offshoring Success Psychic Distance Offshoring Success and “Culture” Culture Experience MIS 648 Lecture 14

  20. Psychic Distance Offshoring Success and “Culture” Eg. The greater the experience of virtual team members, the better the chance of success Each arrow generates a proposition Relationship Quality Offshoring Success Culture Experience Eg. The better the quality of the relationship, the better the chance of success MIS 648 Lecture 14

  21. Do You Work on Such a Team? • Evaluate: • Relationship between client and vendor • Relationship among team members • Experience of outsourcing partners • Differences in national, organizational cultures • Psychic differences • Level of international experience MIS 648 Lecture 14

  22. Trends and Implications • Rao, Poole, Raven and Lockwood (2006) wondered where global IT offshoring (GITS) was going. • They interviewed 10 CIOs of relatively large firms (sales from $M315 to $B52) in the western US. • Asked about their perceptions of where GITS is going, the implications and what should be done. MIS 648 Lecture 14

  23. Primary Drivers • Lower cost • Access to expertise not available inhouse • Flexibility to meet capacity demands • Accessing a global skills base • Access to new markets • Improved product quality • Develop external collaboration experience • Assist in improving domestic IT processes MIS 648 Lecture 14

  24. Primary Concerns • Proj. mgmt skills needed inhouse • Lack of domain knowledge among vendor personnel • Managing vendor team composition (not stable) • Protection of intellectual property • Geopolitical stability in vendor countries • Language barriers • Internal employees’ unrest • Loss of IT training ground (no entry level) MIS 648 Lecture 14

  25. Implications • Large projects more easily cost justified • IT labor resources redirected domestically • Knowledge transfer to domestic staff • Lowered morale and raised perception of layoffs domestically • Declining US enrolments in science and technology • Loss of US entry-level positions in coding and testing. MIS 648 Lecture 14

  26. To Be Done or Avoided • Avoid gov’t legislation limiting GITS • Provide assistance and training and unemployment benefits to displaced workers (?) • Make changes to CS (and MIS) curricula to include business foundation • Stress importance of math and science in K-12 MIS 648 Lecture 14

  27. Course Roundup • Culture is important; global influences it • Teamwork is important; mediator • IT influences economic development • Economic development influences IT deployment, use • E-commerce, system development, Outsourcing are three forms of the same thing: creation and deployment of business tools. MIS 648 Lecture 14

  28. Evaluate Your Own Situation • Does IT influence or determine some or all of your work? • Do you work globally? • Do you work in teams? • If the answer is “Yes” to all of these, then applying the lessons learned in this course can increase the quality of your work and your working life. MIS 648 Lecture 14