IT Outsourcing

Monday, 28 October 2013 @ 10 pm

Key Learning From Outsourcing IT Project

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gambar naza

Nazar Bujang

Engineering Manager, Kulim Hi-Tech Park

To Outsource or Not To Outsource? That was the question my team asked when we embarked on revamping our ERP & MRP system about 1 year ago. The legacy system that we have been using was operating in silo, the supply chain process was disintegrated, high dependencies on human and there were too many stand alone e-Business applications. In fact there were 152 apps and tools all together. How did we end-up with so many applications? The simple answer was because of NIH syndrome or Not-Invented-Here syndrome. Every time there was a problem occurred, new system was designed and introduced, instead of looking at ‘big picture’, approach it holistically and came up with integrated e-Business solution. Over the years, it accumulated and became one complex disintegrated systems.

The project ROI is good. We had a compelling justification to revamp our manufacturing shop floor control, inventory management, planning & forecasting process, order entry and product traceability. As summarized in the graphical illustration below the strategic objectives, performance attributes and critical success indicators are very solid.

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During project proposal review with management, question was raised on the budget required and whether should we develop the new system in-house or should we outsource this project? Several ‘what-if’ scenarios were analyzed and the pro’s and con’s were reviewed and debated. The brain storming session was long and involved several heated discussions. This situation was not uncommon because each argument has a strong reasons and good data to back-up the proposal. The project of this magnitude requires a thorough analysis and strong justification. At the end, management made the decision to outsource the project primarily due to cost impact and huge number of resources needed to analyze, design, program and test the new systems if it is going to be fully developed internally.

WHAT IS OUTSOURCING REALLY?
IT outsourcing generally is defined as contracting with outside vendors to do various IT functions such as data entry, data center operations, application maintenance and development, disaster recovery and network management and operations (Wikipedia). Vendors may be individual IT professionals, consulting firms, employee leasing companies or full-service providers.

Outsourcing decisions should be taken seriously and diligently, as of today the IT function plays an important role in most organizations. The IT function is the aggregate of activities and resources needed to establish and sustain the information technology & systems an organization needs (Looff,1997) . Current trend is that almost every organization depends to some extent on computerized information systems and the IS function is often of strategic importance to the organization. Furthermore the strategy of an organization can be supported or limited by the possibilities of information technology. Innovative information systems can even support and pave the way for new products or services. The question of who is to provide these information systems is therefore very important.

Before deciding to Insource or Outsource an IT project, it is wise to assess and analyze the advantages and disadvantages factors. With all the hype focused on the projected benefits of major IT outsourcing deals, several questions emerge: Is IT outsourcing really as effective as proponents say it is? What are the risks, disadvantages and hidden costs? Below is the summary of major factors which can be considered and provided the guidance during the assessment.

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Balancing the reward with risk is crucial for the company success in the long run. As the company becomes more aware of the possibilities and limitations of information technology, they tend to become more critical of the internal IT function. A recent study revealed that a majority of senior managers viewed their companies IT functions as cost burdens rather than as strategic resources (Antonucci et al 1998).

It is not surprising then that IT outsourcing has experienced such growth. Nevertheless, there is no conclusive proof that outsourcing always guaranteed to more focused organizations, higher flexibility, lower costs and staffing levels and economies of scale or to the solution of all problems with internal IT departments. In conclusion, outsourcing is not for every improvement project, every company or client.

KEY LEARNING :

After the completion of the project to revamp our factory ERP & MRP e-Business solution, a post mortem was conducted to review back what went well and what went wrong throughout the course of defining the features, system design, working with programmers from outsource vendors, testing and validating the systems.

The overall results are meeting management expectation. The decision made to outsource the project is the right one. However, there are few critical key learning I want to highlight here. At the early stage of the project phase, the outsource vendors are having difficulty to understand our factory requirement and many customized features are different from the industry standard. Several key employees from our department were pulled out from their normal job task and assigned to focus on this project to work and assist the programmers from outsource vendor to ensure they really understand the project requirement and applications. This move has given very positive impact in term of expediting the progress and avoided surprises or misinterpretation on the actual requirement. Communication is also very important. Besides regular teleconference, a face to face meetings are conducted periodically with the outsource programmers from Bangalore India. In addition to that, documenting the scope of work (SOW) clearly and getting commitment from outsource vendor helped minimize dispute which can slow down the project progress.

I hope the key learning we experienced will be beneficial for the readers who are in the midst of assessment or trying to make a decision between “To Outsource or Not To Outsource” their IT project.

ABOUT THE AUTHOR, Nazar Bujang

Nazar Bujang works as Engineering Manager at Kulim Hi-Tech Park. He has 23 years experiences in manufacturing industry. He graduated in 1990 with BSc Degree in Mechanical Engineering. He is currently enrolling in Executive MBA program at University Technology MARA, Bukit Mertajam campus.

 

FEEDBACK :

Feel free to send us your comments, suggestions and insights on our blog to misgempakpower.wordpress.com

REFERENCES :

  • L. A. de Looff, “Information Systems Outsourcing Decision Making: A Managerial Approach”, Idea Group Publishing, Hershey, Pennsylvania, 1997
  • Yvonne Lederer Antonucci, Frank C Lordi & James J Tucker, “The Pros and Cons of IT Outsourcing”, June 1998
  • http://en.wikipedia.org/wiki/Information_technology_outsourcing

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