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2009 Pearson Education, Inc. Publishing as Prentice Hall
Managing Operations
Chapter 8
Information Systems
Management in Practice
8th Edition
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Chapter 8
Introduction
What Are Operations?
Why Talk About Operations? Solving Operational Problems: A Portfolio
Approach
Operational Measures
The Importance of Good Management
Whats New in Operations?
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Chapter 8 contd
Outsourcing Functions
The Driving Forces Behind Outsourcing
Changing Customer-Vendor Relationships
Outsourcings History
Managing Outsourcing
Offshoring
Insourcing
Conclusion
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Introduction
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What Are Operations?
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Why Talk About Operations
Typical IT Budget:
Administrative and planning: 20%
Technology, networks, PCs: 44%
Maintenance: 11%
Systems development and enhancement: 25%
Effective Management of IT Operations
Consistently apply best practices Involve all stakeholders in IT-related operations
Adopt partnerships perspective
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Solving Operational Problems:
A Portfolio Approach
Typical Operations Problems:
Slow response times
Down networks
Data unavailability and integrity compromise
Three Strategies to Improve Operations Buy more equipment
Regulate and prioritize computer workload andactivities
Implement operational measurements, setstandards and benchmarks
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Operational Measures
External Measures
System uptime (downtime)
Response and turnaround time
Program failures
Internal Measures
Computer usage as percentage of capacity
Disk storage used
Job queue length
External problems can be explained by deviations in
internal operations
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The Importance of Good
Management
IS management must create an
organizational culture that values good
operations
Key to managing operations is the same as in
any management job
Set standards or goals and manage accordingly
Monitor performance
Respond quickly to problems
Hire a good manager (certain skill sets)
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Whats New in Operations?
Managing open source
New options to develop cost-effective applications
Getting serious with security Managing information security becomes prevalent
in organizations with the proliferation of insecure
network-based systems
Large-scale data warehousing Content management will be a critical daily
operation
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Whats New in Operations?
contd
Enforcing Privacy Striking the right balance when disseminating data within
organization
Dealing with Talent Shortage Retaining talented workers
Constantly redefine job of IT professional
More operations managers are managing outward Managing outsourcing
e.g., Web hosting, headhunting for IT talents
Operations are being simplified Centralizing operations
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Microsoft
Case Example: Offloading of Operations (Webcast)
Launch of new version of Windows included
a private Webcast to original equipment
manufacturers (OEM) in 83 countries
Handled by Akamai
Specializes in Web hosting
More than 12,000 servers in 66 countries
Windows launch set a record for attendance,
global reach and audience participation
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Outsourcing IS Functions
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The Driving Forces Behind
Outsourcing
Two drivers are leading companies to
restructure and thus outsource:
Added value in products and services for the
customer
Based on the value proposition, focus on core
competences and businesses
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Changing Customer-Vendor
Relationships
Relationships have evolved over the years (in
chronological order)
Buying professional services
Consulting, training
Buying products
Integrating systems (project-based)
Planning, development, maintenance and training Outsourcing (time-based)
Contracting most of certain IT activities
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Five-Option Continuum
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Outsourcings History
Monolithic Outsourcing (1989)
Huge outsourcing contracts that involved almost
entire IT operations
Transitional Outsourcing (1990s)
Choice of outsourcing of maintenance of legacy
systems or development of new client-server
systems Outsource retrofitting of old systems for Y2K
compliance
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Outsourcings History contd
Best-of-Breed Outsourcing Selective outsourcing based on vendor specialty
Desktop support, data center operations, networkmanagement
Coordination is a challenge here
Shared Services Consolidate all non-core activities to one shared services
functional group to be outsourced
Business Process Outsourcing (BPO) Outsourcing all or most of a reengineered process (BPR)
that has large IT component
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ANZ Banking Group Ltd.
Case Example: Business Process Outsourcing
Australian bank outsourced procurement function toimprove service levels and increase scale of operations
Lessons learned from experience Be prepared to change the contract as your environment changes
Make step changes in technology and processes to save time andmoney, focus on having an effective transition
Do your best to make the outsourced group appear seamless to youremployees
Focus early on what you want and dont get sidetracked Keep incentive mechanism simple and transparent
Be able to benchmark performance
Understand, to a fair degree of detail, the value chain you plan toembrace
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Outsourcings History contd
E-business Outsourcing
With arrival of business use of Internet,
outsourcing has been one way that companies
can quickly get Web sites up and handlingbusiness
Preferred mode of operations in Internet-based firms
Allow a company to move fast, remain flexible and
minimize fixed costs in computer hardware
Utility Computing
On-demand pricing model (pay for what you use)
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Managing Outsourcing
Numerous aspects need to be handled well
to create a successful working relationship
Organizational structure
Governance
Day-to-day working
Supplier development
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Organizational Structure
Outsourcing is a joint effort between parties thatmay not have the same goals
Layers of joint teams typically established
Top-level team: Final word in conflict resolution
Operational team:
Oversees day-to-day operations
Joint special purpose teams:
Created periodically to solve pressing issues
Committees:
Oversee the use of formal change management
Relationship manager(s): look after the relationship
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Eastman Kodak Company
Case Example: Managing outsourcing
Selective outsourcing from vendors
Data centers and networks
Managing telecommunications
PC support
Voice messaging
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Eastman Kodak Company
contd
Management Structure (an outsourcing best practice)
Management board(senior management)
Meets twice a year (strategic issues)
Advisory council (15-member)
Meets monthly (technical and operational issues)
Supplier and alliance management group
Manages long-term relationships and contracts
Relationship manager
Focal point between Kodak and supplier
Working groups
Deal with specific technology areas
Client surveys
Sent out twice a year to 5,000 internal users
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Governance
Foundations of outsourcing relationship laid
out in a contract
Service Level Agreements (SLAs) important
component:
Responsibilities
Performance requirements
Penalties
Bonuses
Metrics (of performance)
Can be tricky
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Governance contd
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Day-to-Day Working
Recommendations for managing daily interactions:
Manage expectations, not staff
Realize that informal ways of working may disappear
Loss of informal ways adds to rigor and thus work quality Integration of two staffs require explicit actions
Grant outsourcing staff appropriate access
Hold joint celebrations and social events
Invite each other to meetings Communicate frequently
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Supplier Development
Topic receiving increased attention in the
production sourcing area
Buying parts and services that go into ones own
products and services
Assisting ones suppliers to improve their
product and services by improving their
processes
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Offshoring
Companies turn to offshoring to tap lower labor
costs and an ample supply of qualified people
Offshore outsourcing differs from domestic
outsourcing in a number of unique ways Offshoring options are broadening
Customer service, back-office processing, BPO etc.
Cultural differences
Address communication issues and provide cultural training Local country laws need to be followed
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Hewitt Associates
Case Example: Offshoring
Provides HR services to Global 500 companies
Outsource maintenance of core HR computer systems totwo Indian companies Choosing the provider
Hired consultants to review, rank and select vendors
Negotiating the deals
Drew up contract and detailed SLAs
Migration and ongoing management (workload and staff) 70% based in India; 15% posted to Hewitt; 15% own staff
Hewitt had to adjust to Indian vendors high standards ofmaintenance and engineering discipline
Positive outcome
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Offshoring contd
Use offshoring to advantage
A major criticism is that it decreases skills and
knowledge of clients IS organization
Need not be so develop different competences
Redefine services using offshoring
Understand customers
Understand demographics
Office end-to-end service
Dominate the screen
Controlling where the information ends up
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Insourcing
Generally interpreted as the delegation orcontracting of operations or jobs within abusiness to an internal, but mostly
independent sub-contractor Parent-subsidiary model
Parent company outsources all operations tosubsidiary IT firm
Maintain tight control of contract job execution Protect intellectual property and business know-
how
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Conclusion
Subject of managing IT operations is
especially important today
E-commerce
Increasing use of outsourcing
Information and computer security (viruses)
Terrorism
Whether operations take place in-house oroutsourced, the modus operandiis based on
partnerships
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Copyright 2009 Pearson Education, Inc.Publishing as Prentice Hall