Management Information Systems,

Sixth Edition

Chapter 13:
Choices in Systems Acquisition
 Objectives
• Explain the differences among the alternatives to
tailored system development: outsourcing,
licensing ready-made software, using software
as a service, and encouraging users to develop
their own applications
• List the business trade-offs in the various
methods of acquiring systems

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 Objectives (continued)

• Describe which systems acquisition approach is

appropriate for a particular set of circumstances
• Discuss organizational policies on employee
computer use

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 Options and Priorities

• There are four alternatives to in-house

development:
– Outsourcing
– Licensing
– Using software as a service (SaaS)
– Having users develop the system
• The deciding factor is usually cost when the desired
application is available from multiple sources
• Licensing is preferred due to low cost and
immediate availability

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 Options and Priorities (continued)

• If licensing is not available:

– Application service provider (ASP) is the next
best choice
– System is immediately available for a small start-
up fee
• Third best choice is allowing users to develop
their system
• Last choice is to outsource, if non-IT employees
cannot develop IS

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 Options and Priorities (continued)

• Many factors must be considered in addition to

cost and quality
• Alternatives are not fully comparable, and often
cannot be simply prioritized

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 Options and Priorities (continued)

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 Outsourcing

• Outsourcing has two meanings in the IT arena:

– To commission the development of an application
to another organization
– To hire the services of another company to
manage all or parts of the services usually
rendered by an IT unit in the organization
• May not include development of new applications

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 Outsourcing Custom-Designed
Applications
• Custom-designed (tailored) software:
software developed specifically for the needs of
an organization
• Several advantages:
– Good fit to need
– Good fit to culture
– Dedicated maintenance
– Smooth interface
– Specialized security
– Potential for strategic advantage
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 Outsourcing Custom-Designed
Applications (continued)
• Disadvantages:
– High cost
– The organization must fund all development costs
– Staff may be diverted from other projects
– Software is less likely to be compatible with other
organizations’ systems

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 Outsourcing Custom-Designed
Applications (continued)

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 Outsourcing Custom-Designed
Applications (continued)
• Must deal with an inherent conflict when
outsourcing software development:
– Client wants a firm contract and set of
requirements
– Specific requirements may mean that no deviation
is allowed if changes are needed later as
development progresses
• Changes may involve hefty additional charges
• Offshoring: outsourcing to other countries such
as India, China, Philippines, etc.

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 Outsourcing IT Services
• Many businesses turn to IT companies for long-
term services, including:
– Purchasing and maintaining hardware
– Developing, licensing, and maintaining software
– Installing communications networks
– Maintaining and operating Web sites
– Staffing help desks
– Running IT daily operations
– Managing customer and supplier relations
• Business process outsourcing: outsourcing
routine processes, such as order entry or HR

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 Outsourcing IT Services (continued)
• Some companies realize IT is not their core
competency and should not be a focus of their
efforts
• Pace of development in IT requires a high level of
expertise
• A growing portion of IS budgets are being
allocated for outsourced services
• Popular IT service providers include:
– IBM
– EDS
– Accenture
– Unisys
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 Outsourcing IT Services (continued)

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 Outsourcing IT Services (continued)

• Outsourcing companies are known as vendors

• IT outsourcing contracts are typically long-term
contractual relationships, usually for seven to 10
years
• Clients sometimes find themselves bound by
obsolete contracts, and must renegotiate

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Advantages of Outsourcing IT Services

• Several advantages of outsourcing:

– Improved financial planning
• Client knows the exact cost of IS functions
– Reduced license and maintenance fees
• IS professional firms pay discounted prices for
tools and can pass on the savings to their clients
– Increased attention to core business
• Executives can concentrate on their company’s
core business

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Advantages of Outsourcing IT Services
(continued)
• Advantages of outsourcing
– Shorter implementation cycles
• IT vendors can complete new applications faster
– Reduction of personnel and fixed costs
– Increased access to highly qualified know-how
– Availability of ongoing consulting as part of
standard support
• Sometimes outsourcing does not save the client
money

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Advantages of Outsourcing IT Services
(continued)

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 Risks of Outsourcing IT Services
• Disadvantages of outsourcing:
– Loss of control
• High risk in a quickly changing industry
– Loss of experienced employees
• Usually involves transferring employees to vendor
– Risks of losing a competitive advantage
• May disclose trade secrets
– High price
• Can be more expensive than keeping the tasks in-
house
• Important to clearly define contract terms

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 Risks of Outsourcing IT Services
(continued)

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 Risks of Outsourcing IT Services
(continued)
• Service-level agreement
– The most important element of an outsourcing
agreement
– Lists all services expected of the vendor
– Defines the metrics to be used to measure
vendor performance
• The client must develop the service level and
metrics list, not the vendor

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 Licensing Applications
• Purchasing software usually means purchasing
licenses to use the software
• There is a large selection of high-quality packaged
software available
• Two groups of ready-made software:
– Relatively inexpensive software that helps in the
workplace, such as office suites
– Large applications that support entire organizational
functions, such as HR or financial management
• Typically cost millions of dollars

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 Software Licensing Benefits
• Licensing benefits include:
– Immediate system availability
– High quality
– Low price (license fee)
– Available support
• Beta version: a prerelease version of software to be
tested by companies who want to use it
• Often includes a period of up to one year of free
service
• Large applications require installation specialists

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 Software Licensing Risks
• Software licensing has risks including:
– Loose fit between needs and features
• Must determine if the software will comply with
company needs and organizational culture
– Difficulties in undertaking custom modifications
– Dissolution of the vendor
• May be left without support and maintenance
– High turnover of vendor personnel
• Turnover among IS professionals is high
• May result in lowered support expertise from vendor

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 Steps in Licensing
Ready-Made Software
• Selecting software involves a large money
investment and a long-term commitment
• Project management team responsibilities:
– Identify problem or opportunity
• Define functional requirements
– Identify potential vendors
– Solicit vendor information
• Request for information (RFI): request for
informal information about a vendor’s product
– Define system requirements
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 Steps in Licensing
Ready-Made Software (continued)
• Project management team responsibilities
(continued):
– Request vendor proposals
• Request for proposal (RFP): a document that
specifies all requirements and solicits a proposal
– Review proposals and screen vendors
– Visit sites where the application is in use
– Select a vendor
– Benchmark the application by comparing actual
performance against specific quantifiable criteria

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 Steps in Licensing
Ready-Made Software (continued)
• Project management team responsibilities
(continued):
– Negotiate a contract
• Should define performance expectations and
penalties for failure to meet expectations
– Implement the new system
– Manage postimplementation support

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 Steps in Licensing
Ready-Made Software (continued)

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 Steps in Licensing
Ready-Made Software (continued)

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 Software as a Service

• Application service provider (ASP): an

organization that offers software through
communication lines (such as the Web)
• Software as a service (SaaS): applications
available through the Web
– No software is installed on a client’s computers
– Files may be stored on local storage devices
• ASPs may rent the software they offer

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 Software as a Service (continued)

• Renting software has benefits:

– No need to learn how to maintain the software
– No large start-up fee
– Storage hardware is unnecessary
– Software is usually available sooner
– A good option for small companies
– Is considered a “software on demand” approach

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 Software as a Service (continued)

• Renting software also has risks:

– Lack of control may be an issue, as the client’s
data is managed by the vendor
– Vendor is unlikely to make many customized
changes to the software
– Response time is impacted by traffic levels
– May be security risks through a public network
• Many clients used leased lines instead of the
Internet to limit security risks

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 Software as a Service (continued)

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 Caveat Emptor

• ASP may be disappointing in some areas:

– Scope of services provided
– Level of reliability
• Manager guidelines when selecting an ASP:
– Check the ASP’s history: get references
– Check the ASP’s financial strength
– Ensure you understand the price scheme
– Get a list of the provider’s infrastructure
– Craft the service contract carefully

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 Caveat Emptor (continued)

• Uptime: proportion of time that the ASP’s

systems and communications links are up
– No ASP has 100% uptime
– 99.9 % uptime = up to 500 minutes/year of
downtime
– 99.999% uptime = less than 5 minutes/year of
downtime
• Recommended for critical applications

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 Caveat Emptor (continued)
• Four categories of typical users of ASP services:
– Rapidly growing companies that rely on software for
deployment of their operations
– Small companies without cash to pay up-front costs
for software
– Medium-sized companies that need expensive
software
– Organizational units at remote locations
• Storage service provider (SSP): rents storage
space for remote storage of client files

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 User Application Development

• User application development:

nonprogrammer users write their own business
applications
• User-developed software is usually:
– Simple and limited in scope
– Small applications developed for immediate or
brief needs
– Maintained by end users

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 User Application Development
(continued)

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Managing User-Developed Applications

• Challenges of user-developed applications

include:
– Managing the reaction of IT professionals
– Providing support
– Compatibility
– Managing access

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Managing User-Developed Applications
(continued)

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 Advantages and Risks

• Advantages of user development of applications:

– Shortened lead times
– Good fit to needs
– Compliance with culture
– Efficient utilization of resources
– Acquisition of skills
– Freeing up IS staff time

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 Advantages and Risks (continued)

• Disadvantages of user-developed applications:

– Poorly developed applications
– Islands of information
– Duplication
– Security problems
– Poor or no documentation

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 Summary
• Several alternatives to having applications
developed in-house include outsourcing,
licensing ready-made software, using software as
a service, and allowing users to develop their
own software
• Outsourcing can mean commissioning
development or assigning services to vendor
• Outsourcing custom-designed applications might
afford the organization a good fit of software to
need

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 Summary (continued)
• Outsourcing IT services has great benefits, such
as reduced cost and allowing the organization to
focus on its core competency
• Outsourcing IT services has potential risks, such
as loss of control, loss of experienced
employees, and loss of competitive advantage
• Licensing software advantages include software
being immediately available and low-priced
• Disadvantage of licensing software is often a
loose fit to the organization’s needs

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 Summary (continued)
• Software as a service, from an ASP, is a popular
method of obtaining software for a monthly fee
• User application development advantages include
short lead time, good fit, freeing IT staff
• User application development disadvantages include
poor quality, islands of information, security
problems, and poor documentation
• Over half of America’s office workers have rich
computer resources
• Policies must be established to prevent computer
abuse by employees

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