Ever since Eastman Kodak announced that it was outsourcing its information systems (IS) function in 1988 to IBM, DEC and Businessland, large companies have found it acceptable (some might say fashionable) to transfer their IS assets, leases and staff to third party vendors. Senior executives of Fortune 500 companies such as Continental Bank, Enron, Freeport-McMoRan, National Car Rental, and Continental Airlines, have followed Kodak's example and signed long term contracts worth hundreds of millions of dollars with outsourcing "partners". Recently, a number of high-profile multi-billion dollar "mega-deals" have been signed by Xerox, General Dynamics, and McDonnell Douglas. Nor is this trend only fashionable in the United States. Lufthansa in Germany, KF Group in Sweden, Inland Revenue and British Aerospace in the U.K., and Canada Post in Canada have all signed significant contracts with outsourcing vendors such as IBM, EDS, CSC, and SHL Systemhouse. Such deals signal an important change is taking place in the sourcing of IS activity. CIOs and other prominent members of the IS community have responded with warnings of the dangers of surrendering management control of a "strategic asset". In many cases, these predictions have proved valid, with "partnerships" experiencing severe problems. Some companies have paid out significant sums of money to extricate themselves from outsourcing contracts and rebuilt their in-house IS capability. On the other hand, CIOs who have adamantly refused to deal with outsourcing vendors have met personal misfortune when their own organizations have failed to demonstrate value for money. These high profile events have tended to obscure the real phenomenon, a significant and irreversible move to what we call the selective sourcing of IS activity. They key question is not "should we outsource IS?", but rather "where and how can we take advantage of the rapidly developing market of IS services providers?" This book seeks to provide answers to this question.
Our book takes the issue of IS sourcing one stage further than has traditionally been discussed. The book reports on a follow-up study to our outsourcing research which involved six in-depth case studies exploring what the alternatives to outsourcing are, and whether they work. The book addresses a pressing problem facing IS directors and corporate management - should they or shouldn't they outsource their IS function? And if the decision is no, what alternative strategy should they adopt? We found that one major myth is that outsourcing vendors save their clients money through economies of scale. In fact, they actually reduce costs by implementing efficient managerial tactics like data center consolidation, formalized chargeback systems, standardized software packages, etc. We have identified 11 generic cost reduction strategies which internal IS departments could implement to reduce costs. These strategies are explored at some lenght in the book. We also note that although internal IS departments can replicate vendor cost reduction tactics, they may be implemented only if senior management empowers them to do so since many of the strategies will result in reduced customer service. We discuss this so-called "cost/service dilemma" facing the IS manager as well as the various options available and their likely consequences. Lastly, the book explores selective sourcing, which is the intelligent combination of both outsourcing and insourcing. With selective sourcing, IS activities which are deemed "commodity" are outsourced, while those perceived as "strategic" are insourced. Those activities which are outsourced must be properly managed with sound contracts and service level reviews to ensure that expectations are realized.