Management Technology – Outsourcing Essay

Abstract

The aspects of management technology would directly deal with the information management and techniques for fetching the better utilization of resources. Outsourcing is one technique to achieve the same.

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An example case study approach is taken for this paper to ensure that proper understanding of the managing the information is taken for making appropriate conclusions for the subject.

This report is concerned with JP Morgan’s decision towards outsourcing its IT operations to IBM and backsourcing it due to change in their business strategy. Its merger with Bank One has expanded their operation which needs to be effectively managed by exploiting Information Technology at its best.

Primarily, the decision towards its outsourcing a significant portion of its IT infrastructure to IBM did not have long term benefits. The negative experiences of the financial hub forced a decision to reverse its IT strategy.

Its merger with Bank One revised the IT strategy in ‘do-it-yourself’ philosophy. They believed in managing their own technology for long term growth and success of the company.

Background

JP Morgan Chase, a financial holding company which merged with Bank One to expand its operations and market for financial products. Their experiences with outsourcing have been bitter and they are on the lookup for better strategies for managing their IT infrastructure. In addition to that, backsourcing did not do much good. It stirred dissatisfaction among employees and senior management.

Both the decisions, namely outsourcing and backsourcing, was a drag in productivity and loss in morale for its employees.

In future, it wishes to maintain confidence on in-house technology work. Offshore outsourcing engagements would be made to multiple software consulting vendors following a multi-source model.

Introduction

Information strategy for any organisation is purely based on their requirements to manage business and envelope operations into a system which would in turn effectively manage their resources and yield not only profits in the long run but satisfaction to its employees and customers. (Laudon, 2002)

The detailed company analysis of the issues it is facing has been discussed vividly. The employees have been mismanaged and to a great extent their morale and satisfaction has eroded in the process of outsourcing and backsourcing.

A close study of the information systems strategy has been made and various methods have been evaluated for the betterment of the firm. The success of the IT strategy would be among the employees or users of the system as they are the people who live with the technology for getting the job done.

Finally, evaluation of the new proposed information systems strategy is done so that the degree of its effectiveness is measured for further implementation. The satisfaction level of its employees is the first priority. It had already battered lot of its wealth in outsourcing and suffered massive losses through backsourcing. Business decisions relating to forming a new IT strategy would evaluate thoroughly the probabilities of the proposed solution and its derivability which has been covered in detail in this report.

Primary Analysis of the case

JP Morgan Chase’s decision to outsource did not help. There IS strategy for outsourcing was meant to address the following problems:

1.      Economy: IBM stood as a specialist in the IT infrastructure services and trusting them to manage their business operations would mean a good business decision.

2.      Service Quality: This was the primary and the most important reason for which JP Morgan Chase wanted their business operations to be taken care by the service provider company. It wanted to position itself better in various markets.

The above factors accounted for a greater share of interest for which JP Morgan Chase wanted to go for outsourcing. But finally it did not work. It faced losses not only on the monetary front but also towards the human resources.  The various problems faced by the firm can be summarized as follows:

All the dangers of placing the information systems functions outside the organization were possible noted for the firm.

1.      Loss of control: This was pretty much evident that some employees were transferred on IBM’s payroll and were not satisfied. It also witnessed a plunge in moral as a result of reapplication process and salary reductions.

2.      Loss in productivity: Maximum of its employees was engaged in coordination of outsourcing. Time was devoted more into documenting procedures, staffing levels, skill sets, budgets, day to day responsibilities and many out of the way jobs, rather than doing what they were hired to do (Ang, 1998).

3.      Expenses doubled: The process of outsourcing brought in additional costs from investments in consultants who assist in outsourcing strategy and re-engineering in human resources effort to assist employees in the process and in retention bonuses to placate employees during the grueling transition.

4.      Loss of authority: The little things like procurement of office stationary at IBM by the JP Morgan Chase’s people were also restricted. The bosses at IBM resorted to buying their own supplies which created differences to its own employees.

The above reasons markedly pointed out that, negative experiences were balancing out the positive ones and thus it withdrew it self form the outsourcing contract.

The process of withdrawal or back sourcing also did not do much good. It incurred huge losses for breaking the contract and also the morale of the employees were hit once again as they were brought back to the firm again. Moving entire operations from IBM houses back to its own units created ripples as that was to hit the IT operations of the bank alone.

Critical Review

Outsourcing formed a major strategy for JP Morgan Chase for outsourcing a significant portion of their IT infrastructure. The major pitfalls can be summarized as below:

·         As a result all the major IT operations were getting handled by IBM. In addition to that, several employees of JP Morgan Chase were transferred on IBM’s payroll which involved again going through the recruitment process which meant cutting corners. Some unproductive and expendable human resources according to IBM were not hired. IBM also looked out for the opportunity to make money by not hiring all of them but only the important resource.

·         Losing jobs was a hit at their morale and a cloud of dissatisfaction enveloped them.

·         Senior analyst’s doubted whether IBM will be able to deliver on-demand infrastructure services as I had very similar high profile clients like JP Morgan Chase.

·         Management and staff at JP Morgan Chase were involved in fixing schedules, staffing levels, skill sets, budgets and work allocations. It was more of managing the outsourcing principle and not doing what they were hired to do. The business change process deviated employees form their usual work to some thing else which they were not supposed to do according to their job profile (Venkatraman, 1997).

·         Handling both the spheres resulted in losing productivity of JP Morgan Chase employees as they had to manage both and specific job skills for which they were hired was getting worn out.

·         Hiring consultants to assist in the outsourcing and reengineering process was put over the bank by IBM. It needed to be shared evenly by both the parties involved in the outsourcing process. IBM with an objective to cut costs threw the major part of the consultant job to the bank.

·         Furthermore bank’s infrastructure at IBM often made it difficult to procure the basic amenities as IBM project managers resorted to buying their own supplies.

The above reasons posed several difficulties for JP Morgan Chase and it sorted a way to withdraw itself from outsourcing.

Information systems strategy

This section precisely highlights the various requirements of the bank towards the IT resources and capturing. The main heads of the technology which were supposed to be covered by IBM are as follows:

·         The Bank’s data processing was taken over largely.

·         Holding computer centre, running help desks, distributing applications and maintaining data and voice networks.

·         Hosting bank’s business trading applications for JP Morgan Securities.

Their business requirements demand the above services to be taken care by the information technology department. Customers were of primary importance and needs to be well managed by attending to their queries and service request. The data processing of the bank needs to be taken care well.

Proposed system development methodology:

Outsourcing had adverse affects on the bank. It strategize to offshore outsourcing arrangements to several vendors rather than solely dependent on one.

Lets us discuss a range of information systems development methods and their utility to the JP Morgan Chase users.

·         Prototyping: This is a rapid model for systems development where a real life model is built for understanding the system at large and it is constantly revised for changing requirements.

Suitability: For an organization like that of JP Morgan Chase, requirements are changing very quickly and business models are getting developed for every change of policies. Prototyping can be taken as an option for strategizing the merger companies. It saves time and cost when developing common business applications. The demerit of this method is that, it can surpass steps in analysis, documentation and testing.

·          End-user development: This option cannot be exercised at all due to security problems and threats to efficient data protection.

·         Outsourcing : It was a great option for any enterprise but the number of problems which JP Morgan Chase faced with outsourcing issues, it needs to rethink twice about doing it the second time. Well, having a multi-source model which likely it wishes to exercise in future is of great advantage.

The ultimate solution which can be proposed is a blend of in-house and outsourcing technology. No particular technology can take care of its entire business operations. Issues like security of customer’s financial data and transactions cannot be entirely outsourced.

The proposed solution will be a blend of the use of prototyping approach for systems design and handling trading applications like JP Morgan securities. Well as the maintenance of data and voice networks can be outsourced.

Effectiveness: As per effectiveness goes, adopting a blend of in-house technology and outsourcing will help its business IT operations rather than transferring the entire IT infrastructure to one vendor.

The critical applications can be developed in-house and other IT support jobs and data processing can be outsourced to several hosts of vendors so that the security is well maintained and data protection is not a threat.

Users Perspective: The major problem JP Morgan Chase employees faced due to outsourcing is loss of morale and dissatisfaction of losing their own jobs due to organizational process change. With this blend of technology, users of the system will be able to work with the bank but may be in the vendor’s office. The business model which is intended is that some part of the technology is outsourced and that part will be getting handled by the JP Morgan Chase employees only. The difference is that the technology factors will be on the vendor’s side so that bank does not need to bother about the technology and at the same time does not stand losing the employees.

In this way users of the system will be satisfied and no fear of losing their positions will ever erode their morale.

Prototyping method was selected for the very reason that for a huge bank like JP Morgan Chase where business models and policies get revised every minute to respond to customer demands and profitability of its own sectors for better growth and visibility. This technique is useful for enveloping frequent changes in the technology and business as well. Outsourcing is selected for the following reasons:

·         Primarily to exploit, at its best, the IT capabilities of the software and hardware vendors.

·         Outsourcing IT development is a most effective way to stretch your budget. When managers plan IT development outsourcing, they usually make it their aim to cut down the company’s expenditures by 30%. This is a figure that speaks for itself. Of course, there’s always the risk of failure, but if you outsource prudently, you’ll afford to implement projects of such a scale that would be impossible for you to reach on your own.

·         The need for state-of-the-art IT solutions worked out and innovations implemented with small losses, outsourcing may be the only way out. It will save from the nightmare of retraining employees (or even hiring new ones) and/or paying for re-equipment.

·          Quality of services.

·         Gaining high expertise form the software vendors to support owns IT support centers and infrastructure.

·         The most important would be to get the people do what they have been hired to. This was one of the major problems facing the bank. Most of the employees were over burdened by the task of handling the outsourcing job maintenance and associated management of the outsourcing job to IBM. That was a clear view of getting overloaded or in some cases doing what not hired for.

What they require to make outsourcing a great option for handling part of IT infrastructure business?

Outsourcing is an excellent option but it requires some strategies to be put into place so that it works out well. The possible stuff which can be done is stated as follows:

·         The foremost thing is to properly strategize the entire outsourcing process in the very beginning – at the thought generation process. Primary analysis was lacking from the bank’s side.

·         It gets very important that a separate team is allocated to handle the entire outsourcing process. What is of primary importance is that, the employees must not be rotated in their job areas to handle both their present job employment and outsourcing process. For the bank this step was a major hurdle which pulled down their productivity. Separate allocated teams will make it sure that their entire time is devoted in handling the process and devote their time in doing what they have been hired to do.

·         Transferring employees at IBM’s payroll is very important as the outsourced part needs to be handled well by the software vendor and at the same time would require the domain expertise of the present employees to get it done efficiently. It also requires the bank’s employees not to lose their jobs. What could be done is to have a legitimate contract in outsourcing so that no employees lose their jobs.

·         A contract must have a clause which would bind them to have all software and amenities to be supplied from a certain end. It will ensure that all employees would get the correct supplies for all their requirements in the very same way they received from the bank.

·         The question of investment into outsourcing must be analyzed well. Certain amount of compliance must be obtained as part of the deal. Such as hiring an outsourcing agent for managing the resources and the outsourcing process. Whether the process will be handled by the agents or consultants or a separate team will be formed within the firm, at both ends, is a very tough decision which needs to be taken. The investment decision will require to be analyzed accordingly.

·         All the compensation options must be decided effectively by the parties engaged in outsourcing decision and should make it certain that devaluation process should not affect the employees.

·         Multiple vendors must be consulted for outsourcing IT operations and faith in a particular would pose a risk.

·         The strategy must be in such a way that software vendors must be allocated IT services of the bank in a fashion that expertise can be pooled from a concerned one and others must be trusted with what they excel in. In that way, not every business function is trusted to a single vendor which has been seen to raise suspicions by the analysts. Confidence on a number of software firms would imply a greater integration of responsibilities on the part of the bank too. They need to manage the outsourcing process strategically so that every resource is tapped well for optimum usage and higher productivity (DiRomualdo, 2001).

All the above factors collaboratively imply that outsourcing can be taken as a viable option in future.

Conclusion

The proposed solution to the problem in identifying an appropriate solution to JP Morgan Chase is by far a blend of in-house and outsourcing technology. The management of their large business resources and IT operations needs to be managed well so that every change is well tracked, understood, analyzed and implemented as well successfully. To ensure this demand for highly skilled technology professional’s increase and primarily for this purpose outsourcing cannot be entirely skipped.

The best strategy is to get some part of technology in-house and some part of in-house resource to be outsourced. What is implied is that for some crucial business functions will be developed in-house with the technologies of the software vendors which will secure its security and protection of new and emerging business models. On the other hand, some part of business operations which requires a huge investment of IT resources can be outsourced to the software vendors so that their skill and expertise is exploited and bank’s own employee can work on that, at vendors end, with minimal training and management of resources.

Recommendations

The case depicts that outsourcing would result in fetching the right kind of exposure for the firm to outsource their work for optimizing their performance and to increase their scale of operations.

Rather, the approach to having flexibility in an outsourcing engagement is for the client to pursue a shared partnership with the vendor to attain a win-win. The ground rules of writing a good contract still applies, i.e. it should clearly describe

• Scope and nature of the outsourcing engagement
• Roles and responsibilities of the client
• Roles and responsibilities of the vendor
• Metrics for evaluating the performance
• Recourses when things do not go as expected.
• Procedures for dealing with disputes

On top of this, the outsourcing company and the vendor should agree on the procedures and incorporate a process for negotiating changes and to cover situations not covered explicitly in the contract. During contract negotiation the client can identify the changes that may occur during the outsourcing engagement such as

• Unclear business requirements which may result in additional scope
• Business growth or contraction that impacts the volume of IT services
• Significant events for the organization such as merger/acquisition.
• Emergence of new technologies that may result in increased costs savings or provide strategic business advantage
• Market forces such as costs of IT resources

and work with the vendor to provide frameworks in the contract to deal with these changes. For example, for unclear requirements a clause may be included to have a fixed rate (for a defined period) for the vendor to charge for additional scope of work. For increasing/decreasing volume of IT services due to growth/contract, the contract may include periodic reviews of costs based on industry benchmarks – rates or costs may be adjusted for the coming year based on the benchmarks.

Finally, the outsourcing company must always have an exit strategy and build it into the contract. The contract should specify the conditions for “for cause” and “for convenience” termination and how the licenses/assets/knowledge should be transferred back to the client. This reduces the likelihood that the client will be held ransom in an ineffective outsourcing engagement.

The potential risks of having too much flexibility is that more costs may be incurred.

References/Bibliography

Ang, Soon (1998). “Production and transaction economies and IS outsourcing: A study of the U.S banking industry”. MIS Quarterly.

Beynon- Davies, P.,(2002). Information Systems: An

Introduction to informatics in Organizations: Palgrave MacMillan.

Checkland, P., (1999). Systems Thinking, Systems Practice,

2nd ed. London: Financial Times/Prentice Hall.

Checkland, P., (1999). Systems Thinking, Systems Practice,

Chichester: John Wiley ; Sons Ltd.

Curtis, G. and Cobham, C., (2005). Bussiness Information

Systems. 5th ed. London: Financial Times/Prentice Hall.

Chaffey, D., ; Wood, S., (2005). Business Information

Management, Improving Performance Using Information Systems, London: Financial Times/Prentice Hall.

DiRomualdo, Anthony (2001). “Strategic Intent for IT Outsourcing”.

Laudon, Kenneth (2002).Managing Information Systems:

Organization and Technology, Fourth Edition.

Venkatraman, N (1997). “Beyond Outsourcing: Managing IT

Resources as a Value Center”, Sloan Management Review.

Wilson, B., (2001). Soft Systems Methodology: Conceptual

Model Building and Its Contribution, Chichester: John Wiley ; sons Ltd.

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