Outsourcing is a new term for an old concept in MIS. Rather than own the computers and hire a large MIS staff, a company may choose to let a specialized firm run the entire computer operations. Two of the largest firms specializing in running computer operations for other companies are EDS and IBM. For a fee, these companies will provide the main computers, communication links, software, and even software development and maintenance. The current debate over outsourcing began when Kodak decided to let IBM run its main computer operations. Part of the decision most likely was caused by the expenses incurred by Kodak when it lost a patent infringement suit to Polaroid, but there are many other issues involved and several other large firms have chosen not to run their own computer operations. Listen to Paul (vice-president of finance) and Corie (vice-president of MIS) of the fictional MegaPark Corporation, as they try to decide whether their firm should switch to outsourcing:
| Paul: | Look at the charts. If we sell off our old computers and transfer the MIS staff to EDS, we can save $5 million a year. |
| Corie: | But what about the employees? Some of them have been with us for 15 years. What if they don’t want to move? What if they don’t like EDS management? What about their seniority and pensions and . . . |
| Paul: | Who cares? We need to cut costs. At least they’ll have jobs. |
| Corie: | Well, let’s look at those costs. What happens when the outside firm raises its prices? We’re at their mercy. |
| Paul: | Wait a minute. Now you’re worried about increasing costs? You’ve been in here every year begging for more money! At least with outsourcing we get a set price schedule. You always overspend your budget. In the last five years, your budget has increased three times as fast as the rest of the company, and you still want more. |
| Corie: | Ouch. Well, what about service and responsibility to the users? As long as MIS is located here, I can deal with user problems immediately. We get together with them for lunch and play softball with the users. Because we see them all the time, we know what they want. |
| Paul: | EDS didn’t say anything about a softball team, but your people spend most of the time on the phone anyway. With all of the communication networks they have, what difference does it make where the MIS team is located? Besides, EDS said they have more than 200 people with experience working in our industry, plus immediate access to thousands of others. And they are hiring most of our people as well. |
| Corie: | But can EDS be as responsive as we can? We’ve worked hard to reduce our MIS decision-making process and to involve users in all decisions. If a user department needs something, we can decide in a couple of weeks whether to commit resources to it. EDS personnel would take months to go through their decision-making process. We know the industry, and we know the people who work here. |
| Paul: | One of our competitors, Grand Consolidated, Limited, has used outsourcing for three years. The company increased its market share by 11 percent, mostly at our expense. Maybe the outsourcing didn’t help, but it surely didn’t hurt! |
| Corie: | All right. What about security? I’ll bet you forgot that one. When all of our customer data is stored on our machines in our building, I know how to protect it. Now you’re going to put all of this important information in someone else’s computer. Even worse, EDS already handles one of our competitors. How do we know Grand Consolidated won’t get access to our information? |
| Paul: | Get real, Corie. We sell pet rocks. We don’t have any secret data. |
| Corie: | Of course we do. What about our employee evaluations? What about our plans for future products? What about our sales data concerning which products do well with which types of customers? What about our evaluations of our competitors? Of course, there’s also our evaluations of environmental pollution legislation and which legislators might be sympathetic to our positions. Then, there’s . . . |
| Paul: | All right, all right. I get the idea. We’ll have to get EDS to establish some encryption system or something to protect our data. EDS must be doing something like that for the other companies it supports. I’m sure there are ways to protect our data. |
| Corie: | What about our new ad campaign? That was all computer generated. Same thing with the designs for next year’s models. Which reminds me—we had to get some special equipment for those projects. How will we do that in the future? |
| Paul: | EDS says it can get us any equipment we need. And the managers there said with their company’s size they can get it at better prices. Plus, we don’t have to buy the hardware, so we don’t get stuck with expensive, obsolete equipment. EDS always has the newest hardware. |
| Corie: | How about strategic uses of MIS? I’ve been thinking about some ways we can tie in to our suppliers’ computers and improve our quality control. And I’ve been talking with some of our distributors so that we can get access to their computers and get better information on sales. Who is going to think up these ideas? Who will nail down the details? Who . . . |
| Paul: | You will, Corie. You’re not going anywhere. Besides, since you no longer have to worry about the day-to-day details, you’ll have more time to work on these big projects. You’ve raised some good points, and I really want to ask EDS about its security provisions and get our lawyers to look things over, but I’ve made up my mind. |
| Corie: | I’m not happy about it, but it might work out. Those computers were getting old. I wanted to replace them but I figured that within five years we’d switch to PC networks, so it would be a waste of money to buy new central computers today. Maybe the outsourcing will work until we’re ready to switch to PC networks. If we outsource, will we ever be able to move MIS back in house? |
Questions