1. Warranty - Ongoing service and supplier's comprehensive warranty.
2. Grade of Service - Service is defined according to grade of service parameters (as opposed to service based on parameters of input or specifications).
3. Transfer of resources - In most cases, outsourcing involves transfer of resources (real estate, employees, other assets) for use by the supplier.
4. Proper disclosure - Since outsourcing services are continuous (three years or more, as a rule), this process is accompanied by proper disclosure on the part of the outsourcer.
5. Cost and Pricing - It is common practice to price outsourcing services using two methods:

1. Fixed annual price.
2. Price connected to or conditional upon the contribution of the services provided to the outsourcer's benefit.

Outsourcing of information systems' and computer services has, particularly in recent years, become one of the most common applications of outsourcing, and includes the transfer of some or all of the following activities:

1. Facility management
2. Communications network operation and management
3. Maintenance and operation of information systems
4. Development and/or maintenance of infrastructure and application programs.
5. Training services and gearing the information systems to the user as well as running a Help-Desk.
6. Backup and disaster recovery services.
7. Management of information system and computerization assets (computers, communications and work station equipment).

easons for Outsourcing of Information Systems and Computerization

There are 10 definable reasons which influence the decision to choose outsourcing:

1. To enable the organization's management to focus on the company's
   main skills.

The management of many organizations spend a great deal of time and attention on operational elements of information technology and computerization, when they should be focusing on things which are at the core of their very organizational and business existence.

This refers mainly to the following operational areas: procurement, recruitment of personnel, budgeting, infrastructure, etc.

2. Inability to handle the technological complexity of information systems

The technology of information processing systems has become varied, complex and is also available from many different suppliers operating under different platforms. The "openness" of information technology requires an understanding of an ever-increasing number of communications systems, infrastructure and applications.

Departments responsible for information systems and computerization in organizations have difficulties in maintaining and operating the variety of solutions available, as well as examining, analyzing and applying new technologies for the benefit of their organization.

3. Inability to recruit and keep high quality professional staff.

In order to support their information technology systems, information systems departments encounter two types of problems:

1. Inability to "attract" professionals in the field of infrastructure and technology systems.
2. A variety of skills which does not require nor justify a full-time position for every employee.

4. Stand-alone information systems with low integration levels.

Established information system and computerization departments operate and maintain stand-alone information systems, which are based on improvements and upgrades of previous stand-alone systems.

BPR (Business Process Reengineering), in focusing the processes within the organization, requires integrative capabilities. This is also true of EIS (Executive Information Systems) applications.

The input, skills and abilities required for applying this integration are unavailable in a significant number of organizational information system offices.

5. The need for re-writes/upgrading of older systems

In many organizations, older information systems equipment must undergo upgrading or rewriting. The causes could be, among other things: changing technology platforms (sometimes required by the supplier of the infrastructure) or functional incompatibility of the existing systems.

6. Regulations, processes, O & M, missing/incomplete documentation

The efficient operation of information systems in an organization is dependent upon the existence of organized and in-built procedures, which are supported by appropriate regulations and documentation.

Not every organization can justify having O & M or Industry and Management functions. Not every organization can keep updated systems of regulations and documentation.

The absence or partial application of these elements is detrimental to information system operation, and does not permit their maximal utilization for the organization's benefit.

7. Inability to forecast and monitor information-system budgeting

In this area, there are three main problems, which are listed in order of importance:

1. Organizations do not have a true picture of their total outlay on information systems and computerization.
2. Organizations are unable to create budgets for information systems and computerization (and certainly not multi-annual budgets). The budgets are like "moving targets" - generally upwards.
3. Information System departments do not have incentives to become more efficient and to reduce their input and volume of activities.

8. Information system users' low level of satisfaction

Outsourcing can be a solution for companies and organizations dissatisfied with the functioning of their information systems departments.

It is interesting to note that in most of those organizations which have internal information system departments (also known as Insourcing) there is no measuring of user satisfaction.

9. Continued under-budgeting damages information systems, resulting in the need for substantial investment.

Budgets for information system departments rise in bounds every few years when investment is required (for software, hardware or infrastructures). The large majority of these departments has no mechanism for "dividing up" budgets over a number of budget years.

The situation becomes more critical in organizations which have cut down on their operation costs (as part of a recovery program, for example), including computer equipment and information systems, and who are now required to get in line with current technology and infrastructure.

10. Reorganization/merger/split-up of organizational/business frameworks

There are elements which have no connection to information system which influence and support the decision to outsource. In today's dynamic business world, there are many mergers, splits, cooperations etc. among organizations and companies. In examining these moves, the option of outsourcing is always considered as a business or operational opportunity.

dvantages and disadvantages of outsourcing

overnment decision regarding outsourcing

On July 10, 1996, in its 1997 state budget discussion, the government reached the following decision:
"The government has decided on a change in its policy regarding computerization, the essence of which will be a transfer from self-production of information systems and services to acquiring these services from the private sector. The decision refers to existing systems and instructs the establishment of specifically designed teams for each government ministry. They are tasked with preparing, by March 1, 1997, detailed programs for implementing the transfer.

As regards future procurement, the government has decided that every project entailing an overall five-year cost in excess of one million Shekels will be handled by outsourcing, unless otherwise decided by the central automatic data processing committee.

For implementing the decision, the government mandated the Finance Minister to appoint a joint committee, comprised of representatives of the Public Service Commission, the ministry concerned and the Treasury, to prepare the detailed plan."

In the commentaries of the decision it was also noted that the government decided "to transfer the activities of the ministries' automatic data processing units to the private sector (outsourcing) in a selected and gradual manner."

In the 1997 budget discussions, the government decided to change its computerization policy. The principle change was the transfer from "insourcing" of the information system services and systems to outsourcing by private sector firms.

escription of the Process

Outsourcing is a complicated activity with a preponderance of details and involves sensitive decisions affecting the government's employees and assets. In order to guarantee the successful implementation of the government's decision, the government is assisted by consultants at the various stages of the outsourcing process. ConsulTech Outsourcing Ltd., which serves as the government's outsourcing consultant, has developed a special methodology of working on the subject. This methodology expresses the main stages in the outsourcing process:

1. Checking the compatibility of the ministry to outsourcing - checking of goals and aims for outsourcing, extent of the outsourcing, integration with the master plans, structuring of activity plans for realization.
2. Structuring a plan for preparation for outsourcing - identification of the weak points, location of potential problem areas, activity program for transferred (and staying) employees, defining the service to information system assets (computers and workstations).
3. Procedural management of suppliers' bids - preparation of RFP's, defining service levels anticipated (SLA), determining of threshold criteria, identification of obligatory components, tender management, selection of suitable suppliers and selecting the winning bidder.
4. Handling negotiations and contracts - drafting of an outsourcing contract, definition of the methods of pricing and the final price, development of a bonus/penalty system, legal-business application of the winning supplier's bid.
5. Management of the transitional phase - definition of the activities of the ministry and the supplier during the transitional stage (the stage in which responsibility for services is transferred from the ministry to the supplier). Completion of required details in the agreement.
6. Control and monitoring of procedures - development of monitoring and control mechanisms over contractors' undertakings. Measurement of the service level and users' satisfaction.
7. Management of steering committees and users - instituting permanent frameworks at managerial and technical levels to guarantee the range and development of information systems in the ministry concerned, such as: increase/decrease of the outsourcing framework, decisions regarding methods of developing new applications.Outsourcing in Israel
   

The Private and Public Sector

We can distinguish between two different kinds of outsourcing -

1. Outsourcing as a continuation of the development of new information systems in companies such as: Ampa, Globus Group, Deshanim, Sick Fund Hospitals, Leumi Mortgage Bank.
2. Outsourcing to existing computerized concerns, such as: Tnuva, Israel Military Industries, Tadiran.

Government Sector

Today, there are a number of government bodies which have transferred their automatic data processing activities to the private sector.

They are divided up as follows:

1. Outsourcing as a continuation of development of new computerized systems, as in: the Courts Administration, Execution Bureau, Population Registry, Employment Service.
2. Outsourcing to existing computerized entities, such as: Ministry of the Environment (currently being applied), Ministry for Religious Affairs (preparing for tender), The Israeli Knesset (preparing for tender).

utsourcing Worldwide

Outsourcing has been a worldwide phenomena for the last 10 years. Bodies from various sectors have chosen to outsource their computerized systems.

The Private Sector

Outstanding examples include: Kodak, Caterpillar, Rolls-Royce, MacDonald Douglas, Continental Bank, Continental Tires.

Government Sector

Outsourcing and external communications of the government in Information Technology matters. This is a document by the Australian Computerization Society, which sets out the reasons and advantages of outsourcing, as it does with the dangers and failure points. It also provides links to additional material on the subject.

International institute dealing with the subject of outsourcing. At the site you will find a comprehensive survey for beginners, a discussion area, and a library containing a number of articles, discussions and statistics and a number of case studies.

A 20 stage program for successful outsourcing, with details of indicators of its success.

Edition devoted to the subject of international outsourcing. Special attention is paid to outsourcing in the commercial market.