ISTM5010 – Integration of Information Technology and Business

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Outsource Insource Final Paper Capella University December 14, 2012

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ABSTRACT
The company in topic is BAILEYpc, Inc. (www.baileypc.com) and their recent organizational structure change for cloud hosting services centered on maintaining a premium service while being agile to industry change for both customer and provider. BAILEYpc offers web hosting as a re-seller through (Site5) rather than owning and maintaining their own server. As a consulting service first the model is not primarily a hardware company. So all services like domain name sales, web hosting services and website development are all outsourced. Web hosting is offered as a compliment service to business development consulting services with servers being leased from a company specializing in hosting rather than inhouse.

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TABLE OF CONTENTS
ABSTRACT ......................................................................................................................................... 1 TABLE OF CONTENTS ..................................................................................................................... 3 SUMMARY ......................................................................................................................................... 4 CLOUD COMPUTING TRANSITION .............................................................................................. 5 BENEFITS AND DRAWBACKS TO IN-SOURCING & OUT-SOURCING .................................. 9 Control .................................................................................................................................. 9 System Design ...................................................................................................................... 9 Lowest Cost ........................................................................................................................ 10 Core Business Focus ........................................................................................................... 11 BUSINESS UNIT AND SERVICES OVERVIEW .......................................................................... 12 IT LEADERSHIP IN DESIGN AND DEVELOPMENT ................................................................. 12 OUTSOURCE AND INSOURCE CYCLE ....................................................................................... 14 Objectives ........................................................................................................................... 14 Key Life-cycle Trends ........................................................................................................ 15 An Outsource / Insource Decision Model........................................................................... 16 RISKS FOR BAILEYPC ................................................................................................................... 16 CIO PRIORITIES & IT FOR BAILEYPC ........................................................................................ 17 CONCLUSION .................................................................................................................................. 20 REFERENCES .................................................................................................................................. 21

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SUMMARY
Cloud computing is a multi-faceted topic with two primary uses – computing and storage. The computing side is a method for delivering applications via the Internet rather than at the local network or device level. The second primary function is storage where data is stored “in the cloud” or on remote servers making the data accessible via a universal account and retrievable by most computing devices. To accomplish the complexity of the cloud for BAILEYpc, physical services like hosting and domain names as well as intellectual resources such as consulting, one must create a strategy for out-sourcing. With the current cloud push, advantages addressing costs and logistics, both customer as well as provider obviously benefits from this as we understand. But narrowing the cloud to two categories and simplifying it to costs is a result of both technology limitations and adoptability. So these are just uncontrollable results from the current form factor. The primary issue with current cloud technology is revolving around security and control; security for the provider and user and control solely the end-users main concern. A focus on web services and how “multi-sourcing” or in-sourcing and out-sourcing is used to leverage consulting coupled with services offered as described above. • • • In the Web industry this is known as multi-sourcing (Aberdeen Group). Re-seller through (OpenSRS) rather than being a registrar. Web hosting is offered as a compliment service to domain names with servers being leased from a company specializing in hosting resale (Site5).

ISTM5010 – Integration of Information Technology and Business • Development and design is mostly outsourced through an online talent agency and contract staffing company (Elance). Through multi-sourcing BAILEYpc allocates a majority of their internal resources to their expertise while maintaining a sub business to help develop their client base. This model for outsourcing allows BAILEYpc to laser focus on their primary function as a consulting company.

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Their outsourcing, like in most business, not only minimizes overhead costs for BAILEYpc but also allows them to pass the savings onto the client. BAILEYpc’s challenge is not unlike any small business, new startups and existing mid-size businesses often find themselves short staffed and under budgeted to delve into an online development. BAILEYpc leverages their own outsourcing to meet the demand of this trend while leveraging their consulting to help businesses achieve their needed goals. This model of IT services benefits most companies and is fast becoming an industry standard for web service companies.

CLOUD COMPUTING TRANSITION
Cloud computing is a multi-faceted topic with two primary uses – computing and storage. The computing side is a method for delivering applications via the Internet rather than at the local network or device level. The second primary function is storage where data is stored “in the cloud” or on remote servers making the data accessible via a universal account and retrievable by most computing devices. BAILEYpc is a small business in Web Services among these services are Web Hosting. The company just converted to a Cloud Hosting Server in 2011 primarily due to the technology to run a single server as expandable virtual servers. This technology creates virtual space, or VPS Cloud as

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the industry calls it, into virtual private space on the server simulating a client’s site to appear as if it is running on its own dedicated server. In reality the single server is running hundreds of hosted clients without shared space. This means private separation on a single physical hard drive. What this technology solves are security risks in a shared environment where someone sets up a phony hosting account only to hack the server to access other shared accounts. Another advantage is dedicated allocation to bandwidth which is key to cloud hosting. No more shared bandwidth, shared space and all dynamically expandable to handle account expansion and contraction depending on business demands as well as user access demands. When serving up a web app this infrastructure model for cloud hosting creates an ideal environment to save costs. Why buy and store a dedicated server in rack space when you can simulate it via cloud hosting software. A large scale version of BAILEYpc’s cloud hosting can be exampled by Amazon’s Cloud. They have coined a new term called Elastic Cloud or EC2 (Amazon.com) whereby dynamic or “onthe-fly” account scaling is used. BAILEYpc too uses this technology as do most hosting companies and allows flexibility in hosting storage space. Bandwidth resizing based on server demand to a specific website or web app. Also storage space resizing based on need for both raw files being used to created and the clients website and database growth based on data creation as in user account creations, account data storage based on user activity and much more. Advantages are both costs and logistics and both customer as well as provider benefits from this. While BAILEYpc has narrowed the cloud computing to two categories which is their primary model for hosting, cloud computing technically has a third category which is recognized industrywide.

ISTM5010 – Integration of Information Technology and Business Let’s look at all three categories and definitions: 1. Infrastructure-as-a-service – rather than purchasing servers, software, data center

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space and network equipment, the vendor provides these services and bills the client based on the amount of resources consumed. 2. Platform-as-a-service – the vendor provides and manages the operating system, database, and everything else needed to run certain platforms. 3. Software-as-a-service – instead of businesses purchasing a software license, vendors run the software application for you. The software is continually updated behind the scenes. Now let us look at the pros and cons for BAILEYpc’s recent move to a cloud hosting service provider. The pros: • Cost reduction - Cloud computing reduces paperwork, lowers transaction costs, and minimizes the investment in hardware (in our case to a yearly service fee). Moving your business to ‘the cloud’ also reduces the need for an IT staff. • It’s scalable - Like electricity and water, some cloud computing services allow businesses to only pay for what they use. And as your business grows, you can accommodate by adding more server space. • Levels the playing field - Cloud computing providers offers small and mid-size businesses access to more sophisticated technology at lower prices. Sharing IT resources with other companies reduces the cost of licensing software and buying servers.

ISTM5010 – Integration of Information Technology and Business •

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Easier collaboration - Since services in the cloud can be accessed anytime from any computer, it’s easy to collaborate with employees in distant locations.

And now let us look at the cons and the questions which must be answered for both client as well as provider: • Availability - Will your cloud service go down unexpectedly, leaving you without important information for hours or more? • Data mobility and ownership - Once you decide to stop the cloud service, can you get all your data back? How can you be certain that the service provider will destroy your data once you’ve canceled the service? •

Privacy - How much data are cloud companies collecting and how might that information be used?

In conclusion it’s important that business owners do their homework before making the decision to move into ‘the cloud’. This is where BAILEYpc comes in to assist as well as offer that transition including the cloud service. It is this niche’ market BAILEYpc looks to capitalize on and the primary reason for the business model shift to outsourcing the infrastructure while expanding the consulting model. BAILEYpc will do the research, weigh the pros and cons of cloud computing and decide what the best solution is for your business. When a business decides their business should be in the cloud, BAILEYpc will be sure to take the time to layout your transition plan and determine how you will make progress. At the end of the day, moving to the cloud is a big decision that should not be taken lightly or alone.

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BENEFITS AND DRAWBACKS TO IN-SOURCING & OUT-SOURCING
In-sourcing is a strategic business and human resource alternative to out-sourcing. Outsourcing is the process of turning over one or more critical business function to a third-party company such as a web hosting company, programming or technical support. In-sourcing means building up or adding new business activities in the company that have been or could be outsourced. In-sourcing can also be the partnering of a specialist company such as programming by the act of bringing the whole company inside without a merger or only bringing in a certain number of programmers for a specific long-term project. Control A primary advantage of in-sourcing is increased control. This is what motivates many companies to switch from out-sourcing to in-sourcing. They want more control over the time, resources and results of the work. When IT specialists work on projects in-house, you can more quickly communicate with them and more closely monitor their advancement of work and gain insight into their influence in company operations. Additionally control is bidirectional because communication is not monolithic. But insourcing also has its own advantages, among which the most important one is the improved bidirectional communication - both with the project responsible, and with the final consumer (SBP).

System Design Companies can develop and execute their own plans in a specialized area with in-sourcing, as opposed to turning these elements of work over to an external provider. The company can integrate the new or growing specialization into the organizational structure and develop reporting

ISTM5010 – Integration of Information Technology and Business procedures, monitor progress on the work, make adjustments to policies and procedures as necessary, and hire, train and terminate employees depending on performance. Companies also

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avoid tedious service-level agreements used in out-sourcing. The adverse effect to this however is costs. In-sourcing has with it the costs of hiring as indirectly talked about in Peter Drucker, Managing for Results.

Lowest Cost A primary disadvantage of in-sourcing and a common reason many companies out-source is the lowest-cost factor. Developing nations with large population centers and growing business as well as industry are prime grounds for outsourcing of such processes as supply chain distribution

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and call center support becomes more prevalent. Labor in these countries are often less expensive. This is especially true for larger corporations such as Microsoft and Dell Computers that would have to hire hundreds or thousands of workers to operate warehouses or phone centers. Low skilled jobs still require high-level benefits and out-sourcing these is a means to mitigate those costs which outweigh the returns. A contract formed in the open market for these activities typically produces the lowest cost.

Core Business Focus Another common argument against in-sourcing is that it takes your company's focus away from core business activities. IT, which to a company’s own detriment is not often considered a core business function, is one of the most debated specializations with regard to in-sourcing or outsourcing. When you outsource IT functions, your company does not have to worry about these activities as much. The more time, effort and resources required to manage a non-core function inhouse, the more likely it is that in-sourcing is not the best option for you. With that said this is also determined on the type of business. A local brick-and-mortar tire shop vs. a national chain such as Discount Tire does not have a direct need for heavy IT or any IT for that matter. Local shops are a prime target for out-sourcing in areas like web development because they rely mostly on walk-in business and use the web primarily as an advertising tool. Off-setting the tire shops needs for a site while maintaining their tight budget needs. Conversely a company like Discount Tires with a national business model needs some level of IT in-sourcing to maintain balance between risk and meeting demand for online sales such as volume tire purchases, setting appointments and offering bargain shopping for custom wheels or specialty tires. But even Discount Tire has a place for outsourcing, their web site for example is hosted by Go Daddy Inc. as can be seen here

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http://networktools.com/default.asp?prog=express&host=discounttire.com (Network-Tools.com). This is leveraging both the benefit to in-sourcing while also utilizing the benefit of out-sourcing. Disadvantages remain in several areas such as control when not owning your own web host server thus limiting the web apps Discount can run as well as limiting the functionality of those apps.

BUSINESS UNIT AND SERVICES OVERVIEW
BAILEYpc’s challenge is not unlike any small business, new startups and existing mid-size businesses often find themselves short staffed and under budgeted to delve into an online development. BAILEYpc leverages their own outsourcing to meet the demand of this trend while leveraging their consulting to help businesses achieve their needed goals. This model of IT services benefits most companies and is fast becoming an industry standard for web service companies. BAILEYpc retains the business development and consulting component internally since this is the primary sales focus and requires human face-to-face interaction.

IT LEADERSHIP IN DESIGN AND DEVELOPMENT
BAILEYpc’s web site design and development components are currently the two primary outsourced functions making consulting and planning central. In years past, consulting was relegated to simply closing a sale. But technological changes has created a greater emphasis on sales combined with strategic planning and marketing centric. With the advent of high-quality templates such as Wordpress templates, design and development has become minority role. Ten years ago a webmaster needed to custom design a website from scratch. They had to create custom code for marketing. Tools for search engine indexing or SEO-search engine optimization. Today

ISTM5010 – Integration of Information Technology and Business 13 we have tools known as “plug-ins” which install instantly, configure in a web based interface

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quickly and automate these functions with very minimal and human resources. The percentages in web services offered vs. development have reversed roles. When BAILEYpc was originated all components were internal due to budget constraints and logistics. Today however it makes far more sense to leverage services offered while maximizing revenue generation. The chart below reflects this percentage change in current terms. Chart-1 reflects a benefit to outsource / insource changes in industry both provider and receiver enjoy. Both design and development combined is 10% of total revenue retained by BAILEYpc. While this number reflects a lower revenue generator to BAILEYpc it also equals a lower expenditure for the clients. The provider, BAILEYpc, spends far less time in design and development thus reducing human capital expenditures to outsource while maximizing revenue retention percentages. In addition the receiver or client benefits in far lower costs for design and development while maintaining quality of work levels or exceeding previous technologies for such work performed in previous years. As IT management creates the rationale matrix for an in-source / out-source business model, a balance chart depicting the needs must be created.
Chart 1 - Insource / Outsource Revenue Percentages

Services Offered Consulting

Insourced

Outsourced

Percentage of Revenue 60%

  

Web Design

5%

Development / Programming

5%

ISTM5010 – Integration of Information Technology and Business 14 Domain Name Sales

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 

15%

Web Hosting Sales

15%

Overall this equates to an increase in efficiency through the use of outsourcing the two functions which were previously heavy technical function and could only be managed most efficiently internally. BAILEYpc is maximizing revenue retention while reducing the percentage of services necessary to perform the service which also computes to a reduction in costs to the client.

OUTSOURCE AND INSOURCE CYCLE
Technological and management changes in the business world during the last decade have resulted in vast alternations in the production and use of resources for web services. Changes will continue to occur, probably at an increasing speed. How companies take advantage of these changes will affect their ability to survive, compete, and excel in the future. Given the high stakes involved, each company must carefully and thoughtfully consider outsource / insource decisions.

Objectives The objectives of this study and report are to: • Identify best practices of the production departments and companies which participated as partners • Develop tools to assist companies and media department managers measure their own effectiveness and value to their companies and clients

ISTM5010 – Integration of Information Technology and Business 15 • Provide the means to make informed decisions about outsourcing or insourcing specific media •

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Establish procedures to enable companies to outsource media production effectively, should that be determined to be the appropriate course

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Guide and advise production companies seeking to move into the full-service outsource contracting arena.

Key Life-cycle Trends Among the critical trends discussed are: • Web design and development use of tools, particularly Internet Web page creation and product marketing, are growing dramatically. • The more prescient companies are taking action to ensure that they retain an active role in Internet infrastructure product deliverables such as cloud based web hosting. • Short product development and life cycles are causing more consulting department orientation to engage in client generation, retention, and reengineering their production and administrative processes to react more quickly to industry trends. • • Cost pressures are resulting in smaller per project production budgets. Corporate development departments are becoming increasingly active participants in consulting teams with representatives from other functional departments making business development more collaborative centric.

ISTM5010 – Integration of Information Technology and Business 16 An Outsource / Insource Decision Model Most corporate web service provider departments already outsource or co-source selected parts of their workload. Co-sourcing may provide maximum benefits to a company. In this paradigm, an in-house function directs and controls design and development production efforts,

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choosing when and what to outsource. This document offers an insource / outsource model to guide the process of making the decision and, if appropriate, selecting a third party outsource provider. What will be recommended in the final document is a process which involves measuring each web site produced against six key client retention issues using a balanced scorecard. Each web site is then profiled as to quality vs. cost, internal vs. external production and strategic value vs. results. Net present value calculations are then recommended to evaluate each insource / outsource proposal in financial terms.

RISKS FOR BAILEYPC
An initial risk for small business is security. Computers are far more secure today being sold with virus scanners, intrusion detection and operating system encryption. Connection devices like routers are also meeting the National Institutes of Standards and Technology (NIST) guides for hardware security. “One of the most effective ways to protect a computer network that is connected to the Internet from unauthorized outside access is a firewall” (Reference for Business). The problem with this is cost. Many small businesses are not geared up financially for the level of protection needed. The costs involved to be on par with larger competition is not there and so they take the calculated risk with mediocre protection. They play the time game in that, get started and

ISTM5010 – Integration of Information Technology and Business 17 hope to generate enough revenue to better protect themselves later. Small business is far more at risk due to financial and human resource constraints. Small business must prioritize on an extreme level. They must network with other small

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businesses and study how they have averted the unnecessary costs of being ultimately protected vs. getting the job done. One must align technology with business needs and three questions arise from this approach: 1. Will the technology satisfy customer relationships by providing support, communication, or product delivery functions? 2. Will the technology help you manage the value of your business by protecting your intellectual property, supporting your staff, or improving the quality of your product? 3. Will the technology investment help you meet planned growth objectives? (allBusiness) So one must start thinking about what your company needs to run smoothly, how to serve your customers precisely, and support its needs. One must assess core business needs and address problem areas head-on. One must ask if technology can be used to address any of these needs, solve any of these problems, or perhaps make a marked improvement in the development of the business.

CIO PRIORITIES & IT FOR BAILEYPC
No longer is technology driven by IT but by the consumer. IT is now business centric and with the advent in technically of bulletin boards, Facebook, Twitter, Google+, live chat support, etc. the average consumer has a direct line to the organization via IT. “Rethink Communication and

ISTM5010 – Integration of Information Technology and Business 18 Collaboration in the Social Network Age” (Gartner). There is instant feedback from a product or

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service. The consumer is no longer living in isolation after purchase and the demand on IT to make this a seamless operation between business and consumer is at its highest demand. The IT industry is a moving target and the velocity is increasing (Center for CIO leadership). Absolutely the IT industry is moving at light-speed and the CIO has a daunting task. Balancing the internal functions of IT for the organization while keeping a public awareness of trends. This factor brings into focus the five forces which shape industry.

It used to be that IT only helped in the data processes of an organization but today the IT department is the driving force behind the processes. Trends in IT dictate which processes will be adopted and used and the five forces are assessed in IT with SWOT analysis, risk assessments, ERP’s for bargaining power and raw competition in how well an organization functions compared to their rivalry. Obviously this is not true for all organizations because there are many factors and forces that determine this in general.

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Central planning is a recipe for failure. At some point in all organizational structures there comes a time and need for a CIO to make a directional call which only an experienced and well informed “individual” can make without external bias and influence. The CIO must assess the five forces and make a decision which could impact positively or negatively. The CIO needs all the information necessary and this can only be accomplished by organizational transformation with information technology. This is what makes and breaks a skilled professional. Making this decision as a group often obscures the data helping the CIO to make a proper decision as a substitute for popular opinion. This can distort what is desired internally from the demands externally by the consumer. The role of the CIO is as much internally as it is externally. While this factor can ebb and flow depending on a natural up and down cycle for a given organization, the CIO must maintain a healthy presence in both areas. I do not believe there is an absolute shift from one in favor of the other or that IT has so changed business it’s definitely “more external”. That is, in my opinion and experience, patently false. And it is the mindset that when faced with the ultimate decision making all CIO’s will face as describe in my previous paragraph which will break a CIO. The role of the CIO is as much internally as it is externally. While this factor can ebb and flow depending on a natural up and down cycle for a given organization, the CIO must maintain a healthy presence in both areas. There is an absolute shift for the IT CIO and it has changed business definitely to a more external operation. And it is the mindset when faced with the ultimate decision making all CIO’s will face as describe in “creating a customer-centric business” (Harvard Business Review) that a CIO must have as much business in one’s mind as IT.

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CONCLUSION
Each business is different because their customer base has a different set of values for such product. The smart phone for an individual is nothing like the smart for an organization though they both accomplish the same goal of communicating. Within that value of communication though is a subset culture and another universal aspect around the value which is community. The individual community value is friends and family oriented while the business value is customer oriented. Harley Davidson has a customer base oriented toward the individual rather than a group or organization. But a hobby has a culture among like-minded individuals so Harley changed its model to orient itself around the culture rather than the single purchase individual (Ranjay Gulati, Harvard Business School). A technology leader is not just managing a network and technicians, they are thinking outside the box. Looking at the big picture of their business, the model, the customer base and taking a risk as Apple did with the touch screen cell phone (Ranjay Gulati, Harvard Business School). BAILEYpc recently converted to a Cloud Hosting Server in 2011 primarily due to the technology to run a single server as expandable virtual servers. This technology creates virtual space, or VPS Cloud as I call it, into virtual private space on the server simulating a client’s site to appear as if it is running on its own dedicated server. In reality the single server is running hundreds of hosted clients without shared space. What this technology solves are E-mail relay SPAM in a shared environment where someone sets up a phony hosting account only to hack the server to send email via other shared accounts. Another advantage is dedicated allocation to bandwidth. No more shared bandwidth. Finally is the

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dramatic cost saving from a dedicated server – why buy and store a dedicated server in rack space when you can simulate it via cloud software.

REFERENCES
Aberdeen Group. Who Outsourced the Outsourcers. Retrieved from http://www.aberdeen.com/Aberdeen-Library/4098/RA-offshore-outsourcing.aspx allBusiness. Your Small Business Advantage. Align Technology Investments with Concrete Business Needs. Retrieved from http://www.allbusiness.com/human-resources/workforcemanagementhiring/3839293-1.html#ixzz2BGLO2cpG Amazon.com. Amazon Elastic Compute Cloud (Amazon EC2). Retrieved from http://aws.amazon.com/ec2/ BAILEYpc, Inc. Web Services Company. Retrieved from http://www.baileypc.com Center for CIO leadership. Video Series: CIO Perspectives, Series Compilation. Retrieved from http://www.cioleadershipcenter.com/docs/DOC-2000 Elance. Online talent outsourcing. Retrieved form http://www.elance.com Gartner. CIO Priorities. Rethink Communication and Collaboration in the Social Network Age. Retrieved from http://www.gartner.com/technology/cio-priorities/ Harvard Business Review. Creating a Customer-Centric Business. By Ranjay Gulati. Retrieved from http://blogs.hbr.org/video/2010/01/creating-a-customercentric-bus.html Lucas, H.C., Jr. (2005). Information technology: Strategic decision making for managers. Hoboken, NJ: John Wiley & Sons.

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National Institutes of Standards and Technology. Internet Security - advantage, benefits, Common security problems. Retrieved from http://www.referenceforbusiness.com/small/IncMail/Internet-Security.html#ixzz2BGFG5em5 Network-Tools.com. Express Search Network Scan. Retrieved from http://networktools.com/default.asp?prog=express&host=discounttire.com OpenSRS. Domain name registration. Retrieved from http://www.opensrs.com Peter Drucker, Managing for Results. London: Pan Books, Ltd., 1964. Reference for Business. Reference for Business Encyclopedia of Business, 2nd ed. Basic Means of Protection. Retrieved from http://www.referenceforbusiness.com/small/Inc-Mail/InternetSecurity.html SBP. Developing into the future. To insource or to outsource? Retrieved from http://www.sbpromania.com/Articles/to-outsource-or-to-insource.aspx Site5. Web Hsoting. Retrieved from http://www.site5.com