IT Outsourcing Malaysia

INFORMATION COMMUNICATION TECHNOLOGY (ICT)

2009-07-02T09:10:00.000-07:00

http://www.matrade.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_hide_ICT

Overview

The Malaysian government in 1996, invested heavily in creating the Multimedia Super Corridor ( MSC ) to attract domestic and foreign investors to its ICT industry. The MSC currently serves as the backbone of the ICT infrastructure in the country and is supported by a high-speed link that connects it to Japan, the ASEAN countries, USA and Europe.

For the period 2005 -2010, ICT expenditure in Malaysia is expected to grow at a Compounded Annual Growth Rate of over 10 percent. By 2010, International Data Corporation forecasted that ICT expenditure in Malaysia will reach RM22 billion. The development and widespread usage of ICT are central to the realisation of Vision 2020 of a knowledge based economy. ICT usage has improved efficiencies among the Malaysian enterprises and has also directly increases Malaysia’s competitiveness in the global economy. Digitalization enables the convergence of the computer, telecommunications and consumer segments. The computing segment is the largest application segment for semiconductor consumption in Asia while communications and consumer applications are the fastest growing segments.

Malaysia has been ranked globally, as the third most favoured location for outsourcing of business processes. Malaysian ICT companies are capable of a wide range of services worldwide, including in the areas of;

mobile and wireless communication
business application software development
internet-based business applications in the financial sector
digital content development
e-commerce for networking and outsourcing
bio-informatics and
e-government

Malaysia has and will continue to be a top choice for off-shoring in the IT space to companies in the West Asia. Progressive Government policies and efforts in offering a world-class environment and attractive incentives through special zones will continue to attract business from around the globe.

As at 31 December 2007, a total of 1,994 companies were granted MSC Status Companies by the Multimedia Development Corporation Sdn. Bhd. The 1,994 companies are grouped into 6 main technologies namely creative multimedia, internet-based business, shared services and outsourcing, application software and mobility embedded hardware & software (MeSH), and institutions of higher learning.

Useful Websites

Malaysian Communications and Multimedia Commission at http://www.mcmc.gov.my
Multimedia Development Corporation Sdn Bhd at http://www.msc.com.my
Association of the Computer and Multimedia Industry Malaysia at http://www.pikom.org.my

Contact

Feedback and query are welcomed. Please contact Arieff Aaron Abdullah at aaron@matrade.gov.my or 03-6207 7132 / Nur Azni Aziz at nurazni@matrade.gov.my or 03-6207 7139 / Zaimah Osman at zaimah@matrade.gov.my or 03-6207 713

Will a US recession hit the local ICT industry hard?

2009-07-02T09:05:00.000-07:00

Malaysian Business, Feb 1, 2007

WILL the United States spiral downwards into a recession this year? This is the key question dividing economists in the United States and the world right now. An economic downturn or recession would certainly have an adverse effect on our economy, especially affecting local technology exports to the United States.

In November 2006, tech exports amounted to RM9.08 billion or 17.8% of Malaysia's total exports. After Asean, the United States is the second major export destination for Malaysian manufactured products, with an export value of RM100.91 billion from January to November 2006, according to statistics of the Malaysia External Trade Development Corporation (Matrade).

As such, the local information communications technology industry (ICT) and other technology-related players will have to keep a close eye on events in the US, given the uncertainty that exists. Opinions vary on whether a recession is on the cards and different indicators are leading think tanks to come up with various views. The widely cited housing and real estate indicators, as well as a concern about the US manufacturing sector have lead many to believe that a downturn, even recession, could hit the economy this year.

`The housing market, which has been driving the US economy's growth over the last few years, is undoubtedly going through a recession with falling sales and prices in 2006', says Farheen Pasha, team leader, ICT Practice, Economics Research and Analytics (ERA), Frost & Sullivan Asia Pacific, quoting figures from the National Association of Realtors of the United States.

She adds that while this is expected to continue through 2007, the impact of the housing recession on the US general economy, specifically on spending and consumption, is uncertain. `The close of 2006 saw widely divided opinions. However, the majority of prominent US economists are predicting a mere slowdown, as opposed to a full- blown recession. As opposed to the growth of 3.3% in 2006, cautious optimism permits us to expect the overall US economy to grow at a rate of between 2.3% and 2.5% in 2007,' says Pasha.

Analysts are reportedly revising forecasts due to a strong US trade balance, retail sales and job creation figures. But locally, the Malaysian Institute of Economic Research (MIER) is expecting the US economy to moderate in 2007, affecting Malaysia's exports overall. How will all this affect technology exporters here?

No effect

There seems to be reason to believe the ICT sector will be insulated to some extent. Lee Boon Kok, chairman of the Association of the Computer and Multimedia Industry of Malaysia (PIKOM) says that a slowdown does not seem imminent.

`Generally speaking, the slowdown in the US economy is geared towards the housing sector and we are still very bullish about the technology sector. We also believe that the market has been pulled up by growth in new areas, particularly the emerging outsourcing segment as well as export of software and services,' he says.

He points out that there is some forecast the new Apple iPhone will drive up the demand in the consumer electronics industry.

`The tech sector is generally going strong due to the demand for mobility and seamlessness driven by the entertainment, gaming and commercial industries,' he says.

Pasha, however, is not so optimistic. `The Malaysian ICT industry is very dependent on the US economy for both imports and exports. Imports from the United States dominate the Malaysian IT hardware and software segments and the industry also depends highly on the import of technologies. On the export front, the vulnerability of the Malaysian ICT industry on US demand is higher because the United States constitutes the largest export market for Malaysian ICT products,' she says.

Malaysian ICT exports to China, Thailand and India as a whole exceed exports to the United States. The analyst points out that China, Singapore, Vietnam, Myanmar, Thailand, Indonesia, Laos, Pakistan, Iran and Saudi Arabia are the other important export destinations for Malaysian IT services, particularly for shared services, creative multimedia content and applications, e- procurement and e-manufacturing applications, Voice over Internet Protocol (VoIP), and other Internet-based telecommunications solutions.

But taking the effect of the 2001 US economic slowdown and its subsequent effect on Malaysian ICT exports, caution ought to permeate the industry this year.

`Though it was expected that this diversification of Malaysian ICT exports across Asia and across products would provide a buffer against the weak US demand in 2001, it was unable to prevent the slowdown in Malaysia's ICT exports in the face of the slowdown in the US economy in 2001. If the US demand weakens in 2007, then this is expected to affect Malaysia's ICT exports,' says Pasha.

The exact nature and extent of effect depends on how the slowdown affects ICT demand in the United States, but there could be an interesting, positive effect for Malaysia's business process outsourcing (BPO) industry. `An IT budget squeeze for US corporations may lead to a further trend of BPO and outsourcing that Malaysia is vying to develop. However, the nature of impact is currently uncertain,' says Pasha.

Softening the blow

Downturn or not, the industry association believes technology manufacturing players should be proactive to adopt best practices and streamline business processes to achieve the best productivity possible. It shouldn't take a downturn to force players to recognise the value in such improvements and will stand them in good stead to move up the global value chain.

`I think we have to really plan wisely: we have to identify a few focus areas. Study the existing strengths of our ICT industry and leverage on those strengths. Rather than going after what we wish to do, we should focus on what we can do best with our existing capacity and strengths,' says Lee.

Malaysia is certainly a force to be reckoned with in shared services and outsourcing, (SSO) for example. `The industry has to look outwards for new markets. It is also advisable that these players work collectively and promote the country at a regional and global level. Malaysia must focus on our niche. For example, we can play the role of being the gateway to Asia,' he elaborates.

Although Malaysia does not have a sizeable market, its infrastructure is relatively well developed. Attracting the right talent and focusing on priority areas will probably keep the industry in a healthy state despite external economic factors. Pikom sees the Middle East and China as two markets that are showing promise.

Pasha concurs.'Trade relations with neighbouring Asian countries such as China and India offer greater potential for Malaysian exporters. Generally, the ICT industry is booming in most of the emerging markets, including Russia, China and Poland. Exporters can also target these emerging countries as a long-term diversification strategy,' she says.

E&E boom

The electrical and electronics (E&E) sector made up 47.8% of total exports from January to November 2006, to a total of RM256 billion, a 6.7% increase from the same period last year. Despite uncertainty surrounding the US economy, demand for semiconductors is estimated to remain positive.

`It is hard to predict if the US economy will slow down this year, and it is the same for the oil price. It was predicted to go up and it came down recently to below US$60. Although there are signs that the housing sector in the United States is seeing a slowdown, consumer spending was not affected. With the oil price coming down and stabilising, consumer confidence will probably not be affected,' says Datuk Wong Siew Hai, chairman of the Malaysian American Electronics Industry (MAEI). MAEI is an electronics industry committee within the American Malaysian Chamber of Commerce (AMCHAM Malaysia). It represents US electronics companies here, and its 17 member companies accounted for a quarter of Malaysia's total E&E output in 2005.

Wong cites projections of the Semiconductor Industry Association (SIA) for the industry's growth as well as analysts' projections to support the optimism felt in the sector despite talk of a recession.

The SIA has projected world semiconductor growth at 10% this year, driven by mobile phones particularly 3G, digital cameras, MP3 players, personal digital assistants (PDAs) and digital TV which are all showing double-digit growth, Wong points out.

`I expect the E&E industry in Malaysia to continue to grow in 2007, especially if SIA's forecast comes true, barring any unforeseen circumstances that might affect the US and world economy. Under the Third Industrial Master Plan (IMP3), it has been projected that the E&E industry will experience a compounded average growth of 9.2% during the 2006-2010 period,' he says.

He adds that the economic report released in October 2006 had projected Malaysia's Gross Domestic Product to grow by 6% in 2007. `However, various financial analyst and research houses have forecast a lower growth rate, of about 5%, as they expect the US economy to slow down somewhat and this in turn may impact global demand,' says Wong.

Up the value chain

The E&E companies in Malaysia have continued to expand and go up the value chain, but Wong believes that to increase in importance, companies need to ensure that the quality of talent also increases.

`Many of these companies have gone into design and development, technical support, customer support and shared services. These expansions have resulted in the need for more knowledge-based human resources. It is thus important for Malaysia to develop as many qualified technical and professional human resources that can support industry expansion in these areas,' he says.

He adds that more of such people need to be encouraged to continue their education to take up postgraduate studies. `Meanwhile, any shortage of such talent will need to be filled by foreign knowledge- based workers until the development of our human resources is increased and improved. I expect to see the shared services industry continuing to grow as Malaysia is ranked highly for providing such services,' says Wong.

Becoming global competitors means companies will need to address cost competitiveness, and strive to go up the value chain. This also applies to the ICT sector, which can implement cost-control measures to improve margins.

`They need to be more innovative by providing more value and better customer service and developing competitive products. Spending more time and resources in innovation and development will be key to winning businesses and staying ahead of competition,' he adds.

To Wong, these companies also need to increase their usage of ICT technologies as e-business has become an important global business trend with global companies. `We need the government to help put in infrastructure to support broadband in the country so that the Internet penetration rate can be increased. Improving the government delivery system will also help the companies to move faster and be more agile in response to competition,' he says.

http://findarticles.com/p/articles/mi_qn6207/is_20070201/ai_n24910950/

Malaysia ICT Sector Highlighted In MSE 2008

2009-07-02T09:02:00.000-07:00

Middle East – key area for growth for Malaysian ICT companies.

January 10, 2008 - SHARJAH - MSC Malaysia’s presence within the GCC area is set to be further enhanced by its participation at the Malaysia Services Exhibition (MSE 2008), which will take place from January 13- 15 at the Sharjah Expo Centre.

Ten of the top MSC Malaysia-status ICT Services companies ranging from those involved in Software Applications and Services to Outsourcing Solutions and Services, will represent the ICT sector at MSE 2008. The companies are Basis Bay, Britesoft, SCAN Associates, Custommedia, CWorks, Extol Corporation, Microlink Solutions, N2N Connect, Nexustel, Outsourcing Malaysia, and Xybase.

According to Badlisham Ghazali, the CEO of Multimedia Development Corporation (MDeC) of Malaysia, ICT companies participation in MSE 2008 are examples of the comprehensive, credible and cutting edge ICT services we offer to world at competitive costs. MDeC is the lead agency spearheading the MSC Malaysia project. MSC Malaysia is a national initiative spearheaded by the Malaysian Government to promote both the national ICT industry and provide a test-bed for the global ICT industry.

Currently, there are more than 1,900 ICT companies operating within the MSC Malaysia area, ranging from Internet-based business solutions and services providers to software application and services providers. Some of the sectors where Malaysian ICT companies can provide world-class applications include Financial Services Industry (FSI), Telecommunications (Telco) and e-Government services.

He added that MSC Malaysia industry development programs have produced globally competitive ICT companies delivering award winning solutions and world class service. These leading companies have successes in their delivery across continents covering Asia, Europe, US, Africa and the Middle East.

They include N2N Connect, which provides mobile trading technology for the Financial Services Industry in over five continents; Custommedia with their world class software testing solutions and services; Britesoft – providers of most advanced non-coding software development tools and services; Xybase is today’s leading Total Airport Management System and services with more than 20 international airport implementations globally, just to name a few.

For MSE 2008, Badlisham will represent the ICT sector to speak at the industry forum with a topic entitled, “MSC Malaysia: Are You Ready for the New World?” on Tuesday, January 15 at 5.30pm to 7pm, focusing on world solutions provided by MSC Malaysia to optimize strategies and opportunities in the New World of developing nations and economic power houses.

Among others, he will provide the ICT industry outlook in Malaysia as well as the opportunities in the New World order emerging in the East and the entire region. Badlisham will reinforce the MSC Malaysia messages and desire to be a strong partner with Middle Eastern Businesses and Governments, together bringing them to the next levels of excellence through ICT.

Badlisham will also deliver in his keynote, the opportunities within the Government-to-Government (G2G), Business-to-Government (B2G) and Business-to-Consumers (B2C) sectors. He will also speak on Kuala Lumpur’s preparation to host the 16th World Congress on Information Technology (WCIT 2008).

Business owners and multinational corporations in the region should not miss the opportunity to experience how MSC Malaysia empowers Governments and businesses through one-to-one business meetings and round-table discussions.

The MSE 2008, which will host over 160 Malaysian companies and showcase and brand a diverse range of Malaysian services in the region, is aimed at increasing collaborative possibilities between Malaysian service providers and businessmen in the region, especially in areas such as construction, education, engineering, energy and power generation, financial, healthcare, ICT, logistics and transportation sectors, management services, oil and gas.

Malaysia vows to drive ICT goals

2009-07-02T08:58:00.000-07:00

ZDNet Asia
Thursday, March 13, 2008 06:53 PM

Malaysia's Multimedia Development Corporation (MDeC) has pledged to further develop the country's ICT ambitions this year, focusing on improving the quality of its entrepreneurs and status as an outsourcing destination.

The custodian of the Multimedia Super Corridor (MSC) Malaysia said it wants to continue to further enhance its ongoing programs, create more young entrepreneurs and improve the capabilities of MSC Malaysia-status companies in 2008.

First mooted in 1996 and formerly called Multimedia Super Corridor, the MSC Malaysia is a government ICT initiative aimed at accelerating the country's position as a knowledge-based economy.

MDeC CEO Badlisham Ghazali said the government body is committed to its charter to help Malaysians improve their quality of life and to empower businesses to achieve more.

"We will [continue] to develop sectors in the creative multimedia industry, create more young entrepreneurs through our technopreneur development [programs] and prepare our MSC Malaysia-companies to be ready to compete globally," Badlisham told ZDNet Asia in an e-mail interview.

He said the MDeC will continue to capitalize on Malaysia's position as the third-most attractive outsourcing destination, behind India and China. He noted that while Malaysia may not be the cheapest outsourcing location, it offers quality human capital for the ICT industry.

One sector, he added, in which the MSC Malaysia made remarkable progress last year was the development of creative multimedia and digital content.

The industry segment, encompassing animation, mobility, online and offline games, will be further enhanced and more grants will be given to reach more potential candidates through MSC Malaysia this year, Badlisham said.

"I'm sure the MSC Malaysia Creative Multimedia and Content Initiative (MCMC-I) with its pitching competitions, global distributor engagement programs and business matching will continue to expose our talents and companies globally," he said. "We hope the MCMC-I will exceed our expectation of 15 percent growth from 400 million ringgit (US$125.5 million) sales achieved last year."

Challenges abound, competition tough
Despite the progress MSC Malaysia made in the past year, Badlisham acknowledged that there are still too few local companies going global. He said local ICT companies must realize that "to go global, they have to be really good".

"The competition is very stiff. Companies from Vietnam, Thailand and Singapore are showing more and more potential. Local companies must be knowledgeable in world trends and continue to improve their capabilities," he explained.

The quality of services provided by MSC Malaysia companies, while better than previous years, still has room for improvement, he said.

The MDeC is, therefore, stepping up efforts to encourage more companies to obtain globally-recognized certifications, Badlisham said. The government body is also offering various development programs, particularly management programs, to enhance the quality of its local CEOs, he said.

According to Tony Pua, economic advisor to Malaysia's opposition Democratic Action Party (DAP), there is an urgent need to improve the quality of IT education provided by Malaysian universities and colleges. This can be achieved by boosting entry requirements, employing better qualified lecturers and setting higher passing standards, Pua said in an e-mail interview.

"Malaysia needs to transform the administrative and civil service mindset that the ICT industry can be geographically confined within areas, such as MSC Cybercities or designated industrial parks, [and] focus on the ubiquitous nature of ICT which transcends physical boundaries," he said.

The country also needs to open up the current "opaque government process in IT requisitions", to one that supports the best and strongest IT companies instead of non-performing companies, Pua said.

"If this trend is not reversed, projects will be delivered at a higher cost but less effectively. Also, better qualified IT companies will be disadvantaged in the process of transforming themselves into world-class companies," he said.

Raphael Phang, IDC's Asia-Pacific research director for government, said while Malaysia has formulated a strategic ICT vision, it needs to bring policies into reality.

"Malaysia, like all other economies, needs to face similar issues of execution plans with clear, objective ROI (returns on investment) and KPI (key performance indicator) benchmarks and measurements," Phang told ZDNet Asia in an e-mail interview.

"Other issues such as insufficient or untrained manpower that are unable to exploit available technologies, can [also] hamper the success of any implementation," he said.

The IDC analyst added that the Malaysian government would do well to work with foreign or private sector expertise in areas where it lacks sufficient resources to support an efficient implementation.

Malaysian Government ICT awards continue to shape industry, says MDeC

2009-07-02T08:48:00.000-07:00

Previous winners return as sponsors in the ninth year09 Sep 2008

KUALA LUMPUR, 9 SEPTEMBER 2008 - Several previous winners of a major Malaysian awards programme have returned as sponsors, according to the Multimedia Development Corporation (MDeC).

The former winners have become sponsors of the Multimedia Supercorridor Malaysia Asia Pacific Information and Communications Technology Alliance (MSC Malaysia APICTA) Awards Programme 2008, now in its ninth year.

Dato’ Badlisham Ghazali, chief executive officer of MDeC, said: “Efforts from MSC Malaysia alone would not have been sufficient in shaping the local ICT sector. The collaboration between both the public and private sectors in enhancing the development of the local ICT sector signifies that this is a team effort.”

Badlisham also added that, “The post-Awards success experienced by these past winners demonstrates their achievements and capacity to provide such generous sponsorship for this year’s awards.”

He explained that the MSC Malaysia APICTA Awards 2008 Programme, now in its ninth year, saw the highest number of nominees ever with an increase of 37, from the previous 321 submissions in 2007 to 359 nominees this year.

Winners of the MSC Malaysia APICTA Awards 2008 will stand a chance to represent Malaysia at the annual International APICTA Awards 2008, which will be held later this year in Jakarta, Indonesia.

Collaboration between public and private sectors

Badlisham explained that the MSC Malaysia APICTA Awards recognised outstanding achievements in ICT amongst students, technopreneurs, small and medium enterprises (SMEs), and operating organizations in Malaysia who have contributed to the development of the MSC Malaysia initiatives or who have developed applications and services for the benefit of Malaysia.

“The MSC Malaysia APICTA Awards 2008 is a successful example of the collaboration between the public and private sectors in their efforts to enhance the development of the ICT industry in Malaysia,” he said. “These joint efforts go a long way towards nurturing the local talent pool and developing a knowledge-based society, whilst transforming Malaysia into a preferred global ICT hub.”

Some of the sponsors for the MSC Malaysia APICTA Awards 2008 are also previous winners of the MSC Malaysia APICTA Awards Programme. These include local companies such as Cuzzy Media Sdn Bhd, Jobstreet.com, Asia Pacific University College of Technology and Innovation (UCTI), ASTRO and Redtone International Bhd.

“The return of these winners as sponsors for the MSC Malaysia APICTA Awards Programme demonstrates the leverage that the Awards Programme provides to participants, and the local ICT sector in general, in reaching out to a global audience,” said Badlisham.

Malaysian ICT industry believes currency fluctuation has minor impact

2009-07-02T08:46:00.000-07:00

UPDATED: 20:41, March 23, 2007

The fluctuation of the ringgit against the U.S. dollar will have minimal impact on the local information and communications technology (ICT) industry, the country's national ICT association said on Friday.

"The fluctuation of the ringgit against the U.S. dollar is minimal and gradual hence the impact on imports of ICT products and services is not significant," said the Association of the Computer and Multimedia Industry of Malaysia (PIKOM).

The fluctuation of the currency should not cause any alarm if it continues to fluctuate within several percentage points as long as it is gradual, said PIKOM Chairman Lee Boon Kok.

As far the as pricing of imported products is concerned, currency is only one factor, he said.

Both manufacturers and importers may have some gains from the stronger ringgit when they buy from overseas suppliers but there are also other costs involved in their entire operations, Lee said.

Lee stressed that stronger ringgit does not surely make foreign products cheaper, but it would make Malaysian products and services more expensive on the world market.

One way that exporters could mitigate the influence of the fluctuation of the currency is to make the contract in the targeted market currency rather than in the U.S. dollar," Lee suggested.

PIKOM is the association representing the ICT industry in Malaysia. It consists of about 650 member companies, which provide a whole spectrum of ICT products and services and command about 80 percent of the total ICT industry in Malaysia.

Source: Xinhua

ICT AND ELECTRONICS INDUSTRY IN MALAYSIA

2009-07-02T08:43:00.000-07:00

Malaysia har en meget veludviklet ICT og elektronikindustri. Dette sektoroverview belyser markedsmuligheder for danske virksomheder i Penang og inden for Malaysias Multimedia Super Corridor. Overviewet beskriver således både muligheder for danske virksomheder, der producerer eller udvikler hardware og software.

Du kan læse mere på den underliggende side, eller downloade den samlede rapport i PDF-format her.

Introduction:
There has been a structural transformation of Malaysia’s economy over the last 40 years. The country has progressed from an economy dependent on agriculture and primary commodities to a manufacture-based, export-driven economy spurred by high technology and capital-intensive industries.

During the last decade Malaysia has experienced a rapid development that places the country on the world map within the high-tech sector, including segments such as Information and Communications Technology (ICT), hardware and software, and IT-services in general. Several programs and projects have been implemented to encourage a wider diffusion of ICT in the economy. The key initiative is the Multimedia Super Corridor (MSC), which is a hub designed to promote multimedia products and services, by bringing together a legislative framework and a next-generation telecommunications infrastructure.

The Malaysian government still promotes the country’s manufacturing based electronics industry, thus also providing excellent opportunities for Danish companies within this sector - especially in relation to sourcing, outsourcing and setting up local production facilities.

Market Size Indicators:
To create an overview of the Malaysian ICT and electronics industry and point out some possible market opportunities for Danish companies this section firstly provides a brief description of the Multimedia Super Corridor followed by a presentation of market size indicators of the electronics industry in Malaysia. The section is concluded by a more specific introduction to the electronics industry in the state of Penang.

The Multimedia Super Corridor
The MSC’s location is currently within a 15 km wide and 50 km long zone, starting from some of the tallest buildings in the world – the Petronas Twin Towers – down south to the Kuala Lumpur International Airport (KLIA). The main components of this corridor are Kuala Lumpur City Centre, KLIA, a technology park and the two newly established intelligent cities Cyberjaya and Putrajaya. These components are bound together by a 2.5-10 gigabit digital fibre-optic network, providing high-speed computer links.

The MSC aims to revolutionise how Malaysians and others in the region do business, especially in relation to companies developing or using leading multimedia technology. As the MSC grows it is expected to provide the catalyst for the IT development in Malaysia. Various incentives have been introduced to encourage foreign partners to conduct R&D locally and promote joint ventures to enhance local technological capabilities. These incentives, also known as ‘The Bill of Guarantees’, include the government’s commitment to providing world-class physical and information infrastructure, freedom of ownership (i.e. no requirement for Malaysian participation), unrestricted employment of foreign knowledge workers and freedom to source capital globally. Furthermore, it is possible for foreign companies to receive income tax exemption for up to 10 years and a 100 % investment tax allowance for five years.

The Three Phases of the MSC
The planned development of the MSC over the time span from 1996-2020 has been divided into three phases:

· Phase 1: 1996 – 2004
Successfully create the Multimedia Super Corridor south of Kuala Lumpur

· Phase 2: 2004 – 2010
Link the MSC to other cybercities in Malaysia & worldwide

· Phase 3: 2010 – 2020
Transform Malaysia into knowledge-society

The first phase of the MSC has been successfully concluded. Some of the world’s most prominent ICT companies have established operations within the MSC, including companies such as Ericsson, IBM, Nokia, Intel, Sun, Computer Associates, etc.

The MSC is now into the tail end of its second phase, where the overall goal is to set up Cyberjaya linked high-tech centres throughout Malaysia and thereby bring the high-tech ICT benefits to the rest of the country. One of the most interesting aspects in this is the expansion of the corridor to Penang, which is expected to deepen and further technological growth in this state. This will be described in more detail later in this section.

Flagship Projects/Focus areas
To get the development of the MSC started, seven focus areas for multimedia projects have been identified. The focus areas provide concrete project opportunities for ICT companies throughout the world to collaborate with the Malaysian government in creating and implementing innovative ICT solutions.

Cyberjaya
Cyberjaya is one of the two intelligent cities established within the corridor. The other intelligent city, Putrajaya, is set to function as the Government’s new headquarter. Cyberjaya is established to become the headquarter for private companies. The aim is to create a multimedia catalyst centre for global R&D and design with the capacity to be the operational headquarters for multinational firms wishing to direct their activities using multimedia technology.

Cyberjaya is one of the most interesting aspects of the MSC, due to its high concentration of companies focusing on technology. As of December 2008, Cyberjaya hosts 474 companies, encompassing 30 multinationals and 444 home-grown companies with MSC-status. This can provide several opportunities for Danish companies seeking to identify local partners or customers. The high concentration of companies also provides excellent networking possibilities. It is projected that the total number of MSC-status companies will reach 500 within the project timeframe.

Companies with MSC-Status
There are presently a total of 2,000 MSC-status companies operating within a number of different sectors, ranging from software development to wireless technologies. This number is projected to increase to 2,500 by 2010, generating 100,000 jobs nationwide.

The major focus of the companies operating within the corridor is still on software development. One of the strengths of locating software development activities in Malaysia and within the MSC is the large talent pool of skilled English speaking developers with many different nationalities, making multi-lingual development possible.

There are currently more than 75,000 IT and engineering graduates working in Malaysia. In particular the many Chinese natives among these have created the opportunity for companies to develop software for the Chinese market, while still reaping the benefits of being located in Malaysia

The education level in Malaysia is high compared to other countries in South-East Asia. The country is more culturally oriented towards the West, eroding cultural or language barriers amongst employees in business organisations. Malaysia’s long exposure to Western business culture has attracted various American and European multinational companies, enabling them to establish large development departments in the country. Malaysia has considerable experience within the software development industry, with broad competences in .Net, Java, J2EE, C++, PHP, embedded software, Multimedia and databases such as MySQL, Orcle, SQL Server, Sybase, etc.

Malaysia has a mature IT development industry comprising IT professionals with more than 20 years experience. Their educational backgrounds vary from a national degree to education from the US, England or Australia combined with an extended international work experience.
Malaysia offers one the lowest salary inflations in the world by less than 5 % and the price of hiring local developers is under 1/3 of the cost of hiring the equivalent number of Western developers. Moreover, Malaysia supplies productive and job loyal employees.

Knowing the importance of having a qualified human capital has led to the establishment of MSC Malaysia’s Knowledge Workers’ Development Institute (KDi) in 2005 to carry out various training programmes as stop-gap measures in order to provide established and start-up ICT companies with knowledgeable workers.

In 2007, there were over 1900 firms operating with MSC-status in Malaysia, local companies made up about 1400 of these companies, followed by more than 400 foreign-owned companies.
Furthermore, almost 50 companies of the 1900 companies with MSC-status were companies in 50/50 ownership. The fact that the majority of the joint ventures established are between local and foreign companies, even though 100% foreign ownership is not prohibited, clearly shows that there are several opportunities to be explored for foreign companies in Malaysia.

The Electronics Industry in Malaysia
Malaysia’s IT industry is a growth sector, mirroring the rapid expansion of e-commerce worldwide and the demand for the related hardware appliances, software and Internet related products and services. As one of the leading producers and exporters of semiconductors and integrated circuits in the world, Malaysia has developed a strong manufacturing base for high-end consumer electronic goods, such as various ICT products and computers and parts. Malaysia is particularly known for its production and semiconductor devices, memory chips, computer monitors and disk drives.

Made-in-Malaysia electronics products are diverse and fall into three categories: electronic components, consumer electronics and industrial electronics. These goods are sold globally, with exports of semiconductor devices valued at US$ 31.13 bn., accounting for 40% of total electronics exports in 2007. The export-oriented electronics industry now has more than 900 companies in production, where international players like Intel and Motorola attest to the quality and competitiveness of Malaysia as a production country.

In 2007, gross output of the industry totalled US$ 61.6 bn., while the industry’s exports amounted to US$ 83.2 bn. This makes up 58.9 % of Malaysia’s manufactured exports and 44 % of the country’s total export. Greater outsourcing activities and software development has helped to enhance the sector’s growth. The output of semiconductors increased by 3.6 % in 2006 and by a further 4.6 % in 2007, however, the semiconductor output is forecast to increase by 2.3 % in 2008, the lowest growth rate due to the weaker global market.

The Electronics Industry in Penang
The northern Malaysian state of Penang is one of the most interesting areas in Malaysia for companies within the ICT and electronics industry. The state, which now populates some 1.5 mio people, has undergone an intensive and impressive process of industrial and technological transformation in the past 30 years. It has moved from being labour intensive with low technical processes into more technology-, skill- and capital-intensive production processes. Today Penang is also known as the ‘Silicon Island of the East’.

Penang pioneered Malaysia’s first Free Industrial Zone (FIZ) to initiate and facilitate the development of export-oriented manufacturing. There are now two FIZs and five industrial parks in Penang. Favourable incentives for the investors, the strategic geographical position of Penang, a stable government, well-developed and modern infrastructure facilities combined with a well educated workforce are all key factors why Penang has long been and will continue to be a major attraction for investors and foreign companies seeking Malaysian partners.

Companies in Penang
In 2005 (latest up-date available) there were already more than 700 companies operating in the industrial parks in Penang. Of these, 162 are involved in the electrical and electronics sector (E&E). This sector serves as Penang’s high-tech industry hub, hiring a total of 97,343 workers or 58.5% of the state’s total workforce (2005 estimates). It also hired the largest number of engineers, numbering 6,911 of the total 8,766 engineers in Penang’s technology parks (2005 estimate).

The most dominant areas within the E&E sector are semiconductors and wireless telecommunications, while supporting automation products is an area of increasing importance. In the field of semiconductors, world leaders such as Intel, AMD and Fairchild have been in Penang for more than 30 years. Motorola and Agilent are very big players in the area of wireless communications. Although these companies are some of the most prominent players within their fields, many smaller and local companies within the E&E sector are situated in Penang. Opportunities for Danish companies may therefore both be found as a supplier to one of the larger multinational companies and in relation to sourcing or outsourcing to the smaller companies.

Datuk Wong Siew Hai, the former vice-president of Intel’s technology manufacturing group suggests that Penang could build a niche in supporting automation products and in shared services. The industry could tap into the shared services and business process outsourcing market as many multinational companies in Penang are looking into automating and consolidating backroom operations.

Currently, Invest Penang (state government development authority) is actively promoting industries that are capital and skills intensive and high value added, such as advanced electronics; IT related products and services, advanced materials, high-tech and high value added components, etc.

Software Industry in Penang and the Expansion of the MSC
Software development is one of the areas, which fall under Invest Penang’s initiatives to promote higher value added activities in Penang. In this regard, the Penang state government has created the Software Consortium of Penang (SCoPe), which is set up to nurture and strengthen the development of the industry. As of May 1, 2007, the SCoPe had 46 affiliated member companies operating within the Penang software industry. However, the software industry in Penang is still relatively small compared to the massive concentration of such companies within the MSC south of Kuala Lumpur.

Penang is the first state in Malaysia to be awarded the MSC Malaysia Cybercity status. Officially known as the Penang Cybercity, phase 1 (PCC1), it provides a hi-tech growth platform for industries and businesses. This area is growing as the MSC, in line with the second phase of the MSC development, recently has been extended to include parts of Penang’s largest industrial park Bayan Lepas industrial park and its vicinity. The second and third MSC Malaysia zones in Penang will be launched on the mainland Penang in Bertam and Batu Kawan after 2008. This entails that companies in Penang will be able to benefit from the same incentives as the MSC-status companies located within the corridor, such as in the intelligent city of Cyberjaya or in a technology park.

Market Trends:
There has been a very positive development within the ICT and electronics industry in Malaysia the past couple of years. A recent forecast conducted by the International Data Corporation (IDC) expects this trend to continue. IT spending in Malaysia reached US$5,600 mio in 2008

Figure 2 - Malaysia’s IT Spending Forecast 2008-2012
(see pdf-file p. 9)

Source: IDC

As illustrated in Figure 2, the three segments services, software and hardware will all experience steady growth in the years to come. However, software is expected to enjoy the highest growth rate of about 25 %. The hardware market still represents the biggest IT spending share in Malaysia’s IT market, indicating that this sector will continue to be one of the driving forces in the Malaysian economy.

Shared Services and Outsourcing
The potential in shared services and outsourcing in Malaysia has increased dramatically amid the economic slowdown. According to Outsourcing Malaysia chairman David Wong, the industry has been growing at double the 15 % global growth currently and this growth is expected to continue.

Shared services and outsourcing activities has been one of focal areas of Multimedia Development Corporation (MDeC). Currently, the government estimates that the shared services and outsourcing industry in Malaysia will hit US$2 bn by 2012 if the double-digit growth persists.

In 2005 the MDC estimated that Malaysia will be able to generate as many as 100,000 jobs in this sector under the next Ninth Malaysia Plan (2006-2010). However this amount has increased due to the dramatic growth and the industry is now estimated to generate some 300,000 jobs by then with a target growth of 40-45 %.

Market Evaluation:
From being the world’s largest producer of rubber and tin, Malaysia is today one of the world’s leading exporters of semiconductor services, computer hard disk drives as well as audio and video products. This development creates business opportunities for Danish companies in Malaysia. These opportunities currently exist among others in relation to sourcing and outsourcing – primarily in Penang, but also in the area of software development and business process outsourcing – primarily within the Multimedia Super Corridor.

Evaluation of the Multimedia Super Corridor
The Government of Malaysia aims to attract leading companies of the world to locate their ICT industries in the country, undertake research, develop new products and technologies, and export from this base. Foreign companies are therefore most welcome in Malaysia and those who decide to join the Corridor enjoy several incentives and privileges.

The Danish embassy has spoken to foreign MSC status companies during the first phase of the Corridor. In general, all of them are rather satisfied with being a part of the MSC. They have all faced some difficulties at some point, but nothing of major importance. They all see the MSC as a good place to start if a company wishes to start-up their business somewhere in Asia, as the MSC offers very attractive benefits, especially when it comes to hiring foreigners, which all the companies have taken advantage of.

Another important aspect of being located within the corridor is having the opportunity to network with other MSC companies, which is one of the essential things for surviving within the Asian business culture.

Evaluation of the ICT and Electronics Industry
Malaysia, in general, has developed a strong and diversified manufacturing base within the ICT and electronics industry. The embassy finds that Penang, in particular, offers very interesting business opportunities due to the high concentration of companies within the industry combined with an attractive business environment.

In Penang, Danish companies of all sizes have the opportunity to find suitable local partners within a large number of sectors, as well as profiting from the incentive established to attract foreign investments. A Danish delegation to Penang in November 2004 reviled that the state offers great possibilities for locating the right business partner, as there are many SMEs with international experience operating there.

The expansion of the MSC to include parts of the Bayan Lepas industrial park in Penang will provide Danish companies with future opportunities – also within software.

INFORMATION & COMMUNICATIONS TECHNOLOGY

2009-07-02T08:41:00.000-07:00

The EUMCCI ICT committee offers a platform for members to network to discuss and raise issues in the ICT sector. The committee organises talk sessions with guest speakers from the government to talk about the development in the sector and new regulations.

MORE INFO:
Information, Communications and Technology is a highly dynamic and innovative industry that drives economic and social progress in all the economies around the world. It is estimated by the year 2015 that over 5 billion people will be connected and much of that is because of what the ICT industry delivers. It can be demonstrated that there are multiplying effects of the implementation of many of the ICT solutions, services and know - how that benefits all of us and improve the GDP growth of many economies including Malaysia.

Since the early 90s Malaysia was one of the first developing countries to adopt information and communication technology to grow its economy. In 1996 Malaysia launched the Multimedia Super Corridor (MSC) project. The intention of the project is to create a world class ICT infrastructure and ideal environment for ICT related production. Two smart cities have been developed within this corridor, namely Putrajaya and Cyberjaya. It comprises a high-speed link network able to support about 10Gb/s connecting Malaysia to Japan, ASEAN, Europe and US.

The government wants to place Malaysia as a regional and global multimedia hub, For these reasons it has granted several incentives, mainly tax breaks, in order to attract multinational companies. The MSC aims also to improve the competitiveness of the existing companies operating in Malaysia. Currently, there are more than 1,900 ICT companies operating within the MSC Malaysia area, ranging from Internet-based business solutions and services providers to software application and services providers. Some of the sectors where Malaysian ICT companies can provide world-class applications include Financial Services Industry (FSI), Telecommunications (Telco) and e-Government services.

The telecommunication sector in Malaysia has grown significantly in the past decade. At the end of 2006 around 20 million mobile accounts were active, which is a penetration rate of just under 80% of the population. The fixed line penetrations have declined from 16.6% at the end of 2005 to 16.2% in the first three quarters of 2006.

In December 2006 all prepaid subscribers had to register their number at one of the main telecom providers. A regulation for the near future to open up the competition could be the introduction of number portability, which gives customers the opportunity to retain their number as they migrate to another provider.

ICT industry holds key to greener world

2009-07-02T08:37:00.000-07:00

Star, Tech Central

Published: Thursday June 25, 2009 MYT 10:57:00 AM

KUALA LUMPUR: Industries that utilise the least amount of ICT (information and communications technology) are the worst offenders in relation to carbon dioxide emissions, said chipmaker Intel Corp.

It said that the ICT industry accounts for 2% of carbon dioxide emissions worldwide while the other industries are responsible for the remaining 98%.

General manager of eco-technologies at Intel, Lorie Wigle, said a study by Gartner shows that the transportation, construction and electrical industries can be more energy efficient.

“These industries would be greener if they took advantage of the latest technologies,” she said. “We believe ICT can benefit every other industry and we are taking the opportunity to offer these green technologies to governments and industries.”

She said Intel is in talks with governments in various parts of the world, making proposals and offering advice on turning their industries into more eco-friendly organisations.

Such meetings are being held with the Malaysian Government, according to Wigle. She said Intel has met with Energy, Green Technology and Water Ministry, as well as the Multimedia Development Corp, guardian of the MSC Malaysia initiative.

The proposals put forward at these talks include the construction of smart buildings in the country that promote green by employing efficient energy-management systems.

“There is a lot of enthusiasm from the Government and its agencies over becoming more energy efficient and we hope to be able to announce something concrete in the near future,” said Wigle.

Intel is also consulting and sharing information with national applied research body, Mimos Bhd, on frontier technologies and regional trends related to climate change.

It hopes that its efforts will eventually translate into government policy.

Malaysian ICT Industry Celebrates Achievements with Ninth MSC Malaysia APICTA Awards

2009-07-02T08:36:00.001-07:00

By Faizolhardi Zubairy
Published 15 October 2008
Press Releases
Unrated

18 awards of distinction given out to commercial organizations and academic institutions

KUALA LUMPUR, October 15, 2008: As the curtains drew at the end of the Ninth Annual MSC Malaysia Asia Pacific Information and Communications Technology Alliance (APICTA) Awards 2008 last week, the 18 winners could reflect with a sense of accomplishment and renewed vitality for the coming year.

The 2008 MSC Malaysia APICTA Awards, themed “Stimulating Creativity & Excellence in ICT

Information and Communication Technology'); return false" style="text-decoration: none; color: rgb(0, 102, 204); border-top-width: 0px; border-right-width: 0px; border-bottom-width: 0px; border-left-width: 0px; border-style: initial; border-color: initial; ">ICT”, marked the inaugural partnership between Multimedia Development Corporation (MDeC) and Association of the Computer and Multimedia Industry Malaysia (PIKOM) to jointly organize the annual ‘industry Oscars’ for the Malaysian ICT industry.

This year’s MSC Malaysia APICTA Awards received a record 359 nominations for a total of 18 awards, up from the previous year where there were 321 nominations. The range of awards presented that evening was capped by the Prime Minister’s “Best of the Best” Award which this year went to FSBM Holdings Berhad for their UNOS product.

The recipient of the Prime Minister’s “Best of the Best” Award will also attend a week-long entrepreneur development programme at the Sloan School of Management at the Massachusetts Institute of Technology (MIT).

In addition, there were also two newly-introduced categories: “Best of e-Inclusion and e-Community” and “Best of e-Health” category.

Winners of this year’s MSC Malaysia APICTA Awards will represent Malaysia at the International APICTA Awards, which will be held in Jakarta, Indonesia, in November 2008. Then, the winners will further represent Malaysia at the World Summit Awards (WSA), which will be held in Belgium next year.

On the same note, the winners of this year’s Awards will have the opportunity to undergo development programmes under the MSC Malaysia initiative.

Dato’ Badlisham Ghazali, Chief Executive Officer of MDeC, said “MSC Malaysia will continue in its efforts and commitment, to push the progress and development of our local ICT industry, so that Malaysia can become a true Knowledge-based economy and ensure wealth creation and well-being for the society and businesses alike.”

In an address read by YB Datuk Dr. Maximus Johnnity Ongkili, Minister of Science, Technology and Innovation, on behalf of YAB Dato’ Seri Abdullah Haji Ahmad Badawi, Prime Minister of Malaysia, at the Awards ceremony, he said “I am heartened to note the theme of this year’s MSC Malaysia APICTA Awards – ‘Stimulating Creativity & Excellence in ICT’. Indeed, creativity and excellence, along with innovation, are the new components of economic value in a modern global economy and must continue to be nurtured if Malaysia is to successfully transform into a Knowledge-based economy.”

The winners of the Ninth Annual MSC Malaysia APICTA Awards 2008 are as follows:

Prime Minister’s Best of the Best
FSBM Holdings Berhad
Product: UNOS
Having received recognition from three international bodies, UNOS PRO is the first in the world to combine voice, messaging and service deliveries under one platform. It is a mobile phone midlet that allows users to have free push email and free SMS within the worldwide UNOS community, and comprehensive voice features, including a roam free solution.

Best of Primary Student Project
Sekolah Kebangsaan Taman Universiti
Project: Si Tanggang – The Animation
Best of Secondary Student Project
Foon Yew High School
Project: Remote Rescuing Unit
Best of Tertiary Student Projects – Software / Hardware
Universiti Malaysia Sarawak (UNIMAS)
Project: Finger Tracking and Bare-hand Posture as an Input Device Using Augmented Reality
Best of Tertiary Student Project – Creative Multimedia
Universiti Malaysia Sarawak (UNIMAS)
Project: An Interactive Augmented Reality Game – 3D Aeroplane Games (3DCoolPlane)
Best of Media & Entertainment
LimKokWing Film & Television Academy
Project: Barricade by Love Me Butch (music video)
Best of Financial Applications
GHL Systems Berhad
Product: NetTransact Solutions Suite
Best of e-Inclusion & e-Community
Asia Pacific Institute of Information Technology (APIIT)
Product: ScreenShield3
Best of Research & Development
GlobalCLAS™ Technology Sdn Bhd
Product: PICSECUREID™
Best of Start-up Companies
Asia Media Sdn Bhd
Product: TransNet@KL
Best of Applications and Infrastructure Tools
Arahe Solutions Sdn Bhd
Product: Arahe SiteCelerate
Best of Security
Nexbis Sdn Bhd
Product: Nexbis National Security Solution
Best of e-Logistics
BSMART Technology Sdn Bhd
Product: BSMART Commercial Vehicle Operation Services (b’CVO)
Best of Communication Applications
FSBM Holdings Berhad
Product: UNOS
Best of e-Government & Services
Sarawak Information System Sdn Bhd
Product: Integrated Court System (ICS)
Best of Industrial Applications
Devices World Sdn Bhd
Product: iSCADA
Best of e-Learning
Myfingo Sdn Bhd
Product: MyVBOT, The Adventure
Best of Tourism & Hospitality
Universiti Malaysia Sarawak (UNIMAS)
Product: Augmented Reality System for Recognising Text on Street Signs for Tourism

ICT industry likely to grow 12pc

2009-07-02T08:31:00.000-07:00

Published on: Saturday, December 31, 2005

Kuala Lumpur: Pikom, the Association of Computer and Multimedia Industry of Malaysia, has forecast a 12 percent growth next year for the country's information communications technology (ICT) industry.

This would compare with a 10 percent growth in 2005, it said in a statement Friday.

According to Digital Planet, a publication of the World IT and Services Alliance (WITSA), Malaysia's total ICT spending reached RM31.92 billion (US$8.4 billion) in 2005.

Pikom is a member of WITSA.

The bulk of ICT spending in 2005 was in the communications sector which took up RM21.66 billion (US$5.7 billion), followed by hardware spending about RM5.7 billion (US$1.5 billion), software RM2.66 billion (US$700 million) and IT Services RM1.9 billion (US$500 million).

Pikom chairman, Lee Boon Kok, said the association was bullish on the industry's outlook in 2006.

He said the economic indicators were pointing to a higher overall growth for the national economy in 2006 and that this would augur well for the ICT industry.

Lee said the outsourcing and shared services industry were high growth sectors due to the positioning of Malaysia as a shared services hub and the aggressive promotion of Malaysia as a choice location.

IDC has projected that the information systems outsourcing market will grow by 22.5 percent over a five-year period.

While lower than initially estimated, this still represents one of the fastest growing segments of the industry.

The other sectors, systems integration, consulting, retail and distribution are expected to perform in tandem with the average growth of the industry, between 10 and 15 percent.

Lee said that while Pikom hoped to see all economic sectors investing in ICT to improve the competitiveness of their business, the association will focus on building the market and bridging the digital divide. He said that it was important for local industry players to continuously upgrade their ICT capability and capacity and confidently venture into the regional markets.

"One of the areas that we need to improve is our capacity and skills level of our ICT fraternity. The announcement of the ICT Development Institute by the Prime Minister is timely in addressing the capacity building issues faced by the industry. The other area is marketing our product and services outside of this country," he said.

He pointed that the challenge was on the local companies to collectively harness local talents and prepare to offer their products and services to the global market.

"It is encouraging to see several Pikom member companies selling their products and services in countries across this region. However, we should look even further a field, especially to developed markets like Japan, Europe, and the USA," he said.

"Pikom will assist our members who are keen to explore markets abroad. As a member of WITSA, we are able to leverage on our global connections to assist our members in making forays into new markets," he said.

The local ICT industry currently contributes about 7.5 percent to the total Gross Domestic Product.

"Our goal is by 2008, the ICT component of the GDP will exceed 10 percent. To achieve this objective, the government needs to make ICT as the key driver in improving various economic sectors as we strongly believe that the level of ICT adoption in the country is directly linked to its competitiveness in the information age," he said.

One of the key initiatives by Pikom and the Multimedia Development Corporation is the successful bidding to host the World Congress on Information Technology in 2008 (WCIT 2008). The event is expected to bring the focus of international ICT players to Malaysia. - Bernama

MALAYSIA'S ICT INDUSTRY OUTLOOK FOR 2003

2009-07-02T08:27:00.000-07:00

( 18/1/2003 )

"MALAYSIA'S ICT INDUSTRY OUTLOOK FOR THE YEAR 2003" - An Overview by YB Datuk Amar Leo Moggie in response to a written interview with Businesss Computing, New Straits Times.

Based on the economic scenario of the last three quarters of this year (2002), most research organizations are positive on the growth prospects for the ICT industry in the coming years. This year, the ICT industry is expected to be able to maintain a positive annual growth, despite the contraction in global ICT spending on hardware (PCs, mainframes, printers, etc), software, systems and equipment which is expected to record a slower growth rate of 2.5% with a market worth of USD 900 billion. The key factor behind this slump is the slower growth registered in IT spending on systems, PCs, peripherals, workstations and software due to the uncertainty regarding recovery prospects for the US economy.

Against this backdrop, the growth of ICT spending is poised to rebound by the first quarter of 2003, with growth in global ICT spending projected to touch 7.9% by the year 2003. This is due to renewed interests in ICT spending that is expected to emerge in the US, Europe and Japan next year.

Growth of ICT Industry in 2003

ICT spending in Malaysia is influenced by developments in the global market. As we have placed a premium on ICT, the development of the ICT industry in the country has thus been kept in tandem with global trends.

On the back of a proactive private sector role, better economic performance and external environment, the outlook for overall ICT growth in the country in the year 2003 is expected to further improve during the first quarter of the year. According to PIKOM, the IT industry is projected to record an annual growth rate of 10.3% next year, while IDC projected IT spending in Malaysia to register a record new growth rate of 14% next year.

Based on the above projections, IT spending for the country is expected to register an increase of between RM 0.7 billion and RM 1.0 billion which is equivalent to an annual growth rate of approximately 10 per cent. Overall IT spending next year is expected to register a value of more than RM 8.0 billion next year from the approximate value of RM 7.1 billion this year. In terms of expenditure components, investments in hardware and equipment are expected to account for more than half, while investments in software will remain as the second largest component of IT spending in the country, with IT training making up the third component. The higher proportion of expenditure on IT hardware and equipment is mainly due to the building up and upgrading of IT infrastructure by both the public and private sectors.

Internet Customer/User

For the year 2003, the number of Internet customers is projected to record a growth rate of approximately 25% to surpass the 3.0 million customers mark at the penetration rate of 14 for every 100 population. Also, by next year, Internet users in the country is expected to represent more than 40% of the country’s total population.

Telecommunications Sector

The telecommunications sector is expected to register an average growth rate of approximately 10% in revenue, with both the cellular and fixed line sectors expected to maintain the momentum of growth of 12.5% and 8.3% respectively over the next year. The local telecommunications market (cellular and fixed line) should be able to surpass this year's revenue and touch the RM 17.5 billion mark in the year 2003.

The number of cellular users is expected to reach 9.0 million in 2003, and out of this figure, approximately 6.0 million will constitute prepaid users. By the end of 2003, the penetration rate for the cellular service is expected to exceed 40 for every 100 population. The fixed line sector is not expected to record a major increase in terms of the number of users next year.

Furthermore, in 2003, the cellular sector is forecasted to overtake fixed line in terms of annual revenue, which will represent 52% or RM9.1 billion of the total telecommunications revenue.

Focus Areas in 2003

The key challenge for the ICT sector in the year 2003 is in ensuring success in the rollout and implementation of the following focus areas:-

· MSC Flagship Applications Rollout

A full-scale rollout of several public sector-led programs under the MSC flagship applications is expected to be implemented next year. These include the Mycard, Online Procurement System and the Smart School solution. This is in view of the fact that some of these applications have started to benefit the people. As of end of last September, more that 2 million smartcards (Mycard) have been issued to Klang Valley residents. The implementation of the smartcard will see Malaysia as the first country in the region to have adopted the chip technology for various identification and authentication purposes of its citizens. Meanwhile, the rollout of the electronic procurement system is expected to boost electronic business, as it will facilitate transactions between the Government and businesses in the country.

Many countries are actually watching how Malaysia handles this transition. The key challenge is to ensure that the implementation of the programs is successful, thus proving that Malaysia has the necessary capabilities in this area.

Meanwhile, the Ministry of Energy, Communications and Multimedia will continue to co-ordinate and facilitate efforts and initiatives to be taken by the Multimedia Development Corporation (MDC) to promote the development of ICT in the country, including in the implementation of Venture and Debt Capital programs for the creation of local technopreneurs in the country.

· Cyberlaw

The Government also recognizes the importance of legislations in ensuring an orderly development of the ICT industry and will embark on the formulation of another legislation next year to complement the existing cyberlaws such as the Communications And Multimedia Act, Computer Crime Act, Copyrights Act (Amendment) and Digital Signature Act. The new cyberlaw which will become the mechanism which facilitates all electronic transactions between the Government and the people is expected to provide new impetus in spurring the adoption and application of e-commerce and in enhancing public trust and confidence in electronic transactions. In addition, efforts to adapt and undertake the necessary changes to the existing legal framework will be on-going in order to facilitate the uptake of e-commerce and other electronic transactions in the country. The challenge is to ensure that electronic transactions are accorded legal status that is similar to that of conventional transactions.

· Infrastructure Accessibility

The year 2003 will see efforts being taken to further enhance accessibility to high-speed Internet facilities in the country. A broadband-based infrastructure will be implemented on a nation-wide basis. Towards this end, the Ministry has already commissioned a study to determine the appropriate strategies and programs the need to be put in place to widen the availability of higher bandwidth services. The potential for growth in the area of broadband services is higher as there is potential for greater growth in the PC and Internet penetration rates in the country. The study is expected to be completed by February next year.

· Addressing the Digital Divide

Addressing the digital divide will continue to be given priority in 2003. In this regard, programs to connect all rural schools, libraries and clinics will be further expanded. The Ministry plans to spend an additional RM150 million in 2003 to provide connectivity infrastructure to schools and government agencies in rural areas. To date, 220 schools have already benefited from the programs implemented this year. All schools throughout the country are expected have the necessary communications infrastructure by the year 2005.

· Internet Access

For next year, Internet take-up will be further promoted through programs aimed at improving the overall environment required to promote usage and free-flow exchange of information through the Internet. This involves aspects such as connectivity (peering) and hubbing facilities, effective management of electronic addresses and better consumer choices in terms of accessibility and affordable prices. From the service quality perspective, the focus is to ensure that consumers in the country enjoy zero congestion, higher transmission accuracy and competitive yet affordable price for Internet services.

· Security and Privacy

In enhancing greater consumer confidence in the usage of electronic transactions, the Government will focus greater attention on aspects of security and privacy next year. Security is crucial to the progress of e-commerce in the country. This is due to the fact that crimes in cyberspace can propagate faster and distance insensitive due to the borderless and open nature of the Internet platform.

· Consolidation and Infrastructure Sharing

Efforts to encourage infrastructure sharing through the sharing of towers and other infrastructure will be further promoted in 2003 to ensure that consumers in the country continue to enjoy quality communications services, in terms of better coverage and choices. At the same time, we will also encourage service providers to continue expanding their services and coverage by implementing domestic roaming. The Government is quite encouraged with the efforts that have been taken by industry players recently to establish alliances among themselves so as to ensure that the potential values of the existing infrastructures are fully optimized for the benefit of the consumers. However, ensuring nationwide infrastructure sharing to further enhance coverage and accessibility to services, as well as maintaining an effective and healthy competitive environment are not ends by themselves. The vital challenge remains that of ensuring increased values and benefits in all aspects of service to the consumers.

· Regional Center Of Excellence

For the year 2003, the Government will continue with initiatives to promote the country as the operational office or center of excellence among multinational corporations (MNC). We will need to consider initiatives to further strengthen the country’s ICT industry. This includes creating a hubbing or redundancy environment that will promote the exchange of the domestic Internet traffic within the country and also by working closely with the industry to ensure that the necessary infrastructures such as high-speed leased lines are abundantly available at competitive prices. To date, the MSC is host to 11 multinational companies that have data/call center operations in the area, among them DHL, Alcatel Networks, Acterna, Shell IT, British American Tobacco, Scope International (Standard Chartered) and CMG IT. Some of the data centers function as global or regional hubs, which provide communications, and network support center services such as cross border banking transactions, IT services, SAP services, systems integration, technical support and research and development.

· Tariff Structure for the Industry

Efforts will also be undertaken to ensure that the tariff structures for the industry will remain competitive and affordable to consumers and able to provide reasonable economic returns to industry players. The increase in the number of mobile users from less than 4 million in 1999 to more than 8.3 million by October this year is testimony of success of the move taken by the Government to liberalize the tariffs for mobile services in the country in the year 2000. The newly introduced fixed-line tariffs which have resulted in substantial reductions in both national and international call charges are also expected to give a significant boost to the development of voiced-based contact center facilities in the country. With more competitive national and international call rates in place, service providers will have a bigger clout to reach out to their markets, through the expansion of coverage of their respective services. The new tariffs are also expected to enhance the country’s competitive advantage, besides the promotion of creativity and innovation among service providers in terms of providing new services.

Incentives To Spur The Growth of ICT

Throughout 2003, the Government will continue to work more closely with industry players to identify suitable incentives (both fiscal and non-fiscal), which can be considered for implementation. The Ministry will continue to monitor and assess existing incentive structures, which have been introduced over the last five years and determine whether they are still relevant and effective in promoting the development of the ICT industry in the country. One of the major focus areas will be the provisioning of incentives to promote greater utilization of ICT by SMEs as tools for enhancing their efficiency and competitiveness.

Institutional Improvements

There is also a need to further improve the present institutional set-up by undertaking initiatives to further coordinate and streamline the roles and functions of agencies involved in ICT functions and activities. This step is crucial to ensure that potential duplications of functions among the relevant agencies can be eliminated, thus optimizing the utilization of resources. Towards this end, measures have already been taken to readjust and separate the roles and functions of MIMOS as an ICT service provider, a policy making body and an R&D institution.

International Fora

Meanwhile, it is important that Malaysia continue to play a prominent role in the international fora in order to promote ICT development in the country. This includes promoting the country as the hub for domestic, regional and international ICT events. Also, with Malaysia having been elected as council member of the International Telecommunications Union (ITU) for a second time last October, we will leverage on this opportunity to further promote and position the country in the area of ICT at the international level in the year 2003.

Conclusion

Overall, worldwide growth of the service sector is going to be the key differentiator for our national competitiveness. Traditional manufacturing will be less dominant as the country becomes more and more developed. The growth, spread and effectiveness of the ICT industry’s infrastructure and services will thus be increasingly critical. This requires an effective partnership between the Government and industry players. The role of the Ministry of Energy, Communications and Multimedia will continue to be that of facilitating, encouraging and supporting the growth and development of the communications and multimedia industry in the country. Thus, partnership and collaboration between the Government, the industry and consumers will be significant to face the new challenges in the year 2003.

Top 10 predictions for the Malaysia ICT Market for 2008

2009-07-02T08:24:00.000-07:00

IDC - Press Release

Kuala Lumpur, 30 January 2008 – IDC believes that in 2008, disruptive technologies will continue to drive the ICT market in Malaysia, and end users will become the driving force in changing the way ICT vendors conduct their business. Hence, understanding the disruptive changes of how end users are demanding for products and services will enable these vendors to gain market dominance.

"The ICT industry in Malaysia will be forced to be ultra competitive in 2008, with a lower growth rate forecasted, due to increasing competition among businesses. This will create more concentrated segmentations which will drive the market in 2008, " said Linus Lai, Director of Research and Consulting", IDC Malaysia.

The following are IDC's top 10 predictions for the Malaysia ICT market for 2008.

1. IT Spending Will No Longer Show a Double-Digit Growth in 2008

IDC predicts that IT spending will grow between 6% to 8% in 2008, compared to a 10.6% growth in 2007, based on IDC's November 2007 Worldwide Black Book. This growth will be driven by spending on hardware surpassing the US$3 billion mark, exhibiting a 4 to 6% growth, while IT services will most likely hover around the 9 to 11% range in 2008. Packaged software will increase between 8% and 10%.

2. Malaysia Telecommunications Services Spending Growth Will Hit 3.6%

Malaysia’s telecommunication services spending in 2008 is expected to reach
US$5,704.6 million, an annual growth of 3.6%. Total fixed services is expected to grow 4.7%, thanks to fixed-data services. Similarly, the total wireless services segment is expected to grow 3.0% in 2008, driven mostly by the wireless data services.

3. Mobile Number Portability Will Have High Anticipation, Minimal Impact

In 2008, mobile subscribers will be able to switch service providers while retaining their current mobile numbers. Operators will intensify their marketing activities to increase customer loyalty and to launch more customer acquisition programs. However, IDC believes that the implementation of mobile number portability will be significantly more hyped than initially anticipated. Based on IDC's recent Mobile Churn and Loyalty Study 2007, only 11.3% of the country's mobile services subscribers will be impacted by the implementation of mobile number portability.

4. Metro Ethernet for Business Users Will Jump 200%

Since its launch to corporate customers in Malaysia two years ago, Metro-E has picked up rapidly and is poised to become the next-generation access technology. More and more enterprise clients have subscribed to it or are undergoing the implementation process. Home users too are starting to crave for bigger bandwidth than what ADSL or IP VPN is currently offering. It is expected that the targeted home users will be those living in luxury condominiums within the Kuala Lumpur center. In 2008, IDC expects Metro Ethernet revenue to jump more than 200% where business users will be the main contributor at 98% of the total revenue.

5. Corporate Social Responsibility Will Accelerate IT Spending on Better Governance

The market opportunities for corporate social responsibility and the ICT industry are brighter than ever with increased awareness, initiatives, and support from all parties. IDC predicts that corporate social responsibility and the ICT industry will drive one another to new heights in the coming year, creating a strong foundation for IT spending in order to improve corporate governance. 2008 will see the seeds of this corporate social responsibility evolution planted, which will open the doors for greater initiatives and possibilities for the ICT industry in the coming years.

6. Web 2.0 Will Influence Enterprise Collaboration

IDC believes that enterprises will start accepting Web 2.0 with a focus on collaboration, customer analytics, and targeted smart search applications. New user-data mining technologies, search/recommendation engines, and social networks will be perceived as part of business marketing tools. Furthermore, some corporations are starting to look into Web 2.0 collaborations, such as wikis, to gather information for projects that call for interdepartmental collaboration. This can be realized through blogs where enterprises facilitate knowledge sharing within the organization. IDC expects more online services and media content to be utilized in the business environment, contributing to a 15% growth in content applications software in 2008.

7. Consolidations and Convergence Will Radically Alter the Business Intelligence Market

In 2008, consolidation and convergence in the BI market is expected to exert some downward pressure on price. However, IDC expects the overall BI market in Malaysia to continue growing positively to exceed US$14 million in 2008 at a compound annual growth rate (CAGR) of 14.6% from 2006 to 2011. Some of the key growth drivers are increased focus on compliance and corporate governance issues, escalating levels of competition, and healthy levels of application deployments.

8. Global Systems Integrators Will Loosen Their Grip on Services Market

The Malaysia IT services market has long been characterized by strong competition between global and local SIs, with the global players taking a larger share of the market. However, as local SIs increase in efficiency, global SIs will find them to be tough competitors and see their market dominance slowly eroding.

9. WiMAX Will Hardly Make a Dent in the Wired Broadband Market

WiMAX services are expected to start in central Kuala Lumpur and business areas in Petaling Jaya and Subang Jaya, and eventually extend into new areas like Cyberjaya. However, the availability of WiMAX customer premises equipment (CPE) will be limited, and the consumers' propensity to use WiMAX services is questionable. IDC believes that the price of WiMAX CPE will be high, due to economies of scale, and will pose a significant barrier to adoption. (please confirm that price will be high due to economies of scale) Hence, in 2008, IDC predicts that WiMAX services will primarily be used as a backhaul service, while last mile to the users will continue to utilize existing last-mile technologies such as WiFi, xDSL, or Ethernet. WiMAX end-user services will see limited take-up primarily due to the high cost of CPE, as well as the steep technology adoption curve.

10. Printing Needs and Strategies Will be Redefined — New Printing Generation

IDC expects HCP vendors who are serious about creating new opportunities for their MFP penetration in the commercial market in the long term, to start investing in understanding local users’ workflow processes in 2008. Such creation of workflow processes by verticals will be the key differentiation strategy for those vendors who are already gaining experience and credibility, and building successful case studies.

Country Industry Forecast - Economic Analysis for the Malaysian ICT Industry

2009-07-02T08:18:00.000-07:00

Frost & Sullivan Research Service

Published: 6 Jun 2007

Research Overview

The global information and communications technology (ICT) industry has provided the supporting infrastructure for economic growth across the world in the last decade. Despite the setbacks following the failure of dot com enterprises, the ICT industry continues to show enormous growth potential. ICT is a vital component of the infrastructural support needed for the development of any economy. Global trends in telecommunications indicate a shift toward open access, creation of a healthy competitive environment, and a consequent drop in prices. Although companies are likely to continue outsourcing IT services mainly to India, they are also expected to increasingly witness lucrative bids from Russia, the Philippines, Ireland, Israel, and China.

ICT spending is likely to grow impressively, with emerging markets in eastern Europe and Asia Pacific leading the way. Shares of IT and telecommunications sectors are almost equally important in the total ICT spending, with governments and businesses accounting for more than three quarters of the spending. The general economy, an expanding consumer base, and increasing foreign investments play critical roles in the development of the ICT industry.

In 2006, Malaysia was the 33rd largest economy in the world based on purchasing power parity (PPP). The Malaysian economy, which is growing faster than anticipated, continues to remain resilient despite threats of inflation. The country’s gross domestic product (GDP) recorded a moderate growth rate of 5.8 percent in 2006. Stable inflow of foreign direct investment and large current account surplus have aided the accumulation of significant foreign exchange reserves, strengthening Malaysia’s economy. Increase in domestic demand, private sector investments, and rise in exports further cemented its position. The ICT industry is also emerging as a strong contributor to employment and economic growth, especially with the country becoming a top investment destination. The industry has achieved high growth rates on the back of robust economic growth, greater political stability, and expanding consumer base. The Malaysian ICT industry contributed to 5.7 percent of the GDP in 2006.

While the telecommunications sector has dominated in volume, the IT sector has shown greater growth rates. IT hardware is the largest IT segment, driven by lower prices and showing a trend toward mobility. Packaged software dominates, but creative multimedia has major growth potential in the IT software segment. IT services, particularly the shared services outsourcing (SSO) business in the banking and transportation sectors, are growing fast. There is a perceived shift from traditional IT outsourcing (ITO) to discrete outsourcing services or IT provision. The steady decline in fixed line telephony is offset by broadband connectivity and mobile telephony, which are booming with the introduction of UMTS and 3G technologies.

Frost & Sullivan’s Information and Communications Technology Country Industry Forecast service provides vital inputs for evaluating the attractiveness of a country and its ICT industry. Besides enabling decision makers to assess the impact of non-market forces, it also helps in identifying new market opportunities. This service provides a strong base for preparing contingency plans. In addition, investors can assess industry-specific risk factors as well as conduct an in-depth micro research.

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Assisting companies to reach their full potential in the core business
Providing growth strategies to help companies expand into related businesses
Preemptively redefining the core business during market turbulence
Applying the Frost & Sullivan framework to identify and address common mistakes resulting from misaligned corporate strategies
Recommending growth management strategies through continuous partnership

To maximize the potential for growth within a firm’s internal and external environment, Frost & Sullivan consultants can facilitate the creation of strategic programs that deliver improved market success. Frost & Sullivan’s strengths lie in combining strategic understanding with market expertise and applying these with absolute commitment to its clients’ growth.

Benefits of this Service

Identify New Market Opportunities

The future trends of the economy of Malaysia have been analyzed along with their impact on the ICT industry. This analysis will provide valuable information to industry participants on market opportunities in specific segments of the industry.

Understand Future Industry Trends

The study discusses the Malaysian ICT industry’s dependence on the prevailing economic framework and forecasts its future. This will help participants to gauge the direction of the industry, enabling them to devise appropriate strategies to improve market share.

Comprehend Policy and Regulatory Environment

A detailed analysis of the policy and regulatory framework of Malaysian ICT industry provides insights into the regulatory environment as it exists and the future direction of the same. This is particularly beneficial in the case of the telecommunications industry, as regulations form an important criterion for industry performance.

Devise Country Entry Strategies

The study provides valuable information and analysis of the strengths and weaknesses of the economy of Malaysia, which are relevant to the ICT industry. This is particularly useful in devising country-specific strategies for industry participants.

Evaluate Industry Segment Potential

This research service offers a detailed coverage of economic issues as well as industry-specific and macro economic policies impacting the industry. It provides both country and industry trends and forecasts for major variables and is an excellent tool for companies that plan to enter new geographic markets. This will help corporate planners in developing accurate business plans and enhance credibility to planning company resources.

Table Of Contents

1. Introduction
1. Country Industry Overview
1. Malaysian Economy and ICT Industry

2. Economic Analysis
1. Economic Trends
1. Overview and Forecasts

3. Industry Analysis
1. Industry Structure and Performance
1. Information Technologies Industry
2. Telecommunications Industry

4. Impact Analysis of Economic Trends
1. Impact Analysis and Growth Opportunities
1. Major Trends
2. Growth Opportunities

ICT industry expects further impetus

2009-07-02T08:16:00.000-07:00

The Star Online

Thursday August 31, 2006

PETALING JAYA: Malaysia's information and communications technology (ICT) industry has had a good run under the past two national budgets.

In addition, the first half of the year also saw the Ninth Malaysia Plan (9MP) and more recently, the Third Industrial Master Plan (IMP3).

While these initiatives are to further stimulate growth of Malaysia’s economy through areas such as agriculture, manufacturing and services, the Government has also called on these sectors to exploit the use of ICT in raising the bar on its products and competitiveness in the global market.

RAM Consultancy Services chief economist Dr Yeah Kim Leng said the ICT sector was currently enjoying plenty of incentives under the umbrella of the Multimedia Super Corridor (MSC).

Dr Yeah Kim Leng

He believes ICT initiatives under Budget 2007 would mostly tend towards regulatory policies and implementation.

“Given Malaysia's competitive advantage, the push for the ICT sector would be to attract foreign direct investments (FDI),” Yeah toldStarBiz. He added that the investments would likely be targeted at the shared services outsourcing (SSO) sector.

OSK Securities economist Sia Ket Ee said technology companies were already enjoying pioneer status while the SSO sector had seen the establishment of call centres and back-end support operations.

He reckons the Government would likely continue drawing investments into the MSC under Budget 2007.

Local industry players, however, believe that the upcoming budget would closely reflect the objectives of the 9MP.

Basis Bay Group chief executive officer Praba Thiagarajah hopes Budget 2007 will stimulate growth for the ICT and SSO industry, especially to international markets.

Praba Thiagarajah

He believes small and medium enterprises (SME) should be given more incentives and grants to increase their investments in e-commerce and ICT services, especially those related to SSO.

“Tax benefits and waivers could be extended to companies that outsource functions and services to local SSO and MSC organisations,” he said, adding that further incentives could be in the form of product and market development grants.

ISS Consulting (M) Sdn Bhd country manager Sanjay Nair believes that biotechnology and ICT entrepreneurs were likely recipients for added incentives under Budget 2007.

“The productivity, efficiency, income and wealth generating potential of the agricultural sector will be enhanced through the wider application of modern technology and ICT,” he said.

Sanjay pointing out that the Government was gearing up to transform the sector into a modern, dynamic and competitive one.

Nair anticipates that the Government may also nurture areas such as software development, digital content creation, information security and bio informatics under Budget 2007.

Industry leaders such as Intel Malaysia hoped the Government would accelerate the deployment of Worldwide Interoperability for Microwave Access (WiMAX) by approving the standards and reducing procedural challenges for telecommunications companies to deploy the technology.

Abdul Rahman

“WiMAX will complement the rollout of the national MyICMS886 strategy and help the Government meet its target of achieving broadband penetration of 15% of the population in 2010,” assembly and testing managing director K.C. Yoon said in a statement.

Microsoft Malaysia public sector director Abdul Rahman Abu Haniffa expects the Government to roll out additional policies and incentives that will encourage SMEs to embrace ICT as a strategy for operational efficiency.

He believes information technology (IT) professionals and developers need to harness IT to create competitive advantage and fuel business growth within their organisations.

IBM Malaysia managing director Voon Seng Chuan said the Government should leverage on the 9MP to further drive the acceptance and adoption of innovation for corporate Malaysia.

He added that collaboration could be a platform for innovation and the country could accelerate this by bringing in experts with transferable skills and experience not available in the country.

CEOs Without College Degrees

2009-06-06T03:33:00.000-07:00

Monday, June 1, 2009provided by

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The thousands of wait-listed would-be MBAs who may not get the chance to go to their dream B-school might want to draw inspiration from the following group of CEOs. Not only did they not get graduate degrees, they didn't get undergraduate degrees -- and some never even attended college.

Of course, not having a degree didn't stop them from being a big name on campus. You'll find Alfred Taubman's name at Brown, Harvard, the University of Michigan, and Lawrence Technological University; at least one building on each campus bears his name, although the retail magnate and philanthropist never finished college. Read on to learn who else made it into corporate top spots without the benefit of a bachelor's degree.

1. Dennis Albaugh

Chairman, Albaugh
Type of Business: Pesticides
Education: Associate's degree from Des Moines Area Community College
Fun fact: He has a collection of more than 100 classic Chevrolets

2. Paul Allen

Founder and chairman, Vulcan
Type of Business: Media, telecommunications
Education: Dropped out of Washington State College after two years
Fun fact: He persuaded Bill Gates to drop out of Harvard. They later founded Microsoft (MSFT) together.

3. Richard Branson

CEO, Virgin Group
Type of Business: Travel, radio, TV, music, venture capital
Education: No college degree
Fun fact: He became an entrepreneur at age 16 with the creation of Student magazine.

4. Maverick Carter

CEO, LRMR Innovative Marketing & Branding
Type of Business: Marketing
Education: 3.5 years of college at Western Michigan University and University of Akron combined
Quote: "Don't be afraid if you see an opportunity to go and give it shot. You can finish school later; it's always there."

5. John Paul DeJoria

CEO, John Paul Mitchell Systems
Type of Business: Hair-care products
Education: No college
Fun fact: He started out selling greeting cards at age 9.

6. Michael Dell

Founder, chairman, and CEO Dell (DELL)
Type of Business: Computers
Education: Attended University of Texas, Austin; did not finish.
Quote: "When I started our company, it was very much an idea outside of the conventional wisdom, and if there were people telling me that it wasn't going to work, I wasn't really listening to them."

7. Felix Dennis

Founder and chairman, Alpha Media Group, formerly Dennis Publishing
Type of Business: Publishing (Maxim, The Week)
Education: No college degree
Fun fact: He wrote a biography and published a magazine about Bruce Lee; sales surged when the martial arts star died suddenly in 1973.

8. Barry Diller

Chairman and CEO of IAC/InterActiveCorp (IACI)
Type of Business: Media
Education: Dropped out of UCLA after three weeks
Fun fact: He started his career working in the mail room of the William Morris Agency.

9. Bill Gates

Co-chair and Trustee, Bill & Melinda Gates Foundation; Chairman, Microsoft (MSFT)
Type of Business: Philanthropy. Software.
Education: Dropped out of Harvard
Fun fact: As a schoolboy, he created a program that allowed people to play tic-tac-toe on the computer.

10. Mukesh "Micky" Jagtiani

Chairman, Landmark International (Dubai)
Type of Business: Retailing
Education: No college degree
Fun fact: The billionaire mall developer flunked out of a London accounting school as a teenager and worked as a taxi driver before becoming an entrepreneur.

11. Dean Kamen

Founder and chairman, Segway
Type of Business: Motor vehicles
Education: Dropped out of Worcester Polytechnic Institute
Fun fact: Kamen founded FIRST, a robotics competition for high school students.

12. David Oreck

Founder, Oreck
Type of Business: Vacuum cleaners
Education: No college. At 17, enlisted in the army, and flew B-29 bombers during World War II
Quote: "Things are never as bad as they seem to the pessimist and never as good as they seem to the optimist."

13. Amancio Ortega Gaona

President, Inditex Group
Type of Business: Fashion retailing (Zara, Kiddy Class, others). (A Coruna, Spain)
Education: No college
Fun fact: Often cited as the richest man in Spain, he reportedly has never given any media interviews

14. Phillip Ruffin

Owner, Treasure Island
Type of Business: Casinos
Education: Attended Washburn University for three years and Wichita State University but never got his degree.
Quote: "You get the most experience from the business of life."

15. Alfred Taubman

Founder, Taubman Centers (TCO). Philanthropist
Type of Business: Shopping malls
Education: Attended the University of Michigan at Ann Arbor for three years but left to start a family and his career
Quote: "Become an expert in one fundamental area of your market or business. No one starts out as a generalist."

16. Ty Warner

Founder, Ty, Inc.
Type of Business: Toys (stuffed animals)
Education: Dropped out of college to pursue a career in acting. Later founded Ty Inc.
Fun fact: The plush animals his company manufactured retailed for only $5 in the 1990s, but Beanie Baby-mania drove prices up to $30 or more for the hard-to-get characters.

Management of knowledge in project environments

2009-06-05T08:44:00.000-07:00

Knowledge is a vital resource in project-based industries such as aerospace, construction, shipbuilding and software. If managed effectively, knowledge can be used to reduce project time, improve quality and customer satisfaction. Considering this management of knowledge, be it explicit or tacit, is a necessary prerequisite for project success in today's dynamic and changing environment. However, the management of intellectual assets (physical, financial, human and intellectual) is a new and challenging process for project-based industries. With this in mind, this special issue sought to gain insights into the theoretical and practical aspects needed to manage knowledge in projects as well as identify emerging areas for research. The collection of papers in this special issue addresses various aspects of managing knowledge. This covers a social perspective as well as information and structural viewpoints to define how the management of knowledge is transpiring in different sectors that undertake projects.

In the first paper of this special issue, Bresnen et al. set out to examine the significance of social factors in enhancing knowledge management capabilities in the construction industry. Bresnen et al. reveal that processes of knowledge capture, transfer and learning in project settings rely very heavily upon social patterns, practices and processes in ways which emphasise the value and importance of adopting a community-based approach to managing knowledge. Bresnen et al.'s paper makes a contribution to the development of knowledge management theory in project environments, but does not provide any practical suggestions that project managers can use to ameliorate the creation, diffusion and management of knowledge.

Newell and Huang examine the dynamics of knowledge integration in the context of cross-functional project implementation within four large organizations. Their paper focuses on exploring and conceptualizing the efficiency, scope and flexibility of knowledge integration. Newell and Huang reveal that knowledge integration in the context of cross-functional project implementation is a process of engaging organizational members through the promotion of project benefits and the management of social networks. Newell and Huang further reveal that an organization's embedded practices, past integration experience and social capital play a key role in shaping the level of coordination that influences the efficiency and scope of integration. In particular, the development and nurturing of social capital within and beyond the project team is crucial, as is the promotion of project awareness through the creation of common knowledge.

According to Fernie et al. project managers in the construction industry increasingly seek to learn from other industrial sectors. Knowledge sharing between different contexts is thus viewed as an essential source of competitive advantage. Fernie et al. therefore suggest that it is important for project managers from all sectors to address and develop appropriate methods of knowledge sharing. However, too often it is assumed that knowledge freely exists and can be captured and shared between contexts. According to Fernie et al. this assumption is thwarted by the complexities and problems awaiting the unsuspecting knowledge-sharing protagonist. Knowledge per se is a problematic esoteric concept that does not lend itself easily to codification. Specifically tacit knowledge possessed by individuals, presents particular methodological issues for those considering harnessing its utility in return for competitive advantage. The notion that knowledge is also embedded in specific social contexts compounds this complexity. It is argued By Fernie et al. that knowledge is highly individualistic and concomitant with the various surrounding contexts within which it is shaped and enacted. Indeed, these contexts are also shaped as a consequence of knowledge adding further complexity to the problem domain. Current methods of knowledge capture, transfer and sharing fall short of addressing these problematic issues. The research presented by Fernie et al. seeks to addresses these problems and proposes an alternative method of knowledge sharing. Drawing on data and observations collected from its application, the findings clearly demonstrate the crucial role of re-contextualisation, social interaction and dialectic debate in understanding knowledge sharing. Like Bresnen et al. this paper theory laden yet it takes a step further by providing a bridge between ‘theory and practice’, which practitioners can drawn from to manage their projects more effectively.

Ramaprasad and Prakash present an approach that foreign project managers can use to elicit and integrate knowledge in local environments. The core components of Emergent Project Management, based on the concept of Emergent Design are presented and discussed. It is suggested by Ramaprasad and Prakash's that project managers who want to transcend state, regional, national, cultural, organizational and industry boundaries in today's global economy will need these new cognitive and behavioural skills.

For some time now, researchers and practitioners have been primarily concerned about the ‘collection’ of information and knowledge. With the emergence of web-based and intranet technologies ‘connectivity’ has enabled information and knowledge sharing to take place. In recent years, the term ‘knowledge management’ has been proposed, and numerous individuals and organizations have been trying to put more ‘science’ behind the ‘art’ of knowledge management. With this in mind, Liebowitz provides some useful frameworks to help project managers and others in conceptualizing and implementing knowledge management initiatives. This paper should provide the building blocks necessary to further understand and develop knowledge management initiatives.

The convergence between telecommunications and computing industries has enabled the provision of web-enabled software applications facilitates new opportunities for small and medium businesses (SMBs) to embrace application outsourcing projects. Application service providers (ASPs) offering web-enabled software applications on a subscription (pay-as-you-go) basis revisits the traditional service bureau model of outsourcing, and promises additional business benefits of economies of scale, increased scope of business applications, and enterprise application integration (EAI). Yet SMBs rarely adopt formal, project management methods and tools for evaluating the benefits and risks of outsourcing projects. Bearing this in mind, Curry has developed a knowledge-based risk assessment framework to provide SMBs with a template for evaluating the benefits and risks of application outsourcing.

In the final paper of the special issue, Schindler and Eppler present an overview of proven methods to record experiences from projects and discuss their use in project management. They distinguish between process-based and documentation-based debriefing methods. Process-based methods focus on a procedural approach to capture key learning attributes/experiences from a project. Documentation-based methods serve as appropriate representation formats or structures for project insights. Schindler and Eppler paper bridges the current gap between theoretical insights of learning in projects and managerial reality. The paper discusses central project debriefing problems such as the lacking willingness to learn from mistakes or the lacking discipline in the use of project management manuals. Schindler and Eppler conclude the paper by providing recommendations on how debriefing processes can be integrated successfully into project procedures.

The Guest Editors were overwhelmed by the number of papers submitted for possible publication in this special issue. Each paper was reviewed by at least three referees. The Guest Editors would like to express their gratitude to the 80 referees who reviewed papers for this special issue. In addition, the Guest Editors would like to acknowledge the assistance provided by Professor Rodney Turner, the Editor, of the International Journal of Project Management.

A knowledge-based risk assessment framework for evaluating web-enabled application outsourcing projects

2009-06-05T08:40:00.000-07:00

Abstract

The convergence between telecommunications and computing industries enabling the provision of web-enabled software applications facilitates new opportunities for small and medium businesses (SMBs) to embrace application outsourcing projects. Application service providers (ASPs) offering web-enabled software applications on a subscription (pay-as-you-go) basis revisits the traditional service bureau model of outsourcing, and promises additional business benefits of economies of scale, increased scope of business applications, and enterprise application integration (EAI). Yet SMBs rarely adopt formal, project management methods and tools for evaluating the benefits and risks of outsourcing projects. In this paper, the literature on knowledge-based firms provides a useful backdrop for understanding the delineation between explicit knowledge (that can be captured, codified, stored and distributed) and tacit knowledge (that flows through social networks that connect people). Against this background, a knowledge-based risk assessment framework is developed to provide SMBs with a template for evaluating the benefits and risks of application outsourcing. The framework incorporates key performance indicators (KPIs) in five categories: delivery and enablement; integration; management and operations; business transformation; and client/vendor relationships, and attempts to make knowledge explicit, whilst also recognising the tacit aspects of evaluating consortium, project-based outsourcing.

Author Keywords: Application services provisioning; Risk assessment; Outsourcing projects; Knowledge management

A Unified Framework for Outsourcing Governance

2009-06-05T08:36:00.001-07:00

Abstract
Outsourcing has become a trend for a business to pursue short-term operational efficiency and long-term strategic competency by delegating IT infrastructure, applications, and even business processes to external service providers. At the same time, new challenges are emerging along with outsourcing such as what are the right services that should be outsourced, how well these services get performed, what benefits outsourcing brings in, and so on. Thus, effective service governance and management mechanisms for both service outsourcers and service providers are essential to the success of outsourcing. However, current academic and industrial achievements cannot directly meet the requirements of governance in outsourcing. In this paper, a unified outsourcing governance framework not only for clients but also for providers is proposed, which provides a three-layer, three-perspective integrated governance model on three key dimensions of governance process, organizational structure, and measurement system. A typical call center outsourcing governance case study is illustrated to validate the framework. The future work and conclusion are discussed finally.

A Balanced Scorecard Framework for IS Outsourcing Metrics

2009-06-05T08:28:00.000-07:00

Abstract:

As the nature of IS outsourcing contracts has changed from simple cost saving projects to strategic initiatives, the focus of the control and measurement processes has also changed. However, cost savings are still the most important metric. We adapt the Balanced Scorecard framework to apply in outsourcing contracts, arguing for a comprehensive mix of 'lead' and 'lag' indicators of contract performance. We propose a survey to map the metrics to be used for different outsourcing projects.

Keywords: outsourcing, metrics, balanced scorecard, information systems

A Framework for Information Technology Outsourcing Risk Management

2009-06-05T08:24:00.000-07:00

Abstract

This paper takes stock from several studies on Information Technology outsourcing risk. A definition of risk is offered, and an illustration from five case studies is used to show how risk can be managed. Results show that an active risk management approach can reduce risk exposure substantially while enabling the organizations to still reap the benefits associated with outsourcing.

ACM Categories: K.6

Keywords: Outsourcing, Risk, Risk Management, Information System, Contract Design

Introduction

"You'll never have all the information you need to make a decision - if you did, it would be a foregone conclusion, nota decision"(Mahoney, 1988, p. 156).

Information Technology (IT) outsourcing entails a number of decisions regarding a variety of issues, be they the choice of the activities to outsource and of those to keep in-house, the selection of a service provider, or the identification of the most appropriate way to manage an outsourcing contract. As stated by Mahoney (1988), managers never have all the information they need to decide on these issues. Yet, research on IT outsourcing has provided a number of models and tools that are aimed at decreasing the level of uncertainty or that help in dealing with the uncertainty in which the decision is necessarily clouded. Such is the case for instance of the studies that examine the characteristics of the activities that are good candidates for outsourcing and of those that should be kept in-house (Aubert et al., 1996); that compare outsourcing to insourcing, evaluating if, and how, in-house services could be reorganized to provide firms with benefits similar to those of outsourcing (Lacity & Hirschheim, 1995); or that attempt to identify those characteristics of a vendor-client partnership that will be conducive to outsourcing success (Lee & Kim, 1999).

This paper develops this strand of research in its adoption of a risk management perspective to outsourcing decisions, and in its proposition of a risk assessment framework. As shown through a series of case studies, the risk assessment framework contributes to reducing decision-making uncertainty in that its use can help better anticipate - and sometimes alleviate - problems potentially associated with IT outsourcing, and to select contract mechanisms that are most appropriate for the types of activities to be outsourced.

We begin by drawing upon past research to provide a synthesis of the main lessons of IT outsourcing risk and risk management. The paper first presents various definitions of risk found in the literature, discusses the definition adopted here, and applies it to the context of IT outsourcing risk. Drawing from the IT outsourcing, the Transaction Cost, and the Agency Theory literature, it then presents a framework of IT outsourcing risk exposure. Finally, using five case studies, key elements pertaining to outsourcing risk and risk management are discussed.

Risk Defined

Risk and risk management have been studied in a variety of domains, such as Insurance, Economics, Management, Medicine, Operations Research, and Engineering. Each field addresses risk in a fashion relevant to its object of analysis, hence, adopts a particular perspective. Since it is essential that the conceptualizations of risk and of risk management adopted in a given study be consistent, authors ought to clearly state their perspective. This section reviews the main conceptualizations of risk and of risk management found in various fields, and then presents the perspective we opted for in our research on IT outsourcing risk and risk management. Subsequently, the key concepts from Transaction Cost Theory and Agency Theory relevant to the assessment of IT outsourcing risk are introduced, followed by a presentation of the risk assessment framework we propose.

Risk as an Undesirable Event

In some situations, risk is equated to a possible negative event. Levin and Schneider (1997) define risks as "... events that, if they occur, represent a material threat to an entity's fortune" (p. 38). Using this definition, risks are the multiple undesirable events that may occur. Applied in a management context, the "entity" would be the organization. Given this perspective, risks can be managed using insurance, therefore compensating the entity if the event occurs; they can also be managed using contingency planning, thus providing a path to follow if an undesirable event occurs. This definition of risk is analogous to the concept of risk as a possible reduction of utility discussed by Arrow (1983).

Risk as a Probability Function

Some fields, instead of focusing on negative events, are primarily concerned with the probability of occurrence of an event. For example, medicine often focuses solely on the probability of a disease's occurrence (e.g., heart attack), since the negative consequence is death in many cases. It would be useless to focus on the consequence itself since it is irreversible. Odds of occurrence are the key element. Data is used to determine which factors can influence those probabilities (heredity, smoking habits, cholesterol level, etc.). In its definition of sentinel events (occurrence involving death or serious injury), the Joint Commission on the Accreditation of Healthcare Organizations uses "risk" as "the chance of serious adverse outcome" (Kobs, 1998). Life insurance adopts this approach and uses mortality tables to estimate probabilities. In this context, a "good risk" will be a person with a low probability of dying within a given period (and hence, for the insurance company, a low probability of having to pay a compensation) and a "bad risk" would be a person with a high probability of dying within the period.

Risk as Variance

Finance adopts a different perspective of risk, where risk is equated to the variance of the distribution of outcomes. The extent of the variability in results (whether positive or negative) is the measure of risk. Risk is defined here as the volatility of a portfolio's value (Levine, 2000). Risk management means arbitrating between risk and returns. For a given rate of return, managers will prefer lower volatility but would be likely to tolerate higher volatility if the expected return was thought to be superior. Portfolio managers therefore aim to build a portfolio that is on the efficient frontier, meaning it has "the highest expected return for a given level of risk, and the lowest level of risk for a given expected return" (Schirripa & Tecotzky, 2000, p. 30).

Risk as Expected Loss

Other fields, such as casualty insurance, adopt a perspective of risk as expected loss. They define risk as the product of two functions: a loss function and a probability function. Car insurance is a good example. In the eventuality of an accident, there is a loss function that represents the extent of the damages to the car, which can range from very little damage to the total loss of the car. There is also a probability function that represents the odds that an incident will occur. The expected loss (risk) is the product of these two functions (Bowers et al., 1986).

Endogenous and Exogenous Risk

Another important distinction in risk analysis is the notion of endogenous versus exogenous risk. Exogenous risks are risks over which we have no control and which are not affected by our actions. Earthquakes or hurricanes are good examples of exogenous risks. Although we have some control over the extent of damage by selecting construction standards, we have no control over the occurrence of such natural events. Endogenous risks, on the other hand, are risks that are dependent on our actions. A car accident is an example of risk where a strong portion is endogenous. While a driver has no control over other drivers (the exogenous portion), the probability of an accident is strongly influenced by the driver's behavior and ability (endogenous). The driver also controls part of the loss function, by deciding to drive an expensive car or a cheap car. This could explain why there is always a deductible amount with car insurance, to ensure that the driver will behave in a way that will minimize the endogenous portion of the risk. By being made responsible for a portion of the damages, the driver is enticed to act with caution.

Risk management tools take into account whether risk is endogenous or exogenous. In finance, for example, risk is considered exogenous. The methods used to manage risk are concerned with diversification, insurance, and allocation of assets. There is no direct action that managers can take to reduce the probability of a given event. In engineering or medicine, a portion of the risk is always endogenous. Risk management takes this into account. Patients are informed of the portion they control and are proposed healthier diets and lifestyles; employees are provided withsecurity guidelines and actions are taken to reduce directly the probability of undesirable consequences.

IT Outsourcing Risk Exposure

In their study of managerial perspectives on risk and risk taking, March and Shapira (1987) posit that managers do not equate the risk of an alternative with the variance of the probability distribution of possible outcomes, and they do not treat uncertainty about positive outcomes as an important aspect of risk.

IMAGE MAP 1

Figure 1. Risk Exposure Map

Rather, to them, the potential positive outcomes constitute the attractiveness of an alternative, while risk is associated with its negative outcomes. That is, risk is perceived as a "danger or hazard". March and Shapira also emphasize the fact that, to managers, the magnitude of the loss due to a negative outcome is salient.

In order to take into account these two aspects of the managerial perspective, we adopt the notion of risk exposure, which is defined as a function of the probability of a negative outcome and the importance of the loss due to the occurrence of this outcome:

RE = S^sub 1^ P(UO^sub i^) * L(UO^sub i^)

where P(UO^sub i^) is the probability of an undesirable outcome i, and L(UO^sub i^) the loss due to the undesirable outcome i (Boehm, 1991; Teece et al., 1994). Therefore, we consider simultaneously the potential losses associated with an outsourcing contract and the probability function of such losses.

While, theoretically, risk exposure can be computed and a value of risk established in dollar terms, in practice it is more useful to map the risk exposure on a two-dimensional plane (the usefulness of this representation will be discussed in the risk management sub-section). Therefore, the loss associated with a given undesirable outcome is evaluated and the likelihood of realization of the outcome is estimated. Instead of multiplying the two, a point is mapped on a plane where the likelihood of realization of an undesirable outcome is measured along the x-axis and the magnitude of the loss if that outcome occurs is measured along the y-axis. Figure 1 illustrates the mapping of risk exposure for three undesirable outcomes (UO).

To evaluate the risk exposure for a given outsourcing contract, it is therefore essential to identify the array of potential undesirable outcomes that could occur with respect to the outsourcing arrangement; the magnitude of the losses incurred should each of the undesirable outcomes materialize; as well as the probability of occurrence of such outcomes. In any situation, several undesirable outcomes may occur. The magnitude of loss due to a given undesirable outcome can be approximated either via quantitative analysis (for instance, by evaluating the sales lost due to disruption of service to customers) or via qualitative assessment of the organizational impact of each negative outcome (by using Likert scales to assess the importance of the impact of the undesirable outcome).

In any situation, several undesirable outcomes may occur. The magnitude of loss due to a given undesirable outcome can be approximated either via quantitative analysis (for instance, by evaluating the sales lost due to disruption of service to customers) or via qualitative assessment of the organizational impact of each negative outcome (by using Likert scales to assess the importance of the impact of the undesirable outcome).

While in certain circumstances, the probability of occurrence of an undesirable outcome can be estimated on the basis of past performance characteristics of the object under study (Linerooth-Bayer & Wahlstrom, 1991), in several areas, probabilities are often difficult, if not impossible to assess on the basis of past performance (Barki et al., 1993). Consequently, several risk assessment methods adopt the approach of approximating the probability of undesirable outcomes by identifying and assessing factors that influence their occurrence (Anderson & Narasimhan, 1979; Boehm, 1991; Barki et al., 1993). In a software development context, for instance, Barki et al. have identified such factors, which belong to five broad categories: technological newness, application size, software development team's lack of expertise, application complexity, and organizational environment. The degree to which each factor is present in a software project will contribute to the increased probability of the occurrence of an undesirable outcome (here, project failure). Once this list is drawn, risk management methods try to simultaneously reduce the loss related to the undesirable event itself (such as penalties compensating for delays in the system delivery) or by reducing the probability of occurrence of such an event, by reducing the level of the risk factors (for example, by carefully selecting team members). While the definition of risk is not explicit about probability distribution, these probabilities (taking the form of factors) are taken into account when the risk evaluation is performed. Therefore, risk factors can be seen as the drivers of undesirable outcomes, and P(UO^sub i^) = f(RF^sub j^) where the probability of an undesirable outcome i is a function of its influencing risk factor j.

Once this list of factors is drawn and assessed, managers try to reduce the probability of occurrence of an undesirable outcome by reducing the level of the risk factors. For example, when a person quits smoking, the person knows she is reducing the probability of illness, even if the exact impact on the probability is unknown to her.

The risk assessment framework proposed here relies mostly on Transaction Cost and Agency theories. These economic theories tackle directly the problems related to contracting and provide both a roadmap to potential undesirable outcomes and their corresponding drivers.

Reference Theories

In order to determine the list of undesirable events and their associated risk factors, a first group of elements was deducted from Transaction Cost and Agency Theories. These undesirable events and corresponding factors are presented in the following section. All these elements are later summarized in Table 1 (Components of IT outsourcing risk exposure). In addition to this first list extracted from theory, a few items were identified by reviewing other (scientific and practitioner) sources describing outsourcing consequences. These are also included in Table 1.

Agency Theory and Transaction Cost Theory

Fundamentally, outsourcing is a contract in which a client relies on a supplier for a given service, instead of depending on internal provision. With outsourcing, the client relies on the market rather than on employment contracts. In a principal-agent framework, the client is the principal, while the supplier is the agent, performing a series of tasks for the principal.

Agency Theory. The presence of private information lies at the root of opportunism. Any information possessed by one party that is not verifiable by the other party is "private." When private information and conflicting interests are joined, agency problems develop. In the absence of complete contracts, the parties will try to reduce the importance of agency problems by a better alignment of objectives or by reducing the asymmetry (Holmstrom, 1979).

IMAGE TABLE 2

Table 1. Components of IT outsourcing risk exposure

(Adapted from Table 1 - Aubert et al., 2001, p. 2)

Agency Theory is concerned with the client's problem with choosing an agent (the supplier in our case), and motivating and coordinating the agent's decisions and behavior with those of the organization, under the constraint of information asymmetry. In addition, the agent is presumed risk adverse, thus unwilling to be rewarded solely on his performance (Nilakant & Rao, 1994).

Agency Theory generally distinguishes three main villains: moral hazard, adverse selection, and imperfect commitment (Aubert et al., 2003). Moral hazard stems from the fact that it is impossible for a principal to observe an agent's behavior at no cost. Since the client cannot tell, and since the supplier knows this, the supplier can always blame poor performance on circumstances beyond its control. Cheating, shirking, free-riding, cost padding, exploiting a partner, or simply being negligent are everyday instances of moral hazard. Adverse selection will develop when the principal cannot observe the characteristics of the agent. Failure to deal adequately with adverse selection will make it very difficult for the client to choose the right supplier. The last potentially damaging manifestation of opportunism is imperfect commitment. For instance, clients and suppliers may be tempted to renege on their promises and commitments, arguing unforeseen events like changes in requirements (costly contractual amendments) (Sappington, 1991).

The client wants the supplier to perform its tasks as required. However, writing and enforcing complete contracts is Utopia. The agency costs include the cost of writing and enforcing contractual agreements and the residual loss resulting from inadequate coordination or motivation. Agency Theory tackles the important issue of designing efficient contractual agreements (Eisenhardt, 1989).

One key negative outcome suggested by Agency Theory is the management costs associated with the contract. These management costs will be caused by information asymmetry. The asymmetry (lack of knowledge from the client) can be estimated by evaluating the experience and expertise of the client with the activities to be outsourced. Experienced and knowledgeable clients will suffer from less asymmetry than nave ones.

Agency theory also suggests that measurement problems will facilitate the manifestation of moral hazard. This would lead to cost escalation and hidden service costs. High uncertainty and complexity would increase the probability of the appearance of hidden service costs, since they make cost assessment more difficult.

Agency Theory is concerned with the monitoring abilities of the principal. These abilities can be acquired through experience. As described by Sappington (1991), principals can compare multiple contracts and can learn about performance over time. This suggests that lack of experience with outsourcing would be a risk factor. It would increase the likelihood of cost escalation and management costs.

Transaction Cost theory. According to Transaction Cost theory, the market and the internal organization of a firm are seen as alternative mechanisms to regulate a transaction (Coase, 1937). A party will select the mechanism which costs less: total costs include production and transaction costs. One of the advantages of using the market is that it often provides for lower production costs because of economies of scale and scope. On the other hand, using the market entails certain transaction costs: finding the appropriate prices, inquiring about the quality of the other party, negotiating, establishing guarantees and bonds, etc. These activities are required because Transaction Cost Theory recognizes that humans have bounded rationality and are opportunistic (Williamson, 1985). This implies that parties will conclude bargains with imperfect information and will try to take advantage of any asymmetry. The potential magnitude of the transaction costs will depend on: the specificity of the assets, the uncertainty surrounding the transaction, and the frequency of the transaction.

Asset specificity refers to the degree to which an asset can be redeployed without sacrificing its productive value if the contract is to be interrupted or prematurely terminated (Williamson, 1985). Because the "next best use" value of a specific asset is much lower, the investor would lose part of its investment if the transaction were not completed. The specificity of an asset creates a lock-in situation where a party could extract a quasi-rent from the contracting party by threatening to withdraw from the transaction (Teece, 1986).

Asset specificity is therefore a risk factor. When an outsourcing contract is signed, investments in specific assets will tie the client and the supplier together. This creates a situation where one or very few suppliers can provide service to the client. Small number bargaining is also a risk factor. Contracts of a large scope would also increase lock-in. The larger the scope of the contract, the more difficult is the transfer to a second supplier. These factors can lead to high switching costs because of the lock-in created between the two parties.

A concept akin to asset specificity is the level of interdependency of an activity with the other activities of the firm. The more interdependent, the higher the switching costs (Langlois & Robertson, 1992). The interdependent character of the activities is also linked to the quality of service.

The usual manner in which asset specificity constraints are resolved calls for the use of long term contracts (Joskow, 1987). However, uncertainty may preclude the implementation of long term contracts at a reasonable cost. For a market to be efficient, parties must be able to predict with enough certainty the activities to be performed in a contract and to measure the value of the elements exchanged. This is often proven false. Transactions are conducted with a certain level of uncertainty and are subject to measurement problems (Barzel, 1982). Uncertainty may preclude contract agreement since the parties cannot predict what will be needed in the future and, consequently, cannot write a contract (Williamson, 1985; 1989). This is a serious limit to the use of long term contracts (in order to solve asset specificity constraints).

Uncertainty of the future needs is a risk factor. An indicator of the level of uncertainty is the complexity of the task (Aubert et al., 1996). High uncertainty will force parties to renegotiate the contract when changes occur. These costly changes are an undesirable outcome.

According to Perry (1989), a contract is incomplete if "it fails to specify performance obligations for the parties in all states of nature, or fails to specify the nature of the performance itself (p. 221). Most, if not all, IT contracts will have some level of incompleteness since nobody can foresee all possible states of nature. Reducing the level of incompleteness implies refining the contract. This is costly. Cracker and Masten (1991) even show that there is an optimal level of incompleteness for a contract.

Therefore, the presence of measurement problems is another risk factor. These measurement problems can lead to potential haggling, disputes, and eventually litigation. Severe measurement problems might also prevent contractual agreement when it becomes impossible to know if performance is attributable to one party's action or to externalities (Alchian & Demsetz, 1972). When it is impossible to measure the marginal contributions of each party to a transaction, trying to compensate the workers according to their individual productivity is futile (Alchian & Demsetz, 1972). This problem is often settled, in an incomplete contract, by substituting measurement of effort to measurement of output (Cheung, 1983). This suggests that measurement problems can also lead to inferior performance (service debasement).

When transaction costs are too high, it might be cheaper to purchase the residual rights over the activities in exchange for a salary (Grossman & Hart, 1986). This contract enables one party (the employer) to choose, in the future, the actions appropriate to the context (Simon, 1991).

Finally, in some circumstances, a firm will prefer to bear the cost of the risk associated with specific investment or uncertainty rather than to invest in order to internalize a single transaction. Internal organization is efficient only for frequent transactions (Williamson, 1985). The design and setting-up costs of a governance structure are fixed costs: only recurring or particularly significant transactions will make bearing these costs economically sound.

Undesirable outcomes. Agency (AT) and Transaction Cost (TCT) Theories share similar theoretical foundations. To explain contractual arrangements, they both include elements like imperfect measurement, bounded rationality, opportunism, and cheating and shirking behaviors. However, they differ in several ways. For instance, TCT explicitly considers the role of irreversible investments in the transaction. AT considers the risk aversion of the agents. TCT is more concerned with the institutional arrangement (market or firm) while AT looks at the governance mechanisms used, independently of the institutional setting. The extension and refinement of incentive considerations in TCT (which AT offers) provides a better institutional model (see Hennart, 1993 for an instructive discussion). Taken together, AT and TCT suggest seven undesirable outcomes (summarized in Table 1, along with their associated risk factors). First, both theories recognize that no contract is complete or perfect and that unforeseen events or nave actions can lead to unexpected transition and management costs. Both also recognize that incompleteness can eventually lead to costly contractual amendments. TCT specifically addresses the problem of specific assets, small number bargaining, and the associated switching costs problems. TCT is also giving special attention to disputes and litigation. Haggling, legally or administratively, increases transaction costs. Both theories moved away from the optimization premises of classical economics and recognize that there will be inefficiencies in production, translated as service debasement in the context of outsourcing. Agency Theory, with its special attention on moral hazard, puts more emphasis on cost escalation problems.

Other Elements

Agency and Transaction Cost Theories enabled the identification of seven undesirable outcomes: unexpected transition and management costs, switching costs, costly contractual amendments, disputes and litigation, service debasement, cost escalation, and hidden service costs. Their main associated factors were also identified.

Once these factors and undesirable outcomes were established, the outsourcing literature describing outsourcing outcomes and risks was reviewed to identify the elements that might not be included in the Transaction Cost and Agency Theories. This review also provided support for the stylized negative outcomes suggested by Agency and Transaction Cost Theories. Moreover, it helped us identify new elements and new links between factors and outcomes.

One negative outcome that is not discussed in Transaction Cost and Agency Theories is the loss of organizational competency. Outsourcing often means departing from knowledge possessed by the employees transferred to the supplier. Essential skills can be lost if outsourced activities are too close to the core business of the firm (Prahalad & Hamel, 1990). Because of a reliance on external provision, the organization will stop nurturing some skills. When these are close to the core competency of the organization, such loss might threaten future organization action (Roy & Aubert, 2000). The larger the scope of the contract, and the more interdependent these activities are with the other activities of the firm, the higher the likelihood of a loss of organizational competency.

The review of literature unearthed other factors (not predicted by Transaction Cost and Agency Theories) associated with the undesirable outcomes. Quality of service is reputed to be highly dependent on the supplier's characteristics (size, stability and expertise) (Earl, 1996). The lack of experience and expertise of the supplier is also associated with cost escalation.

There are also specific types of uncertainty, distinct from requirement uncertainty. Uncertainty about the legal environment can lead to unexpected management costs (Cross, 1995), while technological discontinuities can entail costly contractual amendments (Lacity & Hirschheim, 1993). Finally, the lack of experience of the partners with outsourcing and the lack of cultural fit are associated with higher chances of disputes.

We group the risk factors into three main categories: those pertaining to the principal, to the agent, and to the transaction itself. The undesirable outcomes, with their associated factors, are summarized in Table 1. The outcomes are presented with the factors having the strongest effect on the likelihood of each outcome. This does not imply that other factors cannot have an influence on a given outcome; it simply means that these are the critical factors. Negative outcomes suggested in Agency and Transaction Cost Theories receive support through examples in the outsourcing literature.

Research Method

In order to explore the usefulness of the proposed risk assessment framework, illustrated in Figure 1 and detailed in Table 1, data from five case studies was used.

Case Selection

Case selection was based on site availability and potential contribution to the research project. cases were therefore selected for the new insights they could provide on risk assessment and risk management and there is no claim that they are representative of an industry or organizations in general. All cases describe large outsourcing contracts with significant risks for the client organization. Some were successful, some were not. Some were well-managed, some were not. case 1 was self-selected. Indeed, the IS manager of an insurance company whom we approached in the context of a large-scale survey invited us to interview him in order to obtain a detailed and complete description of an outsourcing deal gone awry. Since it is seldom that failures can be documented, the case was considered as a precious source of data for our study of IT outsourcing risk management. case 2's peculiarity is that it offered the possibility to compare, within the same firm, two different system development projects that were considered candidates for outsourcing. case 3's unique contribution is the proximity to core competency of the activity supported by the application the development and maintenance of which were considered for outsourcing. case 4 was selected because the firm was known to have a long IT outsourcing experience, including that of contract renewal. It was thought that studying successive contracts would add to our understanding of risk assessment and risk management. Finally, case 5's distinguishing feature was the fact that this large firm had concluded contracts with three different suppliers. Finding out how these contracts were designed and how this dual sourcing arrangement played a role in outsourcing risk management was the main motivation for selecting the case.

Data Collection

In addition to presenting the components of IT outsourcing risk, the case studies were aimed at improving our understanding of how risk was managed. Risk management is defined here as the use of different mechanisms to help reduce the level of risk exposure. A given mechanism can either reduce the losses associated with the undesirable outcomes, lower the expected probability of occurrence of such outcomes, or achieve both at the same time. Consequently, rich data were sought not only on the components of IT outsourcing risk, but also on the risk management mechanisms that had been used in each case.

Several data collection means were used. For cases 1 and 5, each organization's leading information systems' manager acted as the key informant. Data collection was done on site, starting with semistructured interviews with the IS manager. These interviews enabled the researchers to gather substantial information and get an overview of the situation. Available documentation was collected. After the first analysis of this information was completed, a series of written questions were sent to each respondent to follow-up on queries raised during the analysis of the first interview. Respondents returned their written answers when it was convenient for them. Later, phone interviews were conducted with the respondents to gather any details that were still missing in the case descriptions. Complete case descriptions were written and were submitted to the IS managers for approval. Data collection for the other three cases involved several respondents, from over half a dozen in cases 2 and 3 to approximately 15 in case 4. These respondents were managers who had been involved in the decision-making process, and managers in charge of overseeing the contracts. In case 4, some user managers were also interviewed. Numerous documents were made available to the researchers, including requests for proposals, supplier proposals, contracts and addenda, materials from presentations, and audit reports. In these three cases, the contents of write-ups were also approved by some - or all - of the interviewees.

Data Analysis

On the basis of these data, each researcher independently rated each risk factor and the magnitude of the potential loss associated with each undesirable outcome by rating the risk factors and the undesirable outcomes listed in Table 1. The impact of each outcome was assessed on a 1 (very low) to 7 (very high) scale. The probability of occurrence of each outcome was estimated (on a 1 to 7 scale) by first evaluating each of the risk factors associated with the outcome and then by averaging the values of these factors. As well, risk management mechanisms were identified, where they had been used, and their impact on either the probability or the severity of the occurrence of an undesirable outcome was assessed. While perceptual measures were used, the researchers attempted to substantiate each score with facts, taken from the case descriptions. As well, items from formal measures that had been validated in a former study were used to identify the dimensions of each factor that had to be taken into account in the assessment (e.g., measures from Aubert et al., 1996b). The individual assessments were then discussed among the researchers, and a consensus was reached. A risk exposure map, similar to that of Figure 1, was then drawn. This risk exposure map summarizes the results of the assessment, since it plots, for each undesirable outcome, the estimated probability (i.e., the mean value of the risk factors related to this undesirable outcome, as per Table 1) and the magnitude of loss, would the undesirable outcome occur. A detailed write-up of this final assessment was done as in cases 2, 3 and 4. In the first two cases, the write-up was formally presented to most of the managers who had participated in the interviews. In case 4, it was submitted to three of these managers. In all three cases, managers agreed with the researchers' assessments. Only in case 2 were the managers surprised that the degree of risk they had perceived through "gut feeling" was different from what was presented to them. As will be discussed in the results section, even in this case, managers agreed with the individual assessments that had been made of each risk factor and each potential loss.

The Five cases

The cases illustrate five different dimensions of IT outsourcing risk management. The first case illustrates problems and stresses the importance of managing different activities in different ways. The second case shows the importance of using a formal measure of risk and of explicitly assessing risk. The third illustrates how risk evaluation can influence the supplier selection process. The fourth exemplifies how risk management is the result of a series of compromises, since reducing the impact of a risk factor often increases the impact of another one. Finally, the fifth case is an epitome of risk management; it is an example in which the client had the resources and the knowledge to negotiate a contract with an impressive array of risk management mechanisms.

Each case is presented as follows. First a short description of the case's salient features is provided, referring to the case risk exposure map. As well, when such mechanisms were applied, the effect of risk management mechanisms is illustrated. This is done using arrows that originate at the exposure level, for a given undesirable outcome prior to the use of the risk management mechanism; and end at the residual level of risk exposure.

Case 1: Risk Is Complex and Should Be Managed Accordingly

INS is a North-American insurance company. After evaluating that its information systems needed a major upgrade, INS turned to the market to find a supplier for its needs. It selected a software package produced by VND, a software vendor not established in North America, who also offered to manage INS' data centre. VND saw this contract as an opportunity to enter the North American market. Both parties anticipated a win-win association. The contract involved few performance measures for IS operations. In the case of the software package, which required some tailoring, a general agreement was reached in which 80% of the functionalities in a complete online system would be delivered for a fixed price, and the remaining functionalities would be delivered later for a price to be negotiated. The contract was thus largely incomplete and made room from the outset for further negotiations between the parties.

In this case, the undesirable outcome with the largest magnitude of potential loss was that of reduced quality. Since all activities in the insurance business rely on information systems, any deficiency would be very costly. As one respondent said: "If we cannot configure a product on the system, we cannot sell it." The three other severe potential losses were cost escalation, contractual amendments, and lock-in. The insurance market is highly competitive and increases in IT costs would harm the competitiveness of INS' insurance rates.

IMAGE GRAPH 3

Figure 2. Insurance Company

As shown in Figure 2, the intensity of risk exposure for the software tailoring component of the contract was different from that of the risk exposure associated with the day-to-day operations (although they were managed through the same contract and the same governance mechanisms). For software tailoring, the risk exposure was generally higher, mainly due to the value of the risk factors. Client and supplier had limited experience with outsourcing. Activities were not unduly complex, but software tailoring was subject to severe measurement problems (the exact elements to be delivered were vaguely defined at best). Operations were easier to measure, and they were also subject to less uncertainty than software tailoring. While there were numerous suppliers willing to operate the data centre, only a few had the knowledge to develop and implement the software.

Outsourcing of the data centre did not provide the anticipated benefits. No gains were realized on the operation, and performance deteriorated. VND began to haggle over the definitions of the service level clauses. On the software tailoring side, client and supplier began arguing constantly about what constituted the basic system and the extra functionalities, what was to be delivered for the fixed price, and what might be developed for an additional compensation. After long negotiations, the contract was finally terminated.

Insight. In this case, no formal risk analysis was done before signing the agreement. Ex post evaluation of the contract reveals some key elements. First, potential problems can arise even when suppliers and clients behave in good faith at the time of contract signature. Risk analysis could have helped anticipate some of these problems. second, such an analysis would have revealed that operations and software tailoring had very different characteristics and should have been managed differently. More measures should have been defined for the IS operations. As for software tailoring, richer and more flexible mechanisms, like the exchange of information and of employees, for example, should have been established in order to reduce information asymmetry. Finally it might have been advantageous to outsource each group of activities to different suppliers to introduce a third party opinion on each supplier's work, thus reducing the risk of lock-in and instilling a measure of competition.

Case 2: Managers' Attitudes Toward Risk

The second case is that of GVDL, a large insurance company. Two system development outsourcing decisions and the resulting contracts were analyzed (Aubert et al., 1999a). The first project was the Y2K conversion of the legacy system. The effort required for migrating all the systems through the millennium was estimated at more than 25,000 person-days. The second project was called the Application development partnership project. The client had decided to stop awarding contracts to many different suppliers and had chosen to select a single (or maybe a few) application partners that would invest time and resources in understanding the company and its needs. The results of the risk assessment for these two outsourcing decisions are presented in Figure 3 (arrows represent reduction of risk level through contract mechanisms).

IMAGE GRAPH 4

Figure 3. GVDL

From Figure 3, it seems quite clear that project 1 (Y2K) was less risky than project 2. While many potential undesirable outcomes (service debasement, lock-in and cost escalation) had high values for project 1, the probabilities were generally very low, with the exception of cost escalation, which was fairly probable. Project 2 was riskier. Items 3, 6, and 7 have mid-range values on the factor axis (probabilities), and the losses associated with both lock-in and contractual amendments would be very high. As a result, the organization took several measures to lower the risk exposure associated with both contracts.

In the case of the Y2K contract, protection against lock-in was sought through sequential contracting. By splitting the work to be done in many sequential steps, the client ties the duration of the contract to verifiable performance on the one hand, and leaves open the possibility of walking out of the relationship if things were to take a bad turn on the other hand. In the case of service debasement, the main mechanism used by the client to reduce the probability of occurrence was the inclusion of an important penalty for underperformance. This penalty was equal to five times the total value of the contract. Doing so elicits greater effort from the supplier and serves as a type of insurance, thus reducing the monetary value of the consequences. Finally, in view of cost escalation, the client secured guaranteed rates and the parties agreed ex ante on the evaluation method and relied on a detailed inventory of the various components, languages, platforms, size, complexity, testing environments, interactions with other systems, etc. As shown by the arrows drawn in Figure 3, the potential losses associated with lock-in, service debasement and cost escalation were accordingly substantially reduced.

In the second contract, the risk exposure stemming from lock-in was reduced in two ways. The first one implied multiple sourcing: three suppliers were selected to work concurrently, which seriously curtails the probability of the client being locked in. Renegotiation problems and costly contractual amendments were handled through the separation of assignments in addenda. This enabled the partners to actually modify their contract without costly renegotiations. It is an ongoing modification process that is included in the contract (sequential contracting). Residual risk was thus greatly reduced.

Among the interesting facts found in this case are managers' perceptions. As shown in Figure 3, it is quite clear that project 2 was riskier than project 1, whether one considers risk exposure before or after risk management mechanisms are introduced. This result greatly surprised the firm's managers. Their initial impression was that risk exposure was much greater with their Y2K project than with the partnership one. They agreed with the results presented in Figure 3 and realized that their evaluation was inaccurate. Their mistaken evaluation is coherent with remarks made by March and Shapira (1987). Managers often perceive risk because some potential losses are perceived to be high, failing to recognize that the probabilities of such losses (in project 1) are dim. Another explanation resides in the time frame of the two projects. Consequences from problems with project one were almost immediate (January 2000). On the other hand, project 2 was a long term venture and many potential undesirable outcomes would only unfold in a 2- to 5-year horizon. This might explain why project 2 was perceived as less risky. The risks involved were not recognized because they were too distant.

Insights. This case teaches us three main lessons. First, conducting a formal assessment of risk exposure, and explicitly mapping the risk exposure associated with a contract enables efficient risk management. Managers can immediately target the elements presenting high risk exposure and implement risk management mechanisms. second, explicitly charting risk exposure offers a remedy to possible biases in managers' perceptions. In this case, managers failed to recognize potential threats that would not materialize in the immediate future. Their evaluation of events with very low probabilities was also biased. Third, by comparing projects and ordering them more accurately in terms of risk exposure, the organization can manage its outsourcing portfolio more effectively, thus ensuring that efforts in risk management are allocated where they are the most profitable.

IMAGE GRAPH 5

Figure 4. Large Corporation

Case 3: Risk Management and Contract Negotiation

The third case takes place in a large organization that employs over 15,000 people. This company had an unprofitable division it wanted to sell. To entice buyers to take this division, the company offered an outsourcing contract for another service. The company evaluated that the outsourcing contract could be very profitable and would lure suppliers to make a joint offer to buy the unprofitable division along with taking the contract. The company negotiated with a first supplier (see Figure 4). The price negotiated for both the sale of the division and the outsourcing contract seemed adequate.

The contract was ready for signature. The only step left was the evaluation by the internal risk management group. The evaluation came as a shock to top management. The contract contained little protection for the client, and the selected supplier was far from ideal (even if it was a very large firm). The activities supported by the system were core and any disruption could lower the quality of service drastically. Loss of competency was also feared because of the closeness to the core business. The reluctance of the risk analysis group was so strong that the evaluation went all the way to the CEO. The deal was finally cancelled.

A few months later, negotiations were in progress with a different supplier. The new supplier was more experienced with outsourcing and with the activities under consideration than the first one, which lowered the value of some of the risk factors. The contract to be signed was also significantly different. Since little could be done to reduce losses (the activities themselves were too close to the company's core business for the losses to be significantly altered would a problem occur), all efforts were made to reduce the likelihood of occurrence of the negative outcomes. Risk factors were assessed and mechanisms were introduced: sequential contracting to reduce lock-in and likelihood of contractual amendments; the setting up of an arbitration structure to settle differences in points of view; and a one-year benchmark period to develop a complete set of measures, which would reduce the likelihood of hidden costs.

Insights. This case illustrates two elements. First, formal risk analysis helps companies sign better contracts with more appropriate service providers. In this case, both contracts were comparable in terms of prices and outcomes (selling the unprofitable division). However, the contract that was finally signed had a much better chance of delivering the anticipated benefits. The client used the information from the first risk analysis exercise to better select the second service provider. The other interesting element is the illustration of the endogenous component of IT outsourcing risk exposure. In this case, after receiving the analysis from the risk management group, the division manager used several tactics to prevent the first deal. From a distance, his behavior could be interpreted in two ways: by warning everyone and pointing out the high risk involved, he was serving the organization well and protecting himself at the same time. He knew that top management really wanted the deal to be signed (mostly because it wanted to get rid of the unprofitable division). However, if the outsourcing deal went sour, the division responsible for the activities supported by the outsourced system would suffer and he would be blamed later on. By preventing the first contract and, later, going ahead with a better one, with a different supplier, the division manager reduced the risks for the overall organization, for his division, as well as for himself.

case 4: Risk Management as a Series of Compromises

The fourth case study was conducted in a large firm in the energy sector. This case illustrates how risk management and learning can eventually transform risk into a "choice" rather than a "fate". This firm has extensive outsourcing experience, and a history of risk evaluation and management. The company employs more than 60,000 people worldwide. Two contracts are compared. The first one, labeled A, involved the outsourcing of IT activities of a large business unit of the company, while the second contract - B concerned the whole IT organization (head office and divisions).

First Contract. The first contract was the firm's first major outsourcing venture, covering data centre management, telecommunications, maintenance, and systems development. Risk exposure was high (see Figure 5). Because of the extent of the contract, hidden service costs were found to be the major threat. The main feature of the contract, in terms of risk management, was to rely on a consortium of three vendors to supply the services. Also, the contractual framework enabled the company to renegotiate several clauses annually, further reducing this risk.

Disputes and litigation, costly contractual amendments, and loss of organizational competency were next in order of importance in terms of risk exposure. The firm recognized that disagreements would probably arise both between the suppliers themselves, and between the client and its suppliers. The client consequently tried to reduce the impacts of disputes and litigation but found out that European antitrust laws prevented the three suppliers from joining in a formal alliance as originally planned. Given the type of contract selected (multiple sourcing), contractual amendments and contract renegotiation would presumably be limited by the portfolio of activities of each supplier, thus limiting the extent of changes. Loss of innovative capacity (competency) was considered the biggest potential loss resulting from moving so many staff out of the organization, especially since the company had decided to become a knowledge organization. Again, the consortium was the means whereby the firm could reduce this risk because several suppliers would give access to a broader array of innovative services (and knowledge) than a single supplier. However, no supplier would have the big picture of the industry and the technology portfolio.

second Contract. In 1998, the company changed its outsourcing strategy radically and decided that a single supplier should replace the multiple sourcing strategy it had previously adopted, thus replacing a fragmented assortment of suppliers by a single strategic partner.lt evaluated that only two suppliers in the world were capable of providing services on such a scale. Therefore, a costly lock-in situation could easily develop. To alleviate the potential problems due to the lock-in situation, the client included a one-year notice of termination, to help reduce the impact of a potential lock-in.

IMAGE GRAPH 6

Figure 5. Energy

Other potential undesirable outcomes were cost escalation and transition costs. The factors linked to cost escalation suggested a low probability of occurrence. The company had extensive expertise and experience with outsourcing, the supplier was very experienced with the activities included in the contract, and was very competent in managing contractual relationships. The most threatening factor was the presence of measurement problems. One of the tools to reduce them would be systematic benchmarking. Transition costs could also bring severe penalties. They would come with service deterioration and business disruption. Transferring activities to the supplier presented different risks in different regulatory situations (different countries). To reduce the transition-related problems, the client increased the planning efforts in a wide variety of aspects. Interestingly, the overall cost of transition was not necessarily reduced, but the unexpected part of it was.

Insights. This case provides two lessons. First, it is clear that learning occurred through the management of the first contract, which translated into both lower probabilities for the undesirable consequences and better risk management strategies in the second contract. Many of the contractual choices were made with less naivety. Managers were more realistic about potential loopholes in the arrangements and were more aware of the limits of contracts. A key decision in the second contract was to remove software development from the agreement. Development activities are more uncertain, more specific, and more complex than operations. By keeping them outside the portfolio of outsourced activities, the managers reduced the probabilities of occurrence of several undesirable consequences.

The second lesson is the notion that risk is a choice. The case showed that risk profiles can be seen as compromises. A given risk management mechanism could lower one type of risk while increasing another one. For example, when the client decided in the second contract to deal with a single supplier, risks related to measurement problems were less probable. However, this was done at the expense of an increase in the risk of lock-in. As managers become more aware of the control they have on the risk profile of ther IT outsourcing strategy, they should bear more responsibility over the outcomes.

case 5: Risk Management and Contract Design

The last lessons come from the outsourcing contract of Niagara (name changed) (Aubert et al., 1999b). Niagara is a large Canadian Crown corporation, employing more than 50,000 people, with an annual income of over $5 billion. It concluded a complex outsourcing arrangement with three suppliers. When it decided to outsource its IT services, the organization was extensively developing new software (using over 1,000 full-time employees) and having a hard time doing so.

IMAGE GRAPH 7

Figure 6. Niagara

Although Niagara recognized that IT could radically change the way it did business, the corporation felt that IT and software development were not within its core competency. The organization had problems hiring and retaining IT people. It was dealing with a vast number of consultants, without taking advantage of the consultants' distinctive skills. Finally, Niagara felt that some of the software solutions developed were innovative and could be sold to other similar organizations in the world. However, it did not have the skills nor the infrastructure to do so. Selling software was not its business.

The level of risk exposure associated with outsourcing all IT services, as intended, was high (see Figure 6). Lock-in was the most important threat. Because of the sheer size of the contract, lock-in could be very costly. The probability of a lock-in was also high, mostly because of the highly specific nature of the software developed, and the limited number of suppliers that could handle such a large contract. Hidden costs were also to be feared. The complexity of the activities, the number of different systems to integrate, and the scope of the contract made hidden costs a likely menace. Similarly, cost escalation and costly contractual amendments would lead to severe losses. In the case of such a large contract, it would be tempting for a supplier to argue higher than expected costs and renege on the promised fees. Changes to any contract would also be probable because of the wide variety of services and the level of innovation in the field.

Niagara had some precious resources when considering outsourcing. Most notably, the organization had a long tradition of measurement. Every activity in the organization was measured, and the organization had impressive charts and data about the resources required for developing or operating software. There existed measurement guidelines for all types of applications, based on the vast number of projects done by the organization or sub-contracted. The organization also had enough internal data to benchmark potential suppliers.

Niagara finally signed an original contract, integrating several risk management mechanisms. It decided to rely on a multiple sourcing strategy and retained three suppliers. Each one was responsible for a given portfolio of activities and had an area of responsibility. Hence, the portfolios partially overlapped. As a result, this outsourcing strategy placed the three outsourcers in the unusual situation of having to cooperate and/or compete on almost every project. Each service provider had a group of activities allotted to them. For any new project, Niagara asked one of its three suppliers for a cost estimate. This estimate was compared to internally prepared estimates and, if acceptable, the contract could be given without further delay. If unsatisfactory, Niagara could ask the other suppliers to bid. External bids could also be sought. The three suppliers were chosen because they had a much better knowledge of the organization. Yet, they still had to remain honest to retain their share of the overall IT activities.

Another element of interest was the outside deals. The suppliers had the infrastructure to sell, outside of Canada, the software developed. In fact, the outsourcing deal created a partnership between Niagara and its suppliers which allowed them to do so. At the time the case was written, the technology was being transferred to eight countries. Neither the client nor the outsourcers would have had the capacity to market the technology alone. The reputation of Niagara and the skills of the suppliers were essential elements in the success of the joint sales abroad. These external deals were extremely attractive for the outsourcers. While they were a source of revenue, they also served as great goal alignment mechanisms between Niagara and its suppliers, reducing potential "cultural" differences at the same time. They acted as a bond, guaranteeing satisfactory service to the client.

The competition between the suppliers reduced the expected losses associated with hidden costs and cost escalation, so did benchmarking. Before undertaking a new software project, key indicators such as cost per milestone, total development cost, elapsed time, and total cost minus fixed assets, were used to assess it. These parameters were clearly specified ex ante so the suppliers knew how they were being evaluated. Activities were measured on a regular basis, graphing the number and types of problems, their category according to security level, and their overall impact. Also, by separating the portfolio into three parts, any cost escalation due to opportunistic behavior of a supplier would be limited to a third of the overall portfolio.

Cost escalation was also limited by the use of countervailing incentives. In their dealings with Niagara, the outsourcers were responsible for the maintenance of the systems they had developed. Consequently, they had a strong incentive to develop efficient systems, so as to minimize their maintenance efforts. Linking two stages of production can provide an incentive for an agent to perform in the principal's interest. When two stages of production are not independent an agent may be motivated to perform better if it is responsible for both stages. By putting extra effort into the first stage, it will reduce the effort required at the subsequent stage. Inversely, by shirking during the first stage, it will increase the effort required later. As a result, the agent cannot claim to have made an excessive effort at both stages.

Monitoring was used extensively to reduce the risk of service debasement. Each deliverable done by a supplier had to be approved by one of the two other suppliers. Once a piece of work was approved, the supplier approving the work became responsible for its judgment (and for handling the costs related to problems). An interesting result of this type of arrangement was that Niagara automatically obtained a third party view of each supplier's work.

Insights. This case teaches two lessons. First, risk can be managed and efficient contract design can drastically reduce residual risk. In many ways, Niagara was able to implement several of the features that the energy producer (see case 4 above) wanted to include in its first contract. Because the regulatory regime in Canada is different than the European one, there was no obstacle to such contract design. One key element of this contract is that risk is not eliminated; it is mostly transferred to the suppliers. They become responsible for many of the potential undesirable outcomes that can occur. They are positioned in a way that makes them guardians of the other suppliers on behalf of Niagara. Such risk taking is unusual for the suppliers. When Niagara proposed this agreement to several potential suppliers, many declined to bid. This further reduced the number of potential suppliers, which explains why the probability of lock-in increased (while the potential loss decreased because of the dividing of the portfolio into three parts).

The other lesson is that size does matter. This sophisticated contract would not have been possible if the portfolio of activities had been smaller. The suppliers agreed to enter into this relationship because they expected to make money. They accepted to shoulder more risk than they usually do because they anticipated greater benefits. Each one dedicated approximately 350 employees to the contract with Niagara. Moreover, the outside deals were a powerful incentive. These other contracts made the relationship with Niagara especially precious and guaranteed the client that suppliers would not threaten this relationship. All that machinery is economically justifiable only if the size of the contract is significant.

Conclusion

The research showed that the combination of insights from Transaction Cost and Agency Theories into the structure provided by the risk framework enable interesting predictions about likely contract outcomes, and suggested possible improvements or alternatives to contract structures. The case analyses also provided support for the usefulness of the reference theories.

The cases reported here illustrate how the proposed risk framework helps to understand the components of risk exposure of an outsourcing project and the mechanisms of risk management. First, risk analysis helps anticipating problems and select appropriate contract types, that take into account the characteristics of the activities considered for outsourcing. Moreover, this framework allows for the correction of some of the managers' biases. It is difficult to compare alternatives that are associated with both different probability distributions and different loss functions. The human mind can only deal with a limited number of scenarios and a formal analysis ensures that all key elements are taken into account. Organizing the information in a structured framework facilitates the managers' evaluation.

The cases generated several results. First, the use of the list of risk factors was found to be a useful means of providing information about the probability of occurrence of the undesirable outcomes. This supports the idea that risk is measurable and that contracting strategies can be adjusted accordingly. Several of these contracting strategies were illustrated with the five cases.

This is probably the most interesting result from the case studies. Looking at the cases, it is possible to suggest appropriate strategies for each undesirable outcome. In order to deal with unexpected transition and management costs, companies adopted extensive planning (case 2) and transferred some of these costs, through contract structure, to their suppliers (case 5). It is interesting to note, with respect to this outcome, that the management mechanism did little to reduce the absolute cost but focused more on correctly anticipating such costs, or transferring them to another party. To avoid lock-in, multiple suppliers were used (cases 2 and 5), which prevented from being made prisoner of one. These two cases also showed that costly contractual amendments could be managed by using sequential contracts. These contracts, redefined over time within a general agreement, enabled the parties to deal with the inherent uncertainty of long term arrangements. Disputes and litigation were managed through different mechanisms. Arbitration was adopted in one case (3), formal culture evaluation (to reduce the likelihood of a dispute) was done in another (case 4), while efforts on measurement were made in a third instance (case 5). These efforts, clarifying the contract assessment, also reduced the probability of disputes. Service debasement was managed through the use of detailed measurement and benchmarking (case 4), paired with penalties (case 2). These enabled the client to adequately ensure that the supplier delivered the promised quality. To prevent increased costs of services, measurement was used (case 2), along internal competition (cases 2 and 5). This competition enticed the suppliers to lower their prices in order to secure a significant share of the business. From the cases, it seems that little can be done to prevent the loss of competency. No mechanisms proved effective to reduce this risk. It appears that the only way to prevent such loss is to carefully select the activities to outsource. Not outsourcing core activities might be the only manner in which a party can secure its core competency. Finally, hidden costs were handled efficiently in case 3, where the client imposed a one-year transition period over which client and supplier defined the adequate levels of performance and their measure. The client kept a retracting clause over the transition period, allowing it to return to internal governance if it was not satisfied with the supplier's performance.

This suggests that outsourcing risk is largely a matter of choice: it is very much an endogenous risk. Managers clearly have a choice between different sourcing strategies, between outsourcing and doing internally, and between numerous contracts for any given activity. When selecting any one of them, they should be aware of what they are selecting, and what they are discarding. Risk exposure, once made explicit, transforms the unexpected into an option selected consciously. These selections are always compromises. Most risk management mechanisms involve reducing some types of risk while increasing others, or accepting to pay a fee to reduce a given risk. The comparison of the risk reduction introduced by the management mechanisms with the cost of such mechanisms (for example when a company decides to deal with two suppliers instead of one) makes the assessment of the real value of the management mechanism easier.

One limit of this study is that the cost of these mechanisms is not made explicit. Because the scale on which the consequences are evaluated is not in absolute dollars, and because the cost of each mechanism is not in dollar terms either, it is difficult to evaluate if each of the management mechanisms implemented was worth its cost. The reduction in the risk exposure has to be compared with the incurred fixed costs.

Another limit is the lack of consideration for the risk aversion profile of the managers. If managers are risk adverse, they will be inclined to adopt more risk management mechanisms than might be required. By omitting this consideration, we presumed, when evaluating the cases, that expected value of risk, as risk exposure is defined, could be applied directly, without considering the managers' utility functions.

These limitations suggest an interesting path for research. First, it will be interesting to refine the evaluation in order to achieve an evaluation, in dollar terms, of the potential losses and of the management mechanisms. This would enable a very formal assessment of the scenarios and a risk/benefit evaluation of each management mechanism. Once such a measure available, it would be possible to use simulation to measure the risk profile of the managers and to formally evaluate their preferences between different scenarios.

In conclusion, once risk exposure is made explicit, and the possible compromises rendered clear to the managers, risk becomes a lot more manageable. In fact, the cases presented and analyzed here also suggest that assessing and managing outsourcing risk can pay off: it leads to lower residual risks or to a greater performance through better contract design. One caveat to keep in mind is that the costs associated with these risk reduction measures were not assessed in the cases. Risk management is generally a complex exercise and its conclusions are often far from precise. Yet, it provides valuable information and increases the quality of the decisionmaking process. Not surprisingly, organizations with a lot of resources, awarding larger contracts, will have more flexibility when managing their risk portfolio and greater possibilities to reduce their risk exposure.

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AUTHOR_AFFILIATION

Benoit A. Aubert

HEC Montral

CIRANO

Michel Patry

HEC Montral

CIRANO

Suzanne Rivard

HEC Montral

CIRANO

Acknowledgement

The authors are grateful to the anonymous reviewers for their thorough comments and most useful suggestions. This research was supported by Fonds FCAR (Canada). An earlier (abridged) version of this paper was published in Managing IT Outsourcing Risk: Lessons Learned, in Information Systems Outsourcing: Enduring Themes, Emergent Patterns and Future Directions, Hirschheim, R.A., Heinzl, A., and Dibbern, J. (eds.), Springer-Verlag, Berlin, Heidelberg, New York, 2002:155-176.

AUTHOR_AFFILIATION

About the Authors

Benoit A. Aubert is Professor and Director of Research at HEC Montreal and Fellow at the CIRANO (Center for Interuniversity Research and Analysis on Organizations). His main research areas are outsourcing, ERP implementation, and risk management. He also published papers on trust, ontology, and health care information systems. He is currently investigating the links between corporate strategy and outsourcing.

Michel Patry is Professor at the Institut d'conomie applique of HEC Montral and CEO of CIRANO (Center for Interuniversity Research and Analysis on Organizations). A specialist of the industrial organization, Dr Patry's recent work covers the areas of outsourcing and delegated management, the economics of IT, the analysis of regulation and contracts, and the impact of regulation on productivity.

Suzanne Rivard is Professor and holder of the Chair in Strategic Management of Information Technology at HEC Montral. Her research interests encompass ERP implementation, outsourcing, software project risk management, and strategic alignment. She published in Communications of the ACM, Data Base, Information and Management, Journal of Information Technology, Journal of Management Information Systems, MIS Quarterly, Omega, and others.

OUTSOURCING: A STRATEGIC FRAMEWORK

2009-06-05T08:18:00.000-07:00

Discover how best-practice organizations use outsourcing to aggressively reshape and fundamentally change the way they do business in order to reach unprecedented levels of excellence and profitability. In Outsourcing: A Strategic Framework, learn how to direct your own outsourcing processes more effectively, identify performance gaps to gain a better understanding of the issues and challenges involved in improving the outsourcing process.

Summary

Partner companies realize the value of maintaining process owners and functional

experts in house during the transition and into at least the first year of implementation.

This accelerates the knowledge transfer and provides experienced oversight. In addition,

training is considered a critical success factor to operational transition and full integration.

Internal outsourcing champions are credited with acting as key liaisons at most

points throughout the relationship. Although most study participants (including

half of the partner companies) do not employ full-time outsourcing personnel inhouse

to manage the integration, the participants do report using cross-fertilized management

teams and boards to effectively oversee the outsourcing partnership. Regardless

of whether the companies employ in-house outsourcing personnel, joint management

provides direction, monitors performance, and resolves performance issues.

This commitment of resources ensures the success of the partnership by assigning

specific duties and accountabilities that most often roll up into joint management

measures.

Measures of Success

Measures drive operations management, performance improvements, and incentive

programs. Companies ensure collective success by communicating strategies,

plans, and measures upfront to vendors and collaborating with vendors to establish mutually

beneficial incentives. Using key metrics frequently enables partner organizations

to improve their vendor relationships and increase user satisfaction. Although measures

vary by function outsourced, several common measures are used by companies

to track performance and take corrective action. All partner companies use both the

balanced business scorecard and customer satisfaction surveys. Since user satisfaction

is often the true indicator of performance, companies include this component in

the balanced business scorecard. In addition, innovative ideas and creative solutions

are often captured in the scorecard and rewarded. Measures are regularly tracked,

reviewed, and updated to meet the partnership goals and needs.

Within the above three macro topics, nine key findings emerged:

1. Corporate strategy, corporatewide re-engineering, and the annual budget process drive

outsourcing decisions.

2. Cross-functional teams, “due diligence,” senior management sponsorship, and input from

key functional areas are integral to the success of the outsourcing decision-making

process.

3. In making successful outsourcing decisions, partner companies examine noncore functions

for service quality, cost savings, and access to essential skill sets (weighing outsource

options against internal capabilities). Due diligence with supplier screening, usually

employing requests for information (RFIs) and requests for proposal (RFPs), is critical

to identifying companies that meet or match these key criteria.

4. Developing clear, measurable expectations with emphasis on incentives rather than

penalties establishes a win-win situation for all parties.

5. Using impartial experts in negotiating contracts (oftentimes with multiple providers simultaneously)

creates flexibility, options, and leverage.

6. Jointly developing plans, involving key company personnel, and thoroughly communicating

with users and the provider facilitate a smooth and successful outsourcing transition.

7. Assigning specific responsibilities for outsourcing providers and key company personnel

and training those who will manage the relationship are critical to integrating all parties

into a successful relationship.

8. Performance measures are key to providing incentives for, managing, and improving

supplier relationships.

9. Successful outsourcing organizations recognize that balanced business scorecards and customer-

driven measures are essential for managing, identifying opportunities for enhancing,

and improving their outsourcing partnerships.

Each of these key findings is explored in detail later in this report.

KEY FINDINGS

Corporate strategy, corporate wide re-engineering, and the annual budget process drive outsourcing decisions.
Cross-functional teams, "due diligence," senior management sponsorship, and input from key functional areas are integral to the success of the outsourcing decision-making process.
In making successful outsourcing decisions, partner companies examine noncore functions for service quality, cost savings, and access to essential skill sets (weighing outsource options against internal capabilities). Due diligence with supplier screening, usually employing requests for information (RFIs) and requests for proposal (RFPs), is critical to identifying companies that meet or match these key criteria.
Developing clear, measurable expectations with emphasis on incentives rather than penalties establishes a win-win situation for all parties.
Using impartial experts in negotiating contracts (oftentimes with multiple providers simultaneously) creates flexibility, options, and leverage.
Jointly developing plans, involving key company personnel, and thoroughly communicating with users and the provider facilitate a smooth and successful outsourcing transition.
Assigning specific responsibilities for outsourcing providers and key company personnel and training those who will manage the relationship are critical to integrating all parties into a successful relationship.
Performance measures are key to providing incentives for, managing, and improving supplier relationships.
Successful outsourcing organizations recognize that balanced business scorecards and customer-driven measures are essential for managing, identifying opportunities for enhancing, and improving their outsourcing partnerships.

Procurement Outsourcing Handbook: Volume I: Framework for Assessment and Selection Success

2009-06-05T08:17:00.000-07:00

Globalization, outsourcing, and a renewed focus on cost and compliance control have elevated the procurement function as a strategic component of business value creation -- and as a source of competitive advantage for the enterprise. And many top-performing procurement organizations share a common secret: they have outsourced procurement.

AberdeenGroup research reveals that leading companies are incorporating procurement outsourcing as a method to augment and accelerate their procurement transformation, not in lieu of creating a world-class capability.

These firms are outsourcing procurement to leverage economies of scale and improve execution and control of underperforming or non-core tasks and poorly managed spend categories. They are doing so while focusing internal resources on high-value activities such as strategic sourcing or supplier development. Companies outsourcing procurement are realizing reduced supply and operational costs, improved compliance, and enhanced performance and cycle times.

This report provides procurement outsourcing assessment frameworks and tools to help enterprises assess internal procurement competencies and scope outsourcing requirements, along with assessing and selecting the best-fit provider. Key components include:

Opportunity Analysis Decision Framework
Build vs. Buy Cost and Value Comparison
Strategy and Investment Prioritization Framework
RFI Outline and Template

Enterprise executives should view this report as a playbook for effective assessment of outsourcing strategies and procurement service providers.

Framework for outsourcing manufacturing: strategic and operational implications

2009-06-05T08:07:00.000-07:00

ABSTRACT

Over the last decade, outsourcing has proved to be a relevant strategic option for companies narrowing their operations to focus on core competencies. This paper analyses the process of outsourcing manufacturing to cost-efficient and innovative suppliers in support of internal resources and capabilities. A scientific reference model founded on manufacturing strategy is proposed to help choose the right level of analysis and steer the research process. From this, a system model is developed to enable identification of the production system elements and internal support functions. Finally, a framework that links the phases of the entire outsourcing process to strategic planning is synthesised. The framework includes a logical sequence of key activities with built-in performance measures and expected output for each of the phases. The research methodology combines theory study with case study and action research in Aalborg Industries, which operates in the heavy industry. Thereby, the research pursues both academic and industrial application.

Keywords: action research, case study, competencies, manufacturing strategy, open systems theory, outsourcing framework

1. Introduction

Entering the third millennium, most industrial sectors face intensified conditions both in th marketplace

and within the corporate boundaries. The customers are putting higher demands and constraints on their upstream linkages. Formerly, the customers focused mainly on low total systems cost, high quality and good delivery performance. Presently, they also expect short product life cycles and time-to-market, innovativeness and customisation [1]. The companies and their suppliers are experiencing the emergence of a global economy and rapidly changing markets. At the same time, the complexity of products and technologies is increasing and their functionalities are expanding [2]. Globalisation and technological innovation appear to be common denominators of these marketing and corporate business challenges. From a corporate strategy point of view, they add new competitors and markets and put strong pressure on companies’ competitiveness and profitability. From a combined business and functional strategy viewpoint, they call for improved organisational adaptability and more flexible and advanced systems relative to manufacturing, logistics, engineering, information and process technology and the like [3,4].

Table 1 specifies the wide range of trends in the industry and their implications. Besides, the table

includes examples of initiatives that may be taken to proactively meeting the trends and implications.

It is noticed that the trends, implications and initiatives are not fully consistent in the sense that certain interdependencies and overlaps exist in practice. Nevertheless, they represent the problem context of the paper.

As indicated in the table, globalisation and technological innovation present a particular paradox.

Technology facilitates the integration of business operations between separate companies while the

rapid market changes on a global scale increase the investment risk in new technology, because it might become obsolete within the payback period [5]. In the table, I take a step further by arguing that the rapid development of information and process technology may reduce the need for middle management based on the rationale that some operating procedures may be automated. This contributes to obtaining flexibility and cost savings, and links to the trend of downsizing. Lewin and Johnston [6] support this point stating that while downsizing initiatives were initially aiming merely at increasing profitability by reducing costs, they now also reflect the search for more flexibility (cf. automation). The advances of information and process technology, thus, largely prompt the gradual change within the corporate boundaries.

In consequence of the internal and external conditions given above, companies must be able to change their organisation, operations, product portfolios, customer segments, etc. rapidly and efficiently as well as on a continual basis. This may involve a new approach to the strategic planning process in which production and operations management and industrial marketing are seen as integral parts. There is evidence to suggest that the success of outsourcing depends largely on such inside-out perspective which assigns production strategic considerations the same importance as market strategic considerations [7–9]. Hence, the frequently used term ‘‘paradigm shift’’ is highly legitimate at present, not only for the industry, but also for the scientific problem addressed in this paper.

Strategic Outsourcing Framework: Project Transition and Governance

2009-06-05T08:01:00.000-07:00

Program Description:

The process of moving from in-house management of a project to an outsourced provider can be a daunting task. In this third program of a three-part series, Mark Power, President of ROS Inc., an outsourcing consultancy and education company, defines the transition plan requirements and identifies key processes and parameters to be implemented during the governance phase. Power begins by examining the transition process, including a number of well-defined activities, such as: gathering the appropriate contracts, manuals, and other documents; establishing the transition team; and assigning ownership of assets, roles, and responsibilities between the client and vendor. He also discusses what is involved in providing training for project management, contract management, and administration; and in developing and executing a transition plan. Turning to the governance phase of the outsourcing relationship, Power identifies the key elements of the governance plan, including activities, participants, and budgets. Next, he describes how to manage and control risk with an effective risk management plan. Power then discusses the importance of the governance communications plan to ensure a well-defined chain of command. He continues by explaining the elements of a quality plan to measure the results of the outsourced activities. Power concludes with a discussion of essential governance issues and concerns. In separate interviews, Manish Tomar and Carlo Bonifazi of ROS offer their comments on the project transition and governance phases of the outsourcing lifecycle. This revised version of one of WatchIT’s most requested programs has been updated with new multimedia resources, such as Web links and white papers.

After watching this program, you will be able to:

Ø Define a transition plan requirement from in-house to outsourcing vendor;

Ø Identify key processes and parameters to be implemented during the governance cycle;

Ø Establish and manage quality and productivity metrics and measures for effective performance management;

Ø Define and implement project and change management processes; and

Ø Define and implement dispute resolution processes.

Program Topics:

INTRODUCTION

AGENDA

EXPERTS FEATURED IN THIS PROGRAM

PROJECT TRANSITION

The Project Transition Lifecycle Process

The Project Transition Lifecycle Process: Key Risk Management Responsibilities

Carlo Bonifazi: Developing a Framework for Outsourcing

The Project Transition Lifecycle Process: The Outsourcing Security Plan

The Project Transition Lifecycle Process: Common Pitfalls

GOVERNANCE

Governance: An Organizational Model

THE GOVERNANCE PLAN

Reasons for the Governance Plan

An Effective Strategy for Creating A Shared Vision Between Client and Vendor

Strategic and Tactical Reporting

Training and Development

Knowledge Management

The Business Continuity Plan

The Risk Management Plan

Contract and Statement of Work Administration

Governance Policies

Tools for Managing the Governance Process

Program Management Activities

GOVERNANCE: THE COMMUNICATION PLAN

Tracking Equipment Used in the Outsourcing Relationship

Governance: Quality and Metrics

Performing a Lessons Learned Project Summary

GOVERNANCE ISSUES AND CONCERNS

Signs That Governance Activities Are Off Track

Ensuring an Effective Governance Program

Carlo Bonifazi: Concluding Thoughts

Manish Tomar: The Trend Toward Outsourcing

A practical framework for understanding the outsourcing process

2009-06-05T07:55:00.000-07:00

Abstract:

Over the last number of years, outsourcing has become an important issue for many organisations. The potential for outsourcing has moved from peripheral activities such as cleaning and catering to critical activities such as design and manufacturing. However, there is evidence to suggest that organisations are not achieving the desired benefits from outsourcing. Outsourcing decisions are rarely taken within a thoroughly strategic perspective with many firms adopting a short-term perspective and being motivated primarily by the search for short-term cost reductions. The aim is to illustrate that outsourcing should be carried out from a strategic perspective and integrated into the overall strategy of the organisation by proposing an outsourcing framework. The framework attempts to overcome some of the problems associated with outsourcing by integrating a number of key strands related to outsourcing including a value chain perspective, core competency thinking and supply base influences into the decision-making process.

Keywords: Benchmarking, Core competences, Outsourcing, Supply chain, Value chain

The Outsourcing Decision: A Strategic Framework

2009-06-05T07:41:00.000-07:00

Abstract

Outsourcing grew rapidly during the 1990s and has now become an accepted dimension of corporate strategy. While outsourcing continues to grow in importance, the nature and focus of outsourcing is evolving. Historically, most outsourcing took place in manufacturing industries, but it is now spreading rapidly within service industries. Whether in manufacturing or services, outsourcing is becoming increasingly cross- national and global. The growth of international outsourcing has accentuated controversy surrounding trade liberalization efforts in developed economies, especially in the United States.

THE BENEFITS FROM OUTSOURCING

There is emerging evidence that investors usually expect outsourcing to create value for shareholders (Hayes et al., 2000). The broad purpose of outsourcing is to: (1) lower the purchase price of some input by taking advantage of external suppliers’ lower costs, or (2) improve the quality of one or more inputs by purchasing some superior resource or capability from an external supplier. In either case, the supplier’s advantage will be one that is not easily imitable. If the firm could easily imitate the cost or capability advantage of potential outside suppliers, it could easily bring the production of the activity “in-house”. Both direct cost savings and the acquisition of superior capabilities can be thought of, and described, in cost-saving terms – superior capabilities could only be produced at the same quality within the firm at a higher unit cost. However, it is usual in the business strategy literature to analyze each specific activity on the value chain in terms of the firm’s ability to lower cost or to improve quality (or, more broadly, to in some way to differentiate their production process). We follow that distinction in the following discussion of the potential benefits of outsourcing.

Cost-Reducing Rationales for Outsourcing

The costs that must be compared are the costs of internal production of the activity to the cost if the activity is outsourced. Production costs are directly generated by the opportunity costs of the resources—land, labor and capital—actually used to produce the good. Of course, it is impossible to design firms to take advantage of economies of scale for all inputs – even the largest global pharmaceutical firms do not manufacture their own computers. Many inputs are inevitably outsourced. In practice, inputs that can be bought in highly competitive “spot” markets – “off-the-shelf” purchases -- raise few outsourcing issues. Therefore, outsourcing is really only a further step on the continuum from purchasing and procurement.

There are a number of cost-related reasons for considering outsourcing. The most basic reason for outsourcing is that in-house production of the activity entails production at too low levels to be efficient; that is, to achieve minimum efficient scale (McFetridge and Smith, 1988; Lyons, 1995). Many goods and services for which the organization has low unit demand exhibit significant cost “lumpiness”,

holding quality constant (Loh and Venkatraman, 1992; McFarlan and Nolan, 1995). An independent specialized producer selling to multiple (outsourcing) buyers can achieve minimum efficient scale. Economies of scale do not apply only to the core operations (production) of a firm: the most significant economies of scale may relate to secondary value chain activities such as administrative and information systems, knowledge and learning, access to capital markets and marketing (Muris et al., 1992; Veugelers and Cassiman, 1999). For example, a major rationale for the significant degree of outsourcing of information systems is the inability of firms to achieve minimum efficient scale in either installing, updating or managing these systems (McLellan, 1993).

Similarly, and closely related to economies of scale, economies of scope are becoming a rationale for outsourcing. With the advent of flexible manufacturing (Greenwood, 1988), the potential to achieve economies of scope has increased dramatically (Pine, 1993). Firms that produce a range of products that can utilize the same production equipment have a significant cost advantage that they can pass on to customers (Besanko et al., 2001; Morrison, 2003). Smaller firms, therefore, in a single line of business will often not be able to achieve the same marginal production costs. Also closely related to an economy of scale rationale is the potential to change large fixed capital costs into variable costs (Quelin and Duhamel, 2003). For example, semiconductor plants (“foundries”) that approach minimum efficient scale cost approximately a billion dollars. Capital-constrained smaller firms cannot access such capital. Even when they can, committing those funds might crowd out more critical investments.

Recent theories of the “boundary choices” of firms emphasize that the optimal scale and scope of a firm depend on the degree to which new undertakings are specific to the firm’s existing asset base (Poppo and Zenger, 1998). That is, the relatedness of the undertakings ultimately conditions the net benefits of locating the relevant undertakings within or outside the firm. Relatedness can extend beyond technological similarities to include shared management knowledge and even a common language. Nevertheless, a relatively large and indivisible scale of required investment combined with rationing of financial capital may limit the ability of firms to exploit relatedness across activities.

Other economic cost-based rationales for outsourcing include superior external supplier economies of learning or experience (Hayes and Wheelwright, 1984), superior ability to introduce new technologically superior product generations quickly, and at low cost, and superior capacity utilization (Morrison, 2003). When work force demands are unevenly distributed over time, it may be cheaper for firms to outsource the work involved rather than lay-off and rehire workers (Abraham and Taylor, 1996).

There are also organizational factors relating to cost that suggest a rationale for considering outsourcing. Most importantly, in many organizations, especially large multi-unit organizations, there is a tendency for internal production units to act as if they are monopolists (Alles et al., 1998). Monopoly-like behaviour blunts efficiency incentives by reducing comparative performance benchmarks for internal customers and by making it less likely that a good is efficiently priced in the internal firm market, thereby obscuring the efficiency of the internal supply unit. Inefficient internal prices can arise for two reasons. First, the internal production unit may be an efficient low-cost producer, but prices internally as a monopolist – production unit managers are usually responsible for this problem (Reichelstein, 1995; Vining, 2003). Second, the production unit may not have sufficient incentives to achieve the minimum production costs that are technically feasible. As a result, they allow production costs to “drift” upwards – either managers or employees or both may be responsible for this syndrome (Leibenstein, 1976; Button and Weyman-Jones, 1994). Competition, that is the absence of monopoly, is normally the crucial driver in forcing down production costs to their lowest level. Profit-maximizing firms in a competitive market will be forced to price at the lowest possible marginal cost, thus eliminating inefficient practices. Monopolistic internal production units may not be subject to this same level of competition. (Although firms can simulate such competition by forcing different internal units to bid against each other for production rights.) This rationale for outsourcing might be a more important reason for outsourcing than minimum efficient scale issues, especially for larger, bureaucratized firms.

An additional organizational-cost reason for outsourcing is that internal production of an input may generate significant organizational negative externalities (or more accurately “internalities”, as they are internal to the organization) that can be reduced or eliminated by outsourcing. (Conversely, as discussed below, outsourcing can also generate negative externalities for the outsourcing firm.) Internal production of an input, for example, may require a distinct corporate culture that is dysfunctional for the rest of the organization (Camerer and Vepsalainen, 1988). Similarly, firms can experience diseconomies of scope in management of multiple firm activities or diseconomies of scale in producing a single activity (Graves and Langowitz, 1993; Zenger, 1994).

Finally, cost savings can result from altering obligations that a firm faces under government laws and regulations or under agreements with labour unions. As an example, firms may be obliged to pay health care benefits to workers classified as “full-time”, whereas part-time workers are not entitled to the same level of benefits. Outsourcing specific activities may enable firms to “re-hire” the same or similar workers from external suppliers as part-time or temporary employees. To be sure, if labour markets are reasonably competitive and not segmented, such cost savings may prove to be only temporary. Market forces will force supplying contractors to pay higher wages to their employees to compensate them for the absence of health care benefits. These suppliers, in turn, will pass the higher wage costs on to those firms hiring the workers on a temporary basis.3

There is evidence from a variety of sources that outsourcing can lower production costs. Clearly, the anticipation of various kinds of cost saving is a major driver of outsourcing (Lacity and Hirshheim, 1993; McFarlan and Nolan, 1995; Kakabadse and Kakabadsee, 2002; Quelin and Duhamel, 2003) however, as noted by Leiblin et al., (2002) and other commentators, there is relatively little hard empirical evidence that comes from contexts where firms outsource to other firms. The limited evidence in part reflects the difficulty in measuring production and other cost savings (Bryce and Useem, 1998). Nevertheless, Ang (1998) found that a large sample of banks that outsource primarily considered production cost savings in their decisions, and there is some evidence to suggest that this finding is generalizable (Walker and Weber, 1987; Lyons, 1995; Benson and Ieronimo, 1996; Saunders et al., 1997). Much of the best empirical evidence comes from outsourcing by government to private suppliers.

Empirical studies tend to find in this outsourcing context that production cost savings are approximately in the 20% range, especially if competitive bidding is used (Vining and Globerman, 1999; Hodge, 2000).

As we discuss below, a crucial point is that even those empirical studies that have examined the relative production costs of internal provision versus outsourcing have not included the costs of governing the outsourcing relationship, specifically, bargaining and opportunism costs, which a priori might be expected to be higher with outsourcing. Indeed, some governance mechanisms for outsourcing can be expected to raise production costs -- for example if cost-plus contracts are used (McAfee and McMillan, 1988; Ulset, 1996).

Differentiation (Quality) Rationales for Outsourcing

Firm-specific resources and capabilities are becoming increasingly recognized as the drivers of competitive success (Wernerfelt, 1984; Barney, 1986). Capabilities that are difficult to imitate, or, at the extreme, cannot be imitated, are therefore the key to sustainable competitive advantage (Barney, 1991). The capability may be inimitable for a wide range of reasons. Barney (1999) points out that the firm could attempt to acquire the capabilities through internal development or by acquiring a firm that already has the capability; however, it may be very costly or impossible to do either. Four reasons why it may be costly to develop a capability internally are: (1) unique historical conditions that no longer exist; (2) path dependency; (3) social complexity, and (4) “causal ambiguity” resulting from the difficulty of knowing what is the source of the capability (Barney, 1999: 140-1). Five reasons why it may be costly to acquire a firm that has the capability are: (1) legal constraints; (2) acquisition itself might negate the capability; (3) acquisition may be costly to reverse if the capability turns out not to be valuable; (4) there may be undesirable characteristics that offset the valuable capability, and (5) integrating the capability into the acquiring firm may be difficult both because of causal ambiguity and implementation problems (Barney, 1999: 142-3).

Whatever the reasons for inimitability, a firm producing a given product or service that requires a capability has to decide whether to compete with a firm that has a given capability or to attempt to purchase the higher quality input from them. If the capability is critical to the success of their product (that is, a “core competency”) the firm may have no choice but to attempt to acquire the capability internally, although some commentators disagree even with this assessment (Baden-Fuller et al., 2000) But, if it is not developed internally, the firm may be able to acquire the capability through outsourcing. Historically, for example, many firms have outsourced specialized legal services and advertising. The evidence suggests that this rationale for outsourcing is increasing (Quinn and Hilmer, 1994; Farrell et al., 1998; Kakabadse and Kakabadse, 2003). Specifically, Quelin and Duhamel (2003: 649) argue that “cost reductions, while important, are but one objective expected from outsourcing. Other objectives include improved flexibility, quality and control”.

Again, as with cost-reducing rationales for outsourcing, the systematic empirical evidence of the value of outsourcing for improving quality is still quite limited. Gilley and Rasheed (2000) and Gilley et al. (2004) have recently found evidence that outsourcing various aspects of human resources management can innovation although they did not find direct evidence of financial performance improvements. Leiblein et al., (2002) present evidence that there are benefits from outsourcing, but they are contingent on the specific attributes of the contractual relationship, both in terms of the nature of the activity to be outsourced and the governance response by the firm.

We turn to a consideration of governance costs that may potentially offset the cost-lowering or differentiating-enhancing benefits of outsourcing.

CONCLUSIONS

There is increasing interest in outsourcing among firms in a wide range of industries. Moreover, there is evidence that outsourcing is becoming increasingly more international, so that the benefits and costs of outsourcing are becoming an increasingly important social issue, especially in the United States and Western European countries when it involves outsourcing activities to less developed countries. Although not dealt with here, as a result outsourcing governance is increasingly likely to include managing the political and stakeholder environment. In this paper, we suggest that many of the potential costs associated with outsourcing can be mitigated by contracting and related strategies on the part of the outsourcing firm. We propose a simple framework that relates some alternative strategies for standard problem situations surrounding outsourcing. This framework does not deal with all strategic outsourcing issues. The outsourcing firm also has to develop information strategies so that it can continue to learn – about changing costs and other relevant factors (Cross, 1995).

A strategic approach towards outsourcing must explicitly acknowledge the game-theoretic context in which the activity takes place and attempt to condition the environment in order to minimize the governance costs associated with outsourcing. It also must recognize that in specific circumstances the governance costs will be so high that a firm should not outsource. This approach is distinct from a strategy that emphasizes adaptation or renegotiation in response to conflict with an outsourcing partner (Melese, 2000). In this regard, management experts have argued that managers seriously underestimate the costs associated with transitioning to a new vendor (Barthelemy, 2001).

The difficulties and costs associated with implementing a comprehensive strategic approach to outsourcing should not be underestimated. However, it is important to emphasize that there are likely to be economies of scale and scope in the outsourcing activity itself. Hence, substantial efficiencies may be realized by establishing a group or department specifically devoted to integrating company-wide experiences with outsourcing and using the resources in that unit to establish project teams with expertise in specific outsourcing activities (Barthelmy, 2001).

The Simplified Project Management Process

2009-05-30T06:00:00.000-07:00

One of the challenges of explaining project management to people who are unfamiliar with the approach, is that descriptions are often either so high-level as to be meaningless, or so detailed that they are overwhelming. Over the years, I have come to use a model as a framework for introducing and discussing project management tools and techniques. It can be used as the basis for a five-minute explanation of what is involved in project management, but also as an outline for more detailed discussions. (The actual model can be found on the Key Consulting website under free templates and info.)

A brief description of each step follows:

Assemble Team

The project planning team will be assembled, including appropriate representation from customers/clients, and sometimes subcontractors and vendors. Initial roles and responsibilities will be defined.

Deliverables: Initial project setup documentation.

Define Project Objective

With the project team in place, the overall project purpose will be verified and detailed project objectives developed. A phase-exit review will be conducted to ensure that the project is ready to move into the next phase, which is planning.

Deliverables: project charter, phase-exit review checklist.

Define Project Scope

An appropriately detailed Work Breakdown Structure (WBS) will be developed to ensure the project scope is properly agreed to and understood by all stakeholders. This also allows the complete project to be split into appropriate sub-projects and/or phases.

Deliverables: Project work breakdown structure.

Construct an Initial Plan

Once tasks of an appropriate level have been identified in the WBS, they will be organised by the project team into logical network diagrams, with estimated durations. This allows the project manager to predict when activities will be complete, assess the feasibility of target dates, and identify the critical path for the project.

Deliverables: Initial work plan.

Add Resources, Costs, Risks, etc.

Certain project resources may be defined as critical resources. In particular, the project manager may suspect that key project staff may be faced with too much work. If so, estimated resource usage information can be added to the project plan to allow resource forecasting. Cost is obviously also critically important, and expenditures can be added to the plan to create estimated cash-flow requirements. Risk management can also be utilised on projects to provide a framework to better manage events that occur beyond the control of the project team.

Deliverables: Resource availability and commitment profiles, risk identification and control strategies, cash-flow forecasts.

Obtain Stakeholder Buy-in

To ensure the project is implemented as smoothly as possible, with the support of the involved parties, it will be necessary to review the initial plans with all the major project stakeholders and to solicit buy-in from each one. A phase-exit review will be conducted to ensure that the project is ready to move into the next phase, which is control.

Deliverables: Approved final plan, phase-exit review checklist.

Publish the Plan

Once the plans are agreed to, they must be effectively communicated to all stakeholders. This can be done in hard copy or via electronic media, depending on the resources available. On most projects, a communications plan will be developed, and distribution of the plans will follow the guidelines laid out in the communications plan.

Deliverables: Plan published to all stakeholders.

Collect Progress Information

On a regular basis, the project manager will collect progress information that has been reported by the project team. This will allow the compilation of progress reports, such as:

Activities completed within the past two weeks.
Activities forecast for the next two weeks with a focus on activities on the critical path.
Funds expended vs. fund expenditure forecast.
Prioritised issues report.

Metrics can also be developed to measure project progress in other ways, such as earned value, or activity float statistics. If the project manager reviews the progress data and concludes that the project is complete, a phase-exit review will be completed to confirm that all the objectives have been met before moving into the final closure phase.

Deliverables: Set of progress reports, set of exception reports, metrics report, (phase-exit review checklist).

Analyse Current Status

By analysing the progress information received, the project manager will be able to augment the above reports with information about which areas of the project are of concern and where problems are likely to occur in the future. This allows managers to focus on the important/critical areas of the project.

Deliverables: Project evaluation report(s).

Adjust the Plan, and Manage Project Change

Based on the analysis, and with the support of the project team, the project manager will make plan adjustments to help reduce risks, accommodate scope changes, or to compensate for activities that have not occurred on schedule. Once this has happened, the plan will re-published and the cycle repeated until the project is complete.

Deliverables: Change request forms, updated plan.

Close Project

When the objectives of the project have been achieved, the project manager will close down the project. This will involve some financial closure tasks, as well as archiving of the project materials. A lessons-learned document will be developed to benefit future projects, and if possible a project team celebration will be held.

Deliverables: Final project report including lessons learned.

Kevin Archbold, PMP has nearly 20 years of project management experience working with large and small organisations in a variety of industries, including automotive, nuclear, telecommunications, trucking, IT, recruiting, HR, and government.

Project Management Process

2009-05-30T05:47:00.000-07:00

Project Management Processes

MPMM™ includes the following project management processes:

	Project Management Process
	Time Management Process
	Cost Management Process
	Quality Management Process
	Change Management Process
	Risk Management Process

	Issue Management Process
	Tender Management Process
	Procurement Management Process
	Acceptance Management Process
	Communications Management Process

Each project process describes the procedures you would take as a Project Manager, to manage an element of the project. For instance, the Risk Management Process will tell you how to identify, review, mitigate and monitor project risks more effectively. It also describes the roles and responsibilities of each team member, when taking part in project risk management.

In addition to providing a comprehensive set of project procedures, for everyproject management process you will find an Example which gives you a complete practical example of that project process, for a sample project.

Continue reading to learn more about MPMM Project Management Processes:

Time Management Process

By using the Time Management Process included in MPMM, you can easily monitor and control time spent on a project. You will be able to create procedures for completing timesheets, recording timesheet information and gaining an overall view of the status of your project.

Cost Management Process

The MPMM Cost Management Process helps you manage your project expenditure. It explains how to document your expenses through the use of Expense Forms and then implement an expense approval process. It also tells you how you can update your Project Plan with your expense information, to help you to keep an eye on your overall project expenditure.

Quality Management Process

To help you make sure that your deliverables meet the requirements of your customer, MPMM includes a Quality Management Process. By using this process, you can implement Quality Assurance and Quality Control techniques to monitor and improve the level of quality within your project. You can set quality targets, undertake quality reviews and implement measures to improve the level of quality of your deliverables.

Change Management Process

One of the greatest risks in a project is "scope creep". It happens when uncontrolled changes are implemented without formal approval, and it often leads to delays, over-spending and poor deliverable quality. To help you avoid scope-creep, implement the MPMM Change Management Process. This process helps you identify project changes and control their approval and implementation.

Risk Management Process

Every project entails a certain degree of risk. The reason is that you will have a fixed amount of time, budget and resources to achieve a set task. How you manage this risk will determine your level of success. By implementing the MPMM Risk Management Process, you can manage your risks through formal risk identification, quantification and mitigation.

Issue Management Process

Throughout the project, you will encounter a number of project issues. These issues will have the ability to impact on your delivery deadlines, so you need to manage them carefully. If you implement the MPMM Issue Management Process then you can put in place formal procedures for recording and resolving issues before they impact on your project timelines.

Tender Management Process

If you need to appoint suppliers to your project, then you will need a Tender Management Process. This project process allows you to select and appoint external suppliers, through the issue of tender documentation. This process helps you select one or more preferred suppliers, by issuing 3 documents; a Statement of Work (SOW), a Request for Information (RFI) and a Request for Proposal (RFP).

Procurement Management Process

It's one thing to find and hire the best supplier, it's another thing to then manage that supplier and ensure that they deliver everything that you have contracted them to provide. By using the Procurement Management Process, you can formally receive, inspect and approve every product and service that your supplier provides you with. You can then use that information to approve the payment of supplier invoices.

Acceptance Management Process

The determinant of project success is whether or not your customer signs off the project as complete and satisfactory. You will only gain complete satisfaction from your customer if you allow them to inspect and accept every project deliverable that you produce. By using the Acceptance Management Process, you can request that your customer reviews each deliverable produced by your project and signs it off as meeting their requirements. Your deliverables will then be 100% complete.

Communications Management Process

To help you communicate the right message to the right project stakeholders at the right time, MPMM offers a comprehensive Communications Management Process. You can use the communications planning and process templates and examples to keep your stakeholders informed of the progress of the project at all times.

GLOSSARY

2009-05-30T05:45:00.000-07:00

This glossary provides a brief definition of the important terms used in this report. It is arranged in alphabetical order.

TERM                DEFINITION                                                          Building Block      A generic method, practice, tool, or process definition in the                          inventory of software process assets owned and maintained by an                         organization.                                                       Current best        A process and associated implementation procedures that an          practice            organization keeps current  through continuous process                                  improvement.                                                        Lessons Learned     The organization's current best practice for recording a                                project's best practices, experiences with tools, problems, and                         other lessons learned in a postmortem report.                       Metrics             The organization's current best practice for measuring software                         projects, products, and processes.                                  Organization        A documented set of generic software building blocks which          Standard Software   define how a software organization does business.                   Process                                                                                 Product             The organization's current best practice for inspecting (peer       Inspections         reviewing) software documents and code to remove defects.           Programming         The set of programming languages, and organizational standards      Language            for using them, in which the organization is proficient.            Project Defined     The compilation of tailored building blocks, in a software          Software Process    development plan, for a specific project.                           Project Estimation  The organization's current best practice for estimating the                             cost, schedule, resource requirements, and size of a development                        effort.                                                             Project Management  The organization's current best practice for managing software                          projects (includes planning, and  tracking and oversight).          Project Reviews     The organization's current best practice for conducting                                 technical and management reviews.                                   Requirements        The organization's current best practice for eliciting and          Management          managing a project's requirements.                                  Risk Management     The organization's current best practice for assessing and                              managing software project risk.                                     Software            The organization's current best practice for SCM.                   Configuration                                                                           Management (SCM)                                                                        Software Quality    The organization's current best practice for SQA.                   Assurance (SQA)                                                                         Subcontract         The organization's current best practice for managing               Management          subcontractors in the performance of all or part of a software                          project.                                                            Support Tools       The set of management and development tools that support the                            organization's standard process and practices in which the                              organization is proficient.                                         Software Design     The organization's current best practice for performing software                        design.                                                             Software            The organization's current best set of development methods in       Development         current use  (e.g., object oriented, structured, etc.) in which     Methods             the organization is proficient.                                     Software Life       The set of software life cycles (e.g., waterfall, evolutionary,     Cycles              spiral, rapid-prototyping, etc.) for which the organization is                          proficient at executing a software project.                         Software System     The organization's current best practice for performing software    Test                system test.                                                        Tailoring rules     Documented rules that provide guidance for adapting the                                 organization's standard software process to specific project                            requirements.                                                       Technical           The organization's current best practice for managing and           Documentation       producing technical documents.                                      Training            The organization's current best practice for training personnel                         in the use of software development methods, tools, and practices.   Unit Test           The organization's current best practice for performing unit                            test activities.

APPENDIX A. PROCESS & PLANNING TOOL SUPPORT

The tools examined for this report were defined to allow users to maintain their organization's standard software process using the tool, tailor that process to the needs of a specific project, develop the project WBS and schedule with the same tool, and track progress during project execution.

It was assumed that these requirements would be implemented in a number of tools. Initially, both custom and commercially available tools were examined. In time, the list of tools was limited to those that were released (or had target dates for release) as Commercial Off-The-Shelf (COTS) products.

A breakdown of the functionality requested for these tools is as follows:

a. Share data with other tools (e.g., spreadsheets and/or scheduling tools).

b. Allow the organization to develop and maintain the organization's standard software process within the tool. The process should be able to be custom designed for the needs of the organization.

c. Provide a combined process definition and project management capability. (Project management here is assumed to include building and modifying WBSs, activity networks, and schedules and tracking progress against the schedules.)

d. Allow a number of user roles to have access to the data in the tool set in different ways.

e. Have a Graphical User Interface (GUI) to support ease of use.

f. Support software process definition and software process modeling.

g. Tie its project management capabilities to software process enactment.

h. Provide both Gantt and activity network (e.g., Program Evaluation and Review Technique (PERT) or Critical Path Method (CPM)) outputs.

i. Provide a relationship between the WBS and the project's defined software process.

Five tools were found that claimed to provide a majority of the requested capabilities. These tools and their advertised capabilities are listed in Table A-1 along with vendor, point of contact, and minimum system configuration information. None of the tools were examined in detail since the vendors contacted were not able to provide demonstration versions (or limited time examination copies) on request.

At the time of this research, it appeared that tools with the requested capabilities were just beginning to reach the market. This initial set of tools was unable to provide the full set of requested capabilities, and in dealing with vendors, it appeared that this type of tool set is still quite immature and not ready for use in a production environment.

It will be interesting to see the next generation of these tools and how they mature to support process driven project planning and project management.

Table A-1. Integrated software process and project management tools.

Tool	firstCASE	PEAKS
Vendor	AGS Management Systems 1012 West Ninth Ave. King of Prussia, PA 19406	Cedar Creek Process Engineering P.O Box 308 Cedar Creek, TX 78612
Point of Contact	Valerie Palamountain 610-265-1550	Terrel 800-303-8468 terrelj@source.asset.com
Data Import/Export	Import Text Files Export Text Files, Report Writer to Excel/Lotus files. Can copy and paste between applications.	ASCII text files. Import/Export Plans API Data Access
Flexible Process	Can be customized by your organization to incorporate your standards and procedures	Yes
Combination of Process Definition and PM	Yes, suite of tools	Combined
Role Driving?	Can define roles and responsibilities	Process Driven
Ease of Use	Windows based	GUI, point and click
Process Definition and Modeling	through fcprocess	Yes
PM tied to Process Enactment	Yes	Supports low level enactment in conjunction with other tools
Gantt & PERT or CPM	Gantt, PERT, CPM includes resources	Gantt
WBS tied to Process Structure	Yes	Yes
Platforms	PC/Windows, Windows NT, OS2	IBM RISC System 6000 w/ AIX 3.2.5 porting to Windows NT and Mac 7.x

Table A-1. Integrated software process and project management tools. (Cont.)

Tool	Process Engineer	Tool Project Management (TPM) [12]
Vendor	LBMS 1800 West Loop South, Sixth Floor Houston, TX 77027	Applied Business Technology 361 Broadway New York, NY 10013
Point of Contact	800-345-LBMS	Kristine Kiltz 212-219-8945
Data Import/Export	Bi-directional data transfers for various schedulers including Microsoft Project 3.0, Project Workbench 3.0 for Windows and Timeline 5.0 for DOS	Export to Text files
Flexible Process	Yes, with PE/Process Manager	Yes
Combination of Process Definition and PM	Yes, suite of tools	Yes, suite of tools
Role Driving?	Yes	No
Ease of Use	Reportedly easy to use	GUI, reportedly highly intuitive
Process Definition and Modeling	Yes, with PE/Process Manager	Yes via Methods Architect
PM tied to Process Enactment	Yes
Gantt & PERT or CPM	Gantt, PERT, Resource Charts	Gantt, CPM
WBS tied to Process Structure	Yes
Platforms	At least 386/33, MS-DOS 3.1 or greater, MS-Windows 3.1, 4 MB RAM, 15 MB available on hard drive, mouse and any network operating system	PC/Windows

Table A-1. Integrated software process and project management tools. (Cont.)

Tool	WBS Chart for Project
Vendor	Jim Spiller and Associate (JSA) 3256 Seminole Circle Fairfield, CA 94533
Point of Contact	707-425-2484
Data Import/Export	Import/export to Mircosoft Project files. (.MPX)
Flexible Process
Combination of Process Definition and PM	No
Role Driving?
Ease of Use	GUI, Windows
Process Definition and Modeling
PM tied to Process Enactment	None
Gantt & PERT or CPM	None
WBS tied to Process Structure
Platforms	PC/Windows