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ITM 309

Change Management and Outsourcing

Dr. Frederick Rodammer Michigan State University

Eli Broad College of BusinessRodammer@bus.msu.edu

December 1, 2008

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Today’s Learning Objectives

• Explain change management and how an organization can prepare for change

• Explain the business benefits of outsourcing

• Assess the reasons for developing strategic outsourcing partnerships

• Discuss Insights from Toyota Case

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OPENING CASE QUESTIONSChange at Toyota

• Why are project management, change management, and risk management critical to a global company such as Toyota?

• How could Toyota benefit from outsourcing?

• What types of ethical and/or security issues might Toyota encounter when considering outsourcing ?

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WHAT IS CHANGE MANAGEMENT?

• The process of building the capacity, capability, and will of an organization…

• To move from an entrenched current state to a unfamiliar future state…

• Then leading them through and sustaining them in that change.

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Preparing for Change

• Three important guidelines fore effectively dealing with change management

1. Institute change management polices

2. Anticipate change

3. Seek change

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End User Resistance and Involvement

• Change can generate fear and resistance to change

• Keys to countering end user resistance:

– Proper education and training– End user involvement in organizational changes

• End user involvement in the development of new information systems

• Involvement and commitment of top management and all business stakeholders

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POSITIVELY VIEWED CHANGE

• Change viewed as an opportunity.

• Transition requires managing expectations and minimizing pessimism.• Need to manage public and private “checking out”.• You still need to deal with some negative implications of positive change.

High

Low

Confidence

Public Checking Out

Private Checking Out

Informed Optimism

Informed PessimismInformed Doubt

Uniformed Optimism

Hopeful Realism

Time

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NEGATIVELY VIEWED CHANGE

• Change viewed with fear, anger.

• Negative perceptions cause disruptive transition.

• Transition requires managing active resistance and motivating passive participants.

Time

ResistancePast

OrientationFuture Orientation

Immobilization

DenialAnger

Bargaining

Depression

Explor

ation

Acceptance

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Change Management

• People are a major focus of organizational change management– Developing innovative ways to measure,

motivate, and reward performance

– Designing programs to recruit and train employees in the core competencies

• Also involves analyzing and defining all changes facing the organization

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Change Management Process

• Create a change vision• Define a change strategy

• Develop leadership• Build commitment• Manage people performance

• Deliver business benefits• Develop culture• Design organization

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OUTSOURCING

• Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

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OUTSOURCING

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OUTSOURCING

• Reasons companies outsource

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THE OUTSOURCING PHENOMENON

• Outsourcing growth drivers– Globalization– The Internet– Growing economy and low unemployment

rate– Technology– Deregulation

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OUTSOURCING

• Factors driving outsourcing growth include:– Core competencies– Financial savings– Rapid growth– Industry changes– The Internet– Globalization

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TEAMS, PARTNERSHIPS, AND ALLIANCES

• Organizations form alliances and partnerships with other organizations based on their core competency– Core competency – an organization’s key

strength, a business function that it does better than any of its competitors

– Core competency strategy – organization chooses to focus specifically on its core competency and forms partnerships with other organizations to handle nonstrategic business processes

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Outsourcing Benefits

• Outsourcing benefits include:– Increased quality and efficiency – Reduced operating expenses– Outsourcing non-core processes allows focus on core

competencies– Reduced exposure to risk– Service providers economies of scale, expertise, and best

practices– Access to advanced technologies– Increased flexibility – Avoid costly outlay of capital funds– Reduced headcount and associated overhead expense– Reduced frustrations and expense related to

hiring/retaining employees – Reduced time to market for products or services

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THE CHALLENGES OF OUTSOURCING

• Outsourcing challenges include:– Contract length

1. Difficulties in getting out of a contract

2. Problems in foreseeing future needs

3. Problems in reforming an internal IT department after the contract is finished

– Competitive edge– Confidentiality– Scope definition

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FUTURE OUTSOURCING TRENDS

• Outsourcing is becoming less of a cost-saving strategy and more an overall context for business

• Outsourcing is approaching commodity status

• Companies should look for value-based pricing rather than the lowest possible price

• Multisourcing – a combination of professional services, mission-critical support, remote management, and hosting services that are offered to customers

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ITM 309 Homework

• Exam 3 Review Session on Wednesday

• Check ANGEL Gradebook for accuracy

• Complete Part II of Assignment #6 in Recitation this Week