Management of Information Systems Outsourcing: A Bidding Perspective

Abstract:Outsourcing is the contracting of various information systems’ subfunctions by user firms to outside information systems vendors. A critical factor in the outsourcing process is the bidding and vendor selection mechanism. This paper describes the process of outsourcing and identifies the various stages involved. Subsequently, considering that cost reduction is a driving force of outsourcing for user-firms, this paper proposes a bidding mechanism to reduce expected outsourcing costs in the final bidding and vendor selection process. The paper studies outsourcing contracts of routine and repetitive activities such as maintenance and operation of telecommunication networks. A realistic scenario is studied, wherein multiple vendors bid for such contracts and where one vendor has cost and expertise advantages over other vendors and as a result tends to inflate bids. A mixed integer programming model is formulated for a multiple vendor scenario. In general, the results suggest a prescription that calls...