A REVIEW OF THE IT OUTSOURCING LITERATURE: INSIGHTS FOR PRACTICELACITY, MARY C., SHAJI A. KHAN, AND LESLIE P. WILLCOCKS. "A REVIEW OF THE IT OUTSOURCING LITERATURE: INSIGHTS FOR PRACTICE." THE JOURNAL OF STRATEGIC INFORMATION SYSTEMS 18.3 (2009): 130-146.

PREPARED BY: RIRI KUSUMARANI

COURSE : MIS , SPRING 2017

OFFERED BY : PROF HANGJUNG ZO

OVERVIEW This paper is a meta-analysis research which gather 191 previous studies in the IT Outsourcing literature from mid 90’s to late 2000s.

Trends in IT Outsourcing research is summarized into 6 main topics

4. Success Factors

5. Client & Supplier Capabilities6. Other

Models

IT Outsourcing

1. Determinants

2. Strategy

3. Risks & Mitigation

• Which types of Firms are more likely to outsource IT?

• What is the Strategic Intent behind ITO decisions?• What are the strategic effects of ITO decisions?

• What are the risks of IT Outsourcing?• How are IT Outsourcing risks mitigated?

• Which practices increase the likelihood of ITO Success?

• Which Capabilities do client firms need to develop to successfully engage ITO suppliers?• Which capabilities do client firms seek in an ITO Supplier?

• How do Other models of ITO makes practice different?

I. DETERMINANTS OF ITO

RQ: Which types of Firms are more likely to outsource IT?

Financial Attributes Size Attributes Industry AttributesPoor Financial Performance

Mixed Findings Mixed Findings

Firm Profitability, Return on Assets, Earning per share, Operating expenses etc

Larger firms & Smaller Firms, Larger IT Department Size & Smaller IT Department size; No relationship between

Industry’s term operationalization is mixed : public vs private, categories of industries

Insight

2nd Generation ITO

II. STRATEGYRQ: What is the Strategic Intent behind ITO decisions?

What are the strategic effects of ITO decisions?

Strategic Intent

Realizing the Intent is Difficult

Effect

Mixed Findings

Reducing cost appeared as important driver for majority of firms.

Firm-Level performance was measured using stock price performance and financial performance

Insight

Small effects created

3 Strategic Intents were addressed : IS improvement , Business Impacts and Commercial Exploitation (Diromualdo and Gurbaxani 1998).

Content of ITO Announcement can affect Stock-price performance

The main challenge is how to isolate the effect of ITO on firm-level performance.

III. ITO RISKS & MITIGATION• RQ: What are the risks of IT Outsourcing?

How are IT Outsourcing risks mitigated?

11 Risks of outsourcing were discussed in which general conclusion can be drawn that client is accountable for a successful ITO (Earl 1996). However, risks that comes from supplier were also identified (Table 3).

Studies have also covered risk mitigation advices on each types of ITO Risk including specific type of ITO (offshore or BPO)

The best way to mitigate risk is through experience.

• Which practices increase the likelihood of ITO Success?

IV. Success Determinants

ITO Decision

Relationships between ITO decisions (Degree of outsourcing, top management commitment, evaluation process) made and their subsequent outcomes.

Contractual Governance

Linkage between Contract detail, type, duration and contract size to ITO success were coded.

Relational Governance

Management of client-supplier relationships.

This includes trust, norms, open communication, open sharing of information, mutual dependency and cooperation

Degree of Outsourcing

The amount of outsourcing as indicated by percentage of IT budget outsourced and/or the type and number of IS functions outsourced.Too much outsourcing was associated with lower level of success.

Higher satisfaction appear when firms outsource their system operations and telecommunication instead of applications development, end user support and system management

Top Management Commitment

Critical for ITO success in term of client satisfaction, offshore project success and overall outsourcing success

Supplier Selection Evaluation Process

Consistent predictor of contract price outsourcing decision, expected cost saving being realized and the achievement of outsourcing success in general

Contract DetailsThe number of degree of detailed clauses in the outsourcing contract.

Examples : prices, service levels,benchmarking, warranties and penalties for non-performance.

Higher level of details led to higher level of ITO success.

Contract TypeDifferent forms of contracts used in outsourcing.

Examples : customized, fixed, time and materials, fee for service and partnership based contracts.

Contract DurationShort-term contracts had higher frequencies of success than long-term contracts.

Contract SizeExample : Contracts measured in Dollars

Larger contracts had higher frequencies of success than smaller contracts

ITO Decision & Contractual Governance

Matched ITO Decision with contractual governance lead to higher levels of ITO success.

Attributes

Trust, norms, open communication, open sharing of information, mutual dependency and cooperation.

Higher levels of all attributes are associated with higher levels of ITO success.

Insight

Contractual & Relational Governance

Acts as Complements , ITO Success are greater when both contractual complexity and relational governance were greater.

• Which Capabilities do client firms need to develop to successfully engange ITO suppliers?• Which capabilities do client firms seek in an ITO Supplier?

V. Client & Supplier Capabilities

Client Supplier

IS Human resource capability : the ability to identify, acquire, develop and deploy human resources to achieve its organizational objective.

Clients achieve higher ITO Success when supplier staff turnover was low and the supplier assigned the most capable people to the clients account.

Insight

Important to both parties : IS Technical / methodological capability.

Inter-related capabilities were also found as important (Feeny and Willcocks 1998): IT personnel career development , methodology development and dissemination and client relationship management.

Supplier management capability : the extend to which a client organization is able to effectively manage outsourcing suppliers

• How does other ITO Models differ?

VI. Other ITO Models

Offshore Application Service Provision Business ProcessThe practice of hiring an external organization to perform some business functions in a country different than existing .Also known as “Offshoring”

Example: Dell offshore outsourcing call center to India in 2011

Example : Companies choose ASP to obtain access for expensive software

Suppliers hosted and rented standard applications to clients over the internet.Also known as “Netsourcing”

Supplier taking over client’s business process within functions.

Challenges

More challenges because of Time Zone & Cultural Differences, Need for More controls, Knowledge Transfer Difficulties, The need for detailed requirement specification, geographically dispersed teams.

Most of All : High Transaction CostTo overcome this issue, clients need to commit a high enough volume of work offshore to ensure total cost savings

Practices & Capabilities

The use of middleman , special interfaces between client and offshore supplier employees, the use of liaisons.

Trends?

Companies might ended up selling their IT capabilities to offshore suppliers.

Example : Citigroup sold its IT captive center to Tata Consultancy Services.

Challenges

Suppliers had difficulty generating revenues due to contracts value were too small, duration too short, marketing cost to educate clients were high, margins from reselling propriety software were thin.

Needy clients also create higher transaction costs of serving.

Probabilities for risks to occur increases because of immature suppliers, immature customers and immature technologies

Practices & Capabilities

Clients choose to ‘netsource’ applications that were perceived as non-strategic and technically certain.

Clients can also achieve higher success with netsourcing if they have realistic expectations and have already conquered learning curve through prior experience

Trends?

Traditional IT Suppliers also offer

C

• BPO becomes the newest trend in IT Outsourcing.

• As processes are moving into more standardized forms , BPO will become

increasingly commoditized.

• Therefore, BPO is more suitable to firms that already have a well-defined, self-

contained, modular, IT-enabled and easily measurable processes.

• BPO Success can be measured by indicators such as cost reduction, flexibility to

include quality improvements, realized core competence focus and realized strategic

advantage

Thank You