benefits management and strategic alignment in an it outsourcing context

Benefits Management and Strategic Alignment in an IT OutsourcingContext

Joost van Lier Ton DohmenPricewaterhouseCoopers PricewaterhouseCoopers

[email protected] [email protected]

Abstract

It is important to understand the factors thatinfluence the success of IT outsourcing, since IToutsourcing touches the core of organizations. Thehypothesis in this article is that benefits managementand strategic alignment influence the success of IToutsourcing. The research question is ‘do strategicalignment and benefits management contribute to thesuccess of IT outsourcing relationships?’ To answerthis question, a multiple case study strategy is used.The results support the research hypothesis; benefitsmanagement and strategic alignment have a positiveeffect on the success of IT outsourcing.

.1. Introduction

IT outsourcing is defined in the context of this

article as performing (parts of) (continuous) ITservices for a service recipient by an external IT

service provider [3]. An IT outsourcing relationship isa multiyear relationship with a substantial contract

value.Historically, one of the main drivers for IT

outsourcing has been cost reduction [4, 5, 6].Currently, customers increasingly expect IToutsourcing to ‘transform IT functions into lean,

dynamic groups that respond quickly to businessneeds and opportunities’ [16] and deliver businessvalue.

IT outsourcing is precarious: ‘Many such deals are

large and strategic enough to qualify as "bet thecompany" arrangements involving a complex mix of

people, processes and assets’ [5]. Therefore, it is clearthat the organizations concerned with IT outsourcinghave high expectations about its outcomes. However,

many organizations still manage IT outsourcing in thesame way they make commodity purchases [5].

The need for a focus on the realization of business

benefits is demonstrated by Jenster and Pedersen:‘many companies have been dissatisfied and their

notions have ranged from being “mildly annoyed” to“extremely unhappy”’ [12].

Strategic alignment is supposed to bring mutualunderstanding between the IS/IT function and thebusiness. Henderson and Venkatraman describe

strategic alignment as a process of continuousadoption and change [9, 10]. Business managementneeds to understand the architectural choices in ITand IT managers need to understand where and how

IT can make a difference for the business. IT strategyis no longer perceived as supportive but is

increasingly seen as a strategic tool.Benefits management is ‘the process of organizing

and managing such that potential benefits arising from

the use of IT are actually realized’ [28]. Benefitsmanagement provides a mindset in which it is clear

that it is impossible to ’simply purchase the path tosuccess’ [22]. According to Lin and Pervan, benefits

management implies that ‘measures of success shouldbe developed pre-project, so that these measures can

be used for post-project review’ [17]. This vision isextended by stating that proactive control is needed inall phases of the (out)sourcing cycle [22].

2. Reference theories

Agency theory describes the relation between aprincipal and an agent. This theory is based on the

assumption that agents will behave opportunisticallywhen their interests conflict with those of the

principals. The basis of the theory is the existence ofasymmetric information, different perceptions of riskbetween principal and agent and uncertainty. In this

relationship, agents have an information advantage.Although reports can be used to decrease this

information gap, they incur costs: so called bounding

Proceedings of the 40th Hawaii International Conference on System Sciences - 2007

1©1530-1605/07 $20.00 2007 IEEEProceedings of the 40th Annual Hawaii International Conference on System Sciences (HICSS'07)0-7695-2755-8/07 $20.00 © 2007

https://www.researchgate.net/publication/221991823_The_practice_of_ISIT_benefits_management_in_large_Australian_organizations._Information__Management_41(1)_13-24?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==

https://www.researchgate.net/publication/251391135_Unlocking_Sustained_Business_Value_from_IT_Investments?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==

https://www.researchgate.net/publication/251391135_Unlocking_Sustained_Business_Value_from_IT_Investments?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==

https://www.researchgate.net/publication/220627990_Information_systems_outsourcing_A_survey_and_analysis_of_the_literature?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==



https://www.researchgate.net/publication/234607729_Strategic_Information_Systems_Planning?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==

https://www.researchgate.net/publication/240021674_Global_Information_Technology_Outsourcing?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==

https://www.researchgate.net/publication/230155641_Outsourcingfacts_and_fiction?el=1_x_8&enrichId=rgreq-4853ebfc-2ef7-41f7-a820-05366471461d&enrichSource=Y292ZXJQYWdlOzIyMTE4MDIyODtBUzoxMDQwMzQxNDA2ODgzODhAMTQwMTgxNTA4MDM5Mg==

costs. Another type of costs, monitoring costs, arethose costs incurred for supervising the agent.

Agency theory can be applied to IT outsourcing.Within this context, the service recipient acts as the

principal and the agent is represented by the serviceprovider. Given the existence of asymmetric

information and different risk perceptions, it isimportant to allocate clear decision rights, formulate

clear agreements on responsibilities and align goals[18]. Strategic alignment can help bridge the intrinsic

gap in interests between service providers andrecipients, while benefits management could shedlight on in cases of shirking or consumption on the

job, since it focuses on evaluations, of which it isstated in an early phase that these will be held.Secondly, strategic alignment and benefitsmanagement try to provide a clear allocation of

responsibilities and tasks.Essentially, IT outsourcing is a make or buy

decision. Therefore transaction costs occur. From a

transaction cost perspective, IT outsourcing creates amarket-contracting, inter-organizational relationship

between an external service provider and a servicerecipient. This requires the service recipient to incur

substantial costs for monitoring, negotiating andsupervising of the contractual parties. Transactioncosts increase through complexity, asset specificityand service provider presence [30].

There is no indication that asset specificity orservice provider presence are affected by eitherstrategic alignment or benefits management. Benefits

management is thought to influence complexityissues. An aspect of benefits management is that

changes (in the organisation of the service provider orservice recipient) as a result of the outsourcing project

must be based on actual benefits and businessrequirements. When applied to outsourcing contracts,this is expected to make formulating contracts andService Level Agreements (SLAs) more manageable,resulting in concise, concrete benefit driven contracts

and SLAs. These will help parties cope with businesscomplexity.

Social exchange theories use the concept of trustto explain interactions between participants. Both

parties in an exchange agree that the results of theexchange are greater than what could be attained

through other forms of exchange or other partners.The notion is that partners in an exchange relationshipshare certain risks and rewards which are reflected inthe agreement. Such a relationship is called apartnership [26].

Some buyer organizations might falsely believethat they share risks and rewards with the service

provider organization. When there is no structuralimplicit risk and reward mechanism, calling a

relationship a partnership alone will not improveoutcomes [13, 26]. Lacity and Willcocks [16] add that

alliances between strong and weak organizations donot work. Rothery and Robertson [26] indicate that a

contract with ambiguously defined clauses issometimes referred to by the participating

organizations as a strategic alliance. However, thereare no shared risks, no shared rewards and no

synergies. Obviously, these so-called strategicalliances do not work, because they create a clash of

interests. Explicit clauses in the contract and specificcontrols are necessary to reduce conflicts. A vaguecontract is sometimes called a strategic alliance, even

if essential components are missing [13]. Benefitsmanagement can be an aid for service recipients tostay focussed on benefits achievement and not (only)on implementing the IT outsourcing process. Strategic

alignment could help IT and the business understandeach other better, reducing the need or temptation ofdesigning vague contracts.

3. Strategic alignment in outsourcing

IT is evolving from its traditional administrative roleto a more strategic role in the organization. According

to the IT Governance Institute (IGTI et al., 2004),more than 93 percent of business leaders recognizethat IT is important for delivering the organization’sstrategy. This can be done through strategicalignment; ‘applying Information Technology (IT) in

an appropriate and timely way, in harmony withbusiness strategies, goals and needs’ [20]. Henderson

and Venkatraman [9, 10] provide guidance formanaging strategic alignment by supplying an

organizational framework. Because strategy iscomposed of both formulation and implementation,

strategic alignment is a process of continuousadoption and change. As Henderson and Venkatramanstate, ‘no single IT application [..] could deliver asustained competitive advantage. Rather, thisadvantage is obtained through the capability of an

organization to exploit IT functionality on acontinuous basis’. Any strategy needs to consider

both the internal and external dimensions, the so-called strategic fit. Secondly management needs to

understand the architectural choices in IT as well asthe way by which IT managers understand where andhow IT can make a difference in the business. This is

known in the literature as functional integration.To effectively manage the organization, strategic

fit, functional integration and cross-domainalignments are essential [9, 10]. Although strategic

alignment is usually the terrain of intra-organizationalmanagement, IT outsourcing alters this. It intrinsically

introduces third-party managers and employees of a


2Proceedings of the 40th Annual Hawaii International Conference on System Sciences (HICSS'07)0-7695-2755-8/07 $20.00 © 2007

service provider, making relations inter-organizational. As a result, strategic alignment

becomes harder to achieve and control, taking moretime and energy to arrange satisfactory. IT is

(partially) at an arms length distance, and involvesmore people. The distance and larger number of

people involved require better and more structuredmanagement.

The IT strategy of the service recipient should fitwith the modes of operation (information technology)

of the service provider. The service recipient is forcedto consider the external implications for its IT strategyin IT outsourcing, especially regarding what a service

provider will be able to deliver. The service provideron its part requires in-depth knowledge of thebusiness of the service recipient [1] and of the ISarchitecture of the service recipient in order to ensure

a proper functional integration.

4. Benefits management in IT outsourcing

4.1. Benefits management models

Lin and Pervan [17] state three benefitsmanagement approaches: active benefits realization,

the DMR approach and the Cranfield process model.Key issue to the active benefits realization

approach is that the ‘principal stakeholders of theinformation system must be identified at the outset

and that they accept and agree on their continuousinvolvement’ [17]. Active benefits managementfocuses on assessing and managing potential benefitsarising from the use of IS/IT continuously [25].

The DMR approach can be summarized by stating

that views need to be extended ‘in the form of richerinvestment decision-making frameworks and a well

rounded focus on benefits’ [27]. An investment modelmust adress all benefits and the results [17] and must

include clearly mapped benefits, a logical chain ofpredictable outcomes, to intermediate benefits and final

benefits [17]. The DMR approach is an approachmostly developed in practice [8].

The third model is the Cranfield process model.The Cranfield process model has a clear stagedstructure [27] which aligns with a phased outsourcing

cycle described below.It is expected that no structural theoretical

approach will be found in the case studies. Since theliterature is most extensive on the Cranfield processmodel, we have distilled from Ward and Peppard [28]benefits management statements that can be applied tooutsourcing. According to L&P, ‘the process model of

benefits management developed by Cranfield researchprogram can be used as the basis for guidelines onbest practice in benefits management’.

4.2. IT outsourcing cycle

IT outsourcing theorists [1, 14, 15, 16, 17]distinguish six phases within IT outsourcing. The

preparation phase includes the executing of allactivities, resulting in a sound basis for makingdecisions on whether to start an IT outsourcingproject and how to organize it. The objective of thenext phase, service provider selection, is to identify

the best source for IT activities. In the third phase,contracting, negotiations are completed with the

service provider by establishing the contract and timeperiod for the IT outsourcing relationship. This is

followed by the transition phase, in which activitiesand processes are defined that will assist the transitionto the chosen solution and execute the actual

transition of IT to the service provider organization.The executing phase involves executing the service bya service provider. The two main objectives are toexecute the services agreed upon and to concretize the

intended benefits of both service provider and servicerecipient. Lastly, in the post-deal phase the service

recipient determines whether to extend the contractwith the current service provider, switch providers orbring the outsourced IT back in house.

4.3. The Cranfield process model applied tothe IT outsourcing cycle

In figure 1, the stages of the Cranfield process

model are depicted. For each stage, attention points ofbenefits management are discussed and applied to the

affected IT outsourcing cycle phases.

Figure 1. A process model for benefitsmanagement [28].

The first stage of the Cranfield process model,

identifying the target objectives, mainly affects thereflection, preparation and service provider selectionphases in the sourcing cycle. The benefits identified in



these phases need to be tested against the benefitdrivers. The Cranfield process model prescribes that

these benefits should be measurable. Next, it isdetermined which service provider can best deliver

the required benefits. It is useful to explicitly statewhy IT outsourcing is the right solution and which

benefits are expected. The anticipated benefits can beused in the preparation phase as a guide for the

Statement of Principles, the Request for Information,and in the service provider selection phase as

guidelines for the Request for Proposal.In the second stage, planning benefits realization,

explicit attention needs to be paid to the service

provider in the benefits delivery plan. It should beclear why a particular service provider is the bestchoice for delivering the anticipated benefits. A toolin this process is a benefit dependency network

(BDN). This is a cause-effect network which relatesto the business and organizational changes required torealize the intended benefits. The BDN ensures that

benefits are clearly defined by schematicallydisplaying the necessary changes and their reasons in

the business and information systems to accomplishsaid benefits. This tool should not only include

enabling changes, IS/IT enablers and businesschanges in the service recipient organization, but alsorequired changes in the organization of the serviceprovider. People are often opposed to change, and

changes are increasingly difficult to manage becauseIT outsourcing introduces more stakeholders.Therefore, explicit attention in the benefits delivery

plan should be given to change management. Theplanning benefits realization stage is mainly used in

the contracting phase and the implementation phase inthe outsourcing cycle. In the contracting phase, the

conclusions of the planning benefits realization stagecan be used in a migration/transition plan and inemployee plans. During the contractual phase, theresults could be used in the final migration/transitionplan and in the Documents concerning Agreements

and Procedures. Measurable benefits can also betranslated into SLA performance targets. The SLA

itself is formulated in the contracting phase of theoutsourcing cycle.

The execute benefits plan stage influences thetransition and executing phase in the sourcing

process. Progress in the transition is to be monitoredagainst the activities and deliverables of the benefitsplan. It is possible to identify new, unanticipatedbenefits during the transition and executing phase..This is consistent with the benefits plan stage. If this

is the case, the service organization and recipientorganization should decide on appropriate actions.

In the fourth stage of the process model the resultsare evaluated, and this overlaps with both the

executing phase and the post-deal phase of the IToutsourcing process. In both phases it is necessary to

learn whether anticipated benefits are achieved, orwhether they were overstated.

The objective of the fifth Cranfield process modelstage is to determine further possible improvements as

a result of outsourcing the IT function and itsassociated changes. This stage is cyclical as it should

be repeated continually in the executing phase. It canalso be used as a final review in the post-deal phase of

the sourcing process to determine whether to extendthe contract with the current service provider, changeproviders or bring the IT function back in-house.

5. Conceptual model

It is important that a conceptual model can be‘empirically tested, and provides some source of

explanation and prediction’ [2]. In this article,emphasis is on providing an explanation. Theconceptual model is depicted in figure 2 below.

Figure 2. Conceptual model.

According to Bacharach [2], propositions can beseen as a statement of relationship between

constructs. The propositions researched here are:strategic alignment influences the IT outsourcingsuccess (P1) and benefits management influences theIT outsourcing success (P2).

An outsourcing survey by PricewaterhouseCoopers[23] states that outcomes from IT outsourcing are, at

best, varied. However, the survey also indicated that29% of the respondents would expand their IToutsourcing activities. It is suggested that in addition

to the anticipated benefits, there are also unanticipatedbenefits realized. Therefore, we have included this

aspect as ‘achievement of unanticipated benefits’ inthe conceptual model as an aspect of outsourcing

success.Variables ‘may be viewed as an operational

configuration derived from a construct’ [2]. Wheneach variable is a valid description of the construct, itis possible for all variables together to measure a

construct.The method used to measure the degree of

strategic alignment is based on Luftmans’s AlignmentMaturity model [20]. In a structured survey issued to



participating organization, 39 statements (which arecalled attributes by Luftman) are used to determine

the level of strategic alignment. The statements areclassified in six categories (communication,

competency/value-measurements, governance,partnership, scope and architecture, and skills). Each

criterion is ranked on a five point scale, using thescores on the statements. The scale reaches from level

1 – initial/ad hoc-process to level 5 – optimizedprocess. Since a maturity level model is used,

reaching a certain level of maturity requires allstatements scoring at least this level [11].

Luftman [20] proposes the following procedure

for assessing maturity. For each statement, a team ofIT and business unit executives determine theorganization’s level of strategic maturity. Each of thesix criteria is found to be at either level one, two,

three, four, or five. The second step is that ‘anevaluation team converges on a single assessmentlevel for each of the six criteria’, [20]. The final step

is to consolidate the results to an overall strategicalignment maturity level of the organization.

The procedure used in this article differs slightlyform Luftman’s approach, since neither a team of IT

and business unit executives nor an evaluation teamhas been used. Instead an external observer fulfillsthis evaluative role. An advantage of this approach isthat the observer has a fresh, unbiased view on the

organization, however it is recognized that a teamapproach offers the possibility of revealing more in-depth knowledge. Step one is to determine the level of

maturity on each of the six criteria using the valuesassigned to the propositions in the survey, and the

next step is to converge the results to a single strategicalignment maturity level for the organization. It is

assumed that the level of maturity indicates the degreeof strategic alignment.

The approach for benefits management is similarto Lufman’s procedure but with 18 statements andwithout a maturity model, since no such framework is

available in the literature. It is assumed that the scoreson the statements indicate the degree of benefits

alignment. The statements used for benefitsmanagement are distilled from Ward and Peppard

[28]. The statements are not further classified incriteria and are displayed in table 1 below.

Table 1. Benefits management statements.1. The outsourcing decision is driven by the delivery of

benefits that improve business performance.

2. Benefits are quantifiable and a financial value is put onthem.

3. Defined benefits include value, attributes and measures,owners and risks.

4. Responsibility for outsourcing activities is explicitlyallocated to a person.

5. It is assessed how benefit interrelate.

6. KPIs are assigned to benefits.

7. A detailed benefit delivery plan is drawn up.

8. Interim targets and measurements are established toevaluate progress toward milestones.

9. The benefits delivery plan explicitly addresses thetransformation process.

10. A benefits dependency framework is in use.

11. A stakeholder analysis has been conduced to determinewho is involved in the changes resulting fromoutsourcing.

12. Continuous quality assurance is applied during theoutsourcing process.

13. In the execution or post-deal phase, an evaluation is aimedon the implementation process.

14. In the execution or post-deal phase, an evaluation is aimedon whether benefits are achieved.

15. Stakeholders are aware in the earliest stage of theoutsourcing process that evaluations will be conducted.

16. All stakeholders are involved in evaluations.

17. Investigations on what improvements are possible as aresult of outsourcing the IS/IT function and associatedchanges are conducted.

18. A formal benefits management approach is used.

Achieved benefits are assessed in two distinctways. Respondents were provided with a list of often

observed outsourcing benefits. They were required tojudge the importance of each anticipated benefit and

the degree to which it is achieved. Respondents werethen asked to state any achieved unanticipated

benefits. Benefits achieved is expressed as apercentage1, which indicates how many plannedbenefits are actually realized.

15-point Likert-type scales are used in the survey to assess theimportance of anticipated benefits, and the degree to which plannedbenefits are realized.

The actual calculation was as follows: per benefits category; theresults on the Likert scales of planned benefits actually achieved areadded and then divided by maximum score possible.

In the second part of the calculation, attention was given to thedegree to which a particular benefit planned was consideredimportant. When for instance a case respondent rates theimportance of realizing cost savings benefits as very important, andthis benefit is realized much less than planned, this benefit has aheavier weight in the calculated success score than another benefitthat was considered not very important, but realized exactly to plan.The scores from the Likert scales of the importance of benefitsanticipated (per benefit category) are multiplied with those of thescores from the Likert scales of the planned benefits achieved (perbenefit category). These results are added, and the resulting value isdivided by the sum of the scores of the Likert scales of theimportance of anticipated planned benefits.

Now the uncorrected success value from the previous step ismultiplied by the value obtained in this step, and divided by 3 (the‘as expected’ Likert value). Calculated success in terms of benefitsachievement is represented as a percentage.

A value of less than 100% means that not all benefits are actuallyachieved to plan. The calculation makes value above 100%possible. This would indicate that planned benefits are realizedbetter than expected.



Secondly, respondents were asked to judge towhich degree outsourcing benefits were realized

successfully using a 7-point scale. A distinction isthus made between calculated benefits achieved and

perceived benefits achieved.

6. Research strategy

Five different research strategies can be distinguished:

experiments, surveys, archival analysis, history andcase studies [24]. These strategies are not mutuallyexclusive. The choice for a strategy depends on the

form of the research question, the degree of controlthe researcher has over behavioral events and the

focus on contemporary or historical events [24].This article uses the case study approach, since

there is no control over behavioral events, the focus ison contemporary events and this method allows for

in-depth research.

7. Results

The organizations targeted were recommended bypartners and other senior employees at

PricewaterhouseCoopers. Based on their personalknowledge and experience on the respectitive

outsourcing relationships, they recommendedorganizations of which they expected that these couldtest the elements of the conceptual model.

Ten diverse organizations with ongoingoutsourcing relationships were targeted, of which six

(cases A - F) participated in the research.Industries include technology (3), consumer &

industrial products (2) and services (1). Therespondent either was an IT auditor, or the business

case owner of the ongoing IT outsourcing project.Table 2 displays the characteristics of the investigatedcases. Figure 3 graphically lists the identified

outsourcing types and is included for clarificationpurposes. Due to secrecy agreements, it is notpossible to include more information about the cases.Table 3 displays the scores on the aspects measured.

Figure 3. Types of outsourcing [11].

Table 2. Case characteristics.Case A B C

Industry Technology Consumer&industrialproducts

Technology

Sector Entertainment Electronics Consultancy

Approximate# employeesworldwide

4,500 170,0002 7,000

# sitesworldwide

12-14 >100 N/A

Revenues 770 32,000 20

% of IToutsourced

<20 50-80 <20

Contractvalue (€million)

0.15-1 >25 10-25

Outsourcingtype

Multi-sourcing Multi-sourcing

Traditional

Respondent BCO BCO InternalAuditor

Case D E F

Industry Technology Services Consumer& IndustrialProducts

Sector Communication Not forprofit

Retail

Approximate# employeesworldwide2

28,000 5,600 50,000

# sitesworldwide

N/A 139 980

Revenues 12,000 N/A 6,400

% of IToutsourced

<20 50-80 >80

Contractvalue (€million)

10-25 >25 >25

Outsourcingtype

Traditional Traditional Jointventure

Respondent InternalAuditor

BCO BCO

2 Fixed, hired unknown.



Table 3. Scores on the variables investigated.Case Average A B C

Level of SA percriterion

Communication 3.0 2.5 2.2 3.5

Competency/Valuemeasurement

3.4 3.1 3.3 3.5

Governance 2.9 2.9 2.4 4.0

Partnership 3.5 2.6 2.8 4.2

Scope/Architecture 3.6 4.2 3.4 3.8

Skills 2.9 3.0 2.5 3.3

Overall level of SA 3.2 3.0 2.5 3.3

Level of BM 3.0 2.9 1.7 3.3

Calculated success(benefits achieved, %)3

78 76 44 100

Perceived success(benefits achieved)4

4 4 2 6

Case Average D E F

Level of SA percriterion

Communication 3.0 3.2 3.2 3.5

Competency/Valuemeasurement

3.4 3.6 2.9 3.7

Governance 2.9 2.3 2.9 2.7

Partnership 3.5 3.4 3.8 4.2

Scope/Architecture 3.6 3.6 2.8 3.6

Skills 2.9 2.8 2.7 3.2

Overall level of SA 3.2 3.2 3.0 3.5

Level of BM 3.0 3.4 2.3 4.1

Calculated success(benefits achieved, %)

78 70 77 100

Perceived success(benefits achieved)

4 4 4 4

8. Discussion

For all cases, the degree of perceived and

calculated success in terms of benefits achievement isplotted as a function of strategic alignment.Calculated success determines whether a subjectivejudgment; ‘are you satisfied in terms of benefitsachievement with your IT outsourcing success?’

corresponds to the calculated method of determiningsuccess5. Figure 4 shows the relation between

calculated and perceived success. It supports theassumption of a correlation between calculatedsuccess and perceived success.

3100% indicates that all anticipated benefits are realized to plan.

< 100% indicates that not all benefits are realized to plan.> 100% indicates that results exceeded planned benefits.4 On a scale where 1 = very unsuccessful and 7 = very successful.5Calculated success percentage multiplied by 7.

0

1

2

3

4

5

6

7

2 3 4 5 6 7 8

Calculated success

Per

ceiv

edsu

cces

s

Figure 4. Possible correlation betweencalculated and perceived IT outsourcing

success5.

In the conceptual model, anticipated andunanticipated benefits are seen as separate

outsourcing success aspects. However, in the casesinvestigated, the respondents have not observed any

unanticipated benefits. Notwithstanding, we expectthat unanticipated benefits are an issue in some IToutsourcing relationships, since research suggests that

planning benefits could be improved.

0

1

2

3

4

5

6

7

8

2 2,5 3 3,5 4 4,5

Level of Strategic Alignment

Su

cces

s(b

en

efi

tsac

hie

ved

)

Perceived

Calculated

Figure 5. Perceived and calculated IToutsourcing success as a function of

strategic alignment.

Figure 5 supports a possible correlation betweenthe observed levels of strategic alignment and successin terms of benefits achievement, calculated andperceived success. Perceived success shows

similarities to calculated success, except in one casestudy where the calculated success was significantly

higher than the perceived success. Other factors couldhave influenced perceived success in this case study.However, since this was beyond the scope of the

research, it was not further investigated.In figure 6, the success in terms of benefits

realization as a function of benefits management isplotted.



0

1

2

3

4

5

6

7

8

0 1 2 3 4

Level of Benefits Management

Succ

ess

(ben

efits

achie

ved

)

Perceived

Calculated

Figure 6. Perceived and calculated IToutsourcing success as a function of benefits

management.

In general, calculated success in terms of benefits

achieved is higher in the case studies with a higherlevel of benefits management. Perceived successforms an exception; it does not keep pace withcalculated success. This is remarkable since bothsuccesses measure benefits realization. Apparently

respondents do take into account other factors whenjudging perceived success in terms of benefits

achieved. An explanation could be that in none of thecase studies the benefits planned are exceeded. We

expect that only then respondents would cross ‘verysatisfied’ in the survey, however it is beyond thescope of this article to investigate further.

The degree to which there is strategic alignmentand benefits management in the case studies is plottedin figure 7. The width of a dot represents the amountof perceived success in terms of benefits achievement;

the number next to a dot displays the actual value,with a range from 1 (very unsuccessful) to 7 (very

successful).

2

4

4

4

4

6

0

1

2

3

4

5

2 2,5 3 3,5 4


Lev

el

of

Ben

efit

sM

an

am

en

t

Figure 7. Perceived IT outsourcing successas a function of strategic alignment and

benefits management.

Organizations with a higher level of strategic

alignment and a higher level of benefits managementreported more IT outsourcing success in terms ofbenefits achievement. This corresponds to the patterns

observed in figures 5 and 6. The more successfulorganizations (calculated success over 70%) have an

average benefits management level of 3.2 while theless successful case studies average only 1.7.

When a higher level of strategic alignment isobserved, there is a higher level of benefits

management and vice versa. An explanation could bethat organizations who pay attention to strategic

alignment also implement practices from benefitsmanagement, since they are aware of the importance

of a structured approach for managing IT outsourcingrelationships. Another possibility is that practicesfrom strategic alignment or benefits management are

addressed without conscious attention to theseconcepts. The result as shown in the above figure, arethe same since there is some overlap in concepts formstrategic alignment and benefits management. This

explanation is partly based on the survey question onwhether a formal benefits management approach wasin use, which none of the respondents answered

affirmative. Without a formal approach, it is not clearwhat practices actually belong to benefits

management.Figure 8 is similar to figure 7, but shows the

success in terms of calculated achieved benefits, asopposed to perceived benefits. Again, the dot widthincreases with perceived success. This figure testswhether the perceived (subjective) success in terms of

benefits achieved matches the more objectivecalculated actual success. Calculated success ismeasured as a percentage: a value of 100% indicates

that all anticipated benefits were realized to plan. Alower percentage means that not all benefits were

realized and a higher percentage indicates that betterthan planned results were achieved. The percentage is

corrected for the degree to which the benefitsachieved were considered important by the respectiverespondents.

100,00%

76,95%

70,41%

75,86%100,00%

43,46%

0

1

2

3

4

5

2 2,5 3 3,5 4


Lev

elof

Ben

efit

sM

anag

emen

t

Figure 8. Calculated success in terms ofbenefits achievement.

Calculated and perceived success match

reasonably, as was expected already from figures 4, 5and 6. Secondly, it is observed that expectations were



never exceeded in terms of benefits achievement. Itshould be noted that when expectations are exceeded

this can be very convenient for the organizationsinvolved, but their planning could also have been

inaccurate. Causes could be external, unknownfactors, or internal factors that should have been

included in the planning.Generally, in case studies with a higher level of

strategic alignment and a higher level of benefitsmanagement, more benefits are achieved. It remains

to be seen whether successful organizations have adifferent benefit expectation pattern than the lesssuccessful case studies. However, the survey data do

not indicate that this is the case, as there seems to beno distinguishable pattern in the planned benefits.

Figure 9 below shows the degree to which benefitsmanagement is used in all cases. It is clear that the

least successful case has a significantly lower use ofstatements from benefits management.

0 1 2 3 4 5

A

B

C

D

E

F

Cas

e

Level of Benefits Management

Figure 9. Observed levels of benefitsmanagement.

The diagram clearly shows that case study B lags

behind in terms of implemented guidelines of benefitsmanagement. Based on the survey results, theorganisations mainly deficits lie in the areas of

quantifying benefits in a financial context, assessinghow benefits are interrelated and the absence of abenefit delivery plan. The research also indicates thatB lacks transition planning, stakeholder analysis and

timely communications about evaluations. Case studyE also has a somewhat below average benefits

management level. The results indicate this is mainlydue to not explicitly allocating responsibility, theslightly vague definition of benefits, not assessing

how these interrelate, the absence of interim targetsand the absence of a benefits delivery plan.

Ward et al. [29] indicate that 45% of theorganizations overestimate their benefits to gainapproval for an investment. In only one of the sixinvestigated cases it was clear in a very early stage

that evaluations would be held, and in all but one casestudy, the emphasis was on the implementationtrajectory and not on the achievement of benefits.

Finally, in none of the case studies all stakeholderswere involved in the evaluations.

9. Implications & conclusion

The case studies investigated support theconclusion that a higher level of strategic alignment

and benefits management is coupled with increased IToutsourcing success in terms of benefits

achievements.A limitation of this explanatory study is that is

external validity is not addressed extensively. The

research findings are drawn from six largeorganizations. This does not allow for statistical

testing of propositions. Our intention was to explorethe relation between outsourcing success, benefitsmanagement and strategic alignment, and not togeneralize the practices. Future research could focus

on the statistical validation of the conceptualframework and underlying propositions.

The organizations investigated have no clear focuson benefits management in the sense that in none ofthe case studies a formal benefits management

approach was used. However, organizations havedeveloped a management practice that can be

characterized as such. This practice corresponds to theformal benefits management criteria, but isunplanned. We recommend the use of a planned andformal approach to ensure a more structured benefitsmanagement. This reduces the risk of neglecting or

failing to implement important aspects. An aspect thatreceives little attention is a benefit delivery plan,

especially in connection with the use of a benefitdependency network. With this tool quantifiable

benefits could be defined, together with their businessdrivers. It gives insight into how benefits interrelate,

and what changes are necessary to achieve aparticular benefit. None of the cases studied uses thebenefit dependency network, which could be avaluable tool during the contracting andimplementation stage in the sourcing cycle.

Outsourcing fits in neo-classical economictheories. Agency theory, transaction cost theory and

social exchange theories support a need for benefitsmanagement and strategic alignment. In agency

theory, the intrinsic conflict of interests can bemanaged using strategic alignment concepts, andcomplexity-based uncertainty can be decreased by

using detailed agreements based on actual businessrequirements. Benefits management assists inrealizing these requirements.



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