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Risks, Benefits, and Challenges in Global IT Outsourcing: Perspectives and Practices.

Journal of Global Information Management

July 2006
14(3):59-89

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DBLP

Authors:

Subhankar Dhar

San Jose State University

Bindu Balakrishnan

TRECSTEP

In the last few years, Web-based surveys have received increased attention given their potential to cut the costs and time associated with paper-based surveys. In this exploratory study, we consider the feasibility of using the Web as a data collection medium in China, which has a current Internet population of 103 million. Following a review of the literature regarding the design, implementation, and application of Web surveys, and the current state of data collection in developing countries in general and China in particular, we describe how we developed a Web-based survey instrument focusing on the ethical values of IT professionals. We e-mailed 5,000 IT professionals in China, inviting them to participate in the survey. Thirty-seven percent of those contacted visited the Web site and 5.8% submitted the survey. The survey data, both qualitative and quantitative, is analysed and discussed with a view to drawing up instructive guidance for researchers interested to use the Web as a data collection tool in China, as well as developing countries more generally. The Web-based survey has great potential in these contexts, if sensitively designed and implemented. We consider the implications of this research and identify areas where future research is necessary.

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Journal of Global Information Management, 14(3), 39-69, July-September 2006 39

Risks, Benefits, and Challenges

in Global IT Outsourcing:

Perspectives and Practices

Subhankar Dhar, San Jose State University, USA

Bindu Balakrishnan, San Jose State University, USA

ABSTRACT

Many large organizations are increasingly outsourcing their IT functions. Factors like lower

costs, improved productivity, higher quality, higher customer satisfaction, and ability to focus

on core areas are some of the benefits of outsourcing. However, there are many challenges and

risks associated with IT outsourcing. In this article, we identify the main risk factors and best

practices in global IT outsourcing. In addition, we delve into some important issues on IT

outsourcing, particularly the challenges along with benefits. Finally, we present case studies

of two Global 200 organizations and validate some of the claims made by previous researchers

on IT outsourcing. This study will help the management to identify the risk factors and take the

necessary remedial steps. Hence, this study is timely and relevant from both an academic and a

practitioner’s perspective.

Keywords: benefits; global outsourcing; risks; transaction cost theory

INTRODUCTION

In today’s global economy, outsourcing

has become a very common phenomenon.

Many large organizations have outsourced

some or all of their IT functions. Factors like

lower costs, improved productivity, higher qual-

ity, higher customer satisfaction, time to mar-

ket, and ability to focus on core areas are some

of the benefits of outsourcing. However, there

are many challenges and risks associated with

IT outsourcing (Adeleye, Annansingh, &

Nunes, 2004; Alvares et al., 1995; Bahli &

Rivard, 2003; Beamish, Marcolin, & Mclellan,

1995; Cross, 1995; Dibbern & Goles, 2004;

Feeny, Lacity, & Willcocks, 1995; Lacity &

Willcocks; 1995, Lee, Huynh, Kwok, & Pi, 2003;

Nam, Rajagopalan., Rao, & Chaudhury, 1996;

Rothman, 2003; Sabherwal, 2003).

IT Outsourcing is as an act of delegating

or transferring some or all of the IT related deci-

sion making rights, business processes, inter-

nal activities, and services to external provid-

ers, who develop, manage, and administer these

activities in accordance with agreed upon

deliverables, performance standards and out-

puts, as set forth in the contractual agreement

(Dhar, Gangurde, & Sridar, 2004).

Whenever, there is an outsourcing deci-

sion, there is an inherent risk associated with it.

In addition, in any outsourcing deal, there are

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40 Journal of Global Information Management, 14(3), 39-69, July-September 2006

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some hidden costs, unexpected outcomes, di-

minishing service levels, to name a few

(Antonucci, Lordi, & Tucker, 1998; Aubert,

Patry, Rivard, & Smith, 2001; Clark, McCray, &

Zmud, 1995; Earl, 1996; King & Malhotra, 2000;

Lacity & Hirschheim, 1993).

There are four major aspects of the pro-

posed research that are summarized by the fol-

lowing questions:

1. What are the objectives for outsourcing?

2. What are the major factors that contribute

to risk in global offshore IT outsourcing?

How do we minimize the risk in IT

outsourcing projects?

3. What are best practices for outsourcing?

4. How do we validate some of the assump-

tions made by prior research?

Although there are quite a number of

studies that address the risk factors and hid-

den costs in outsourcing, we found out that

there is no single study that takes a compre-

hensive approach in analyzing the issues like

risks, benefits, challenges, and best practices

in the context of global outsourcing. In addi-

tion, many of the important risk factors are not

properly analyzed that are quite important to

global outsourcing. Of particular interest to us

are the effects of risk assessment factors like

geographical location, political, cultural, qual-

ity standards, legal contracts, and intellectual

property as many of these are not well studied

and well documented before. These are some

of the motivating factors behind this study

where we address not only the risks and ben-

efits but also the challenges and best practices

along with two case studies and validate some

of the claims made by previous researchers on

IT outsourcing. Hence, this research fills the

gap in the current literature with regards to risk

assessment factors in offshore outsourcing in

a global context.

This article presents case studies of two

Global 200 organizations and validates some of

the claims made by previous research on IT

outsourcing. Our main contribution in this ar-

ticle is to identify sixteen different risk assess-

ment factors that are quite sensitive to global

IT outsourcing. In addition, we also analyzed

two large organizations (FIRM-1 and FIRM-2)

that are currently outsourcing their IT func-

tions and identify the objectives, key benefits,

important risk factors, challenges, and best prac-

tices. We also found how Transaction Cost

Theory has played an important factor in the

decision making process for outsourcing. This

research is unique in the sense that it analyzes

two multinational organizations FIRM -1 and

FIRM-2 that are involved in outsourcing for

quite sometime and the outsourcing work is

done on remote offshore locations in India,

China and some other countries in Asia. So this

study is truly global in nature as both the orga-

nizations conduct business in various parts of

the world including the Americas, Europe, Asia,

and Australia and in some parts of Africa. In

addition, FIRM-1 is one of the suppliers of

FIRM-2. Thus both organizations have com-

mon goals of making their global supply chain

successful, and maximizing the overall profit-

ability. Finally, we do a comparison of each of

these factors for both the organizations. Hence,

this study is timely and relevant from both an

academic and a practitioner’s perspective.

THEORETICAL CONCEPTS

BEHIND OUTSOURCING

There are various theoretical justifica-

tions for outsourcing. The most popular ones

are Transaction Cost Theory (TCT) (Ang &

Straub, 1998; Williamson, 1985), Agency theory

(Bahli & Rivert, 2003) and Coordination theory

(Sabherwal, 2003) to name a few. We have cho-

sen TCT over other theories in this research

because a careful analysis of the two cases re-

vealed that TCT was the basis for their

outsourcing decision.

Transactional Cost Theory

A goal of the organizations is to reduce

cost and to achieve cost efficiency (Aubert et

al., 2001; Diromualdo & Gurbaxani, 1998). Keep-

ing that in mind, Williamson developed the

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Journal of Global Information Management, 14(3), 39-69, July-September 2006 41

Transaction Cost Theory (TCT). Transaction

costs are related to the effort, time, and costs

associated with searching, creating, negotiat-

ing, monitoring, and enforcing a service con-

tract between buyers and suppliers. As per

Williamson, there are two types of costs in-

volved for any service–production costs, and

coordination cost. Production cost is the cost

incurred to make the product or to provide the

service. It includes the cost of labor, material,

and capital. Coordination costs include moni-

toring, controlling and managing the work in-

ternally. If the job is handed over to external

vendor, the coordination costs are called trans-

action costs. As per Williamson (1985) transac-

tion cost theory depends on the following pa-

rameters:

1. Costs: There are two types of costs associ-

ated with any service or product:

•Production cost

•Transaction cost

Williamson argues externally outsourcing

of work results in lower production costs than

doing it internally due to economies of scale.

But in such a case the transaction cost is high

because vendors need to be managed and moni-

tored. In an in-house arrangement, production

cost is high because it is difficult to achieve

economies of scale. But at the same time, the

transaction cost is low because of low coordi-

nation costs.

2. Asset specificity: It is defined as the degree

of customization of the transaction. It could

be site specificity, physical asset specific-

ity, or human asset specificity. High asset

specificity results in high transaction. Also

the production cost goes up with high asset

specificity because specific assets have lim-

ited utility in other markets (Hirschheim &

Lacity, 1993).

3. Opportunism threat: When the work is

given to an external vendor, coordination

costs increase because quite possibly the

vendor may be opportunistic. Hence, man-

aging and monitoring the vendor becomes

more difficult. But when the work is done

internally coordination costs are low be-

cause the workers may be less opportunis-

tic. Vendors also become opportunistic when

there is competition in the market, and when

there are a less number of vendors

(Hirschheim & Lacity, 1993). When there are

only few vendors in the market, organiza-

tions looking for such vendors cannot bar-

gain much. Organization may not save much

by outsourcing because the vendor may

charge excess or may not perform as prom-

ised. All these lead to high transaction cost.

4. Uncertainty: Williamson outlines that un-

certainty increases the transaction cost.

Transaction cost goes up especially for as-

set-specific investments, under uncertain

conditions (Hirschheim & Lacity, 1993).

Thus, all these parameters should be

weighed well to make a decision. A detailed

analysis and trade-off study should be carried

out before making an outsourcing decision.

RISK DEFINED

Risk and risk management have been

widely studied in various contexts, such as Fi-

nance, Economics, Insurance, Healthcare, Op-

erations Research, and Engineering. Each dis-

cipline has its own way of analyzing and inter-

preting risks. This section elaborates the main

issues of risks and presents our perspectives

on issues related to risks.

Risk as an undesirable event. Accord-

ing to Levine and Schneider (1997, p. 38), risk is

“…events that, if they occur, represent a mate-

rial threat to an entity’s fortune.” Using this

approach, risk can be interpreted as occurrence

of undesirable events.

a. Risk as a probability function: In some dis-

ciplines, risk is defined as the probability of

an event. It is the chance of serious adverse

outcome (Bahli & Rivard, 2003).

42 Journal of Global Information Management, 14(3), 39-69, July-September 2006

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Table 1. IT outsourcing risk exposure

Undesirable outcomes Factors leading to outcome

Unexpected transition and

management costs (Cross,

1995; Earl, 1996; Nelson

et al., 1996)

• Lack of experience and expertise to the client with the activity (Earl, 1996

;

Lacity et al., 1995)

• Lack of experience of the client with outsourcing (Earl, 1996)

• Uncertainty about the legal environment

Switching costs (including

lock-in, and repatriation

and transfer to another

supplier) (O’Leary, 1990)

• Asset specificity (Williamson, 1985)

• Small number of suppliers (Nam et al., 1996)

• Scope

• Interdependence of activities

Costly contractual

amendments (Earl, 1996)

• Uncertainty (Alchian & Demsetz, 1972; Barzel, 1982)

• Technological Discontinuity (Lacity et al., 1995)

• Task complexity

Disputes and litigation

(Aubert et al., 1997;

Lacity & Hirschheim,

1993)

• Measurement problems (Alchian & Demsetz, 1972; Barzel, 1982)

• Lack of experience and expertise of the client and/or of the supplier with

outsourcing contracts (Earl, 1996; Lacity et al., 1995)

• Uncertainty about the legal environment

• Poor cultural fit

Service debasement

(Lacity & Hirschheim,

1993)

• Interdependence of activities (Aubert et al., 1997; Langonis & Robertson

1992)

• Lack of experience and expertise of the supplier with activity (Earl , 1996)

• Supplier size (Earl, 1996)

• Supplier financial stability (Earl, 1996)

• Measurement problems (Alchian & Demsetz, 1972; Barzel, 1982)

• Task Complexity

Cost escalation (Lacity &

Hirschheim, 1993; Lacity

et al., 1995)

• Lack of experience and expertise of the client with contract managemen

(Earl, 1996; Lacity et al., 1995)

• Measurement problems (Alchian & Demsetz, 1972; Barzel, 1982)

• Lack of experience and expertise of the supplier with activity (Earl , 1996)

Loss of organizational

competencies (Earl, 1996;

Lacity et al., 1995)

• Scope

• Proximity of the core competencies (Hamel and Prahalad, 1990)

• Interdependence of activities

Hidden service costs

(Lacity & Hirschheim,

1993)

• Complexity of the activities

• Measurement problems (Alchian & Demsetz, 1972)

• Uncertainty (Barzel, 1982)

Cost of delayed delivery /

non-delivery • Vendor fails to deliver as per contract (Bahli & Rivard, 2003)

• Delayed delivery due to unexpected change in the requirements

Poor quality and

reliability

• Inability to control vendor’s technical quality (Sabherwal, 2003)

• Loss of control over vendor’s technical quality

Damages due to security

breach

• Security requirements practices (Adeleye et al., 2004)

• Intellectual property protection

• Privacy concerns

Loss due to disasters and

recovery costs

• Loss of control over disaster recovery (Dibbern & Goles, 2004)

• Loss of data and information

Loss due to vendor’s

opportunism, including

loss in future revenue

• Vendor becomes competitor

• Vendor takes advantages of contractual gap and charges additional amount fo

services (Wang, 2002)

Vendor lock-in • Long term contractual agreement (Dibbern & Goles, 2004)

• Few vendors leads to limited options (Bahli & Rivard, 2003)

Lack of trust • Uncertainty (Barzel, 1982; Wang, 2002; Adeleye et al., 2004)

Business uncertainties • Uncertainty (Barzel, 1982; Dibbern & Goles, 2004)

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Journal of Global Information Management, 14(3), 39-69, July-September 2006 43

b. Risk as a variance: In finance, risk is calcu-

lated as the variance of the distribution of

outcomes.

c. Risk as expected loss: In some disciplines

such as casualty insurance, risk is inter-

preted as expected loss, which is the prod-

uct of a loss function and a probability func-

tion (Bowers, Gerber, Hickman, Jones, &

Nesbit, 1986).

RISK FACTORS

Many researchers have studied the risk

factors that are common in IT outsourcing

(Dhar et al., 2004; Earl, 1996; Jurison, 1995;

Overby, 2003). We summarize their work on risk

factors.

We found some studies have addressed

many risks factors associated with IT

outsourcing. We decided to focus specifically

on risk factors that are quite common, impor-

tant and sensitive to global IT outsourcing, and

later validate those using case studies. Of par-

ticular interest to us are the effects of risk fac-

tors like geographical location, political, cul-

tural, quality standards, legal contracts and in-

tellectual property, etc. The important risk fac-

tors for our study are summarized as shown in

Table 2.

RESEARCH METHOD

In order to investigate our research prob-

lems, we did a thorough analysis of two large

organizations who are involved in outsourcing.

We have chosen these two organizations for

various reasons. Both organizations are doing

IT outsourcing globally for several years. In

fact, outsourcing has become a part of their

business strategy. Their experience in dealing

with offshore vendors coupled with efficient

project management expertise helped them co-

ordinate business processes over globally dis-

tributed teams. In addition, they had already

dealt with multi-cultural teams, diverse geo-

graphic and political environment, varying qual-

ity, and intellectual property standards in dif-

ferent countries to name a few. Hence we came

to the conclusion that these two organizations

are good candidates for our research studies.

We conducted in-depth interviews with key per-

sonnel who were carefully chosen based on their

roles, responsibilities, and experience in dealing

with outsourcing projects. Although we inter-

viewed a handful of people, they actually repre-

sent a large division within their organizations

and are actively involved in the outsourcing

strategy for their respective organizations.

Hence, the data we collected is reliable and truly

represent the outsourcing process of their orga-

nizations. Our approach is based on positivist

case research as proposed in the case research

literature (Dube & Pare, 2003) where we focus

on qualitative analysis of the results rather than

rigorous quantitative and analytical methods.

The data have been collected during the year

2003. In order to gain insightful information and

perspectives on offshore outsourcing, respon-

dents were given a detailed questionnaire to

collect data and outsourcing related information.

The participants were assured confidentiality of

their personal and organizational information.

We analyzed the data by summarizing the

interviews and questionnaire filled by each par-

ticipant from each case. After analyzing the re-

sponses from each participant, we again con-

tacted them if necessary for further clarifica-

tion and explanation. This process of analysis

clarified lots of complex issues that they had to

deal with and helped us gain further insights in

outsourcing. These case studies also reflect

the global nature of outsourcing as some of the

projects were done offshore. Hence, we tried to

capture the global perspective and practices of

outsourcing when we developed the cases. In

addition, we tried to understand the theoretical

perspectives and arguments that each partici-

pant put forward in the decision making pro-

cess. In order to provide deeper insight into

our qualitative analysis, we also included some

comments from participants. We also did a com-

parison of the objectives, key benefits, major

risk factors, challenges, and best practices for

the two cases and explained their implications

from Transaction Cost Theory.

44 Journal of Global Information Management, 14(3), 39-69, July-September 2006

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Table 2. Risk assessment factors

Risk

assessment

factor

Description Implications for Global

Outsourcing

People The people risk emerges from the experience level, training, and

human resource deployment policies of the vendor. In addition

redeployment of existing IT staff of the customer is also a risk

assessment factor (Gilbert, 2001).

Globally distributed teams with

different skills and experience

contribute to risk

Knowledge

(Functional,

Technological,

Managerial)

Functional knowledge is the expertise, understanding, and

experiences in the given functional area of the activity

Technological knowledge is associated with the expertise in th

areas technology selection, analysis, architecture, design

development, integration, and maintenance support. Manageria

knowledge is associated with the project management, risk

management, resource management, developing and

administrating management processes to carry out the activities

The level of functional,

technological, and managerial

knowledge contributes to risk in

offshore outsourcing.

Managerial knowledge is

extremely important in a global

context.

Cultural

Cultural risks arise from the dominant culture prevalent with th

vendor. The attitudes, communication skills, language, selection

policies, performance motivation, team spirit, level o

cohesiveness, autonomy, participatory decision making, work

ethics, management style, customer-orientation, and related

organizational behavioral factors that shape the culture.

Country specific cultures can add

risk in global outsourcing

Language and work ethics vary

from country to country and tha

may contribute to risk.

Political

Political risks arise out of trading restrictions imposed by the

sovereign, permissible ownership rights, nationalistic

aspirations, type of government, and political and economica

stability.

Political instability is a majo

concern for global outsourcing a

the government rules and

regulations may have adverse

effect on outsourcing.

Financial

Financial risks arise out of project accounting standards, cash

flow, asset base, and currency stability.

Accounting standards and

variation in currency exchange

rate contribute to risk.

Quality

Standards

Software Capability Maturity Model (CMM) and ISO 9000

compliance are hallmarks of the quality standards. The ability to

prepare test plans, and performance standards are seen

favorably while assessing the risks due to quality standards.

Quality standards vary from one

country to another and contribute

to risk.

Measurement Performance measurement standards, benchmarking, and

assurance of the performance are key elements in evaluating

measurement risks.

Performance measuremen

standards vary from country to

country which contributes to

risk.

Scope, Cost, and

Time Estimates

Ability to formulate the scope of the project, accurate cost and

time estimation poses the risk.

It is quite difficult to accurately

determine scope, cost, and time

estimates in global outsourcing

This contributes to risk.

Company

Specific Risks

Company specific risks are largely due to outsourcer’

financial strength, area of core competence, management

relationships and alliances with other major organizations, and

(potential) acquisitions and mergers activities.

Different companies in foreign

countries have differen

management and core

competencies. Those contribut

to risk.

Legal Contracts

and Intellectual

Property

Intellectual property rights and their legal status in the country

brand protection, contractual bindings, and arbitration policie

of the outsourcer constitute the risk.

IP standards and law vary from

one country to another and

contribute to risk.

Security

Access control, authentication, usage of secure protocols

encryption, and security policies adopted by the outsource

constitute the risk.

Security is also a major concern

in global outsourcing a

protection and control of data

pose a problem.

Disaster

Recovery

Ability to protect software code, and related data, level o

replication, redundancy, and back-up and recovery policies are

the main factors in deciding the risks due to disasters.

Loss of control over disaste

recovery contribute to risk.

Contract

Management

Contract management involves formulating contracts, schedul

planning, activity planning, sending and accepting deliveries

dispute resolution, and signing off. Inability to properly

formulate or execute the contracts constitutes the risk.

Contract management in globa

outsourcing is a risky business a

monitoring the project activitie

become a challenge.

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 45

CASE STUDY FORMAT

In order to understand the objectives,

benefits, risks, challenges and best practices

of outsourcing, case studies were done for two

Global 200 organizations. All the participants

joining discussions were involved in

outsourcing projects and helped developing

the case studies. We conducted a focus group

survey of information technology executives

and managers from both organizations who

were involved in outsourcing information tech-

nology projects. Survey participants answered

a detailed questionnaire, followed by an inter-

view. The participants were offered choice to

mention any other objectives, benefits, best

practices, risk assessment factors not listed in

the questionnaire. The participants were as-

sured confidentiality of their personal, organi-

zational, and professional role information. The

participant also shared their own experience in

dealing with outsourcing projects and gave us

valuable information about some of the best

practices and challenges.

Each case has the following four sections:

1. Background: The background section pro-

vides a brief description of the organization

studied.

2. Introduction: The purpose of the introduc-

tion section is to introduce the individuals,

from each organization, who participated in

the study. These individuals were actively

involved in outsourcing decisions of the

firms.

3. Outsourcing decision: This section outlines

the motivations, challenges, risks, and ben-

efits associated with outsourcing decisions

that each of these organizations faced.

4. Case conclusion: The purpose of case study

conclusion is to summarize the interview re-

sults. It also highlights some deviations in

the ratings by the participants of both the

firms.

Anonymity: Anonymity was deemed nec-

essary to protect the identities of all the partici-

pants as well as the name of the organization.

Both the organizations are referred to as “FIRM-

1” and “FIRM-2.” As per the requests of the

participants, the names of the outsourcing part-

ners are also kept confidential.

CASE STUDY: FIRM-1

Background

FIRM-1 is a large multi-national organi-

zation with more than 20,000 employees and

Risk

assessment

factor

Description Implications for Global

Outsourcing

Relationships &

Alliances

Ability to formulate customer-vendor interface at executive and

working levels, customer relationship management, and

developing long term alliances offers synergy at organizationa

level.

Inability to manage relationship

and alliances constitutes the risk

in global outsourcing.

Geographic

Location

The country, province, and city may be in different time zones

which require working at odd hours for the customer o

outsourcer. The communication infrastructure, distance

industrial peace and stability in the region, availability o

supporting infrastructure, social-economical-political stability

constitutes the risk.

Vendor’s geographic location

poses some risks

Communication infrastructure

failure in offshore projects incur

significant loss.

Multi-vendor

Arrangements

Synchronization of development efforts, data format exchang

standardizations, complexities due to multi-layer architectur

dependencies or non-contagious independent parts constitut

the risk with ability to work with multi-vendor arrangements.

In global outsourcing with multi

vendor arrangements

coordination has to be efficient

Otherwise execution becomes a

problem and contributes to risk.

Table 2. Risk assessment factors (cont.)

46 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

100 offices worldwide. It wants to be the lead-

ing provider of semiconductor-based solutions

for consumer and communications applications

and medical systems. It has annual revenue of

approximately US$5-10 billion. It is one of the

world’s top semiconductor suppliers, with

manufacturing facilities and partners in diverse

geographic areas. It has 14 manufacturing and

assembly sites, 20 design centers, four system

labs, and more than 100 offices. The manufac-

turing facilities are located in the USA, the Far

East, and Europe serving customers worldwide.

It also participates in its customers’ business-

to-business supply chain extranet. This enables

FIRM-1 to get a visibility of demand for the

customer’s products, which in turn drives

FIRM-1’s production plan.

FIRM-1 believes that delivering these

services and applications depends on the right

business model, the right partners, and the right

technologies. FIRM-1 is dedicated to semicon-

ductor and related technologies and is customer

focused. FIRM-1 provides its partners with

scalable, versatile technologies and a world-

wide manufacturing base.

Introduction

Three individuals from FIRM-1 were in-

terviewed. Due to anonymity reasons, their

names are not disclosed; they are referred to as

“Person 1,” “Person 2,” and “Person 3.” The

names of the outsourcing partners are also kept

confidential.

Outsourcing Decision

FIRM-1’s management believes that if a

business function is not its core competency,

and better value is found externally, it is an ideal

candidate for outsourcing. The core compe-

tency of FIRM-1 is semiconductor technology,

and related R&D activities, which are kept in-

house. Also, it believes that the knowledge of

knowing the customers’ needs and providing

those solutions faster to the customers is an-

other key to their success.

Many ERP and supply chain functions

like manufacturing, fabrication, packaging, ware-

housing, and shipping and handling are

outsourced. For more than 10 years, FIRM-1

has outsourced some of its IT functions, which

have changed over time.

FIRM-1 is in the process of changing its

strategy on IT outsourcing. It is a global orga-

nization and has looked at its IT outsourcing

globally. It used to have a more distributed

outsourcing strategy, but now it is more cen-

tralized and from a division standpoint.

The top management outlined the IT

outsourcing strategy first. It then evaluated the

approach not just from the overall organization’s

standpoint but also from a division standpoint.

They picked potential suppliers by type of ser-

vice, or technology that was required and di-

vided those suppliers by divisions. Divisions

then ran pilot projects with these outsourcing

vendors for years. The results from these pilot

projects were collected, which helped FIRM-1

to decide major outsourcing partners commonly

for all divisions. So it took FIRM-1 almost

twelve months of activity to get organized for

Table 3. FIRM-1 participants

PARTICIPANTS JOB TITLE RESPONSIBILITY

Person 1 Senior Manager,

Responsible for identification of outsourcing

opportunities

Person 2 E-Business

Director

Responsible for vendor selection, budget

management, and monitoring of delivery of

applications to requirements

Person 3 Project Manager Vendor management, execution and delivery of the

projects

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 47

IT outsourcing. But the strategy was always to

keep a part of all these functions, especially

controlling them, in-house.

When asked about how IT outsourcing

decision has helped to reduce the supply chain

costs (namely, core costs, non-coordination

costs and transactional costs), one manager

replied:

We are able to treat each application and its

development as a variable cost and make very

quick decisions based on ROI if we should even

build it. Because the development costs are

external, we incur no cost unless the initial

business case justification (BCJ) process

dictates that positive ROI will result. We always

build contingency over-run costs into each

project as a part of the BCJ process.

FIRM-1 has primarily two IT outsourcing

vendors and also some niche players. It has

divided up the work between the two vendors

in order to leverage their strengths. It describes

the relationship with the vendors as strategic

partners. When asked about their relationship

with outsourcing partner, one of the managers

told us:

It is very positive. Our outsourcing partner

has program management personnel in the

U.S. and act as members of our team. They

understand how our company works and as

such, this helps with the software applications

that they build for us.

The outsourcing partners have their pro-

gram management personnel on-site (i.e., per-

sonnel from the outsourcing partner are located

within FIRM-1’s campus) who understand the

business processes of FIRM-1. And as such,

this helps with the software applications and

other services they provide to FIRM-1. It has a

dedicated staff to manage the vendor relation-

ship. In the past, FIRM-1 had some failures in

terms of managing vendor relationships because

of inadequate staffing and poor contractual

agreement. After they realized their mistakes,

well-defined contracts are framed and signed

by both the parties. Also weekly status meet-

ings and monthly progress meetings are held

to monitor the performance of the vendors.

Based on the responses of the partici-

pants, an effort is made to analyze and under-

stand the focus areas like objectives, benefits,

risks, and challenges involved in the IT

outsourcing decisions in FIRM-1.

IT Outsourcing Practices: FIRM-1 keeps

the project management functions in-house. It

does not outsource project management respon-

sibilities and complete project management con-

trol to its vendors. That was mainly a reaction of

a bad experience from one of its earlier outsourced

projects. However, there are multiple projects in

which the roles and responsibilities are gener-

ally shared but control of responsibilities of

projects itself is never delegated. User accep-

tance and timeline are always controlled in-

house, and never outsourced.

There has been a participative associa-

tion with vendors in formulating design speci-

fications. FIRM-1 partners with some key ven-

dors to develop design specifications. These

vendors are more of key suppliers of software

solutions and not pure “IT outsourcing part-

ners.” It also evaluates their vendors from time-

to-time and if there are any value-added ser-

vices or products that the IT outsourcing ven-

dors have to offer, and if that product or ser-

vice is beneficial, FIRM-1 definitely takes a close

look at it.

Another strong driver for FIRM-1 to

outsource some portions of its IT is to focus

on its core competency. In order to rapidly de-

ploy their breakthrough projects, it takes its

best and brightest resources to put on these

projects. Therefore, these resources cannot do

more repetitive and stable jobs. FIRM-1 tries to

free up these core competent people to focus

on its core processes, and to improve its com-

petitive advantage.

FIRM-1 tries to outsource its “non-criti-

cal” jobs to vendors. With the help of pilot

projects, FIRM-1 has identified couple of IT

competencies, which it has in-house. The de-

mand for these competencies is quite variable.

48 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

So instead of maintaining it in-house, FIRM-1

decided to acquire those competencies through

outsourcing partners. Moreover, these jobs are

non-critical and are not related to FIRM-1’s core

business, its business creation initiatives or its

ERP and supply chain management initiatives.

Objectives: For FIRM-1, cost reduction,

focus on core activities, and professional ser-

vices are the main objectives for outsourcing

its IT to external vendor. Building competitive

advantage, quality and reliability, access to

state-of-the-art technology, and customer sat-

isfaction are also some important objectives for

IT outsourcing in FIRM-1. Knowledge about

consumers’ needs and providing solutions for

those needs are very important to FIRM-1. So

participants said that increased flexibility to meet

the changing demands and market environment,

and reduced time to market are other key objec-

tives for outsourcing IT activities to their ven-

dors.

Based on the participants’ responses a

histogram is plotted, which is shown in Figure

1. While two respondents think that new tech-

nology can be an advantage, one respondent

thinks that unproven/untested new technology

can pose a risk to outsourcing and hence dis-

agrees with others.

Benefits: Participants from FIRM-1 em-

phasized that the main benefits achieved by

outsourcing IT are reduction in costs, and op-

timal allocation and utilization of internal re-

sources. FIRM-1 outsourced its IT function to

low-cost and competent vendors in different

countries, thus saving money. By outsourcing

some functions of its IT, the management could

identify and allocate its key resources, and uti-

lize them efficiently to build a competitive ad-

vantage. Reduced time to market/reduced de-

lays, improved flexibility to respond to the

changing demand and business environment,

predictable outcome, and higher degree of suc-

cess are some other benefits that FIRM-1 real-

ized by IT outsourcing projects. Quality and

reliability was also one of the benefits achieved

by FIRM-1.

Each of the benefits was rated on a scale

of 0-10. Based on the participants’ responses a

histogram is plotted, which is shown in Figure

Figure 1. Histogram for objectives for IT outsourcing (FIRM-1)

Strateg ic goa

Lower Cost

Core ac tivitie

Customer Satisfacti

Compe titive advanta

Quality & reliabi

lity

Profes sional service

New technology as an advanta

Lega cy sy stem

Capita l expendi ture avoidan

State-o f-the-art tec hnolo

Objectives

(Alw ays = 10, Very often = 8, Often = 6, Sometimes = 4, Rarely = 2, Never = 0)

Ratings (0-1

Person 1

Person 2

Person 3

Ratings (0-10)

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 49

Risk Factors: Knowledge being the core

competency for FIRM-1, is the main risk factor

for the firm. A careful planning of what knowl-

edge to keep in-house and what to outsource is

required. FIRM-1 wants to protect the core

knowledge because it is afraid that outsourcing

of core knowledge will make them very much

dependant on the vendors. This will make the

vendors in an advantageous position in the

outsourcing deal. Formulating scope and decid-

ing the budget and schedule estimates is an-

other critical risk factor. In the past FIRM-1 missed

some schedule and the cost exceeded the bud-

get. Also the vendor did not provide the optimal

service, because the scope was not clear. FIRM-

1 learnt from its failures. And because ultimately

it is FIRM-1 who is answerable to the consum-

ers, a clear understanding of the requirements,

finalizing the scope, and agreement of both the

parties are very important to FIRM-1 along with

budget and schedule. Apart from these, quality

standards, financial stability of the vendor, its

disaster recovery plans, and security are some

of the important risk factors to FIRM-1.

When asked what risks their customers

and suppliers may have faced from their deci-

sion of outsourcing, one of the managers told

us:

We have had very difficult and costly outsourcing.

We outsourced not only applications development

and management of applications but also

outsourced most of the staff. We outsourced too

much of our core knowledge. And also under

estimated what it takes to manage vendor

relationship at that price, and we didn’t manage

it well. As a result it became very advantageous to

suppliers and disadvantages to our customers.

Very high cost and high stakes are involved here.

People, contract management, and per-

formance measurement are some other impor-

tant risk factors for FIRM-1. Legal contract and

intellectual property protection is another risk

factor for FIRM-1. Though FIRM-1 has a very

efficient legal department to take care of the

penalties and other legal issues of the contract,

it believes that brand protection and intellec-

tual property rights protection are key risk fac-

tors.

Figure 3 shows a histogram based on

the responses of FIRM-1 participants.

Figure 2. Histogram for benefits of IT outsourcing (FIRM-1)

State-of-the-art technolog

lexibili

Lower cos

redictable outcom

educed delay

Higher degree of succes

ower failure

uality & reliabili

Lower risk profile

etter management cont

rol

Reduced complex

ity

ptimal resource allocatio

Identify business opportuniti

Benefits

Ratings (0-1

Person 1

Person 2

Person 3

(

Alwa ys = 10, Very of ten = 8 , Often = 6, Som etimes = 4, Ra rely = 2, N ever = 0)

Ratings (0-10)

50 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

Challenges: The main challenges for

FIRM-1 in outsourcing IT projects are: (a) de-

ciding what jobs to keep in-house and what to

outsource, (b) ongoing vendor relationship

management, and (c) setting up a governance

model.

Selecting the right vendor is very chal-

lenging for FIRM-1. But since it has a cross

divisional strategy, it has the option of

partnering with alternative vendors. And that

makes the ongoing management of vendor re-

lationship as one of the biggest challenges.

Another challenge for FIRM-1 is the continu-

ous commitment to the spirit of partnership.

Cultural barriers and designing a contract

do not pose a challenge for FIRM-1. Since

FIRM-1 has a global presence, and has opera-

tions in many countries world wide, one of its

strategies is to provide training, from time-to-

time, to all its employees to deal with various

cultures. Also designing a contract, especially

the legal issues are well taken care by its legal

department.

Figure 4 shows a histogram based on the

responses of FIRM-1 participants.

Best Practices: One of top best prac-

tices for FIRM-1 is stakeholders’ buy-in. This

has helped FIRM-1 to deal with internal resis-

tance and to carry out change management ef-

fectively. It also holds frequent informal meet-

ings to review the progress of the projects.

FIRM-1 has the policy of “First Things First.”

It prioritizes the action items as per their prior-

ity.

Other practices like empowerment and

formation of steering committees and joint re-

view boards are also important in FIRM-1’s

opinion and it practices them on a regular ba-

sis.

Based on the responses of FIRM-1 par-

ticipants, a histogram, as shown in Figure 5,

was plotted.

Case Conclusion

By outsourcing some portion of IT, FIRM-

1 is able to efficiently manage its information

systems. Some other measures that FIRM-1 has

taken to tightly integrate its supply chain man-

agement with information systems are

partnering with multiple vendors, penalties for

non-performance, and well defined and dedi-

cated management roles.

Figure 3. Histogram for risk factors of IT outsourcing IT (FIRM-1)

Peopl

Knowledg

Cultur

Politica

Financi

Quality Standard

Measureme

Scope, cost, a nd schedu

Company specific ris

Legal and IP issu

Securit

Disaster Recove

Contract Manageme

Relationship & Allianc

Geographic Locati

Multi-ve ndor arrangeme

nts

Risk Factor

(Always = 10, Very Often = 8, Often = 6, Sometimes = 4, Rarely = 2, Never = 0

)

atings (0 - 1

Person 1

Person 2

Person 3

Ratings (0-10)

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 51

The management has explained the firm’s

strategy to all its employees, and it has tied this

strategy to the current business environment.

The employees are trained in newer technol-

ogy, and from time-to-time they are also sent to

such educational seminars and training pro-

grams. From an organizational standpoint, most

of the organizations go in search of low-cost

and competent services. And that’s what FIRM-

1 has been doing.

FIRM-1 believes that there will be 50%

cost reduction if all but management and con-

trol are outsourced; 25% if only part of the ac-

tivity is outsourced.

From the analysis, it is observed that cost

reduction along with competent services is the

main driving factor behind IT outsourcing de-

cision. Costs are mainly related to development

of a service or an IT application. By lowering

costs, FIRM-1 was able to save money in a strin-

gent budget situation, which is a driving factor

for outsourcing. Focus on core activities; pro-

fessional services, and reduced time to market

are some other motivations and benefits.

Figure 4. Histogram for challenges of IT outsourcing (FIRM-1)

Figure 5. Histogram for best practices in IT outsourcing (FIRM-1)

mpowerment/Escalatio

eer Relationship

nformal Co mmunicatio

stablish a Speci al Enti

ddition al Manager

rioritize Action Item

trategic Issues Revie

teering Committee

takeholder Buy-

or p. Com munic ation

Best Practices

(High Importance = 3, Medium importance = 2, Low importance = 1,

Not important = 0)

atings (0 -

Person 1

Person 2

Person 3

Ratings (0-3)

What to outsour

Vendor Selecti

Cultural barrie

Contract Desi

Set up governan

Vendor manageme

Commitme

Challenges

(Critical = 3, Moderate = 2, Can deal with = 1, Not

important / NA = 0)

atings (0 -

Person 1

Person 2

Person 3

Ratings (0-3)

52 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

Cost and loss of critical skills are the most

important risks associated with IT outsourcing

decision for FIRM-1. Deciding what jobs to

outsource, ongoing vendor relationship man-

agement, and continuous commitment to the

spirit of partnership pose challenges for FIRM-

1 in making IT outsourcing decisions.

Apart from these, some other observa-

tions are noted in each of the focus areas. The

participants said that it is a good strategy to

outsource legacy systems, and that has been

the trend for most of the organizations. FIRM-

1 did outsource legacy systems in the past but

are not doing it currently as it experienced some

unsatisfactory outcomes in the past. So cur-

rently it is in the process of removing a bunch

of legacy systems and do not want to outsource

them at the end of their life cycle. FIRM-1 be-

lieves that letting an external vendor to replace

the internal staff or anything in-house is defi-

nitely very complex. In the past, it had some

failures. It had to continuously coordinate and

monitor the outsourcing partner, which was not

simple. So for FIRM-1 reduced complexity is

not a benefit at all. In the risk category, Geo-

graphical location is not a big risk factor for

FIRM-1 to outsource their projects. Currently

the trend is to move to Asia-Pacific region, es-

pecially India, for outsourcing jobs. This is

mainly because low cost and competent ser-

vice. But participants were of the opinion that

in another five-seven years China may also

become one of the choices; it may also offer

similar services. So the trend would again

change. Hence, FIRM-1 does not have any pref-

erence for any geographical location. It is also

worth mentioning that FIRM-1 does not worry

about contractual amendments costs as it is

well taken care of by its very efficient legal de-

partment. It has never experienced loss due to

outsourcer’s opportunism because of the type

of business it is in. It believes such risks are

mostly applicable to smaller organizations, start-

ups, and software organizations. Since FIRM-1

does not market its software, so does not have

this risk. They did face the risk of lack of trust

but as soon as they realized that they got rid of

that outsourcing vendor. The participants

stated if the partnering relationship is not “win-

win” or satisfactory to both the parties, FIRM-

1 does not plan to continue with the relation-

ship. Hence, FIRM-1 evaluates its vendors

quite meticulously because primarily if there is

no trust between them, FIRM-1 does not do

business with those vendors. To summarize,

high competency and low cost, non-core busi-

ness functions are the key drivers of the

outsourcing deals.

Applying Transaction Cost Theory in our

analysis, it is apparent that reducing transac-

tion costs played an important role in the deci-

sion making process. Also, threat from oppor-

tunism and uncertainty is a risk for outsourcing.

CASE STUDY: FIRM-2

Background

FIRM-2 is a major, multi-national network-

ing organization with annual revenues over

US$20 billion. It provides the broadest line of

networking solutions to most of the corporate,

education, and government centers. Their hard-

ware, software, and service offerings are used

to create Internet solutions that allow individu-

als and enterprises to increase productivity, im-

prove customer satisfaction, and strengthen

competitive advantage. It conducts most of its

business over the Internet, and is recognized

as the leader in this area.

FIRM-2 outsource much of its produc-

tion. Customers visit the Web site to configure,

price, route and place orders directly to FIRM-

2. More than half of the orders are directly trans-

mitted to the suppliers. Once the product is

manufactured, it is shipped directly to the cus-

tomer. As a result the order-to delivery cycle

time is reduced from approximately eight weeks

to less than three weeks. Moreover, this helped

FIRM-2 and its suppliers to manufacture based

on actual orders and not on projection, lower-

ing inventory costs for both FIRM-2 and its

suppliers, while making customers happy with

the speed of fulfillment of the orders.

Additionally, 85% of customer queries are

handled through FIRM-2’s Web site. It has es-

tablished a business-to-business supply chain

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 53

extranet for its manufacturers and suppliers.

This online exchange is used to purchase sup-

plies, make reports, and submit forecast and

inventory information. With the help of this

common platform, it has been possible for both

FIRM-2 and its suppliers to reduce inventories

by 45%.

FIRM-2 uses Internet extensively in ev-

ery department of the organization. It also

makes extensive use of intranet for its employ-

ees. Its employees use it to enroll in organiza-

tional benefits, and file expenses. More than

50% of technical training is provided online,

saving the organization employee time and

travel money while enabling employees to re-

ceive more training. Even peer reviews, collec-

tion of market information, and monitoring sales

are all done online. It has also established a

business-to-business supply chain extranet for

its manufacturing partners and suppliers. With

their Internet-based financial applications, they

are able to continuously monitor their sales data

and are able to close their books within a short

period of time.

Introduction

Five individuals, from various divisions

at FIRM-2, were interviewed. Table 4 shows

their role and responsibilities.

FIRM-2 has outsourced its IT functions

for the last five years. It has outsourced only

portions of IT such as design, development,

bug fixes, enhancements, and customer sup-

port. FIRM-2 first identified those activities,

which could be sent outside to finish faster.

The core activities were kept in-house and the

context activities were given out. Overall for

the FIRM-2, there is a central program office,

which manages the relationship with the ven-

dors and all the rates are negotiated centrally.

FIRM-2 outsource its IT activities with five

outsourcing vendors. It describes its relation

with the vendors as very collaborative, focused

on the success of business client. During the

outsourcing operations, the IT managers met

with Offshore Development Center (ODC) man-

agers on regular basis. On site account manag-

ers ensure that critical issues are handled ap-

propriately and provide oversight of entire op-

eration.

Outsourcing Decision

FIRM-2 is recognized as an innovator in

conducting business over the Internet. It says

that partnership is one of the pillars for the

growth of the organization and such strategic

partnerships have helped and contributed sig-

nificantly to the customer’s, partner’s and

FIRM-2’s bottom line. These strategic partner-

ships help FIRM-2 to focus on its core activi-

ties, and have helped FIRM-2 to reduce time to

market. With these strategic alliances, it is pos-

Table 4. FIRM-2 participants

PARTICIPANTS

JOB TITLE / ROLE

RESPONSIBILITY

Person 4 Lower Management Manage day-to-day IT activities with the regression

facility at the outsourcing partner’s facility in India

;

ensure that process is followed and reset / redesign

process, if needed.

Person 5 IT Manager

(Middle Management)

Responsible for managing team of IT professionals

Person 6 Manager Part of the group responsible for setting up the

relationship with offshore outsourcing

organizations

Person 7 Senior Manager Responsible for outsourcing Order-to-cash

processes and systems, and for making outsourcing

decisions.

Person 8 Senior Manager Responsible for defining business requirements,

and prioritizing the outsourced tasks.

54 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

sible for FIRM-2 to render quality services, and

solutions to its customers. FIRM-2 tries to

strike a partnership with such organizations that

are leaders in their respective markets.

FIRM-2 outsources many supply chain

activities like manufacturing, product design,

product development, engineering, and ship-

ping and handling activities to various part-

ners. Since Internet plays a significant role in

optimizing the supply chain of FIRM-2, infor-

mation technology plays a very important role

in the supply chain of FIRM-2. With the growth

in information technology, enabled by the

Internet, it is possible for all the partners in the

chain to work together more closely and effec-

tively than before, making the whole supply

chain more effective.

Based on the responses of the partici-

pants, an effort is made to analyze and under-

stand the focus areas of IT outsourcing deci-

sions in FIRM-2.

IT Outsourcing Practices: FIRM-2 keeps

complete project management control within,

when the vendor supplies project expertise,

technical knowledge, and manpower. FIRM-2

also encourages participative association of

vendor in formulating design specifications. But

FIRM-2 does not enjoy any access to attrac-

tive financing options from the vendor. Some

other IT outsourcing practices that are followed

by FIRM-2 are as follows:

a. Management of outsourcing vendors has

become a core competency. So a centrally

managed ODC Project Management Office

(PMO) is established that ensures common

standards, governance policies, and oper-

ating procedures across all vendors.

b. Quarterly reviews are conducted to evalu-

ate performance and to optimize business

processes. By optimizing the business pro-

cesses, FIRM-2 is able to optimize its over-

all supply chain. It also reviews areas of im-

provements, changes, and defects periodi-

cally.

When asked about how they manage the

relationship with their vendors, one manager

told us:

IT managers meet with Offshore Development

Center (ODC) managers on a regular basis.

On site account managers ensure that critical

issues are handled appropriately and provide

oversight of entire operation.

Objectives: For FIRM-2, cost reduction,

and focus on core activities are the main objec-

tives for outsourcing its IT to external vendors.

Building competitive advantage, organization’s

strategic goals, quality and reliability, profes-

sional services, and customer satisfaction are

also some important objectives for IT

outsourcing in FIRM-2.

Apart from the options mentioned in the

questionnaire, maximum coverage for support

related activities (context activities), decreased

IT costs for non-critical projects, tap into wider

talent pool, and reduced time to market are some

other primary objectives for FIRM-2 to

outsource its IT.

Based on the responses from the partici-

pants of FIRM-2, a histogram is plotted, which

is shown in Figure 6.

Benefits: The major benefits for FIRM-2,

in outsourcing its IT, are lower costs, optimal

allocation and utilization of internal resources,

and flexibility to respond quickly to changing

demands and business environments. Predict-

able outcome, higher degree of success, and

higher quality and reliability are some other

benefits that FIRM-2 realized by IT outsourcing

projects.

Based on the FIRM-2 participants’ re-

sponses, a histogram is plotted, which is shown

in Figure 7.

Risk Factors: Most important risk fac-

tors for FIRM-2 are:

a. Knowledge/expertise

b. Quality standards

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 55

c. Scope, cost and time estimates

d. Measurement of performance

Participants from FIRM-2 believe that

scope/requirements of the outsourced projects

must be finalized, properly documented and

stick to the specifications. Otherwise, if the re-

quirements change continuously it would be

difficult for both FIRM-2 and its vendors to do

the job. This would then result in budget over

run, and schedule slip, along with performance.

A multi-vendor arrangement is another risk fac-

tor as it involves more coordination efforts and

demands a closely-knit governance model.

People are another risk factor faced by FIRM-2.

Cultural factors added to this risk.

We also noticed that FIRM-2 takes a

qualitative approach to measure the risks.

When asked about how risk is measured, one

manager told us:

We assess the loss of business or lack of customer

satisfaction with late delivery of projects. We assess

this quarterly via surveys and business-balanced

scorecards. We also assess risks associated with

projects coming in over budget due to lack of

clarity in requirements and scope creep.

When asked what risks their customers

and suppliers may have faced from their deci-

sion of outsourcing, one of the managers com-

mented:

Heavily outsourced operations where vendors

have significant knowledge of business

process have significant risk to customers. If

customers are directly dealing with outsourced

vendors without having local IT counterparts

in the loop, this will result into IT losing its

core competence.

Based on the responses from the partici-

pants of FIRM-2, a histogram is plotted, which

is shown in Figure 8.

Challenges: All the challenges asked in

the questionnaire are important for FIRM-2. But

cultural barriers and selecting the right vendor

are the most critical challenges for FIRM-2 in

outsourcing IT projects. Deciding what jobs to

keep in-house and what to outsource, setting

up a governance model, ongoing vendor rela-

tionship management, and continuous commit-

ment to the spirit of partnership are also some

important challenges for FIRM-2. Designing a

Figure 6. Histogram for objectives for IT outsourcing (FIRM-2)

trategic goal

ower Cost

ore activitie

ustomer Satisfactio

ompetitive advantag

uality & reliabilit

rofessional service

ew technology as an advantag

egacy system

apital expenditure avoidanc

tate-of-the-art technolog

Objectives

(Alwa ys = 10, Very Often = 8, Oft en = 6, So metimes = 4, Rare ly = 2, Neve r = 0)

atings (0 - 1

Person 1

Person 2

Person 3

Person 4

Person 5

Ratings (0-10)

56 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

contract was well taken care by the PMO of

FIRM-2.

Based on the responses from the partici-

pants of FIRM-2, a histogram is plotted, which

is shown in Figure 9.

Best Practices:

1. Empowerment and escalation

2. Frequent informal communications

3. Key strategic issues review meetings are the

most important best practices in FIRM-2

Figure 7. Histogram for benefits of IT outsourcing (FIRM-2)

Figure 8. Histogram for risk assessment factors in IT outsourcing (FIRM-2)

State-of-the-art technolog

Flexibilit

Lower costs

Predictable outcom

Reduced delay

Higher degree of succes

Lower failures

Quality and reliabili

Lower risk p rofiles

Better management contro

Reduced comp lexit

Optimal resource allocatio

Identify business opportunitie

Benefits

(Always = 10, Very Often = 8, O ften = 6, Sometimes = 4, Rarely =

Never = 0)

atings (0 - 1

Person 1

Person 2

Person 3

Person 4

Person 5

Ratings (0-10)

eopl

Knowledg

Cul tura

Politica

Financia

Quality Standard

Measureme

Scope, c ost, a nd schedu

Company specific risk

Legal and IP issue

Securit

isas ter Reco ve

Contract Manageme

Relationship & Alliance

Geographic Locatio

Mult i-ve ndor ar rangeme

nts

Risk Factor

(Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2, Never =

atings (0 - 1

Person 1

Person 2

Person 3

Person 4

Person 5

Ratings (0-10)

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 57

Peer relationships and stakeholder buy-

in are also important practices that FIRM-2 fol-

lows. Prioritizing the action items is also an-

other best practice followed there.

Another practice that is followed in

FIRM-2 is the creation of PMO. A central pro-

gram management office is created to manage

the outsourcing relationships. However, estab-

lishing a special entity, like joint review board,

corporate media communications are not very

popular practices in FIRM-2.

Figure 10 shows the histogram for the

best practices followed in FIRM-2.

Figure 9. Histogram for challenges of IT outsourcing (FIRM-2)

Figure 10. Histogram for best practices in IT outsourcing (FIRM-2)

What to outsou rc

Vendor Selectio

ultural barrie

ontract Desig

Set up governan

Vendo r manage me

ommitme

Challenges

(Critical = 3, Moderate = 2, Can deal with = 1, Not important / NA = 0)

atings (0 -

Person 1

Person 2

Person 3

Person 4

Person 5

Ratings (0-3)

mpowerment / Escalatio

eer Relationship

nformal Communicatio

stablish a Special Enti

dditional Manage

rioritize Action Item

trategic Iss ues Revie

teering Committee

take holde r Buy -

orp. C ommunicatio

Best Practices

(High importance = 3, Medium importance = 2, Low importance = 1, Not

impo rtant = 0)

atings (0 -

Person 1

Person 2

Person 3

Person 4

Person 5

Ratings (0-3)

58 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

Case Conclusion

By outsourcing, FIRM-2 is able to better

manage the available resources to focus on core

activities. Some other measures that FIRM-2

has taken to ensure its supply chain success

are the following:

•Establish standards, governance, and guide-

lines for working with offshore outsource

vendors.

•Manage projects locally, but distribute the

work globally.

•Measure the performance and optimize the

process.

The management is making all efforts to

educate the employees in the concept of core

and support activities. Building the “one team”

atmosphere is very helpful in this area. Both the

onsite and offshore teams work collaboratively

as a single team to help achieve the overall suc-

cess. Also providing training, job rotation, and

new career opportunities are some important

steps towards dealing with the backlash against

outsourcing.

FIRM-2 did not disclose its actual costs

savings. However, an approximate estimate pro-

jected by the participants of FIRM-2 is slightly

more than 50% cost savings on a per person

basis.

From the analysis, it is observed that cost

reduction is one of the main motivation behind

IT outsourcing decision in FIRM-2. Focus on

core activities, and professional services are

some other motivations and benefits. Cost and

loss of critical skills are the most important risks

associated with IT outsourcing decision for

FIRM-2. Cultural barriers and selecting the right

vendors are most challenging for FIRM-2 in

making the IT outsourcing decisions.

Apart from these, some observations are

noted in each of the focus areas, which are de-

scribed here. Some participants rated major capi-

tal expenditure avoidance and access to state-

of-the-art technology as very low. They rea-

soned that IT outsourcing had actually caused

their divisions a major capital expenditure,

mostly in capital equipments, to set up their

offshore development centers. Moreover, they

were of the opinion that they certainly do not

go offshore to access state-of-the-art technol-

ogy. The outsourcing partners are providing

FIRM-2 skilled resources, or state-of-the-art

programmers, and not state-of-the-art technol-

ogy. One of the persons had the opinion that

IT outsourcing did not have much impact on

organization’s strategic goals, and competitive

advantage, and his team did not have anything

to do with reducing the burden of legacy sys-

tems.

As far as benefits are concerned, access

to state-of-the-art technology is rated very low.

This is because by outsourcing IT, FIRM-2 gets

access to state-of-the-art programmers/re-

sources and that its partners are not providing

technology. ‘Better ability to identify possible

business opportunities and threats so as to

evaluate and manage them in the strategic per-

spective’ is not an important factor for FIRM-2.

It believes that going offshore does not decrease

management’s attention to the outsourced tasks.

It still takes a lot of management overhead to run

those outsourced tasks right.

Though financial, political factors and

geographical locations are some other risk fac-

tors, FIRM-2 deals with five vendors, which

are well established, competent and financially

stable. Also these vendors are located in coun-

tries where the political situation is quite stable.

So those risk factors are not very much alarm-

ing. FIRM-2 has rarely faced risks like contrac-

tual amendment costs, disputes and litigation

costs, vendor sub-contracting the job, and loss

due to outsourcer’s opportunism. All these are

well taken care of and explicitly mentioned in

the contract. Penalties for such unhealthy situ-

ations and non-performance are also clearly

spelt out in the contract. This saves FIRM-2

from these risks but makes the job of designing

a contract very challenging.

Applying Transaction Cost Theory in our

analysis, it is apparent that reducing transac-

tion costs played an important role in the deci-

sion making process. Also, threat from oppor-

tunism and uncertainty is a risk for outsourcing.

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 59

ANALYSIS OF THE CASES

After conducting the case analyses, it

was clear that transactional cost theory was

the theoretical foundation behind IT

outsourcing decisions for both the firms. As

proposed by Williamson in the Transaction

Cost Theory that outsourcing of work results

in lower production or service costs than do-

ing it internally due to economies of scale. The

same argument is also true in the two cases

that we analyzed. Another interesting point

noticed from the analysis is that FIRM-1 is one

of the suppliers for FIRM-2. Thus they both

have common goals of making their supply chain

successful, and maximizing the overall profit-

ability. From the focused group interviews of

participants from both the firms, the following

results and conclusions for each key area were

drawn:

Objectives: It is observed that the top

three important reasons for IT outsourcing, in

both the firms, are lower costs, focus on core

activities, and professional services. Almost

75% respondents were of the opinion that lower

costs, professional services, quality, and reli-

ability are most often the motivations for IT

outsourcing projects. Sixty-three percent of the

respondents said that focus on core activities

is another motivation for IT outsourcing.

Benefits: It is clear that for both the firms,

the main benefit of IT outsourcing is reduction

in costs. Also management is able to allocate

and utilize the resources optimally. Flexibility

to respond to changing demands is the third

ranked benefits, which both the firms achieved

by IT outsourcing. Almost 63% respondents

said that reduction in costs is always the ben-

efit of IT outsourcing. Seventy-five percent of

participants said that predictable outcome is

another key benefit of IT outsourcing. Sixty-

three percent respondents said that higher de-

gree of success and optimal allocation and uti-

lization of resources are most often achieved

benefits of IT outsourcing. Fifty percent par-

ticipants said that increased flexibility is also a

key benefit of IT outsourcing.

Risk Factors: The main risk factor ob-

served for both the firms is knowledge. Both

the organizations felt that knowledge transfer

needs to be carried out meticulously. The orga-

nizations as well as their outsourcing partners

should follow proper methodology for knowl-

edge transfer and information sharing. Sec-

ondly, both the firms felt that there should be

project scope, cost, and time estimates for such

outsourcing projects. It is observed that 75%

respondents said that knowledge is the most

critical and always a risk factor in IT

outsourcing. Fifty percent of the participants

said that scope, cost and time estimates is an-

other critical risk factor. Sixty-three percent of

participants said that monitoring and measure-

ment of performance is a most often risk factor.

More than 50% of the participants were of the

opinion that quality standards are another risk

factor in IT outsourcing.

Challenges: The biggest challenge for

both the firms are selecting the right vendor

and deciding what to outsource and what to

keep in-house. Since both the firms have a good

legal department and a program management

office, they have not faced the challenge of

designing a contract very often. Setting up a

governance model, ongoing management of the

vendor relationship, and continuous commit-

ment to the spirit of partnership are some very

important challenges for both the firms. It is

clear that 50% of the participants said that se-

lecting the right vendor, and deciding what to

outsource and what to keep in-house are the

most critical challenges while 63% said that

continuous commitment to the spirit of part-

nership is a moderate challenge faced in IT

outsourcing projects. Fifty percent of the par-

ticipants said that setting up a governance

model, ongoing management of the vendor, and

designing a contract were some of the chal-

lenges.

Other factors contributing to risk: Apart

from the risk factors described earlier, there are

other factors that also directly or indirectly con-

tribute to risks in outsourcing. Transition and

60 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

management cost is one of the top priority risk,

followed by cost escalation risk. There are also

some hidden costs involved in outsourcing like

cost of retention/lay-offs, and cost of ramping

up. In addition, loss of critical skills, switching

costs, and poor quality and reliability are the

other very important risks involved in

outsourcing. From the interviews, we found out

that 63% of the respondents said that most criti-

cal risks are unexpected transition and man-

agement costs, and other hidden costs. Almost

50% said that cost escalation, and poor quality

and reliability are another critical or moderate

risk. 75% said that switching costs is another

moderate risks.

Best Practices: Empowerment and esca-

lation was the top priority for the two firms.

Also both the organizations hold informal com-

munication sessions frequently to update the

management and the employees about the

outsourced projects. Stakeholder buy-in was

Table 5. Summary of the case studies

Category FIRM-1 FIRM-2 Implications from

Transaction Cost

Theory

Objectives

Cost reduction; focus on core

activities, professional services

Building competitive advantage

quality and reliability, access to

state-of-the-art technology, and

higher customer satisfaction.

Cost reduction, focus on core

activities building competitive

advantage to enable organization’

strategic goals, quality and

reliability, professional services, and

higher customer satisfaction

maximum coverage for suppor

related activities (context activities)

decreased IT costs for non-critica

projects, tap into wider talent pool

and reduced time to market

Reduce overall

transaction cost

Key

Benefits

Cost reduction, optimal allocation

and utilization of interna

resources. Reduced time to

market, improved flexibility to

respond to the changing demand

and business environment

predictable outcome, and highe

degree of success, Higher quality

and reliability.

Lower costs, optimal allocation and

utilization of internal resources, and

flexibility to respond quickly to

changing demands and busines

environments. Predictable outcome

higher degree of success, and highe

quality and reliability.

Reduce overall

transaction cost

Important

Risk

Factors

Knowledge, People, contrac

management, and performance

measurement, Formulating scope

and deciding the budget and

schedule estimates.

Knowledge/expertise, quality

standards, scope, cost and time

estimates, measurement of

performance, multi-vendor

arrangements, cross culture.

Threat from

opportunism and

uncertainty

Challenges

Deciding what jobs to keep in

house and what to outsource

ongoing vendor relation

management, setting up

governance model, selecting the

right outsourcing partner.

Cultural barriers, selecting the righ

vendor, deciding what jobs to keep

in-house and what to outsource

setting up a governance model

ongoing vendor management, and

continuous commitment to the spiri

of partnership.

Threat from

opportunism

Best

Practices

Stakeholders’ buy-in, frequen

informal meetings, prioritizes the

action items as per thei

importance.

Empowerment and escalation,

frequent informal communications,

key strategic issues review

meetings, peer relationships and

stakeholder buy-in, prioritizing the

action items, creation of PMO.

Reduce overall

transaction cost

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 61

the next important practice that both the firms

followed. It is observed that more that 87% of

respondents said that Empowerment and esca-

lation, and frequent informal communications

are the most important practices followed in

their firms. Seventy-five percent said that stake-

holder buy-in is another best practice followed

in their organization.

Apart from the results observed in each

key area, the following observations are no-

ticed for both the firms.

Both the firms felt that there are other

risks involved in outsourcing. Transition and

management cost is the top priority risk, fol-

lowed by cost escalation risk. Hidden cost, like

cost of retention/lay-offs, and cost of ramping

up, is the third import risk. Loss of critical skills,

switching costs, and poor quality and reliabil-

ity are the other very important risks involved

in outsourcing. It is seen that 63% of the re-

spondents said that most critical risks are un-

expected transition and management costs, and

other hidden costs. Almost 50% said that cost

escalation, and poor quality and reliability are

another critical or moderate risk. Seventy-five

percent said that switching costs is another

moderate risks.

For risk reduction, there are several meth-

ods that both the organizations do follow. We

combined all the responses from all the per-

sons interviewed from both the organizations

and they are listed in Table 6. Let us also men-

tion here that the first three responses (Person

1, Person 2, and Person 3) are from FIRM-1 and

that rest of the responses (Person 4 through

Person 8) are from FIRM-2.

Table 6. Summary of risk reduction practices

Risk Reduction Practices i

IT Outsourcing

Perso

erso

Perso

erso

Perso

5 Perso

6 Perso

Perso

ound the clock project

anagement over globally

istributed teams

6 4

4 4

6 6 4 N/A

omplete project management

ontrol with the vendor, over

roject initiation, planning, and

xecution for the outsourced

roject

6 6

6 6 6 4

omplete project management

ontrol with the organization,

here the vendor supplies projec

xpert technical knowledge,

anpower, and other intellectual

esources

4 4

4 4 4 4

articipative association of

endor in formulating design

pecifications

4 4

4 6

4 4 4 4

omplete outsourcing of project

xcept design specifications, to

endor located at some offshore

ocations, within the country and

ut side

6 6

6 4

6 4 4 4

ccess to value added products

rom the vendor 4 4

4 4

6 6 4 4

ccess to attractive financing

ptions for the outsourcing deal

rom the vendor

6 4

4 N/A

6 6 6 6

62 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

CONCLUSION

In many large organizations, IT

outsourcing is being considered as a viable

cost reduction alternative. Cost reduction is the

main driving factor for outsourcing their IT ac-

tivities. Other than cost reduction, short-term

requirement of highly skilled resources is an-

other objective for the firms to outsource IT.

The top management of both the firms is con-

vinced of the benefits of outsourcing and sup-

ports the outsourcing decisions. More than

anything, support of the top management is

the key towards the success of IT outsourcing

for both firms.

There are a lot of things to be learned

from these two cases. First, risks in outsourcing

can be managed through proper contractual

agreement and quality standards. This has been

also described in the work of McFarlan and

others (McFarlan & Nolan, 1995). In addition,

continuous monitoring of projects can also re-

duce risks. Both the organizations have risk

contingency plans. Broadly, risk is measured

on performance metrics over time. Risk factors

are weighed to reflect financial implications as

well. The metrics to measure the effectiveness

of an outsourcing arrangement are checked fre-

quently, and are brought up during the quar-

terly review meetings. If a risk is time bound,

risk mitigation plan is created and executed. If

there are repeated and multiple failures to meet

the Service Level Agreements (SLA) goals, then

alternative vendors may be identified for a part

or rest of the work. If the business processes

and the QA methodology are very robust and

well thought of, risks will be reduced in global

outsourcing

Other than effective project management,

and participative association of vendors in for-

mulating design specifications, it is very im-

portant to have planned and periodic reviews

to improve the communication with the team

members. The concept of “one-team” should

be strengthened. Also quality management pro-

grams and metrics should be followed. It is again

a good practice to have an out-clause and pen-

alty for not meeting the SLAs.

Both the organizations described their

relation with the IT outsourcing partners as very

collaborative and healthy. The outsourcing re-

lationship is managed using a combination of

performance metrics, periodic discussions re-

garding timely delivery, budget and schedule.

Other than this, selecting the right

outsourcing partner is an important factor in a

successful outsourcing project. Another inter-

esting observation is that the organization and

the outsourcing vendor are forming partner-

ships, which is based on mutual trust and long

term commitment. This trend has also been ob-

served in the work of Lee and other researchers

(Lee et al., 2003). In addition, there are many

risks involved in global IT outsourcing. We iden-

tified the key risk factors that commonly arise

in global IT outsourcing. This study will help

the management to identify the risk factors and

take necessary steps to reduce them.

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QUESTIONNAIRE ON IT OUTSOURCING PROJECTS

urpose:

he purpose of this survey is to determine the objectives, practices, benefits, risk assessment factors, ri

easurement, and risk mitigation methods of outsourced information technology projects. Your feedba

f this survey is extremely important to us and will be very much appreciated.

. Participant’s Name: _______________________________________________

. Organization: ____________________________________________________

. Please give a brief description about your role in outsourced IT projects.

. Who is your IT outsourcing partner?

. Do you wish to keep the above information confidential? Yes / No: ____ (please specify)

. How do you describe your relationship with your outsourcing partner?

. How do you manage the relationship?

. Does your organization achieve the following objectives by outsourcing IT? Please score each of the

objectives, on a scale of 0-10 (Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2,

Never = 0)

Sl.No.

Objective Score (0-10)

1. Company’s strategic goals

2. Lower costs

3. Focus on core activities

4. Customer satisfaction

5. Competitive advantage

6. Quality and reliability

7. Professional services

8. Making new technology work to the advantage of the company

9. Reducing the burden of legacy systems

10. Allows major capital expenditure avoidance

11. Access to state-of-the-art technology

perspectives. Information and Organiza-

tion, 13, 153-202.

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and software outsourcing success: An em-

pirical investigation of transaction costs

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121-152.

Williamson, O. E. (1985). The economic institu-

tions of capitalism. New York: Free Press.

APPENDIX

(continued on the following pages)

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 65

Please list any other objectives you consider for outsourced IT projects? Also please score them on

scale of 0-10.

10. Which of the common practices / risk reduction practices utilized in your outsourced IT projects?

Sl.No.

IT Outsourcing practices / Risk reduction practices Yes / No (please specify)

1. Round the clock project management over globally

distributed teams

2. Complete project management control with the vendor,

over project initiation, planning, and execution for the

outsourced project

3. Complete project management control with the

organization, where the vendor supplies project expert

technical knowledge, manpower, and other intellectual

resources

4. Participative association of vendor in formulating design

specifications

5. Complete outsourcing of projects, except design

specifications, to vendor located at some offshore locations

within the country and out side

6. Access to value added products from the vendor

7. Access to attractive financing options for the outsourcing

deal from the vendor

1. Please list any other practices you consider in your outsourced IT projects? Describe briefly.

2. Does your organization achieve the following benefits by outsourcing IT? Please score each of the

benefits, on a scale of 0-10 (Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2, Neve

= 0)

Sl.No.

Benefits Score (0-10)

1. Access to state-of-the-art technology

2. Flexibility to respond quickly to changing demands and

business environment

3. Lower costs

4. Predictable outcome

5. Reduced delays

6. Higher degree of success

7. Lower failures in service or products

8. Higher quality and reliability

9. Lower risk profiles

10. Better management control

11. Reduced complexity

12. Optimal allocation and utilization of resources

13. Better ability to identify possible business opportunities and

threats so as to evaluate and manage them in the strategic

perspective

66 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

Sl.No. Unfavorable Outcome Score (0-3)

1. Hidden Costs

2. Unexpected transition and management costs

3. Switching costs

4. Contractual amendments costs

5. Cost escalation

6. Disputes and litigation costs

7. Service debasement

8. Cost of delayed delivery / non-delivery

9. Loss of organizational competencies / critical skills

10. Loss of autonomy and company’s control over IT decisions

11. Loss of control over disaster recovery

12. Poor quality and reliability

13. Damages due to security breach

14. Loss due to disasters and recovery costs

Please list and score any other benefits that you consider for outsourced IT projects?

4. Please list any major benefits that your customers and suppliers have realized out of the outsourced I

projects.

5. Do you consider the following risk assessment factors to determine the risks associated with the

outsourced IT projects? Please refer to Appendix for explanations of these risk factors. Please score

each of the risk assessment factor, on a scale of 0-10 (Always = 10, Very often = 8, Often =6,

Sometimes = 4, Rarely = 2, Never = 0)

Sl.No. Risk Assessment Factor Score (0-10)

1. People

2. Knowledge

3. Cultural

4. Political

5. Financial

6. Quality Standards

7. Measurement

8. Scope, cost, and time estimates

9. Company specific risks

10. Legal contracts and intellectual property protection

11. Security

12. Disaster Recovery

13. Contract Management

14. Relationship & Alliances

15. Geographic Location

16. Multi-vendor arrangements

6. Please list and score any other risk assessment factors you consider in your outsourced IT projects.

7. Following are some of the unfavorable outcomes in determining the risks associated with the

outsourced IT projects? How critical are each one of them. Please rate each one of them, on a scale of

0-3 (Critical = 3, Moderate = 2, Low = 1, Not critical = 0).

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 67

Please list and score any unfavorable outcomes you consider in your outsourced IT projects.

9. Do you prepare risk contingency plans? Yes / No: ______

0. How do you measure risk? Describe briefly.

1. Describe briefly your contingency plan, if outsourcing IT does not work as estimated?

2. Please list any risks that your customers and suppliers may have faced from your decision of

outsourcing IT?

3. Information is the key driver for the success of a supply chain? By outsourcing IT, how have you

achieved this success?

4. What were the measures taken to ensure this success?

5. How has IT outsourcing helped to reduce the supply chain costs (namely, core costs, non-coordinatio

costs and transactional costs) in your organization?

6. Did your organization face the following challenges, while outsourcing IT? Please rate each one of

them on a scale of 0-3 (Critical = 3, Moderate = 2, Can deal with = 1, Not important = 0)

Sl.No. Unfavorable Outcome Score (0-3)

15. Loss due to outsourcer’s opportunism, including loss in

future revenue, if outsourcer becomes competitor.

16 Loss of innovative capacity

17. Vendor lock-in

18. Lack of trust

19. Vendor sub-contracting the job

20. Business uncertainties

21. Endemic uncertainties

22. Technological indivisibility

Irreversibility of the outsourcing decisions

68 Journal of Global Information Management, 14(3), 39-69, July-September 2006

is prohibited.

7. Please list and rate any other challenges that you faced in your outsourced IT projects?

8. Do you follow the best practices, listed below, in managing the outsourcing relationships? Please rate

each one of them, on a scale of 0-3 (3 = High importance, 2 = Medium importance, 1 = Low

importance, 0 = Not important)

Sl.No.

Best Practice Yes / No; Score (0-3

)

1. Empowerment and Escalation

2. Peer Relationships

3. Frequent Informal Communications

4. Establish a Special Entity, like Joint Review Board, User

involvement committee, Technology Review Board, Regiona

Governance Board

5. Appoint Additional Managers when implementing New

Objectives

6. Prioritize Action Items

7. Key Strategic Issues Review Meeting

8. Steering Committees

9. Stakeholder Buy-in

10. Corporate Media Communications, as a means of mass

communication for all employees

Please list and rate any other best practices that you consider in your outsourced IT projects?

0. How are you dealing with the backlash on moving jobs out of this country, due to outsourcing

projects?

HANK YOU FOR YOUR PARTICIAPTION

Sl.No.

Challenges Yes / No; Score (0-3

)

1. Deciding what jobs to keep in-house and what to outsource

2. Selecting the right vendor / partner

3. Cultural barriers

4. Designing a contract

5. Setting up a governance model to monitor the vendor and its

services

6. Ongoing management of the vendor relationship

7. Continuous commitment to the spirit of partnership

is prohibited.

Journal of Global Information Management, 14(3), 39-69, July-September 2006 69

Subhankar Dhar is an assistant professor in the Department of Management Information Systems

at San José State University. Dr. Dhar’s research interests are in the areas of global information

systems outsourcing, mobile and distributed computing. He teaches a variety of courses including

telecommunications, data communications and networks, distributed information systems. His

publications have appeared in reputed international journals and gave presentations to various

international conferences. He serves as a member of the editorial board of International Journal

of Business Data Communications and Networking. He is a reviewer of papers for various

international journals, conferences, and scholarly publications. He also served as a member of

the organizing committee of various international conferences like International Conference

on Broadband Networks (BroadNets) and International Workshop on Distributed Computing

(IWDC). Dr. Dhar has several years of industrial experience in software development, consulting

for Fortune 500 and high-tech industries including product planning, design, and information

systems management.

Bindu Balakrishnan holds a Master of Science in engineering from San Jose State University.

Ms. Balakrishnan’s interests are in the areas of global information systems outsourcing and

supply chain. She has extensive experience in the electrical and manufacturing industry as a

consulting engineer and process analyst with leading public and private sector companies.

She has a very successful background of effectively and proactively managing the full project

lifecyle: from inception to close.

Reproducedwithpermissionofthecopyrightowner.Furtherreproductionprohibitedwithoutpermission.

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