Analysis of a Large-Scale IT Outsourcing "Failure"

Much of the research that has been carried out into outsourcing is based on relatively successful case studies. Yet drawing inferences from case studies when those with largely negative outcomes rarely see the light of day represents a significant problem. When negative cases are systematically unrepresented, there is less opportunity to subject theory to scrutiny. This chapter goes some way towards redressing this trend, by reporting on a large scale “selective” outsourcing arrangement that has been publicly described as a failure — the Australian Federal Government’s “whole of government” IT infrastructure outsourcing initiative. This initiative, originally promoted as likely to lead to a billion dollar saving, was abandoned early in 2001, after a damning public report by the Australian Auditor General. However, a detailed study of the initiative suggests that the “failure” occurred despite the project adhering to many of the recommended guidelines for successful outsourcing that had been derived from earlier case analysis. The findings have important implications for decision makers confronted with outsourcing choices. The study suggests that the risks of outsourcing are often downplayed, or ignored in the rush to reap the expected benefits. The study also suggests that expectations of savings from outsourcing IT are often substantially higher than those that have been empirically confirmed in the field. Decision makers are advised that key assumptions about costs, savings, managerial effort, and the effects of outsourcing on operational performance might be incorrect, and to plan for their outsourcing activity accordingly. They should pay particular attention to coordination and transaction costs, as these tend to be overlooked in the business case. These costs will be magnified if “best in breed” multiple-vendor outsourcing is chosen, and if contracts are kept short. Decision-makers are also warned of the difficulties they are likely to have at the end of an outsourcing contract if there is not a large and robust pool of alternative vendors willing to bid against the incumbent.

Outsourcing Decision-Making

In recent years, outsourcing deals have increased in number and the strategic importance of the decision-making process has correspondingly increased. This chapter reviews various strategic frameworks that practitioners have attempted to develop for outsourcing decision-making and highlights the differences between proposed theories and current practice. While outsourcing decision-making is multi-faceted in nature, the frameworks reviewed appear to be largely mono-faceted in coverage, which indicates potential inadequacies in existing capabilities. The chapter proposes a framework to address such inadequacies by means of a tri-perspective approach, which extends the decision-making process to take into consideration issues from multiple domains. The proposed framework highlights a wide variety ofissues, ranging from the need to maintain internal expertise, to how national legislations can enforce unique constraints on the outsourcing decision-making process. The framework also attempts to provide a multi-perspective approach, which is required of current outsourcing decision-making practices, to enable both quantitative measurements and qualitative articulations.

Information Technology Offshoring Outsourcing

Offshore outsourcing is a term covering a range of information technology (IT) and business services delivered to companies in developed countries by IT personnel based in developing countries. The significant cost savings achieved by the offshore model is the prime factor in its growing acceptance and use. IT software and service outsourcing is becoming a new reality for employers, employees, government and academicians. The widespread use of Internet, standardization of software development methodologies, efficient IT project management techniques, low cost of telecommunications, have provided the necessary thrust for global production of software and services. In this chapter, we analyze the impact of today’s offshore outsourcing movement to the United States economy, education, jobs, wages, and social issues. We suggest that offshoring is a viable economic model. It leads to improved productivity, lower inflation and eventually growth in jobs and wages. The U.S. will also see significant numbers of “in-sourced” jobs because of subsidiaries of foreign based companies. Future job growth in different areas of business and skills, require young students and present IT workforce to acquire them with education and training. Federal Reserve chairman Alan Greenspan has also expressed the need to produce highly skilled workers. The loss of jobs of IT workers is the difficult aspect of offshoring. Laid-off workers should be provided assistance to find a new comparable job, both by the U.S. government and companies. In this chapter, we make some recommendations to reduce, minimize and overcome the hardships caused by the IT outsourcing.

An Overview of Service Level Agreements

This chapter notes and explains the increasing use of outsourcing and service level agreements (SLAs); proposes and describes an outsourcing methodology emphasising the role of SLAs; stresses SLAs’ importance to insourcing and outsourcing relationships; proposes a taxonomy of service attributes, and recommends a hierarchical methodology for constructing SLAs. Evidence from interviews and examination of extant SLAs suggests that well-designed SLAs contribute to fruitful relationships between business partners. The proposed methodology and taxonomy will simplify and shorten the time-consuming tasks of writing and negotiating SLAs that are complete, consistent and satisfy business objectives. SLAs have not received academic attention proportionate to their commercial importance. Recommendations to practitioners and for further research are given, In particular, research ascertaining whether SLAs are used effectively and seeking better expression of business requirements in an SLA is appropriate.

Growth of Outsourced IT-Enabled Services in India

IT-enabled services (ITES) in India have registered tremendous growth in recent years. Availability of English speaking trained manpower and low wages are some of the factors that have contributed to the growth of ITES sector in India. However, recent political movements against outsourcing, quality concerns of the clients, and data theft have had negative effects retarding the growth of this sector. In this chapter we review all the techno-economic factors that positively and negatively affect the growth of the ITES sector. An exhaustive literature survey is done to elicit these factors. We develop a generic causal model indicating the relationships between the various factors and the growth of ITES revenue. We discuss the factors of advantages and disadvantages India has in this sector. We draw some broad conclusions as to how the stakeholders such as policy making bodies and the industry associations can use this model to study the effects of these factors on the growth of the industry.

Global Sourcing

This chapter shows that ICTs make possible a more inclusive global trade, since now labour intensive components of production can be unbundled and sent where it is cheaper. The new mobility of virtual labour, together with the rise in capital mobility, will lead to a wider diffusion of benefits. ICTs reduce frictions and search costs in labour markets, and allow access to new hitherto excluded segments, whether firms or workers in developing countries or women. The smaller scale of efficient production induces more entry of new firms, thus raising wages and employment more than profits, and benefiting workers. Higher levels of employment and learning-by-doing can, in turn, induce more labour using technological progress and further raise both productivity and wages. Policy that targets education and training of workers and reduces barriers to the entry of new firms can minimize underinvestment and short-run job loss for developed country workers.

Making Sense of the Sourcing and Shoring Maze

Many terminologies have grown out of the outsourcing and offshoring bandwagon. While the corporate world continues to experience these phenomena, the academic world continues to research the same. An attempt has been made to give an overview of the various outsourcing and offshoring alternatives. We first discuss the basic sourcing strategies (insourcing and outsourcing) and the shoring strategies (onshoring and offshoring). We then move deep and wide into the maze and unravel the multiple alternatives that businesses exercise in order to get the best deal for their information system (IS) needs. Approximately 50 terminologies that are related to this growing maze have been discussed. The literature was scanned for various sourcing alternatives and terminologies. The purpose of this chapter is to compile and elucidate the various facets of domestic and global sourcing of IS needs. The reader will gain holistic perspective of a phenomenon that is continuously changing the way business is carried out globally.

Outsourcing and Offshoring

Recently, outsourcing/offshoring has gained significant exposure in the popular as well as academic publications, with authors arguing the many different facets of the concept and its implications. The ongoing debates have revolved around issues related to cost of operations, benefits for outsourcing countries and countries that are recipients of outsourcing, the types of skills and associated unemployment, the types of industries that are being most effected, and even its political implications. This chapter discusses various issues related to outsourcing/offshoring and presents the findings of a research study (a survey of 364 individuals from 101 San Francisco Bay Area venture capital firms) attempting to validate (or disprove) some of the most widely discussed and presented points of view.

New Ethics for E-Business Offshore Outsourcing

In today’s dynamic e-business environment where fast time to market is imperative, where information and telecommunications technology is costly and changing rapidly, and where skilled technical resources are scarce, e-businesses need reliable, high-end outsourcing infrastructure and resources. E-business companies should consider corporate social responsibility and they must work on reducing the pain and stress of disruption in home countries while increasing the socio-economic benefits of these jobs in the receiving country. E-business should develop offshore outsourcing ethics program. It presents the analysis of the nature and the social impact of information technology and the corresponding formulation and justification of policies for the ethical use of technology. These notions are considered in efforts to produce globally acceptable ethics program that would articulate both individual company and global interests in an appropriate way. This chapter examines e-business ethics development, and new standardization efforts toward unified, globally acceptable Code of Ethics. It covers the analysis and discussion on the needs for such instrument and findings on how to reach unified global solution.

Emerging Legal Challenges in Offshore Outsourcing of IT-Enabled Services

The practice of information systems/information technology (IS/IT) outsourcing is a major issue which has received much attention, as shown by the extensive literature on the topic. However, most works on outsourcing have focused on theoretical topics, and there are but a few empirical, quantitative studies. This chapter presents an empirical study of IS/IT outsourcing in Spain, which has been conducted along the lines of prior research carried out in different countries, and which focuses on the types, functions and targets of outsourcing contracts. We also attempt to examine the influence that this practice may have on the organizations’ management structure. A survey carried out on 530 Spanish firms has shown that 50% of Spanish large firms have outsourced part of their IS/IT, whereas outsourcing is practiced by 20% of medium-sized enterprises. Finally, it has been observed that the most frequently outsourced activities in Spain are hosting and Internet-related services.