Information Technology Outsourcing

Suzanne Rivard, Benoit A. Aubert

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781138692787
• eBook ISBN: 9781317467922
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This new volume in the "Advances in Management Information Systems" series presents the latest cutting-edge knowledge in IT outsourcing. As part of the growing business trend to outsourcing various operations, IT outsourcing both determines the governance of a vital organizational function and influences the processes of exploitation and exploration in all other functions of an enterprise. In keeping with the mission of the "AMIS" series, the editors of this volume have framed the domain of research and practice broadly. "Information Technology Outsourcing" provides leading edge research on both the variety of decisions regarding the outsourcing of IS services and the management of the relationship with service suppliers.

CHAPTER 1

INFORMATION TECHNOLOGY OUTSOURCING

An Introduction

SUZANNE RIVARD AND BENOIT A. AUBERT

In the late 1980s, when the term information-systems (IS), or information-technology (IT), outsourcing was a neologism, some believed the phenomenon itself was a fad that would soon fall into oblivion. Yet some two decades after the first major IT outsourcing agreement was announced, the number of firms that decide to transfer their IT assets and services to external suppliers continues to increase. In terms of science, fifteen years is indeed a short period of time. Yet, during that period, the quantity and variety of studies on IT outsourcing have been impressive. There are two explanations for this situation. First, IT outsourcing is a multifaceted phenomenon that can be viewed from a variety of theoretical perspectives, for example, transaction cost theory, agency theory, resource-based theory, institutional analysis, and risk management, to name a few. Second, the phenomenon itself changes, raising new research questions. For instance, a decade ago application service provisioning was not even considered as an outsourcing alternative, and we heard very little about offshore outsourcing. They are now common options offered to organizations, and they raise new research issues.

This abundant and varied research falls into two broad streams: studies that aim at understanding and explaining the outsourcing decision and studies that focus on the management of the outsourcing relationship. Studies in the first stream of research are aimed at providing a better understanding of the antecedents of an outsourcing decision (be they economic, political, or institutional), of sourcing alternatives (insourcing, total outsourcing, selective sourcing, offshore outsourcing, ASP, and the like), or of the decision process itself. Studies that belong to the second stream aim at understanding the management of outsourcing relationships. Some propose models that depict the evolution of IT outsourcing relationships while others attempt to identify drivers for successful relationship management, be they success factors or management mechanisms.

The main objective of this volume is to encapsulate current knowledge and contribute to the building of a cumulative research tradition in the domain of IT outsourcing. To do so, the volume has been divided into four parts. The first examines past and current research and suggests new approaches for better understanding this phenomenon. The second and third parts explore the IT sourcing decision and the management of outsourcing relationships, respectively. The fourth and final part presents chapters that adopt a holistic perspective to analyze IT outsourcing and look at future trends in outsourcing research.

Part I. Taking Stock of IT Outsourcing Research

The field of IT outsourcing research is an evolving one, not only because of new practices but also because our methodologies for studying this phenomenon are becoming more refined over time. To date, academics have taken a fairly focused approach to the factors involved, concentrating largely on the economics of sourcing (i.e., costs, risks, and resources), types of outsourcing arrangements (e.g., total outsourcing, partial outsourcing), and the types of outsourcing contracts (e.g., detailed, general) as well as the relationship itself. Today, looking back on fifteen years of IT sourcing research, we are coming to recognize that we have just scratched the surface of our understanding of these methods.

IT outsourcing is a worthwhile research topic for three reasons. First, it is of intrinsic interest in and of itself. It is a new and different means of delivering organizational products and services and therefore valuable to understand. The chapters in this section introduce the reader to novel perspectives on the shape and meaning of IT outsourcing in organizations. In Chapter 2, Jérôme Barthélémy explores the question of whether or not an entire population of organizations can learn how to manage outsourcing better over time. In Chapter 3, Benoit A. Aubert and Anne-Marie Croteau explore how firm strategy affects key outsourcing issues. Chapter 4, by Teresa Marcon and Abhijit Gopal, introduces us to how language shapes our understanding of the world of outsourcing. This section invites consideration of new ways of viewing the outsourcing phenomenon, not by denigrating what has been done to date but by widening the scope of what is involved and by training new lenses on our current understanding of this topic.

Second, IT outsourcing is also a “field within a field” in that it is part of the larger arena of IT management, and like this broader subject, it is changing rapidly as technology enables new ways of working, creates entirely new products and services, and changes the competitive landscape. As a subset of this larger topic, outsourcing research can therefore illuminate new and fruitful ways of looking at and understanding the whole field, particularly its dynamics, which are both exciting to observe and frustrating to pin down. This section presents some challenging and provocative ideas for studying IT outsourcing that also have applicability to research in the broader field of IT management. Chapter 2 takes us to a new level of analysis—the entire population of organizations. Chapter 3 incorporates new theoretical perspectives and introduces us to the dynamic nature of this field. Chapter 4 shows us how the very language we use drives our practices.

Third, IT outsourcing represents the vanguard of some new organizational models, characterized by more open and porous boundaries, interorganizational collaboration and learning, and increasing globalization. What is learned about studying this phenomenon can inform and guide our understanding of the changes in store for organizations as a whole and how they can navigate through potential difficulties to achieve successful outcomes. Learning, strategy, and language have not typically been studied in outsourcing, yet each of these chapters shows how one of these concepts can and should affect the nature and trajectory of outsourcing in organizations and possibly other new organizational trends. These chapters encourage academics to expand their methodological bases of organizational research and better understand how new knowledge is produced. They also point the way to new levels of analysis and different ways of studying organizational dynamics. Chapter 2 illustrates how population-level learning can be studied and shows how this level of analysis can inform us in new ways. Chapter 3 demonstrates how multiple theoretical perspectives can be integrated in a research model and suggests how dynamics can be studied. Finally, Chapter 4 introduces new ways to interpret a multiplicity of stakeholder perspectives and illustrates ways in which the role of language can be productively researched.

Chapter 2: Population-Level Learning and the Evolution of IT Outsourcing Decisions

Can an entire population of organizations “learn” as a group? This is the question Jérôme Barthélémy sets out to explore in Chapter 2 of this volume. Theory suggests that populations of organizations can learn from experience in one of three ways. First, individual organizations can each learn from their direct experience with a phenomenon, for example, outsourcing. Second, they can learn from imitating what they know of other organizations’ experiences (i.e., interorganizational learning), or, third, a set of organizations (e.g., in an industry or geographic region) can learn from another set of organizations.

While this premise is theoretically compelling, the little empirical research that has been done in this area has yielded mixed results. One of the reasons for this, Barthélémy contends, is that these studies have focused on whether or not productivity gains can be transferred from one firm to another, not on what was learned or how it was learned. As he points out in this chapter, organizations can and do sometimes learn the wrong things from others’ experiences, particularly if the learning is from indirect sources, such as the trade press or consultants, which often tend toward optimistic reports or concentrate on the wrong reasons for success.

Research on IT outsourcing is not typically done at this level of analysis, yet it has the potential to yield significant insights not only into outsourcing as a phenomenon but also into organizational behavior in general. The 1989 contract between Kodak and its partners—IBM, DEC, and Businessland Inc.—is widely accepted as a tipping point in the use of outsourcing in organizations in that it legitimated the practice among large firms. Barthélémy’s goal in this chapter is to show not only that IT outsourcing has gained wider acceptance since this date, but also that organizations’ understanding of how best to undertake it has been progressively refined since then. While this proposition appears intuitively obvious, it has never been demonstrated.

Using the population of organizations that outsource all or part of their IT as the unit of analysis, this chapter presents and tests four propositions on what organizations have learned about outsourcing over time. These examine which activities organizations choose to outsource, how they select vendors, how contracts are developed, and finally, the overall success of the outsourcing effort. Barthélémy’s findings show that the outsourcing vendor-selection process and contracting processes have indeed evolved to become more elaborate, demonstrating that population-level learning took place over the ten-year period surrounding the 1989 watershed point. He also shows that organizations were more successful in outsourcing when they waited until a sufficient stock of knowledge about it was accumulated by the population as a whole.

This chapter’s conclusions are significant for two reasons. First, it convincingly demonstrates the importance and value of studying organizational learning at this unit of analysis, not only in the field of IT outsourcing, but also in other areas in which organizations learn from each other. Understanding the population of organizations is becoming increasingly vital as boundaries become more porous and open to new ideas from the outside and as organizational partnerships for learning become the norm rather than the exception. Second, it provides evidence that first movers in outsourcing have not seemed to enjoy advantages over later movers. This not only has implications for companies seeking to innovate in the outsourcing arena (e.g., global sourcing), but also suggests the accepted wisdom that innovation in IT yields a competitive advantage needs to be more carefully studied.

Chapter 3: Strategic Profiles and Information Technology Outsourcing

This chapter looks at another neglected dimension of the nature and dynamics of outsourcing decisions—organizational strategy. Although strategy is the element that distinguishes one organization from another and guides both an organization’s structure and performance, the influence of strategic characteristics has largely been ignored in outsourcing research. To date, studies have explored IT outsourcing largely from the perspective of the characteristics of outsourcing transaction costs or how outsourced resources are to be used.

Benoit A. Aubert and Anne-Marie Croteau suggest that a firm’s strategic position should affect two key outsourcing questions: Which IT activities should be outsourced? and how should IT outsourcing contracts be structured? In addition, outsourcing decisions must be dynamic they postulate, because as firms and industries mature, strategies also change, thereby influencing the nature and type of outsourcing desired. The authors examine several ways in which different strategic choices might affect these organizational decisions.

Current outsourcing research suggests that outsourcing activities are comparable between organizations. The authors feel that our understanding of outsourcing decisions could be improved by considering the strategic type of an organization. They illustrate their proposition by examining two fundamentally distinct strategies—defenders and prospectors—that could affect outsourcing behavior.

Aubert and Croteau postulate that these strategic profiles will also be associated with different types of outsourcing. Defenders will tend to choose more traditional outsourcing contracts that are more predictable and stress economies of scale and lower prices. Prospectors, will be more inclined to sign partnership contracts, which will have a higher level of incompleteness.

This chapter makes two important contributions to outsourcing research. First, it presents a theoretical foundation for addressing an organization’s strategic profile when studying outsourcing decisions and makes a case for looking at outsourcing from a higher level of analysis than earlier transaction-based research. In doing so, it also recognizes that sourcing has become an important variable in how different firms pursue their business strategies. Second, it proposes a dynamic model for understanding how and why an organization will change its sourcing decisions over time as its strategic position within an industry changes and as an industry matures.

Chapter 4: Information Technology Outsourcing: Questions of Language

The final chapter in this section explores another largely untapped avenue of research into IT outsourcing, that is, how language shapes our understanding of this phenomenon. Authors Teresa Marcon and Abhijit Gopal, note that language is used to create and construct societal awareness, and does not simply mirror an objective reality. They suggest that not only does our language name objects and concepts, it is also a way of understanding the world that excludes other views of it and helps shape our practices. The relationship between language and practices is particularly vital to understand in fields where new practices are developing and new language is being created.

Neologisms, that is, new words or expressions, are a particular feature of the world of information technology, of which outsourcing is a significant part. Marcon and Gopal point out that the creation and evolution of these words is a reflection of current practices and concerns. They argue that the constant interplay between language and practice can be a lens through which the outsourcing phenomenon may be studied. However, researchers in this field have not yet adopted the more nuanced methodologies that the study of language offers. Therefore, these represent an opportunity to bring new perspectives to old problems. Such approaches to research will not lead to predictive models, but can offer a new form of generalizability based on readers’ interpretations.

To illustrate this methodological approach, the authors reanalyze an ethnographic case study of outsourcing in a Fortune 500 company completed in 2000. At this firm, work activities were classified either as a “commodity” or as “value-adding.” All commodity work was targeted for outsourcing. Marcon and Gopal show that distinguishing between these two types of work (as opposed to classifying work in other ways) helped shape the perceptions of those doing it and affected how the work itself was accomplished. For example, commodity work was assigned to contractors, while value-added work was given to internal employees.

Interestingly, the contractors did not agree that their work was a commodity and they actively sought ways to avoid involvement in routine work and to develop practices that would enhance their status as consultants and professionals. This led to struggles between employees and contractors over the work they were expected to do and also shaped how contractors made choices about their daily practices and career development.

The authors suggest that language can be used to help better understand some of the challenges companies encounter in IT outsourcing and demonstrate a new approach for analyzing this and other organizational phenomena. While traditional wisdom in outsourcing research suggests that success derives from effective contracts and relationships, the authors propose that language can be used to tease out some of the deeper complexities and challenges facing organizations and new approaches to addressing them.

The chapter calls for increasing methodological sophistication and new directions for inquiry in IT outsourcing research. Such nuanced approaches have not yet been used in this field. Yet these have the ability to much better interpret the multiplicity of voices—their positions, interests, and concerns—involved in outsourcing. A linguistic approach also enables researchers to better theorize and understand change, which is essential to understanding an activity as dynamic as outsourcing. Finally, the authors suggest that linguistic sensitivity will help researchers deconstruct the knowledge-production process whereby consultants, the trade press, and researchers thems...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Series Editor’s Introduction
• Acknowledgments
• 1. Information Technology Outsourcing: An Introduction
• Part I. Taking Stock of IT Outsourcing Practice and Research
• Part II. The Sourcing Decision
• Part III. Managing the Outsourcing Relationship
• Part IV. Holistic View of IT Outsourcing
• Editors And Contributors
• Series Editor
• Index