This paper reviews research studies of information technology outsourcing (ITO) practice and provides substantial evidence that researchers have meaningfully and significantly addressed the call for academics to produce knowledge relevant to practitioners. Based on a review of 191 IT outsourcing articles, we extract the insights for practice on six key ITO topics relevant to practitioners. The first three topics relate to the early 1990s focus on determinants of IT outsourcing, IT outsourcing strategy, and mitigating IT outsourcing risks. A focus on best practices and client and supplier capabilities developed from the mid-1990s and is traced through to the late 2000s, while relationship management is shown to be a perennial and challenging issue throughout the nearly 20years under study. More recently studies have developed around offshore outsourcing, business process outsourcing and the rise, decline and resurrection of application service provision. The paper concludes by pointing to future challenges and developments.

A review of the IT outsourcing literature: Insights for practice

Increasingly, firms source more complex and strategic as well as harder to codify IT projects to low cost offshore locations. Completing such projects successfully requires close collaboration among all participants. Yet, achieving such collaboration is extremely difficult because of the complexity of the context - multiple and overlapping boundaries associated with diverse organizational and national contexts separate the participants. These boundaries also lead to a pronounced imbalance of resources among onshore and offshore participants giving rise to status differences and inhibiting collaboration. This research adopts a practice perspective to investigate how differences in country and organizational contexts give rise to boundaries and associated status differences in offshore application development projects and how these boundaries and status differences can be renegotiated in practice to establish effective collaboration. To illustrate and refine the theory, a qualitative case study of a large financial services firm, which sourced a variety of "high-end" IT work to its wholly owned subsidiaries ("captive centers") and to third party vendors in multiple global locations (e.g., India and Russia), is presented. Using a grounded theory approach, the paper finds that differences in country contexts gave rise to a number of boundaries that inhibited collaboration effectiveness, while differences in organizational contexts were largely mediated through organizational practices that treated vendor centers and captive units similarly. It also shows that some key onshore managers were able to alleviate status differences and facilitate effective collaboration across diverse country contexts by drawing on their position and resources. Implications are drawn for the theory and practice of global software development and multi-party collaboration.

Innovating or Doing as Told? Status Differences and Overlapping Boundaries in Offshore Collaboration

Absorptive capacity is a firm's ability to identify, assimilate, transform, and apply valuable external knowledge. It is considered an imperative for business success. Modern information technologies perform a critical role in the development and maintenance of a firm's absorptive capacity. We provide an assessment of absorptive capacity in the information systems literature. IS scholars have used the absorptive capacity construct in diverse and often contradictory ways. Confusion surrounds how absorptive capacity should be conceptualized, its appropriate level of analysis, and how it can be measured. Our aim in reviewing this construct is to reduce such confusion by improving our understanding of absorptive capacity and guiding its effective use in IS research. We trace the evolution of the absorptive capacity construct in the broader organizational literature and pay special attention to its conceptualization, assumptions, and relationship to organizational learning. Following this, we investigate how absorptive capacity has been conceptualized, measured, and used in IS research. We also examine how absorptive capacity fits into distinct IS themes and facilitates understanding of various IS phenomena. Based on our analysis, we provide a framework through which IS researchers can more fully leverage the rich aspects of absorptive capacity when investigating the role of information technology in organizations.

/pdf/absorptive-capacity-and-information-systems-research-review-blp1lhcog6.pdf

Absorptive capacity and information systems research: review, synthesis, and directions for future research

An enormous amount of information has been produced about the IT outsourcing phenomenon over the last 20 years, but one has to look to the academic literature for consistent, objective, and reliable research approaches and analyses. Our review finds that, in practice, the academic literature on IT outsourcing has very much honored both rigor and relevance in the ways in which research has been conducted. Our central purpose in the review was to answer two research questions: What has the empirical academic literature found about information technology outsourcing (ITO) decisions and outcomes? What are the gaps in knowledge to consider in future ITO research? To answer these questions, we examined 164 empirical ITO articles published between 1992 and 2010 in 50 journals. Adapting a method used by Jeyaraj et al. (2006), we encapsulated this vast empirical literature on ITO in a way that was concise, meaningful, and helpful to researchers. We coded 36 dependent variables, 138 independent variables, and 741 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of outsourcing: one model addressed ITO decisions and one model addressed ITO outcomes. The model of ITO decisions includes independent variables associated with motives to outsource, transaction attributes, client firm characteristics, and influence sources. The model of ITO outcomes includes independent variables associated with client and supplier capabilities, relationship characteristics, contractual governance, decision characteristics, and transaction attributes. We also examined the interactions among broad categories of variables and the learning curve effects resulting from feedback loops. Overall, ITO researchers have a broad and deep understanding of ITO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We reviewed recent studies that have identified gaps in current knowledge and proposed future paths of research pertaining to strategic motivations, environmental influences, dynamic interactions, configurational and portfolio approaches, global destinations, emerging models, reference theory extension, and grounded theory development.

https://link.springer.com/content/pdf/10.1057%2Fjit.2010.21.pdf

A Review of the it Outsourcing Empirical Literature and Future Research Directions

Increasingly, firms source more complex and strategic as well as harder to codify information technology projects to low-cost offshore locations. Completing such projects successfully requires close collaboration among all participants. Yet, achieving such collaboration is extremely difficult because of the complexity of the context: multiple and overlapping boundaries associated with diverse organizational and national contexts separate the participants. These boundaries also lead to a pronounced imbalance of resources among onshore and offshore contributors giving rise to status differences and inhibiting collaboration. This research adopts a practice perspective to investigate how differences in country and organizational contexts give rise to boundaries and associated status differences in offshore application development projects and how these boundaries and status differences can be renegotiated in practice to establish effective collaboration. To illustrate and refine the theory, a qualitative case study of a large financial services firm, which sourced a variety of high-end IT work to its wholly owned subsidiaries ("captive centers") and to third party vendors in multiple global locations (in particular, to India and Russia), is presented. Using a grounded theory approach, the paper finds that differences in country contexts gave rise to a number of boundaries that inhibited collaboration effectiveness, while differences in organizational contexts were largely mediated through organizational practices that treated vendor centers and captive units similarly. It also shows that some key onshore managers were able to alleviate status differences and facilitate effective collaboration across diverse country contexts by drawing on their position and resources. Implications are drawn for the theory and practice of global software development and multiparty collaboration.

/pdf/innovating-or-doing-as-told-status-differences-and-57luyqdnmu.pdf

Innovating or doing as told? status differences and overlapping boundaries in offshore collaboration

Gaining economic benefits from substantially lower labor costs has been reported as a major reason for offshoring labor-intensive information systems services to low-wage countries. However, if wage differences are so high, why is there such a high level of variation in the economic success between offshored IS projects? This study argues that offshore outsourcing involves a number of extra costs for the client organization that account for the economic failure of offshore projects. The objective is to disaggregate these extra costs into their constituent parts and to explain why they differ between offshored software projects. The focus is on software development and maintenance projects that are offshored to Indian vendors. A theoretical framework is developed a priori based on transaction cost economics (TCE) and the knowledge-based view of the firm, complemented by factors that acknowledge the specific offshore context. The framework is empirically explored using a multiple case study design including six offshored software projects in a large German financial service institution. The results of our analysis indicate that the client incurs post- contractual extra costs for four types of activities: (1) requirements specification and design, (2) knowledge transfer, (3) control, and (4) coordination. In projects that require a high level of client-specific knowledge about idiosyncratic business processes and software systems, these extra costs were found to be substantially higher than in projects where more general knowledge was needed. Notably, these costs most often arose independently from the threat of opportunistic behavior, challenging the predominant TCE logic of market failure. Rather, the client extra costs were particularly high in client-specific projects because the effort for managing the consequences of the knowledge asymmetries between client and vendor was particularly high in these projects. Prior experiences of the vendor with related client projects were found to reduce the level of extra costs but could not fully offset the increase in extra costs in highly client-specific projects. Moreover, cultural and geographic distance between client and vendor as well as personnel turnover were found to increase client extra costs. Slight evidence was found, however, that the cost-increasing impact of these factors was also leveraged in projects with a high level of required client-specific knowledge (moderator effect).

Explaining variations in client extra costs between software projects offshored to india

Offshore outsourcing to vendors in foreign countries causes unique challenges which need to be understood and managed effectively. This paper explores cultural differences in IS offshoring arrangements involving German client organizations that outsource application development activities to Indian vendors. For this purpose, a research framework is developed based on both theoretical considerations and specific empirical observations from multiple case studies. The goal is to (1) explore the nature of cultural differences in offshore outsourcing arrangements in depth and to (2) analyze the relationship between those cultural differences and offshore outsourcing success. Based on the case findings, implications and practices for the management of offshore development projects are outlined. The results indicate that cultural differences in terms of power distance, IS designer values, and an active versus passive working attitude critically affect several dimensions of relationship quality, thereby influencing offshore outsourcing success. A clear definition of roles and mechanisms, strong leadership, and an active management of culture by adapting to either the client's or the vendor's national culture appeared to be effective ways to manage cultural differences.

The impact of cultural differences in offshore outsourcing--Case study results from German---Indian application development projects

Dieser Beitrag zeigt auf der Basis von sechs Anwendungsentwicklungsprojekten in Indien, welche kulturellen Einflussgrosen bei der Auslagerung von IT-Projekten einzubeziehen sind, wie diese Determinanten den Projekterfolg beeinflussen und durch welche Masnahmen von Seiten des Managements kulturelle Herausforderungen zur Sicherung des Projekterfolgs gemeistert werden konnen:


Als kritische Kulturfaktoren haben sich Unterschiede in der Machtdistanz, dem Designverstandnis und der aktiven versus passiven Arbeitseinstellung herauskristallisiert.


Diese Faktoren wirken direkt auf wichtige Stellgrosen der Beziehungsqualitat, wie dem Vertrauen, der Leistung des Anbieters, dem Grad der Kooperation und auftretenden Konflikten. Auf diese Weise wirken sie indirekt auf den Erfolg von Offshoring-Projekten.


Eine klare Definition von Rollen und Mechanismen, starke Mitarbeiterfuhrung und ein aktives Kulturmanagement, das eine Anpassung an die Kultur des Kunden oder an die des Anbieters beinhaltet, haben sich als effektive Managementmasnahmen zur Bewaltigung kultureller Herausforderungen herausgestellt.

Der Einfluss kultureller Unterschiede beim IT-Offshoring

Gaining economic benefits from substantially lower labor costs has been reported as a major reason for information systems (IS) offshoring. However, many offshoring projects have failed to achieve expected cost savings, indicating that labor cost savings are offset by additional costs that arise in offshoring projects in certain situations. While previous research on IS offshoring has mostly focused on management issues in offshoring, the focus of this paper is to improve our understanding why the realization of economic benefits varies substantially between offshored software projects. Based on a conceptual framework from transaction cost economics and empirical data from an in-depth case study involving six software development and maintenance projects that were offshored to software vendors in India by a major German financial services organization, two research questions are studied. First, what types of additional costs may arise in offshored software projects? Second, how and why do additional costs vary between projects, considering both task and offshore characteristics? The findings from our analysis indicate that offshoring can lead to increased effort on the client side, both in terms of production costs (requirements specification, knowledge transfer, conceptual development) and transaction costs (vendor coordination, and control). These additional costs are particularly high when the outsourced function is highly asset specific. Moreover, offshore country characteristics such as cultural differences, geographic distance as well as vendor characteristics such as the degree of personnel fluctuation and lack of absorptive capacity can lead to cost add-ons at the client side – in particular when a high degree of human asset specificity is involved in the offshored software projects.

Offshoring of Application Services in the Banking Industry – A Transaction Cost Analysis

Recently, offshoring of information systems (IS) services to external vendors has seen considerable growth. Outsourcing to vendors in foreign countries brings about unique challenges which need to be understood and managed effectively. This paper explores cultural differences in IS offshoring arrangements involving German client organizations that outsource application development activities to Indian vendors. For this purpose, a research framework is developed based on both theoretical considerations and specific empirical observations from multiple case studies. The goal is to (1) explore the nature of cultural differences in offshoring arrangements in depth and to (2) analyze the relationship between those cultural differences and offshoring success. Based on the case findings, implications and practices for the management of offshore development projects are outlined.

/pdf/success-in-offshoring-of-application-development-does-3mt1l44wjd.pdf

Jessica K. Winkler

Papers

Explaining variations in client extra costs between software projects offshored to india

The impact of cultural differences in offshore outsourcing--Case study results from German---Indian application development projects

Der Einfluss kultureller Unterschiede beim IT-Offshoring

Offshoring of Application Services in the Banking Industry – A Transaction Cost Analysis

Success in Offshoring of Application Development – Does Culture Matter?