The myths and realities of information technology insourcing
TL;DR: As the market evolves, a number of important aspects of these IT outsourcing decisions have been explored and can be categorized as descriptive case studies and surveys of the current outsourcing practices.
Abstract: nformation technology outsourcing—the practice of transferring IT assets, leases, staff, and management responsibility for delivery of services from internal IT functions to third-party vendors—has become an undeniable trend ever since Kodak's 1989 landmark decision. In recent years, private and public sector organizations worldwide have outsourced significant portions of their IT functions,monwealth Bank of Australia. The IT outsourcing market, which was worth $76 billion in 1995, grew to over $120 billion in 1997 [5]. As the market evolves, a number of important aspects of these IT outsourcing decisions have been explored. These studies can be categorized as descriptive case studies and surveys of the current outsourcing practices, surveys of practitioners' perceptions of risks IT managers commiserate over the challenges of convincing senior executives that, contrary to popular belief, outsourcing isn't always a money-saving option.
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TL;DR: A roadmap of the IS outsourcing literature is offered, highlighting what has been done so far, how the work fits together under a common umbrella, and what the future directions might be.
Abstract: In the last fifteen years, academic research on information systems (IS) outsourcing has evolved rapidly. Indeed the field of outsourcing research has grown so fast that there has been scant opportunity for the research community to take a collective breath, and complete a global assessment of research activities to date. This paper seeks to address this need by exploring and synthesizing the academic literature on IS outsourcing. It offers a roadmap of the IS outsourcing literature, highlighting what has been done so far, how the work fits together under a common umbrella, and what the future directions might be.In order to adequately address the immense diversity of research on IS outsourcing and outsourcing in general, we develop a conceptual framework that helps us to categorize the literature. In particular, we look at the research objectives, methods used and theoretical foundations of the papers. In identifying the major research objectives, we view outsourcing as an organizational decision process and adapt Simon's stage model of decision making. This allows us to identify five major sourcing issues, from which at least one is covered by each academic article. These are the questions of why to outsource, what to outsource, which decision process to take, how to implement the sourcing decision, and what is the outcome of the sourcing decision. In analyzing the literature, we identify and structure the main explanatory factors and theoretical relationships within each of these sourcing stages. Based on our discussion of the research objectives, theoretical foundations and research approaches taken in the literature, we show how the various research streams hang together and we come up with a number of implications for research. Moreover, we identify a number of emerging sourcing issues. We believe that research on these "new" phenomena such as offshore outsourcing, application service providing and business process outsourcing would benefit from 'standing on the shoulders' of what has already been accomplished in the field of IS outsourcing.
1,552 citations
Cites background from "The myths and realities of informat..."
...…and external bids (+) S Lacity & Willcocks (1998) Joint decision making by business and IS managers (+) S Lacity & Willcocks (1998) Competing outcomes Negative impact of IS cost reduction strategies on IS service quality S Hirschheim & Lacity (2000) Realization of Expectations....
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...The meaning of history and context is considered in the multiple case studies by Hirschheim and Lacity (2000)....
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...In the multiple case study by Hirschheim and Lacity (2000), the preparation of the decision, which entails the evaluation of different sourcing options, was most often delegated to IS managers....
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...Backsourcing Research is beginning to show (Hirschheim & Lacity, 2000) that many companies that have gone through large scale outsourcing exercises are finding that their flexibility is not as enhanced as they thought it would be with outsourcing, and that service levels they thought would…...
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...Answering these questions was the goal of studies by Hirschheim and Lacity (1998; 2000)....
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TL;DR: This paper uses the economic concept of complementarity in organizational design, along with prior findings from studies of client-vendor relationships, to explain the IT vendors' value proposition and explains how vendors can offer benefits that cannot be readily replicated internally by client firms.
Abstract: To date, most research on information technology (IT) outsourcing concludes that firms decide to outsource IT services because they believe that outside vendors possess production cost advantages. Yet it is not clear whether vendors can provide production cost advantages, particularly to large firms who may be able to replicate vendors' production cost advantages in-house. Mixed outsourcing success in the past decade calls for a closer examination of the IT outsourcing vendor's value proposition. While the client's sourcing decisions and the client-vendor relationship have been examined in IT outsourcing literature, the vendor's perspective has hardly been explored. In this paper, we conduct a close examination of vendor strategy and practices in one long-term successful applications management outsourcing engagement. Our analysis indicates that the vendor's efficiency was based on the economic benefits derived from the ability to develop a complementary set of core competencies. This ability, in turn, was based on the centralization of decision rights from a variety and multitude of IT projects controlled by the vendor. The vendor was enticed to share the value with the client through formal and informal relationship management structures. We use the economic concept of complementarity in organizational design, along with prior findings from studies of client-vendor relationships, to explain the IT vendors' value proposition. We further explain how vendors can offer benefits that cannot be readily replicated internally by client firms.
711 citations
Cites background from "The myths and realities of informat..."
...The intended benefits, however, often have not materialized (Hirschheim and Lacity 2000; Scheier 1997) and risks are significant (Aubert et al. 1998, 1999; Earl 1996)....
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TL;DR: This model explains interrelationships among four constructs representing the success of a specific IS (user satisfaction, system use, perceived usefulness, and system quality), and the relationships of these IS success constructs with four user-related constructs.
Abstract: Despite considerable empirical research, results on the relationships among constructs related to information system (IS) success, as well as the determinants of IS success, are often inconsistent. A comprehensive understanding of IS success thus remains elusive. In an attempt to address this situation, which may partly be due to the exclusion of potentially important constructs from prior parsimonious models of IS success, we present and test a comprehensive theoretical model. This model explains interrelationships among four constructs representing the success of a specific IS (user satisfaction, system use, perceived usefulness, and system quality), and the relationships of these IS success constructs with four user-related constructs (user experience with ISs, user training in ISs, user attitude toward ISs, and user participation in the development of the specific IS) and two constructs representing the context (top-management support for ISs and facilitating conditions for ISs). To test the model, we first used meta-analysis to compute a correlation matrix for the constructs in the model based on 612 findings from 121 studies published between 1980 and 2004, and then used this correlation matrix as input for a LISREL analysis of the model. Overall, we found excellent support for the theoretical model. The results underline the importance of user-related and contextual attributes in IS success and raise questions about some commonly believed relationships.
688 citations
Cites methods from "The myths and realities of informat..."
...Meta-Analysis We employed meta-analysis methods suggested by Hunter and Schmidt (1990) to compute corrected correlations among the constructs....
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01 Jan 2010
TL;DR: This paper provides an introduction to an alternative distribution free approach based on an approximate randomization test – where a subset of all possible data permutations between sample groups is made.
Abstract: To date, multi-group comparison of Partial Least Square (PLS) models where differences in path estimates for different sampled populations have been relatively naive. Often, researchers simply examine and discuss the difference in magnitude of specific model path estimates from two or more data sets. When evaluating the significance of path differences, a t-test based on the pooled standard errors obtained via a resampling procedure such as bootstrapping from each data set is made. Yet problems can occur if the assumption of normal population or similar sample size is made. This paper provides an introduction to an alternative distribution free approach based on an approximate randomization test – where a subset of all possible data permutations between sample groups is made. The performance of this permutation procedure is tested on both simulated data and a study exploring the differences of factors that impact outsourcing between the countries of US and Germany. Furthermore, as an initial examination of the consistency of this new procedure, the outsourcing results are compared with those obtained from using covariance based SEM (AMOS 7).
447 citations
Cites background from "The myths and realities of informat..."
...At the same time however, it is one of the major reasons why some companies decide to keep there IS function in-house or to bring it back in-house (Dibbern et al. 2003; Hirschheim and Lacity 2000 )....
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TL;DR: An examination of risk dimensions across the levels revealed that even low risk projects have a high level of complexity risk, and for high risk projects, the risks associated with requirements, planning and control, and the organization become more obvious.
415 citations
Cites background from "The myths and realities of informat..."
...However, there has been no empirical effort to examine the implications of outsourcing on project risk [18]....
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References
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TL;DR: Overall IS outsourcing and its five component functions--namely, applications development, systems operations, telecommunications, end-user support, and systems planning and management--are examined for their relationships with outsourcing success.
Abstract: Numerous corporations today are outsourcing specific information systems (IS) functions. The diversity of these outsourcing arrangements goes well beyond that associated with the more traditional facilities management. This paper examines outsourcing trends and reports the results of an empirical study on IS outsourcing. Overall IS outsourcing and its five component functions--namely, applications development, systems operations, telecommunications, end-user support, and systems planning and management--are examined for their relationships with outsourcing success. The effect of service quality of the provider and the ability of companies to build a partnership on these relationships are hypothesized and studied. Data from senior executives in 188 companies are gathered. Outsourcing success is found to be highly related to the degree of outsourcing of two functions, systems operations and telecommunications. The results indicate that transaction cost theory provides a good framework for IS outsourcing and that asset specificity of outsourcing transactions needs to be considered in any decision to outsource. Also, both service quality of the vendor and elements of partnership such as trust, cooperation, and communication are important for outsourcing success. Implications of the study for research and practice are discussed.
979 citations
TL;DR: Empirical analysis of a comprehensive sample of outsourcing contracts in the US using an electronic bibliometric search process shows that the adoption of IT outsourcing is motivated more by internal influence than by external influence amongst the user organizations.
Abstract: The governance of an organizational information technology (IT) infrastructure is steadily shifting away from pure hierarchical and market mechanisms toward hybrid and partnership modes that involve external vendors. In particular, IT outsourcing has recently emerged as a significant administrative innovation in an organization's IT strategy. This paper seeks to explore the sources of influence in the adoption of this innovation. For this purpose, we generated a comprehensive sample of outsourcing contracts in the US using an electronic bibliometric search process. Using diffusion modeling, our empirical analysis shows that the adoption of IT outsourcing is motivated more by internal influence (or imitative behavior) than by external influence amongst the user organizations. Subsequently, we considered the widely-publicized Eastman Kodak's outsourcing decision as a critical event to assess whether this internal influence is more pronounced in the post-Kodak regime than in the pre-Kodak regime. Our results...
718 citations
Book•
17 Aug 1993
TL;DR: In this paper, the authors conducted interviews with individuals from 13 different companies who have participated in formal information systems outsourcing to reveal insights about the intentions, motivations and consequences of this rapidly growing area.
Abstract: From the Publisher:
The outsourcing revolution is underway as increasing numbers of major corporations transfer their information systems (IS) assets, leases and staff to third-party vendors. In-depth interviews with individuals from 13 different companies who have gone through formal IS outsourcing reveal insights about the intentions, motivations and consequences of this rapidly growing area. Includes step-by-step instructions to negotiate a successful vendor contract.
715 citations
Journal Article•
TL;DR: In this article, the authors investigated outsourcing decisions at two levels: the first level deals with the initial outsourcing decision of client firms and the second level pertains to the intention to continue the relationships with current outsourcing vendors in the future.
Abstract: O UTSOURCING is the contracting of various systems to outside information systems (IS) vendors. Ever since the Eastman Kodak--IBM partnership was reported in 1989 [15], outsourcing has emerged and has been recognized as a key method of managing IS. In previous studies of outsourcing [4, 5, 12, 15, 17, 20], two gaps are noticeable. The first relates to the fact that requirements for outsourcing are not uniform, and managers have different approaches to the process. Yet most previous research studies have phrased their inquiries unidimensionally in terms of the extent or degree of outsourcing: either as a binary variable or as size of contract in terms of the percentage of total IS budget [5, 15]. Neither unidimensional gauge is sufficiently expressive; neither allows representation of diverse patterns of outsourcing. Second, even though the IS industry had not used the term “outsourcing” explicitly in the past, outsourcing is not a new concept and has existed for many years in one form or another. Even though firms have repetitively used outside vendors for years, researchers have neither considered prior relationships in their studies of IS outsourcing nor studied the intentions of client firms to continue the partnership with the outsourcing vendors in the future. In this study, IS outsourcing decisions are investigated at two levels. The first level deals with the initial outsourcing decision of client firms. The second level pertains to the intention to continue the relationships with current outsourcing vendors in the future. The following three research questions are explored at these two levels (in contrast to the singlelevel approach taken by most researchers): • What are the dimensions of outsourcing decisions? Two dimensions, extent of substitution by vendors and strategic impact of IS applications, are proposed in order to conceptualize the diverse types of outsourcing relationships between clients and vendors. Based on these two dimensions, four types of outsourcing relationships are proposed. • What are the determinants that affect the dimensions of outsourcing decisions at the first level? The concepts derived from incomplete contracts [2, 9] and transactions cost economics [23, 24] theory are used with information technology (IT) organizational contexts and processes as a foundation to study the determinants of the two dimensions of outsourcing decisions. Information Syst
345 citations
TL;DR: In this article, the authors developed the structure of the decision faced by a firm to outsource or to retain information services and the results of in-depth interviews with a variety of chief information officers.
Abstract: The structure of the decision faced by a firm to outsource or to retain information services is developed in this paper Theory regarding the decision structure is discussed and the results of in-depth interviews with a variety of chief information officers presented Specifically, the forces that drive the outsourcing decision are identified, the incentives and disincentives of outsourcing relationships being addressed in detail A framework for contemplating the outsourcing option is presented, followed by recommendations on managing relationships with outsourcing vendors
324 citations