IT/IS Outsourcing in Large Companies Motivations and Risks

Companies can outsource Information Technologies (IT) /Information Systems (IS) at various scales, from a small percentage of services to the entire range of services that they need. Outsourcing is associated to a set of motivations related to perceived benefits, but it also has inherent risks. This paper discusses the main results of a survey carried out to determine several aspects of outsourcing practice in large companies. It presents the most frequently contracted services (application development and application maintenance), the most prevailing motivations (financial motives and access to world-class capabilities) and the main risks (loss of control, loss of intellectual capital, and unexpected costs), as perceived by companies.

[1]  Subhankar Dhar,et al.  Risks, Benefits, and Challenges in Global IT Outsourcing: Perspectives and Practices , 2006, J. Glob. Inf. Manag..

[2]  Leslie P. Willcocks,et al.  Risk mitigation in IT outsourcing strategy revisited: longitudinal case research at LISA , 1999, J. Strateg. Inf. Syst..

[3]  E. Fehr,et al.  Reciprocity as a contract enforcement device: experimental evidence , 1997 .

[4]  Björn Johansson,et al.  Sourcing motives behind sourcing decisions exposed through the Sourcing Decision Framework , 2022, International Journal of Information Systems and Project Management.

[5]  Rajiv Kishore,et al.  The Role of Service Level Agreements in Relational Management of Information Technology Outsourcing: An Empirical Study , 2009, MIS Q..

[6]  R. L. Huber.  How Continental Bank outsourced its "crown jewels.". , 1993, Harvard business review.

[7]  Murray L Weidenbaum,et al.  Outsourcing: Pros and cons , 2005 .

[8]  D. Jacobs,et al.  Dependency and Vulnerability: An Exchange Approach to the Control of Organizations. , 1974 .

[9]  Cecily Raiborn,et al.  Outsourcing support functions: Identifying and managing the good, the bad, and the ugly , 2009 .

[10]  Sachidanandam Sakthivel,et al.  Managing risk in offshore systems development , 2007, CACM.

[11]  William R. King.  Innovation in Responding to the “Threat” of it Offshoring , 2005, Inf. Syst. Manag..

[12]  Marianne Bradford,et al.  The value impact of strategic intent on firms engaged in information systems outsourcing , 2009, Int. J. Account. Inf. Syst..

[13]  S. Jong,et al.  Cross-country differences in ICT adoption: A consequence of Culture? , 2006 .

[14]  Charles E. Downing,et al.  The Value of Outsourcing: A Field Study , 2003, Inf. Syst. Manag..

[15]  C. Prahalad,et al.  The Core Competence of the Corporation , 1990 .

[16]  G. Ottaviano,et al.  Firms Heterogeneity, Contract Enforcement and the Industry Dynamics of Offshoring , 2009 .

[17]  Maria Manuela Cunha,et al.  Identification of the domain of opportunities for a market of resources for virtual enterprise integration , 2006 .

[18]  Marianne Bradford,et al.  Information technology outsourcing and organizational restructuring: An explanation of their effects on firm value , 2005 .

[19]  Aini Aman,et al.  Outsourcing decision processes: A case study of a Malaysian firm , 2010 .

[20]  Heiko Gewald,et al.  Risks and benefits of business process outsourcing: A study of transaction services in the German banking industry , 2009, Inf. Manag..

[21]  Paul F. Takac.  Outsourcing: a key to controlling escalating IT costs? , 2014 .

[22]  Wendy L. Currie,et al.  Using multiple suppliers to mitigate the risk of IT outsourcing at ICI and Wessex Water , 1998, J. Inf. Technol..

[23]  João Varajão,et al.  Função de Sistemas de Informação: contributos para a melhoria do sucesso da adopção de tecnologias de informação e desenvolvimento de sistemas de informação nas organizações , 2003 .

[24]  Wendy L. Tate,et al.  Offshore outsourcing of professional services: A transaction cost economics perspective , 2008 .

[25]  Ralph L. Kliem,et al.  Managing the Risks of Outsourcing Agreements , 1999, Inf. Syst. Manag..

[26]  João Varajão,et al.  Information Systems Outsourcing in Major Portuguese Companies - Contracting Services , 2012, J. Res. Pract. Inf. Technol..

[27]  Rajiv Kohli,et al.  Do Cultural Differences Matter in IT Implementation?: A Multinational's Experience with Collaborative Technology , 2011, J. Glob. Inf. Manag..

[28]  Sundeep Sahay,et al.  Managing cross-cultural issues in global software outsourcing , 2004, CACM.

[29]  Jaak Jurison.  The role of risk and return in information technology outsourcing decisions , 1995, J. Inf. Technol..

[30]  Jens Dibbern,et al.  The impact of cultural differences in offshore outsourcing—Case study results from German–Indian application development projects , 2008, Inf. Syst. Frontiers.

[31]  Godwin G. Udo.  Using analytic hierarchy process to analyze the information technology outsourcing decision , 2000, Ind. Manag. Data Syst..

[32]  G. Erber,et al.  Offshore Outsourcing , 2005 .

[33]  N. Venkatraman,et al.  Determinants of Information Technology Outsourcing: A Cross-Sectional Analysis , 2011, J. Manag. Inf. Syst..

[34]  S. Balaji,et al.  Critical Capabilities for Offshore Outsourcing of Information Systems , 2007, MIS Q. Executive.

[35]  Ray Hackney,et al.  IT outsourcing: frameworks for conceptualizing practice and perception , 2000, Inf. Syst. J..

[36]  Paula Kotzé,et al.  Critical success factors for information systems outsourcing management: a software development lifecycle view , 2010, SAICSIT '10.

[37]  José L. Gascó,et al.  Information Systems Offshore Outsourcing: An Exploratory Study of Motivations and Risks in Large Spanish Firms , 2010, Inf. Syst. Manag..

[38]  Bhimrao Ghodeswar,et al.  Business process outsourcing: an approach to gain access to world-class capabilities , 2008, Bus. Process. Manag. J..

[39]  Kweku-Muata Osei-Bryson,et al.  Managing risks in information systems outsourcing: An approach to analyzing outsourcing risks and structuring incentive contracts , 2006, Eur. J. Oper. Res..

[40]  O. Williamson.  Comparative Economic Organization: The Analysis of Discrete Structural Alternatives , 1994 .

[41]  David C. Chou,et al.  Information systems outsourcing life cycle and risks analysis , 2009, Comput. Stand. Interfaces.

[42]  Anandasivam Gopal,et al.  The Role of Contracts on Quality and Returns to Quality in Offshore Software Development Outsourcing , 2010, Decis. Sci..

[43]  Angappa Gunasekaran,et al.  Knowledge management in 21st century manufacturing , 2007 .

[44]  R. Hirschheim,et al.  Information systems outsourcing : myths, metaphors, and realities , 1993 .

[45]  José L. Gascó,et al.  Information systems outsourcing risks: a study of large firms , 2005, Ind. Manag. Data Syst..

[46]  Suzanne Rivard,et al.  The information technology outsourcing risk: a transaction cost and agency theory-based perspective , 2003, J. Inf. Technol..

[47]  Leslie P. Willcocks,et al.  Exploring relationships in information technology outsourcing: the interaction approach , 2002, Eur. J. Inf. Syst..

[48]  R. Klepper,et al.  Outsourcing information technology, systems and services , 1998 .

[49]  J. B. Quinn,et al.  STRATEGIC OUTSOURCING: LEVERAGING KNOWLEDGE CAPABILITIES , 1999 .

[50]  Leslie P. Willcocks,et al.  A review of the IT outsourcing literature: Insights for practice , 2009, J. Strateg. Inf. Syst..

[51]  Kraiwinee Bunyaratavej,et al.  Services cultural alignment in offshoring: The impact of cultural dimensions on offshoring location choices , 2010 .

[52]  Robbie T. Nakatsu,et al.  A comparative study of important risk factors involved in offshore and domestic outsourcing of software development projects: A two-panel Delphi study , 2009, Inf. Manag..

[53]  E. Waarts,et al.  The Effect of National Culture on the Adoption of Innovations , 2003 .

[54]  Eileen M. Trauth,et al.  Situating culture in the global information sector , 2002, Inf. Technol. People.

[55]  Bandula Jayatilaka,et al.  Information systems outsourcing: a survey and analysis of the literature , 2004, DATB.

[56]  João Varajão,et al.  Offshore outsourcing in large companies: Motivations and risks perceived , 2012 .

[57]  O. Williamson.  Transaction-Cost Economics: The Governance of Contractual Relations , 1979, The Journal of Law and Economics.

[58]  W. Currie.  A knowledge-based risk assessment framework for evaluating web-enabled application outsourcing projects , 2003 .

[59]  Robert M. Davison,et al.  Web-Based Data Collection in China , 2006, J. Glob. Inf. Manag..

[60]  J. Belohlav,et al.  Outsourcing impact on manufacturing firms’ value: Evidence from Japan , 2007 .

[61]  Brad Quinn Post,et al.  A Business Case Framework for Group Support Technology , 1992, J. Manag. Inf. Syst..

[62]  Michael Steven Lane,et al.  Examining client perceptions of partnership quality and the relationships between its dimensions in an IT outsourcing relationship , 2011, Australas. J. Inf. Syst..

[63]  Suzanne Rivard,et al.  Assessing the risk of IT outsourcing , 1998, Proceedings of the Thirty-First Hawaii International Conference on System Sciences.

[64]  Paul Trott,et al.  Innovation risks of strategic outsourcing , 2006 .

[65]  Dorothy E. Leidner,et al.  Review: A Review of Culture in Information Systems Research: Toward a Theory of Information Technology Culture Conflict , 2006, MIS Q..

[66]  C. Chiou,et al.  Dynamic capabilities, collaborative network and business model: An empirical analysis of Taiwan HTC Corporation , 2011 .

[67]  G. Hamel.  Competition for competence and interpartner learning within international strategic alliances , 1991 .

[68]  L. Willcocks,et al.  Interpreting information technology sourcing decisions from a transaction cost perspective: Findings and critique , 1995 .

[69]  M. J. Earl,et al.  The Risks of Outsourcing IT , 1996 .

[70]  A. André,et al.  Information Systems Outsourcing: Risks and Benefits for Organizations , 2011 .

[71]  Lior Fink,et al.  Information technology outsourcing through a configurational lens , 2010, J. Strateg. Inf. Syst..

[72]  José L. Gascó,et al.  Information Systems Outsourcing: an Empirical Study of Success Factors , 2008, MCIS.

[73]  Rajshekhar G. Javalgi,et al.  Outsourcing to emerging markets: Theoretical perspectives and policy implications , 2009 .

[74]  B. Bahli,et al.  Validating measures of information technology outsourcing risk factors , 2005 .

[75]  João Barroso,et al.  Information systems services outsourcing reality in large Portuguese organisations , 2008, Int. J. Bus. Inf. Syst..

[76]  José L. Gascó,et al.  Information systems outsourcing reasons and risks: a new assessment , 2010, Ind. Manag. Data Syst..