Title

Title: An exploratory study into the evolution of nature of offshore IT outsourcing.

1. Introduction

IT outsourcing is broadly defined as a decision taken by an organization to contract-out or sell the organization’s IT assets, people and/or activities to a third party supplier, who in exchange provides and manages assets and services for monetary returns over an agreed time period (Loh and Venkatraman 1992; Lacity and Hirschheim 1993).

Thus, in an outsourcing activity there are two parties involved – the client (the outsourcer) and the supplier (the outsourcee). The nature of relationship between the client and supplier is a key determinant in success of IT outsourcing activities. The complexity increases when we talk about offshore outsourcing. The relationship has evolved from a contract based to a partnership-based type.

This evolution can be represented in 2 stages -

Contract based outsourcing (win-lose approach)– A client normally dictated projects, with control and ownership clearly spelled out in a hierarchical relationship.
Partnership based outsourcing (win-win approach)– This is a more collaborative approach to outsourcing characterised by mutual trust, longer-term relationships and closer level of interaction. No longer are only simple short-term contracts used, rather the new trend is a move towards much more complex alliances and consortia based sourcing. Alliances can be described as a close association of organizations, formed to advance common interests or causes. The contracts were structured to allow both the client and the providers to achieve profit. Furthermore, it encouraged the suppliers to continuously improve the assets. Some organizations are moving towards the use of consortia based outsourcing, otherwise known as sourced service consortia. That is, they are moving towards creating associations or a combination of businesses, financial institutions and investors, for the purpose of engaging in a joint venture that will outsource a specified function. The belief is that consortia based sourcing strategy will achieve even greater cost savings.

The aim of my dissertation is to study this evolving nature of outsourcing in the context of software offshore outsourcing. An outsourcing relationship has several characteristics such as the level of communication and coordination, trust, risk perception etc. The aim of my study would be to explore the past and present nature of relationships in offshore outsourcing focusing on the interaction and behavioral dimensions. This would be an input to understanding the evolution process .

2. Theoretical foundations of the study

Thomas Kern and Leslie Willcocks, developed a conceptual model for understanding outsourcing relationships. It is an exploratory model illustrating the constructs of a client supplier relationship. In particular, they conceptually elaborate and then address the relationship’s properties - identified as interactions, contract, context, structure, and behavioral dimensions.

Context, Contract, & Structure : The outsourcing relationship depends largely on the contextual dimension that encapsulates the specific objectives and expectations (e.g. financial, business, technical and political), which in turn reflect the antecedent conditions (Lacity et al. 1994). Contract outlines the foundation of the relationship (Halvey & Murphy, 1995). The management infrastructure is specified by the key personnel in charge of the contract and any resulting disputes.

Interactions: The interactions between the parties can be characterized by such dimensions as timeliness, value, regularity, quality, and content (Rothery & Robertson, 1995). Regularity of exchanges provides the medium through which firms can slowly begin to change their relationship, i.e. from contractual to cooperative (Easton 1992). Frequent communication is likely to lead to greater trust, and contrastingly greater trustworthiness can cause improved formal and informal communication (Anderson and Narus, 1990; Dwyer et al., 1987). Furthermore, cultural adaptations take place and smoothen the relationship further. Adaptations take place in attitudes, rules, norms, knowledge, and corporate strategies.

Behavioral Dimensions: The various interactions occurring within both levels, largely depend upon the atmosphere that pervades the overall outsourcing deal. It can be characterized by commitment and trust, satisfaction and expectations, co-operation and conflict, and power and dependency. These can be operational simultaneously at every point of time in the relationship, but may also arise at intervals and in problem situations. Commitment and trust are interdependent, as greater commitment leads to greater trust and vice versa.

3. Research questions

The key questions that my research would attempt to answer are

How have the interaction and behavioural dimensions transformed over the years?
What characteristics of the relationship are particularly significant as far as the evolution is concerned?
Verify the hypothesis that the relationship between clients and suppliers has really evolved from a hierarchical to a partnership based one.
Why is there an increasing preference for long-term relationships? What are the advantages that partnerships have over hierarchical relationships?
What insight does the study of evolution of relationships give us for the future.

4. Research methods

This project will predominantly be of a desk-based format consisting of a comprehensive literature review, as well as comprehensive research and analysis in to the past and present of companies involved with outsourcing.

The literature review will provide a clear insight into the research area. While carrying out the literature review I will expect to clarify the associations between previous researches and thereby be able to link them to the research questions in my dissertation. The textual material to be used, as part of the research will be of five forms: Research papers, texts books, methodology manuals, newspaper articles and the Internet. Access to these materials will be gained through the means of the library, IT firms, electronic journals and contacts of the business school. There is a vast range of material available on the subject area and therefore it will be crucial to select the appropriate material for the research
In order develop an in-depth understanding of how the nature of outsourcing has evolved; it is necessary to carry out some form of empirical research in conjunction with the textual study. There are many options available for this. Ethnography can be ruled out because it is un-required for the scope of the project. The next option that was considered was that of surveys and questionnaires. These could be conducted by sending them out in large numbers to a variety of firms. This idea was discarded, as the response rate of these surveys is often low. In addition to this due to the limited time frame available for the research it would not be possible to send out the questionnaire a number of times in order to get a sufficient response.

The most plausible option appeared to be that of interviews. Within the method of interviews semi-structured seemed to be the most appropriate. Structured interviews would place too much restriction up the interviewee opposed to an unstructured interview that would be unfocused. The semi-structured interview format would allow the subject to express their opinion around specifically targeted questions. The interviews would not be too long, as it would be difficult to fit these into the subjects’ schedule. My subjects would be members of organizations involved with the outsourcing activity, who are involved at least to some extent in the management decision-making. In order for an interview schedule to provide reliable and valid information, a number of factors need to be kept in mind. The construction of a set of questions that serve a purpose, which are unambiguous, which allows the interviewer to insert probe questions to obtain elaboration of answers already given, and which make it easy for the respondent to answer. Using the above guidelines for the construction of a reliable and valid instrument, an interview schedule will be designed. Questions addressing the nature of working relationship, evolution of relationship, the longetivity of relationships etc will be posed. All interviewees would be assured anonymity to promote openness. Interviews were tape-recorded, transcribed, and posted to interviewees for validation. The interviews presented first-hand exploratory empirical insights into relationship practice, which were further corroborated by the collection and the ensuing analysis of secondary documentation, such as magazine and newspaper articles, internal memos, minutes of meetings, and outsourcing contracts.

5. Expected contributions and conclusion

It is essentially an exploratory study. It would examine the different characteristics of the relationship and how these have changed over the last couple of years. Thus analyzing the relationship evolution by considering one characteristic at a time would provide a deep understanding of the process. It would also help in identifying the key characteristics that have driven the evolution. The research project would be a significant contribution to the study of nature of outsourcing relationships.

6. Time Table