Outsourcing Deals Research Articles

The Role of Modular Architecture in The Context of Is/It Project Outsourcing: An Empirical Analysis

The outsourcing of information systems and information technology (IS/IT) has become a prevalent practice in both developed and emerging economies, with the aim of achieving economies of scale and competitive advantages. In general, an IS/IT outsourcing deal concerns an agreement or contract (service level agreement or SLA) between parties in which one party (the vendor organization) agrees to deliver certain services to another party (the customer organization). The outsourcing literature is persistently reporting high failure rates in IS/IT project outsourcing and suggests that the IS/IT project outsourcing process is a complex maneuver. However, it is likely that due to inappropriate strategies and short-sightedness, at least a third of IS/IT outsourcing projects fail to deliver intended targets. For decades, in numerous fields, the issue of complexity has been addressed by applying the concept of modularity. Modular architecture is a key aspect of the concept of modularity. An in-house team of skilled individuals possessing expertise in architectural and systems integration knowledge may help to achieve competitive advantage by effectively managing complexity. In addition to achieving economies of scale, the customer organization may also achieve agility and flexibility by combining the advantages of modularity and outsourcing. This study examines the feasibility of applying the concept of modularity in the context of IS/IT project outsourcing with the aim of further expanding its scope. The findings of empirical analyses of four cases suggest that numerous aspects of the concept of modularity are relevant in the context of IS/IT project outsourcing. The ‘modular architecture’ has emerged as one of the most relevant and was identified in three out of the four analyzed cases. It implies that the ‘modular architecture’ aspect ought to receive greater attention when designing or planning a new IS/IT outsourcing project. The authors argue by stating that the present study has provided support for the point of view that engineering concepts such as modularity can be applied with substantial relevance to research domains which are predominantly considered from an IT management-perspective. Perhaps the use of the same concept, i.e., modularity, at both the technical and management level will provide a common vocabulary and may be even more to achieve better alignment between both levels and contribute to realizing more successful IS/IT outsourcing projects in the future. However, at the very least, a common vocabulary should help in collaboration between researchers at both levels to advance the research and practice in IS/IT project outsourcing, to which this is an invitation. It would be a contribution to the new and emerging research area focusing on applying engineering concepts to the design of enterprises, coined Enterprise Engineering. In addition to theoretical contributions, this study has implications at a practical level by providing an alternative lens for the CIO’s to analyze their future IS/IT projects.

Offshore Software Maintenance Outsourcing Process Model Validation: A Case Study Approach

The successful execution and management of Offshore Software Maintenance Outsourcing (OSMO) can be very beneficial for OSMO vendors and the OSMO client. Although a lot of research on software outsourcing is going on, most of the existing literature on offshore outsourcing deals with the outsourcing of software development only. Several frameworks have been developed focusing on guiding software system managers concerning offshore software outsourcing. However, none of these studies delivered comprehensive guidelines for managing the whole process of OSMO. There is a considerable lack of research working on managing OSMO from a vendor’s perspective. Therefore, to find the best practices for managing an OSMO process, it is necessary to further investigate such complex and multifaceted phenomena from the vendor’s perspective. This study validated the preliminary OSMO process model via a case study research approach. The results showed that the OSMO process model is applicable in an industrial setting with few changes. The industrial data collected during the case study enabled this paper to extend the preliminary OSMO process model. The refined version of the OSMO process model has four major phases including (i) Project Assessment, (ii) SLA (iii) Execution, and (iv) Risk.

Why and how formal relational contracts will improve your next corporate real estate outsourcing deal

Relational contracting is not new. But the concept of formal relational contracting is new, especially in the corporate real estate/facility management (CRE/FM) arena. This paper shares the latest research and thinking on relational contracts and explains how using a formal relational contract can boost collaboration and trust with your CRE outsourcing partner. Since the early 1960s, pioneering legal scholars such as Stewart Macaulay and Ian Macneil began promoting the value of the softer ‘relational’ side of contracts. In fact, Macaulay’s original 1963 article on the topic would become the most-cited article in contract law. These pioneers shone a light in the legal and economic fields that fostered intense interest. Still, the concept of using relational contracting practices and relational contracts has never really taken off, specifically in CRE/FM agreements. We believe the time has come for formal relational contracts to take centre stage, especially in light of the need for flexibility and collaboration due to the COVID-19 pandemic.

Making ‘getting what you pay for’ a reality in CRE outsourcing deals

Perhaps no other topic creates as much apprehension between a buyer and a supplier as trying to negotiate a fair price for corporate real estate (CRE) services. The conventional procurement process puts buyers and sellers on opposite sides of the table until the parties ‘get to yes’. While a buying company and service provider often ‘get to yes’ and establish a business agreement, they will frequently face renegotiations. Buyers especially become frustrated — often blaming suppliers for not honouring their original price. Rather than being frustrated, buyers should look in the mirror and say: ‘Did I get what I paid for? And if not — why?’ The primary reason is that the process for establishing pricing between buyers and suppliers has historically been broken. How so? At the heart of the misalignment is that conventional sourcing business models usually result in the buyer company and their supplier establishing a ‘price’ that reflects the circumstances at a point when the business agreement is established. A ‘price’ is not responsive to changes in the scope of work, in the market, or in corporate strategy. In addition, many companies do not take the time to use more advanced sourcing business models and pricing mechanisms designed to keep a buyer and supplier relationship in equilibrium as ‘business happens’. In the October 2018 issue of the Corporate Real Estate Journal (CREJ) (Vol. 8, No. 2) we shared the fundamental tools practitioners can use for pricing a CRE deal. This paper goes a step further and provides a deep-dive into pricing and suggests the most appropriate way to establish fair pricing for each type of sourcing business model. We conclude with a call to action for practitioners to evaluate existing pricing models to ensure appropriateness for the business.

Pricing 101 : Understanding the basics of pricing a corporate real estate outsourcing deal

Perhaps no other topic creates as much apprehension between a buyer and a supplier as trying to negotiate a fair price for corporate real estate (CRE) services. The current authors believe one of the key reasons is because buyers and suppliers do not understand the fundamental basics of pricing. Pricing a CRE deal becomes much easier when you completely understand the tools in your pricing toolkit. This paper addresses five common questions with which organisations often struggle for pricing a CRE deal. In answering the questions, the paper defines and explains the pricing tools practitioners can use to make getting to a fair price easier. The paper also provides recommendations where appropriate. Lastly, the paper challenges buyers and suppliers to negotiate prices with a lens of transparency.

Outsourcing at Office Supply Inc.

This case is designed to teach how to structure information technology (IT) infrastructure outsourcing deals from both the outsourcer and the client perspective. Office Supply Incorporated (OSI) is a company in crisis, with challenges in its cost structure and poor IT performance. Outsourcing to Technology Infrastructure Solutions is an opportunity to both reduce costs and complexity for the firm, but students first must consider whether outsourcing is a good strategic fit for OSI. Detailed spreadsheet templates are given that are based on a real outsourcing client engagement for a major infrastructure outsourcing company. The spreadsheets are complex but have been simplified so that they automatically calculate when populated, allowing the students to quickly move to answering the management challenge: how should TIS price and structure the outsourcing deal? Answering this question provides deep insights into the business case for IT outsourcing and how outsourcers financially engineer a deal structure to ensure a win-win outcome for both the client and outsource service provider.Students will: Understand the strategic context of IT outsourcing and when it will benefit a firm; Understand IT infrastructure outsourcing and management issues such as personnel reductions and organizational change; Learn which outsourcing pricing model is the best fit for a project; Create a rigorous cost-benefit financial analysis and ROI model for IT infrastructure outsourcing; Analyze the model and learn how to financially engineer the deal to be a win-win for the outsourcer and client.

Lessons from Dutch IT-outsourcing success and failure

We present the findings from a Dutch field study of a representative sample of 30 outsourcing deals totalling to more than 100 million Euro, where both customers, corresponding IT-outsourcing providers and their intermediaries (if present) participated. Of the 30 deals, 18 were successful. As the sample is representative for the 700 Dutch IT-outsourcing deals between 2007–2010, the Dutch success rate was about 60% at that time. The main objective of the study was to examine what made some a success and some a failure and how to influence the outcome if possible. For a number of well-known factors we investigated whether they discriminate between IT-outsourcing success and failure in the early phase of service delivery and determined their impact on the chance on a successful deal. We investigated controllable factors to increase the odds during sourcing and rigid factors as a warning sign before closing a deal.Based on 253 interviews with 516 different questions we collected 28 thousand data points (which took several FTEs). From the data and the perceived failure or success of the closed deals we investigated the discriminative power of the determinants (ex post). We found three statistically significant controllable factors that discriminated in an early phase between failure and success. They are: working according to the transition plan, demand management and, to our surprise, communication within the supplier organisation (so not between client and supplier). These factors also turned out to be the only significant factors for a (logistic) model predicting the chance of a successful IT-outsourcing. Improving demand management and internal communication at the supplier increases the odds the most, sticking to the transition plan only modestly. Other controllable factors were not significant in our study. They are: managing the business case, transfer of staff or assets, retention of expertise and communication within the client organisation. Of the rigid factors, the motive to outsource, cultural differences, and the type of work were insignificant. The motive of the supplier was significant: short-term motivations like increasing profit margins or business volume decreased the chance of success while long-term motivations like increasing market share or becoming a player increased the success rate. From the data we inferred that the degree of experience with sourcing did not show to be a convincing factor of success. Hiring sourcing consultants (intermediaries) worked contra-productive: it lowered chances of success. This illustrates that you better not outsource outsourcing.

The Impact of Firm Learning on Value Creation in Strategic Outsourcing Relationships

Information technology (IT) is central to the process execution and management of an ongoing relationship in outsourcing, both of which are fraught with challenges, and often lead to poor business outcomes. Thus, it is important for IT groups in organizations to understand how to deal with such difficulties for improved outsourcing performance. We study whether firms learn over time to deal with these two related but distinct issues in IT and business process outsourcing. Does such learning affect financial value appropriation through outsourcing? We build on the literature in information systems and strategy to investigate whether value creation in outsourcing depends on relational learning that results from prior association with the vendor, and procedural learning that results from prior experience in managing interfirm relationships. We estimate value in terms of long-term abnormal stock returns to the client relative to an industry, size, and book-to-market matched sample of control firms following the implementation of the outsourcing contract. We also analyze announcement period returns and allied wealth effects. Using data from the hundred largest outsourcing deals between 1996 and 2005, we find that whereas relational learning influences value creation in both simple and complex outsourcing engagements, procedural learning impacts value only in complex initiatives. Financial markets are slow to price the value of learning. The results suggest that caution should be exercised when firms without the experience of managing interfirm relationships externalize complex tasks to vendors they have not worked with in the past. Furthermore, IT groups can help improve learning-based outcomes by developing processes and systems that enable a firm to improve outsourcing procedures in a cumulative manner and also to coordinate and collaborate with the vendor.

Knowledge Strategies through Tie-ups- A Look at Indian

In the last decade or so, strategic alliances and partnerships among pharmaceutical and biotech companies have doubled to around 700 per year per sector, although most of this increase came in the early years. Even though all big pharma companies have a good selling and marketing capacity, many alliances are created to optimise the commercialization of products, for example, through targeting different segments, marketing with synergistic products or in particular territories where a firm is stronger than the originator. Various forms of strategic partnerships such as collaborative research, contract research, co-production agreements, co-marketing arrangements, cross-distribution arrangements, and technology licensing are being utilized for capacity additions, brand acquisitions, marketing channel integration, and R&D integration, depending upon the focus of a firm. Indian firms are forking out contracts, alliances, and are entering into outsourcing deals where they lack strategic capabilities. But a few firms are looking to build long term capabilities and entering into Research and Development alliances.

Globalization, WTO, and the Indian Pharmaceutical Industry

The paper analyzes the effect of India's membership in the World Trade Organization (WTO) and its signing of the TRIPs agreement on the pharmaceutical industry in general and the Indian sector in particular. First, it examines the effect of the implementation of the provisions of TRIPs on the growth of the national and multinational sectors of the industry. Second, it analyzes whether the new WTO rules will necessarily benefit pharmaceutical companies from the West, especially the United States and Switzerland, and whether there is evidence to support the assertion made by industry insiders that by 2015 multinational corporations will reestablish their monopoly of the industry by controlling at least 60% of the Indian market. Third, it investigates whether the multinational monopoly of the drug industry has had—or will have—a negative consequence for Indian consumers. Finally, the article examines the ways in which Indian companies are responding to the challenges of globalization and analyzes their new strategies, such as (1) outsourcing deals with multinationals to produce generic and patented drugs, (2) increasing R&D activities to enable them to make a transition from being drug “imitators” to drug “innovators,” (3) undertaking contract research, including outsourced clinical trials, (4) collaborating in joint R&D and product and process development to synergize their knowledge-base and effectively exploit available human resources and infrastructure (Ranbaxy's alliance with GlaxoSmithKline), and (5) undergoing a consolidation phase through indigenous mergers and acquisitions and strategic alliances.

Fiscal Magic

Some state and local governments in the United States are increasingly outsourcing services through third-party surrogates. In some instances, outsourcing is used as a mechanism to raise revenue to cover current deficits or pay for goods that would otherwise require increasing taxes. We argue that certain forms of outsourcing have been used to mask accountability for the levying fees that are substantively indistinguishable from taxes and thus shift tax burdens. We call for additional research to examine the shifting cost burden associated outsourcing deals and the increased challenge of maintaining public fiscal accountability.

Examining the antecedent factors of online microsourcing

In this paper, we empirically investigate what motivates firms to engage in the new outsourcing practice known as online microsourcing. Five antecedent factors involved in making online microsourcing decisions, mainly representing economic and strategic considerations, were identified based on prior research. Our research model was tested with data collected from one of the primary online microsourcing platforms. Our findings suggested that online microsourcing decisions are made more for the convenience of management and for strategic reasons than for purposes of cost reduction. Thus, this study indicates the relevance of a resource-based theory for online microsourcing. Because online microsourcing is generally characterized by small outsourcing deals, with small firms as clients, this paper introduces a new outsourcing practice to the current outsourcing landscape. Finally implications for theory and practice are presented.

Long-Run Performance Following Corporate Outsourcing Transactions

This paper primarily focuses on testing the long-run impact of outsourcing deals on the value of contract signatories. The long-run post-event changes in both stock and accounting related performance are examined. We find that in the long run client firms realize significantly positive buy-and-hold abnormal stock returns on average when compared with different groups of control firms. We also find evidence that client firms experience significant improvement in operating efficiency in three years after the contract effectiveness. Our findings suggest that outsourcing contracts are beneficial for client firms in the long run and this benefit is reflected by their ex post stock and accounting performance.

Relationship, contract and IT outsourcing success: Evidence from two descriptive case studies

In spite of the continuous increase in IT outsourcing activities globally, a significant percentage of outsourcing deals are considered either a failure or suffered from serious problems. In China where IT outsourcing practice is still at its initial stage, the situation is more serious. There lacks systematic guidance in terms of how to negotiate decent contracts and how to develop sound relationships. In view of this, an emerging trend of research has explored either the contract or relationship issues in successful IT outsourcing. However, few efforts have been paid to investigate the effects of both relationship and contract on IT outsourcing success with an integrated view. The current research develops a research framework based on the theories in Economics, Management and Marketing fields to investigate the effects of both relationship and contract on IT outsourcing success. To support the propositions, evidence was collected from two descriptive case studies conducted in Hong Kong and Mainland China respectively. The case analysis implies the dimensionalities of relationship and contract. What is more, IT outsourcing success is mainly evaluated from the technological benefits instead of the strategic or economic benefits the client company could gain from an IT outsourcing relationship. A significant contribution of this study to theory is to look into IT outsourcing phenomenon with a balanced view and through an integrated theoretical lens. For practitioners, this research helps clear executives’ doubts about simultaneously employing both relationship and contract as a governance mechanism in managing IT outsourcing deals.

Changing the game of outsourcing – the Microsoft OneFinance case

This case concerns Microsoft's attempt to completely restructure its major global finance processes and operations through what the authors call a Vested Outsourcing agreement. In February 2007, Microsoft signed an outsourcing agreement with Accenture, with an original contract term of 7 years at a value of US$185 million. This was extended 2 years later, to 2018, with expanded scope, and a total contract value of $330 million. Called the OneFinance initiative, the effort outsourced nearly all back office finance transactions spread across 95 countries to service provider Accenture under a new kind of outsourcing model. Under the agreement the parties operate under incentives to improve performance and deliver increased value year-over-year, while sharing in the risks and rewards of doing so. The case focuses on the rationale for this distinctive approach to outsourcing and transformational change, and provides details of the definitions of work, measurements, pricing models and governance structures adopted. The fine-grained account of the OneFinance outsourcing arrangements provides an opportunity to identify the distinctive principles and practices adopted by the parties. Readers can compare and contrast the case with other outsourcing deals and assess the challenges in choosing the supplier and the approach. The case also invites an assessment of the risks being incurred, the inherent implementation and operational challenges and how they might be met. The case also raises questions about what levels of success might be achieved, and what conditions would need to be present for success. Finally, the case raises the issue of whether, and if so how, this distinctive ‘vested’ approach could be adopted elsewhere.

Are there contagion effects in information technology and business process outsourcing?

We model the diffusion of IT outsourcing using announcements about IT outsourcing deals. We estimate a lognormal diffusion curve to test whether IT outsourcing follows a pure diffusion process or there are contagion effects involved. The methodology permits us to study the consequences of outsourcing events, especially mega-deals with IT contract amounts that exceed US$1 billion. Mega-deals act, we theorize, as precipitating events that create a strong basis for contagion effects and are likely to affect decision-making by other firms in an industry. Then, we evaluate the role of different communication channels in the diffusion process of IT outsourcing by testing for the fit of the mixed influence model at the industry level. This helps us to evaluate the consistency of evidence at two different levels of analysis. We also evaluate two flexible diffusion models: the Gompertz and Weibull models. Our results show that the diffusion patterns of IT outsourcing do not appear to be lognormal, suggesting that IT outsourcing does not follow a pure diffusion process. Instead, we find the presence of contagion effects in the diffusion of IT outsourcing. During periods of the most rapid outsourcing growth – the contagion periods – the actions of the large and more visible firms may provide exemplars for smaller firms, reducing their inhibitions about committing to IT outsourcing. We also find that the results of the mixed influence and the Weibull models, which provide the best fit for overall IT outsourcing diffusion patterns, are potentially indicative of the existence of spillovers that might drive the observed contagion effects at the industry level.

Underestimated Importance of Cultural Differences in Outsourcing Arrangements

In international business, it is important to be sensitive to a variety of different cultural backgrounds and to understand how to adapt the behavior when dealing with provider’s from other cultures. Individuals often do not realize that they communicate differently, have different understanding of the same subject, or hold differing beliefs about appropriate and inappropriate behavior, until they actually experience the impact of those differences to the final result. Cultural differences are named to be one of the biggest reasons why outsourcing deals are experiencing problems. Physical obstacles to successful outsourcing such as infrastructure and facilities have been mostly resolved, but the soft issues, cultural differences, will continue to be the main challenge. By its very definition, offshore outsourcing involves interplay of different companies, countries, regions etc. That evidences, that representatives of different nations will expect different results and will have different expectations from business relationships. Culture is difficult to assess, as it embraces so many aspects. Awareness of cultural differences in all the dimensions, mentioned in the paper, between outsourcing partners would be very helpful in reducing communication gaps and to understand the reasons of misunderstanding. Cultural compatibility in existing outsourcing country selection models is treated just as one of the multiple subcriteria. Cultural differences are not marked as one of the Top features to be considered and therefore cause many outsourcing deals to fail, because they were not properly evaluated and addressed. There are certain cultural criteria, which are very important in selecting the site. The results of the empirical survey are presented in the article. Some authors assigned cultural differences only to company’s culture differences and that is not exactly correct. There should be distinguished between Nations’ cultural differences and companies cultural differences. In onshore outsourcing arrangements the key is companies cultural differences, while in nearshore and offshore outsourcing Nations cultural differences are far more important. Often cultural hurdles can be overcome, when approached with a non judgmental, open mind and with preparation in advance. The goal of both parties should be: making the most of both cultures to add value to outsourcing relationships much beyond cost reduction. Requirements for the nations around the globe to work so close, so dynamic and at such scale as today – have never been present before. We are at the stage of major cultural shift: not only embracing extreme diversity but also enabling this diversity to synchronize and deliver results effectively.

Outsourcing connects BT with better and cheaper HRM

PurposeThis paper aims to trace the history of the BT‐Accenture e‐peopleserve joint venture, which provides HR services not only for BT but also for other clients.Design/methodology/approachExamines the changes to HR at BT post‐privatization, the factors that gave rise to the joint venture and the way in which it has developed. Describes some of the factors that need to be considered for an outsourcing deal to be successful.FindingsReveals that initially, costs went up, and that the transferred workforce took time to adjust to their role as a service provider. This has been addressed through self‐development and process improvement. By outsourcing, BT has rationalized its training catalogue by 50 percent, reduced training waiting lists by 26 percent and saved $2.2 million in time and money lost because of sickness. It has also increased employee‐satisfaction ratings across training and counseling. Other benefits of the deal include: one telephone number for BT staff to contact HR; a single Peoplesoft HR information system that provides enhanced HR reporting capability and employee self‐service; and a company‐wide learning‐management system.Practical implicationsEmphasizes that, while outsourcing might seem to be a simple cost‐reduction option, there are significant challenges to getting it right.Originality/valueReveals that BT now has one HR specialist to every 200 employees, which is well ahead of the benchmarks in its sector.

Five Risk Factors in Outsourcing Agreements

This article highlights the most important risk factors for outsourcing projects. Recent international case law is discussed, to illustrate the do's and don'ts of outsourcing. Although outsourcing deals seem to mature more and more, the lessons to be learned from these cases are still very much up to date. The IT outsourcing market has matured in the past years. Many IT outsourcing relationships are fruitful and long lasting. Nevertheless international surveys continue to show that numerous outsourcing deals are untimely terminated in the first two to four years. This article highlights the five key risk factors for failure of IT outsourcing relationships. These key risk factors will be underlined by various international failed outsourcing case law. Such case law probably only represents the top of the iceberg. Most problematic outsourcing relationships are terminated under strict confidentiality in out of court amicable settlements. Reasons underneath are amongst others the need of IT suppliers to avoid damage of its reputation and the genuine interest of IT outsourcing clients to protect their interests and their business while the relationship is still ongoing.

Corporate real estate outsourcing contracts and their embedded flexibility

Purpose – This paper intends to respond the question that comes up to CRE managers when they consider the outsourcing technique for their CRE management and portfolio. The question, if it is possible to capture in the outsourcing contract sufficient flexibility to meet the changing needs of the business and add value, addresses the existing debate on flexibility arguing the suitability of the outsourcing structures for corporates portfolio. Design/methodology/approach – The paper undertakes a methodological analysis, considering the main outsourcing deals in the UK and continental Europe and discussing the main theories on management outsourcing. Theories of flexibility of CRE portfolios are considered and the main characteristics of the new REPs discussed. Findings – The paper finds that it is possible to capture in the outsourcing contract sufficient flexibility to meet the changing needs of the business and add value because a contract can capture all the flexibility desired and iit would add value as the properties would be used efficiently. Two outsourcing contracts in the UK are explained in two case studies, which support this. Originality/value – The paper suggests methods to outsource CRE portfolios and obtain adequate flexibility to add value to shareholders.