Skip to main content
SpringerLink
Log in

A US Client’s learning from outsourcing IT work offshore

  • Published:
Information Systems Frontiers Aims and scope Submit manuscript

Abstract

Based on 45 interviews and significant documentation, we explore the offshore outsourcing experiences of a US-based biotechnology company. This company offshore outsourced 21 IT projects to six suppliers in India. Senior managers and the official documents from the Program Management Office consistently reported that offshore outsourcing was successful in reducing the company’s IT costs. But interviews with knowledgeable participants actually managing the projects suggest that many projects were not successful in meeting cost, quality, and productivity objectives. We found evidence that this company’s offshore strategy to simply replace domestic contractors with cheaper, offshore suppliers was a poor fit with its social and cultural contexts. Specifically, we found that strong social networks between the company’s internal IT employees and domestic contractors were not easily replicated with offshore suppliers. Furthermore, the internal project management processes were often incompatible with offshore suppliers’ processes. This paper also analyzes seven project characteristics that differentiate highly-rated projects from poorly-rated projects. These project characteristics are type of IT work, size of supplier firm, location of supplier employees (onsite/offshore), dollar value of the contract, duration of the project, timing of the project, and client unit managing the project. The paper concludes with four overall insights for clients and suppliers.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Offshore outsourcing is different than “offshoring”. “Offshoring” occurs when an organization moves work from one location to another location on a different continent.

  2. We define “domestic outsourcing” as outsourcing to a supplier located in the same country as the client.

  3. Besides these rational reasons, some studies find personal agendas dominating large-scale outsourcing decisions (Hall and Liedtka 2005; Lacity and Hirschheim 1993).

  4. Hirschheim, Heinzl & Dibbern (eds.) (2008) Information systems outsourcing, Springer Verlag, Berlin.

  5. Academics frequently use system use, system adoption, and system diffusion as indicators of success (Jeyaraj et al. 2006), but these measures are more appropriate to assess from users (Nelson 2005).

References

  • Adler, P., McGarry, F., Talbot, W., & Binney, D. (2005). Enabling process discipline: lessons from the journey to CMM Level 5. MIS Quarterly Executive, 4(1), 215–227.

    Google Scholar 

  • Aladwani, A. (2002). IT project uncertainty, planning, and success. Information Technology & People, 15(3), 210–237.

    Article  Google Scholar 

  • Ang, S., & Slaughter, S. (2001). Work outcomes and job design for contract versus permanent information systems professionals on software development teams. MIS Quarterly, 25(3), 321–350.

    Article  Google Scholar 

  • Ang, S., & Straub, D. (1998). Production and transaction economies and information systems outsourcing—a study of the U.S. banking industry. MIS Quarterly, 22(4), 535–552.

    Article  Google Scholar 

  • Applegate, L., & Montealegre, R. (1991). Eastman Kodak organization: managing is through strategic alliances. Harvard Business School Case 9-192-030, Boston.

    Google Scholar 

  • Aubert, B., Dussault, S., Patry, M., & Rivard, S. (1999). Managing Risk in IT outsourcing. Proceedings of the 32nd Annual Hawaii International Conference on System Sciences, 685–691.

  • Carmel, E. (2006). Building your information systems from the other side of the world: how infosys manages time zone differences. MIS Quarterly Executive, 5(1), 43–53.

    Google Scholar 

  • Carmel, E., & Agarwal, R. (2002). The maturation of offshore sourcing of information technology work. MIS Quarterly Executive, 1(2), 65–77.

    Google Scholar 

  • Carmel, E., & Tjia, P. (2005). Offshoring information technology: sourcing and outsourcing to a global workforce. Cambridge: Cambridge University Press.

    Google Scholar 

  • Carroll, J. (2005). The John Carroll research survey results. Project Management Institute, available on: http://www.pmi.org/Prod2/groups/public/documents/info/pp_carroll.pdf.

  • Chaudhury, A., Nam, K., & Rao, H. (1995). Management of Information Systems Outsourcing: A Bidding Perspective. Journal of Management Information Systems, 12(2), 131–159.

    Google Scholar 

  • Choudhury, V., & Sabherwal, R. (2003). Portfolios of control in outsourced software development projects. Information Systems Research, 14(3), 291–314.

    Article  Google Scholar 

  • Chou, T., Chen, J., & Pan, S. (2006). The impacts of social capital on information technology outsourcing decisions: a case study of Taiwanese high-tech firms. International Journal of Information Management, 26, 249–256.

    Article  Google Scholar 

  • Cross, J. (1995). IT Outsourcing at British petroleum. Harvard Business Review, 73(3), 94–102.

    Google Scholar 

  • Cullen, S., Seddon, P., & Willcocks, L. (2005). Managing outsourcing: the life cycle imperative. MIS Quarterly Executive, 4(1), 229–246.

    Google Scholar 

  • Currie, W., & Willcocks, L. (1998). Analyzing four types of IT sourcing decisions in the context of scale, client/supplier interdependency, and risk mitigation. Information Systems Journal, 8(2), 119–144.

    Article  Google Scholar 

  • Dibbern, J., Goles, T., Hirschheim, R., & Bandula, J. (2004). Information systems outsourcing: a survey and analysis of the literature. Database for Advances in Information Systems, 34(4), 6–102.

    Google Scholar 

  • E-business Strategies (2006). Offshoring Statistics: Dollar Size, Job Loss, and Market Potential. http://www.ebstrategy.com/Outsourcing/trends/statistics.htm.

  • Engardio, P. (2006). The future of outsourcing. BusinessWeek, 3969, 50–58.

    Google Scholar 

  • Feeny, D., & Willcocks, L. (1998). Core IS capabilities for exploiting information technology. Sloan Management Review, 39(3), 9–21.

    Google Scholar 

  • Feeny, D. (2006). Managing IT suppliers. Presentation to UK Cabinet Office representatives, Said Business School, Oxford University, United Kingdom, February 28.

  • Feeny, D., Lacity, M., & Willcocks, L. (2005). Taking the measure of outsourcing providers. Sloan Management Review, 46(3), 41–48.

    Google Scholar 

  • Gallivan, M., & Oh, W. (1999). Analyzing IT outsourcing relationships as alliances among multiple clients and customers. Proceedings of the 32 Annual Hawaii International Conference on Systems Sciences, 1–15.

  • George, B. (2006). Exploring Information Systems Outsourcing: The Role of Social Capital, unpublished Ph.D. thesis, University of Houston.

  • Gopal, A., Sivaramakrishnan, K., Krishnan, M., & Mukhopadhyay, T. (2003). Contracts in offshore software development: an empirical analysis. Management Science, 49(12), 1671–1683.

    Article  Google Scholar 

  • Grover, V., Cheon, M., & Teng, J. (1996). The effect of service quality and partnership on the outsourcing of information systems functions. Journal of Management Information Systems, 12(4), 89–119.

    Google Scholar 

  • Gudea, S. (2005). IT project valuation survey. posted on the Project Management Institute Website. http://www.pmi.org/prod/groups/public/documents/info/pp_soringudea.pdf viewed 6/1/06.

  • Hall, J., & Liedtka, S. (2005). Financial performance, CEO compensation, and large-scale information technology outsourcing decisions. Journal of Management Information Systems, 22(1), 193–222.

    Google Scholar 

  • Huber, R. (1993). How continental bank outsourced its crown jewels. Harvard Business Review, 71(1), 121–129.

    Google Scholar 

  • Jeyaraj, A., Rottman, J., & Lacity, M. (2006). A review of the predictors, linkages, and biases in IT innovation adoption research. Journal of Information Technology, 21(1), 1–23.

    Article  Google Scholar 

  • Jones, C. (1994). Assessment and control of software risks. Englewood Cliffs, N.J.: Prentice-Hall.

    Google Scholar 

  • Kaiser, K., & Hawk, S. (2004). Evolution of offshore software development: from outsourcing to co-sourcing. MIS Quarterly Executive, 3(2), 69–81.

    Google Scholar 

  • Keil, M., & Montealegre, R. (2000). Cutting your losses: extricating your organization when a big project goes awry. Sloan Management Review, 41(3), 55–68.

    Google Scholar 

  • Keil, M., Rai, A., Mann, J., & Zhang, G. (2003). Why software projects escalate: the importance of project management constructs. IEEE Transactions on Engineering Management, 50(3), 251–261.

    Article  Google Scholar 

  • Lacity, M., & Hirschheim, R. (1993). Information Systems Outsourcing: Myths, Metaphors and Realities. Chichester: Wiley.

    Google Scholar 

  • Lacity, M., & Rottman, J. (2008). Offshore Outsourcing of IT Work. United Kingdom: Palgrave.

    Google Scholar 

  • Lacity, M., & Willcocks, L. (1998). An empirical investigation of information technology sourcing practices: lessons from experience. MIS Quarterly, 22(3), 363–408.

    Article  Google Scholar 

  • Lacity, M., & Willcocks, L. (2001). Global information technology outsourcing: search for business advantage. Chichester: Wiley.

    Google Scholar 

  • Levina, N., & Ross, J. (2003). From the vendor’s perspective: exploring the value proposition in information technology outsourcing. MIS Quarterly, 27(3), 331–364.

    Google Scholar 

  • Loh, L., & Venkatraman, N. (1992). Determinants of IT outsourcing: a cross-sectional analysis. Journal of Management Information Systems, 9(1), 7–24.

    Google Scholar 

  • Martorelli, W., Moore, S., McCarthy, J., & Brown, A. (2004). Indian offshore suppliers: the second tier. Forrester Research Report, July 14, available on: http://www.forrester.com/Research/Document/Excerpt/0,7211,34847,00.html.

  • McCue, A. (2005). Outsourcing flops blamed on tunnel vision. Silicon.com, published on ZDNet News: June 22. Available on: http://news.zdnet.com/2100-9589_22-5757832.html.

  • McFarlan, F. W. (1981). Portfolio approach to information systems. Harvard Business Review, 59(5), 142–150.

    Google Scholar 

  • Minevich, M., & Richter, F. (2005). Top spots for global outsourcing. CIO Insight, 1(51), 55–57.

    Google Scholar 

  • Miranda, S., & Kavan, B. (2005). Moments of governance in IS outsourcing: conceptualizing effects of contracts on value capture and creation. Journal of Information Technology, 20(3), 152–169.

    Article  Google Scholar 

  • Nahapiet, J., & Ghosal, S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2), 242–265.

    Article  Google Scholar 

  • Nelson, R. (2005). Project retrospectives: evaluating success, failure and everything in between. MIS Quarterly Executive, 4(3), 361–372.

    Google Scholar 

  • Oshri, I., Kotlarsky, J., & Willcocks, L. P. (2007). Managing dispersed expertise in IT offshore outsourcing: lessons from Tata consultancy services. MISQ Executive, 6(2), 53–65.

    Google Scholar 

  • Poppo, L., & Zenger, T. (1998). Testing alternative theories of the firm: transaction cost, knowledge-based, and measurement explanations for make-or-buy decisions in information services. Strategic Management Journal, 19, 853–877.

    Article  Google Scholar 

  • Rivard, S., & Aubert, B. (2007). Information Technology Outsourcing. New York: M.E. Sharpe.

    Google Scholar 

  • Ross, C. (2004). Services market sizing update: 2003 to 2008. Forrester Research Report, April 27.

  • Rottman, J. (2006). Successfully outsourcing embedded software development. IEEE Computer, 39(1), 55–61.

    Google Scholar 

  • Rottman, J. (2007). Successful knowledge transfer within offshore supplier networks: a case study exploring social capital in strategic alliances. the First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation, Val d’Isère, France.

  • Rottman, J., & Lacity, M. (2004). Twenty practices for offshore sourcing. MIS Quarterly Executive, 3(3), 117–130.

    Google Scholar 

  • Rottman, J., & Lacity, M. (2006). Proven practices for effectively offshoring IT work. Sloan Management Review, 47(3), 56–63.

    Google Scholar 

  • Srivastava, S. (2005). Could rising wages diminish India’s outsourcing edge? News Report, Siliconeer, Jan 21. Available on: http://news.pacificnews.org/news/view_article.html?article_id=167d1c86c1d28e7607c942fd9891938e.

  • Standish Group International (2003). CHAOS Chronicles V3.0. Available on: http://www.standishgroup.com/chaos/toc.php.

  • Teng, J., Cheon, M., & Grover, V. (1995). Decisions to outsource IS functions: testing a strategy-theoretic discrepancy model. Decision Sciences, 26(1), 75–103.

    Article  Google Scholar 

  • Wallace, L., Keil, M., & Rai, A. (2004). How software project risk affects project performance: an investigation of the dimensions of risk and an exploratory model. Decision Sciences, 35(2), 289–121.

    Article  Google Scholar 

  • Whang, S. (1992). Contracting for software development. Management Science, 38(3), 307–324.

    Article  Google Scholar 

  • Willcocks, L., Feeny, D., & Islei, G. (1997). Managing IT as a strategic resource. London: McGraw Hill.

    Google Scholar 

  • Willcocks, L., & Lacity, M. (2006). Global sourcing of business and IT services. United Kingdom: Palgrave.

    Google Scholar 

  • Willcocks, L., & Lester, S. (1999). Beyond The IT productivity paradox: assessment issues. Chichester: Wiley.

    Google Scholar 

  • Williamson, O. (1991). Comparative economic organization: the analysis of discrete structural alternatives. Administrative Science Quarterly, 36(2), 269–296.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of Missouri—St. Louis, One University Boulevard, St. Louis, MO, 63121, USA

    Joseph W. Rottman & Mary C. Lacity

Authors
  1. Joseph W. Rottman
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mary C. Lacity
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Joseph W. Rottman.

Appendix: Interview guide

Appendix: Interview guide

Participant Data:

  • Job title

  • Length of time in current position

  • Where are you in the organizational chart?

  • Previous positions and organizations

Please begin by telling us your offshore outsourcing story—why did your organizational unit initiate an offshore project, who was involved, what process did you go through, how did your internal organization react, how did you manage the supplier, who was the business sponsor, and what was the outcome?

Expected Benefits of Offshore Outsourcing per project: (lower costs, better service, meet short term IT demand, experience gained with offshore outsourcing, etc.)

Actual Benefits of Offshore Outsourcing per project: (lower costs, better service, meet short term IT demand, experience gained with offshore outsourcing, etc.)

For each offshore project you worked on, please describe:

Project characteristics

  • Describe the business function of the project

  • Describe the technical platform

  • New development/Support/Maintenance

  • Name of suppliers on project

  • Supplier headcount including on/offshore ratio

Quality of Offshore Outsourcing:

How did you analyze and protect the quality of the deliverables (code, test scripts, documentation etc.)?

What mechanisms in the contract or processes did you use to protect quality? Compare the quality of individual projects with the quality of domestically sourced projects.

Did you witness quality differences from the different suppliers?

Project Metrics: What metrics were in place for quality control of offshore project deliverables/milestones? SLAs? Defect rates? Submission rates? Unit /IT acceptance/user acceptance tests?

Project Outcome of Offshore Outsourcing:

Perceptions of Success/Failure

How measured

Considering the degree to which project objectives were met, budgets and schedules were met, and the quality of the delivered product, what letter grade would you assign the project? (A–F):

Costs of Offshore Outsourcing:

How do the labor costs compare with your in-house labor costs ($ per hour for job category)?

Describe major transaction costs and how those costs were measured.

Governance of Offshore Outsourcing Projects:

Contract:

  • What are the contract terms as far as baseline services, service level requirements, and penalties for non-performance?

  • What do you perceive as the strengths and weaknesses of the contract?

  • How many pages is the contract?

  • What differences did you see in the projects from various contract models and sizes?

Infrastructure: Organizational structure, tools, and processes.

  • Which supplier employees were onsite and which were offsite?

  • Did you use an onsite engagement manager?

  • How do you govern the supplier’s activities?

  • Project scheduling and tracking

  • Did you have to create special tools, such as data repository, to coordinate supplier activities?

  • Configuration management (keeping track of modules and sections of code)

  • Work flow automation system

  • What differences did you see in the projects from various engagement models?

Problem recognition and resolution:

  • How would you characterize your relationship with the supplier?

  • What is going well?

  • Have you had any disputes with the supplier? How were they resolved?

  • Have you ever been charged for services you assumed were covered in the contract?

Extent to which you encountered problems with:

  • Cultural differences

  • Time Zone differences

  • Language differences

  • Strange foreign work-hour regulations

  • High employee turnover in supplier organization

  • Difficulties in arranging visas

  • Other legal/government difficulties

  • An offshore unit’s lack of domain knowledge

  • Unreliable telecommunications infrastructure

Evaluation process of offshore outsourcing:

  • Who in your organizational unit became the most avid champion of offshore outsourcing?

  • Offshore outsourcing can be a threat to domestic employees. What organizational members were opponents of offshore outsourcing and how were their oppositions addressed?

  • What was senior management’s perception of offshore?

  • What is the general atmosphere at Biotech concerning offshoring?

  • What is the plan for future projects and offshore?

Supplier selection:

  • What was included in the RFP?

  • Which suppliers were invited to respond? Why were they selected?

  • What was your organization’s selection criteria?

  • Which suppliers worked on the projects you are familiar with?

Practices and Capabilities Needed for Offshore Outsourcing Success

  • You now have some experience under your belt concerning offshore outsourcing. If you had it to do all over again, what would you do differently?

  • What are the lessons you learned concerning the best and worst practices for offshore outsourcing?

  • What capabilities do you need in-house to make sure offshore outsourcing is a success

Rights and permissions

Reprints and permissions

About this article

Cite this article

Rottman, J.W., Lacity, M.C. A US Client’s learning from outsourcing IT work offshore. Inf Syst Front 10, 259–275 (2008). https://doi.org/10.1007/s10796-007-9061-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10796-007-9061-4

Keywords

Search

Navigation