Advertisement

Empirical Software Engineering

, Volume 19, Issue 5, pp 1225–1258 | Cite as

From offshore outsourcing to insourcing and partnerships: four failed outsourcing attempts

  • Nils Brede Moe
  • Darja Šmite
  • Geir Kjetil Hanssen
  • Hamish Barney
Article

Abstract

Most large software companies are involved in offshore development, now small- and medium-sized companies are starting to undertake global sourcing too. Empirical research suggests that offshoring is not always successful; however, only a few comprehensive failure stories have been reported. The objective of our study has been to understand why small and medium-sized companies terminate their offshore outsourcing relationships and what alternative arrangements they undertake afterwards. Therefore, we designed a multiple case study of four medium-sized Scandinavian software companies that have terminated their offshore outsourcing relationships. Our results are based on data collected through semi-structured interviews, informal dialogues and analysis of company documents. We found that all companies terminated their offshore contracts because of low quality of the software being developed. This was caused by an inability to build the necessary human and social capital. The companies reported challenges with domain knowledge, a lack of commitment of external developers, cultural clashes, poor communication and high turnover, which only amplified the problems. After termination all four companies changed their sourcing strategy from offshore outsourcing to offshore insourcing and partnerships. We conclude that successful offshore software development requires a change from a cost-driven focus to an intellectual capital-driven focus. To prevent continuous investments into contracts that are destined to fail, companies should look for signs of escalating commitments and terminate relationships that cannot be corrected. Those companies that choose outsourcing shall also take into account that mismatch between the size of the offshore contract relative to the vendor may have a negative effect on a relationship.

Keywords

Global software engineering Global software development Distributed software development Offshoring Insourcing Backsouring Outsourcing Single-loop and double-loop learning Escalating commitment Intellectual capital Human capital Social capital Organizational capital SME Multiple-Case Study 

Notes

Acknowledgments

This research is funded partly by SINTEF ICT, and the Swedish Knowledge Foundation under the KK-Hög grant 2009/0249 and project BESQ+ under grant 2010/0311. We are grateful to the reviewers and Torgeir Dingsøyr who gave us valuable feedback.

References

  1. Argyris C, Schön DA (1996) On Organizational Learning II: Theory, Method and Practise. Addison Wesley, ReadingGoogle Scholar
  2. Aron R, Singh JV (2005) Getting offshoring right. Harv Bus Rev 83(12):135–143Google Scholar
  3. Barney HT, Moe NB, Low G, Aurum A (2009) Indian Intimacy ends as the Chinese Connection Commences: Changing Offshore Relationships. Paper presented at the Third Global Sourcing Workshop, Keystone CO, USA, 22–25 MarchGoogle Scholar
  4. Battin RD, Crocker R, Kreidler J, Subramanian K (2001) Leveraging resources in global software development. IEEE Softw 18(2):70–77. doi: 10.1109/52.914750 CrossRefGoogle Scholar
  5. Boden A, Nett B, Wulf V, Soc IC (2007) Coordination practices in distributed software development of small enterprises. Second IEEE International Conference on Global Software Engineering, ProceedingsGoogle Scholar
  6. Boden A, Nett B, Wul V (2010) Operational and strategic learning in global software development. IEEE Softw 27(6):58–65CrossRefGoogle Scholar
  7. Bontis N (1997) Royal Bank invests in knowledge-based industries. Knowledge Inc 2(8):1–4Google Scholar
  8. Bontis N (1998) Intellectual capital: an exploratory study that develops measures and models. Manag Decis 36(2):63–76CrossRefGoogle Scholar
  9. Braun V, Clarke V (2006) Using thematic analysis in psychology. Qual Res Psychol 3(2):77–101. doi: 10.1191/1478088706qp063oa CrossRefGoogle Scholar
  10. Bush AA, Tiwana A, Tsuji H (2008) An empirical investigation of the drivers of software outsourcing decisions in Japanese organizations. Inf Softw Technol 50(6):499–510. doi: 10.1016/j.infsof.2007.08.006 CrossRefGoogle Scholar
  11. Carmel E, Abbott P (2007) Why ‘Nearshore’ means that distance matters. Commun ACM 50(10):40–46. doi: 10.1145/1290958.1290959 CrossRefGoogle Scholar
  12. Carmel E, Tjia P (2005) Offshoring information technology: Sourcing and outsourcing to a global workforce. Cambridge University Press, NYCrossRefGoogle Scholar
  13. Damian D, Moitra D (2006) Global software development: How far have we come? IEEE Softw 23(5):17–19CrossRefGoogle Scholar
  14. Dedene G, Vreese J-PD (1995) Realities of off-shore reengineering. IEEE Softw 12(1):35–45. doi: 10.1109/52.363167 CrossRefGoogle Scholar
  15. DeLone W, Espinosa JA, Lee G, Carmel, E (2005) Bridging Global Boundaries for IS Project Success. Paper presented at the Proceedings of the Proceedings of the 38th Annual Hawaii International Conference on System Sciences (HICSS’05)Google Scholar
  16. Ebert C (2007) Optimizing supplier management in global software engineering. In: Second IEEE International Conference on Global Software Engineering, Munich, GERMANYGoogle Scholar
  17. Fayad ME, Laitinen M, Ward RP (2000) Software engineering in the small. Commun ACM 43(3):115–118CrossRefGoogle Scholar
  18. Gongla P, Rizzuto CR (2001) Evolving communities of practice: IBM Global Services experience. IBM Syst J 40(4):842–162CrossRefGoogle Scholar
  19. Hall T, Baddoo N, Beecham S, Robinson H, Sharp H (2009) A systematic review of theory use in studies investigating the motivations of software engineers. ACM Trans Softw Eng Methodol 18(3):1–29CrossRefGoogle Scholar
  20. Hanssen GK (2012) A longitudinal case study of an emerging software ecosystem: implications for practice and theory. J Syst Softw 85(7):12CrossRefGoogle Scholar
  21. Hanssen GK, Fægri TE (2006) Agile Customer Engagement: a Longitudinal Qualitative Case Study. Paper presented at the 5th International Symposium on Empirical Software Engineering (ISESE’06), Rio de Janeiro, Brazil, 21–22 SeptemberGoogle Scholar
  22. Heeks R, Krishna S, Nicholson B, Sahay S (2001) Synching or sinking: global software outsourcing relationships. IEEE Softw 18(2):54–60CrossRefGoogle Scholar
  23. Hirschheim R, Lacity M (1998) Reducing information systems costs through insourcing: Experiences from the field. In: Watson HJ (ed) Proceedings of the Thirty-First Hawaii International Conference on System Sciences, Vol Vi: Organizational Systems and Technology Track. Proceedings of the Annual Hawaii International Conference on System Sciences pp 644–653Google Scholar
  24. Hole S, Moe NB (2008) A case study of coordination in distributed agile software development. In: Software Process Improvement, pp 189–200Google Scholar
  25. Keil M, Mann J, Rai A (2000) Why software projects escalate: An empirical analysis and test of four theoretical models. MIS Quarterly. p. 631–664Google Scholar
  26. Kotlarsky J, Bognar L (2012) Understanding the process of backsourcing: two cases of process and product backsourcing in Europe. J Info Tech Teach Cases 2:79–86. doi: 10.1057/jittc.2012.7 CrossRefGoogle Scholar
  27. Lacity M, Willcocks L, Rottman J (2008) Global outsourcing of back office services: lessons, trends and enduring challenges. Strategic Outsourcing Inter J 1(1):13–34. doi: 10.1108/17538290810857457 CrossRefGoogle Scholar
  28. Langley A (1999) Strategies for theorizing from process data. Acad Manag Rev 24(4):691–710. doi: 10.2307/259349 MathSciNetGoogle Scholar
  29. Laporte CY, Alexandre S, Renault A (2008) Developing international standards for very small enterprises. Computer 41(3):98–101. doi: 10.1109/mc.2008.86 CrossRefGoogle Scholar
  30. Lee AS, Baskerville RL (2003) Generalizing generalizability in information systems research. Inf Syst Res 14(3):221–243CrossRefGoogle Scholar
  31. Lunenburg FC (2010) Escalation of commitment: patterns of retrospective rationality. Inter J Manag Business Admin 13(1):1–5Google Scholar
  32. McLaughlin D, Peppard J (2006) It backsourcing: from ‘make or buy’ to ‘bringing it back in-house. In: ECISGoogle Scholar
  33. Moe NB, Smite D, Hanssen GK. From offshore outsourcing to offshore insourcing: Three Stories. In: Global Software Engineering (ICGSE) (2012) I.E. Seventh International Conference on, 27–30 Aug. 2012. pp 1–10. doi: 10.1109/icgse.2012.33
  34. Nahapiet J, Ghoshal S (1998) Social capital, intellectual capital, and the organizational advantage. Acad Manag Rev 23(2):242–266. doi: 10.2307/259373 Google Scholar
  35. Ó Conchúir E, Ågerfalk P, Olsson HH, Fitzgerald B (2009) Global software development: where are the benefits? Commun ACM 52(8):127–131. doi: 10.1145/1536616.1536648 CrossRefGoogle Scholar
  36. Oshri I, Kotlarsky J, Willcocks LP (2011) The handbook of global outsourcing and offshoring. 2 edn. PalgraveGoogle Scholar
  37. Paulk MC, Weber CV, Chrissis MB (1999) The capability maturity model for software. In: El Emam K, Madhavji NH (eds) Elements of software process assessment & improvement. IEEE Computer Society, Los Alamitos, pp 3–22Google Scholar
  38. Prikladnicki R, Audy JLN (2010) Process models in the practice of distributed software development: A systematic review of the literature. Inf Softw Technol 52(8):779–791. doi: 10.1016/j.infsof.2010.03.009 CrossRefGoogle Scholar
  39. Prikladnicki R, Audy JLN, Damian D, de Oliveira TC, Soc IC (2007) Distributed Software development: Practices and challenges in different business strategies of offshoring and onshoring. Paper presented at the Second IEEE International Conference on Global Software Engineering, ProceedingsGoogle Scholar
  40. Rottman JW (2008) Successful knowledge transfer within offshore supplier networks: a case study exploring social capital in strategic alliances. J Inf Technol 23(1):31–43. doi: 10.1057/palgrave.jit.2000127 CrossRefGoogle Scholar
  41. Rus I, Lindvall M (2002) Knowledge management in software engineering. IEEE Softw 19(3):26–38. doi: 10.1109/ms.2002.1003450 CrossRefGoogle Scholar
  42. Sabherwal R (2003) The evolution of coordination in outsourced software development projects: a comparison of client and vendor perspectives. Inf Organ 13(3):153–202. doi: 10.1016/S1471-7727(02)00026-X CrossRefGoogle Scholar
  43. Sahay S, Nicholson B, Krishna S (2003) Global IT outsourcing: software development across borders. Cambridge Univ. PressGoogle Scholar
  44. Sato DT, Corbucci H, Bravo MV (2008) Coding Dojo: An environment for learning and sharing agile practices. Paper presented at the Agile, Toronto, CanadaGoogle Scholar
  45. Schultz T (1961) Investment in human capital. Am Econ Rev 51(1):1–17Google Scholar
  46. Schwaber K, Beedle (2001) Agile Software Development with Scrum. Upper Saddle River: Prentice HallGoogle Scholar
  47. Šmite D, Wohlin C, Aurum A, Jabangwe R, Numminen E (2012) Offshore Insourcing in Software Development: Structuring the Decision-Making Process. J Syst Softw 86(4):1054–1067. doi:  10.1016/j.jss.2012.10.003 Google Scholar
  48. Šmite D, Moe NB, Ågerfalk PJ (2010a) Agility Across Time and Space: Summing up and Planning for the Future. In: Šmite D, Moe NB, Ågerfalk PJ (eds). Springer Berlin Heidelberg. pp 333–337. doi: 10.1007/978-3-642-12442-6_23
  49. Šmite D, Wohlin C, Galviņa Z, Prikladnicki R (2012) An Empirically Based Terminology and Taxonomy for Global Software Engineering. Empirical Software Engineering. doi: 10.1007/s10664-012-9217-9
  50. Šmite D, Wohlin C (2011) A whisper of evidence in global software engineering. IEEE Softw 28(4):15–18Google Scholar
  51. Šmite D, Wohlin C, Gorschek T, Feldt R (2010b) Empirical evidence in global software engineering: a systematic review. Empir Softw Eng 15(1):91–118. doi: 10.1007/s10664-009-9123-y CrossRefGoogle Scholar
  52. Staw B (1976) Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Org Behav Human Perform 16(1):27–44CrossRefGoogle Scholar
  53. Stewart T (2001) The wealth of knowledge: intellectual capital and the twenty-first century organization. Nicholas Brealey, LondonGoogle Scholar
  54. Tiwana A (2004) An empirical study of the effect of knowledge integration on software development performance. Inf Softw Technol 46(13):899–906. doi: 10.1016/j.infsof.2004.03.006 CrossRefGoogle Scholar
  55. Tobin J (1969) A general equilibrium approach to monetary theory. J Money, Credit, Bank 1(1):15–29CrossRefGoogle Scholar
  56. Whitten D, Leidner D (2006) Bringing IT back: an analysis of the decision to backsource or switch vendors. Decis Sci 37(4):605–621. doi: 10.1111/j.1540-5414.2006.00140.x CrossRefGoogle Scholar
  57. Willcocks L, Hindle J, Feeny D, Lacity M (2004) IT and business process outsourcing: the knowledge potential. Inf Syst Manag 21(3):7–15. doi: 10.1201/1078/44432.21.3.20040601/82471.2 CrossRefGoogle Scholar
  58. Yin RK (2002) Case study research: design and methods. Sage, Thousand OaksGoogle Scholar
  59. Youndt M, Subramaniam M, Snell S (2004) Intellectual capital profiles: An examination of investments and returns. J Manag Stud 41(2):335–361CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Nils Brede Moe
    • 1
  • Darja Šmite
    • 2
    • 3
  • Geir Kjetil Hanssen
    • 4
  • Hamish Barney
    • 5
  1. 1.SINTEFTrondheimNorway
  2. 2.Blekinge Institute of TechnologyKarlskronaSweden
  3. 3.University of LatviaRigaLatvia
  4. 4.SINTEFTrondheimNorway
  5. 5.University of New South WalesSydneyAustralia

Personalised recommendations