Outsourcing of Information Technology: Future Adoption Plans of U'S' Corporations

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Outsourcing of Information Technology Future
Adoption Plans of U.S. Corporations

• Dissertation Proposal Presentation

Presented by Rodney R. Yates Smith
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Summary of Presentation

• Introduction
• The Problem
• Background
• Purpose and Importance of Study
• Research Questions
• Literature Review
• Methodology
• Projected Research Time-line
• Conclusion

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Introduction

• Professional Background
• Interest in Outsourcing
• Outsourcing Management Experiences
• Market Research Corporation
• On-line Advertising Corporation
• ASP Faith-based Educational Organizations
• Presenting Researching

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The Problem

• Impact of Information Technology (IT)
• What is Outsourcing?
• Why Outsource?
• Kodak 1989 Landmark Outsourcing Agreement
• Bandwagon Affect
• Expectations - mixed results
• Risks of Outsourcing
• Purpose and Importance of Study
• Research Questions

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The ProblemImpact of IT

• Large Budgets
• (Apte, Sobol, Hanaoka, et al., 1997)
• Improve corporate bottom line and competitive
  advantage
• (Ahles, 2003)
• Expectations
• Deliver projects on-time
• Within or under budget
• Without degradation of quality or service

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The ProblemWhat is Outsourcing? Definitions

• Information Technology (IT)
• Computer technology (hardware software) with
  telecommunications technology (data, image and
  voice networks)
• (Whitten et al., 2004)

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The ProblemWhat is Outsourcing? Definitions

• Outsourcing
• Transfer goods or service to a third party
• Contract or selling
• Hardware, software, communications network,
  systems, activities, processes, procedures and
  management
• Third party consulting firm, contractor or
  hardware vendor
• (Due 1992 Hirschheim and Lacity, 2002 Kern et
  al., 2002 Lacity et al., 1996 Loh and
  Venkataraman, 1992 McLellan and Marcolin, 1994
  Quinn and Hilmer, 1994 Ramarapu, Parzinger and
  Lado, 1997 Takac, 1993 and Willcocks and
  Lacity, 1995)

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The ProblemWhat is Outsourcing? Definitions

• Offshore (Global) Outsourcing
• Sending work to overseas locations
• (Marshall and Cohan, 2003)
• Selective Outsourcing
• Outsourcing selected IT applications or functions
  to vendors while retaining other IT applications
  or functions in-house.
• (Lacity et al., 1996)

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The ProblemWhy Outsource?

• Reduce Costs
• 10 to 50
• (Lacity and Hirschheim, 1994)
• Competitive advantage
• Increased service level
• Access to new technology and technical expertise
• Focus on core competencies
• (Lacity et al., 1996 Udo, 2000)

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The ProblemWhy Outsource?

• Examples of Domestic Outsourcing
• Enron, Freeport-McMoran, Continental Airlines,
  General Dynamics, National Car Rental and
  Continental Bank
• Examples of Offshore (Global) Outsourcing
• Citibank, Texas Instruments, New York Life
  Insurance and Boeing
• (Shereff, 1989)

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The ProblemLandmark Outsourcing Agreement

• 1989 Kodak Total outsourcing of IT function
• Anticipating a 50 cost savings
• IBM, DEC and Businessland
• (Apte et al., 1997 Earl, 1996 Lacity, 2002 Loh
  and Venkatraman, 1992)
• Bandwagon affect
• 77.1 U.S. companies outsourced domestically
• (Apte et al., 1997)
• Mixed results
• 48 early adopters (1984 1991) met their
  expectations
• 51 did not meet or experienced mixed results
• (Apte et al., 1997)

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The ProblemRisks of Outsourcing

• Weak internal IT management
• Outsource vendors staff inexperienced
• Unclear future direction
• Outsource vendors skills remain current
• Inherent uncertainty of IT
• Hidden costs
• Lack of training
• Loss of innovation capacity
• Lack of IT and business communication
• Technology integration
• Unclear focus
• Earl (1996)

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The ProblemPurpose and Importance of Study

• Extend Sobol and Aptes 1995 research
• The extent of outsourcing being practiced
• The advantages and disadvantages of outsourcing
• Which functions or activities are appropriate for
  outsourcing
• Which hosting countries are appropriate for
  outsourcing
• Provide additional empirical evidence that
  supports selective global outsourcing
• 30 - 60 cost savings potential (Ahles, 2003)

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The ProblemResearch Questions

• Which IT functions are appropriate for global vs.
  domestic outsourcing?
• Can corporations that enter into selective global
  outsourcing contractual agreements realize larger
  cost savings than corporations that enter into
  total domestic outsourcing agreements?
• Can corporations that enter into selective global
  outsourcing agreements retain control over their
  technology options better than corporations that
  enter into total domestic outsourcing agreements?

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The ProblemResearch Questions - continued

• Can technical employees who remain with a
  corporation that has a selective global
  outsourcing partner maintain or improve their
  technical skills?
• Can corporations that have a selective global
  outsourcing partner control project schedules, or
  does the global outsourcing partner control the
  schedules?
• What are the reasons given by companies for
  discontinuing domestic or global (offshore)
  outsourcing?

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Literature Review

• The Evolution of Outsourcing
• Outsourcing Drivers
• IT Outsourcing Functions
• Total vs. Selective Outsourcing
• The Outsourcing Contract
• Impact on Employees Technical Skills Job Loss
• Control of Technical Options and Schedules
• Outsourcing Markets
• Future Trends

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Literature Review Evolution of Outsourcing -
Domestic

• Domestic Outsourcing
• Common practice for U.S. and industrialized
  nations
• (McLellan and Marcolin, 1994 LaLonde, 2004)
• Scope and scale of outsourcing agreements have
  changed
• The Evolution
• 1960s Hardware Service and Facility
  Management
• 1970s Software Facility or Operations
  Management
• 1980s Hardware and Software Standardization
  Customization Management
• 1990s Total Solution Asset Management
• 2000s Application Service Providers (ASP)
• (Lee et al., 2003)

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Literature Review Evolution of Outsourcing -
Global

• Global Outsourcing
• Three significant periods
• 10 15 years old Reduce cost of maintaining
  legacy systems
• Resolve Y2K deficiencies
• Budget pressures, transfer non-core competencies,
  specialized services
• (Sobol and Apte, 1995 Perkins, 2003)

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Literature ReviewOutsourcing Drivers

• Primary reasons for outsourcing (1988 1999)
• Cost reductions/improved profitability
• Technological and strategic considerations
• (Costa, 2001 DiRomualdo Gurbaxani, 1998 Loh
  and Venkatraman, 1992 Takac, 1993and Al-Qirim,
  2003)
• Change in reasons for outsourcing (2003 - 2004)
• Improving the quality of service
• Access to new technology
• Flexible and responsive systems
• Focus on core business competencies
• (Al-Qirim, 2003)

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Literature ReviewIT Outsourcing Functions

• Software development maintenance
• Data center operations
• Data communication network
• Disaster recovery
• Training and education
• Data entry
• (Apte et al., 1997)
• Business Processes
• 73 U.S. companies outsourcing 1 or more
• Call centers
• Help desk services
• Insurance claims processing
• (Al-Qirim, 2003 Yourdon, 2005)

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Literature ReviewTotal vs. Selective Outsourcing

• Total Outsourcing
• Less flexibility
• Anticipated results, not realized
• Selective Outsourcing
• More flexibility
• Anticipated results, realized
• (Lacity et al., 1996 King 1994)

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Literature ReviewThe Outsourcing Contract

• The most important document in the outsourcing
  relationship
• Mutually benefits both customer and outsourcing
  vendor
• Examples
• 14 Fortune 500 Companies
• Detailed, tight contracts 75 success rate
• Vague, loosely written contracts 18 success
  rate
• (Lacity and Hirschheim, 1993)
• 12 Highly-publicized
• Detailed, tight contracts 58 partial or total
  success
• Loose contracts 34 total failures
• (Saunders et al., 1997)

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The Literature ReviewThe Outsourcing Contract -
Elements

• Specificity
• Penalties
• Ownership
• Liability
• Disputes
• Contingencies
• Confidentiality
• Responsibility
• Intellectual property
• Period
• (Takac, 1993)

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Literature ReviewImpact on Employees Skills

• Selective Outsourcing
• Flexible project teams that utilize in-house and
  outsourcing resources
• In-house staffs skills are maintained or
  enhanced
• Ensures new technology is learned by in-house
  staff
• Hire vendor to teach in-house staff
• Outsource old technology and staff focus on
  learning new technology
• Incorporate incentives in the contract for vendor
  to teach in-house staff
• (Lacity and Hirschheim, 1994)

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Literature ReviewJob Loss

• HUGE political issue 2004 U.S. Presidential
  Elections
• Jobs moving offshore (2004 2015)
• 500,000 (1) 2004 3.4 million (6.4) 2015
• (Forrester Research, 2004)
• Jobs lost due to open markets
• 12 million jobs over the past 10 years
• 17 million jobs have been created
• William Hunter (as cited in Fishman-Lapin, 2004)
• 2004 Q1 - Jobs lost
• 240,000 American jobs lost
• 4,633 (2) global offshore outsourcing
• Bureau of Labor Statistics (Santousus, 2004)

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Literature ReviewControl Technical
Options/Schedules

• Giving up control of quality and timetables of
  deliverables
• Most cited disadvantage by U.S. companies
• Median rating of 7 (1 unimportant 9 very
  important)
• (Apte et al., 1997)
• Selective IT outsourcing provides the most
  flexibility and controllable IT environment.
• Use multiple vendors to provide services
• Easier to switch suppliers or bring services back
  in-house
• Four models
• Time and materials exchange-based netsourcing
  or joint venture
• (Lacity et al., 1995 Lacity, 2002)

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Literature ReviewOutsourcing Markets

• There are many countries competing for
  outsourcing clients
• Datz (2004) summarized 24 countries based on
• Maturity level rating (leader, up-and-coming or
  rookie)
• The size of the market
• The availability and cost of skilled labor
• The infrastructure of government and technology
• The geopolitical risks political, financial and
  economic risks
• Leaders
• Canada, India, Ireland, Israel and Philippines

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Literature ReviewFuture Trends

• Outsourcing is not going away!
• India will continue to be the outsourcing leader.
• King (2004) suggests that more than 50 of
  organizations will use IT outsourcing.
• Yourdon (2005) suggests that the scope and depth
  of outsourcing will continue to expand.
• U.S. payments to outsourcing vendors continue to
  rise
• 1990 U.S. paid outsourcing vendors 25 billion,
  estimated to grow to 45 billion in 1994 (Takac,
  1997).
• 2002 154 billion growing to over 200 billion by
  2005 (Willcocks et al., 2004)

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Methodology

• Purpose and Objectives
• Survey Methodology
• Survey Instrumentation
• Survey Testing
• Target Population
• Selection of Subjects
• Respondent Data Preparation
• Survey Distribution
• Statistical Testing

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MethodologyPurpose and Objectives

• Demonstrate organizations utilizing selective
  outsourcing
• Realize cost savings
• Control their technical environments
• Control their project schedules
• Employees maintain or improve their technical
  skills
• Compare the experiences of 1995 most effective IS
  Users with my population, 10 years later.
• Any significant differences in their outsourcing
  experiences?

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MethodologySurvey Methodology

• Self-administered Survey Questionnaire
• Other IT Survey Studies
• Downing, Field and Ritzman (2003)
• Elmuti (2003)
• Sandhill Group (2003)
• Apte et al., (1997)
• Apte and Sobol (1995)

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MethodologyTarget Population

• Outsourcing Strategies 2004 Global IT
  Outsourcing Business Processing Outsourcing
  Forum
• Centric Events Group
• March 3 5, 2004, Las Vegas, NV
• Strategy Population of convenience and purposive

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MethodologySelection of Subjects

• 209 out of 287 attendees
• U.S. based organizations
• 97 (204) U.S. based organizations
• 3 (5) outside of U.S.
• Disbursed throughout the U.S.

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MethodologyRespondent Data Preparation

• Titles of Respondent data 192
• Normalized titles 10
• CEO
• CFO
• CIO
• COO
• Director
• Manager
• Other
• Partner
• President
• Vice President

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MethodologySelection of Subjects - Location
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MethodologySurvey Distribution

• U.S. Mail distribution
• Cover letter
• Informed Consent Agreement
• Survey Questionnaire Instrument
• 3 Starbucks gift card
• Eligible for raffle one of two 50 Visa Gift
  Cards
• Response Options
• Fax
• U.S. Mail
• Online www.itoutsourcingsurvey.com
• Zhang (2000)

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MethodologyStatistical Testing

• Descriptive statistics
• Describe patterns in the respondent database and
  response data
• Analysis of Variance
• Understand the influence of IV on DV
• Discriminate Analysis
• Determine the attributes or variables that
  differentiate the decision to outsource
  domestically or globally
• Factor Analysis
• Determine the impact or influence of one factor
  across other factors

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Projected Research Time-Line

• April 2005 IRB Application Process
• May 2005 Data Collection
• June 2005 Chapter 4 Results
• July 2005 Chapter 5 Summary Conclusions
• August 2005 Dissertation Defense

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Conclusion

• Questions?
• Comments?
• Thank You!!