IT Service Outsourcing Aalto Business School

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1 IT Service Outsourcing Aalto Business School TARU SALMIMAA, DOCTORAL CANDIDATE TAMPERE UNIVERSITY OF TECHNOLOGY

2 Background (the years ) Research assistant/researcher in user-centred design processes for manufacturing companies at Tampere University of Technology (3 years) Contextual and gap analyses for an ERP system Operational efficiency with the automation (a design of RFID based kanban system) Consultant at Accenture Oy and Trackway Oy (5 years) Functional design, testing, and coordination roles in the development of four different information systems and in an organisational transformation project Onshore-offshore development teams (multi-vendor environments) Significant number of customer-specific customisations on the technical platform (Oracle, Java and Microsoft based products) Doctoral student in ENACT (ERP development networks in action) program (4 years) Data collection, analysis, and publication writing (five accepted papers so far) Teaching assistant in two different courses

3 Agenda IT Service Outsourcing Introduction Meaning and Motivation Focus Changes Decisions to Make, Exercise 1 Challenges Two-stage model, Exercise 2 Trends, Global Outsourcing Survey 2016 CASE: Exploring Agility in Distributed Information System Development (ISD) Teams - An Interpretative Study in an Offshore Context (Sarker and Sarker Information System Research Journal 2009), Exercise 3

4 Meaning of IT Service Outsourcing Purchase of an IT service that was previously provided internally [Quinn and Hilmer 1994: Strategic Outsourcing] There are different reasons and ways to outsource IT functions in organisations Strategic and economic drivers (cost-efficiency) Building of the business relations or an ecosystem Focus on the specific core competences internally Risk management in new innovations (technical skills)

5 Focus Changes in IT Service Outsourcing Year Outsourcing Focus Outsourcing Approaches 1960s Hardware Services and Facility Management 1970s Software Facility or Operations Management 1980s Harward and Software Standardization Customisation Management 1990s Total Solutions Asset Management, Client-Vendor Relations 2000s Global development Distributed/Virtual teams 2010s Cloud solutions/services, Insourcing, Back-sourcing Dynamic management of capabilities/ competences, Back to in-house IT development [e.g. Lee, Huynh, Kwok, and Pi 2003: IT Outsourcing Evolution Past, Present, Future]

6 IT Service Outsourcing Decisions The choice between internally developed technology/service and its external acquisition [e.g. Lee, Huynh, Kwok, and Pi 2003: IT Outsourcing Evolution Past, Present, Future] Make or Buy The benefits and risks of outsourcing Motivation Degree of outsourcing; Period of outsourcing; Number of vendors; Outsourcing types Scope User and business satisfaction; Service quality; Cost reduction IT service partners Performance Insurance or Outsource Trade-off between contingent factors in outsourcing Well-designed contract to reduce unexpected contingencies IT service purchaser IT service providers (a cluster of vendors) Contracts (Formal) Key factors for outsourcing partnership Partnership (Informal)

7 Exercise 1: Discuss in a group of 3-4 persons about the following topics (15 min) What kinds of benefits and challenges an IT service outsourcing bring to different players in an ecosystem? Service purchaser: Organisation purchasing an IT function (e.g. service desk) instead of setting up an IT function internally? Service provider/contractor: Organisation providing an IT function to a service purchaser (e.g. software testing service) Whole Ecosystem: Overall network of service purchasers, service providers, external consultants, and investors

8 IT Service Outsourcing - Challenges Cost-efficiency (uncertainty, transaction costs), Quality (technical skills) Control, Flexibility, Motivation (potential loss of qualifed personnel) Coordination and communication across the organisational boundaries (business knowledge/processes for which IT services are developed) Mutual understanding, Knowledge sharing, Trust Inequality (status and power of the outsourced team) Cultural differences and other conflicts related to distributed teams Geographical and temporal differences among the group of people aiming at the same goals Location of end users and business units Agility and transparency [e.g. Auber and Patry 2004; Levina and Vaast 2005 & 2008; Sarker and Sarker 2000; Hsu & Chang 2014]

9 The Two-Stage Model of IT Service Outsourcing 1st Stage 2nd Stage Diverse Solutions (e.g. EA frameworks, multisourcing) Limited Solutions (e.g. one platform only, single service provider) Step 2: Partnership scope Make or Buy Step 3: Partnership performance 2nd stage 1st stage Scope Self-intrest, Client-centred view, Hierarchical relationship, Win-lose strategy Motivation IntegrativePerfor- 1viewpoint mance Step 1: Partnership motivation Insurance or Outsource Step 4: Partnership or not Integrative viewpoint, Co-Value Strategic viewpoint Economic view point Social viewpoint Contracts (formal) Partnership (informal) Step 5: Partnership contracts Mutual interest Partnership/network view Equal relationship Win-win strategy [e.g. Lee, Huynh, Kwok, and Pi 2003: IT Outsourcing Evolution Past, Present, Future]

10 Exercise 2: Discuss in a group of 3-4 persons about the two-stage IT service outsourcing aims (15 min) Think about being as an CTO (a lead of IT unit) in a finance sector organisation when purchasing an experienced Scrum team to deliver a business critical payment system: 1. What kinds of actions are needed for moving from the first stage to the second stage? (think about the client-vendor relationship) 2. What kinds of strategies an IT unit can apply to the IT service outsourcing for enabling IT services to a business unit (cost benefits, value) and achieving the high quality services to users?

11 IT Service Outsourcing Trends How to maximise the benefits of competition in an ecosystem? From single IT service provider to a layered approach with a IT service integrator in which a small cluster of many vendors Multi-sourced models with shorter contract durations (no 10-years lasting client-vendor deals), increased flexibility and outcome centric commercial models Competitive and complex ecosystems, Smart-sourcing, Right-sourcing, Back-sourcing Different alternative forms to deliver cost savings, performance improvements and innovation Current challenge: Integration risk and governance of multi-sourced IT service model in organisations (Governance issues: Planning, Coordination, Communication) [Deloitte research, computerweekly com]

12 Global Outsourcing Survey 2016 Step on it! Outsourcing makes a beeline toward innovation The quest to drive business value through outsourcing was once focused on cost-cutting and this will remain a key motivation but the results of Deloitte s global outsourcing survey 2016 indicates that outsourcing is becoming a vibrant pathway for driving innovation into the enterprise. More than one-third (35 percent) of survey respondents say they already measure the value of innovation in their outsourcing relationships. Some companies, for instance, look to their service providers to help them capture and integrate marketplace advances, such as tapping creative methods for improving quality and enhancing the user experience, to propel competitive advantage at a velocity they could not otherwise achieve by themselves. Disruption in the form of cloudbased services is just the start: we are on the verge of an entirely new model of service delivery comprising robotic and cognitive process automation, the internet of things, and digital IT management. This intersection of traditional outsourcing and the innovation storm could amplify value for those organizations that can correctly harness it, and this will likely lead to ever increasing uses of outsourcing, even as it reinvents itself.

13 CASE: Exploring Agility in Distributed Information System Development (ISD) Teams - An Interpretative Study in an Offshore Context Sarker and Sarker 2009 Information System Research Journal

14 Context of the Research Industry needs to enhance the effectiveness of globally distributed information system development (ISD) teams Agility is strategically and operationally an essential element underlying the effectiveness ISD teams Although the agility has a long history in agile manufacturing, in SCM, and recently in ISD reseach there are other potent bases of agility for distributed ISD teams in addition to agile methods Aim of the study is to develop an empirically gounded framework of agility in distributed ISD settings Dimensions (Categories) of agility Actionable tactics for enhancing agility within the dimensions Contingencies that may influence the importance of the agility dimensions

15 Methodology Interpretative Case Study (data collected within two years) TECHCOM (B2B division developing and maintaining system in a network of large buyers and suppliers a complex environment) Globally distributed teams in United States, Europe, India and China, both offshore insourcing and offshore outsourcing Selection of representative informants across the different sites Data collection has been described transparently (Table 1) Mix of formal meetings/interviews and informal interactions However, most of informants are project managers located in U.S or India (not informants from China and Europe) Methodological guidelines with illustrations (Table 2) clarify the process and methodological considerations Dimensions and tactics included in the manuscript have been suggested by multiple respondents in the same location, multiple respondents across different locations, and same respondent but across multiple interviews Management of disagreement among interviewees about important issues by using in-depth investigation on the topics

16 Sarker and Sarker 2009 ISR: Exploring Agility in Distributed ISD Teams - An Interpretative Study in an Offshore Context

17 Excerise 3: Discuss in a group of 3-4 persons about the components and tactics for agility in distributed ISD settings by the model of Sarker and Sarker(15 min) People and Skill Agility: (a) People-Based Agility refers to the access to multi-skilled, flexible people at the different locations such that they can be deployed as and when necessary (team s ability to ramp up or ramp down the size of the team (with members of specific skillsets and quality) at any given site, depending on the emerging requirements of the project.; and (b) Interchangeability of Roles, Reconfigurability of the Team, and Distributed Decision Making Process Agility: (a) ISD methodological practices guiding the project; (b) environmental scanning and sense-making routines for anticipating and/or recognising possible or imminent crises ; and (c) the organisation and transition of work across time zones Linkage Agility: the nature of interaction-based relationships that a team enjoys within itself or with key external constituents: (a) cultural mutuality-based agility; and (b) communicative relationship-based agility

18 Discussion THANK YOU!

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