Insights from a Real Options Approach to Evaluate IT Sourcing Decisions

The trend for businesses to outsource information technology (IT) resources remains a relevant topic among IS researchers (Hirschheim and Lacity 2000, Kern & Blois 2002, Yost & Harmon 2002, Dibbern et al. 2004). While much has been written about outsourcing, the literature is relatively sparse when contemplating the issue of how organizations actually make their IT sourcing decisions. These sourcing decisions present the firm with opportunities such as abandonment, expansion, and deferment, that provide management the flexibility to improve their sourcing portfolios in the future. Real options theory has proven useful for valuing investments in IT infrastructure because it assigns value to future potential (Benaroch and Kauffan 1999, Taudes et al. 2000). This real options approach (ROA) is a promising technique for obtaining insights to sourcing decisions under uncertainty. This paper will relate the benefits of using real options analysis to evaluate the 5 stages of the IS outsourcing decision identified by Dibbern et al. (2004)

The impact of business process outsourcing on firm performance and the influence of governance : a long term study in the German banking industry

Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability. Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance JEL Classifications: G21, L14, L21, L2

Threat-Balancing in Vendor Transition

While many outsourcing contracts are expiring, and vendor transition is becoming an increasing concern, little research helps organizations manage vendor transition. This paper explores vendor transition across two case sites. In one case, the outgoing vendor cooperated with the client which resulted in the client distancing itself from interactions between vendors. In the second case, the outgoing vendor was openly hostile, with the result that the client allied with the incoming vendor to manage vendor transition. These findings mirror expectations from balance of threat theory, a political science theory about interactions between nations. Balance of threat theory predicts that outgoing vendor hostility and the capability of the client to mitigate hostility determine whether a client takes a hard or soft balancing strategy during vendor transition

A Survey and Analysis of the Literature on Information Systems Outsourcing

With the development and penetration of business information systems, information systems outsourcing (IS Outsourcing) has attracted more and more interests from both managers and IT vendors. Meanwhile, there is an increasing number of theoretical research papers in academic journals. This paper reviews major theoretical research papers in this area and classifies them from the perspectives of research topics, research methods, journal categories, and theoretical foundations. Based on this review, we propose some directions for future research in IS outsourcing

Identifying Different IS Outsourcing Client Types

Despite the experience with IS outsourcing for decades, numerous outsourcing arrangements fail in practice. Likely reasons for such failures can be ascribed to divergent expectations and an inappropriate governance of the outsourcing relationship. The objective of this paper is to explore different types of outsourcing relationships and their configuration depending on the underlying expectations of outsourcing clients. Based on survey responses from 268 outsourcing clients, the data was analyzed with an exploratory factor analysis revealing four main outsourcing motives. These factors were used as distinguishing variables in a subsequent cluster analysis revealing four distinct outsourcing client types: business-efficiency clients, cost-conscious clients, strategists, and IT-excellence and reliability-oriented clients. These types were characterized along their underlying outsourcing motives and attributes that form each type. The findings call for a more differentiated view on outsourcing relationships. The paper concludes with implications for outsourcing clients and vendors and an outlook on future research

CLIENT-VENDOR RELATIONSHIPS IN CLOUD COMPUTING: LESSONS FROM IT OUTSOURCING

There is considerable debate in the IS research literature about the nature of cloud computing. Whereas some researchers suggest that cloud computing is a paradigm shift that is changing the IT industry, others argue that cloud computing is just another form of IT outsourcing. Based on a review of the IS research and practitioner literature, this paper takes a middle position. We believe that while cloud computing represents a new delivery model of IT resources, there are lessons to be learnt from earlier studies in outsourcing. Hence this paper focuses on one issue in particular: the relationship between the client and vendor. Drawing from existing studies in IT outsourcing, this paper seeks to identify those factors related to client-vendor relationships that might be relevant in the context of cloud computing. We propose four factors as being particularly relevant for cloud computing: commitment, cooperation, cultural compatibility and trust

Relationship and Contract Issues of IT Outsourcing – Descriptive Case Studies in China Regions

In spite of the continuous increase in IT outsourcing activities globally, a major percentage of outsourcing deals failed or suffered from serious problems. In China regions where IT outsourcing practice is still at its initial stage, the situation is even serious: there lacks systematic guidance in terms of how to negotiate decent contracts and how to develop sound relationships. In view of this, the current research develops a research framework based on the theories in Economics, Management and Marketing fields, and investigates the effects of both relationship and contract on IT outsourcing success. To support the research framework, evidence was collected from two descriptive case studies conducted in Hong Kong and Mainland China. The case analysis implies the dimensionalities of relationship and contract. What is more, IT outsourcing success is mainly evaluated from the technological benefits client company could gain. 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 removes executives’ doubts about simultaneously employing both relationship (soft side) and contract (hard side) as governance mechanisms in managing IT outsourcing deals

Challenges of Client-Vendor Relationships in Information Technology Outsourcing Engagements: An Interpretive Structural Modelling Approach

The client-vendor relationship is a key success factor for information technology outsourcing projects. Although many studies have been published about this concept, many of them have focused on a set of particular elements and have not investigated the relationship and dependencies between them. This research paper provides an overview about existing challenges for client-vendor relationships and discovers relationships between them by applying the ISM methodology. We conducted a literature research to gather and analyze relevant articles and identified 11 relevant challenges. Based on the literature research and 20 questionnaire responses we gathered from experts, we used interpretive structural modelling to discover the relevance and the contextual relationships among the identified challenges. The findings of this study reveal that three challenges, namely (1) lack of experience, (2) lack of good management practices and processes, and (3) lack of contractual objects can be treated as key elements for establishing a client-vendor relationship. We discuss further research directions and explain why all other identified challenges have high dependencies on each other