MIS 648 Presentation Notes:
Lecture 13
Managing IT Offshoring: Is it a
good thing?
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AGENDA
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Introduction to the lecture
Goals of the Lecture
Outsourcing: Definition and Context
Offshoring: Definition and Context
Business Models of IT Offshoring (Khan
& Fitzgerald)
 Managing the relationship (Oza & Hall)
 Economic Challenges
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Goals of the Lecture
 Understand the distinctions among
outsourcing, insourcing and offshoring
 Develop a critical view of outsourcing
and offshoring as solutions to business
challenges
 Evaluate offshoring in an economic
context
 Develop aids to outsourcing and
offshoring decisions to lower risk
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The Structure of the Issue
Managing IT
Outsourcing
IT Outsourcing
Implementation Issues
Outsourcing
General issues
Strategic Management
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Outsourcing Defined
 A partnership between one firm (client) and
another (vendor) for the vendor to perform
services for the client according to a
predefined contract.
 Services may include any aspect of the client
firm value chain or support services.
 Support services are the most likely target for
outsourcing
 Nothing new here.
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Variations on Outsourcing
 “Insourcing” = Internal departments
compete among themselves or with
outside vendors for contract
 “Offshoring” = a form of outsourcing
where vendors are located in another
country
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Aspects of Outsourcing
 Determining the services to be
outsourced
 Selecting the vendor
 Negotiating the terms of the contract
 Managing the contract on both sides
 Evaluating the contract delivery
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Advantages of Outsourcing
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Economies of scale
Sticking to the knitting
Latest technology, skills, knowledge
Lowered costs
Less investment in hardware, people
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Outsourcing IT Services
 IT services are simply another form of
support services for the firm
Do you
agree?
 What makes IT service outsourcing
complex and challenging:
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Type of service (technical, technological)
Type of people
Type of product (intangible, “unseen”)
 Let’s make it more challenging by going
global!
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Type of Service
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Data center operation
Website design, hosting, operation
Communication services
System development (analysis, design,
implementation, maintenance)
 IT planning
Remember this list.
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Offshoring Defined
 Outsourcing to another country
 Historically offshoring has involved a few
notable vendor countries:
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IS Development: India
Specialized software: Israel
IT Services: Ireland
 In essence, offshoring is an extension of the
Maquiadora idea.
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A “spot” of production in one country aimed entirely
for export to another, except in real time
A negative
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Advantages of Offshoring
 Historically the advantages of offshoring have
been almost completely economic
 Savings can run up to 90% or more
 Recently thanks to the Internet and
technological advances, other advantages are
appearing, such as development of markets,
increased innovativeness, etc.
 Business for IT and IT-enabled offshoring
services
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Challenges of Offshoring
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Strategic impact (“size”?)
Technological uncertainty (“gap”)
Functional complexity
Procedural knowledge/uncertainty (“stability”)
Asset specificity
Culture differences
Interdependency
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Models of Outsourcing
 Khan and Fitzgerald (2005) studied four
British firms’ offshoring experience
 They developed a four-dimensional
model of the outsourcing decision
 These are descriptive dimensions rather
than predictive ones (i.e., they help us
describe what happens rather than
predict what will happen
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Khan and Fitzgerald Model
These factors influence
offshoring decisions
and shape the resulting
relationship
Organizational
Who initiates
SWOT issues
Who implements
Potential for reengineering
Technological
Org’l capabilities
Key requirements & usage
Support & maintenance
Environmental
Domestic vs. overseas
Resources & Expertise
Standard quality
Ability to network
Trade law; political stability
Culture
Market entry advantage
Process
Offshoring
Decision
Culture
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Requirements
Project management
Contract
Trust & security
Communication
Standard quality
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Culture IS important, it turns out
CMM level
4 or 5 (/5)
 Concerns on the vendor side
 Oza and Hall studied 18 high maturity
Indian software companies
 They wanted to know what difficulties
do the vendors experience
 They used interviewing and grounded
theory
A qualitative method in which the
ideas “emerge” from the comments of
theMIS
interviewers
rather than from a
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predefined theory of the researchers
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Difficulties
 Concerns on the vendor side
 Oza and Hall studied 18 High Maturity
Indian software companies
 They wanted to know what difficulties do
the vendors experience
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Full List of Concerns
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Cultural Issues
Expectation management
Language
Loss of control
Loss of jobs at client company
Transition
Lack of client’s experience
Distance/access
Getting maturity
Loss of business knowledge by client
Time zones
Lack of domain knowledge
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The Broader View
 Offshoring means the exportation of jobs
 Offshoring carries all the downside of
outsourcing, perhaps magnified
 Offshoring is a natural outcome of the
assumptions of capitalism; but it does
put strain on the jobs system, forcing
home country workers to increase their
skill levels and to employ increasing
levels of capital-intensive technology.
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