Outsourcing and Offshoring Business Services (eBook)

Leslie P. Willcocks is Professor of Technology, Work, and Globalisation at the Department of Management, London School of Economics and Political Science, UK. He is Joint Editor-in-Chief of the Journal of Information Technology. Mary C. Lacity is Curators' Distinguished Professor of Information Systems and an International Business Fellow at the University of Missouri-St. Louis, US. She is a member of the International Advisory Board of the Journal of Information Technology. Chris Sauer is Senior Tutor at Green Templeton College, University of Oxford, UK. He is Joint Editor-in-Chief of the Journal of Information Technology.

Outsourcing and Offshoring Business Services 3
Contents 5
List of Figures 8
List of Tables 11
1 Introduction 13
Overview 13
Origins of the Modern ITO and BPO Services Industry 15
On the Global Sourcing Learning Curve 19
The Papers in This Volume 23
Introduction to Section 1: Theoretical Perspectives 24
Introduction to Section 2: From IT Outsourcing to Offshoring and BPO 25
Conclusion 31
References 32
Part I Theoretical Perspectives 35
2 Theoretical Perspectives on the Outsourcing of Information Systems 36
Introduction 36
General Background on Outsourcing 37
The Role of Theory in Outsourcing Research and Practice 40
Theoretical Models of Outsourcing 41
Resource-Based Theory 42
Resource-Dependence Theory 45
Transaction Cost Theory 48
Agency Cost Theory 50
Towards a Contingency Model for IS Outsourcing 52
Integrative Aspects of the Model 53
Horizontal Integration of Resources within a Market 54
Horizontal Integration of Resources between Markets 54
Vertical Integration of Resources 55
Symbolic Approach to Outsourcing 55
Responsive Approach to Outsourcing 55
Discretionary Approach to Outsourcing 56
Empirical Study Based on the Model 56
Conclusion 58
References 58
3 The Information Technology Outsourcing Risk: A Transaction Cost and Agency Theory-Based Perspective 64
Introduction 64
Risk Defined 65
Information Technology Outsourcing Risk 67
Risk Scenarios and their Associated Risk Factors 70
Consequences 75
Risk Mitigation Mechanisms 77
Risk Mitigation Mechanisms Associated with Lock-in 78
Risk Mitigation Mechanisms Associated with Contractual Amendments 79
Risk Mitigation Mechanisms Associated with Unexpected Transition and Management Costs, Disputes and Litigation 80
External Expertise Procurement 80
Clan Mechanisms 81
Alternative Dispute Resolution 81
Conclusions, Limitations and Research Avenues 82
References 84
4 Moments of Governance in IS Outsourcing: Conceptualizing Effects of Contracts on Value Capture and Creation 89
Introduction 89
Overview of the Theoretical Model 91
Promissory Contract Choices 95
Psychological Contract Choices 98
Inter-organizational Rents 102
Illustration of the Proposed Model 104
Causal Relationships in the Moments of Governance 107
From Promissory Contract to Psychological Contract 107
From Psychological Contract to Inter-Organizational Resources 111
Power-asymmetries Associated with Governance Strategies 120
Situational Boundaries of the Model and Research Directions 121
Transactions 121
Resources 122
Institutional Pressures 123
Geography of Space and Time 125
Conclusions 126
Implications for Practice 127
Research Directions 127
References 129
Part II From IT Outsourcing to Offshoring and Business Process Outsourcing 137
5 Norm Development in Outsourcing Relationships 138
Introduction 138
Research Approach 139
Data Collection and Analysis 139
The Case 140
Background 140
The Move to Outsourcing 140
Outsourcing Scope 142
The Aston–Clinton Principles 143
The Start-Up Period 144
The New Contract 145
BP Exploration’s Re-Evaluation 146
Interpretation 148
Question 1: What Do Norms Do? 148
Question 2: How Are Norms Formed? 150
Question 3: How Do Norms Operate within Complex Relationships? 152
Question 4: How Can Norms be Classified? 153
Some Implications 154
Concluding Comments 156
References 158
6 Organizational Design of IT Supplier Relationship Management: A Multiple Case Study of Five Client Companies 161
Introduction 161
Conceptual Framework 163
Strategy 165
Structure 168
Process 171
Research Approach 175
Research Design 175
Data Collection 177
Data Analysis 178
Empirical Findings 179
Strategy 179
Degree of Outsourcing 179
Number of Suppliers 182
Structure 185
Degree of Centralization 185
Mode of SRM Sourcing 187
Process 188
Degree of Involvement 189
Mechanisms for Collaboration 190
Conclusion 192
Discussion of Key Findings 192
Limitations and Future Work 195
Appendix 197
References 199
7 How Do IT Outsourcing Vendors Respond to Shocks in Client Demand? A Resource Dependence Perspective 204
Introduction 204
Theoretical Background 207
RDT and IT Outsourcing 207
Power Relations 208
Strategies to Reduce Demand Uncertainty Based on RDT 210
Research Methods 212
Research Setting and Case Selection 212
Alpha 213
Beta 214
Theoretical Sampling 215
Data Collection 219
Data Analysis 220
Results of Data Analysis 221
Response Strategies to Demand Shocks 221
Buffering 221
Exploitative Buffering 222
Explorative Buffering 223
Bridging 225
Exploitative Bridging 225
Explorative Bridging 227
Power Relation and Response Strategies 228
Exploitative Buffering Independent of Power Relations 229
The Effect of the Client’s Power 230
The Effect of the Vendor’s Power 231
Conclusions and Discussion 232
Key Findings 232
Theoretical Contributions 236
Managerial Implications 237
Limitations and Future Directions 237
References 238
8 Operational Capabilities Development in Mediated Offshore Software Services Models 246
Introduction 246
Theoretical Background: The Mediated Business Model, Operational Capabilities, and Capabilities Development 249
Mediated Business Model in Chinese Software Services Firms: Drivers 250
Operational Capabilities in Software Services Firms 253
Development of Operational Capabilities in Mediated Offshoring Model 255
Research Method 257
Results 261
Company A – High Growth Publicly Held Firm 264
Client-specific Capabilities 264
Process Capabilities 265
Human Resources Capabilities 265
Company B – Slow Growth Small Firm 266
Client-specific Capabilities 266
Process Capabilities 267
Human Resources Capabilities 268
Company C – Established Firm, New to the Japanese Market 269
Client-specific Capabilities 269
Process Capabilities 269
Human Resources Capabilities 270
Company D – Slow Growth Joint Venture Firm 271
Client-specific Capabilities 271
Process Capabilities 271
Human Resources Capabilities 272
Discussion 272
The Mediated Model 273
Development of Operational Capabilities 275
Contingent Nature of the Learning Mechanisms 277
Conclusion 279
Limitations and Future Studies 280
Appendix 280
Interview guide 280
References 282
9 A Dynamic Model of Offshore Software Development 287
Introduction 287
Background on Offshoring 289
Theory and Foundational Model 291
Literature Review 291
Foundational Model: Factors Influencing Offshore Sourcing Decisions 292
Sourcing Decision 292
Economic Factors 293
Nature of the Activity 294
Management Practices and Capabilities 296
Research Methodology 297
Factors Influencing Sourcing Decisions 300
Economic Factors 300
Nature of the Activity 301
Management Practices and Capabilities 301
Institutional Advocacy 302
Triage Process 303
Codification and Modularization 304
Knowledge Transfer 304
Location Upgrading and Specialization 306
Summary of Factors Influencing Sourcing Decisions 307
A Dynamic Model of Offshore Sourcing 308
Sourcing Mix 309
Feedback Loops 310
Feedback Loop 1: Sourcing Decisions to Proactive Management Practices 311
Feedback Loop 2: Sourcing Mix to Sourcing Decision 311
Feedback Loop 3: Sourcing Mix to Proactive Management Practices 312
Feedback Loop 4: Proactive Management Practices to Nature of the Activity 313
Feedback Loop 5: Sourcing Mix to Economic Factors 314
Feedback Loops as Learning Loops 315
Conclusions 316
Limitations and Future Research 318
Appendix 319
Interview protocol 319
References 321
10 Anxiety and Psychological Security in Offshoring Relationships: The Role and Development of Trust as Emotional Commitment 327
Introduction 327
The Problematization and Production of Psychological Security in a Globalized Context – Risk, Anxiety, and Trust as ‘Emotional Commitment’ 330
Giddens on Globalization, Risk, Anxiety, and the Production of Trust 331
Supplementing Giddens’ Ideas – Exploring the Nature of, and Bases for, Personal Trust 335
CODA 338
Research Approach and Methods 339
Distance and the Production of Psychological Security in the NetTrade–IndiaSoft Case 341
Stage 1: Courtship – Establishing Trust in IndiaSoft 345
Stage 2: Cohabitation – Constructing a Stable Collaborative Order 351
Discussion and Conclusions 361
References 366
11 Cross-cultural (Mis)Communication in IS Offshoring: Understanding Through Conversation Analysis 373
Introduction 373
Previous Work 376
Culture and IS Offshoring 376
Cross-cultural Communications 378
CA and Cross-cultural Communications 379
Research Approach 381
Data Collection 384
Asymmetries of Participation 387
Lack of Shared Understanding and Listenership 394
Social Hierarchy 396
Summary – Asymmetries of Participation 398
Cohesion and Flow 399
Sales Force Automation Specimens 399
Discussion 404
Conclusion 408
Appendix 413
Transcription conventions 413
References 414
12 Applying Multiple Perspectives to the BPO Decision: A Case Study of Call Centres in Australia 419
Introduction 419
A Multi-perspective Approach to BPO Decision-Making 421
BPO Decision Considerations 422
Transaction Cost Theory 423
Resource-based Theory 424
Resource-dependency Theory 424
Institutional Context 425
Industry Value System 425
BPO Capabilities Sought 426
Methodology 429
Case Study Results 432
Considerations Shaping the Outsourcing Decision 439
Proposition 1: IT facilitates BPO by reducing the associated transaction costs allowing organisations to engage with lower cost suppliers 439
Proposition 2: Organisations will use BPO for non-core activities 440
Proposition 3: Organisations will seek to minimise supplier dependency when using BPO 441
Proposition 4: The nature and extent of BPO will be shaped by an organisation’s institutional context 442
Proposition 5: Organisations will not use BPO if it is detrimental to their standing in the industry value system 443
Proposition 6: Applying multiple theoretical perspectives increases understanding of the BPO decision 444
Capabilities Sought in Outsourcing Suppliers 445
Proposition 7: Suppliers must have the ability to draw upon the commitment, energy and talents of staff 445
Proposition 8: Suppliers must have the ability to regard end users as customers, understand what good service represents and deliver it 446
Proposition 9: Suppliers must have the ability to improve existing business processes within client companies 447
Proposition 10: Suppliers must have the ability to provide a technology platform that is core to the service delivered 448
Proposition 11: Suppliers must have the ability to develop an effective working environment that reinforces the distinctiveness of the provider 449
Proposition 12: Suppliers must have expertise in procurement and an ability to leverage aggregate purchasing power 450
Proposition 13: Suppliers must have the ability to implement a BPO initiative and deliver it over time 451
Proposition 14: Suppliers must have the ability to maintain a viable business over time 452
Implications, Limitations and Future Research 454
References 456
13 A Historical Review of the Information Technology and Business Process Captive Centre Sector 461
Introduction 461
A Review of Strategic Captive Centre Models 465
A Review of Country Selection Frameworks 466
Phase 1: 1985–1997 469
Key Trends in Phase 1: The Rise of India 471
Phase 2: 1998–2002 474
Key Trends in Phase 2: The Hybrid Model and the Rise of R& D Centres in China
Phase 3: 2003–2005 480
Key Trends in Phase 3: The Expansion of Offshoring Locations 483
Phase 4: 2006–2010 485
Key Trends in Phase 4: Slowdown in New Start-ups, Captive Centre Sell-offs and the Rise of CEE 489
The Impact of the Global Recession on the Captive Centre Sector 491
Trends in Phases 1–4: Captive Models, Attractiveness of Locations and Functions Offshored 492
The Role of Disruptive Factors in Country Selection Frameworks 496
Conclusion 499
References 501
14 Review of the Empirical Business Services Sourcing Literature: An Update and Future Directions 504
Introduction 504
Research Method 508
Coded Articles 509
Coding Variables 509
Dependent Variables 518
Independent Variables 519
Coding Direct Relationships 519
Findings on the Determinants of Sourcing Decisions 522
Transaction Attributes 522
Client Firm Characteristics 525
Sourcing Motivations 526
Provider Firm Capabilities 527
Client Firm Capabilities 528
Country Characteristics 528
Comparison of Sourcing Decision Determinants with Prior Research 529
Comparison of Transaction Attributes 532
Comparison of Client Firm Characteristics 533
Comparison of Sourcing Motivations 534
Comparison of Provider Firm Capabilities 534
Comparison of Client Firm Capabilities 535
Comparison of Country Characteristics 535
Comparison of Influence Sources 536
Findings on Sourcing Outcomes 536
Transaction Attributes 538
Client Firm Characteristics 540
Provider Firm Characteristics 541
Client Firm Capabilities 541
Provider Firm Capabilities 543
Relational Governance 544
Contractual Governance 547
Country Characteristics 548
Relationship Characteristics 549
Sourcing Decisions 550
Comparison of Sourcing Outcome Determinants with Prior Research 551
Comparison of Transaction Attributes 551
Comparison of Client Firm Characteristics 554
Comparison of Provider Firm Characteristics 554
Comparison of Client Firm Capabilities 554
Comparison of Provider Firm Capabilities 556
Comparison of Relational Governance 556
Comparison of Contractual Governance 557
Comparison of Country Characteristics 557
Comparison of Relationship Characteristics 557
Comparison of Decision Characteristics 558
Comparison of Sourcing Decisions 559
Gaps in Knowledge Assessment 559
Strategic Motivations of Outsourcing Decisions 561
Strategic Outsourcing Outcomes/Innovation Effects 561
Environmental Influences on Outcomes 562
Configurational Approaches on Outcomes 563
Client Firm Capabilities on Outcomes 563
Provider Firm Capabilities on Outcomes 564
Pricing Models on Outcomes 565
Business Analytics/knowledge Process Outsourcing 566
Destinations Besides India 567
Emerging Models and Trends 569
Discussion 571
Overall Batting Averages 571
The Relationship between Contractual and Relational Governance is More Complex than Previously Thought 572
Industry Effects Remain a Mystery 574
Researchers Studied Clients from All Over the World 574
Future Research Directions 576
Conclusion 583
Summary of Sourcing Decisions Determinants in this Review 583
Comparison to Previously Studied Determinants of Sourcing Decisions 584
Summary of Sourcing Outcome Determinants in this Review 585
Comparison to Previously Studied Determinants of Sourcing Outcomes 586
The Next Moves 587
Limitations 587
Contributions 588
Appendix A 588
Master codes 588
Appendix B 610
Appendix C 614
Appendix D 622
References 631