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A US Client’s learning from outsourcing IT work offshore

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Abstract

Based on 45 interviews and significant documentation, we explore the offshore outsourcing experiences of a US-based biotechnology company. This company offshore outsourced 21 IT projects to six suppliers in India. Senior managers and the official documents from the Program Management Office consistently reported that offshore outsourcing was successful in reducing the company’s IT costs. But interviews with knowledgeable participants actually managing the projects suggest that many projects were not successful in meeting cost, quality, and productivity objectives. We found evidence that this company’s offshore strategy to simply replace domestic contractors with cheaper, offshore suppliers was a poor fit with its social and cultural contexts. Specifically, we found that strong social networks between the company’s internal IT employees and domestic contractors were not easily replicated with offshore suppliers. Furthermore, the internal project management processes were often incompatible with offshore suppliers’ processes. This paper also analyzes seven project characteristics that differentiate highly-rated projects from poorly-rated projects. These project characteristics are type of IT work, size of supplier firm, location of supplier employees (onsite/offshore), dollar value of the contract, duration of the project, timing of the project, and client unit managing the project. The paper concludes with four overall insights for clients and suppliers.

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Notes

  1. Offshore outsourcing is different than “offshoring”. “Offshoring” occurs when an organization moves work from one location to another location on a different continent.

  2. We define “domestic outsourcing” as outsourcing to a supplier located in the same country as the client.

  3. Besides these rational reasons, some studies find personal agendas dominating large-scale outsourcing decisions (Hall and Liedtka 2005; Lacity and Hirschheim 1993).

  4. Hirschheim, Heinzl & Dibbern (eds.) (2008) Information systems outsourcing, Springer Verlag, Berlin.

  5. Academics frequently use system use, system adoption, and system diffusion as indicators of success (Jeyaraj et al. 2006), but these measures are more appropriate to assess from users (Nelson 2005).

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Authors and Affiliations

  1. University of Missouri—St. Louis, One University Boulevard, St. Louis, MO, 63121, USA

    Joseph W. Rottman & Mary C. Lacity

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  1. Joseph W. Rottman
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Correspondence to Joseph W. Rottman.

Appendix: Interview guide

Appendix: Interview guide

Participant Data:

  • Job title

  • Length of time in current position

  • Where are you in the organizational chart?

  • Previous positions and organizations

Please begin by telling us your offshore outsourcing story—why did your organizational unit initiate an offshore project, who was involved, what process did you go through, how did your internal organization react, how did you manage the supplier, who was the business sponsor, and what was the outcome?

Expected Benefits of Offshore Outsourcing per project: (lower costs, better service, meet short term IT demand, experience gained with offshore outsourcing, etc.)

Actual Benefits of Offshore Outsourcing per project: (lower costs, better service, meet short term IT demand, experience gained with offshore outsourcing, etc.)

For each offshore project you worked on, please describe:

Project characteristics

  • Describe the business function of the project

  • Describe the technical platform

  • New development/Support/Maintenance

  • Name of suppliers on project

  • Supplier headcount including on/offshore ratio

Quality of Offshore Outsourcing:

How did you analyze and protect the quality of the deliverables (code, test scripts, documentation etc.)?

What mechanisms in the contract or processes did you use to protect quality? Compare the quality of individual projects with the quality of domestically sourced projects.

Did you witness quality differences from the different suppliers?

Project Metrics: What metrics were in place for quality control of offshore project deliverables/milestones? SLAs? Defect rates? Submission rates? Unit /IT acceptance/user acceptance tests?

Project Outcome of Offshore Outsourcing:

Perceptions of Success/Failure

How measured

Considering the degree to which project objectives were met, budgets and schedules were met, and the quality of the delivered product, what letter grade would you assign the project? (A–F):

Costs of Offshore Outsourcing:

How do the labor costs compare with your in-house labor costs ($ per hour for job category)?

Describe major transaction costs and how those costs were measured.

Governance of Offshore Outsourcing Projects:

Contract:

  • What are the contract terms as far as baseline services, service level requirements, and penalties for non-performance?

  • What do you perceive as the strengths and weaknesses of the contract?

  • How many pages is the contract?

  • What differences did you see in the projects from various contract models and sizes?

Infrastructure: Organizational structure, tools, and processes.

  • Which supplier employees were onsite and which were offsite?

  • Did you use an onsite engagement manager?

  • How do you govern the supplier’s activities?

  • Project scheduling and tracking

  • Did you have to create special tools, such as data repository, to coordinate supplier activities?

  • Configuration management (keeping track of modules and sections of code)

  • Work flow automation system

  • What differences did you see in the projects from various engagement models?

Problem recognition and resolution:

  • How would you characterize your relationship with the supplier?

  • What is going well?

  • Have you had any disputes with the supplier? How were they resolved?

  • Have you ever been charged for services you assumed were covered in the contract?

Extent to which you encountered problems with:

  • Cultural differences

  • Time Zone differences

  • Language differences

  • Strange foreign work-hour regulations

  • High employee turnover in supplier organization

  • Difficulties in arranging visas

  • Other legal/government difficulties

  • An offshore unit’s lack of domain knowledge

  • Unreliable telecommunications infrastructure

Evaluation process of offshore outsourcing:

  • Who in your organizational unit became the most avid champion of offshore outsourcing?

  • Offshore outsourcing can be a threat to domestic employees. What organizational members were opponents of offshore outsourcing and how were their oppositions addressed?

  • What was senior management’s perception of offshore?

  • What is the general atmosphere at Biotech concerning offshoring?

  • What is the plan for future projects and offshore?

Supplier selection:

  • What was included in the RFP?

  • Which suppliers were invited to respond? Why were they selected?

  • What was your organization’s selection criteria?

  • Which suppliers worked on the projects you are familiar with?

Practices and Capabilities Needed for Offshore Outsourcing Success

  • You now have some experience under your belt concerning offshore outsourcing. If you had it to do all over again, what would you do differently?

  • What are the lessons you learned concerning the best and worst practices for offshore outsourcing?

  • What capabilities do you need in-house to make sure offshore outsourcing is a success

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Rottman, J.W., Lacity, M.C. A US Client’s learning from outsourcing IT work offshore. Inf Syst Front 10, 259–275 (2008). https://doi.org/10.1007/s10796-007-9061-4

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