Embed Size (px)
Citation preview
A strategic analysis on how to implement and
manage IT Outsourcing of Business Critical
Systems
Master thesis in Business Information Systems
by
Ana RODRIGUES a
a Graduate School of Informatics, University of Amsterdam
2013/2014
Supervisor: Ronald Kleijn
I can't change the direction of the wind, but I can adjust my sails to always reach my destination.
Jimmy Dean
2
Contents
1. Introduction and contextualization .......................................................................................................... 3
2. Problem Statement and Research Question ............................................................................................ 4
2.1. Scientific & Social Relevance .......................................................................................................... 6
2.2. Personal Motivation.......................................................................................................................... 6
3. Research Method..................................................................................................................................... 7
4. Literature study and Theoretical focus .................................................................................................... 7
4.1. IT Outsourcing ................................................................................................................................. 8
4.2. Business Critical Systems................................................................................................................. 9
4.3. ITO implementation and management levels ................................................................................. 10
4.3.1. Goals and Metrics .................................................................................................................... 10
4.3.2. IT Outsourcing contracts: Contractual governance ................................................................. 11
4.3.3. Performance Management ....................................................................................................... 13
4.3.4. Client - Service providers relationship: Relational governance ............................................... 14
5. Analysis ................................................................................................................................................. 14
5.1. Results analysis .............................................................................................................................. 15
6. Theoretical Framework ......................................................................................................................... 20
6.1. Level 1 – Goals and Metrics ........................................................................................................... 22
6.2. Level 2- ITO contracts: Contractual governance ........................................................................... 22
6.3. Level 3 – Performance Measurement ............................................................................................. 22
6.4. Level 4 – Client-Service Provider relationship: Relational Governance ........................................ 23
6.5. Engagement model ......................................................................................................................... 23
6.6. Revised Framework ........................................................................................................................ 24
7. Conclusions ........................................................................................................................................... 27
7.1. Limitations & Further Research ..................................................................................................... 28
8. Corrections ............................................................................................................................................ 30
9. References ............................................................................................................................................. 31
10. Appendices .......................................................................................................................................... 35
10.1. Research approach ........................................................................................................................ 39
3
Abstract. Once they have decided to outsource, managers face issues related to the ‘Implement
and manage outsourcing arrangement’ phase, such as goals and metrics definition, contractual
governance, performance management and relational governance. This work gives managers
guidelines on how to address these issues, both for the demand and supply side, validated with
literature, a survey of experienced managers, and multiple expert opinions.
Keywords. IT Outsourcing, Business Critical Systems, service provider, costumer, SLA’s, metrics,
strategic goals, contracts, relationship, business, theoretical framework.
Acknowledgements. I would like to thank my parents for encouraging and supporting me
unconditionally throughout this moment of my life and making this master achievable. I want to
express my gratitude to my supervisor Ronald Kleijn and Guus Delen for their continuous support
and endless patience which substantially improved the quality of my thesis. Finally, my best and
most sincere thanks to all those who provided time to respond the survey, which helped me collect
interesting data for analysis; without you the quality of this thesis would not be the same.
1. Introduction and contextualization
The growing demand and delivery pressure that companies suffer every day to survive in a highly
competitive environment pushes managers to seek solutions that enable them to "do more with less." Thus,
outsourcing continues to grow in all sectors of the economy, mainly in the area of services of information
technology (IT) (Ferreira & Laurindo, 2009). However, the number of unsatisfactory experiences with
outsourcing arrangements has been significant (Deloitte, 2005). In these situations, it is needed to review the
strategies and tactics used in obtaining services processes. The failure rate still lies between 40% to 70% of
contracts and at the center of the problem is the conflict of interest inherent in any outsourcing agreement
(Deloitte, 2005).
Information technology (IT) Outsourcing has been adopted as a business strategy for more companies
throughout the last decades, with the goals of reducing and controlling costs, increasing efficiency and
enabling focus on core competencies (Hongxun e.a., 2006). Indeed, outsourcing presents itself as a useful
tool to an organization that, having to manage scarce resources, needs to focus on their core business and
their key skills.
In the beginning of the outsourcing trend organizations outsourced non-strategic activities. However
many companies are today outsourcing complex and business critical resources and activities (McFarlan and
Delacy, 2004; Kakabadse and Kakabadse, 2005). From an IT perspective, and similarly to other elements of
an IT system, critical systems can generate value from outsourcing; however, their vital significance requires
cautious attention, vigilance and specialized skills.
Regardless of the expectations at the start of a process of outsourcing information systems (IS), the end
result of such an agreement is hard to predict at the time of signature. To deliver according to the agreed-
upon contract it is necessary but not sufficient to achieve compliance. It is also important to ensure a
collaborative relationship with the service provider, based on the effective management of contract and
constant mutual trust, thus adding value to an outsourcing relationship. A relationship of animosity between
clients and service providers can significantly reduce the value of the business (CXO, 2009).
IT Outsourcing is gaining significant momentum, raising the stakes to an even higher level. This trend is
inevitable as organizations increasingly regard IT as a tool to enable and support business activities, rather
than a competitive advantage or threat. A successful IT outsourcing relationship can help the client to
achieve major benefits such as cost-savings, better quality of services, increased flexibility, and access to
new technology. On the other hand, a poorly managed relationship be harmful in terms of unexpected costs,
information security compromised, low staff motivation and loss of control over quality and level of services.
In a long-term contract these potential threats are particularly high. The key tool to ensure a successful
relationship between both parties is the contract itself, as it is crucial for the management team to be
conscious of their ability to secure delivery around the contractual elements. In fact, good reputation and
continuation of the relationship are nowadays the focus for service providers, instead of levering high profit
margins and short term projects.
4
According to a Xerox conference about the challenges of outsourcing in Portugal, a commitment to
training, empowerment of employees and setting clear strategic lines of action have led companies to
channel their focus to core activities, with a view to the business success. Given the current situation of crisis
in Europe it is easy to understand the challenges that organizations, large and small, face. It is not sustainable
to have resources allocated to functions that are not central to the business success. Organizations will never
be able to perform non-core activities cheaper and more efficient than a company with specialized resources.
The priorities of the service providers of outsourcing services should focus on simplify and integrate their
clients’ business processes in order to optimize the financial and efficiency gains. Xerox also stated that to
generate and manage business success there is no scientific formula, but there are several variables, not all
with the same weight and size; namely: differentiating the business, gaining client loyalty, recruiting the
right people, investing in innovation and gaining competitiveness. If all these items have a place in the
corporate business plan and if organizations are able to manage them in a way that is not seen as a cost but
able to return add value to business then the company is on track for success.
Throughout this thesis it will be discuss the critical aspects around the preparation of outsourcing
contracts highlighting: the main difficulties that arise in the client - service provider relationships, identifying
as possible alternatives for managing conflict situations and proposing a framework to deal with these
problems.
2. Problem Statement and Research Question
By studying the literature one can find that several researches have been conducted research in the field
of IT Outsourcing (ITO). However, the literature regarding ITO reveals that much research and analysis is
still lacking on this topic. Jiang & Qureshi (2006) lead a study on outsourcing-related articles with the aim to
point out gaps in the current literature; the main gaps identified by the authors are based on these broad
topics:
lack of research on the outsourcing contract itself
lack of objective metrics for outsourcing results evaluation
lack of research on the relationship between outsourcing implementation and firms’ value
The present thesis and research will mainly focus on the analysis of the first topic; it will also attend to
the second topic by evaluating the current state of the art in metrics and results evaluation and proposing
some guidelines. The topic of the relationship between implementation and firm’s value will still be an open
area for future research. According to the study “despite the growing emphasis of outsourcing, researchers
are unable to empirically and systematically pinpoint its impact on firm’s performance metrics” and “Most
available studies of the impact of outsourcing on firms’ performance rely upon perceived results rather than
direct measures.” (Jiang & Qureshi, 2006). In fact, one of the issues found was that across a statistically
representative sample of firms, there seemed to be no fully reliable quantitative indicators of performance.
Furthermore, the first assumption underlying in this research is that the decision to carry out the IT
Outsourcing has been made in advance. The discussion on the decision, including reasons and risks
assessment, will not be explored in depth, given that the main focus is on the tools and ways to implement
and manage this outsourcing; rather than on the initial decision to outsource.
The aim is to create a framework to help organizations and managers involved in an IT outsourcing
implementation and management process addressing the issues referred above. The framework that is
proposed is a combination of theoretical guidelines to be used during the outsourcing process. With this
framework, it is possible to understand if the strategy is being implemented, the vision is being accomplished
and, in case of failure, to assess responsibilities, but most important of all, to deploy tools to service
providers and clients for them to understand and identify problems. With such approach the space for
assumptions and ramblings is narrowed and a more concrete and real analysis is possible and useful for both
organizations and service providers. The aim is to develop and to deploy result-oriented and value driven
research and solutions that enable managers to make smart and informed decisions to stay ahead in
competition and to drive growth.
This framework can be as useful for organizations that decide to outsource, as well as to outsourcing
service providers. This tool will provide insights and deeper understanding on the organization’s
5
requirements, therefore, bringing service provider and client together. It can help improve the quality of the
final product by raising the issues and future problems early in the process, at early stages of solution design.
The clients are more satisfied when the potential problems of implementation and development are addressed
in advance. This way they can work together looking for a solution that fits the requirements. This scenario
contrasts with the case where the client has low levels of satisfaction due to the lack of transparency and
communication. In that case the problems are only undertaken by the organization after its implementation,
when contingency and action plans have not been defined, thus catching organizations off guard.
Service providers aim to provide complete and fully adaptable IT infrastructure outsourcing solution
according to the needs of each client and specialized in many different environments and systems. All the
processes of installation, integration, maintenance, support, monitoring and managing the infrastructure
should offer the highest performance. The best way to deploy such complete solutions is to understand the
root of the client’s concerns and, early on, work together in pursuit of a common solution. Service providers,
with their past experience, should address problems at an early stage to be able to solve them in advance. To
achieve that, establishing a detailed and focused analysis of the customer’s requirements and problems is the
most appropriate approach. One of the best-selling value-propositions is for service providers to be interested
and aware of the client´s problems to present immediate and targeted solutions; this helps the client start
seeing them as trustworthy partners given transparent communications and general ability to solve problems.
An often mentioned problem is the fact that service providers do not provide proper technical assistance after
the systems are implemented. Analyzing the real concerns of clients, service providers can effectively direct
their technical assistance. Some clients may need additional support to understand how to operate the system
itself; others may want to know how to manage the system data. Service providers should conduct pilot
training sessions at an early stage and involve personnel in all organizational layers in order to get the
organization accustomed to the system and to raise problems in advance. As Sagoo e.a. (2013) stated in their
Accenture article, “Having a realistic perspective that life is not perfect is a good thing—whether you’re a
service provider or a client.” In the literature it is argued that the basic hypothesis is that a sourcing
relationship can only achieve success when both the client and the service provider achieve their goals and
have confidence in the relationship, which lead us to the second assumption of the present thesis: relational
management and contract management, between service provider and client, complement each other as
determinants of success of a IS outsourcing process. According to Chen & Lin (2001) “communication,
coupling quality, and knowledge sharing are three most important variables that directly affect IT
outsourcing performance.”
The process of ITO is characterized by different phases/stages. This thesis will be based on the
outsourcing framework (Figure 1- Appendices) proposed by McIvor e.a. (2009) and will be mainly focused
on the Stage 4 - Implement and manage outsourcing arrangement. This process includes two important sub-
stages, the ones that will be main focus of the present thesis: (1) negotiating and signing the outsourcing
contract and (2) managing the outsourcing relationship.
The present research pushes towards an improvement in the understanding of IT Outsourcing,
particularly in ITO contracts and client - service provider relationship. With increased understanding of these
topics, managers can be prepared with better guidelines and tools for ITO project implementation and
management and in the long run increase the effectiveness of outsourcing projects. Therefore the research
topic will be:
“A strategic analysis on how to implement and manage IT Outsourcing of Business Critical Systems”
And this leads to the main research question:
RQ. “How to best implement and manage the IT Outsourcing of business critical systems process?”
Following up on the research question, an assessment of the current situation of the ITO process in
practice is conduct, attempting to answer the first sub-question:
SRQ1. “Which are the main problems faced during an ITO of business critical systems process at the
‘Implement and manage outsourcing arrangement’ phase?”
6
It will then be evaluate the key elements and considerations for managers that are setting up and
managing an outsourcing contract structured via the following research question:
SRQ2. “Which are the most crucial aspects to include in ITO of business critical systems contracts?”
Each of the questions above could be the subject for several papers in their own right. Nevertheless, this
thesis will develop a platform and deploy a framework from which all these questions can be discussed. The
aim is not to find static answers in any amount of detail; instead, ways of thinking are suggested and possible
directions towards answers are point out. Useful insights and new understanding may flow in an attempt to
raise controversial issues through these questions.
In the present thesis, the focus is laid primarily on the outsourcing of information systems. However, IT
outsourcing (ITO) is not a new concept and has received attention of academics for nearly 20 years (Lacity,
Khan & Willcocks, 2009). To start addressing this issue, it is needed to establish clear definitions of the
topics involved in the problem statement. First it will be conduct an overview of the relevant theoretical
contributions to find pertinent issues in the literature in the field of ITO; thus it will be provide a clear
definition of general concepts - IT Outsourcing and Business Critical Systems; and explain more specific
levels of outsourcing – Goals and metrics, IT Outsourcing contracts, Performance Management and client -
service provider relationship. Afterwards, survey (Appendix A) targeting managers that have or are having
experience with ITO projects will be run, from both client and service provider point of view. Based on this
literature study and the survey results, deploy a preliminary conceptual framework it will be deployed. With
expert opinions collected an attempt to validate the theoretical framework proposed and assess the main
problems and crucial aspects faced during the ‘Implementation and management outsourcing arrangement
phase’.
2.1. Scientific & Social Relevance
Since the rise in popularity of outsourcing in businesses in the 90s to the major political debate in 2002 in the
U.S. about the job loss on the domestic labor market, outsourcing has been a trend and a well spread topic.
Nevertheless, as stated before, there are still gaps in the understanding of IT Outsourcing.
Throughout this paper a theoretical framework will be propose with the aim of helping managers during
the ‘Implement and manage outsourcing arrangement’ phase: how to incrementally define the right goals and
metrics, through the definition ITO contracts and performance monitoring tools to the management of the
relationship between service providers and clients. A survey (Appendix A) is used to collect insights on both
parties’ understanding of ITO, aiming to improve their relationship by raising and solving misconceptions.
Issues with ITO contracts by assessing both parties’ requirements will also be highlight.
Eventually, the results of this study may be used to reduce the gap between actual contracts and what
outsourcing projects actually require. By using this approach this research can help develop theoretical tools
to manage outsourcing projects and possibly improve the outsourcing contract management quality in
practice. This research is aimed both at introducing new academic insights to the ITO literature, as well as
providing valuable advice for outsourcing IT systems in practice.
2.2. Personal Motivation
I’m motivated to conduct this research since developing this project will allow me to study and focus on
several critical topics related to IT and management, such as IT outsourcing, contract management,
requirements assessment (from the business and IT side), performance monitoring and communication
improvement.
Understanding how all of these concepts are related and integrated together will allow me to elaborate a
theoretical framework that can help executives - service providers and clients - to manage IT systems
outsourcing in a more efficient approach.
Also, this represents a personal challenge which will allow me to explore and develop my capabilities as
a researcher. What led my decision to this topic was the eagerness to fight false promises, meet requirements
and provide reliable assessment tools; in other words, to improve the outsourcing environment mainly in the
IT field, the future of our days.
7
3. Research Method
The aim of this thesis is to deliver guidelines on how to best implement and manage ITO processes, both to
service providers and clients; understanding which are the main concerns that are currently face during these
processes. By identifying the issues, one can assess which are the crucial aspects to be included in the ITO
contracts, the backbone of these agreements. Further research will be one step closer to find suitable
solutions, improving the quality and efficiency of these agreements, ultimately driving growth. This chapter
is dedicated to discuss the methodology followed through this study to investigate the research questions and
sub questions addressed in the Problem Statement chapter.
In the scheme below is represented the Research Method; a theoretical framework (3), supported by the
literature (1) and a quantitative study (2), will be proposed; this framework will be then validated through a
qualitative study (4).
The questionnaire survey outline and questions were based on the information retrieved from the
literature study. The approach to create the framework was based in an extensive literature study and on a
questionnaire survey targeting professionals involved in ITO processes. Retrieving the most important steps
from the literature the responds are asked to classify the ITO process in four main levels – Goals and metrics
identification, ITO contracts outline, performance measurement mechanisms and client-service provider
relationship management. The crucial aspects and concepts were gathered and organized by levels of
importance during an ITO implementation and management process.
Afterwards, and in order to further validate the framework, expert’ opinion on the provided framework
and on the ITO process in general were collect. This expert opinion was gathered through in-depth semi-
structured interview regarding the overall framework and its different phases. Through semi-structured
interviews one can better understand what the perceptions of the respondents are, which overcomes the more
static interviews. The interview was previously outlined to act as a guide but leaving space for improvisation
in order to retrieve more interesting and significant content.
4. Literature study and Theoretical focus
Most companies today have relationships with several partners and collaborators. The number of strategic
alliances in most industries has grown over the last decade. Rather than delivering information systems (IS)
internally, in the past years, companies have progressively sourced many of their IS activities from external
service providers. A recent study (Sagoo, Oates, & Lacityk, 2013) showed that 60% of companies worldwide
Literature study
IT Outsourcing
Business Critical Systems
Goals and metrics
ITO contracts
Performance Management
Client-Service Provider relationship
Quantitative study
Online questionnaire
survey
Proposed Framework
ITO implementation
and management
Qualitative Study
Expert Opinion
(1)
(2)
(3)
(4)
Scheme 2 –Research Method
8
are now adopting outsourcing as a standard practice; and another 19% say that outsourcing is definitely their
future.
Many authors have researched into the possible reasons leading companies to outsource part of their IT
activities or even whole departments. In most the literature these reasons are categorized in broad groups.
Table 1 (Appendices) is a summary of the main categories and motives for ITO that derived from literature,
constructed by Hietalahti & Kuoppala (2009). The table makes it evident that much attention and research
has been paid to this topic; it has been a trendy topic over the last decades, but nevertheless much more
research still needs to be done.
Since every IT outsourcing deal is unique, one can assume that risks are present or absent depending on
the context and project of the IT outsourcing deal. Like any business model, ITO also presents challenges,
ranging from having a very strong and narrow communication channel across the enterprise, to requiring
confidence that a third party will deliver the service fulfilling and improving levels of quality and satisfaction.
Often, the clarity of the customer on what to do with outsourcing is also a major challenge (Price, 2004). For
that reason, IT Outsourcing negotiation and drafting agreements can be summarized and displayed in the
Figure 2 (Appendices), which metaphorically explains various perception gaps that often arise in software
development projects through the simple task of building a tree swing. Many ITO service providers and
clients face this dilemma often, different points of views are present in the moment of design software
solutions, but contracts are useful tools to narrow ideas to a common ground.
Also the critical success factors of outsourcing have been discussed in the literature. The four main
factors that derive the most attention from studies and literature authors on the success of outsourcing are:
Adequate contract (Casale, 2001; Claver e.a., 2004; Gonzales e.a., 2005; Lacity & Willcocks,
2012)
Fit between client and service provider (Bo e.a., 2011; 2011; Ndubisi, 2011; Lee & Choi, 2011)
Quality and quantity of communication between service provider and client (Gonzalez e.a.,
2005; Guo e.a., 2010)
Commitment by the management (Shi e.a. 2005; Ndubisi, 2011)
4.1. IT Outsourcing
Since the outbreak of the economic crisis in the past years along with the huge technological
advances the world has witnessed, companies are under extreme pressure to work more efficiently
and to perform better. Outsourcing emerges as a solution for current companies’ problems.
According to Troacă & Bodislav (2012) the concept of outsourcing came from the American
terminology “outside resourcing”, meaning to get resources from the outside. It was defined by
Hafeez e.a. (2002) as “procurement of materials and services inputs by a firm from a source outside.”
In this thesis the concept of outsourcing that will be used is the one defined by Grover e.a. (1994)
which is the acquisition of products or services from external service providers. Outsourcing service
providers has the ability to increase processes performance or to reduce operational costs for the
clients.
Across departments and activities within a company that could be outsourced, IT is considered
to be a main candidate for outsourcing. In areas such as banking, financial services, health care, and
manufacturing, this is particularly true. The employment of outsiders to handle part or all of IT
activities often helps organizations to provide better services and to maintain a competitive
advantage (Grover, Cheon & Teng 1994). The motive behind ITO is that standard IT solutions and
cloud services, which service providers offer, are less prone to fail than customized and complex
solutions, which organizations themselves try to develop to fulfill organizational needs. According
to Gartner IT glossary (2014), IT Outsourcing is “the use of external service providers to effectively
deliver IT-enabled business process, application service and infrastructure solutions for business
outcomes”. Therefore, the definition of information technology (IT) outsourcing used across this
research is: the subcontracting of an external service provider for a part or the entire IT activities of
a company (Altinkemer e.a., 1994). Summarizing, information technology outsourcing (ITO)
concerns the outsourcing of digital services.
9
Despite research of the last 20 years and the wide availability of literature, ITO projects still
report an inability to meet the expected benefits of the (IT) outsourcing relationship with over 50%
failure rates (Deloitte, 2005; Gartner, 2003). But on the other hand, 89% of the organizations plan to
maintain or even increase their current level of IT Outsourcing, according to a KPMG survey.
Hence the growth of IT outsourcing gives the impression of being undeniable. In fact, as
acknowledged by Clark (1992), IT Outsourcing is one of the six most important strategic
management concerns that organizations face in the management of corporate systems.
Grover e.a. (1994) led an exploratory study of 188 firms and reported that even though IT
Outsourcing is not a new phenomenon, over the years its nature has evolved and differentiated.
Contrary to traditional IT operations, results confirm that a variety of IT functions are being
outsourced. The highest outsourced activity remains operations; however applications,
telecommunications and end-user support are being executed with greater relevance by external
service providers (Grover, Cheon & Teng 1994). Over the years, service providers had increased
their solutions specification either by function, industry or application, due to the fact that different
industries pursue different levels of outsourcing. Gonzalez e.a. (2010) proposed the following
determinants of IT outsourcing success:
“A clear idea of the objectives sought through outsourcing; provider’s understanding of clients’
objectives; provider’s attention to clients’ specific problems; choosing the right provider; frequent
client-provider contacts; a good-value-for-money relationship; top management’s support and
involvement; and proper contract structuring.” (Gonzalez e.a., 2010)
The present research will focus on some of these determinant factors of IT outsourcing,
specifically the relationship between client - service provider and the contract analysis.
4.2. Business Critical Systems
In literature, IT outsourcing services has been investigated tremendously. However, not all of the
outsourced IT facilities are considered to be equally important. Traditionally, only facilities that
were considered commodities were being outsourced, whereas more specific facilities were not
considered candidates for outsourcing (Price, 2004; Slack, Chambers & Johnston, 2010). The last
decade, the literature on application service providers (ASPs; e.g. Curry & Seltsikas, 2001) and
outsourcing itself (e.g. Willcocks & Lacity, 1999) has drawn attention to outsourcing business
critical IT systems.
Despite the fact that there is no clear definition on what a business critical system or process
is, several authors provide some insights in what might be considered to be critical business
operations. One dictionary gives the following definition of critical: “having a decisive or crucial
importance in the success, failure, or existence of something” (oxforddictionaries.com.). Another
relevant semantic aspect is one of the definitions of critical, which states that critically can mean
“urgently needed” (Dictionary.com). This implies that a critical system is not only of extreme
importance but also needed straight away.
Several authors have given indications about what possible critical systems could entail.
Slack e.a. (2010), suggest that the first thing one should look at, when outsourcing a process, is
whether that process is strategically important (in regards to the operational strategy). The decision
of what is strategically important varies with a company’s perspective. Slack e.a. (2010), states that
within operational strategy, deciding what is critical varies per project (and resource) and is often a
pragmatic decision based and depending on the operational strategy of a company (Slack e.a., 2010,
p. 77). Although these authors state that it is hard to generalize criticality, it also suggests that
critical importance is related to strategically important decisions.
Companies’ activities may be labeled as core competences or not core competences and can
possibly be executed by external providers more efficiently and/or effectively.
10
Prahalad & Krishnan (1999) suggest that business critical applications lead to severe
problems when they fail. They might even stop the organization to operate entirely. Price (2004)
also suggests something similar; according to the author business critical processes are those that
have both a strategic and operational risk. This also implies that something is business or mission
critical if a failure of that process or application will lead to a major business failure in terms of
strategy or operation.
A definition of business critical systems should therefore state that a business critical system
is a system that is both strategically or operationally of (extreme) importance, (urgently) needed,
and when it (partially) fails severe problems arise, including (but not limited to) significant
financial losses, operation shutdowns, competitive disadvantages, damage to both reputation and
credibility, regulatory (compliancy) issues and safety related issues, which affect the business
(Price, 2004; Slack e.a., 2010; Prahalad & Krishnan, 1999; Duff as cited in: Soliman & Youssef,
2003). The previous definition will be used in the thesis.
The thesis will not focus merely on core activities, but in critical systems. As discussed
earlier, any system that causes significant damage to the organization in case of rupture is
considered a critical system. The third assumption of this thesis is that any system can be
considered critical; for example, a simple financial system of an industrial cars company, it is not a
core system (it is not through this system that the organization will gain a competitive advantage in
the cars market), however, if it fails one cannot perform sales which could mean huge financial
losses.
Once the concept is defined, another question arises: how can managers combine the
concept of business critical and strategic outsourcing to achieve maximum effectiveness? A really
interesting example is Nike. Nike, Inc., is today a massive company and the leading supplier of
athletic footwear in the world. Interesting enough Nike outsources 100% of its shoes production and
only the key technical constituents of one of their line of sneakers (“Nike Air”) are manufactured by
them. One could assume that sneakers production is their business critical. Sport shoes are seen as
stylish and modern accessories, which require fashion and technological flexibility at the production
and marketing levels. While focusing on preproduction phase (research and development) and
postproduction activities (marketing, distribution and sales), Nike generates maximum value,
“linked together by perhaps the best marketing information system in the industry” according to
Hillmer & Quinn (1995). Through the last decade Nike grew at 20% growing rate and grossed a
31% ROE for its shareholders.
4.3. ITO implementation and management levels
4.3.1. Goals and Metrics
In business nowadays, there is still a lot of misunderstanding about the meaning of the words goals and
metrics. According to Walden (1994), the unit in which something is measured is known for metric
(measurement); goals are the targets set in terms of units (target/objective).
According to Locke and Latham (2002) the probability that performance increase after a goal has been
set is above 90%. There is proof that indicates that there is an important constituent of individual’s
motivation through goal setting policies. Psychologists and experts have found that when workers are
committed to challenging but attainable goals, their performance increases.
As Judge (2000) stated: The most effective way an organization can promote job satisfaction of its
employees is to enhance the mental challenge in their jobs, and the most consequential way most individuals
can improve their own satisfaction is to seek out mentally challenging work (Judge, 2000, p. 107).
Goal setting theory suggests that ensuring that a group has a common goal and is clearly aware of what is
expected from them are effective tools for progress. If individuals accepts the goal, does not have conflicting
goals and has the aptitude to accomplish it, there is a positive direct relationship between goal difficulty and
task performance (Locke & Latham, 2002)
11
Nevertheless, goals are not static; companies may change goals as the circumstances change. It is
important to understand if the environment is changing in order to align goals and metrics to it, to follow
market trends. Companies must develop a self-critical and reflective thinking about adopting various goals
and metrics, as it may help to ask if each significantly improves the efficiency of their business learning
system. According to a General Electric’s online article (2014), performance metrics should be developed to
meet a company’s particular long-term goals and choose credible metrics is crucial to ensure buy-in at all
levels of the organization. It is known that the right combinations of metrics can show where the company is
succeeding but also highlight specific areas of weakness.
One of the most important rules in the world of business is: “if you can’t measure it, it doesn’t exist”.
This rule is particularly true when defining goals and targets, because if managers are not able to define
measurements then the progress can’t be achieve because they don’t know their current position. Therefore
all goals defined by an organization have to be specific, measurable, achievable/attainable, result
oriented/realistic/relevant and time bound – or as also known as SMART goals.
4.3.2. IT Outsourcing contracts: Contractual governance
During the recent years we have witness a shift and increasing of complexity on the concerns regarding
outsourcing. Instead of focusing in the decision to outsource or not, the concern has been in how to outsource
and on how to manage the client-service provider relationship. In order to address and mitigate these issues
the attention should relay on the contracts used to support ITO processes. According to a survey by Gartner
(2008) 55% of outsourcing companies emphasis excessively on the operational level of outsourcing, rather
than spending resources on setting up and managing contracts.
Outsourcing contracts can be complex and may involve a lot of work, but building a good and robust
contract shall cover service level agreements, measurements and timeframes, penalties and rewards, regular
reviews, and exit strategies. The right craft of this type of IT outsourcing contracts is critical because they
deliver business value and drive IT outcomes to the companies.
Developing solid contracts can dramatically reduce ITO risks (Aubert e.a., 2005): well structure
contracts cover most of the situations companies want to secure, and simultaneously setting versatile
agreements allows response to changes taking place during the contract, which can be a valuable resource in
reducing risks of ITO. Fraga (2010) argued that the outsourcing success or failure is conditioned and can be
determined by how the process is run before and after the contract is signed. Therefore, ITO contracts are
crucial to manage risks, are effective mechanisms for relational outsourcing management or, in case of
underperformance, for early recession (Osey Ngwenyama-Bryson, 2006). However, define and sign the
contract is not enough to pursue stable outsourcing situations; once started one must be continuously
managing the signed contract. It must be remembered that often the difference between failure and success of
an outsourcing project may simply reside in the choice of the supplier and on the terms of the contract
(Meyer ., 1994; Lee e.a. , 2000) .
Contractual governance and relational governance are two determinants categories the success of IT
outsourcing (Scheme 1), according to Lacity e.a. (2009). The contract management category includes the
details of the contract, contract type, duration and size. Moreover, the category of relationship management
encompasses trust, norms, communication, information sharing, cooperation and mutual dependence.
Organizations must be aware of this when outsourcing IT services; keep track and monitor these factors in
order to achieve greater alliances and reach out for success.
If celebrating contracts alone does not guarantee the success of outsourcing, is however, pertinent to
conclude solid contracts, enabling the fulfillment of expectations. A very common outsourcing myth exposed
by Lacity and Hirschheim (1993) is that IT Outsourcing is in the nature of partnership and strategic alliances.
On the contrary, Outsourcing service providers do not share the same motives for profit as their clients. The
only manner to ensure that expectations of the costumer are met is to define a tight contract. According to
Lacity and Hirschheim (1993) research, outsourcing customers agreed that the contract is the key issue to a
successful outsourcing relationship. Contracts are crucial and necessary, however, not enough to a successful
outsourcing partnership. Contracts are a trade-off between the level of risk both parties are supporting and
the level of completeness of the contract they accept to aim for; as Graph 1 (Appendices) captures. In fact,
firms outsource IT operations and activities in order to obtain benefits, and contract characteristics constitute
a crucial element which should contribute to getting these benefits.
12
According to the Business Dictionary, transaction cost is “the cost associated with exchange of
goods or services and incurred in overcoming market imperfections. Transaction costs cover a wide range:
communication charges, legal fees, informational cost of finding the price, quality, and durability.
Transaction costs are a critical factor in deciding whether to make a product or buy it.”
(businessdictionary.com) – as Graph 1 exhibits it. The figure exposes the process of minimization of
transaction costs leading to the design of the optimal contract (see Graph 1). The degree of contractual
completeness reflects the desire to minimize contractual exchange costs. From the figure is quite intuitive
that in order to increase firm’s protection against threats they should reduce the contract incompleteness until
the point where the marginal cost of risk exposure is equal to the marginal benefit of reducing risk exposure.
According to McCarthy & Anagnostou (2004) “There are several compelling reasons to outsource, but the
underlying rationale is consistent with the principle of transaction cost in economics, i.e. to achieve
economic improvement in the performance of business functions”.
There are several types of IT Outsourcing contracts and most of them involve passing responsibilities
from an in-house IT department to the outsourcing service provider through a contract. Nevertheless,
outsourcing contracts comprise complex legal and business concerns and carries risks both for clients and
service provider. Where situations of conflicting interest arise, clients cannot expect the service provider to
act in the best interest of the client (Lee, 1996). Thus, a written outsourcing contract is the most important
instrument to delimit expectations, fights and liabilities of both parties as it guides the behaviors of both
sides involved. Therefore it is crucial to have some knowledge of the legal and business issues involved in
ITO as well as some awareness of how to address these issues in the contract concerned. Lee (1996) elicited
a collection of agreements an outsourcing contract should often include: “service level, transfer of assets
staffing, pricing and payment, warranty and liability, dispute resolution mechanism, termination, intellectual
property matters, and information security”.
Pre-contract negotiation and post-contract management are crucial in order to achieve the desired levels
of agreement and success of an ITO. Pre-contract negotiation takes place before the negotiation and the
company that desire to outsource must clearly define what part of the IT activities wishes to outsource. Also
the issues addressed above by Lee (1996) need to be considered in this phase, before the actual negotiation
starts. With such approach considerable time and costs saving will be achieved, as the client will be taking a
much more proactive attitude during negotiations. Post-contract management takes place after the contract
has been settle. The client should allocate internal managers that have knowledge on the services outsourced
to carry out the contract management. Lee (1996) stated that these managers “will have to deal with routine
measurement of the service provider’s service level against contractual requirements, handle change requests
and payments, and assume the overall responsibility of ensuring the services provided by the service
provider are of an acceptable quality”.
For the design and preparation of outsourcing contracts some guidelines are found in the literature. A list
of these guidelines will be presented being the criterion of choosing the relative importance of each in the
final contract. So important criteria to take into account when preparing the contract are:
Elimination of the maximum ambiguity possible as it can lead to misunderstandings and conflict
between the parties (Varajão, 2002).
Helen Hyntley Gartner Inc. advises not to use standard contracts offered by service providers,
since it presents an inherent inclination.
As a general rule, service levels (SLAs) should include measurable objectives and a clear
definition of the desired end results. Varajão (2002) believes that service levels must be
objective, metrics have clearly defined and measurable, and they must be supervised at a
reasonable cost.
Parikh and Gokhale (2006) suggest that the agreement must specify the type of communication
between the supplier and the customer during the term of the contract and an associated
schedule, guaranteeing the periodic reporting on service performance. In addition, the customer
must ensure the right to regularly audit the performance of the supplier.
Typically the services may have a fixed cost, or the cost can be associated with levels of
performance. It is, however, necessary to foresee all possible situations, in order to avoid the
"hidden costs" and charging inflated fees amounts for services or unanticipated changes. For this
13
reason the agreement should include the maximum possible situations involving payments
(ITANZ, 1998; Varajão, 2001; Varajão, 2002)
Duration
The existence of versatility in the contract is essential to deal with the change. Over time the
business requirements change, technology undergoes changes in hardware and software.
According to Perry (1989, p. 221), a contract is incomplete if “it fails to specify performance obligations
for the parties in all states of nature, or fails to specify the nature of the performance itself”. “Writing a Poor
Contract” is addressed as one of the seven deadly sins of outsourcing according to Barthelemy (2003); to
achieve outsourcing success is crucial to have a strong contract as it helps to establish equilibrium of power
between the service provider and the client. A contract that is well draft allows partners to commit to short-
term goals and to set real expectations. Moreover, in case the relationship miscarries it provides a safety net.
Barthelemy (2003) believes that regarding the content of the contract the best ones should be simultaneously:
precise, complete, incentive based, balanced and flexible.
Nevertheless, before companies rush to draft or sign contracts, they should take a step back and have a
moment to think about it. Request for Information (RFI) is a good tool to be used at this stage; RFI’s collect
information to help managers to decide what step to take next before get on negotiations. This information
includes evidence about the service and resource information of various service providers from supply side
companies and, usually, follows a standard format that can be used for comparative purposes. According to
the Business Dictionary (businessdictionary.com) an RFI is a “request made typically during the project
planning phase where a client cannot clearly identify product requirements, specifications, and purchase
options. RFIs clearly indicate that award of a contract will not automatically follow.”
These scientific contributions sustain the importance of contract management as a critical success factor
for outsourcing projects. As stated by several authors in the literature, contracts study and research in ITO is
still in its early stages. More research in this area is required to help companies be in a better position when
managing their relationship with service providers, therefore, helping to minimize the negative outcomes
typically associated with outsourcing. However it is not possible to design a contract where all the details of
an agreement between clients and service providers are cover as change is permanent and not all occurrences
are predictable. Therefore contracts should be a tool of versatility enabling accommodates future changes.
4.3.3. Performance Management
Pietschmann e.a. (2011) lead a research on age-related alterations in indices of performance monitoring and
they argued that “when individuals interact with their environment, reinforcement learning takes place: using
feedback information, individuals discover which actions are appropriate to a given situation.” Therefore
individuals are able to self-evaluate their behavior and to easily detect errors.
A recognized definition of performance management, according to Daniels' (2000) is "a scientifically
based, data-oriented management system. It consists of three primary elements: measurement, feedback and
positive reinforcement." Performance management consists of activities which ensure that strategic goals
defined by the corporate are achieved in an efficient and effective manner. The focus of performance
management can be on the organization, employees, business processes as well as many others. It can also be
seen as the process by which organizations align their employees, resources and systems to priorities and
strategic objectives.
According to Chen & Lin (2001) there are two possible perspectives to evaluate IT outsourcing
performance: from a business perspective, is measured by the impact on business results; and from a user
perspective it can be measured by how well user’s needs have been fulfilled. The authors developed a
theoretical model to explain the complex IT outsourcing phenomena, and it suggests that “IT outsourcing
performance is affected by many antecedent conditions mediated by three mediators - knowledge sharing,
communication quality and coupling quality”.
Some academics argue that there is a clear and direct correlation between improved business and
organizational results and using performance management programs or software. Applying performance
management tools will likely result in the return of benefits to organizations. These objectives may include:
motivated workforce, improved management control and ultimately financial gain. Nevertheless
performance management rests on setting the right sort of goals, alone or with misaligned goals it cannot
rescue projects or organizations. A suitable and generally accepted framework for this performance
14
management is the Balanced Score Card (BSC) of Kaplan and Norton (1992). A system of BSCs ensures that
a manager at a glance insight into the quality of its service and knows where he may have to adjust. This type
of system is cross-functional as well as cross-level; it goes from the most operational level to the strategic
level.
4.3.4. Client - Service providers relationship: Relational governance
IT outsourcing arrangements between client and service provider are progressively more characterized as
partnerships rather than market transactions. According to Lee & Kim (1999) these partnerships are the key
to success in any ITO process. ITO partnerships stress the importance of cooperation, trust, co-specialization
and sharing complementary assets. Efficient management of relationships between client and service
providers should be an ongoing task that requires significant time and resources investment. Alsbridge
research (2014) set that between 25% and 50% of the value (i.e. savings, deferred costs, efficiencies,
productivity improvement, etc...) in a sourcing transaction is lost along the way due to poor service provider
management.
From the role of the client, unrealistic expectations, the inability to clearly identify needs from
outsourcing, unawareness of the rule “You get what you paid for” and not having a motivated team are the
main reasons for outsourcing project fails. On the other hand, from a provider role, unfulfilled promises, lack
of client’s culture and business knowledge and lack of interest after the implementation is completed
(deficiency of ongoing support) are the foremost reasons for outsourcing project fails.
Companies that wish considerable contributes to success should invest in a good relationship with the
service provider, as it ensures coordination, efficient means of communication and evaluates the performance
of the required services. In order to achieve mutual success in the strategic inter-organizational governance
structure, parties exchange data, information and resources. The value created from IT outsourcing
partnership is proportional to synergy and knowledge derived from the strategic alliances process (Chen &
Lin, 2001). According to Chen and Lee (2001), “What managers should do in an IT outsourcing relationship
is to facilitate inter-organizational learning and to leverage core capabilities of the two parties”. To achieve
the outsourcing strategic goals, good partnership quality is only one of the methods. As Gertz (2000) and
Serenson Colet (2000) have said, the keys to a successful project are continuous communication with the
service provider during the project and flexibility. The clearer and more open the communication between
service provider and client, the better the project is likely to develop.
Aubert e.a. (2003) argued that contracts support the institution of the market in a relationship with a
service provider by often incorporating behaviour constraints and incentives. That said, contracts are a
crucial key to success in these partnerships.
5. Analysis
With the aim of building a theoretical framework, a questionnaire survey (Appendix A, using
kwiksurveys.com tool) was carried out, targeting ITO managers of both client and service provider sides.
The aim is to develop and to deploy result-oriented and value driven research and solutions enable managers
to make smart data driven decisions to stay ahead in competition and to drive growth.
A general system perspective is adopted in developing the theoretical framework for IT Outsourcing
Implementation and Management. There are 4 levels (Scheme 3): Goals and metrics, Contractual
Governance, Performance measurement and Relational governance - which represent the process levels for
trading various IT resources. The output is indirectly impacted by antecedent conditions that are contextual
variables which influence process levels.
The data used in this study was collected through questionnaire survey. The survey (Appendix A) was
delivered to ITO staff involved in current or past projects and processes worldwide, year 2014, in order to
get a more overall and international point of view on the subject. A total of 45 questionnaire surveys were
answered. Among them, 33 are useful and 12 not useful (including incomplete surveys or multiple answers
from the same company). The companies that replied to the survey represent the market leaders of different
fields, giving extra credibility to the results. Extremely important companies in the IT field like Google or
IBM; telecommunications field, Ericsson; in the field of media, Globo.com; among others (Figure 3). The
results were obtained from several parts of the world, raising the quality and relevance of data; USA, Brazil,
15
Netherlands, Portugal and Spain are the countries where data was collected (Figure 4). The reasoning behind
this geographical dispersion is the importance and the experience level of the companies on the field of IT
outsourcing implementation and management. The survey was delivered worldwide and the aim was to
collect a sample from different parts of the globe in order to gather different points of view, therefore there
are answers from Europe, South America and North America (Figure 4); as my networking range is not wide
enough and only covers these countries. Furthermore, one should consider how difficult it is to obtain
answers from companies; particularly ITO managers and staff, as technological progress along with the
considerable investments of firms in technologies have made them become the target of numerous studies
(Poppo & Zenger, 1998).
This chapter presents and discusses the main results obtained. This presentation and discussion is made
over four levels but which taken together constitute the overall characterization of outsourcing
implementation and management of information systems. The first level is devoted to assessing the
importance of defining the right goals and appropriate measures in an early stage. Following, the analysis of
the aspects that are considered when drafting the ITO contract that goes through the level of completeness
and by identifying the main problems faced with this type of contract, in the second level. In the third level
the ITO performance measurement is assessed throughout the weight of the overall performance of IT
services, knowledge sharing, the characteristics of the communication between the two parties and coupling
quality. In the fourth level the relationship between se client and service provider will be analyzed according
to the difficulties faced during the relationship. A theoretical framework, to help implement and manage the
processes of ITO, will be proposed based on the study of literature and the results obtained.
5.1. Results analysis
In order to comprehensively characterize and assess the various aspects of managing outsourcing of
information systems services a study was performed, which began by identifying the characteristics and
problems that are most often faced by external service providers and clients and understand how the
outsourcing process is driven. Setting goals and metrics, contracts analysis, performance measurement and
the analyses of the relationship between client and service provider are the aspects that are to be analyzed
more deeply.
From all the companies who participated in the study about 45%, equivalent to 15 companies, are service
providers and 54%, equivalent to 18 companies, are clients who required IT outsourcing services (Figure 5).
5.2.1. Level 1 - Goals and metrics
To facilitate comparison of the features that define the level of importance regarding IT Outsourcing at the
beginning of an IT outsourcing management process, managers were asked to rank these features (definition
of performance goals, implementation of measuring mechanisms, definition of KPI’s and the definition of
SMART goals) on the level of importance, which is presented in Table 2 below. The tool used to extract the
data (kwiksurveys.com) attaches to the most important feature the value 1 and the least important value 5, in
ranking questions; for this reason, when evaluating the results, one has to take into consideration that the
feature that has the lowest value is, therefore, the most important. By analyzing Table 2 one can understand
that the definition of performance goals is the major concern at the beginning of an ITO implementation and
management process. The definition of SMART goals was considered the least important for these managers.
The ‘other’ option was deliberate as medium-high level of importance and some concerns were point out:
scope definition, understanding of the business, the contract management and trust the provider expertise.
16
5.2.2. Level 2 – Contractual governance
Considering the contract agreement as an important mechanism that minimizes the risk of an outsourcing
agreement, it is pertinent to know the aspects that managers value most when it enters into a contract of this
nature. In this sense, it was provided a set of 10 features identified in the literature, asking respondents to
choose which of these are indeed present in the contract: an option for renewal of the contract, stipulated
reductions cost over time, penalties for under- performance, contract termination clause for
underperformance, bonus for outstanding performance, detailed performance targets, private arbitration,
gain-sharing provisions between client and supplier, renegotiation "windows" (pre-specified periods at which
client and supplier agree to renegotiate some of the features agreement) and exit strategies. Figure 6
(Appendices) presents the results obtained, verifying that, in contracts, ITO managers clearly identify the
feature that is most present in the contracts - an option for renewal of the contract - specified in the contract
over than 18% of the cases. Gain-sharing provisions between client and service provider and private
arbitration are the features that are less address in these types of contracts, each represented in only 8% of the
cases.
When asked which were the goals that had a strong influence in the decision to proceed with the
outsourcing, costs reduction was clearly the most important decision driver (27% of the cases) followed by
performance improvement with 15% (see Figure 7 - Appendices). In almost 55 percent of the cases the first
goal that drove the decision to outsource was reflected in the contract (Figure 8).
Regarding the main problems faced with ITO contracts Table 3 provides a general idea on what is
missing to these contracts. The most addressed problem was the ‘Poor contract governance’. Non-
comprehensive Service Level Agreement (SLA), ownership of intellectual property rights agreement,
ambiguity and misunderstandings and lack of performance measurement methods are the features that
follows right after. These results are in agreement with what has been previously described in the literature,
which means that contract drafting and outline requires more close attention in order to achieve higher levels
of IT Outsourcing satisfaction.
5.2.3. Level 3 - Performance measurement
In order to analyze the ITO performance several criteria were used; ITO overall performance, Knowledge
sharing, communication and Coupling quality. Before proceeding with a more deep analysis, some reliability
statistics were carried out; as Liker scales were applied it was necessary to find the Cronbach's Alpha.
Cronbach's alpha is the most common measure of internal consistency ("reliability"). It is most commonly
used when multiple Likert questions are address in a survey/questionnaire that form a scale and we wish to
determine if the scale is reliable.
In Table 4 below a general view on the level of satisfaction of the ITO overall performance is provided,
and in a broad approach managers feel 3.18 out of 5 satisfied, which indicates that effort has to be put in
order to improve this rate. In a more detailed analysis one can understand that the feature in which managers
of these ITO processes feel more satisfied is IT costs reductions; which is compatible with the previous
Table 2 - Level of importance regarding IT Outsourcing management
17
analysis that indicates the main objective which had a strong influence on the decision of outsourcing is cost
reduction, 3.36 out of 5. Therefore, one can conclude that there is a satisfactory alignment between this
initial requirement and what is actually achieved; however all features present relatively low levels of
satisfaction, around the medium value. Managers feel less satisfied with the requirement fulfilment, 3.06 out
of 5. This is an alert for both clients and service providers to find a more suitable solution that will increase
the satisfaction index. An interesting subject raised in this question, in ‘other’ option, was the delay on
answering/solving problems and SLM reports.
Table 4 - ITO overall performance
Regarding the knowledge sharing (Table 5 below) the level of satisfaction stands on 3.2 with a high
value of internal consistency, 0.95 (Table 6). Concerning the communication (Table 7) between client and
service provider the satisfaction level stands on a 3.12 out of 5, however the internal consistency is at a poor
level, 0.567 (Table 8 – Appendices), which means that the reliability on these results is low. With regard to
the coupling quality (Table 9) the satisfaction level is 3.07 with a good value of internal consistency, 0.725
(Table 10 – Appendices). One of the features addressed in the ‘Other’ option was the benefits of cost
reduction.
Table 5 - Knowledge sharing
18
Table 7 - Communication
Table 9 - Coupling quality
5.2.4. Level 4 – Client - Service providers relationship
The relationship between clients and service providers is an important part of the ITO implementation and
management phase and which has revealed to be a difficult relation to manage. Therefore the main problems
were assessed in order to reveal which are the main causes of problems, aiming to find possible solutions to
improve this relationship. According to the survey results the internal consistency stands on a high value,
0.905 (Table 11 – Appendices) which indicates that these results are extremely reliable. Both clients and
service providers point the readiness of the employees to think along/ proactively, the waiting times, the
cultural fit and communicative skills as the main problems (these features present the lowest values), as one
can retrieve from the Table 12 (Appendices).
So far the analysis has been based on the general results (for clients and service providers together),
however a much more interesting analysis can be carry out; by defining an independent variable (the role of
the respondents), a dependent variable and asses if there is a relationship between them. Furthermore is
important to examine the directions of the relationship between the variables and to do so the following
questions will be addressed:
1. “Do clients think that the given features are ‘more’ or ‘less’ important to be define at the
beginning of an IT Outsourcing process?” and if so “For which ones of those features?” Where
each feature is the dependent variable.
2. “Do clients think that their contracts are ‘more’ or ‘less’ incomplete than providers?” and if so
“Which are the features that are missing for each of them?” Where the dependent variables are
the features that define a complete contract.
3. “Do clients face ‘more’ or ‘less’ problems with contracts than providers?” and if so “Which are
those problems?” Where the dependent variables are the main problems usually faced with ITO
contracts.
One should take into consideration that a relationship exists between two variables in a bivariate table
only if the groups defined by the independent variable have differences of 10% or more in the categories of
the dependent variable. For this reason only the features that present relevant values (equal or above 10%)
will be address in this research. Therefore the main results obtain were the following:
19
1. Service providers think that implementing measure mechanisms is least important at the
beginning of an IT outsourcing process than clients (Tables 13.1- Appendices - and 13.2 -
below). Clients identify the definition of KPI’s as more important than service providers at the
beginning of an IT outsourcing process (Tables 14.1 – Appendices - and 14.2 - below). Service
providers consider that defining SMART goals at the beginning of an ITO process is more
important that clients (Table 15.1 – Appendices - and 15.2 - below).
Table 13.2 - Cross Tabulation between Role and features important to define at the beginning of an IT outsourcing
process (Implementing measuring mechanisms) - Screenshot
Table 14.2 - Cross Tabulation between Role and features important to define at the beginning of an IT outsourcing
process (defining KPI’s) – Screenshot
Table 15.2 - Cross Tabulation between Role and features important to define at the beginning of an IT outsourcing
process (defining SMART goals) – Screenshot
2. Service providers consider that contracts are more incomplete in features like an option for
contract renewal and termination clause for underperformance than clients. Clients believe that
contracts are more incomplete in features like bonus for outstanding performance detailed
performance targets, gain-sharing provisions, renegotiation “windows” and exit strategies than
service providers. Therefore one can conclude that clients face more problems with contracts
completeness than service providers. (Tables 16 to 22)
3. Service providers face more problems with ITO contracts in features such as transfer of assets
agreement, pricing and payments terms, unrealistic goals, limited or poor understanding of
expectations, poor contract governance and relationship and communication description than
clients. By the other hand, clients face more problems with ITO contracts in features like
information security and confidentiality agreement, ambiguity and misunderstandings and lack
of performance measurements than service providers. (Tables 23 to 31)
Following the same type of rational, concerning the performance measurement, clients feel less satisfied
with the services provided in features like business costs reduction and more satisfied with the
responsiveness. Service providers feel more satisfied with the performance of their clients in features such as
overall IT quality, lowering technological risk, information completeness, and IT service improvement.
Therefore one can deduct that providers feel more satisfied with the ITO overall performance provided, in a
general way, than clients. (Tables 32 to 37)
Concerning the client-service provider relationship one can observe that, general speaking, providers feel
more satisfied with this relationship than their clients. Service providers feel more satisfied in features such
as availability of the employees, information sharing, strategic advice, timing of the strategic advice and feel
that the expectations were meet. By the other hand, they feel less satisfied with the start-up time for new
projects and the waiting times. Clients consider themselves less satisfied in features like readiness of the
employees to think along/ proactively, cultural fit and continuous support and cooperation. (Tables 38 to 47)
20
6. Theoretical Framework
Throughout the years researchers and academics have meaningfully and significantly addressed the issues
related to ITO and produced knowledge relevant to practitioners. Globalization and tight competition, as well
as ever increasing client requests for value, have pushed firms to find new ways of value, adding creation
through the efficient use of limited resources. Thus, outsourcing is an increasingly popular method of
achieving performance improvement. After reviewing the literature and analyze the survey results the most
important concepts were evaluated, assembled and organized logically. The framework below (Framework
1) is fully supported by the literature and the survey analysis. Each level of the proposed framework is
theoretical grounded by each of the specific concepts addressed in the literature review; representing strong
roots that sustain the framework.
This framework has been designed in order to help both clients and service providers who are involved
in an outsourcing relationship of components or IT activities. This IT outsourcing framework was designed
to overcome the major weaknesses of outsourcing found in the literature. It employs tools and techniques
that allow organizations to integrate performance measurement deliberations into the outsourcing process. It
provides guidelines on how the outsourcing process should be managed in order to improve performance.
Moreover, it sets out the issues that must be considered when implementing and managing the outsourcing
relationship. The framework will be presented and afterwards a detailed explanation will be provided.
Despite the fact that this framework could be applied to all type of outsourcing processes, it will be
mainly be focused on the outsourcing of IT Business Critical Systems. The reason behind this is the fact that
the implementation of systems which are not core within the business demand, are more or less standardized
nowadays. Systems like financial, human resources or accountability are outsourced more frequently,
therefore both sides have the expertise and guidelines required to implement it with no major complications.
Critical Systems are more sensitive subjects that involve several cross department managers working
together and allocation of big amounts of internal resources.
Generally speaking, this framework has four main layers; each layer represents a level by which the
process has to go through during the IT Outsourcing Implementation and Management process. The output is
impacted by these levels which are directly impacted by contextual variables. Each level represents the most
important features that affect ITO implementation and management. The reading should be carried from the
innermost level (Level 1) to the outermost (Level 4). Each level is easily distinguishable and represents the
different phases that organizations must go through in order to reach a successful position in an IT
outsourcing process. Levels 1 and 4 concern strategic decisions and actions, levels 2 and 3 represent more
operational activities. If both parties involved have the right preparation and background, at the moment of
implementation, the chances of success increase sharply.
21
Level 1 – Main goals assessment and metrics
S
M
A
R
T
Critical Success
Factors
KPI’S
Measuring
mechanisms
Company
Strategy &
Goals
Information
Strategy
IT Sourcing
Strategy
Level 4 – Service provider – Client relationship: Relational Governance
VRM /
CRM Ongoing
task
Ensures:
Coordination
Performance evaluation
Efficient means of communication
Trust Cooperation
Information sharing
Open communication
Level 3 – Performance Management
Monitor Performance:
Knowledge sharing
Communication channels
Coupling Quality
Profit sharing
Feedback Measurement
Positive reinforcement
Continuous
management
Level 2 – ITO contracts: Contractual Governance
Detail
Duration Security
Pricing RFI SLA’s
Level 1 – Goals and Metrics
Framework 1- IT Outsourcing implementation and management
22
6.1. Level 1 – Goals and Metrics
In any type of business, setting goals effectively is the basis of a successful process. When developing goals
there are two key elements that should be considered: make sure that the goals are clearly and objectively
written, leaving no room for rambling; and ensuring that those goals are directly contributing to the
achievement of business strategy. Companies should only define SMART goals, as they are: specific,
measurable, achievable/attainable, result oriented/realistic/relevant and time bound. Only this type of goals
are possible to achieve, keeping expectations at a real level is a challenge but it allows to achieve success,
instead of unrealistic goals that would never be achieve. SMART goals are easily visualized and evaluated
and it contributes to the capacity to make progress on the goal and track that progress.
At this level SMART goals should be defined, respective Critical Success Factors should be targeted,
measuring mechanisms developed and Key Performance Indicators (KPI’s) should be established. However
in a previous stage the company strategy and main goals need to be written down. Following, the information
strategy has to be outlined. These tasks, achieve the IT Sourcing Strategy. By doing so, companies are able
to: clarify their end vision, surely focus on achieving a goal when it is set, drive the process forward, instil
self-discipline and remind priorities. This is a crucial stage, as it is the foundation to the remainder ITO
management process; other levels can only be successfully achieved if the goals are well defined and
structured at this stage.
6.2. Level 2- ITO contracts: Contractual governance
Fabriczi & Rodriguez (2012) estimate that 60 to 70% of transactions within an organization are
administrated by contracts; contracts that provide information, drive daily business and have an enormous
impact on organizations. Structured and efficient contract management works as the backbone to other
processes and it is essential to structuring the outsourcing strategy and vision. Contracts are vitally important
documents.
This level 2 refers to contractual governance which deals with contractual issues and addresses features
such as price and payment terms, contract timeframes and termination, penalties and rewards clauses,
security issues, among others. It should all start with the RFI that is used to help figure out which kind of
services they want to outsource, what the possibilities are, what suppliers can offer, etc. That information is
used to determine their requirements, which will eventually be translated into a contract. The next step is to
elaborate a comprehensive SLA, where all concerns about the service expectations are addressed. Ideally the
contract management should be an ongoing task rather than a one-time action. At this stage the organization
must take a step back and fully examine its current situation and determine where it wants to be in the future.
The company should elaborate on the dimensions and criteria that are most important in order to understand
and define the gap between the current stage and the optimal. Once the organization has these ideas clarified,
a comparison is possible and steps can be taken to achieve benefits. If organizations implement this type of
management process, changes will impact their effectiveness and competitiveness. Also, at this point
organizations are required to establish priorities and once it is implemented along with analytical tools they
result in performance differentiation.
6.3. Level 3 – Performance Measurement
In today’s business, performance improvement and performance management are trend topics. Business
pressures are continuously increasing and organizations, to become even more efficient and effective,
execute better the business strategy and do more with less aiming the preservation of competitiveness.
Performance monitoring is central to productivity, as it reduces the potential of error or major catastrophes
later on down the road. Continuous monitoring provides to any business indisputable benefits, such as
ensuring that everyone involved in the ITO process is working towards common goal, providing regular
feedback about performance, offering advice and steps for improving performance and also rewards for good
performance.
During an ITO process it is crucial to keep the implementation work under control, to make sure
activities are going according to what is expected, and in case of error, to be able to act effectively and
quickly. In an ITO implementation is important to monitor performance of the knowledge sharing between
client and service provider employees, the communication channels efficiency and availability, couple
23
quality and profit sharing. The most important goals defined in the first layer (Level 1 – Goals and metrics)
should be monitored in a regular basis, to make sure that there is still compliance between the outsourced and
outsourcer companies. Visualization of the performance monitoring is a trend topic nowadays; managers
should be able to easily perceive the current state of the ITO process. For that reason a Rose diagram is
proposed, as it enables to get across the key message in a singular image. With such approach managers are
able to easily evaluate the current state of the implementation process and take intervention actions at the
right time. Monitoring is only possible and only makes sense after the contract is defined (Post-contract
management); at this stage managers have a clear idea of what their goals are and the metrics they should
implement in order to monitor them.
6.4. Level 4 – Client-Service Provider relationship: Relational Governance
Nowadays, business is no longer about clear client and service provider roles; instead, business is
characterized by relationships of several partners looking for the gain of mutually beneficial goals. A written
contract is no longer enough to cover the range of relationship issues that require management. It is also
crucial to implement an appropriate relationship management between the client and the service provider.
According to Deloitte (2012), Vendor Relationship Management (VRM) “is becoming more important than
ever for clients to consider how they extract maximum value from outsourcing arrangement”. “VRM tools
provide customers with both independence from service providers and better ways of engaging with vendors”
according to the Project VRM website. VRM is the customer-side counterpart of Customer Relationship
Management (CRM). Either if it is a service provider or a client, the relationship with the counter party
should be efficiently managed in order to achieve greater benefits.
At this level the relationship between client and service provider is established and managed, post
contract drafting. Managers responsible for handling the relationship should have the skills and experience to
ensure that the relationship meets the IT outsourcing process goals. This relationship management should
also be an ongoing task and ensure coordination between parties, performance evaluation and efficient means
of communication. Information sharing obligations, strength of the collaborative relationship, cooperation
guidelines, trust and open communication are issues that should be kept in mind at this level. Managing the
supply relationship’s strength should be guided by the initial goals established for the outsourcing process.
As the contract is the key to a successful outsourcing relationship, the relationship management can only be
undertaken after the contract is defined and agreed.
6.5. Engagement model
Due to the complexity of outsourcing relationships the success of the outsourcing deal is driven by the
alignment of the interests between the client and the service provider. The engagement model is one of the
main features that define this alignment. Each party has different levels of engagement during an ITO
implementation and management process, as shown in the framework below (Framework 2).
24
Level 1 Level 2 Level 3 Level 4 Approach
(A) Client ___
Client dominate
Service provider ___
(B) Client ___
Collaborative
Service provider
___
(C) Client ___ Service
provider dominate
Service provider ___
Framework 2 – Engagement model
Socioeconomic changes have driven the current business environment and have impacted IT and global
supply models to the point where they must reinvent themselves. Clients and service providers that have
outsourced in the past or who plan to outsource are required to adapt to this change. The Engagement model
(Framework 2) helps in understanding the reading of the IT Outsourcing implementation and management
framework (Framework 1). This framework can be interpreted and applied in different ways:
Client dominate approach (A): internally the client should first realize what it is that they want to
achieve – goals and metrics level -, elaborate on the Request for Information and Service Level
Agreement –contractual governance level - and lastly define clear monitoring tools – performance
measurement level. Afterwards these are ready to meet with the service provider with a clear plan
and an action proposal and, together, arrange tools to manage their relationship – relational
relationship level.
Collaborative approach (B): internally the client is saddled with the responsibility to define the
strategy, goals and metrics – goals and metrics level. The contractual governance, performance
measurement and relational governance are developed along with the service provider.
Service provider dominate approach (C): internally the service provider starts by identifying
which are the goals, metrics and strategy to implement when providing IT systems to their clients,
digging on the client vision and mission – goals and metrics level - draft a RFP (which may be
request later by the client)– contractual governance - and propose monitoring mechanisms –
performance measurement. At this point the service provider is set to encounter the client and,
together, arrange tools to manage their relationship – relational relationship level.
Furthermore, the decisions that are undertaken internally should be led by managers responsible for the
outsourcing process; the decisions are made internally before meeting the other party. This will place
expectations on a reasonable and realistic level; knowledge on the subject will be gathered, which decrease
the time to implementation, as both will have a full and deep understanding of the project concepts. Problems
that usually arise during the outsourcing process, such as lack of information quality, non-comprehensive
Service Level Agreement (SLA), unrealistic goals or limited or poor understanding of expectations can be
mitigated if such approach is applied. Organizations are now moving towards a more collaborative approach
as it helps deriving better results by merging in-house knowledge with the global workforce delivered.
6.6. Revised Framework
With the aim of empowering and validate the framework proposed (Framework 1), an expert opinion on the
subject was collected and an interview with a professional was conducted. The expert opinion (Appendix C)
raised issues and induced reflective thinking on the topics addressed on the model, such as contractual issues
(vague targets and measures and poorly elaborate SLA’s). The manager who provided feedback, based on his
professional experience, also point out the fact that the service provider wasn’t able to adapt to
environmental, technological or requirements changes. He clearly stated that target and measures definition
is a critical aspect that should be address and define before signing the final outsourcing contract; “Metrics
and methodology has to come before anything else, in my opinion.” he said (Appendix C). This reinforces
25
the validation of the model, as the first step represented in the model is “Goals and metrics”. The interview
with Guus Delen (Appendix D), expert in the field of ITO, revealed some pertinent issues. Lack of
transparency between client and service provider was one of the main topics discussed during the interview;
this is a real problem that affects the success of any ITO process. Together, client and service provider
should improve the relational tools in order to mitigate this problem. It was interesting to have the
opportunity to interview directly someone who has worked closely in these processes and that is able to
provide better insights. His input was crucial to improve the implementation and management ITO
framework (Framework 3 below), as he delivered a more realistic image of what is necessary to monitor and
manage.
26
Level 1 – Goals and Metrics
S
M
A
R
T
Critical Success
Factors
KPI’S
Measuring
mechanisms
Company
Strategy &
Goals
Information
Strategy
IT Sourcing
Strategy
Duration
Level 4 – Service provider – Client relationship: Relational Governance
Trust Cooperation
Information sharing
Open communication
VRM /
CRM Ongoing
task
Ensures:
Coordination
Performance evaluation
Efficient means of
communication
Level 3 – Performance Management
Monitor Performance:
Knowledge sharing
Communication channels
Coupling Quality
Profit sharing
Feedback Measurement
Positive reinforcement
Continuous
management
Level 2 – ITO contracts: Contractual Governance
Detail
Security
Pricing
RFI SLA’s
RFP Proposal
Client
Service Provider
Sign off
Contract
Fra
mew
ork
3 –
IT
O I
mp
lem
enta
tio
n a
nd
managem
ent
Po
st-c
ontr
act
man
agem
ent
(inte
rnal
manag
ers)
Pre
-co
ntr
act
neg
oti
atio
n
27
After gathering the expert opinions and comments the original framework was revised and some
improvements were implemented:
Level 1 – Goals and metrics: directional relationships between CSFs, KPIs and measuring
mechanisms were added to better understand the sequence that the definition of these criteria should
follow. The step from the Level 1 to the Level 2 is called the “Pre-contract negotiation” and it
requires previous goals definition towards the contract drafting; no company can write down a
contract without prior discussion which goals aims to achieve and how.
Level 2 – Contractual Governance: the service provider range of steps was added as well as the
identification of the role to each path. Therefore, the RFP (Request For Proposal) and proposal were
added on the new service provide path. After the client and the service provider agree on the SLA or
proposal, respectively, they sign it off and sing the final contract. It is important to keep in mind that
only comparable proposal should be analysed by each party. The continuous management loop was
moved to the level 3 (Monitoring) as after the contract is sign one cannot manage it but continuously
monitor it. The step from the Level 2 to the Level 3 is called the “Post-contract management” and it
requires, according to Lee (1996), the allocation of internal managers that have knowledge on the
services outsourced to carry out the contract management.
Level 3 – Performance measurement: as explained before, on this level the continuous
management loop was added due to it extremely importance during this phase of the ITO process.
By continuously monitoring managers are able to detect problems in an early phase which will
increase the solution speed.
Level 4 – Relational governance: this level was completely moved. Managing the relationship is
something that should happen through the whole process. Therefore, this process will take place in
the beginning of the first level and will unfold through the agreement duration. It is especially
important to manage this relationship during the monitoring in order to ensure the interests
alignment.
7. Conclusions
At this point and after merging all the research above (literature review, theoretical framework, survey and
expert opinions) it is possible to answer to the research question and sub questions addressed in the
beginning.
SRQ1. “Which are the main problems faced during an ITO of business critical systems process at the
‘Implement and manage outsourcing arrangement’ phase?”
Using the literature review and the survey results that indicate the main problems faced in each of the layers
of the proposed framework, it is possible to answer to this first research sub-question:
Level 1 - Goals and metrics: ITO managers state that defining SMART goals at the beginning
of an outsourcing process was the least important; however, and as is addressed in the literature,
it is crucial to ensure that the goals defined are SMART. Otherwise it will not be possible to
implement action plans in order to achieve them, neither metrics to measure performance.
Level 2 - Contractual governance: managers addressed that these contracts have incomplete
features, such as gain-sharing provisions between client and supplier and private arbitration.
They also face problems with other contract features, such as poor contract governance,
ambiguity and misunderstandings and lack of performance measurement methods;
Level 3 - Performance measurement: regarding the ITO performance, managers face
problems with the requirements fulfilment, the business understanding by the other party and the
profit sharing. Communication efficiency is also addressed as one of the main problems during
the management phase.
Level 4 - Relational governance: the readiness of the employees to think along/ proactively,
waiting times, cultural fit and communicative skills are the main concerns for these managers
during the process of managing relationships. As often addressed by the client side, most
providers, after implementing the systems, tend to neglect the relationship with their customers.
28
Support and understanding of the system is required after the implementation and some
providers are up for implementation without providing support afterwards.
SRQ2. “Which are the most crucial aspects to include in ITO of business critical systems contracts?”
This question is clarified using the theoretical framework and the survey results. According to the
literature, a contract is only complete when “The maximum ambiguity is eliminated, service levels (SLAs)
include measurable objectives and a clear definition of the desired end results, the agreement specifies the
type of communication between the supplier and the customer and versatility exists in the contract, in order
to deal with the change” (Varajão (2002) and Gokhale (2006)). Furthermore, according to the literature, a list
of 10 features that define a good agreement was collected. Survey results show that from those 10
characteristics that must be present in a complete contract, some are not so common in contracts that are
actually signed, such as:
Table 48 – Ranking of the features not usually included in ITO contracts
Private arbitration 1st
Gain-sharing provisions 1st
Renegotiation “windows” 2nd
Exit strategies 2nd
Bonus for outstanding performance 2nd
Therefore both parties should spend more time and resources on building up strong and consistent
contracts, in the effort of minimizing ITO risks. By investing in incorporating these features in future
outsourcing contracts, both parties are moving towards a more profitable and harmonious partnership. And
this leads us to the answer of the main research question:
RQ. “How to best implement and manage the IT Outsourcing of business critical systems process?”
That can be responded using all the elements of this thesis - the literature review, the survey and the
expert opinions - all of these were merged and used to build the theoretical framework, which provides the
necessary guidelines to best implement and manage the ITO process. In a general analysis of the results, one
can say that clients feel less satisfied with the IT outsourcing implementation and management processes
than their service providers. This raises some interesting and relevant issues that should be discussed not
only by academia, but also by the parties involved. Analyzing how the parties have very different views on
the same process, will be interesting and maybe will lead to the root of the problem; beginning with the
initial assessment of requirements for both points of view and through a deeper analysis of the process. It
may be that in this way, the reasons for such different opinions as to the ITO, may be perceived and
explained in order to start finding solutions. Something is definitely wrong in these relationships and
agreements; otherwise both parties would feel satisfied with the services, which is not in agreement with the
results obtained. My final proposal is to create a permanent information system between the client and the
service provider, with a team which will monitor the system installation with representatives from each side
of the business. Thus the problems identified at the level of contract governance and relational governance
level will be mitigated. Collaboration is the key word for the resolution of problems. However, further
research is required to create an economic model that is able to encompass the issues addressed by both
parties.
All these represent helpful tools and guidelines to deal with issues related to the implementation and
continuous management of the IT Outsourcing process. The framework (Framework 1) contains the
information that managers require during this process. By applying the concepts and advice from the
framework, the probability of success of the project will dramatically increase.
7.1. Limitations & Further Research
In the last years Outsourcing has been a very relevant topic that can address several areas in the scientific
research community (Business, IT, heath), however outsourcing usually focused solely on business
29
outsourcing. What really caught my attention during the development of this thesis was to evaluate and
understand the potential of outsourcing that is yet to be discovered.
I consider that applying IT outsourcing to public sectors can become relevant in this field of study since
it has the possibility of becoming a powerful trigger that, eventually, will lead to a more extended research
on such topic. By empathizing the potential of outsourcing applied to the public sector will likely discard the
governments of activities that can be described as supportive to the activity but are not as core of its
operation functionality. Examples are: driving license, ID, public hospitals appointments, among others.
Although some of these services are not business critical systems, research and implementation should focus
on these systems first and then conduct research on more critical systems such as taxes collection. By
reducing the amount of workload and direct responsibility of the government it allows to redirect focus on
other important management processes at a national level. Nowadays there are already some partnerships of
this nature; however, I believe that with the proper research much added value can be drawn from these
partnerships when applied to most areas. For that matter and during outsourcing processes the framework
presented above can also be applied as guidelines for better partnership and consequently achieving better
future results.
According to Leach (2013), countries as U.S. and U.K. are leaders in public sector world’s largest
outsourcing market.
As Luke Mansell, director at ISG, state: The public sector has recognized that best-of-breed providers
[experts in one area] offer specialist knowledge that can derive real value from outsourced services, value
that wasn’t possible with the single-provider mega-deals of the past. As a result of this trend toward multi-
sourcing, service integration and management is on the rise to ensure contracts deliver value and services
are delivered seamlessly.
In the U.K., for example, services were carried out by the public sector that now have been outsourced
include corporate procurement, IT and HR services as well as the Department for Work and Pensions (Leach,
2013). In what concern the government budget, through outsourcing, governments no longer need to pay for
software upgrades – its part of the contract and the upgrades are frequent. Furthermore, outsourcing
companies have lengthy case histories with e-government solutions and can offer the most cost-effective off-
the-shelf services. Outsourcing provides governments with the opportunity to make systems “speak the same
language” and provide a common source of data for the first time ever – at an affordable price. With such
approach governments will continue to focus on their mission-critical tasks. So far, good examples of theses
outsourcing solutions have been provided; for example the case of Inland Revenue (i.e. tax collection) in the
U.K. that have being managed fairly effectively in a difficult public service context. Governments should
analyze these cases and consider applying it to their nation. Nevertheless, these outsourcing processes can
take a different shape; they could be carried out in a shape of Public–Private Partnerships (PPPs). These
partnerships overcome a normal outsourcing relationship as it involves the use of private finance, which will
develop local private sector capabilities, creates diversification in the economy, is a good value for money
deal for the taxpayer (optimal risk transfer and risk management - risk of performance is transferred to the
private sector), integration and cross transfer of public and private sector skills, expertise and knowledge and
the biggest difference, the duration of the partnership (outsourcing is a short term agreement contrary to
PPPs which are characterized by long term relationships) (Tan e.a. 2012).
Implementing the guidelines presented in the framework will be the way to parameterize it. In more
detail, it will be parameterized by assigning values to the weight of each survey item in order to adjust the
relative weight of the problems, their responses frequency and the implications that this will have in the costs
on the outsourcing as well as in organizations / services. I propose further research on developing an
adaptive model to provide feedback on the problems that are solved and the new ones that appear with more
intensity. For example: through the survey responses, a relative weight to each of the key problems. The first
problem has a relative weight of 50%, the second problem 25%, the third problem 15% and the fourth
problem 10%. This originates an outsourcing cost function C= f (0.5 X1, 0.25 X2, 0.15 X3, 0.1 X4)
generalizing C= f (X1, X2,X3,...), where each X is one of the main problems observed. The aim would be to
minimize this function by correcting each of the problems; which would reduce the weight of each and in the
long-term coefficients would also decrease. The first problem would fail to appear so many times, so the 0.5
will download and the same or new problems will go up or appear in surveys responses with higher relative
30
weight. This way, one would be able to monitor the problems progress. Of course the function could assume
different types, parameters, and so on.
One limitation of this research is not applying the ITO theoretical framework to organization’s
processes; only surveys were delivered to managers and staff involved in these processes, gathering their
personal point of view on the process. Further research is required to test the validity of the framework in a
number of companies, which can provide additional insights into ITO implementation and management.
Instead of gathering specialists’ opinions on the subject, it would be interesting to apply the framework to IT
Outsourcing processes and evaluate the results. By, for example, elaborate case studies in several companies
and analyze the final results as a whole. It would be ideal to test such framework in organizations with
mature outsourcing strategies and processes, to understand if, in fact, the theoretical framework proposed is
applicable in a real context.
Other limitation of the present research is the fact that some of the features assessed through the survey
reveal low values in what concerns the internal consistency. One should take this into account when trying to
replicate this study. Try to arrange features with higher levels of internal consistency would be an asset to
draw relevant conclusions in order to improve the management of these processes.
The research focused primarily on IT implementation and management in an outsourcing context, first
through using a theoretical framework. However, there is potential to integrate transactions cost economics
with more numeric tools (BSC, for example) and to understand more fully the link between risk and
performance in outsourcing. Further research is required to explore how the proposed managerial guidelines
improvement techniques can be integrated into the ITO process to enhance performance.
At the beginning of this thesis the goal was to develop both a theoretical and a numeric framework to
help managers during an IT Outsourcing implementation and management phase. Due to time constraints
this was not possible to achieve; and this represents a gap that may ultimately be filled with future research.
For example, develop a rose diagram including the most crucial objectives and their metrics. This is an easy
and reliable way to visualize the data, and with just a screen and a single view one can see in what state is the
outsourcing process. Indicators that stay away from the target set should be associated with alerts (e.g. a red
flag) so that managers have an immediate perception of events.
Geographical restriction was one of the limitations faced; the results gathered were mainly from North
and South America and Europe as my network is not broad enough to cover a more representative and
homogeneous area. More research is required to be conducted on this matter. Other limitation is the number
of respondents to the survey; only 33 useful answers were collect. Despite the fact that the sample includes
important market representatives the number of respondents is far from what would be desirable to have
more viable conclusions. Also, only one expert interview was carried and one expert opinion was collected.
In the future one should collect a broader sample in order to back up the decisions made.
According to Jiang & Qureshi (2006), and as stated in the beginning of the research work, a lot of
research is still need to be done on the topic of IT outsourcing; they emphasized the lack of research on the
relationship between outsourcing implementation and firms’ value. This thesis is a step forward to achieve
that, but not enough, is however, an open gate to go through with it. If a more economical and numerical
approach to IT Outsourcing was applied, then maybe, the relation between outsourcing implementation and
firms’ value would be more explicit.
8. Corrections
After the moment of delivering I realize that the thesis contained some small mistakes. For that reason and in
order to improve the thesis quality some modifications toke place, such as:
From the proposed theoretical framework the pre and post contract were removed as well as the
explanatory text below the model
On the revised framework explanation text two paragraphs were added explaining the “pre-contract
negotiations” and “post-contract management” arrows to make it more understandable.
When analysing the results where is stated that “In almost 88 percent of the cases the first goal that
drove the decision to outsource was reflected in the contract” one should read “almost 55 percent of
the cases….” instead.
31
When answering to the second correlational question on the Analysis chapter -> results, one should
read “Service providers consider that contracts are more incomplete in features like…” instead of
“…complete…”
9. References
Altinkemer, K., Chaturvedi, A. and Gulati, R. (1994), “Information systems outsourcing: issues and evidence”,
International Journal of Information Management,Vol. 14 No. 4, pp. 252-68.
Aubert, B., Houde, J. F., Patry, M., & Rivard, S. (2003, January). Characteristics of IT outsourcing contracts. In System
Sciences, 2003. Proceedings of the 36th Annual Hawaii International Conference on (pp. 9-pp). IEEE
Aubert, B.A., Patry, M. and Rivard, S. (2005): A framework for information technology outsourcing risk
management.The Database for Advances in Information Systems 36(4).
Barthelemy, J. (2003). The seven deadly sins of outsourcing. The Academy of Management Executive, 17(2), 87-98.
Retrieved June 26, 2014, from the
Bo et al. (2011) A decision method for supplier selection in multi-service outsourcing. International Journal of
Production Economics 132 (2011) 240–250
Casale (2001) The IT-Index 2001, The Outsourcing Institute
Chen, C. J., & Lin, B. W. (2001). A resource-based view of IT outsourcing: Knowledge sharing, communication, and
coupling quality. Asia Pacific Management Review, 6(2), 149-173.
Clark, T.D. (1992), Corporate systems management: an overview and research perspective. Communications of the
ACM,Vol. 35 No. 2, pp. 61-75.
Currie, W. L., & Seltsikas, P. (2001). Delivering business critical information systems though application service
providers: the need for a market segmentation strategy. International Journal of Innovation Management, 5(03), 323-
349.
CXO (2009). Outsourcing. Tecnologias de Informação para executivos. Retrieved January 30, 2014, from Construção
Civil website:
http://www.cxo.com.pt/index.php?option=com_content&task=view&id=604&Itemid=66view&id=604&Itemid=66
Daniels, A. (2000). “What is Performance Management? An Interview with Aubrey Daniels”. Retrieved May 15, 2014
from the PMeZINE The Performance Management Magazine website: http://aubreydaniels.com/pmezine/what-
performance-management-interview-aubrey-daniels
Deloitte (2012). Vendor Relationship Management Unlocking value from your outsourcing vendors. Retrieved April 15,
2014, from Deloitte website: http://www2.deloitte.com/content/dam/Deloitte/dk/Documents/technology/Vendor-
Relationship-Management.pdf
Deloitte Consulting (2005). Calling a change in the outsourcing market: The realities of the world’s largest
organizations. Retrieved January 9th, 2014, from Deloitte website: http://www.deloitte.com/assets/Dcom-
Luxembourg/Local%20Assets/Documents/Global_brochures/us_outsourcing_callingachange.pdf
Fabriczi, L. and Rodriguez, M. (2012) “Optimizing the contract management process”. Retrieved from the Health Care
Finance News website on the 8th
of May 2014: http://www.healthcarefinancenews.com/news/optimizing-contract-
management-process?page=1
Ferreira, A.; Laurindo, F. (2009). Outsourcing decision-making aspects considered by IT departments in Brazilian
companies. Int. J. Prodution Economics, 122, 305-311.
32
Fraga, M. D. G. R. (2010). Caracterização do outsourcing de serviços de sistemas de informação em grandes empresas
portuguesas: características contratuais.
Gartner (2003). Half of outsourcing projects fail. Gartner Symposium/ITxpo 2003
Gartner (2013). “IT Outsourcing”. Retrieved April 6, 2014, from the Gartner IT Glossary website:
http://www.gartner.com/it-glossary/it-outsourcing
GE (2014). Measuring Success: Making the Most of Performance Metrics. Retrieved May 6, 2014 from GE Capital
website: http://www.americas.gecapital.com/insight-and-ideas/capital-perspectives/measuring-success-making-the-
most-of-performance-metrics
Gertz, Janet. (2000). “Vendor Relations.” In Handbook for Digital Projects: A Management Tool for Preservation and
Access. Maxine K. Sitts, editor. Andover, Mass.: Northeast Document Conservation Center (PDF version,
http://nedcc.org/resources/digitalhandbook/vii.htm, pp. 150–163).
Gonzalez et al. (2005) Information systems outsourcing success factors: a review and some results, Emerald Group
Publishing Limited
Gonzalez, R., Gasco, J., & Llopis, J. (2010). Information systems outsourcing: an empirical study of success factors.
Human Systems Management, 29(3), 139-151.
Grover, V., Cheon, M. J., & Teng, J. T. (1994). A descriptive study on the outsourcing of information systems functions.
Information & Management, 27(1), 33-44.
Guo et al. (2010) Outsourcing structures and information flow in a three-tier supply chain. International Journal of
Production Economics, 2010, Vol.128(1), pp.175-187
Hafeez, K., Zhang, Y., & Malak, N. (2002). Core competence for sustainable competitive advantage: a structured
methodology for identifying core competence. Engineering Management, IEEE Transactions on, 49(1), 28-35.
Hietalahti, J. & Kuoppala, S. (2009) Outsourcing decision – motives, risks and decision factors. Lappeenranta
University of Technology, School of Business Supply Management.
Hillmer, F. G., & Quinn, J. B. (1995). Strategic outsourcing. The McKinsey Quarterly, 1, 48-70.
Hongxun, J. et al. (2006) Research on IT Outsourcing based on IT Systems Management. ICE 06, Fredericton, Canada,
Journal of ACM. l-595903-392-l. 5333-537
Jiang, B., & Qureshi, A. (2006). Research on outsourcing results: current literature and future opportunities.
Management Decision, 44(1), 44-55
Judge, T. A. (2000). Promote job satisfaction through mental challenge. In E. A. Locke (Ed.), The Blackwell handbook
of principles of organizational behavior (pp. 75–89). Malden: Blackwell Publishers.
Kakabadse, A. and Kakabadse, N., 2005. Outsourcing: current and future trends. International Business Review 47,
183-204.
Kaplan, R. S. and Norton, D. P., (1992). The balanced scorecard—measures that drive performance, Harvard Business
Review, Jan–Feb, 71–79.
KPMG, Strategic Evolution, A Global Survey on Sourcing Today. Retrieved April 30, 2014 from the KPMG website:
https://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/global-survey-sourcing-0703.pdf
Lacity & Willcocks (2012) Outsourcing Business and I.T. Services: the Evidence of Success, Robust Practices and
Contractual Challenges. Legal Information Management, 12, pp. 2–8
Lacity, M. and Hirschheim, R., (1993). The information systems outsourcing bandwagon, Sloan Management
Review,Vol. 35 No. 1, pp. 73-86
33
Lacity, M. C., Khan, S. A., & Willcocks, L. P. (2009). A review of the IT outsourcing literature: Insights for practice.
The Journal of Strategic Information Systems, 18(3), 130-146.
Leach, A. (2013). UK public sector is world’s second-largest outsourcing market. Retrieved June 10, 2014 from the
Supply Management website: http://www.supplymanagement.com/news/2013/uk-public-sector-is-worlds-second-
largest-outsourcing-market
Lee & Choi (2011) Effects of initial and ongoing trust in IT outsourcing: A bilateral perspective Information &
Management, 2011, Vol.48(2), pp.96-105
Lee J-N and Kim Y-N (1999) Effect of partnership quality on IS outsourcing: Conceptual framework and empirical
validation. Journal of Management Information Systems， 15(4) 29-61.
Lee, J-N., Huynh, M.Q., Chi-Wai, K.R. and Pi, S-M. (2000): The evolution of outsourcing research: What is the next
issue? Proc. 33rd. Hawaii International Conference on System Sciences, Maui, Hawaii.
Lee, M. K. (1996). IT outsourcing contracts: practical issues for management. Industrial Management & Data Systems,
96(1), 15-20.
Locke, E. A., & Latham, G. P. (2002). Building a practically useful theory of goal setting and task motivation.
American Psychologist, 57, 705–717.
Locke, Edwin; Gary Latham (2006), "New Directions in Goal-Setting Theory", Association for Psychological Science
15 (5): 265–268
McCarthy, I., & Anagnostou, A. (2004). The impact of outsourcing on the transaction costs and boundaries of
manufacturing. International journal of production economics, 88(1), 61-71.
McFarlan, F.W. and Delacey, B.J., 2004. Outsourcing IT: The global landscape 2004. Harvard Business School case 1-
20.
McIvor, R., Wall, A., Humphreys, P., & McKittrick, A. (2009). A study of performance measurement in the
outsourcing decision. Butterworth-Heinemann.
Meyer, N.D. (1994): A sensible approach to outsourcing. Information Systems Management 11(4): 23–27.
Ndubisi (2011) Conflict handling, trust and commitment in outsourcing relationship: A Chinese and Indian study
Industrial Marketing Management, 2011, Vol.40(1), pp.109-117
Osey-Bryson, K. M., & Ngwenyama, O. K. (2006). Managing risks in information systems outsourcing: An approach to
analyzing outsourcing risks and structuring incentive contracts. European Journal of Operational Research, 174(1), 245-
264.
Perry, M. K. Vertical Integration: Determinants and Effects (1989), Handbook of Industrial Organization, Vol. 1,
Shmalensee and Willig Eds, Chapter 4, 183-255.
Pietschmann, M., Endrass, T., Czerwon, B., & Kathmann, N. (2011). Aging, probabilistic learning and performance
monitoring. Biological psychology, 86(1), 74-82.
Poppo, L. and Zenger, T. (1998), Testing alternative theories of the firm: Transaction cost, knowledge-based, and
measurement explanations for make-or-buy decisions in information services, Strategic Management Journal 19, 853–
877.
Prahalad, C. K., & Hamel, G. (1993). The core competence of the corporation. Organization of Transnational
Corporations, 11, 359.
Prahalad, C. K., & Krishnan, M. S. (1999). The new meaning of quality in the information age. Harvard business
review, 77(5), 109.
34
Price, I. (2004). Business critical FM. Facilities, 22(13/14), pp. 353-358.
Project VRM Harvard. Retrieved May 12, 2014 from Project VRM Harvard website:
http://cyber.law.harvard.edu/projectvrm/Main_Page
Sagoo, A., Oates, J., & Lacityk, M. (2013). “A better way to resolve business conflicts”. Retrieved April 20, 2014, from
Accenture website: http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Outlook-Better-Way-to-
Resolve-Business-Conflicts-Outsourcing-BPO.pdf
Serenson Colet, Linda. (2000). Planning an Imaging Project. In Guides to Image Quality in Visual Resources Imaging.
Washington, D.C., and Mountain View, Calif.: Council on Library and Information Resources and Research Libraries
Group.
Shi et al. (2005) IS outsourcing management competence dimensions: instrument development and relationship
exploration. Information & Management, 2005, Vol.42(6), pp.901-919
Slack, N., Chambers, S., & Johnston, R. (2010). Operations management. Pearson Education.
Soliman, F., & Youssef, M. (2003). The role of critical information in enterprise knowledge management. Industrial
Management & Data Systems, 103(7), 484-490.
Tan, V., Allen & Overy (2012). Public-Private Partnership (PPP). Advocates for International Development, pp 5&6
Thompson, M. (2014). 5 Vendor Management Problems Causing Value Leakage. Alsbridge, Inc. Retrieved May 21,
2014, from Outsourcing Leadership. website: http://m.outsourcingleadership.com/knowledgebase/articles/vendor-
management-rationalize-your-vendors
Troacă, V. A., & Bodislav, D. A. (2012). Outsourcing. The Concept. Theoretical & Applied Economics, 19(6).]
Walden, D. (1994) Thoughts on Goals and Metrics. Center for Quality of Management Journal, Volume 3, Number 1,
Winter 1994, pp. 33-38.
Willcocks, L. P., & Lacity, M. C. (1999). IT outsourcing in insurance services: risk, creative contracting and business
advantage. Information Systems Journal, 9(3), pp. 163-180.
Young, A., Anderson, D. S., Brant, K. F., Brown, R. H., Cohen, L. R., Cournoyer, S., ... & Sood, R. (2008). Gartner on
Outsourcing, 2008-2009. Gartner. http://www. gartner. com/DisplayDocument
35
10. Appendices
Figure 1 - The outsourcing framework (McIvor e.a., 2009) [46]
Focus of this thesis
36
Table 1 - Outsourcing motives and their main references. (Hietalahti & Kuoppala, 2009) [27]
Category Motives for Outsourcing References
Financial
Cost reduction
Belcourt, 2006
Gilley & Rasheed, 2000
Jennings, 2002
Kakabadse & Kakabadse, 2000, 2002
Kremic et al, 2006
Kumar & Eickhoff, 2005
Lacity et al, 1994
Leavy, 2001,2004
Quelin & Duhamel, 2003
Zhu et al, 2001
Improved cost control Belcourt, 2006
Quelin & Duhamel, 2003
Lacity & Hirschheim, 1994
Convert fixed costs to variable
Gilley & Rasheed, 2000
Kakabadse & Kakabadse, 2000, 2002
Kumar & Eickhoff, 2005
Lonsdale & Cox, 1998
Strategic
Focus resources on core
Belcourt, 2006
Gilley & Rasheed, 2000
Heikkilä & Cordon, 2002
Jennings, 2002
Kakabadse & Kakabadse, 2000, 2002
Kremic et al, 2006
Kumar & Eickhoff, 2005
Lacity et al, 1994
Leavy, 2001,2004
Lonsdale & Cox, 1998
Prahalad & Hamel,1990
Quelin & Duhamel, 2003
Quinn, 1999
Quinn & Hilmer, 1995
Zhu et al, 2001
Gain flexibility
Gilley & Rasheed, 2000
Heikkilä & Cordon, 2002
Jennings, 2002
Kremic et al, 2006
Quelin & Duhamel, 2003
Quinn & Hilmer, 1995
Improve service and quality
Belcourt, 2006
Gilley & Rasheed, 2000
Jennings, 2002
Lacity et al, 1994
Quinn, 1999
Quinn & Hilmer, 1995
Improve time to market
Jennings, 2002
Kumar & Eickhoff, 2005
Lonsdale & Cox, 1998
Quinn & Hilmer, 1995
Access to technical talent and to
new technologies
Belcourt, 2006
Gilley & Rasheed, 2000
Jennings, 2002
Kakabadse & Kakabadse, 2000,2002
Kumar & Eickhoff, 2005
Lacity et al, 1994
Leavy, 2001, 2004
Lonsdale & Cox, 1998
Quinn, 1999
Quinn & Hilmer, 1995
Zhu et al, 2001
Spread risk Kremic et al, 2006
Quinn & Hilmer, 1995
Other Get rid of problem functions
Belcourt, 2006
Kremic et al, 2006
Lacity et al, 1994
Copy competitors Kremic et al, 2006
Lacity et al, 1994
37
Figure 2 - Project management tree swing cartoon (Paragon Innovations, Inc., 2005)
Scheme 1 - Success factors in outsourcing process. Adapted from Lacity et al. (2009)
Graph 1 – Contract completeness and associated costs (Crocker & Reynolds, 1993)
Determinants of IT outsourcing success
The ITO decision
Contractual governance
Contract detail Contract type
Contract duration Contract size
Relational governance
Trust Norms
Open communication Open sharing of information
Mutual dependency Cooperation
38
Scheme 3 - A conceptual framework for ITO Implementation and Management levels
IT Outsourcing Implementation and
Management
Goals and metrics
IT Outsourcing contracts: contractual
governance
Performance measurement
Client - Service provider relationship: relational governance
Levels
39
10.1. Research approach
Appendix A- The survey
Survey on IT Outsourcing implementation and management
Welcome!
This survey is inserted within the thesis to be developed at the University of Amsterdam for the Masters
of Business Information Systems.
"A strategic analysis on how to implement and manage IT Outsourcing of Business Critical Systems" is
the general theme of this thesis and this survey is intend to collect data for further analysis about the prospect
of customers and providers of IT Outsourcing.
The collected and validated answers will be helpful to better understand what happens during a process
of ITO, especially after the decision making process, ie during the period of implementation and
management. This will provide insight on the requirements of organizations and, therefore, bring service
providers and clients together.
The aim is to develop and to deploy result-oriented and value driven research enable managers to make
smart data driven decisions to stay ahead in competition and to drive growth.
Organization name: ……………………………………………………………………
Please select your role:
Service Provider
Client
LEVEL 1: Goals and metrics
A) Evaluate the following features on the level of importance regarding IT Outsourcing implementation
and management. Please place the following statement in order of importance (from the most
important on the top to the least important in the bottom).
a. …….. “I believe that the definition of performance goals is important at the beginning of an IT
outsourcing management process.”
b. …….. “I believe that implementing measuring mechanisms is crucial at the beginning of an IT
outsourcing process”
c. …….. “I believe that defining KPI’s (Key Performance Indicators) is relevant at the beginning of
an IT outsourcing process”
d. …….. “I believe that defining SMART goals is crucial at the beginning of an IT outsourcing
process”
e. …….. “I believe that ............ (other) is crucial at the beginning of an IT outsourcing process”
LEVEL 2: Contractual governance
A) Measure the level of completeness of the contract. Select the features that are present in your ITO
contract.
An option for renewal of the contract
Stipulated cost reductions over time
Penalties for under-performance
Contract termination clause for underperformance
Bonus for outstanding performance
Detailed performance targets
Private arbitration
40
Gain-sharing provisions between client and supplier
Renegotiation “windows” (pre-specified periods at which client and supplier agree to renegotiate
some features of the agreement)
Exit strategies
Other, namely___________________________________________________
B) Which are the objectives that had a strong influence on the decision to outsource? Are those
objectives/goals included in the contract? Please select the ones that are included.
__________________ YES / NO
__________________ YES / NO
__________________ YES / NO
C) Which are the main problems faced with ITO contracts? Select the problems that you face with
ITO contracts.
Lack of information quality
Complexity and length
Impact to labour union agreements
Non-comprehensive Service Level Agreement (SLA)
Transfer of Assets agreement
Transfer of Staff agreement
Pricing and payment terms
Duration terms
Warranty and Liability agreement
Dispute resolution and termination agreement
Ownership of intellectual property rights agreement
Information security and confidentiality agreement
Static (inflexible contracts)
Unrealistic goals
Limited or poor understanding of expectations
Poor contract governance
Ambiguity and misunderstandings
Lack of features on the quantity and quality of deliverables
Lack of performance measurement methods
Relationship and communication description
Other, namely___________________________________________________
LEVEL 3: Performance measurement
Concerning the ITO performance, scale the following items from 1 = strongly disagree to 5 =
strongly agree or N.A. (Note: This section of the survey is based on the Symbiosis survey on Sourcing
Success in the Netherlands by J. Bergstra, G. Delen, D. Hoogeveen, K. de Leeuw, R. Peters, S. van
Vlijmen and I. Vermeire)
A) ITO overall performance:
“I am satisfied with the overall IT quality provided”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the lowering technological risk provided”
41
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the requirement fulfilment provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the responsiveness provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the information completeness provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the IT costs reduction provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the business costs reduction provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the IT service improvement provided.”
1 2 3 4 5 N.A.
o o o o o o
“I I am satisfied with the …………………………… (other) provided.”
1 2 3 4 5 N.A.
o o o o o o
A.1) Knowledge sharing.
“I am satisfied with the Know-how transfer.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the new IT applications provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with ……….…………………………… (other) provided.”
1 2 3 4 5 N.A.
o o o o o o
A.2) Communication
“I am satisfied with the communication efficiency provided”
1 2 3 4 5 N.A.
o o o o o o
42
“I am satisfied with the communication frequency provided”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with …………………………………… (other) provided.”
1 2 3 4 5 N.A.
o o o o o o
A.3) Coupling quality
“I am satisfied with the decision-making support provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the business understanding provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the risk sharing.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with the profit sharing provided.”
1 2 3 4 5 N.A.
o o o o o o
“I am satisfied with …………………………………… (other) provided.”
1 2 3 4 5 N.A.
o o o o o o
LEVEL 4: Relational governance
A) Which are the main problems that you face or have faced before with service providers/clients?
Evaluated on a scale ranging from zero (strongly disagree) to five (strongly agree) or N.A. (if you have never
faced problems with service providers/clients)
“I consider the availability of the employees satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the start-up time for new projects provided satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the information sharing satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the Readiness of the employees to think along/ proactively satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the communicative skills satisfactory.”
43
1 2 3 4 5 N.A.
o o o o o o
“I consider the cultural fit satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the waiting times satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the follow-up provided satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the strategic advice provided satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the timing of the strategic advice provided satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider that the expectations were meet in a satisfactory way.”
1 2 3 4 5 N.A.
o o o o o o
“I consider the continuous support and cooperation provided satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
“I consider ……………………………… (other) provided satisfactory.”
1 2 3 4 5 N.A.
o o o o o o
Appendix B - Survey data
Service Providers Clients
44
Figure 3 - Organizations that answers the survey
Figure 4 - Responses by location
Figure 5 – Role
45
0% 5% 10% 15% 20%
An option for renewal of the contract
Stipulated cost reductions over time
Penalties for under-performance
Contract termination clause for underperformance
Bonus for outstanding performance
Detailed performance targets
Private arbitration
Gain-sharing provisions between buyer and supplier
Renegotiation “windows”
Exit strategies
Other
Figure 7 - Goals that had a strong influence on the decision to outsource
0% 5% 10% 15% 20% 25% 30%
Need of expertise / Knowledge
Availability
Costs reduction
Improve performance
Flexibility
Resources allocation
Improve quality of service
Improve technology time to market
Simplification
Technology inovation
Partnership
Reliability
Reputation
Continuity/no absence
SLAs
Focus on business
Support
Standardization
Reduce Space on the office
Scalability
Figure 6 - Level of completeness of the ITO contract
46
Figure 8 - Goals included in the contract
Table 3 - ITO contract problems
$ITOcontractProblems Frequencies
Responses Percent of Cases
N Percent
ITO contract problemsa
Lack of information quality 13 6.9% 39.4%
Complexity and length 6 3.2% 18.2%
Impact to labour union
agreements
2 1.1% 6.1%
Non-comprehensive Service
Level Agreement (SLA)
13 6.9% 39.4%
Transfer of Assets agreement 7 3.7% 21.2%
Transfer of Staff agreement 6 3.2% 18.2%
Pricing and payment terms 7 3.7% 21.2%
Duration terms 4 2.1% 12.1%
Warranty and Liability
agreement
8 4.2% 24.2%
Dispute resolution and
termination agreement
6 3.2% 18.2%
Ownership of intellectual
property rights agreement
13 6.9% 39.4%
Information security and
confidentiality agreement
4 2.1% 12.1%
Static (inflexible contracts) 10 5.3% 30.3%
Unrealistic goals 10 5.3% 30.3%
47
Limited or poor understanding
of expectations
11 5.8% 33.3%
Poor contract governance 15 7.9% 45.5%
Ambiguity and
misunderstandings
14 7.4% 42.4%
Lack of features on the
quantity and quality of
deliverables
11 5.8% 33.3%
Lack of performance
measurement methods
14 7.4% 42.4%
Relationship and
communication description
7 3.7% 21.2%
Other2 8 4.2% 24.2%
Total 189 100.0% 572.7%
Table 6 – Reliability statistics for Knowledge sharing
Cronbach's Alpha Cronbach's Alpha
Based on
Standardized
Items
N of Items
.095 .034 3
Table 8 - Reliability statistics for Communication
Cronbach's Alpha Cronbach's Alpha
Based on
Standardized
Items
N of Items
.567 .551 3
Table 10 - Reliability statistics for Coupling quality
Cronbach's Alpha Cronbach's Alpha
Based on
Standardized
Items
N of Items
.725 .702 5
Table 11 - Reliability statistics for Main problems that faced with service providers/clients
Cronbach's Alpha Cronbach's Alpha
Based on
Standardized
Items
N of Items
.905 .896 13
48
Table 13.1 – Cross Tabulation between Role and features important to define at the beginning of an IT outsourcing
process (Implementing measuring mechanisms)
Role Total
Service Provider Client
Implementing measuring
mechanisms
Most important Count 1 2 3
% within Role 6.7% 11.1% 9.1%
2nd choice Count 6 7 13
% within Role 40.0% 38.9% 39.4%
3rd choice Count 2 4 6
% within Role 13.3% 22.2% 18.2%
4th choice Count 4 5 9
% within Role 26.7% 27.8% 27.3%
Least important Count 2 0 2
% within Role 13.3% 0.0% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 12 - Main problems that faced with vendors/clients
49
Table 14.1 - Cross Tabulation between Role and features important to define at the beginning of an IT outsourcing
process (defining KPI’s)
Role Total
Service Provider Client
Defining KPI’s
Most important Count 2 3 5
% within Role 13.3% 16.7% 15.2%
2nd choice Count 1 5 6
% within Role 6.7% 27.8% 18.2%
3rd choice Count 8 9 17
% within Role 53.3% 50.0% 51.5%
4th choice Count 3 0 3
% within Role 20.0% 0.0% 9.1%
Least important Count 1 1 2
% within Role 6.7% 5.6% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 15.1 - Cross Tabulation between Role and features important to define at the beginning of an IT outsourcing
process (defining SMART goals)
Role Total
Service Provider Client
Defining SMART goals
Most important Count 3 4 7
% within Role 20.0% 22.2% 21.2%
2nd choice Count 3 1 4
% within Role 20.0% 5.6% 12.1%
3rd choice Count 1 2 3
% within Role 6.7% 11.1% 9.1%
4th choice Count 7 11 18
% within Role 46.7% 61.1% 54.5%
Least important Count 1 0 1
% within Role 6.7% 0.0% 3.0%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
50
Table 16 - Cross Tabulation between Role and the features that define a complete contract (Option for contract
renewal)
Role Total
Service Provider Client
Option for contract renewal
Not included Count 5 4 9
% within Role 33.3% 22.2% 27.3%
Included Count 10 14 24
% within Role 66.7% 77.8% 72.7%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 17 - Cross Tabulation between Role and the features that define a complete contract (Termination clause for
underperformance)
Role Total
Service Provider Client
Termination clause for
underperformance
Not included Count 10 6 16
% within Role 66.7% 33.3% 48.5%
Included Count 5 12 17
% within Role 33.3% 66.7% 51.5%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 18 - Cross Tabulation between Role and the features that define a complete contract (Bonus for outstanding
performance)
Role Total
Service Provider Client
Bonus for outstanding
performance
Not included Count 7 16 23
% within Role 46.7% 88.9% 69.7%
Included Count 8 2 10
% within Role 53.3% 11.1% 30.3%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 19 - Cross Tabulation between Role and the features that define a complete contract (Detailed performance
targets)
Role Total
Service Provider Client
Detailed performance targets Not included
Count 7 11 18
% within Role 46.7% 61.1% 54.5%
Included Count 8 7 15
51
% within Role 53.3% 38.9% 45.5%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 20 - Cross Tabulation between Role and the features that define a complete contract (Gain-sharing provisions)
Role Total
Service Provider Client
Gain-sharing provisions
Not included Count 10 15 25
% within Role 66.7% 83.3% 75.8%
Included Count 5 3 8
% within Role 33.3% 16.7% 24.2%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 21 - Cross Tabulation between Role and the features that define a complete contract (Renegotiation “windows”)
Role Total
Service Provider Client
Renegotiation “windows”
Not included Count 8 15 23
% within Role 53.3% 83.3% 69.7%
Included Count 7 3 10
% within Role 46.7% 16.7% 30.3%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 22 - Cross Tabulation between Role and the features that define a complete contract (Exit strategies)
Role Total
Service Provider Client
Exit strategies
Not included Count 9 14 23
% within Role 60.0% 77.8% 69.7%
Included Count 6 4 10
% within Role 40.0% 22.2% 30.3%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
52
Table 23 - Cross Tabulation between Role and the main problems faced with ITO contracts (Transfer of Assets
agreement)
Role Total
Service Provider Client
Transfer of Assets agreement
No Count 11 15 26
% within Role 73.3% 83.3% 78.8%
Yes Count 4 3 7
% within Role 26.7% 16.7% 21.2%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 24 - Cross Tabulation between Role and the main problems faced with ITO contracts (Pricing and payment
terms)
Role Total
Service Provider Client
Pricing and payment terms
No Count 8 18 26
% within Role 53.3% 100.0% 78.8%
Yes Count 7 0 7
% within Role 46.7% 0.0% 21.2%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 25 - Cross Tabulation between Role and the main problems faced with ITO contracts (Unrealistic goals)
Role Total
Service Provider Client
Unrealistic goals
No Count 7 16 23
% within Role 46.7% 88.9% 69.7%
Yes Count 8 2 10
% within Role 53.3% 11.1% 30.3%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 26 - Cross Tabulation between Role and the main problems faced with ITO contracts (Limited or poor
understanding of expectations)
Role Total
Service Provider Client
Limited or poor understanding
of expectations
No Count 8 14 22
% within Role 53.3% 77.8% 66.7%
Yes Count 7 4 11
% within Role 46.7% 22.2% 33.3%
53
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 27 - Cross Tabulation between Role and the main problems faced with ITO contracts (Poor contract governance)
Role Total
Service Provider Client
Poor contract governance
No Count 7 11 18
% within Role 46.7% 61.1% 54.5%
Yes Count 8 7 15
% within Role 53.3% 38.9% 45.5%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 28 - Cross Tabulation between Role and the main problems faced with ITO contracts (Relationship and
communication description)
Role Total
Service Provider Client
Relationship and
communication description
No Count 11 15 26
% within Role 73.3% 83.3% 78.8%
Yes Count 4 3 7
% within Role 26.7% 16.7% 21.2%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 29 - Cross Tabulation between Role and the main problems faced with ITO contracts (Information security and
confidentiality agreement)
Role Total
Service Provider Client
Information security and
confidentiality agreement
No Count 14 15 29
% within Role 93.3% 83.3% 87.9%
Yes Count 1 3 4
% within Role 6.7% 16.7% 12.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 30 - Cross Tabulation between Role and the main problems faced with ITO contracts (Ambiguity and
misunderstandings)
Role Total
Service Provider Client
54
Ambiguity and
misunderstandings
No Count 11 8 19
% within Role 73.3% 44.4% 57.6%
Yes Count 4 10 14
% within Role 26.7% 55.6% 42.4%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 31 - Cross Tabulation between Role and the main problems faced with ITO contracts (Lack of performance
measurement methods)
Role Total
Service Provider Client
Lack of performance
measurement methods
No Count 10 9 19
% within Role 66.7% 50.0% 57.6%
Yes Count 5 9 14
% within Role 33.3% 50.0% 42.4%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 32 - Cross Tabulation between Role and the performance measurement features (Business costs reduction)
Role Total
Service Provider Client
Business costs reduction
Strongly disagree Count 2 0 2
% within Role 13.3% 0.0% 6.1%
2º Count 1 5 6
% within Role 6.7% 27.8% 18.2%
3º Count 5 7 12
% within Role 33.3% 38.9% 36.4%
4º Count 6 5 11
% within Role 40.0% 27.8% 33.3%
Strongly agree Count 1 1 2
% within Role 6.7% 5.6% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 33 - Cross Tabulation between Role and the performance measurement features (Responsiveness)
Role Total
Service Provider Client
Responsiveness Strongly disagree Count 1 1 2
% within Role 6.7% 5.6% 6.1%
55
2º Count 3 4 7
% within Role 20.0% 22.2% 21.2%
3º Count 6 4 10
% within Role 40.0% 22.2% 30.3%
4º Count 3 9 12
% within Role 20.0% 50.0% 36.4%
Strongly agree Count 2 0 2
% within Role 13.3% 0.0% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 34 - Cross Tabulation between Role and the performance measurement features (Overall IT quality)
Role Total
Service Provider Client
Overall IT quality
Strongly disagree Count 1 1 2
% within Role 6.7% 5.6% 6.1%
2º Count 2 3 5
% within Role 13.3% 16.7% 15.2%
3º Count 1 11 12
% within Role 6.7% 61.1% 36.4%
4º Count 11 3 14
% within Role 73.3% 16.7% 42.4%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 35 - Cross Tabulation between Role and the performance measurement features (Lowering technological risk)
Role Total
Service Provider Client
Lowering technological risk
Strongly disagree Count 1 2 3
% within Role 6.7% 11.1% 9.1%
2º Count 1 3 4
% within Role 6.7% 16.7% 12.1%
3º Count 2 11 13
% within Role 13.3% 61.1% 39.4%
4º Count 11 2 13
% within Role 73.3% 11.1% 39.4%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
56
Table 36 - Cross Tabulation between Role and the performance measurement features (Information completeness)
Role Total
Service Provider Client
Information completeness
N.A. Count 1 0 1
% within Role 6.7% 0.0% 3.0%
2º Count 3 2 5
% within Role 20.0% 11.1% 15.2%
3º Count 5 12 17
% within Role 33.3% 66.7% 51.5%
4º Count 2 2 4
% within Role 13.3% 11.1% 12.1%
Strongly agree Count 4 2 6
% within Role 26.7% 11.1% 18.2%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 37 - Cross Tabulation between Role and the performance measurement features (IT service improvement)
Role Total
Service Provider Client
IT service improvement
Strongly disagree Count 1 2 3
% within Role 6.7% 11.1% 9.1%
2º Count 1 2 3
% within Role 6.7% 11.1% 9.1%
3º Count 6 11 17
% within Role 40.0% 61.1% 51.5%
4º Count 5 2 7
% within Role 33.3% 11.1% 21.2%
Strongly agree Count 2 1 3
% within Role 13.3% 5.6% 9.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 38 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Availability of the employees)
Role Total
Service Provider Client
Availability of the employees Strongly disagree
Count 1 0 1
% within Role 6.7% 0.0% 3.0%
2º Count 3 2 5
57
% within Role 20.0% 11.1% 15.2%
3º Count 5 11 16
% within Role 33.3% 61.1% 48.5%
4º Count 5 4 9
% within Role 33.3% 22.2% 27.3%
Strongly agree Count 1 1 2
% within Role 6.7% 5.6% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 39 - Cross Tabulation between Role and the main problems face in the client-service provider relationship (Start-
up time for new projects)
Role Total
Service Provider Client
Start-up time for new projects
N.A. Count 0 2 2
% within Role 0.0% 11.1% 6.1%
Strongly disagree Count 3 0 3
% within Role 20.0% 0.0% 9.1%
2º Count 1 3 4
% within Role 6.7% 16.7% 12.1%
3º Count 5 7 12
% within Role 33.3% 38.9% 36.4%
4º Count 6 5 11
% within Role 40.0% 27.8% 33.3%
Strongly agree Count 0 1 1
% within Role 0.0% 5.6% 3.0%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 40 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Information sharing)
Role Total
Service Provider Client
Information sharing
Strongly disagree Count 2 0 2
% within Role 13.3% 0.0% 6.1%
2º Count 3 5 8
% within Role 20.0% 27.8% 24.2%
3º Count 2 9 11
% within Role 13.3% 50.0% 33.3%
58
4º Count 8 3 11
% within Role 53.3% 16.7% 33.3%
Strongly agree Count 0 1 1
% within Role 0.0% 5.6% 3.0%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 41 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Readiness of the employees to think along/ proactively)
Role Total
Service Provider Client
Readiness of the employees to
think along/ proactively
N.A. Count 0 1 1
% within Role 0.0% 5.6% 3.0%
Strongly disagree Count 2 1 3
% within Role 13.3% 5.6% 9.1%
2º Count 3 8 11
% within Role 20.0% 44.4% 33.3%
3º Count 5 4 9
% within Role 33.3% 22.2% 27.3%
4º Count 3 4 7
% within Role 20.0% 22.2% 21.2%
Strongly agree Count 2 0 2
% within Role 13.3% 0.0% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 42 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Cultural fit)
Role Total
Service Provider Client
Cultural fit
N.A. Count 0 1 1
% within Role 0.0% 5.6% 3.0%
Strongly disagree Count 1 1 2
% within Role 6.7% 5.6% 6.1%
2º Count 3 7 10
% within Role 20.0% 38.9% 30.3%
3º Count 6 6 12
% within Role 40.0% 33.3% 36.4%
4º Count 4 2 6
59
% within Role 26.7% 11.1% 18.2%
Strongly agree Count 1 1 2
% within Role 6.7% 5.6% 6.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 43 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Waiting times)
Role Total
Service Provider Client
Waiting times
N.A. Count 0 1 1
% within Role 0.0% 5.6% 3.0%
Strongly disagree Count 2 0 2
% within Role 13.3% 0.0% 6.1%
2º Count 4 6 10
% within Role 26.7% 33.3% 30.3%
3º Count 4 8 12
% within Role 26.7% 44.4% 36.4%
4º Count 4 3 7
% within Role 26.7% 16.7% 21.2%
Strongly agree Count 1 0 1
% within Role 6.7% 0.0% 3.0%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 44 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Strategic advice)
Role Total
Service Provider Client
Strategic advice
Strongly disagree Count 2 2 4
% within Role 13.3% 11.1% 12.1%
2º Count 3 3 6
% within Role 20.0% 16.7% 18.2%
3º Count 3 9 12
% within Role 20.0% 50.0% 36.4%
4º Count 5 3 8
% within Role 33.3% 16.7% 24.2%
Strongly agree Count 2 1 3
% within Role 13.3% 5.6% 9.1%
60
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 45 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Timing of the strategic advice)
Role Total
Service Provider Client
Timing of the strategic advice
N.A. Count 1 0 1
% within Role 6.7% 0.0% 3.0%
Strongly disagree Count 1 3 4
% within Role 6.7% 16.7% 12.1%
2º Count 4 3 7
% within Role 26.7% 16.7% 21.2%
3º Count 2 7 9
% within Role 13.3% 38.9% 27.3%
4º Count 4 4 8
% within Role 26.7% 22.2% 24.2%
Strongly agree Count 3 1 4
% within Role 20.0% 5.6% 12.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Table 46 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Expectations were meet)
Role Total
Service Provider Client
Expectations were meet
Strongly disagree Count 0 1 1
% within Role 0.0% 5.6% 3.0%
2º Count 1 5 6
% within Role 6.7% 27.8% 18.2%
3º Count 5 9 14
% within Role 33.3% 50.0% 42.4%
4º Count 5 2 7
% within Role 33.3% 11.1% 21.2%
Strongly agree Count 4 1 5
% within Role 26.7% 5.6% 15.2%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
61
Table 47 - Cross Tabulation between Role and the main problems face in the client-service provider relationship
(Continuous support and cooperation)
Role Total
Service Provider Client
Continuous support and
cooperation
Strongly disagree Count 1 2 3
% within Role 6.7% 11.1% 9.1%
2º Count 0 6 6
% within Role 0.0% 33.3% 18.2%
3º Count 5 5 10
% within Role 33.3% 27.8% 30.3%
4º Count 6 4 10
% within Role 40.0% 22.2% 30.3%
Strongly agree Count 3 1 4
% within Role 20.0% 5.6% 12.1%
Total Count 15 18 33
% within Role 100.0% 100.0% 100.0%
Appendix C - Expert testimony
Confidential - Andre Luis Olivo ([email protected])
“Just answer the survey. Unfortunately I cannot put the company name, so I left marked "confidential".
The experience I had with IT outsourcing was with a global leader, that outsourced the datacentre
operation and mission critical services of on of the companies I worked.
It was a revealing experience that showed me that large companies providing outsourcing are not
prepared for the new times. Fully conservative, changes were avoided at any cost, always using as
justification the availability goal. Well , when I look at the contract , I noticed that the availability target
were so vague , we even were offline for two days, and that was not considered a breach of SLA for
unavailability . Do you know which was the only availability metric of the contract? That all the servers
would be available 98% of the time. But there was nowhere described the concept of availability or
measurement methodology. Worse, there was no method of dispute the numbers, i.e., what the vendor
presented as number should be understood as true without reimbursement by the contractor side. Goof who
signed the contract without reading, a fact that I emphasized in my answers to the survey. Metrics and
methodology has to come before anything else, in my opinion.
Finally, the relationship was degrading so that my company decided to break the contract and make an
insourcing project, long before the minimum period for which there was no penalty for dismissal. There was
a risk to the business of the company if we continue with the contract. Even with our team presenting
evidence that the SLA had not been honoured, and that therefore there should be no penalty for dismissal, the
provider refused to accept the arguments and imposed a fine.
How this contract was: basically charged for use of computing resources and service hours. So if my
company grew, the provider billed with this growth, which is undesirable. In our insourcing project, we were
able to grow and maintain a server park 10 times larger with the same cost that we had in outsourcing. And
as is our interest to make good use of resources, operational efficiency is highly valued, instead of the
outsourcer, which does not pass their efficiencies for the customer.
I hope I helped and I can contribute more to other outsourcing cases, this time successful. I just cannot
reveal the names of the companies involved.”
Appendix D – Interview minutes: expert opinion, Guus Delen ([email protected])
62
1. Do you understand the concept behind the framework and/or the framework itself? Please indicate
what parts are unclear to you. Do you find any room for improvements? Which are the
improvements that you propose?
Level 1: was suggested to add directional relationships between CSFs, KPIs and measuring
mechanisms to better understand the timeline that the definition of these criteria should follow.
Level 2: at this level it was proposed to differentiate the steps followed by the client and the steps to
be followed by service provider, as they go through different processes. The respondent pointed out
that continuous management should be made during the performance monitoring instead of the
contractual governance, since the performance level is constantly changing but not the terms of the
contract itself.
Level 3: it was suggested that continuous management was undertaken at this time of the
outsourcing process, since it is crucial to closely monitor the performance of the outsourcing
agreement. This way one can understand how far the outcomes are from what was intended and at
the right time take the necessary actions.
Level 4: the interviewee suggested that this level was seen as a process that should be considered
and applied from beginning to the end of the outsourcing process. Thus, instead of another layer in
the model it should present throughout the whole process. The respondent revealed the importance of
transparency between the two parties, in this case in relation to the sharing of specific information.
Generally, some corrections to the framework outline were suggested that improves its
understanding and provide a more realistic picture of what actually happens during these processes.
2. Do you think that this framework is in compliance with what really happens during the ITO
processes?
The interviewee stated that most of the times this is not the case. Clients and service providers
should apply the guidelines from the proposed framework to increase the chances of successful ITO
agreements. The interviewee pointed out that often customers are not transparent with their
requirements and the service providers are not transparent in the SLAs agreements. One of the
crucial points is the information sharing between the two parties and it is often neglected and
obscure. This negatively influences the whole process of outsourcing. Throughout the process clients
should remember the reasons that led them to proceed with the outsourcing and service providers
should focus on optimizing the relationship with the client.
3. According to your experience, do you think that by following this framework organizations will be
more successful when implementing ITO solutions?
The interviewee ensured that the outsourcing processes as well as clients and service providers
would certainly benefit if the guidelines presented were followed.
