Risks-Benfits and Challenges in Global Outsourcing

IDEA GROUP PUBLISHING
This paper appears in the publication, Journal of Global Information Management, vol. 14, issue 3 edited by Felix B. Tan 2006, Idea Group Inc.
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Risks, Benefits, and Challenges in Global IT Outsourcing:

Perspectives and Practices
Subhankar Dhar, San Jose State University, USA Bindu Balakrishnan, San Jose State University, USA
ABSTRACT
Many large organizations are increasingly outsourcing their IT functions. Factors like lower costs, improved productivity, higher quality, higher customer satisfaction, and ability to focus on core areas are some of the benefits of outsourcing. However, there are many challenges and risks associated with IT outsourcing. In this article, we identify the main risk factors and best practices in global IT outsourcing. In addition, we delve into some important issues on IT outsourcing, particularly the challenges along with benefits. Finally, we present case studies of two Global 200 organizations and validate some of the claims made by previous researchers on IT outsourcing. This study will help the management to identify the risk factors and take the necessary remedial steps. Hence, this study is timely and relevant from both an academic and a practitioners perspective. Keywords: benefits; global outsourcing; risks; transaction cost theory
INTRODUCTION
In todays global economy, outsourcing has become a very common phenomenon. Many large organizations have outsourced some or all of their IT functions. Factors like lower costs, improved productivity, higher quality, higher customer satisfaction, time to market, and ability to focus on core areas are some of the benefits of outsourcing. However, there are many challenges and risks associated with IT outsourcing (Adeleye, Annansingh, & Nunes, 2004; Alvares et al., 1995; Bahli & Rivard, 2003; Beamish, Marcolin, & Mclellan, 1995; Cross, 1995; Dibbern & Goles, 2004; Feeny, Lacity, & Willcocks, 1995; Lacity &
Willcocks; 1995, Lee, Huynh, Kwok, & Pi, 2003; Nam, Rajagopalan., Rao, & Chaudhury, 1996; Rothman, 2003; Sabherwal, 2003). IT Outsourcing is as an act of delegating or transferring some or all of the IT related decision making rights, business processes, internal activities, and services to external providers, who develop, manage, and administer these activities in accordance with agreed upon deliverables, performance standards and outputs, as set forth in the contractual agreement (Dhar, Gangurde, & Sridar, 2004). Whenever, there is an outsourcing decision, there is an inherent risk associated with it. In addition, in any outsourcing deal, there are
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40 Journal of Global Information Management, 14(3), 39-69, July-September 2006
some hidden costs, unexpected outcomes, diminishing service levels, to name a few (Antonucci, Lordi, & Tucker, 1998; Aubert, Patry, Rivard, & Smith, 2001; Clark, McCray, & Zmud, 1995; Earl, 1996; King & Malhotra, 2000; Lacity & Hirschheim, 1993). There are four major aspects of the proposed research that are summarized by the following questions: 1. What are the objectives for outsourcing? 2. What are the major factors that contribute to risk in global offshore IT outsourcing? How do we minimize the risk in IT outsourcing projects? 3. What are best practices for outsourcing? 4. How do we validate some of the assumptions made by prior research? Although there are quite a number of studies that address the risk factors and hidden costs in outsourcing, we found out that there is no single study that takes a comprehensive approach in analyzing the issues like risks, benefits, challenges, and best practices in the context of global outsourcing. In addition, many of the important risk factors are not properly analyzed that are quite important to global outsourcing. Of particular interest to us are the effects of risk assessment factors like geographical location, political, cultural, quality standards, legal contracts, and intellectual property as many of these are not well studied and well documented before. These are some of the motivating factors behind this study where we address not only the risks and benefits but also the challenges and best practices along with two case studies and validate some of the claims made by previous researchers on IT outsourcing. Hence, this research fills the gap in the current literature with regards to risk assessment factors in offshore outsourcing in a global context. This article presents case studies of two Global 200 organizations and validates some of the claims made by previous research on IT outsourcing. Our main contribution in this ar-
ticle is to identify sixteen different risk assessment factors that are quite sensitive to global IT outsourcing. In addition, we also analyzed two large organizations (FIRM-1 and FIRM-2) that are currently outsourcing their IT functions and identify the objectives, key benefits, important risk factors, challenges, and best practices. We also found how Transaction Cost Theory has played an important factor in the decision making process for outsourcing. This research is unique in the sense that it analyzes two multinational organizations FIRM -1 and FIRM-2 that are involved in outsourcing for quite sometime and the outsourcing work is done on remote offshore locations in India, China and some other countries in Asia. So this study is truly global in nature as both the organizations conduct business in various parts of the world including the Americas, Europe, Asia, and Australia and in some parts of Africa. In addition, FIRM-1 is one of the suppliers of FIRM-2. Thus both organizations have common goals of making their global supply chain successful, and maximizing the overall profitability. Finally, we do a comparison of each of these factors for both the organizations. Hence, this study is timely and relevant from both an academic and a practitioners perspective.
THEORETICAL CONCEPTS BEHIND OUTSOURCING

There are various theoretical justifications for outsourcing. The most popular ones are Transaction Cost Theory (TCT) (Ang & Straub, 1998; Williamson, 1985), Agency theory (Bahli & Rivert, 2003) and Coordination theory (Sabherwal, 2003) to name a few. We have chosen TCT over other theories in this research because a careful analysis of the two cases revealed that TCT was the basis for their outsourcing decision.
Transactional Cost Theory

A goal of the organizations is to reduce cost and to achieve cost efficiency (Aubert et al., 2001; Diromualdo & Gurbaxani, 1998). Keeping that in mind, Williamson developed the
Journal of Global Information Management, 14(3), 39-69, July-September 2006 41
Transaction Cost Theory (TCT). Transaction costs are related to the effort, time, and costs associated with searching, creating, negotiating, monitoring, and enforcing a service contract between buyers and suppliers. As per Williamson, there are two types of costs involved for any serviceproduction costs, and coordination cost. Production cost is the cost incurred to make the product or to provide the service. It includes the cost of labor, material, and capital. Coordination costs include monitoring, controlling and managing the work internally. If the job is handed over to external vendor, the coordination costs are called transaction costs. As per Williamson (1985) transaction cost theory depends on the following parameters: 1. Costs: There are two types of costs associated with any service or product:
vendor may be opportunistic. Hence, managing and monitoring the vendor becomes more difficult. But when the work is done internally coordination costs are low because the workers may be less opportunistic. Vendors also become opportunistic when there is competition in the market, and when there are a less number of vendors (Hirschheim & Lacity, 1993). When there are only few vendors in the market, organizations looking for such vendors cannot bargain much. Organization may not save much by outsourcing because the vendor may charge excess or may not perform as promised. All these lead to high transaction cost. 4. Uncertainty: Williamson outlines that uncertainty increases the transaction cost. Transaction cost goes up especially for asset-specific investments, under uncertain conditions (Hirschheim & Lacity, 1993). Thus, all these parameters should be weighed well to make a decision. A detailed analysis and trade-off study should be carried out before making an outsourcing decision.
Production cost Transaction cost

Williamson argues externally outsourcing of work results in lower production costs than doing it internally due to economies of scale. But in such a case the transaction cost is high because vendors need to be managed and monitored. In an in-house arrangement, production cost is high because it is difficult to achieve economies of scale. But at the same time, the transaction cost is low because of low coordination costs. 2. Asset specificity: It is defined as the degree of customization of the transaction. It could be site specificity, physical asset specificity, or human asset specificity. High asset specificity results in high transaction. Also the production cost goes up with high asset specificity because specific assets have limited utility in other markets (Hirschheim & Lacity, 1993). 3. Opportunism threat: When the work is given to an external vendor, coordination costs increase because quite possibly the
RISK DEFINED
Risk and risk management have been widely studied in various contexts, such as Finance, Economics, Insurance, Healthcare, Operations Research, and Engineering. Each discipline has its own way of analyzing and interpreting risks. This section elaborates the main issues of risks and presents our perspectives on issues related to risks. Risk as an undesirable event. According to Levine and Schneider (1997, p. 38), risk is events that, if they occur, represent a material threat to an entitys fortune. Using this approach, risk can be interpreted as occurrence of undesirable events. a. Risk as a probability function: In some disciplines, risk is defined as the probability of an event. It is the chance of serious adverse outcome (Bahli & Rivard, 2003).
Table 1. IT outsourcing risk exposure

Undesirable outcomes Unexpected transition and management costs (Cross, 1995; Earl, 1996; Nelson et al., 1996) Switching costs (including lock-in, and repatriation and transfer to another supplier) (OLeary, 1990) Costly contractual amendments (Earl, 1996) Disputes and litigation (Aubert et al., 1997; Lacity & Hirschheim, 1993) Service debasement (Lacity & Hirschheim, 1993) Factors leading to outcome Lack of experience and expertise to the client with the activity (Earl, 1996; Lacity et al., 1995) Lack of experience of the client with outsourcing (Earl, 1996) Uncertainty about the legal environment Asset specificity (Williamson, 1985) Small number of suppliers (Nam et al., 1996) Scope Interdependence of activities Uncertainty (Alchian & Demsetz, 1972; Barzel, 1982) Technological Discontinuity (Lacity et al., 1995) Task complexity Measurement problems (Alchian & Demsetz, 1972; Barzel, 1982) Lack of experience and expertise of the client and/or of the supplier with outsourcing contracts (Earl, 1996; Lacity et al., 1995) Uncertainty about the legal environment Poor cultural fit Interdependence of activities (Aubert et al., 1997; Langonis & Robertson, 1992) Lack of experience and expertise of the supplier with activity (Earl , 1996) Supplier size (Earl, 1996) Supplier financial stability (Earl, 1996) Measurement problems (Alchian & Demsetz, 1972; Barzel, 1982) Task Complexity Lack of experience and expertise of the client with contract management (Earl, 1996; Lacity et al., 1995) Measurement problems (Alchian & Demsetz, 1972; Barzel, 1982) Lack of experience and expertise of the supplier with activity (Earl , 1996) Scope Proximity of the core competencies (Hamel and Prahalad, 1990) Interdependence of activities Complexity of the activities Measurement problems (Alchian & Demsetz, 1972) Uncertainty (Barzel, 1982) Vendor fails to deliver as per contract (Bahli & Rivard, 2003) Delayed delivery due to unexpected change in the requirements Inability to control vendors technical quality (Sabherwal, 2003) Loss of control over vendors technical quality Security requirements practices (Adeleye et al., 2004) Intellectual property protection Privacy concerns Loss of control over disaster recovery (Dibbern & Goles, 2004) Loss of data and information Vendor becomes competitor Vendor takes advantages of contractual gap and charges additional amount for services (Wang, 2002) Long term contractual agreement (Dibbern & Goles, 2004) Few vendors leads to limited options (Bahli & Rivard, 2003) Uncertainty (Barzel, 1982; Wang, 2002; Adeleye et al., 2004) Uncertainty (Barzel, 1982; Dibbern & Goles, 2004)
Cost escalation (Lacity & Hirschheim, 1993; Lacity et al., 1995) Loss of organizational competencies (Earl, 1996; Lacity et al., 1995) Hidden service costs (Lacity & Hirschheim, 1993) Cost of delayed delivery / non-delivery Poor quality and reliability Damages due to security breach Loss due to disasters and recovery costs Loss due to vendors opportunism, including loss in future revenue Vendor lock-in Lack of trust Business uncertainties
b. Risk as a variance: In finance, risk is calculated as the variance of the distribution of outcomes. c. Risk as expected loss: In some disciplines such as casualty insurance, risk is interpreted as expected loss, which is the product of a loss function and a probability function (Bowers, Gerber, Hickman, Jones, & Nesbit, 1986).
RISK FACTORS
Many researchers have studied the risk factors that are common in IT outsourcing (Dhar et al., 2004; Earl, 1996; Jurison, 1995; Overby, 2003). We summarize their work on risk factors. We found some studies have addressed many risks factors associated with IT outsourcing. We decided to focus specifically on risk factors that are quite common, important and sensitive to global IT outsourcing, and later validate those using case studies. Of particular interest to us are the effects of risk factors like geographical location, political, cultural, quality standards, legal contracts and intellectual property, etc. The important risk factors for our study are summarized as shown in Table 2.
RESEARCH METHOD
In order to investigate our research problems, we did a thorough analysis of two large organizations who are involved in outsourcing. We have chosen these two organizations for various reasons. Both organizations are doing IT outsourcing globally for several years. In fact, outsourcing has become a part of their business strategy. Their experience in dealing with offshore vendors coupled with efficient project management expertise helped them coordinate business processes over globally distributed teams. In addition, they had already dealt with multi-cultural teams, diverse geographic and political environment, varying quality, and intellectual property standards in different countries to name a few. Hence we came to the conclusion that these two organizations
are good candidates for our research studies. We conducted in-depth interviews with key personnel who were carefully chosen based on their roles, responsibilities, and experience in dealing with outsourcing projects. Although we interviewed a handful of people, they actually represent a large division within their organizations and are actively involved in the outsourcing strategy for their respective organizations. Hence, the data we collected is reliable and truly represent the outsourcing process of their organizations. Our approach is based on positivist case research as proposed in the case research literature (Dube & Pare, 2003) where we focus on qualitative analysis of the results rather than rigorous quantitative and analytical methods. The data have been collected during the year 2003. In order to gain insightful information and perspectives on offshore outsourcing, respondents were given a detailed questionnaire to collect data and outsourcing related information. The participants were assured confidentiality of their personal and organizational information. We analyzed the data by summarizing the interviews and questionnaire filled by each participant from each case. After analyzing the responses from each participant, we again contacted them if necessary for further clarification and explanation. This process of analysis clarified lots of complex issues that they had to deal with and helped us gain further insights in outsourcing. These case studies also reflect the global nature of outsourcing as some of the projects were done offshore. Hence, we tried to capture the global perspective and practices of outsourcing when we developed the cases. In addition, we tried to understand the theoretical perspectives and arguments that each participant put forward in the decision making process. In order to provide deeper insight into our qualitative analysis, we also included some comments from participants. We also did a comparison of the objectives, key benefits, major risk factors, challenges, and best practices for the two cases and explained their implications from Transaction Cost Theory.
Table 2. Risk assessment factors

Risk assessment factor People Description Implications for Global Outsourcing Globally distributed teams with different skills and experience contribute to risk The level of functional, technological, and managerial knowledge contributes to risk in offshore outsourcing. Managerial knowledge is extremely important in a global context. Country specific cultures can add risk in global outsourcing. Language and work ethics vary from country to country and that may contribute to risk. Political instability is a major concern for global outsourcing as the government rules and regulations may have adverse effect on outsourcing. Accounting standards and variation in currency exchange rate contribute to risk. Quality standards vary from one country to another and contribute to risk. Performance measurement standards vary from country to country which contributes to risk. It is quite difficult to accurately determine scope, cost, and time estimates in global outsourcing. This contributes to risk. Different companies in foreign countries have different management and core competencies. Those contribute to risk. IP standards and law vary from one country to another and contribute to risk. Security is also a major concern in global outsourcing as protection and control of data pose a problem. Loss of control over disaster recovery contribute to risk.
Knowledge (Functional, Technological, Managerial)
Cultural
Political
The people risk emerges from the experience level, training, and human resource deployment policies of the vendor. In addition, redeployment of existing IT staff of the customer is also a risk assessment factor (Gilbert, 2001). Functional knowledge is the expertise, understanding, and experiences in the given functional area of the activity. Technological knowledge is associated with the expertise in the areas technology selection, analysis, architecture, design, development, integration, and maintenance support. Managerial knowledge is associated with the project management, risk management, resource management, developing and administrating management processes to carry out the activities. Cultural risks arise from the dominant culture prevalent with the vendor. The attitudes, communication skills, language, selection policies, performance motivation, team spirit, level of cohesiveness, autonomy, participatory decision making, work ethics, management style, customer-orientation, and related organizational behavioral factors that shape the culture. Political risks arise out of trading restrictions imposed by the sovereign, permissible ownership rights, nationalistic aspirations, type of government, and political and economical stability. Financial risks arise out of project accounting standards, cash flow, asset base, and currency stability. Software Capability Maturity Model (CMM) and ISO 9000 compliance are hallmarks of the quality standards. The ability to prepare test plans, and performance standards are seen favorably while assessing the risks due to quality standards. Performance measurement standards, benchmarking, and assurance of the performance are key elements in evaluating measurement risks. Ability to formulate the scope of the project, accurate cost and time estimation poses the risk.
Financial
Quality Standards
Measurement
Scope, Cost, and Time Estimates
Company Specific Risks
Company specific risks are largely due to outsourcers financial strength, area of core competence, management, relationships and alliances with other major organizations, and (potential) acquisitions and mergers activities. Intellectual property rights and their legal status in the country, brand protection, contractual bindings, and arbitration policies of the outsourcer constitute the risk. Access control, authentication, usage of secure protocols, encryption, and security policies adopted by the outsourcer constitute the risk. Ability to protect software code, and related data, level of replication, redundancy, and back-up and recovery policies are the main factors in deciding the risks due to disasters. Contract management involves formulating contracts, schedule planning, activity planning, sending and accepting deliveries, dispute resolution, and signing off. Inability to properly formulate or execute the contracts constitutes the risk.
Legal Contracts and Intellectual Property Security
Disaster Recovery
Contract Management
Contract management in global outsourcing is a risky business as monitoring the project activities become a challenge.
Table 2. Risk assessment factors (cont.)

Risk assessment factor Relationships & Alliances Description Implications for Global Outsourcing Inability to manage relationships and alliances constitutes the risk in global outsourcing. Vendors geographic location poses some risks. Communication infrastructure failure in offshore projects incurs significant loss. In global outsourcing with multivendor arrangements, coordination has to be efficient. Otherwise execution becomes a problem and contributes to risk.
Geographic Location
Multi-vendor Arrangements
Ability to formulate customer-vendor interface at executive and working levels, customer relationship management, and developing long term alliances offers synergy at organizational level. The country, province, and city may be in different time zones, which require working at odd hours for the customer or outsourcer. The communication infrastructure, distance, industrial peace and stability in the region, availability of supporting infrastructure, social-economical-political stability constitutes the risk. Synchronization of development efforts, data format exchange standardizations, complexities due to multi-layer architecture dependencies or non-contagious independent parts constitute the risk with ability to work with multi-vendor arrangements.
CASE STUDY FORMAT

In order to understand the objectives, benefits, risks, challenges and best practices of outsourcing, case studies were done for two Global 200 organizations. All the participants joining discussions were involved in outsourcing projects and helped developing the case studies. We conducted a focus group survey of information technology executives and managers from both organizations who were involved in outsourcing information technology projects. Survey participants answered a detailed questionnaire, followed by an interview. The participants were offered choice to mention any other objectives, benefits, best practices, risk assessment factors not listed in the questionnaire. The participants were assured confidentiality of their personal, organizational, and professional role information. The participant also shared their own experience in dealing with outsourcing projects and gave us valuable information about some of the best practices and challenges. Each case has the following four sections: 1. Background: The background section provides a brief description of the organization studied.
2. Introduction: The purpose of the introduction section is to introduce the individuals, from each organization, who participated in the study. These individuals were actively involved in outsourcing decisions of the firms. 3. Outsourcing decision: This section outlines the motivations, challenges, risks, and benefits associated with outsourcing decisions that each of these organizations faced. 4. Case conclusion: The purpose of case study conclusion is to summarize the interview results. It also highlights some deviations in the ratings by the participants of both the firms. Anonymity: Anonymity was deemed necessary to protect the identities of all the participants as well as the name of the organization. Both the organizations are referred to as FIRM1 and FIRM-2. As per the requests of the participants, the names of the outsourcing partners are also kept confidential.
CASE STUDY: FIRM-1

Background
FIRM-1 is a large multi-national organization with more than 20,000 employees and
Table 3. FIRM-1 participants

PARTICIPANTS Person 1 Person 2 JOB TITLE Senior Manager, IT E-Business Director Project Manager RESPONSIBILITY Responsible for identification of outsourcing opportunities Responsible for vendor selection, budget management, and monitoring of delivery of applications to requirements Vendor management, execution and delivery of the projects
Person 3
100 offices worldwide. It wants to be the leading provider of semiconductor-based solutions for consumer and communications applications and medical systems. It has annual revenue of approximately US$5-10 billion. It is one of the worlds top semiconductor suppliers, with manufacturing facilities and partners in diverse geographic areas. It has 14 manufacturing and assembly sites, 20 design centers, four system labs, and more than 100 offices. The manufacturing facilities are located in the USA, the Far East, and Europe serving customers worldwide. It also participates in its customers businessto-business supply chain extranet. This enables FIRM-1 to get a visibility of demand for the customers products, which in turn drives FIRM-1s production plan. FIRM-1 believes that delivering these services and applications depends on the right business model, the right partners, and the right technologies. FIRM-1 is dedicated to semiconductor and related technologies and is customer focused. FIRM-1 provides its partners with scalable, versatile technologies and a worldwide manufacturing base.
Outsourcing Decision
FIRM-1s management believes that if a business function is not its core competency, and better value is found externally, it is an ideal candidate for outsourcing. The core competency of FIRM-1 is semiconductor technology, and related R&D activities, which are kept inhouse. Also, it believes that the knowledge of knowing the customers needs and providing those solutions faster to the customers is another key to their success. Many ERP and supply chain functions like manufacturing, fabrication, packaging, warehousing, and shipping and handling are outsourced. For more than 10 years, FIRM-1 has outsourced some of its IT functions, which have changed over time. FIRM-1 is in the process of changing its strategy on IT outsourcing. It is a global organization and has looked at its IT outsourcing globally. It used to have a more distributed outsourcing strategy, but now it is more centralized and from a division standpoint. The top management outlined the IT outsourcing strategy first. It then evaluated the approach not just from the overall organizations standpoint but also from a division standpoint. They picked potential suppliers by type of service, or technology that was required and divided those suppliers by divisions. Divisions then ran pilot projects with these outsourcing vendors for years. The results from these pilot projects were collected, which helped FIRM-1 to decide major outsourcing partners commonly for all divisions. So it took FIRM-1 almost twelve months of activity to get organized for
Introduction
Three individuals from FIRM-1 were interviewed. Due to anonymity reasons, their names are not disclosed; they are referred to as Person 1, Person 2, and Person 3. The names of the outsourcing partners are also kept confidential.
IT outsourcing. But the strategy was always to keep a part of all these functions, especially controlling them, in-house. When asked about how IT outsourcing decision has helped to reduce the supply chain costs (namely, core costs, non-coordination costs and transactional costs), one manager replied: We are able to treat each application and its development as a variable cost and make very quick decisions based on ROI if we should even build it. Because the development costs are external, we incur no cost unless the initial business case justification (BCJ) process dictates that positive ROI will result. We always build contingency over-run costs into each project as a part of the BCJ process. FIRM-1 has primarily two IT outsourcing vendors and also some niche players. It has divided up the work between the two vendors in order to leverage their strengths. It describes the relationship with the vendors as strategic partners. When asked about their relationship with outsourcing partner, one of the managers told us: It is very positive. Our outsourcing partner has program management personnel in the U.S. and act as members of our team. They understand how our company works and as such, this helps with the software applications that they build for us. The outsourcing partners have their program management personnel on-site (i.e., personnel from the outsourcing partner are located within FIRM-1s campus) who understand the business processes of FIRM-1. And as such, this helps with the software applications and other services they provide to FIRM-1. It has a dedicated staff to manage the vendor relationship. In the past, FIRM-1 had some failures in terms of managing vendor relationships because of inadequate staffing and poor contractual agreement. After they realized their mistakes, well-defined contracts are framed and signed
by both the parties. Also weekly status meetings and monthly progress meetings are held to monitor the performance of the vendors. Based on the responses of the participants, an effort is made to analyze and understand the focus areas like objectives, benefits, risks, and challenges involved in the IT outsourcing decisions in FIRM-1. IT Outsourcing Practices: FIRM-1 keeps the project management functions in-house. It does not outsource project management responsibilities and complete project management control to its vendors. That was mainly a reaction of a bad experience from one of its earlier outsourced projects. However, there are multiple projects in which the roles and responsibilities are generally shared but control of responsibilities of projects itself is never delegated. User acceptance and timeline are always controlled inhouse, and never outsourced. There has been a participative association with vendors in formulating design specifications. FIRM-1 partners with some key vendors to develop design specifications. These vendors are more of key suppliers of software solutions and not pure IT outsourcing partners. It also evaluates their vendors from timeto-time and if there are any value-added services or products that the IT outsourcing vendors have to offer, and if that product or service is beneficial, FIRM-1 definitely takes a close look at it. Another strong driver for FIRM-1 to outsource some portions of its IT is to focus on its core competency. In order to rapidly deploy their breakthrough projects, it takes its best and brightest resources to put on these projects. Therefore, these resources cannot do more repetitive and stable jobs. FIRM-1 tries to free up these core competent people to focus on its core processes, and to improve its competitive advantage. FIRM-1 tries to outsource its non-critical jobs to vendors. With the help of pilot projects, FIRM-1 has identified couple of IT competencies, which it has in-house. The demand for these competencies is quite variable.
Figure 1. Histogram for objectives for IT outsourcing (FIRM-1)

10 8
Ratings (0-10) Ratings (0-10)
Person 1 6
Person 2
4
Person 3
2 0
ac C tiv us iti to es m er Sa ti s C fa om ct io pe n tit iv e ad va nt ag Q ua e lit y & re lia Pr bi of N l it es ew y si on te ch al no se lo rv gy ice as s an ad va nt ag e Le C ga ap cy i ta sy le st xp em en s di tu re St av at eoi da of -th nc ee ar tt ec hn ol og y go al s St ra te gi c er C Lo w C os t s
or e
Objectives
(Alw ays = 10, Very often = 8, Often = 6, Sometimes = 4, Rarely = 2, Never = 0)
So instead of maintaining it in-house, FIRM-1 decided to acquire those competencies through outsourcing partners. Moreover, these jobs are non-critical and are not related to FIRM-1s core business, its business creation initiatives or its ERP and supply chain management initiatives. Objectives: For FIRM-1, cost reduction, focus on core activities, and professional services are the main objectives for outsourcing its IT to external vendor. Building competitive advantage, quality and reliability, access to state-of-the-art technology, and customer satisfaction are also some important objectives for IT outsourcing in FIRM-1. Knowledge about consumers needs and providing solutions for those needs are very important to FIRM-1. So participants said that increased flexibility to meet the changing demands and market environment, and reduced time to market are other key objectives for outsourcing IT activities to their vendors. Based on the participants responses a histogram is plotted, which is shown in Figure 1. While two respondents think that new technology can be an advantage, one respondent
thinks that unproven/untested new technology can pose a risk to outsourcing and hence disagrees with others. Benefits: Participants from FIRM-1 emphasized that the main benefits achieved by outsourcing IT are reduction in costs, and optimal allocation and utilization of internal resources. FIRM-1 outsourced its IT function to low-cost and competent vendors in different countries, thus saving money. By outsourcing some functions of its IT, the management could identify and allocate its key resources, and utilize them efficiently to build a competitive advantage. Reduced time to market/reduced delays, improved flexibility to respond to the changing demand and business environment, predictable outcome, and higher degree of success are some other benefits that FIRM-1 realized by IT outsourcing projects. Quality and reliability was also one of the benefits achieved by FIRM-1. Each of the benefits was rated on a scale of 0-10. Based on the participants responses a histogram is plotted, which is shown in Figure 2.
Figure 2. Histogram for benefits of IT outsourcing (FIRM-1)

12 Ratings (0-10) 10
Ratings (0-10)
8 6 4 2 0
ib Pr i li L ty ed ow er ic ta co bl s e o u ts H R ig tc ed he om uc rd e eg ed de re la e ys of su cc Lo es w er s Q ua fa ilu lit y re & Be s L re tte o w lia r m er bi lit an risk y ag pr of em R en iles O ed pt tc uc im on ed Id al tro en co re l tif so m y pl ur bu ex ce si ity ne al lo ss ca op tio po n rtu ni tie s Fl ex hn ol og y
Person 1 Person 2 Person 3
St a
te
-o f
- th e-
ar tt
ec
Benefits
(Alwa ys = 1 0, Very often = 8 , O ften = 6, So m etim es = 4, R arely = 2, Never = 0 )
Risk Factors: Knowledge being the core competency for FIRM-1, is the main risk factor for the firm. A careful planning of what knowledge to keep in-house and what to outsource is required. FIRM-1 wants to protect the core knowledge because it is afraid that outsourcing of core knowledge will make them very much dependant on the vendors. This will make the vendors in an advantageous position in the outsourcing deal. Formulating scope and deciding the budget and schedule estimates is another critical risk factor. In the past FIRM-1 missed some schedule and the cost exceeded the budget. Also the vendor did not provide the optimal service, because the scope was not clear. FIRM1 learnt from its failures. And because ultimately it is FIRM-1 who is answerable to the consumers, a clear understanding of the requirements, finalizing the scope, and agreement of both the parties are very important to FIRM-1 along with budget and schedule. Apart from these, quality standards, financial stability of the vendor, its disaster recovery plans, and security are some of the important risk factors to FIRM-1. When asked what risks their customers and suppliers may have faced from their deci-
sion of outsourcing, one of the managers told us: We have had very difficult and costly outsourcing. We outsourced not only applications development and management of applications but also outsourced most of the staff. We outsourced too much of our core knowledge. And also under estimated what it takes to manage vendor relationship at that price, and we didnt manage it well. As a result it became very advantageous to suppliers and disadvantages to our customers. Very high cost and high stakes are involved here. People, contract management, and performance measurement are some other important risk factors for FIRM-1. Legal contract and intellectual property protection is another risk factor for FIRM-1. Though FIRM-1 has a very efficient legal department to take care of the penalties and other legal issues of the contract, it believes that brand protection and intellectual property rights protection are key risk factors. Figure 3 shows a histogram based on the responses of FIRM-1 participants.
Figure 3. Histogram for risk factors of IT outsourcing IT (FIRM-1)
12 10 8 6 4 2 0
Pe Kn ople ow le dg Cu e ltu ra l Po liti ca Q l ua Fin lity an Sc St cia an l op da M e, rd co eas s Co st, a ure nd me m pa n ny sc h t ed sp Le ul ec e ga i l a fic r isk nd s IP iss ue Di s S s Co as t ecu er rit nt y R Re rac t M eco la ve tio an ns ag r y hi em p G & en eo M Al t gr ul lia tiap nc ve hi es nd c Lo or c ar ra atio ng n em en ts
Ratings (0 - 10) Ratings (0-10)
Risk Factor
(Always = 10, Very Often = 8, Often = 6, Sometimes = 4, Rarely = 2, Never = 0)
Challenges: The main challenges for FIRM-1 in outsourcing IT projects are: (a) deciding what jobs to keep in-house and what to outsource, (b) ongoing vendor relationship management, and (c) setting up a governance model. Selecting the right vendor is very challenging for FIRM-1. But since it has a cross divisional strategy, it has the option of partnering with alternative vendors. And that makes the ongoing management of vendor relationship as one of the biggest challenges. Another challenge for FIRM-1 is the continuous commitment to the spirit of partnership. Cultural barriers and designing a contract do not pose a challenge for FIRM-1. Since FIRM-1 has a global presence, and has operations in many countries world wide, one of its strategies is to provide training, from time-totime, to all its employees to deal with various cultures. Also designing a contract, especially the legal issues are well taken care by its legal department. Figure 4 shows a histogram based on the responses of FIRM-1 participants.
Best Practices: One of top best practices for FIRM-1 is stakeholders buy-in. This has helped FIRM-1 to deal with internal resistance and to carry out change management effectively. It also holds frequent informal meetings to review the progress of the projects. FIRM-1 has the policy of First Things First. It prioritizes the action items as per their priority. Other practices like empowerment and formation of steering committees and joint review boards are also important in FIRM-1s opinion and it practices them on a regular basis. Based on the responses of FIRM-1 participants, a histogram, as shown in Figure 5, was plotted.
Case Conclusion
By outsourcing some portion of IT, FIRM1 is able to efficiently manage its information systems. Some other measures that FIRM-1 has taken to tightly integrate its supply chain management with information systems are partnering with multiple vendors, penalties for non-performance, and well defined and dedicated management roles.
Figure 4. Histogram for challenges of IT outsourcing (FIRM-1)

Ratings (0-3) 3) Ratings (0 4 3 2 1 0
so ur ce ce s n n ag em en t ra ct De s Se le c lb ar go ve r ou t m an om m itm en t rie r tio ig na n
nd or
ul tu ra
to
on t
W ha t
tu p
Se
Challenges
(Critical = 3, Moderate = 2, Can deal with = 1, Not important / NA = 0)
Figure 5. Histogram for best practices in IT outsourcing (FIRM-1)

4 3
Ratings (0-3)
Ratings (0 - 3)
Ve
nd or
Ve
2 1 0
ns ion ps tity gers tems view tees y-in tions t l at nshi icatio l E n u nI Re ca na mi ica a rB E s el atio m un peci Ma A ctio sues Com ol de m un t/ al m h S s en R m e Co sh a dition ritiz gic I ering take . Co rm eer e we io P rmal bli S orp Ad Ste Pr Strat po ta o C Em I nf Es
Best Practices
(High Importance = 3, Medium importance = 2, Low importance = 1, Not important = 0)
The management has explained the firms strategy to all its employees, and it has tied this strategy to the current business environment. The employees are trained in newer technology, and from time-to-time they are also sent to such educational seminars and training programs. From an organizational standpoint, most of the organizations go in search of low-cost and competent services. And thats what FIRM1 has been doing. FIRM-1 believes that there will be 50% cost reduction if all but management and con-
trol are outsourced; 25% if only part of the activity is outsourced. From the analysis, it is observed that cost reduction along with competent services is the main driving factor behind IT outsourcing decision. Costs are mainly related to development of a service or an IT application. By lowering costs, FIRM-1 was able to save money in a stringent budget situation, which is a driving factor for outsourcing. Focus on core activities; professional services, and reduced time to market are some other motivations and benefits.
Cost and loss of critical skills are the most important risks associated with IT outsourcing decision for FIRM-1. Deciding what jobs to outsource, ongoing vendor relationship management, and continuous commitment to the spirit of partnership pose challenges for FIRM1 in making IT outsourcing decisions. Apart from these, some other observations are noted in each of the focus areas. The participants said that it is a good strategy to outsource legacy systems, and that has been the trend for most of the organizations. FIRM1 did outsource legacy systems in the past but are not doing it currently as it experienced some unsatisfactory outcomes in the past. So currently it is in the process of removing a bunch of legacy systems and do not want to outsource them at the end of their life cycle. FIRM-1 believes that letting an external vendor to replace the internal staff or anything in-house is definitely very complex. In the past, it had some failures. It had to continuously coordinate and monitor the outsourcing partner, which was not simple. So for FIRM-1 reduced complexity is not a benefit at all. In the risk category, Geographical location is not a big risk factor for FIRM-1 to outsource their projects. Currently the trend is to move to Asia-Pacific region, especially India, for outsourcing jobs. This is mainly because low cost and competent service. But participants were of the opinion that in another five-seven years China may also become one of the choices; it may also offer similar services. So the trend would again change. Hence, FIRM-1 does not have any preference for any geographical location. It is also worth mentioning that FIRM-1 does not worry about contractual amendments costs as it is well taken care of by its very efficient legal department. It has never experienced loss due to outsourcers opportunism because of the type of business it is in. It believes such risks are mostly applicable to smaller organizations, startups, and software organizations. Since FIRM-1 does not market its software, so does not have this risk. They did face the risk of lack of trust but as soon as they realized that they got rid of that outsourcing vendor. The participants
stated if the partnering relationship is not winwin or satisfactory to both the parties, FIRM1 does not plan to continue with the relationship. Hence, FIRM-1 evaluates its vendors quite meticulously because primarily if there is no trust between them, FIRM-1 does not do business with those vendors. To summarize, high competency and low cost, non-core business functions are the key drivers of the outsourcing deals. Applying Transaction Cost Theory in our analysis, it is apparent that reducing transaction costs played an important role in the decision making process. Also, threat from opportunism and uncertainty is a risk for outsourcing.
CASE STUDY: FIRM-2

Background
FIRM-2 is a major, multi-national networking organization with annual revenues over US$20 billion. It provides the broadest line of networking solutions to most of the corporate, education, and government centers. Their hardware, software, and service offerings are used to create Internet solutions that allow individuals and enterprises to increase productivity, improve customer satisfaction, and strengthen competitive advantage. It conducts most of its business over the Internet, and is recognized as the leader in this area. FIRM-2 outsource much of its production. Customers visit the Web site to configure, price, route and place orders directly to FIRM2. More than half of the orders are directly transmitted to the suppliers. Once the product is manufactured, it is shipped directly to the customer. As a result the order-to delivery cycle time is reduced from approximately eight weeks to less than three weeks. Moreover, this helped FIRM-2 and its suppliers to manufacture based on actual orders and not on projection, lowering inventory costs for both FIRM-2 and its suppliers, while making customers happy with the speed of fulfillment of the orders. Additionally, 85% of customer queries are handled through FIRM-2s Web site. It has established a business-to-business supply chain
Table 4. FIRM-2 participants

PARTICIPANTS
Person 4
JOB TITLE / ROLE

Lower Management
RESPONSIBILITY
Manage day-to-day IT activities with the regression facility at the outsourcing partners facility in India; ensure that process is followed and reset / redesign process, if needed. Responsible for managing team of IT professionals Part of the group responsible for setting up the relationship with offshore outsourcing organizations Responsible for outsourcing Order-to-cash processes and systems, and for making outsourcing decisions. Responsible for defining business requirements, and prioritizing the outsourced tasks.
Person 5 Person 6
IT Manager (Middle Management) Manager
Person 7
Senior Manager
Person 8
Senior Manager
extranet for its manufacturers and suppliers. This online exchange is used to purchase supplies, make reports, and submit forecast and inventory information. With the help of this common platform, it has been possible for both FIRM-2 and its suppliers to reduce inventories by 45%. FIRM-2 uses Internet extensively in every department of the organization. It also makes extensive use of intranet for its employees. Its employees use it to enroll in organizational benefits, and file expenses. More than 50% of technical training is provided online, saving the organization employee time and travel money while enabling employees to receive more training. Even peer reviews, collection of market information, and monitoring sales are all done online. It has also established a business-to-business supply chain extranet for its manufacturing partners and suppliers. With their Internet-based financial applications, they are able to continuously monitor their sales data and are able to close their books within a short period of time.
portions of IT such as design, development, bug fixes, enhancements, and customer support. FIRM-2 first identified those activities, which could be sent outside to finish faster. The core activities were kept in-house and the context activities were given out. Overall for the FIRM-2, there is a central program office, which manages the relationship with the vendors and all the rates are negotiated centrally. FIRM-2 outsource its IT activities with five outsourcing vendors. It describes its relation with the vendors as very collaborative, focused on the success of business client. During the outsourcing operations, the IT managers met with Offshore Development Center (ODC) managers on regular basis. On site account managers ensure that critical issues are handled appropriately and provide oversight of entire operation.
Outsourcing Decision
FIRM-2 is recognized as an innovator in conducting business over the Internet. It says that partnership is one of the pillars for the growth of the organization and such strategic partnerships have helped and contributed significantly to the customers, partners and FIRM-2s bottom line. These strategic partnerships help FIRM-2 to focus on its core activities, and have helped FIRM-2 to reduce time to market. With these strategic alliances, it is pos-
Introduction
Five individuals, from various divisions at FIRM-2, were interviewed. Table 4 shows their role and responsibilities. FIRM-2 has outsourced its IT functions for the last five years. It has outsourced only
sible for FIRM-2 to render quality services, and solutions to its customers. FIRM-2 tries to strike a partnership with such organizations that are leaders in their respective markets. FIRM-2 outsources many supply chain activities like manufacturing, product design, product development, engineering, and shipping and handling activities to various partners. Since Internet plays a significant role in optimizing the supply chain of FIRM-2, information technology plays a very important role in the supply chain of FIRM-2. With the growth in information technology, enabled by the Internet, it is possible for all the partners in the chain to work together more closely and effectively than before, making the whole supply chain more effective. Based on the responses of the participants, an effort is made to analyze and understand the focus areas of IT outsourcing decisions in FIRM-2. IT Outsourcing Practices: FIRM-2 keeps complete project management control within, when the vendor supplies project expertise, technical knowledge, and manpower. FIRM-2 also encourages participative association of vendor in formulating design specifications. But FIRM-2 does not enjoy any access to attractive financing options from the vendor. Some other IT outsourcing practices that are followed by FIRM-2 are as follows: a. Management of outsourcing vendors has become a core competency. So a centrally managed ODC Project Management Office (PMO) is established that ensures common standards, governance policies, and operating procedures across all vendors. b. Quarterly reviews are conducted to evaluate performance and to optimize business processes. By optimizing the business processes, FIRM-2 is able to optimize its overall supply chain. It also reviews areas of improvements, changes, and defects periodically.
When asked about how they manage the relationship with their vendors, one manager told us: IT managers meet with Offshore Development Center (ODC) managers on a regular basis. On site account managers ensure that critical issues are handled appropriately and provide oversight of entire operation. Objectives: For FIRM-2, cost reduction, and focus on core activities are the main objectives for outsourcing its IT to external vendors. Building competitive advantage, organizations strategic goals, quality and reliability, professional services, and customer satisfaction are also some important objectives for IT outsourcing in FIRM-2. Apart from the options mentioned in the questionnaire, maximum coverage for support related activities (context activities), decreased IT costs for non-critical projects, tap into wider talent pool, and reduced time to market are some other primary objectives for FIRM-2 to outsource its IT. Based on the responses from the participants of FIRM-2, a histogram is plotted, which is shown in Figure 6. Benefits: The major benefits for FIRM-2, in outsourcing its IT, are lower costs, optimal allocation and utilization of internal resources, and flexibility to respond quickly to changing demands and business environments. Predictable outcome, higher degree of success, and higher quality and reliability are some other benefits that FIRM-2 realized by IT outsourcing projects. Based on the FIRM-2 participants responses, a histogram is plotted, which is shown in Figure 7. Risk Factors: Most important risk factors for FIRM-2 are: a. Knowledge/expertise b. Quality standards
Figure 6. Histogram for objectives for IT outsourcing (FIRM-2)

12 10 8 6 4 2 0
g ate Str g ic e e e s s n ls ty gy sts ies ce ti o ntag tag stem danc oa bili olo r vi Co ctivit isfac i an a hn sy elia se vo er dv t a dv tec & r onal an a cy Sa ve a ow re ea t y L i ga Co mer ti itur - ar alit ss as Le eti nd f-the Qu rofe logy sto pe mp o P Cu Co l ex tateno h a S pit ec Ca wt Ne
Ratings (0 - 10)
Person 1 Person 2 Person 3 Person 4 Person 5
Ratings (0-10)
Objectives
c. Scope, cost and time estimates d. Measurement of performance Participants from FIRM-2 believe that scope/requirements of the outsourced projects must be finalized, properly documented and stick to the specifications. Otherwise, if the requirements change continuously it would be difficult for both FIRM-2 and its vendors to do the job. This would then result in budget over run, and schedule slip, along with performance. A multi-vendor arrangement is another risk factor as it involves more coordination efforts and demands a closely-knit governance model. People are another risk factor faced by FIRM-2. Cultural factors added to this risk. We also noticed that FIRM-2 takes a qualitative approach to measure the risks. When asked about how risk is measured, one manager told us: We assess the loss of business or lack of customer satisfaction with late delivery of projects. We assess this quarterly via surveys and business-balanced scorecards. We also assess risks associated with projects coming in over budget due to lack of clarity in requirements and scope creep.
When asked what risks their customers and suppliers may have faced from their decision of outsourcing, one of the managers commented: Heavily outsourced operations where vendors have significant knowledge of business process have significant risk to customers. If customers are directly dealing with outsourced vendors without having local IT counterparts in the loop, this will result into IT losing its core competence. Based on the responses from the participants of FIRM-2, a histogram is plotted, which is shown in Figure 8. Challenges: All the challenges asked in the questionnaire are important for FIRM-2. But cultural barriers and selecting the right vendor are the most critical challenges for FIRM-2 in outsourcing IT projects. Deciding what jobs to keep in-house and what to outsource, setting up a governance model, ongoing vendor relationship management, and continuous commitment to the spirit of partnership are also some important challenges for FIRM-2. Designing a
Figure 7. Histogram for benefits of IT outsourcing (FIRM-2)

12 10 8 6 4 2 0
th ec rt t e -a e s s ty ity gy rol exi ty t io n itie s ts ys ss a tu n l ib ili r co s tcom de la ucce a ilure li abil rof ile cont o lo u hn Fl ex r f mp lloc re sk p en t we b le o u ced of s we r co ce a oppo nd ri m Lo ta r d ed ee Lo li ty a we r age ic u c eso u ness Re degr Lo man Red l r ua i red r P Q us a r he yb tte tim Hig Be Op ent if Id
Ratings (0 - 10)
Ratings (0-10)
te Sta
-of
Benefits
Figure 8. Histogram for risk assessment factors in IT outsourcing (FIRM-2)

12 10 8 6 4 2 0
Ratings(0-10)- 10) Ratings (0
le r y ent nt nts al ks ds es es ty le al ge ial ion op le d u ltur litic an c dar e me hedu c r is iss u cu ri co ve em ianc c at eme Pe ow C Po Fin Sta n s ur sc ecifi Se r R e anag All ic Lo an g IP a nd r d & Kn p ty s te c t M h ip rap h r ar Me t, a ny s al an a li s sa s g do Qu Di ntra tio n c o mp a Le g eo ve n G tie, Co Co e la l op R Mu Sc
Risk Factor
(Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2, Never = 0)
contract was well taken care by the PMO of FIRM-2. Based on the responses from the participants of FIRM-2, a histogram is plotted, which is shown in Figure 9.
Best Practices: 1. Empowerment and escalation 2. Frequent informal communications 3. Key strategic issues review meetings are the most important best practices in FIRM-2
Figure 9. Histogram for challenges of IT outsourcing (FIRM-2)

4 Ratings (0 - 3) 3
Ratings (0-3)
2 1 0
t to ha W ce ur tso ou o nd Ve e le rS on cti Cu lb ra ltu ie arr rs t e t en ign nc en es na em tm er tD ag mi n ov m ac ma Co ntr pg or tu Co nd Se Ve
Challenges
(Critical = 3, Moderate = 2, Can deal with = 1, Not important / NA = 0)
Figure 10. Histogram for best practices in IT outsourcing (FIRM-2)
Ratings (0 - 3)
4
Ratings (0-3)
3 2 1 0 Person 1 Person 2 Person 3 Person 4 Person 5
s ips ions tit y ers ie w ms ees tio n y -in io n a la t io nsh nicat ial En anag on Ite s R ev mmitt er Bu nicat u u e o Es c ld la ec ct i lM nt / er R e Comm a S p it iona ize A ic I ssu ring C keh o C omm e e it g d Pe rmal blis h Sta o rp. e rm Ad Prior tr at e Ste a C pow S I nf o Est Em
Best Practices
(High importance = 3, Medium importance = 2, Low importance = 1, Not important = 0)
Peer relationships and stakeholder buyin are also important practices that FIRM-2 follows. Prioritizing the action items is also another best practice followed there. Another practice that is followed in FIRM-2 is the creation of PMO. A central program management office is created to manage
the outsourcing relationships. However, establishing a special entity, like joint review board, corporate media communications are not very popular practices in FIRM-2. Figure 10 shows the histogram for the best practices followed in FIRM-2.
Case Conclusion
By outsourcing, FIRM-2 is able to better manage the available resources to focus on core activities. Some other measures that FIRM-2 has taken to ensure its supply chain success are the following:
Establish standards, governance, and guide

lines for working with offshore outsource vendors. Manage projects locally, but distribute the work globally. Measure the performance and optimize the process.
The management is making all efforts to educate the employees in the concept of core and support activities. Building the one team atmosphere is very helpful in this area. Both the onsite and offshore teams work collaboratively as a single team to help achieve the overall success. Also providing training, job rotation, and new career opportunities are some important steps towards dealing with the backlash against outsourcing. FIRM-2 did not disclose its actual costs savings. However, an approximate estimate projected by the participants of FIRM-2 is slightly more than 50% cost savings on a per person basis. From the analysis, it is observed that cost reduction is one of the main motivation behind IT outsourcing decision in FIRM-2. Focus on core activities, and professional services are some other motivations and benefits. Cost and loss of critical skills are the most important risks associated with IT outsourcing decision for FIRM-2. Cultural barriers and selecting the right vendors are most challenging for FIRM-2 in making the IT outsourcing decisions. Apart from these, some observations are noted in each of the focus areas, which are described here. Some participants rated major capital expenditure avoidance and access to stateof-the-art technology as very low. They reasoned that IT outsourcing had actually caused their divisions a major capital expenditure,
mostly in capital equipments, to set up their offshore development centers. Moreover, they were of the opinion that they certainly do not go offshore to access state-of-the-art technology. The outsourcing partners are providing FIRM-2 skilled resources, or state-of-the-art programmers, and not state-of-the-art technology. One of the persons had the opinion that IT outsourcing did not have much impact on organizations strategic goals, and competitive advantage, and his team did not have anything to do with reducing the burden of legacy systems. As far as benefits are concerned, access to state-of-the-art technology is rated very low. This is because by outsourcing IT, FIRM-2 gets access to state-of-the-art programmers/resources and that its partners are not providing technology. Better ability to identify possible business opportunities and threats so as to evaluate and manage them in the strategic perspective is not an important factor for FIRM-2. It believes that going offshore does not decrease managements attention to the outsourced tasks. It still takes a lot of management overhead to run those outsourced tasks right. Though financial, political factors and geographical locations are some other risk factors, FIRM-2 deals with five vendors, which are well established, competent and financially stable. Also these vendors are located in countries where the political situation is quite stable. So those risk factors are not very much alarming. FIRM-2 has rarely faced risks like contractual amendment costs, disputes and litigation costs, vendor sub-contracting the job, and loss due to outsourcers opportunism. All these are well taken care of and explicitly mentioned in the contract. Penalties for such unhealthy situations and non-performance are also clearly spelt out in the contract. This saves FIRM-2 from these risks but makes the job of designing a contract very challenging. Applying Transaction Cost Theory in our analysis, it is apparent that reducing transaction costs played an important role in the decision making process. Also, threat from opportunism and uncertainty is a risk for outsourcing.
ANALYSIS OF THE CASES

After conducting the case analyses, it was clear that transactional cost theory was the theoretical foundation behind IT outsourcing decisions for both the firms. As proposed by Williamson in the Transaction Cost Theory that outsourcing of work results in lower production or service costs than doing it internally due to economies of scale. The same argument is also true in the two cases that we analyzed. Another interesting point noticed from the analysis is that FIRM-1 is one of the suppliers for FIRM-2. Thus they both have common goals of making their supply chain successful, and maximizing the overall profitability. From the focused group interviews of participants from both the firms, the following results and conclusions for each key area were drawn: Objectives: It is observed that the top three important reasons for IT outsourcing, in both the firms, are lower costs, focus on core activities, and professional services. Almost 75% respondents were of the opinion that lower costs, professional services, quality, and reliability are most often the motivations for IT outsourcing projects. Sixty-three percent of the respondents said that focus on core activities is another motivation for IT outsourcing. Benefits: It is clear that for both the firms, the main benefit of IT outsourcing is reduction in costs. Also management is able to allocate and utilize the resources optimally. Flexibility to respond to changing demands is the third ranked benefits, which both the firms achieved by IT outsourcing. Almost 63% respondents said that reduction in costs is always the benefit of IT outsourcing. Seventy-five percent of participants said that predictable outcome is another key benefit of IT outsourcing. Sixtythree percent respondents said that higher degree of success and optimal allocation and utilization of resources are most often achieved benefits of IT outsourcing. Fifty percent participants said that increased flexibility is also a key benefit of IT outsourcing.
Risk Factors: The main risk factor observed for both the firms is knowledge. Both the organizations felt that knowledge transfer needs to be carried out meticulously. The organizations as well as their outsourcing partners should follow proper methodology for knowledge transfer and information sharing. Secondly, both the firms felt that there should be project scope, cost, and time estimates for such outsourcing projects. It is observed that 75% respondents said that knowledge is the most critical and always a risk factor in IT outsourcing. Fifty percent of the participants said that scope, cost and time estimates is another critical risk factor. Sixty-three percent of participants said that monitoring and measurement of performance is a most often risk factor. More than 50% of the participants were of the opinion that quality standards are another risk factor in IT outsourcing. Challenges: The biggest challenge for both the firms are selecting the right vendor and deciding what to outsource and what to keep in-house. Since both the firms have a good legal department and a program management office, they have not faced the challenge of designing a contract very often. Setting up a governance model, ongoing management of the vendor relationship, and continuous commitment to the spirit of partnership are some very important challenges for both the firms. It is clear that 50% of the participants said that selecting the right vendor, and deciding what to outsource and what to keep in-house are the most critical challenges while 63% said that continuous commitment to the spirit of partnership is a moderate challenge faced in IT outsourcing projects. Fifty percent of the participants said that setting up a governance model, ongoing management of the vendor, and designing a contract were some of the challenges. Other factors contributing to risk: Apart from the risk factors described earlier, there are other factors that also directly or indirectly contribute to risks in outsourcing. Transition and
Table 5. Summary of the case studies

Category FIRM-1 FIRM-2 Implications from Transaction Cost Theory Reduce overall transaction cost
Objectives
Cost reduction; focus on core activities, professional services, Building competitive advantage, quality and reliability, access to state-of-the-art technology, and higher customer satisfaction.
Key Benefits
Important Risk Factors
Challenges
Cost reduction, optimal allocation and utilization of internal resources. Reduced time to market, improved flexibility to respond to the changing demand and business environment, predictable outcome, and higher degree of success, Higher quality and reliability. Knowledge, People, contract management, and performance measurement, Formulating scope and deciding the budget and schedule estimates. Deciding what jobs to keep inhouse and what to outsource, ongoing vendor relation management, setting up a governance model, selecting the right outsourcing partner. Stakeholders buy-in, frequent informal meetings, prioritizes the action items as per their importance.
Cost reduction, focus on core activities building competitive advantage to enable organizations strategic goals, quality and reliability, professional services, and higher customer satisfaction, maximum coverage for support related activities (context activities), decreased IT costs for non-critical projects, tap into wider talent pool, and reduced time to market Lower costs, optimal allocation and utilization of internal resources, and flexibility to respond quickly to changing demands and business environments. Predictable outcome, higher degree of success, and higher quality and reliability.
Reduce overall transaction cost
Best Practices
Knowledge/expertise, quality standards, scope, cost and time estimates, measurement of performance, multi-vendor arrangements, cross culture. Cultural barriers, selecting the right vendor, deciding what jobs to keep in-house and what to outsource, setting up a governance model, ongoing vendor management, and continuous commitment to the spirit of partnership. Empowerment and escalation, frequent informal communications, key strategic issues review meetings, peer relationships and stakeholder buy-in, prioritizing the action items, creation of PMO.
Threat from opportunism and uncertainty
Threat from opportunism
Reduce overall transaction cost
management cost is one of the top priority risk, followed by cost escalation risk. There are also some hidden costs involved in outsourcing like cost of retention/lay-offs, and cost of ramping up. In addition, loss of critical skills, switching costs, and poor quality and reliability are the other very important risks involved in outsourcing. From the interviews, we found out that 63% of the respondents said that most critical risks are unexpected transition and management costs, and other hidden costs. Almost
50% said that cost escalation, and poor quality and reliability are another critical or moderate risk. 75% said that switching costs is another moderate risks. Best Practices: Empowerment and escalation was the top priority for the two firms. Also both the organizations hold informal communication sessions frequently to update the management and the employees about the outsourced projects. Stakeholder buy-in was
Table 6. Summary of risk reduction practices

Risk Reduction Practices in Person Person Person Person Person Person Person Person IT Outsourcing 1 2 3 4 5 6 7 8 Round the clock project N/A 6 4 4 4 6 6 4
management over globally distributed teams Complete project management control with the vendor, over project initiation, planning, and execution for the outsourced project Complete project management control with the organization, where the vendor supplies project expert technical knowledge, manpower, and other intellectual resources Participative association of vendor in formulating design specifications Complete outsourcing of projects, except design specifications, to vendor located at some offshore locations, within the country and out side Access to value added products from the vendor Access to attractive financing options for the outsourcing deal from the vendor
4 6
4 6
4 6
6 4
4 6
4 4
4 4
4 4
4 6
4 4
4 4
4
N/A
6 6
6 6
4 6
4 6
the next important practice that both the firms followed. It is observed that more that 87% of respondents said that Empowerment and escalation, and frequent informal communications are the most important practices followed in their firms. Seventy-five percent said that stakeholder buy-in is another best practice followed in their organization. Apart from the results observed in each key area, the following observations are noticed for both the firms. Both the firms felt that there are other risks involved in outsourcing. Transition and management cost is the top priority risk, followed by cost escalation risk. Hidden cost, like cost of retention/lay-offs, and cost of ramping up, is the third import risk. Loss of critical skills, switching costs, and poor quality and reliability are the other very important risks involved
in outsourcing. It is seen that 63% of the respondents said that most critical risks are unexpected transition and management costs, and other hidden costs. Almost 50% said that cost escalation, and poor quality and reliability are another critical or moderate risk. Seventy-five percent said that switching costs is another moderate risks. For risk reduction, there are several methods that both the organizations do follow. We combined all the responses from all the persons interviewed from both the organizations and they are listed in Table 6. Let us also mention here that the first three responses (Person 1, Person 2, and Person 3) are from FIRM-1 and that rest of the responses (Person 4 through Person 8) are from FIRM-2.
CONCLUSION
In many large organizations, IT outsourcing is being considered as a viable cost reduction alternative. Cost reduction is the main driving factor for outsourcing their IT activities. Other than cost reduction, short-term requirement of highly skilled resources is another objective for the firms to outsource IT. The top management of both the firms is convinced of the benefits of outsourcing and supports the outsourcing decisions. More than anything, support of the top management is the key towards the success of IT outsourcing for both firms. There are a lot of things to be learned from these two cases. First, risks in outsourcing can be managed through proper contractual agreement and quality standards. This has been also described in the work of McFarlan and others (McFarlan & Nolan, 1995). In addition, continuous monitoring of projects can also reduce risks. Both the organizations have risk contingency plans. Broadly, risk is measured on performance metrics over time. Risk factors are weighed to reflect financial implications as well. The metrics to measure the effectiveness of an outsourcing arrangement are checked frequently, and are brought up during the quarterly review meetings. If a risk is time bound, risk mitigation plan is created and executed. If there are repeated and multiple failures to meet the Service Level Agreements (SLA) goals, then alternative vendors may be identified for a part or rest of the work. If the business processes and the QA methodology are very robust and well thought of, risks will be reduced in global outsourcing Other than effective project management, and participative association of vendors in formulating design specifications, it is very important to have planned and periodic reviews to improve the communication with the team members. The concept of one-team should be strengthened. Also quality management programs and metrics should be followed. It is again a good practice to have an out-clause and penalty for not meeting the SLAs.
Both the organizations described their relation with the IT outsourcing partners as very collaborative and healthy. The outsourcing relationship is managed using a combination of performance metrics, periodic discussions regarding timely delivery, budget and schedule. Other than this, selecting the right outsourcing partner is an important factor in a successful outsourcing project. Another interesting observation is that the organization and the outsourcing vendor are forming partnerships, which is based on mutual trust and long term commitment. This trend has also been observed in the work of Lee and other researchers (Lee et al., 2003). In addition, there are many risks involved in global IT outsourcing. We identified the key risk factors that commonly arise in global IT outsourcing. This study will help the management to identify the risk factors and take necessary steps to reduce them.
REFERENCES
Adeleye, B. C., Annansingh, F., Nunes, & M. B. (2004). Risk management practices in IS outsourcing: An investigation into commercial banks in Nigeria. International Journal of Information Management, 24, 167-180. Alchian, A. A., & Demsetz, H. (1972, December). Production, information cost, and economic organization. American Economic Review, (62), 777-795. Alvares, K., Chapman, T., Comerford, J., Hovey, V., Kovner, A. R., Peisch, R., Pisano, G. P., & Puryear, R. (1995). When outsourcing goes awry. Harvard Business Review, 73(3), 2437. Ang, S., & Straub, D. W. (1998). Production and transaction economies and IS outsourcing: A study of the U.S. banking industry. MIS Quarterly, 22(4), 535-552. Antonucci, Y. L., Lordi, F. C., & Tucker, J. J. (1998). The pros and cons of IT outsourcing. Journal of Accountancy, 185(6), 26-30. Aubert , B. A., Patry, M., Rivard, S., & Smith, H. (2001, January). IT outsourcing risk management at British petroleum. In Proceedings of the 34th Hawaii International Conference
on Systems Sciences, Hawaii. Aubert , B. A., Patry, M., & Rivard, S. (1997). A tale of two outsourcing contracts. Cahier du GreSI(97-05). Bahli, B., & Rivard S. (2003). The information technology outsourcing risk: A transaction cost and agency theory-based perspective. Journal of Information Technology, 18(3), 211-221. Barzel, Y. (1982, April). Measurement cost and the organization of markets. Journal of Law and Economics, (25), 27-48. Beamish, P., Marcolin, B., & Mclellan, K. (1995). Financial and strategic motivations behind IS outsourcing. Journal of Information Technology, 10(4), 299-321. Bowers, L. N., Gerber, U. H., Hickman, C. J., Jones, A. D., & Nesbit, J. V. C. (1986). Actuarial mathematics: The society of actuaries. Schaumburg, IL: The Society of Actuaries. Clark, T. D., Jr., McCray, G. E., & Zmud, R. W. (1995). The outsourcing of information services: Transforming the nature of business in the information industry. Journal of Information Technology, 10(4), 221-237. Cross, J. (1995). IT outsourcing: British petroleums competitive approach. Harvard Business Review, 73(3), 94-109. Dhar, S., Gangurde, R., & Sridar, R. (2004). Global information technology outsourcing: From a risk management perspective. In Proceedings of the 5th Annual Global Information Technology World Conference, San Diego. Dibbern, J., & Goles, T. (2004). Information systems outsourcing: A survey and analysis of the literature. The DATA BASE for Advances in Information Systems, 35(4), 6-102. Diromualdo, A., & Gurbaxani, V. (1998). Strategic intent for IT outsourcing. Sloan Management Review, 39(4), 67-80. Dube, L., & Pare, G. (2003) Rigor in information systems positivist case research: Current practices, trends, and recommendations. MIS Quarterly, 27(4), 597-635. Earl, M. J. (1996). The risks of outsourcing IT.
Sloan Management Review, 37(3), 26-32. Feeny, D. F., Lacity, M. C., & Willcocks, L. P. (1995). IT outsourcing: Maximize flexibility and control. Harvard Business Review, 73(3), 84-93. Gilbert, A. (2001, September 24). Outsourcing poses staff challenges. InformationWeek. Hamel, G., & Prahalad, C. K. (1990, May-June). The core competence of the corporation. Harvard Business Review, 79-91. Hirschheim, R., & Lacity, M. C. (1993). The information systems outsourcing bandwagon. Sloan Management Review, 35(1), 73-86. Jurison, J. (1995). The role of risk and return in information technology outsourcing decisions. Journal of Information Technology, 10(4), 239-247. Lacity, M. C., & Willcocks, L. P. (1995). Information systems outsourcing in theory and practice. Journal of Information Technology, 10(4), 203-207. Langonis, R. N., & Robertson, P. L. (1992). Networks and innovation in a modular system: Lessons from microcomputer and stereo component industries. Research Policy, (21), 297-313. Lee, J., Huynh, M. Q., Kwok, R. C., & Pi, S. (2003). IT outsourcing evolution Past, present, and future. Communications of the ACM, 46(5), 84-89. Levine, M., & Schneider, M. (1997, August). Making the distinction: Risk management, risk exposure. Risk Management, 36-42. King, W. R., & Malhotra, Y. (2000). Developing a framework for analyzing IS sourcing. Information & Management, 37, 323-334. McFarlan, F. W., & Nolan, R. L. (1995). How to manage an IT outsourcing alliance. Sloan Management Review, 36(2), 9-23. Nam, K., Rajagopalan, S., Rao, H. R., & Chaudhury, A. (1996). A two-level investigation of information systems outsourcing. Communications of the ACM, 39(7), 37-44. Nelson, P., Richmond, W., & Seidman, A. (1996). Two dimensions of software acquisition. Communications of the ACM, 39(7), 29-35. OLeary, M. (1990). The mainstream doesnt
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APPENDIX
QUESTIONNAIRE ON IT OUTSOURCING PROJECTS

Purpose: The purpose of this survey is to determine the objectives, practices, benefits, risk assessment factors, risk measurement, and risk mitigation methods of outsourced information technology projects. Your feedback of this survey is extremely important to us and will be very much appreciated. 1. 2. 3. Participants Name: _______________________________________________ Organization: ____________________________________________________ Please give a brief description about your role in outsourced IT projects.
4. 5. 6. 7. 8.
Who is your IT outsourcing partner? Do you wish to keep the above information confidential? Yes / No: ____ (please specify) How do you describe your relationship with your outsourcing partner? How do you manage the relationship? Does your organization achieve the following objectives by outsourcing IT? Please score each of the objectives, on a scale of 0-10 (Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2, Never = 0)
Sl.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Objective Companys strategic goals Lower costs Focus on core activities Customer satisfaction Competitive advantage Quality and reliability Professional services Making new technology work to the advantage of the company Reducing the burden of legacy systems Allows major capital expenditure avoidance Access to state-of-the-art technology Score (0-10)
(continued on the following pages)

9.
Please list any other objectives you consider for outsourced IT projects? Also please score them on a scale of 0-10.
10. Which of the common practices / risk reduction practices utilized in your outsourced IT projects?
Sl.No. 1. 2.
3.
4. 5.
6. 7.
IT Outsourcing practices / Risk reduction practices Round the clock project management over globally distributed teams Complete project management control with the vendor, over project initiation, planning, and execution for the outsourced project Complete project management control with the organization, where the vendor supplies project expert technical knowledge, manpower, and other intellectual resources Participative association of vendor in formulating design specifications Complete outsourcing of projects, except design specifications, to vendor located at some offshore locations, within the country and out side Access to value added products from the vendor Access to attractive financing options for the outsourcing deal from the vendor
Yes / No (please specify)
11. Please list any other practices you consider in your outsourced IT projects? Describe briefly.
12. Does your organization achieve the following benefits by outsourcing IT? Please score each of the benefits, on a scale of 0-10 (Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2, Never = 0)
Sl.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Benefits Access to state-of-the-art technology Flexibility to respond quickly to changing demands and business environment Lower costs Predictable outcome Reduced delays Higher degree of success Lower failures in service or products Higher quality and reliability Lower risk profiles Better management control Reduced complexity Optimal allocation and utilization of resources Better ability to identify possible business opportunities and threats so as to evaluate and manage them in the strategic perspective Score (0-10)
13. Please list and score any other benefits that you consider for outsourced IT projects?
14. Please list any major benefits that your customers and suppliers have realized out of the outsourced IT projects.
15. Do you consider the following risk assessment factors to determine the risks associated with the outsourced IT projects? Please refer to Appendix for explanations of these risk factors. Please score each of the risk assessment factor, on a scale of 0-10 (Always = 10, Very often = 8, Often =6, Sometimes = 4, Rarely = 2, Never = 0)
Sl.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Risk Assessment Factor People Knowledge Cultural Political Financial Quality Standards Measurement Scope, cost, and time estimates Company specific risks Legal contracts and intellectual property protection Security Disaster Recovery Contract Management Relationship & Alliances Geographic Location Multi-vendor arrangements Score (0-10)
16. Please list and score any other risk assessment factors you consider in your outsourced IT projects.
17. Following are some of the unfavorable outcomes in determining the risks associated with the outsourced IT projects? How critical are each one of them. Please rate each one of them, on a scale of 0-3 (Critical = 3, Moderate = 2, Low = 1, Not critical = 0).
Sl.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Unfavorable Outcome Hidden Costs Unexpected transition and management costs Switching costs Contractual amendments costs Cost escalation Disputes and litigation costs Service debasement Cost of delayed delivery / non-delivery Loss of organizational competencies / critical skills Loss of autonomy and companys control over IT decisions Loss of control over disaster recovery Poor quality and reliability Damages due to security breach Loss due to disasters and recovery costs Score (0-3)
Sl.No. 15. 16 17. 18. 19. 20. 21. 22.
Unfavorable Outcome Loss due to outsourcers opportunism, including loss in future revenue, if outsourcer becomes competitor. Loss of innovative capacity Vendor lock-in Lack of trust Vendor sub-contracting the job Business uncertainties Endemic uncertainties Technological indivisibility Irreversibility of the outsourcing decisions
Score (0-3)
18. Please list and score any unfavorable outcomes you consider in your outsourced IT projects.
19. Do you prepare risk contingency plans? Yes / No: ______ 20. How do you measure risk? Describe briefly. 21. Describe briefly your contingency plan, if outsourcing IT does not work as estimated?
22. Please list any risks that your customers and suppliers may have faced from your decision of outsourcing IT?
23. Information is the key driver for the success of a supply chain? By outsourcing IT, how have you achieved this success?
24. What were the measures taken to ensure this success?
25. How has IT outsourcing helped to reduce the supply chain costs (namely, core costs, non-coordination costs and transactional costs) in your organization?
26. Did your organization face the following challenges, while outsourcing IT? Please rate each one of them on a scale of 0-3 (Critical = 3, Moderate = 2, Can deal with = 1, Not important = 0)
Sl.No. 1. 2. 3. 4. 5. 6. 7.
Challenges Deciding what jobs to keep in-house and what to outsource Selecting the right vendor / partner Cultural barriers Designing a contract Setting up a governance model to monitor the vendor and its services Ongoing management of the vendor relationship Continuous commitment to the spirit of partnership
Yes / No; Score (0-3)
27. Please list and rate any other challenges that you faced in your outsourced IT projects?
28. Do you follow the best practices, listed below, in managing the outsourcing relationships? Please rate each one of them, on a scale of 0-3 (3 = High importance, 2 = Medium importance, 1 = Low importance, 0 = Not important)
Sl.No. 1. 2. 3. 4.
5. 6. 7. 8. 9. 10.
Best Practice Empowerment and Escalation Peer Relationships Frequent Informal Communications Establish a Special Entity, like Joint Review Board, User involvement committee, Technology Review Board, Regional Governance Board Appoint Additional Managers when implementing New Objectives Prioritize Action Items Key Strategic Issues Review Meeting Steering Committees Stakeholder Buy-in Corporate Media Communications, as a means of mass communication for all employees
Yes / No; Score (0-3)
29. Please list and rate any other best practices that you consider in your outsourced IT projects?
30. How are you dealing with the backlash on moving jobs out of this country, due to outsourcing projects?
THANK YOU FOR YOUR PARTICIAPTION
Subhankar Dhar is an assistant professor in the Department of Management Information Systems at San Jos State University. Dr. Dhars research interests are in the areas of global information systems outsourcing, mobile and distributed computing. He teaches a variety of courses including telecommunications, data communications and networks, distributed information systems. His publications have appeared in reputed international journals and gave presentations to various international conferences. He serves as a member of the editorial board of International Journal of Business Data Communications and Networking. He is a reviewer of papers for various international journals, conferences, and scholarly publications. He also served as a member of the organizing committee of various international conferences like International Conference on Broadband Networks (BroadNets) and International Workshop on Distributed Computing (IWDC). Dr. Dhar has several years of industrial experience in software development, consulting for Fortune 500 and high-tech industries including product planning, design, and information systems management. Bindu Balakrishnan holds a Master of Science in engineering from San Jose State University. Ms. Balakrishnans interests are in the areas of global information systems outsourcing and supply chain. She has extensive experience in the electrical and manufacturing industry as a consulting engineer and process analyst with leading public and private sector companies. She has a very successful background of effectively and proactively managing the full project lifecyle: from inception to close.
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Risks-Benfits and Challenges in Global Outsourcing

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Risks, Benefits, and Challenges in Global IT Outsourcing:

40 Journal of Global Information Management, 14(3), 39-69, July-September 2006

THEORETICAL CONCEPTS BEHIND OUTSOURCING

Transactional Cost Theory

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Production cost Transaction cost

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Table 1. IT outsourcing risk exposure

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Table 2. Risk assessment factors

Knowledge (Functional, Technological, Managerial)

Scope, Cost, and Time Estimates

Company Specific Risks

Legal Contracts and Intellectual Property Security

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Table 2. Risk assessment factors (cont.)

CASE STUDY FORMAT

CASE STUDY: FIRM-1

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Table 3. FIRM-1 participants

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Figure 1. Histogram for objectives for IT outsourcing (FIRM-1)

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Figure 2. Histogram for benefits of IT outsourcing (FIRM-1)

Person 1 Person 2 Person 3

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Figure 3. Histogram for risk factors of IT outsourcing IT (FIRM-1)

Ratings (0 - 10) Ratings (0-10)

Person 1 Person 2 Person 3

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Figure 4. Histogram for challenges of IT outsourcing (FIRM-1)

Person 1 Person 2 Person 3

Figure 5. Histogram for best practices in IT outsourcing (FIRM-1)

Person 1 Person 2 Person 3

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CASE STUDY: FIRM-2

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Table 4. FIRM-2 participants

JOB TITLE / ROLE

IT Manager (Middle Management) Manager

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Figure 6. Histogram for objectives for IT outsourcing (FIRM-2)

Person 1 Person 2 Person 3 Person 4 Person 5

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Figure 7. Histogram for benefits of IT outsourcing (FIRM-2)

Person 1 Person 2 Person 3 Person 4 Person 5

Figure 8. Histogram for risk assessment factors in IT outsourcing (FIRM-2)

Ratings(0-10)- 10) Ratings (0

Person 1 Person 2 Person 3 Person 4 Person 5

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Figure 9. Histogram for challenges of IT outsourcing (FIRM-2)

Person 1 Person 2 Person 3 Person 4 Person 5

Figure 10. Histogram for best practices in IT outsourcing (FIRM-2)

3 2 1 0 Person 1 Person 2 Person 3 Person 4 Person 5

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Establish standards, governance, and guide

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ANALYSIS OF THE CASES

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