Managing offshore outsourcing of software development using the ICT-supported unified process model : a cross-case analysis

Abstract

Länsimaiset teknologia-alan yritykset siirtävät ohjelmistojen ja oheispalvelujen tuotantoaan kasvavassa määrin kehitysmaihin. Ulkomaille etäulkoistamisen riskit on syytä tuntea, jotta yritykset voivat hyödyntää liiketoimintamallin mahdollisuuksia. Etäulkoistamisesta ja sen johtamisesta on tehty lukuisia tutkimuksia. Suurin osa käsittelee tietotekniikan etäulkoistamista asiakkaan, ulkoistavan yrityksen näkökulmasta. Tietohallintojohdon tarpeisiin on luotu useita viitekehyksiä IT-järjestelmien etäulkoistamisen toteuttamiseksi käytännössä. Viitekehykset kattavat osa-alueita, mutta yksikään niistä ei ohjeista kokonaisvaltaisesti ohjelmistotuotannon ulkomaille ulkoistamisen johtamista.Anicet Yalahon kehitti tutkimuksessaan ohjelmistotuotannon etäulkoistamiseen soveltuvan ICT-SUPOO-mallin (ICT-supported unified process of off-shore outsourcing), joka yhdistää ulkomaille suuntautuvan etäulkoistamisen prosessit, riskienhallintaprosessit ja suhdetoimintahallinnan prosessit.Tutkimus koostuu kolmesta osasta. Ensimmäinen osa on kirjallisuuskatsaus. Toisessa osassa Yalaho käsittelee vaihdantakustannusteorian soveltamista ulkomaille etäulkoistamisen analysointiin ja kolmas osa on tapaustutkimus neljästä huipputeknologian yrityksestä.Yalahon ICT-SUPOO-malli koostuu seuraavista vaiheista: a) strategisten kompetenssien analyysi, b) kansainvälisten markkinoiden kartoitus, c) palveluntarjoajien valinta, d) sopimusneuvottelut, e) projektin toimeksianto ja toteutus f) ja arviointi sekä sopimuksen lopettaminen. Vaiheet toteutetaan samanaikaisesti riskienhallintaprosessien kanssa. Vaiheiden a-c jälkeen käynnistyy suhdetoiminta sopimusneuvottelulla. Suhdetoiminta jatkuu projektin päättymiseen saakka.Tutkimuksessa käy ilmi, etteivät suhdetoiminta ja riskienhallinta ole prosessin sisäisiä vaiheita kuten aikaisemmissa tutkimuksissa on osoitettu. Suhdetoiminta ja riskienhallinta tapahtuvat ICT-SUPOO-mallin muiden vaiheiden yhteydessä.Vaihdantakustannusteorian avulla havaittiin, että palvelun tarjoajat käyttävät erityisiä toimenpiteitä tavoittaakseen potentiaaliset asiakkaansa, esimerkiksi hakupalvelujen kautta, jolloin etsintä- ja markkinointikustannukset vähenevät. Ulkomaiset palveluntarjoajat keskittyvät tiettyihin strategisiin maihin, joihin heillä on kustannusetu. Tutkituilla ulkoistajilla oli aikaisempaa kokemusta etäulkoistamisesta ja ne olivat toimineet useita vuosia palveluntarjoajan kotimaassa. Siten ne tuntevat liiketoimintakäytänteet ja useimmat alan toimijat. Palveluntarjoajat valikoivat tarkasti, mihin palveluihin sitoutuvat. Palveluntarjoajan tietämys ja ulkoistamisesta karttunut kokemus auttavat sopimustilanteessa.Sopimukset vahvistetaan sosiaalisilla suhteilla. Sopimus on työkalu, joka tarjoaa minimiehdot ja -turvan, mutta pitkäaikainen, terve ja kestävä yhteistyösuhde edellyttää sosiaalisin suhtein vahvistettua luottamussuhdetta. Asiakkaat ja palveluntarjoajat valittavat usein opportunismista, vaihdantakustannusten kasvusta sekä kyvyttömyydestä vaikuttaa yhteistyösuhteeseen.Yalaho analysoi riskitekijöitä, jotka voivat vaikuttaa ICT-SUPOO-mallin toimintaan. Riskitekijöitä ovat mm. ymmärryksen puute ulkoistetusta liiketoiminnasta, täsmällisen riskianalyysin puute, valuuttakurssiriski, palveluntarjoajan opportunismi, maineen menetyksen riski, paikallisen lain tulkinta konfliktitilanteessa, erilaiset projektinhallintakäytännöt, riittämättömät projektinhallintataidot, riittämätön tekninen ymmärrys, maksujen viivästyminen, asiakkaan liiallinen puuttuminen yksityiskohtiin ja epäselvä strategia IT-tuen hyödyntämiseksi kommunikaatiossa, koordinoinnissa ja yhteistyössä. Tutkimus tuo esiin strategioita, jotka ovat tarpeellisia riskien vähentämiseksi ja ICT-SUPOO-mallin onnistumiseksi ohjelmistotuotannossa.ICT-SUPOO-mallin tunnistamia riskejä ohjelmistotuotannossa ei voi kokonaan välttää, sillä jotkut tekijät, kuten poliittinen epävakaus, eivät ole asiakkaan ja palveluntarjoajan hallinnassa. Yritysten tulee valmistautua niiden varalta tehokkailla riskienhallintastrategioilla

Software-intensive high-tech companies in Western countries are increasingly producing software and related services in developing countries. Despite the rapid progress of offshore outsourcing, there are various risks that must be investigated so that companies can avail themselves of the opportunities this business model offers. Various important benefits can be achieved through the successful management of offshore outsourcing. Numerous studies exist on outsourcing in general, yet the vast majority of extant literature on offshore outsourcing has dealt with information technology (IT) outsourcing from the client’s perspective. Several frameworks have been developed that focus on guiding information systems managers in the practice of IT outsourcing with very specific areas such as, the decision factors of IT outsourcing, perceptions of risks and benefits of outsourcing, cost analysis, competence analysis, trust in the outsourcing project, relationship management, supplier influence and associated risks, risk management of outsourcing, etc. However, none of these frameworks has attempted to provide holistic guidelines for managing the entire process of offshore outsourcing of software production.In addition, there is a significant lack of empirical research on the a) risk factors of information communication technologies-supported unified process of offshore outsourcing (ICT-SUPOO) for software production and how these factors hinder software production through offshore outsourcing; b) lack of empirical research on measures that are necessary to reduce risks in order to enhance the success of the ICT-SUPOO model of software production; and c) critical success factors in the context of ICT-SUPOO of software production and how do these factors enhance success in the offshore outsourcing process of software production. Thus, the main objective of this study is to develop an ICT-SUPOO model for software production that integrates a) offshore outsourcing processes, b) risk management processes, and c) relationship management processes. The basic research question addressed in this study is: How can information and communication technologies assist companies in software production through offshore outsourcing? To answer the above question, the following sub-questions are formulated:1. a) What are the phases in the ICT-supported unified process of offshore outsourcing for software production? b) Which major activities, performance measures and expected outcomes are executed and managed effectively in each phase of the process? and c) Which ICT tools best support these phases in general and each phase in particular? 2. How are the outsourcing relationships between the client and service provider initiated, exercised and managed in offshore software development?3. What are the key risks of ICT-SUPOO for software production, how are risks created in each phase of the process and which strategies should be taken into account to reduce such risks?4. What are the critical success factors of ICT-SUPOO for software production, and how do these factors enhance success in the offshore outsourcing process?This study has been undertaken to address this need and to make both theoretical and practical contributions. The research has been conducted through: a) an in-depth review of the literature on outsourcing, IT outsourcing, offshore outsourcing, global software development, distributed software development and ICT; b) an analysis and application of transaction cost theory as a background theory; and c) multiple case studies of four high-tech companies, conducted from both the service provider’s and client’s viewpoints using an interpretive approach.Article I broadly contributes to the understanding of the ICT-SUPOO unified process phenomenon by extensively analyzing the major processes and their activities, performance measures, and deliverables.In Article II, the ICT-SUPOO model of software production is validated rigorously by conducting a multi-site cross-case study from both the service provider’s and client’s viewpoints, where professionals with extensive experience in managing offshore outsourcing of software production are interviewed. The analysis has revealed that the ICT-SUPOO goes through the following phases: a) strategic competences analysis, b) international market research and promotion, c) selection of provider(s), d) contract negotiation, e) project implementation and commissioning, and f) evaluation and contract termination; these phases constitute the main process of offshore outsourcing. The abovementioned main phases are executed concomitantly with risk management processes. Then the relationship management process starts with contract negotiation and continues until the project is completed. This study clearly shows that relationship management and risk management are not phases within the process, as is suggested in earlier studies (see, e.g., Momme, 2001; Yalaho and Wu, 2002; Momme and Hvolby, 2002; McIvor, 2000). Instead, relationship management and risk management are evolving activities which cannot be taken as a single phase or represented as such; rather, they span the other phases of the ICT-SUPOO model. This is a unique finding from our research. No prior study notes this.Here are the new findings associated with ICT-SUPOO in the context of the transaction cost theory. a) There is a distinctive set of activities (or an idiosyncratic approach) that service providers carried out to reach their potential customers, along with reducing search and marketing cost (see, Phase 2 in article II, service provider perspective). b) Offshore service providers also strategically target specific countries in which they would like to sell their services in order to keep the cost advantage (that is, to be cheaper than the client’s country competitors) (see as above, service provider perspective). c) Both clients have previous experience and have worked for several years in the country of their respective selected provider. Therefore, they knew very well the selected-country’s business practices in general, as well as most outsourcing players in particular (see as above, client perspective). d) Service providers are selective regarding which contracts they wish to enter into. This indicates that service providers are very experienced and have a high degree of knowledge, which enables them to make the right choice when engaging in a contract (see as above, service provider perspective). e) Contracts are based on “social relations”. FinSoftAlfa and its partner IndiaSoftNet in particular considered the contract as a tool that provides minimum safeguards, but for long-term healthy and sustainable business relationships, one needs to build a kind of trust that does not derive from a contract but resides in social relations instead (see, as above, client perspective).Often clients and service providers complain of opportunism, rising transaction costs of all sort, and inability to influence the terms of the relationship. However, many of these problems experienced by firms are preventable, as they may cause by poor management decision making. Moreover, offshore outsourcing involves multiple processes which must be handled simultaneously in order to reduce transaction costs and the risks of failure. Through our empirical data, we reveal how transaction costs are minimized at: (1) strategic competences analysis, (2) international market research and promotion, (3) selection of service providers, (4) contract negotiation, (5) project implementation and commissioning, and (6) evaluation and contract termination. The use of an ICT-SUPOO model as a tool to narrow, if not, reduces the unexpected transaction costs and control problems. In addition, we have demonstrated how contractual trust and strong social relationship create another type of governance as opposed to the governance described in literature.Article III broadly deals with the offshore relationship between client and service provider through multiple case studies. It presents its findings in tune with prior IS literature on offshore outsourcing of systems development.In Article IV, through a cross-case analysis, we have examined and analyzed the key risk factors that may hinder the execution of ICT-SUPOO if they are not investigated carefully in advance and appropriate strategies are not taken to reduce their negative impacts. Findings of this study indicate that our case companies faced various significant risks in using the ICT-SUPOO model of software production. A few of these risks appeared to be more commonly encountered in ICT-SUPOO and are aligned with offshore outsourcing literature. In contrast, the new risk factors that were identified in this study and that may hinder the successful execution of ICT-SUPOO include the following: a) deficiency in offshore business understanding on the client side, b) lack of rigorous risks analysis, c) currency instability, d) opportunistic service provider, e) risk of losing earned good reputation, f) difference in interpretation of project specifications, g) punishment scheme for delaying the project, h) selection of governing law in the case of conflicts, i) difference in project management practices, j) insufficient project management skills on client side, k) insufficient technical knowledge of client, l) delay in payments, m) excessive need of control on client side, and n) unclear strategy for the use of ICT support for communication, coordination and collaboration. In addition, this study provides the strategies that are necessary to alleviate the risks encountered and enhance the success of the ICT-SUPOO for software production.However, the risks associated with the ICT-SUPOO model for software production may not totally be avoided, as some factors (e.g., political instability) are outside the control of service provider and clients, but companies need to be prepared for them and have effective risk management strategies in place so as to enhance the success of the outsourcing project.In Article V, through a cross-case analysis, factors have been identified and analyzed that contribute to the successful implementation of an ICT-SUPOO for a software production project. In this study, many of the common success factors of the ICT-SUPOO model of software production are aligned with the offshore outsourcing literature (see Article V). However, the new success factors identified in this study include the following: a) agreed-upon specifications of IS, b) effective global coordination and control, c) personal references/contacts, d) the company being of a suitable size, e) appropriate ICT tools and their effective usage, and f) joint processes.In conclusion, no prior scholarly inquiry has examined in depth an ICT-SUPOO of software production. This study’s broad overview of the development of a new and advanced ICT-SUPOO model of software production, identification of the success factors as well as the factors that may obstruct success and cause failure, and analysis of actions necessary to enhance the model’s success make the research results unique.The ICT-supported unified process model of offshore outsourcing that can be applied in a wide range of settings in both research and management. The integrative model provides a holistic management process that can guide organizations in their offshore outsourcing efforts. This study also identifies factors that lead to success in and create risks/barriers to the execution of an ICT-supported unified process of offshore outsourcing. Having knowledge of these factors can help both offshore service clients and providers.It should also be noted that the offshore outsourcing model presented in this research deals with many different type of ICTs and is not limited to the few and more commonly known ICTs such as email, chat, newsgroup, web and database. Hence, in its depth and scope, this study provides a greater richness of understanding in this area and contributes to the existing body of knowledge in the field of outsourcing and offshore outsourcing