Table Of ContentInformation Systems Outsourcing
Springer-Verlag Berlin Heidelberg GmbH
Rudy Hirschheim
Armin Heinzl . Jens Dibbern
Editors
Information Systems
Outsourcing
Enduring Themes,
Emergent Patterns
and Future Directions
With 43 Figures
and 60 Tables
i
Springer
Professor Dr. Rudy Hirschheim
University of Houston
Bauer College of Business
77204-6282 Houston,TX, USA
Professor Dr. Armin Heinzl
Dipl.-Kfm. Jens Dibbern
UniversiHit Bayreuth
UniversiHitsstraBe 30
95440 Bayreuth, Germany
ISBN 978-3-662-04756-9 ISBN 978-3-662-04754-5 (eBook)
DOl 10.1007/978-3-662-04754-5
Library of Congress Cataloging-in-Publication Data applied for
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Information Systems Outsourcing: Enduring Themes, Emergent Patterns and Future
Directions; with 60 Tables / Rudy Hirschheim ... ed. - Berlin; Heidelberg; New York;
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Preface
The research on IS outsourcing has evolved rapidly over the past decade.
Outsourcing has emerged as a key topic for both IS practitioners and academics.
Whilst academics may have lagged behind their practitioner brethren in
recognizing its importance in the beginning, they have begun to catch up. By our
quick count, there are over 90 academic papers that have been published on IS
outsourcing since 1992, along with numerous doctoral dissertations. Moreover,
there has been virtually no major IS conference without a substantial outsourcing
track.
Thus, we felt the time was right to arrange a compilation of contemporary
outsourcing research as a common platform for mutual interaction and scientific
discourse. This book brings together key researchers who had published or were
currently working on academic publications or dissertations in IS outsourcing. In
this realm it is dedicated towards both researchers and practitioners. It is the result
of thoughtfully selected contributions from leading researchers who came together
for the Second International Conference on Outsourcing of Information Services
(ICOIS'2001) held in Bayreuth, Germany during June 22-23rd, 2001. Their papers
form the basis of this edited volume entitled Information Systems Outsourcing in
the New Economy: Enduring Themes, Emergent Patterns and Future Direction.
We hope you enjoy the resulting product.
Rudy Hirschheim Armin Heinzl Jens Dibbern
Houston, Texas Bayreuth, Germany Bayreuth, Germany
Contents
Preface v
Part I: Overview
Information Systems Outsourcing in the New Economy - An Introduction 3
Hirschheim, Rudy; Dibbern, fens
On the Theoretical Foundations of Current Outsourcing Research 24
Klein, Heinz K.
Part II: Determinants of the IS Outsourcing Decision 45
Costs, Transaction-Specific Investments and Vendor Dominance of the
Marketplace: The Economics of IS Outsourcing 47
Ang, Soon; Straub, Detmar
Outsourcing of Information Systems in Small and Medium Sized
Enterprises: A Test of a Multi-Theoretical Causal Model 77
Dibbern, fens; Heinzl, Armin
IT Sourcing - A Dynamic Phenomenon: Forming an Institutional Theory
Perspective 100
fayatilaka, Bandula
A Taxonomy of Employment Insourcing and Outsourcing Strategies in
Information Systems 131
Ang, Soon; Slaughter, Sandra A.
VIII Contents
Part III: Arranging and Managing IS Outsourcing
Relationships 153
Managing IT Outsourcing Risk: Lessons Learned 155
Aubert, Benoit A.; Patry, Michel; Rivard, Suzanne
Applying Traditional Risk-Return Analysis to Strategic IT
Outsourcing Decisions 177
lurison,laak
Further Thoughts on Information Structure, Knowledge Management
and Outsourcing 187
Elitzur, Ramy; Wensley, Anthony K.P.
Current and Future Directions of IS Outsourcing 195
Lee, lae-Nam; Huynh, Minh Q.; Kwok, Ron Chi-wai; Pi, Shih-Ming
Relational Exchange Theory and IS Outsourcing: Developing a Scale
to Measure Relationship Factors 221
Goles, Tim; Chin, Wynne W.
Part IV: Experiences and Outcome of IS Outsourcing 251
The Normative Value of Transaction Cost Economics: What Managers
Have Learned About TCE Principles in the IT Context 253
Poppo, Laura; Lacity, Mary C.
Spiraling Effect of IS Outsourcing Contract Interpretations 277
Marcolin, Barbara L.
Success of Outsourcing and Strategic Alignment as Predictors of
IS Effectiveness 311
Siiiiksjiirvi, Markku
Outsourcing: A View from Those Doing the Work 329
Saunders, Carol
Four Stories of Information Systems Insourcing 348
Hirschheim, Rudy; Lacity, Mary C.
Contents IX
Part V: Integration, Transaction and Recruitment
Platforms 393
IS Integration in the Internet Age: Exploring Alternate Infrastructure
Sourcing Strategies 395
Duncan, Nancy B.
Transaction Platforms as Flexible Interorganizational Systems:
The Case of M-Cornrnerce Payment Services in the Financial Logistical
Management ofthe Dutch Payment Industry 415
Wassenaar, D. Arjen; Swagerman, Dirk M.
Cybermediaries Supporting the Management of Independent Workers:
A Case Study of Extended Outsourcing Relationships 432
Knolmayer, Gerhard F.
Part VI: Application Service Providing (ASP) 449
Application Service Provision: The IS Infrastruct).lfe Context 451
Smith, Michael Alan
A Market Segmentation Strategy for Developing an ASP Business 474
Currie, Wendy L.; Seltsikas, Philip
Impact of Vendor Capabilities on ASP Performance 497
Swinarski, Matthew E.; Kishore, Rajiv; Rao, H. Raghav
Service Provision and the Net: Risky Application Sourcing? 513
Kern, Thomas; Willcocks, Leslie P.
List of Contributors 535
Sponsors 539
Part I: Overview
Information Systems Outsourcing in the New
Economy - An Introduction
Rudy Hirschheim
Bauer College of Business, University of Houston, Houston, Texas 77204-6282
Jens Dibbern
Dept. of Information Systems (BWL VII), University of Bayreuth, D-95440
Bayreuth, Germany
1 Introduction
When Eastman Kodak announced that it was outsourcing its information systems
(IS)1 function in 1989 to IBM, DEC and Businessland it created quite a stir in the
information technology (IT) industry. Never before had such a well-known
organization, where IS was considered to be a strategic asset, turned it over to
third party providers (Applegate and Montealegre, 1991). Since then both large
and small companies have found it acceptable, indeed fashionable, to transfer their
IS assets, leases and staff to outsourcing vendors (Arnett and Jones, 1994). Kodak
appears to have legitimized outsourcing, leading to what some have called "the
Kodak effect" (Caldwell, 1994). Senior executives at well known companies in
u.s.
the have followed Kodak's example and signed long term contracts worth
hundreds of millions of dollars with outsourcing "partners". A number of high
profile multi-billion dollar "mega-deals" have been signed which has raised
awareness even more. A recent Dataquest report (2000) notes that since 1989
there have been over 100 ofthese mega-deals (Young, 2000).
Studies performed by Dataquest (Caldwell, 1995) note that the IS outsourcing
market grew from $9 billion in 1990 to $28 billion in 1994 representing a growth
rate in excess of 25% per annum. Other figures produced by Dataquest suggest
even greater growth. According to their research, in 1995 companies spent $22
billion in the network management and desktop services outsourcing market and
would grow to $37 billion by 1998. The Yankee Group estimated global revenues
for IS outsourcing were $50 billion in 1994 and increasing at a rapid rate. The
Information systems (IS) and information technology (IT) are used synonymously in
this paper.
4 R. Hirschheim, 1. Dibbern
Outsourcing Institute's survey of 1200 companies indicates that 50% of all
companies with IS budgets of $5 million or more are either outsourcing or
evaluating the option. They also report that one-twelfth of IS dollars spent in 1995
flowed through an outsourcing contract (http://www.outsourcing.com). Another
view of the IS outsourcing market comes from an International Data Corporation
report, which using a narrow definition of IS outsourcing, noted that actual global
IS outsourcing spending to be $40 billion in 1996 growing to reach $71 billion in
2003 representing a growth rate of 12.2% per annum (IDC, 1999). A recent
Dataquest report reported the IS outsourcing industry revenue to be $194 billion in
1999 and growing to $531 billion by 2002 (Young, 2000). So by any stretch of the
imagination, the IS outsourcing market is significant.
Although companies outsource IS for many reasons (Willcocks and Fitzgerald,
1994), industry watchers generally attribute the growth of the IS outsourcing
market to two primary phenomena (Lacity and Willcocks, 2001), First, interest in
IS outsourcing is largely a consequence of a shift in business strategy. Many
companies have recently abandoned their diversification strategies - once pursued
to mediate risk - to focus on core competencies, Senior executives have come to
believe that the most important sustainable competitive advantage is strategic
focus by concentrating on what an organization does better than anyone else while
outsourcing the rest. As a result of this focus strategy, IS came under scrutiny,
Senior executives frequently view the entire IS function as a non-core activity, and
believe that IT vendors possess economies of scale and technical expertise to
provide IS services more efficiently than internal IS departments. Second, the
growth in outsourcing is a function of the unclear value delivered by IS. In many
companies, senior executives view IS as an overhead - an essential cost but one to
be minimized nevertheless,
These two phenomena - refocus to core competencies and the perception of IS as
a cost burden - prompt many senior executives to sign outsourcing "mega-deals"
for the provision of all IS services. But while such mega-deals afford these
companies with much press, some have voiced concern about the long-term
viability of these deals, Indeed, some prominent IS professionals have cautioned
against the wholesale transferal of the management and control of a "strategic
asset" such as IS. In a number of cases, these concerns proved valid, with
"outsourcing partnerships" experiencing grave problems, A few companies have
paid out significant sums of money to extricate themselves from outsourcing
contracts and then rebuilt their internal IS capability (Hirschheim and Lacity,
2000), On the other hand, some IS managers who have refused to deal with
outsourcing vendors or ignored them, have either been fired or had their jobs
marginalized when their IS shops have failed to demonstrate value for money
(Lacity and Hirschheim, 1993b), So clearly outsourcing must be taken seriously,
What appears to be happening is that an important change is taking place in the
sourcing of IS activity. Fundamentally, companies need to consider how best to
