Best Practices for Communication between Client and Vendor in IT Outsourcing Projects

By Sharma, Ravi; Apoorva, S. R. et al. | Journal of Information, Information Technology, and Organizations, Annual 2008 | Go to article overview

Best Practices for Communication between Client and Vendor in IT Outsourcing Projects


Sharma, Ravi, Apoorva, S. R., Madireddy, Venkata, Jain, Varun, Journal of Information, Information Technology, and Organizations


Introduction

With the usage of information and communication technologies (ICT) now considered routine and commoditized by most organizations, such auxiliary or non-core functionalities are better managed by the practice of outsourcing. Outsourcing has often provided positive results for companies, with most experiencing recurring cost cutting (Hines, 2005), time saving (DiRomualdo & Gurbaxani, 1998), and improved performance (Barthelemy, 2001; Constantinescu, 2005) in their operations due to a combination of having access to scarce expertise as well as taking the associated costs off the balance sheet. In addition, the practice of outsourcing has enabled organizations to foster innovation by focusing on core competencies (Huff, 1991), higher quality (Turban, McLean, & Wetherbe, 2002), provide better service, and increase their competitive advantage (Power, Bonifazi, & Desouza, 2004). Thus, outsourcing has gained wide acceptance (Mullin, 1996) and over the last decade has seen widespread developments in order to meet an organization's information technology needs (Dibbern, Goles, Hirschheim, & Jayatilaka, 2004).

Information Technology (IT) outsourcing services include functions such as application development (web design development, e-commerce projects, etc.), network management, application maintenance (remote software maintenance, feature enhancements, etc.), and end user computing support such as internal record keeping, database, help-desk software etc. (Huff, 1991). Other outsourced functions include data entry and disaster recovery (Antonucci, Lordi, & Tucker, 1998), operations, and facility management. IT outsourcing may either be either be a one-off, limited-duration or a long-term relationship. Several studies on IT outsourcing risks reveal the precarious nature of the outsourcing business (DiRomualdo & Gurbaxani, 1996; Gallivan & Oh, 1991; Keil, Cule, Lyytinen, & Schmidt, 1998; Lacity & Hirschheim, 1993; McCue 2005; Petrie, 2000a, 2000b; Project Management Institute, 2005; Power, Bonifazi & De Souza 2004; Tafti 2005). Some of the risks associated with software development outsourcing are summarized in Table 1. Antonucci et al. (1998), Dibbern et al. (2004), Huff (1991), McFarlan and Nolan (1995), Mullin (1996), Power et al. (2004) and Turban et al. (2002) are among others who have described project risks in IT outsourcing more generally. Although financial risks, technological risks, and business risks are typically identified in literature (Elitzur & Wensley, 1997; Tafti, 2005), risks of information loss or misuse due to technological obsolescence, knowledge diffusion, loss of personnel, moral hazard with hidden knowledge, loss of intellectual property, etc., is an area gaining great concern. Much of these risks accrue due to inadequate communication and documentation during the outsourcing project life-cycle. Managing the communication flow is therefore an important aspect of project management.

Risk sharing is, hence, a common practice for parties adopting multiple outsourcing relationships. Gallivan and Oh (1999) provide insights into how the variations in the nature of the outsourcing relationships may shape the benefits and risks achieved from the deal and their influence on how uniquely the outsourcing relationships require to be managed. For example, on one hand co-sourcing (the practice of providing similar services to multiple clients) has its advantages in risk sharing and reduction, as well as the accompanying constraints of knowledge diffusion risks; on the other hand, a simple one vendor--one client relationship is easy to coordinate and control but bears the constraint of being locked in with high switching costs for both parties. In as multi-vendor, single-client scenario, the benefit of allowing vendor specialization (and hence profitability) is offset by coordination costs and contractual complexities. …

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