AN EMPIRICAL INVESTIGATION OF INFORMATION TECHNOLOGY SOURCING PRACTICES: LESSONS FROM EXPERIENCE.

Author List: Lacity, Mary C.; Willcocks, Leslie P.;
MIS Quarterly, 1998, Volume 22, Issue 3, Page 363-408.
Following Kodak's landmark information technology (IT) outsourcing decisions in 1989, the IT outsourcing market grew to 76 billion dollars in 1995. As the outsourcing market continues to grow and as new contracting options emerge, the accumulated experiences of firms offer significant opportunities for learning. This paper builds on a previous collection of data on 61 IT sourcing decisions made in 40 U.S. and U.K. organizations during the period 1991 to 1995. This paper reanalyzed transcribed interviews from 145 participants. Using "expected cost savings achieved" as an indicator of success, five best practices were identified in the case companies. First, selective outsourcing decisions had higher success rates than total outsourcing or total insourcing decisions. Second, senior executives and IT managers who made decisions together had higher success rates than either stakeholder group acting alone. Third, organizations that invited both internal and external bids had higher success rates than organizations that merely compared external bids with current IT costs. Fourth, short-term contracts achieved higher success rates than long-term contracts. Fifth, detailed fee-for-service contracts had higher success rates than other types of fee-for-service contracts. The critical elements of three contracting models are described: fee-for-service contracts, strategic alliances/partnerships, and buying-in of vendor resources. When the practices generated from the case studies are compared with current practices, we begin to understand which practices are proving robust and why new practices emerge. For example, in the participating companies, the rhetoric of a "partnership" was misused to describe contracts that are actually fee-for-service contracts. Today, practitioners who understand the inherent conflicts in fixed fee-for-service contracts are demanding what they perceive to be more favorable contracting options, such as flexibly-priced contracts, performance-based...
Keywords: contract; Empirical research; management of computing and IS; measuring IS success; outsourcing of IS; strategic alliances
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#252 0.153 management practices technology information organizations organizational steering role fashion effective survey companies firms set planning focus committees executives managing committee
#274 0.096 outsourcing transaction cost partnership information economics relationships outsource large-scale contracts specificity perspective decisions long-term develop requirements economic association factors hypotheses
#88 0.088 managers managerial manager decisions study middle use important manager's appropriate importance context organizations indicate field experience management major organizational results
#246 0.087 strategic benefits economic benefit potential systems technology long-term applications competitive company suggest additional companies industry operating costs difficult substantial total
#70 0.080 contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#254 0.066 level levels higher patterns activity results structures lower evolution significant analysis degree data discussed implications stable cluster exist relationships identify
#47 0.065 outsourcing vendor client sourcing vendors clients relationship firms production mechanisms duration mode outsourced vendor's effort activities in-house managing technology domestic
#286 0.063 success model failure information impact variables failures delone suggested dimensions mclean reasons variable finally categories years recommendations benefits studies identify
#68 0.052 business units study unit executives functional managers technology linkage need areas information long-term operations plans mission large understand knowledge current