• Vol 10, No 4 (2019)
  • Industrial Engineering

Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence on Outsourcing Success from the IT Vendor Perspective

Yogi Yusuf Wibisono, Rajesri Govindaraju, Dradjad Irianto, Iman Sudirman

Corresponding email: yogi@unpar.ac.id


Published at : 29 Jul 2019
IJtech : IJtech Vol 10, No 4 (2019)
DOI : https://doi.org/10.14716/ijtech.v10i4.885

Cite this article as:
Wibisono, Y.Y., Govindaraju, R., Irianto, D., Sudirman, I., 2018. Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence on Outsourcing Success from the IT Vendor Perspective. International Journal of Technology. Volume 10(4), pp. 841-853
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Yogi Yusuf Wibisono Industrial Engineering Department, Bandung Institute of Technology, Jalan Ganesha 10 Bandung, 40116, Indonesia
Rajesri Govindaraju Industrial Engineering Department, Bandung Institute of Technology, Jalan Ganesha 10 Bandung, 40116, Indonesia
Dradjad Irianto Industrial Engineering Department, Bandung Institute of Technology, Jalan Ganesha 10 Bandung, 40116, Indonesia
Iman Sudirman Industrial Engineering Department, Bandung Institute of Technology, Jalan Ganesha 10 Bandung, 40116, Indonesia
Email to Corresponding Author

Abstract
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An IT vendor requires excellent capabilities to achieve success in offshore IT (information technology) outsourcing. This study aims to contribute to IT outsourcing research by identifying IT vendor capabilities from the perspective of offshore IT outsourcing challenges. A model is proposed that explains the relationship between capabilities in managing offshore IT outsourcing challenges (i.e., interaction capability, management capability, and capability to managing the distance involved) and the impact of these capabilities on outsourcing success. The proposed model is empirically tested by Partial Least Squares – Structural Equation Modelling (PLS-SEM) for validation, with 64 samples obtained from a survey of Indonesian IT vendors with experience in conducting offshore IT outsourcing projects. The results indicate that interaction capability consisting of communication and coordination has a positive impact on outsourcing success, and that this capability is in turn influenced by management capability. This includes management support, talent management and the ability to manage distances, in addition to cultural understanding and managing the temporal distance. 

Capability to manage distance; Interaction capability; IT vendor capabilities; Management capability; Outsourcing success

Introduction

Outsourcing is a process of transferring one or more company functions to other companies, by which the vendor company undertakes the client’s functions. One of the most outsourced functions is that of information technology (IT), such as application development, application management, data center operations, systems development and maintenance, web design, and e-commerce development (Peslak, 2011; Nuwangi et al., 2014). Companies that outsource their IT function are motivated by cost reduction, a focus on core competencies, performance improvement, and access to the latest technology (Lacity et al., 2009). Outsourcing practice can involve a client and a vendor from different countries, which is called offshore outsourcing or offshoring. In the context of offshore IT outsourcing, India and China are nowadays the most popular IT outsourcing destinations in the world, as it is easy to find a highly capable IT vendor in these countries (Stettler et al., 2014). In the case of Indonesia, the volume of its IT service exports is low compared to India and China due to a lack of capabilities (Stettler et al., 2014). Therefore, it is important to study the capabilities of IT vendors in this country.

The  capability  of  the  IT  vendor  is a critical  factor for  IT outsourcing success  (Lacity et al.,  2010). The client considers this capability in its IT vendor selection to ensure that the selected vendor has the ability to conduct its outsourced IT function. Previous studies have investigated the IT vendor capabilities required in conducting IT outsourcing. Some have identified these from the technical perspective, such as the study conducted by Krishnan and Kellner (1999), which showed the importance of software development process capabilities in influencing IT project performance. Other studies, such as that of Jarvenpaa and Mao (2008), adopted the operational perspective to identify the IT vendor capabilities that are needed to provide a service or product. From this perspective, IT vendors should have process, client-specific, and human resource capabilities.

Although the IT vendor capabilities identified in earlier studies have an impact on IT outsourcing success, this study will identify those required from the perspective of offshore IT outsourcing challenges. The IT vendor should develop not only technical and operational capabilities, but also ones related to the ability to deal with the challenges encountered in IT outsourcing. These challenges can hinder the IT vendor from achieving outsourcing success if they are not addressed. Therefore, this study will focus on identifying offshore IT outsourcing challenges and the related capabilities required. A model will also be developed that describes the relationship between IT vendor capabilities and outsourcing success.

This paper is organized as follows. In section 2, we present the methods used to analyze the challenges in offshore outsourcing and the related capabilities; the proposed model; the questionnaire development, and the data collection. In section 3, we present the results and discuss the research findings.  The paper is summarized in the final section.

Conclusion

This study makes two crucial contributions. First, it contributes to the outsourcing literature by identifying IT vendor capabilities in the offshore outsourcing context, from the perspective of offshore outsourcing challenges. Second, it proposes a research model that shows the relationship between IT vendor capabilities and their influence on outsourcing success. Based on the results obtained from the study, we conclude that to achieve offshore outsourcing success, the IT vendor should build interaction capability, and enhance the capability to manage distance as well as management capability.

The study recommends that IT vendors involved in offshore outsourcing ensure that there is support from top management by providing adequate resources and preparing highly qualified staff for offshore IT projects. It also encourages practitioners to learn and adapt to their client’s culture for smooth interaction between them.

There are some limitations to this study. First, we involve only the vendor side to evaluate outsourcing success, which may cause bias. We also use client satisfaction as one of the outsourcing success indicators. The ideal is that we should involve the client side in the study, but it is difficult to involve both sides. Second, the study does not consider all the interaction aspects that should be developed by the IT vendor. This limitation may lead to moderate predictive accuracy of interaction capability in outsourcing success, with R2 at 0.492. Third, we identified IT vendor capabilities from the perspective of challenges in offshore IT outsourcing, which mean that other important capabilities were not considered in the research. To increase the predictive accuracy, future studies should consider other capabilities, such as that to design specific business process, because the development of IT should be aligned with the business process.

 

Acknowledgement

The authors wish to thank Direktorat Riset dan Pengabdian Masyarakat Direktorat Jenderal Penguatan Riset dan Pengembangan Kementerian Riset, Teknologi, dan Pendidikan Tinggi, who funded this research through Hibah Disertasi Doktor No.1598/K4/KM/2017.

Supplementary Material
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R1-IE-885-20180507140250.pdf ---
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