Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence on Outsourcing Success from the IT Vendor Perspective
Corresponding email: yogi@unpar.ac.id
Published at : 29 Jul 2019
Volume : IJtech
Vol 10, No 4 (2019)
DOI : https://doi.org/10.14716/ijtech.v10i4.885
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
| 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 |
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
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.
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.
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.
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