Renowned researcher and writer Professor Mary Lacity discusses how best to manage an offshore outsourcing program.
Professor Mary Lacity is the highly respected and widely followed Professor of Information Systems at the
Today, Professor Lacity continues to break new ground in identifying the issues that transform the outsourcing market. Her current focus is on offshore outsourcing, and in this part one of a two-part interview, she discusses several of her findings.
JV: The IT services industry has benefited for years from the research conducted by academia and the analysts of major research firms. Are there any differences in how academia approaches their research?
ML: We both serve the marketplace, but we typically take different approaches. The research from the leading analyst firms tends to be future orientated: focusing on trend data and where the market is going. Academic research tends to be based on empirical data: what actually is occurring in the market and what are the actual customer experiences. Academic and research firm approaches are both valuable, but we focus on different issues.
JV: How receptive is the outsourcing community to the academic approach?
ML: I think the industry is very receptive as we get asked all the time to do presentations to customers. We consistently get feedback from buyers that they appreciate our analysis of customer experiences. We can offer them proven practices that are working, point out the bad practices that should not be implemented, and identify the trends they should closely monitor.
JV: Over the last 15 years, your research has covered a wide spectrum of technology issues that have shaped the market. When did you and your team begin to focus on offshore outsourcing?
ML: About 18 months ago, we began to closely follow the debates in the media over the movement of white collar jobs going offshore. The issue had become very emotional and few firms had a clear roadmap on what was working and not working. Seeking guidance, the buying community asked us to focus our research agenda on how to best implement and manage an offshore program and what capabilities they should seek from an offshore vendor.
JV: When did you start this research?
ML: Dr. Joseph Rottman, an Assistant Professor at the
JV: Was there a strategic issue that you focused on when interviewing buyers?
ML: Yes, we asked a series of questions to determine how a chief information officer developed and implemented a global sourcing portfolio. A key finding of our research was that corporate executives are still sorting out offshoring issues and many are at the early stages of the learning curve. Our research identified four phases of the learning curve and most of the customers in the Fortune 500 are still in phase two: where offshoring is primarily driven by cost saving benefits. Very few firms have gotten to where offshore outsourcing is a strategic issue.
JV: Did you see any differences in the approach used by buyers that would lead one firm to build a captive organization and another firm to work directly with a third-party provider?
ML: We primarily found that if you are not in an IT business, you started your offshore program using a fee-for-service model. So if you are an insurance or financial service company, you basically hired a third-party supplier to do the work.
JV: Did you see any differences in the ability or receptivity of offshore providers to serve clients based on the size and scale of the third-party provider?
ML: Yes, we see big differences. Right now, the large offshore providers are focusing on winning large contracts from multinational buyers. In part, this is driven by financial pressures to sustain extraordinary growth rates and generate high ROIs for their investors. In contrast, many of the North American buyers are not ready to offshore large projects that drive their technology or business process operations. So many corporate buyers have turned to, what I call, Tier Two offshore suppliers. These are suppliers that are aggressively seeking this business, have excellent management structures, and are delivering service excellence. So far, their
JV: Did you see any differences between how corporate buyers managed offshore providers versus domestic contractors?
ML: One of the biggest surprises was how the Capability Maturity Model (CMM) was impacting the delivery of services by offshore providers. Normally, CMM is a mark of quality, but our research found that buyers see the CMM process as adding costs to their offshore programs. They struggle to see the value of the additional processes required by the CMM model and that in an offshore environment the model primarily benefits the supplier.
JV: What about the cultural issues?
ML: The biggest complaints we received from
JV: Is there a certain level of management needed to supervise the offshore effort?
ML: Offshore programs are usually managed through the program management office, just as you would manage domestic suppliers. The key person responsible for keeping a project on schedule is the team leader or project manager. Frequently, project managers are frustrated because of their inability to get business units to sign off on documents or database administrators to finish schemas. These frustrations are also often compounded by time-zone differences. So one of our recommendations is for the program management office to empower project managers in some capacity to keep the project moving and get other stakeholders committed to meeting deadlines.
JV: In selecting an offshore provider, what should a corporate buyer look for?
ML: Professors David Feeny, Leslie Willcocks, and I have developed what we call the 12 Supplier Capabilities Model. Too often,
JV: How does the corporate buyer determine how well a supplier delivers on those 12 capabilities? How can he use your research findings to be able to make the right decision?
ML: I think this is where the intermediaries are a big help to