Outsourcing and Offshoring of Professional Services:
Business Optimization in a Global Economy Amar Gupta University of Arizona, USA
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[email protected] Web site: http://www.igi-global.com and in the United Kingdom by Information Science Reference (an imprint of IGI Global) 3 Henrietta Street Covent Garden London WC2E 8LU Tel: 44 20 7240 0856 Fax: 44 20 7379 0609 Web site: http://www.eurospanbookstore.com Copyright © 2008 by IGI Global. All rights reserved. No part of this publication may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. Product or company names used in this set are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI Global of the trademark or registered trademark. Library of Congress Cataloging-in-Publication Data Outsourcing and offshoring of professional services : business optimization in a global economy / Amar Gupta, editor. p. cm. Summary: “This book discusses the considerations and implications surrounding the outsourcing and offshoring of professional services, such as software development computer-aided design, and healthcare, from multiple global perspectives. This book, offers industry professionals, policymakers, students, and educators with a balance between a broad overview and detailed analysis of offshore outsourcing, would make an invaluable addition to any reference library”--Provided by publisher. ISBN-13: 978-1-59904-972-4 (hbk.) ISBN-13: 978-1-59904-973-1 (e-book) 1. Offshore outsourcing. 2. Contracting out. I. Gupta, Amar. HD2365.O94157 2008 658.4’058--dc22 2007040900 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book set is original material. The views expressed in this book are those of the authors, but not necessarily of the publisher. If a library purchased a print copy of this publication, please go to http://www.igi-global.com/reference/assets/IGR-eAccess-agreement. pdf for information on activating the library's complimentary electronic access to this publication.
This book is dedicated to the Thomas R. Brown Foundation. In particular, I thank Sarah Smallhouse and Mary Brown, trustees of this foundation, for their unflagging support of my research and professional endeavors.
Table of Contents
Foreword . .......................................................................................................................................... xvii Preface . ................................................................................................................................................ xx Acknowledgment . ..........................................................................................................................xxviii
Section I Executive Highlight Chapter I Offshoring: The Transition from Economic Drivers Toward Strategic Global Partnership and the 24-Hour Knowledge Factory....................................................................................................... 1 Amar Gupta, University of Arizona, USA Satwik Seshasai, International Business Machines (IBM) Corp., USA Massachusettes Institute of Technology, USA Sourav Mukherji, The Indian Institute of Management, Bangalore Auroop Ganguly, Oak Ridge National Laboratory, USA
Section II Foundations and Frameworks Chapter II Evolving Relationship Between Law, Offshoring of Professional Services, Intellectual Property, and International Organizations............................................................................................. 25 Amar Gupta, University of Arizona, USA David A. Gantz, University of Arizona, USA Devin Sreecharana, University of Arizona, USA Jeremy Kreyling, University of Arizona, USA
Section II Foundations and Frameworks Chapter II Evolving Relationship between Law, Offshoring of Professional Services, Intellectual Property, and International Organizations............................................................................................. 25 Amar Gupta, University of Arizona, USA David A. Gantz, University of Arizona, USA Devin Sreecharana, University of Arizona, USA Jeremy Kreyling, University of Arizona, USA This chapter covers four issues. First, it examines evolving international conventions to determine whether countries, especially developed countries, can take any steps to inhibit offshoring with the objective of protecting jobs in their respective countries. Second, it looks at statistics from independent sources to see if outsourcing exceeds insourcing, or vice versa, in the case of the U.S. Third, it looks at trends in outsourcing in the legal arena. Fourth, it looks at the intellectual property aspects of outsourcing and presents a long-term vision on how this difficult issue is likely to be addressed in the long-term. Chapter III Information Technology/Systems Offshore Outsourcing: Key Risks and Success Factors.................. 50 Mahesh S. Raisinghani, Texas Woman's University, USA Brandi Starr, Texas Woman's University, USA Blake Hickerson, Texas Woman's University, USA Marshelle Morrison, Texas Woman's University, USA Michael Howard, Texas Woman's University, USA The offshore outsourcing of information technology and information systems (IT/IS) is being increasingly practiced among firms that are focusing on core competencies and cost-effectiveness. With the increase in offshore IT/IS operations, a growing number of companies are encountering negative experiences and unpredicted results. The analysis performed in this chapter reveals the possible risks and perceived success factors of companies outsourcing IT/IS operations offshore. The major points of interest are operational and strategic risks; legal contracts; cultural, security, and financial issues; and noted success factors by companies that participate in offshore outsourcing. The research indicates the importance of risk identification and the formulation of strategic plans that include preventive, detective, and corrective control methods of implementation and evaluation. Effective methods and metrics for measuring the success or failure of IT/IS offshore outsourcing operations is expected to be a continuing development with the increasing growth of this phenomenon.
Chapter III Information Technology/Systems Offshore Outsourcing: Key Risks and Success Factors.................. 50 Mahesh S. Raisinghani, Texas Woman's University, USA Brandi Starr, Texas Woman's University, USA Blake Hickerson, Texas Woman's University, USA Marshelle Morrison, Texas Woman's University, USA Michael Howard, Texas Woman's University, USA Chapter IV A Paradigmatic and Methodological Review of Research in Outsourcing............................................ 71 Vanita Yadav, Management Development Institute, India Rajen K. Gupta, Management Development Institute, India Chapter V An Outsourcing Acceptance Model: An Application of TAM to Application Development Outsourcing............................................................................................................................................ 89 John “Skip” Benamati, Miami University, USA T.M. Rajkumar, Miami University, USA
Section III Sectoral Applications and Case Studies Chapter VI Outsourcing in the Healthcare Industry: Information Technology, Intellectual Property and Allied Aspects...................................................................................................................................... 115 Amar Gupta, University of Arizona, USA Raj K. Goyal, VA Boston Health Care System, USA Keith A. Joiner, University of Arizona, USA Sanjay Saini, Harvard Medical School, USA Chapter VII Offshoring Entertainment and Media to India..................................................................................... 142 Alyssa D. Schwender, Lions Gate Entertainment, USA Christopher J. M. Leet, Intuit Corporation, USA Chapter VIII Outsourcing of Medical Surgery and the Evolution of Medical Telesurgery...................................... 157 Shawna Sando, University of Arizona, USA
Chapter IX The Use of Outsourcing as a Business Strategy: A Case Study........................................................... 167 Ram B. Misra, Montclair State University, USA
Section IV National and Societal Implications Chapter X Changing IT Skills: The Impact of Sourcing Strategies on In-House Capability Requirements....................................................................................................................................... 180 Christine V. Bullen, Stevens Institute of Technology, USA Thomas Abraham, Kean University, USA Kevin Gallagher, Northern Kentucky University, USA Kate M. Kaiser, Marquette University, USA Judith Simon, University of Memphis, USA Chapter XI New Trends in Global Offshore Outsourcing: A Comparative Assessment of India and China............................................................................................................................................. 203 Suresh Sharma, JS3 Global, LLC Yuanyuan Chen, JS3 Global, LLC Chapter XII The Role of Prisons in Offshoring....................................................................................................... 215 Whitney Hollis, University of Arizona, USA
Section V Collaboration and the 24-Hour Knowledge Factory Chapter XIII The Role of Information Resource Management in Enabling the 24-Hour Knowledge Factory................................................................................................................................................. 226 Satwik Seshasai, International Business Machines (IBM) Corp., USA Massachusetts Institute of Technology, USA Amar Gupta, University of Arizona, USA Chapter XIV Outsourcing and Multi-Party Business Collaborations Modeling....................................................... 250 Lai Xu, Utrecht University, The Netherlands
Chapter XV Hybrid Offshoring: Composite Personae and Evolving Collaboration Technologies......................... 270 Nathan Denny, University of Arizona, USA Shivram Mani, University of Arizona, USA Ravi Sheshu Nadella, University of Arizona, USA Manish Swaminathan, University of Arizona, USA Jamie Samdal, University of Arizona, USA Chapter XVI Agile Software Processes for the 24-Hour Knowledge Factory Environment.................................... 287 Nathan Denny, University of Arizona, USA Igor Crk, University of Arizona, USA Ravi Sheshu Nadella, University of Arizona, USA
Section VI Adaptation Paradigms for Academia and Industry Chapter XVII Information Systems, Offshore Outsourcing, and Relevance in the Business School Curriculum........................................................................................................................................... 303 William J. Tastle, University of Iceland, Iceland Ithaca College, USA Bruce A. White, Quinnipiac University, USA Ársaell Valfells, University of Iceland, Iceland Peter Shackleton, Victoria University, Australia Chapter XVIII Innovative Technological Paradigms for Corporate Offshoring.......................................................... 321 Tapasya Patki, University of Arizona, USA A. B. Patki, Department of Information Technology, India Chapter XIX Leveraging Knowledge Reuse and System Agility in the Outsourcing Era........................................ 342 Igor Crk, University of Arizona, USA Dane Sorensen, Raytheon Missile Systems, USA Amit Mitra, TCS Global Consulting Practice, USA
Compilation of References ............................................................................................................... 363 About the Contributors .................................................................................................................... 395 Index.................................................................................................................................................... 405
Detailed Table of Contents
Foreword . .......................................................................................................................................... xvii Preface . ................................................................................................................................................ xx Acknowledgment . ..........................................................................................................................xxviii
Section I Executive Highlight Chapter I Offshoring: The Transition from Economic Drivers Toward Strategic Global Partnership and the 24-Hour Knowledge Factory....................................................................................................... 1 Amar Gupta, University of Arizona, USA Satwik Seshasai, International Business Machines (IBM) Corp., USA Massachusettes Institute of Technology, USA Sourav Mukherji, The Indian Institute of Management, Bangalore Auroop Ganguly, Oak Ridge National Laboratory, USA The changing economic and labor conditions have motivated firms to outsource professional services activities to skilled personnel in less expensive labor markets. This offshoring phenomenon is studied from a political, economic, technological and strategic perspective. Next, an analytical model is developed for achieving strategic advantage from offshoring based on global partnerships. The model studies the impact of offshoring with respect to the complexity and strategic nature of the tasks and presents a decision strategy for obtaining value through offshoring of increasingly complex tasks. The result is an integrated “24-Hour Knowledge Factory” that is based on a sustainable global model rather than a short term fiscal model. This 24-hour paradigm embodies the shift-style workforce that evolved for the manufacturing sector during the Industrial Revolution and relies on a set of critical success factors in the current environment. A case example is provided from IBM to illustrate these underlying critical success factors.
Chapter IV A Paradigmatic and Methodological Review of Research in Outsourcing............................................ 71 Vanita Yadav, Management Development Institute, India Rajen K. Gupta, Management Development Institute, India Due to the growing academic and practitioner interest in the field of outsourcing, there is a need to do a comprehensive assessment and synthesis of research activities to date. This chapter addresses this need and examines the academic literature on information systems outsourcing and business process outsourcing using a paradigmatic and methodological lens. The objective of this chapter is fourfold. Firstly, it examines the status of outsourcing research from 1995 to 2005 in eight leading academic journals, to compare the current research trends with past research directions in terms of methodologies applied. Secondly, it analyzes the research paradigms adopted in these research papers using the Operations Research Paradigm framework. Thirdly, it compares and contrasts the outsourcing research work published in three leading European journals with the work published in three leading American journals. Finally, it uncovers the implications of this study and the directions for future research. Chapter V An Outsourcing Acceptance Model: An Application of TAM to Application Development Outsourcing............................................................................................................................................ 89 John “Skip” Benamati, Miami University, USA T.M. Rajkumar, Miami University, USA The use of outsourcing is expanding rapidly. This chapter empirically tests a model of application development outsourcing acceptance based on the technology acceptance model (TAM). TAM-suggested perceived usefulness and ease of use mediate the effects of other variables on users’ attitudes towards a technology. The model tested in this chapter suggests that perceived usefulness and ease of use of outsourcing mediate the effects of the external environment, prior outsourcing relationships, and risks on decision-makers’ attitude toward application development outsourcing. One hundred and sixty respondents to a survey sent to 3000 IT decision makers provided data to confirm the applicability of TAM and the influences of these external variables. Support for applying TAM in this alternative context was found. Three sub-dimensions of risk, project management, relationship, and employee risk emerged. Project management and employee risks along with prior relationships were found to significantly influence decision maker perceptions about application development outsourcing.
Section III Sectoral Applications and Case Studies Chapter VI Outsourcing in the Healthcare Industry: Information Technology, Intellectual Property and Allied Aspects...................................................................................................................................... 115 Amar Gupta, University of Arizona, USA Raj K. Goyal, VA Boston Health Care System, USA Keith A. Joiner, University of Arizona, USA Sanjay Saini, Harvard Medical School, USA
The healthcare industry is being impacted by advances in information technology in four major ways: first, a broad spectrum of tasks that were previously done manually can now be performed by computers; second, some tasks can be outsourced to other countries using inexpensive communications technology; third, longitudinal and societal healthcare data can now be analyzed in acceptable periods of time; and fourth, the best medical expertise can sometimes be made available without the need to transport the patient to the doctor or vice versa. The healthcare industry will increasingly use a portfolio approach comprised of three closely-coordinated components seamlessly interwoven together: healthcare tasks performed by humans on-site; healthcare tasks performed by humans off-site, including tasks performed in other countries; and healthcare tasks performed by computers without direct human involvement. Finally, this chapter deals with intellectual property and legal aspects related to the three-pronged healthcare services paradigm. Chapter VII Offshoring Entertainment and Media to India..................................................................................... 142 Alyssa D. Schwender, Lions Gate Entertainment, USA Christopher J. M. Leet, Intuit Corporation, USA This chapter explores opportunities for the offshoring of assorted processes in the global entertainment and media industry. Currently, this industry is experiencing incredible growth, much of it spurred by the increased digitalization of media production around the world. The rise of digital technology, faster global connectivity, an increased quality of downloads have been the driving factors behind this growth. The filmed entertainment, recorded music, and television networks and distribution sectors of the industry will undergo major technological changes in the coming years. These changes will provide opportunities for entrepreneurs to enter the global media industry. Using venture funding, startups are utilizing offshoring concepts to create a more efficient cost-effective means of doing business. The Asia Pacific market is currently the fastest-growing region, with India leading the way with offshoring of film functions. The industry will see a change from large media conglomerates as the sole owners of all media to smaller companies offering services, in which they specialize, to these larger companies, as digital media makes it easily accessible around the globe. Chapter VIII Outsourcing of Medical Surgery and the Evolution of Medical Telesurgery...................................... 157 Shawna Sando, University of Arizona, USA With rising and often unreasonable costs in the U.S. healthcare system, Americans are becoming more inclined to seek cheaper alternatives. In some cases, Americans do not have to search for such alternatives on their own because their employers are offering them incentives to receive care from a foreign institution. Employees can go abroad to countries, such as India, in order to receive medical services for prices that are at least half of what the procedure would cost in the U.S. This emerging market seems to be beneficial to all involved except U.S. healthcare providers; however, this outsourcing of healthcare services sends a powerful international message. It seems that the U.S. has a healthcare system that cannot adequately serve all economic classes of the American public. In contrast, though India has the proper facilities and professionals, there are concerns regarding malpractice litigation, postoperative care, and possible negative effects on the Indian public. Having given consideration to all affected constituencies, it seems that the
outsourcing of medical procedures is in the best interest of lower- and middle-class Americans as well as medical professionals in India. In reality, though medical tourism is receiving much attention, it will most likely not be a pressing concern for the American market in the near future. A widening discrepancy in the Indian public may, however, be cause for nearer concern. This new trend does foreshadow a push for more preventative changes in the business of U.S. healthcare, such as the development of information technology specific to the growing international healthcare market. Whereas, it will initially be beneficial to send patients abroad, with the evolution of technology, the latter ideal will instead be to have medical professionals abroad that care for patients located in the U.S. Chapter IX The Use of Outsourcing as a Business Strategy: A Case Study........................................................... 167 Ram B. Misra, Montclair State University, USA In this chapter, we discuss how a leading telecommunications software development company went about outsourcing some phases of the system development life cycle (SDLC) of network management systems in order to achieve both the short-term tactical goals as well as the long-term strategic goals. We present a framework consisting of seven factors that should be used by companies using outsourcing as a business strategy. This framework was used to analyze the outsourcing practices used by this company. The framework includes the driving forces for offshore outsourcing, the selection process of outsourcing vendors and the infrastructure (communication links, hardware, software, and organizational structure) that was needed to insure that the outsourced work meets company’s internal quality requirements, which are derived from CMM5 and ISO9001 certifications. We also present the challenges of making these things happen, what worked well, and the lessons learned.
Section IV National and Societal Implications Chapter X Changing IT Skills: The Impact Of Sourcing Strategies On In-House Capability Requirements....................................................................................................................................... 180 Christine V. Bullen, Stevens Institute of Technology, USA Thomas Abraham, Kean University, USA Kevin Gallagher, Northern Kentucky University, USA Kate M. Kaiser, Marquette University, USA Judith Simon, University of Memphis, USA The increasingly global sourcing of IT work and other socio-economic trends are prompting fundamental changes in the availability of IT skills needed in both client and vendor organizations. This chapter analyzes the results of a survey conducted in 2005, in which IT executives were asked to describe the skills they felt were critical to keep in house now and in 2008. The top ten current skills included three in project management, five in business domain and three in technical. In 2008, the top five emerging skills are almost all business domain while the top five exiting skills are all technical. Our findings indicate that the critical skills to keep in-house are primarily client-facing skills, even when they are
technical. Findings indicate that IT professionals need to have a balance that demonstrates a foundation in the traditional “hard skills” and experience with “softer” business-oriented skills. Chapter XI New Trends in Global Offshore Outsourcing: A Comparative Assessment of India and China............................................................................................................................................. 203 Suresh Sharma, JS3 Global, LLC Yuanyuan Chen, JS3 Global, LLC With the rapid rise of globalization, the challenge of global outsourcing today is not “Why and what to outsource?” but “How to outsource?” The theme today is “Let us do it right the first time.” The barriers to outsourcing are companies’ own mind-sets, local regulations, and the robustness of their internal processes. The domain knowledge in many industries has gone fully global. Likewise, new product development and R&D must be global in order to compete in emerging economies and to tap into global talent to compete globally. Software development and IT outsourcing can be done from anywhere, virtually! The availability of mobile technology and superior digital infrastructure is giving way to “distributed IT,” making “homes” as the future nodes of outsourcing factories. China and India have emerged as the major leaders in this industry due to their capacity, talent pool, and lower cost structure. This chapter compares their strengths, challenges, and growth potential based on the authors’ own hands-on experience of doing outsourcing in these countries for the past 15 years. Chapter XII The Role of Prisons in Offshoring....................................................................................................... 215 Whitney Hollis, University of Arizona, USA Outsourcing and offshoring are popular (and often controversial) trends in American business, yet not all outsourcing is done in foreign countries; many jobs are being sent to prisons, where inmates can provide low-cost, locally based labor. This trend has extended from a role in manufacturing to white-collar jobs, like telemarketing. This chapter analyzes this type of outsourcing in terms of the costs and benefits for business and consumers, as well as the social implications.
Section V Collaboration and the 24-Hour Knowledge Factory Chapter XIII The Role of Information Resource Management in Enabling the 24-Hour Knowledge Factory................................................................................................................................................. 226 Satwik Seshasai, International Business Machines (IBM) Corp., USA Massachusetts Institute of Technology, USA Amar Gupta, University of Arizona, USA The term 24-Hour Knowledge Factory connotes a globally distributed work environment in which teammates work on a project around the clock. The 24-Hour Knowledge Factory is a special case of a
globally distributed team in which the different teams work on a sequential basis that has been clearly defined in advance. Whereas a manufactured item was the end product in the case of the factory which emerged as a consequence of the industrial revolution, knowledge-based services and knowledge-based products are the end deliverables in the case of the current information revolution; hence, the term 24Hour Knowledge Factory. Work can be decomposed by task style or by organizational style, and allows for greater specialization of workers. A case study from IBM details surprising differences between colocated and distributed teams, and leads to a future state analysis for organizations seeking to study or implement the 24-Hour Knowledge Factory. Chapter XIV Outsourcing and Multi-Party Business Collaborations Modeling....................................................... 250 Lai Xu, Utrecht University, The Netherlands To remain competitive, enterprises have to integrate their business processes with their customers, suppliers, and business partners. Increasing collaboration includes not only a global multi-national enterprise, but also an organization with its relationship to and business processes with its business partners. Standards and technologies permit business partners to exchange information, collaborate, and carry out business transactions in a pervasive Web environment. There is however still very limited research activity on modeling multi-party business collaboration underlying semantics. In this chapter, we demonstrate that an in-house business process has been gradually outsourced to third parties and analyze how task delegations cause commitments between multiple business parties. Finally, we provide process semantics for modeling multi-party collaborations. Chapter XV Hybrid Offshoring: Composite Personae and Evolving Collaboration Technologies......................... 270 Nathan Denny, University of Arizona, USA Shivram Mani, Yahoo! Inc., USA Ravi Sheshu Nadella, University of Arizona, USA Manish Swaminathan, University of Arizona, USA Jamie Samdal, University of Arizona, USA Inspired by round-the-clock manufacturing, the 24-Hour Knowledge Factory endeavors to transform the production of software and other intangibles into a process of continuous development. While the concept of offshore software development is well established, few enterprises are currently able to develop the same code artifacts around the clock. We discuss the benefits of applying the 24-Hour Knowledge Factory to software development. We also present a representative scenario highlighting the problems of asynchronous communication in current offshore software development practices. Further, we introduce the notion of composite persona as a potential collaboration model within the 24-Hour Knowledge Factory and explain its ability to mitigate problems arising from communicating across cultures, languages, and time zones. Finally, we present a suite of new collaboration tools and techniques that are being developed specifically for use by composite personae in the 24-Hour Knowledge Factory.
Chapter XVI Agile Software Processes for the 24-Hour Knowledge Factory Environment.................................... 287 Nathan Denny, University of Arizona, USA Igor Crk, University of Arizona, USA Ravi Sheshu Nadella, University of Arizona, USA The growing adoption of outsourcing and offshoring concepts is presenting new opportunities for distributed software development. Inspired by the paradigm of round-the-clock manufacturing, the concept of the 24-Hour Knowledge Factory (24HrKF) attempts to make similar transformations in the arena of IS: specifically to transform the production of software and allied intangibles to benefit from the notion of continuous development by establishing multiple collaborating sites at strategically selected locations around the globe. As the sun sets on one site, it rises on another site with the day’s work being handed off from the closing site to the opening site. In order to enable such hand offs to occur in an effective manner, new agile and distributed software processes are needed, as delineated in this chapter.
Section VI Adaptation Paradigms for Academia and Industry Chapter XVII Information Systems, Offshore Outsourcing, and Relevance in the Business School Curriculum........................................................................................................................................... 303 William J. Tastle, University of Iceland, Iceland Ithaca College, USA Bruce A. White, Quinnipiac University, USA Ársaell Valfells, University of Iceland, Iceland Peter Shackleton, Victoria University, Australia Offshore outsourcing has been a growing phenomenon in recent years. Rarely will an IT professional pick up a trade publication or journal without some article relating to outsourcing or offshore outsourcing. This in turn raises the question for IS educators—what should we be doing to better prepare our graduates for a future where offshore outsourcing is a reality? This chapter looks at the following topics as they relate to IS curriculum matters for outsourcing: Offshore outsourcing and success factors, the skills needed to effective manage offshore outsourcing, a look at offshore outsourcing and the IS2002 model curriculum, suggested changes to IS2002 to incorporate offshore outsourcing education, and what skills from IS2002 are vital in preparing students for the future. Chapter XVIII Innovative Technological Paradigms for Corporate Offshoring.......................................................... 321 Tapasya Patki, University of Arizona, USA A. B. Patki, Department of Information Technology, India Internet technology has impelled us to develop faith in the modern practices of business, commerce, and trade. Offshoring has been viewed as a global phenomenon on the economic frontier. While new
technologies need to be framed, stopgap arrangements in the form of transient solutions to upgrade the current systems are also desired. Newer regulations and multi-jurisdictional compliance have profound impacts on the growth of outsourcing projects. The development of new technological solutions must challenge the myth that legislation and statutory practices are the only possible mechanisms to counter the unscrupulous activities in the context of outsourcing. A change in the outlook toward such methodologies is essential to shed away the technological inertia and latency. This chapter opens up discussion issues in the perspective of hardware and software requirements for efficient offshoring. The aim is to achieve higher precision, protection, and throughput by applying core-computing techniques to the existing practices of outsourcing. Chapter XIX Leveraging Knowledge Reuse and System Agility in the Outsourcing Era........................................ 342 Igor Crk, University of Arizona, USA Dane Sorensen, Raytheon Missile Systems, USA Amit Mitra, TCS Global Consulting Practice, USA Collaborative work groups that span multiple locations and time zones, or “follow the sun,” create a growing demand for creating new technologies and methodologies that enable traditional spatial and temporal separations to be surmounted in an effective and productive manner. The hurdles faced by members of such virtual teams are in three key areas: differences in concepts and terminologies used by the different teams; differences in understanding the problem domain under consideration; and differences in training, knowledge, and skills that exist across the teams. These reasons provide some of the basis for the delineation of new architectural approaches that can normalize knowledge and provide reusable artifacts in a knowledge repository.
Compilation of References ............................................................................................................... 363 About the Contributors .................................................................................................................... 395 Index.................................................................................................................................................... 405
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Foreword Lester C. Thurow Jerome and Dorothy Lemelson professor of Management and Economics Former Dean MIT Sloan School of Management
The secret to higher GDP per person is working smarter, not harder. Two realities, a personal observation and what I learned as a professional economist, lead to this conclusion. As an economist working in Pakistan in the early 1970s, I saw Pakistani peasants working hard the way no American does. Yet they had per capita GDP just a fraction of that in the U.S. Second reality: economic historians believe that as late as 1700, there was no significant difference between countries in terms of their per capita GDPs. The richest country was close to being the poorest country. Most people, 98% or more, were farmers and everyone did their farming in the same way: human or animal power, seeds collected from the last crop, and human or animal manure. Today the income ratios between the richest countries and the poorest are at least 120 to 1. In between these two realities, three industrial revolutions, opportunities to work smarter, occurred. The steam revolution occurred in the late 1700s; in the late 1900s, the electrification revolution and the R&D revolution occurred. Today, we are in the midst of the third industrial revolution: new technologies, globalization, and the end of communism or socialism are producing a new economy. This is a book about globalization and the emergence of the 24-Hour Knowledge Factory. Here the opportunity is not to make the thing cheaper by outsourcing (although that might happen), but to make things much faster by taking advantage of differences in the world’s time zones to do one’s R&D or production around the world so that the time to market, the time it takes to reach the consumer is much shorter than it was. In this global economy, the question is not what “can be” moved abroad (everything “can” be moved abroad), but what “should” be moved abroad. One can judge a developing country is good or bad at taking advantage of the third industrial revolution, by what fraction of foreign direct investment (FDI) it gets. This is a number that includes the developed world’s investments in commodities such as oil. China is the best country in terms of attracting FDI. It gets $60 billon out of a total of $100 billion although it has few investments in commodities. It has the best educated population in the developing world. In a few years, it will have more university educated engineers than the U.S. Further, it can easily move 500 million people out of farming and into industry. India, another rapidly growing developing county with even lower wages, by contrast, gets only a few billion in FDI. Yet it still dominates outsourcing in services because it has millions of educated Indians who speak English and work for very low wages. More than 80% of Americans work in service companies. Eventually almost everyone will work in services. Services are what I call a garbage category. One carefully defines farming, manufacturing, and mining. Everything else, obtained by subtraction, is a service. India may get very little FDI, but it is in a growth sector. Countries can prevent FDI in themselves; Central Africa has, but to stop FDI is to stop development.
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Central Africa has almost no contact with the outside world. Other than commodities, it gets almost no FDI. It has few exports except raw materials. Not surprisingly, it is one of the few places in the world that has a falling per capita GDP. Central Africa has gone from being an area that had a per capita income above that of Asia to an area that has a per capita income below that of Asia. As Central Africa demonstrates, to stop globalization in one’s own country is to stop economic development in one’s own country. The attempt to stop globalization on a world scale (the death of the Doha WTO negotiations) does no better. By wishing to protect its farmers, the wealthy world gives up its chances to get a global system of intellectual rights protection (IPR) protection from the developing world. We kill the new economy (new firms with new products protected by IPR) to protect the old economy (farms). The question is not what “can be” moved abroad, but what “should be” moved abroad. In the end, the question is not who is willing to move what abroad, but who is willing to innovate. A recent outside study involving the institution where I teach, MIT, illustrates the importance of innovation. MIT graduates have founded 4,000 firms that provide 1.1 million new jobs. And this study looks just at American firms. It does not count firms such as MITSUI in Japan (founded by an MIT graduate) that have created many more. While it is fashionable to talk about the new economy, we still live in an economy dominated by the old. If one looks at the Fortune Global 500, 9 of the 10 largest companies depend on oil (oil and auto companies). The oil companies look for and produce oil much the way they did 100 years ago, and the auto companies make cars (the assembly lines) and sell cars much the way they did 80 yeas ago. The one non-oil company in the top ten is “Wal-Mart.” But it also sells goods much as department stores did 80 years ago. The old economy is very much alive and well. Are you in the old economy or the new economy? This book helps you to find out. It is also fashionable to talk about listening to the consumer. While this advice is often right, it is not always right. Think of the cell phone! It was invented by the old AT&T: yet it sold the rights to the cell phone cheap because it thought that the cell phone had no future. The consumer cannot tell you whether he or she likes something that has not yet been invented or used. Products have to be introduced and tried before the consumer knows whether he or she does or does not like them. This book helps one to figure out whether one should create a new product or service, in such situations, by optimizing the R&D and production processes using resources in multiple countries. The globalized economy produces inequality. The income of the rich goes up vis-a-vis that of the middle class. This is exactly what economic theory predicts. The factor abundant in the world economy falls in wage, and the factor scarce in the world economy rises. In the global economy, middle-skill people are much more abundant than high-skill people. As such, the wages of the mid-skilled persons fall and the wages of the high-skilled individuals rise. Since the rich (the high skilled) also own capital (the factor in the world economy that is in scariest supply), the returns to capital rise and the rich gain doubly. Their wages rise, and their return to capital also rises. When one adds factors such as health care (part of wages as seen from the perspective of the employer) to wages, the middle class has to take a big cut in wages to get down to world levels. The auto parts maker, Delphi, has told its bankruptcy judge that it needs a cut in wages from $66 per hour to $16 per hour in order to be competitive. Countries, as well as companies, have to learn some new lessons in the new global economy. Countries have to learn that in the world of the 24-Hour Knowledge Factory, they can collect only two taxes, the value added tax (VAT) and the personal income tax. They know where a person lives so they can collect personal income taxes. They also must rebate taxes on exports to keep their products competitive in world markets. At the same time, they must collect taxes to help pay the cost of government programs. The answer is a VAT tax on imports. German products may be made in China, but German taxes must be paid when they are sold in Germany.
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Countries that realize this reality quickly win (think of Ireland) and those who recognize this reality late (think of England) lose. In the late 20th century and for the first time in history, Ireland has a per capita GDP above that of England. And it got there quickly (since the early 1970s) by changing its tax system, specifically by getting rid of the corporate income tax. Foreign corporations, mostly American, made big investments in Ireland (they produce 80% of the Irish GDP) to get the low taxes and to service the European market. If England were to now adopt the Irish tax system, few of these firms would move to the UK. England loses! Finding your way around the global economy requires a guide. It cannot be done by instinct (another term for knowledge gained from past experience or history). The 24-Hour Knowledge Factory is such a guide for the era of globalization and outsourcing!
Lester Thurow has been a professor of management and economics at MIT for more than 30 years, beginning in 1968. He was dean of the MIT Sloan School of Management from 1987 until 1993. A 1960 graduate of Williams College, Thurow received his MA in 1962 on a Rhodes Scholarship at Balliol College (Oxford), and his PhD in Economics from Harvard University in 1964. He taught at Harvard from 1966 to 1968 after a term as a staff economist on President Lyndon Johnson’s Council of Economic Advisers.His formal academic work focuses on globalization, economic instability, and the distribution of income and wealth. He writes for the general public in a number of American and international newspapers. He has been featured twice on 60 Minutes and has been on the cover of Atlantic magazine. A prolific writer, Thurow is the author of several books, three of them New York Times best sellers, aimed at a general audience. Head to Head: The Coming Economic Battle Among Japan, Europe and America, 1992, looked at the nature of the global economic competition. It was on the New York Times bestseller list for more than 6 months. His 1996 book, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World, looked at the forces changing the structure of the world economy. And his latest book, Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledge-Based Economy analyzes how the new knowledge-based economy works. In the past, Dr. Thurow has served on the Editorial Board of the New York Times, as a contributing editor for Newsweek, and as a member of Time magazine’s Board of Economists. He is a fellow of the American Academy of Arts and Sciences, and served as vice president of the American Economics Association in 1993.
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Preface
Overview Outsourcing refers to the phenomenon of having someone else do the work for you. Offshoring refers to the situation when such work is performed in a different country. If you go out to a restaurant, this is outsourcing; somebody else spent the time and energy to provide the meal to you. If you call a company for a loan and get connected to an operator in a call center located in another country, then this is a case of offshoring. With the advent of high bandwidth telecommunications links and the diminishing costs of computers and telecommunications infrastructure, a growing number of companies are opting to perform increasing types of professional services in foreign countries. To some, this represents an unprecedented opportunity to reduce costs and to nucleate new strategic relationships. To others, the new phenomenon represents a major threat to current prosperity and levels of employment. Outsourcing, especially offshoring, of professional services is receiving increasing attention at all levels: business, technical, political, strategic, and economic. At the strategic level, we need to explore new models of operation, and delineate the optimal model for adapting to the changing operating environments in which business partners work together in a geographically dispersed environment. At the organizational level, we must research new relationships between suppliers and buyers. At the technical level, we need to analyze new paradigms for effective collaboration that can mitigate the current overheads involved in geographically dispersed work centers. At the economic level, we need to conduct objective analysis of costs and benefits that accrue to the individual worker, to the host environment, to the sponsoring company, to the operating company, and to the concerned states and countries.
Relevance of Topic in Today’s World In 1980, the author of this book was completing a master’s degree in management and a doctorate in computer science, both in parallel. Potential employers were interested in the former degree or the latter degree, but not both. During an interview with a very large international banking company in New York, he mooted the idea of that company hiring him to do software development activities in India. The country vice president who was interviewing the author reacted, “This is the most ridiculous idea that I have heard in my life.” Among the many reasons that he gave for this opinion, the vice president said, “I thought that you were completing a doctorate in computer science. You should know that when programmers are located near the users in New York, they have great difficulty in understanding what the users want; increasing the separation by thousands of miles will greatly aggravate the problems…. and the difference in time makes your proposition even more unrealistic.” Despite such strong initial reservations, this multinational company holds the honor of being the first financial organization to establish software development facilities in Asia!
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Now there are numerous examples of offshoring of services. The innovations in communications technology, the advent of voice-over-IP technology, and the drastic reductions in prices for such technologies are all facilitating the process of offshoring. Information technologies provide the foundation for offshoring of professional activities. Conversely, offshoring of projects is catalyzing new information technologies and methodologies. By conducting projects on a global basis, one can reduce costs as well as gain access to greater numbers of qualified and trained professionals. The outsourcing of professional services across corporate and national boundaries became feasible by rapid advances in several technologies. In particular, Internet technology is the pivotal technology that allows sponsor organizations in one country to exchange information synchronously or asynchronously with host organizations in other countries at negligible costs. Further, Internet technology serves as the backbone for Internet telephony, which links corporate personnel to customers and clients, located in other continents, via telephone. The rapid adoption of offshoring concepts has been catalyzed by four major unrelated factors. First is the growing disparity of wages for similar work across countries. When such imbalance took place in previous centuries, individuals would move from lower-wage countries to higher-wage countries. The wages in the former set of countries would gradually increase, and the wages in the latter set of countries would gradually decrease. The increasing prevalence of barriers to immigration and the growing requirement for work visas have eroded the traditional means for wage equalization, creating significant disparity in wages that, in turn, encourages offshoring to take place. The second major reason is entirely incidental. In year 1999, companies in many countries were scrambling to take care of the Y2K problem. This was an endeavor on which no extensions in time were possible; all work had to be completed by December 31, 1999. This inflexibility in the time schedule forced countries and companies to become more flexible in terms of utilizing foreign workers. Two mechanisms were adopted: the immigration barriers were temporarily lowered to allow foreign workers to come in and help, on a temporary basis; and the offshoring of applications, including ones previously deemed to be too critical, for being made Y2K compliant by a company located in another country. When the Y2K work was successfully completed in time, the sponsor companies felt that the new work models could be used to address other types of work as well. The third key reason is related to the European Economic Community making the critical decision to move from multiple national currencies to the Euro. This conversion was unprecedented, both in terms of the number of countries involved and the very small time mandated for the change. Companies, government agencies, and other organizations had to make transformations very fast in order to continue with their respective operations. In essence, this had the same net effect as the one described in the previous paragraph. The fourth major factor was the concerted effort made by several countries, mostly developed countries, during the nineties to eliminate or drastically reduce the tariff and non-tariff barriers to the movement of computer and communications equipment across national boundaries. The availability of inexpensive computer hardware from foreign countries had the initial impact of decimating the domestic industries of the importing countries. However, over time, this same hardware has enabled such countries to become more competitive in terms of producing software and other knowledge-based services for the global market, including the countries that produced the concerned hardware in the first place. This in turn has led to a round of introspection in developed countries. In the 2004 United States Presidential election, outsourcing was a popular and controversial issue. Focusing on the consequences for the domestic workforce, companies were criticized for offshore outsourcing and the implications of such arrangements for taxes and the transfer of labor to external entities. Based on earlier experience, offshore outsourcing is likely to witness greater attention during future election years.
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Offshoring was initially motivated by considerations of attaining lower costs. Now, offshoring operations are evolving from short term “tactical” relationships into more mature, long-term “strategic” partnerships. These may evolve to become “24-Hour Knowledge Factories” that will involve three or more centers around the world collaborating closely in a continuous cyclic manner. As the sun sets on one collaborating work center, that center turns off. At the same time, the sun rises on the next work center; the latter center turns on and continues the work of the previous center. Just as the Industrial Revolution of the 18th and 19th centuries led to many major innovations, the 24-Hour Knowledge Factory holds the potential to shape the future of business, culture, and even nations.
Organization of Sections and Chapters This book is organized as a set of six sections in order to address the full breadth of issues that characterize outsourcing. The headings of each section, as well as the contents of each section, are summarized in the following paragraphs.
Section I: Executive Highlight This section delineates the major theme of this book: while the notion of offshoring was initially embraced to benefit from lower costs of labor, the motivation for offshoring will be increasingly driven by strategic considerations. In the sole chapter that comprises this section, Gupta, Seshasai, Mukherji, and Ganguly highlight that the nature of offshoring is evolving from an emphasis on savings in cost of labor to new, more complex, and longer-lasting strategic partnerships. They proceed to develop an analytical model that demonstrates the superior returns on strategic offshore partnerships as compared to the typical low-cost service centers that are currently prevalent. In this context, the authors introduce the 24-Hour Knowledge Factory, a new multinational organizational structure that better exploits geographic distribution for mutual benefit of the participating parties. Finally, a case study provides insights into the operations of a globally distributed work environment.
Section II: Foundations and Frameworks This section of the book focuses on the forces that govern the offshoring arena and the new paradigms that are emerging to help understand the dynamics of the evolving trends. In the first chapter of this section, Gupta, Gantz, Sreecharana, and Kreyling cover four issues. First, they examine evolving international conventions to determine whether countries, especially developed countries, can take any steps to inhibit offshoring with the objective of protecting jobs in their respective countries. Second, it looks at statistics from independent sources to see if outsourcing exceeds insourcing, or vice versa, in the case of the US. Third, it looks at trends in outsourcing in the legal arena. Fourth, it looks at the intellectual property aspects of outsourcing and presents a long-term vision on how this difficult issue is likely to be addressed in the long-term. In the second chapter, Raisinghani and his co-authors note that the increase in offshore operations is leading to negative experiences and unpredicted results at a number of companies. Their analysis focuses on operational and strategic risks and success factors. Their research reaffirms the importance of risk identification and the formulation of strategic plans that include preventive, detective, and corrective control methods of implementation and evaluation.
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In the third chapter, Yadav and Gupta apply a paradigmatic and methodological approach to analyze the academic literature on information systems (IS) outsourcing and business process (BP) outsourcing. First, they examine the status of outsourcing research over 10 years (1995 to 2005) in eight leading academic journals, with the objective of comparing the current research trends with earlier research directions. Second, they analyze the research paradigms delineated in these research papers using an Operations Research Paradigm framework. Third, they compare and contrast the outsourcing research work published in three leading European Journals with the work published in three leading American journals. In the fourth and concluding chapter of this section, Benamati and Rajkumar describe their model of Application Development Outsourcing Acceptance, which is based on the technology acceptance model (TAM). The model is based on the contention that the perceived usefulness and ease of use of outsourcing mediate the effects of the external environment, prior outsourcing relationships, and risks on decision-makers’ attitudes toward application development outsourcing. Of the 3,000 decision makers who were contacted, 160 respondents provided data to confirm the applicability of TAM and the influences of these external variables. Three subdimensions of risk, project management, relationship, and employee risk, emerged.
Section III: Sectoral Applications and Case Studies This section of the book focuses on how offshoring is leading to new trends in different sectors of the economy. The growth of offshoring is impacting major sectors and it is possible to consider only a subset of them. The sectors chosen for this section were selected based on the unique characteristics of these sectors. Several of these sectors have not been considered in any book that has been published so far. In the first chapter of this section, Gupta, Goyal, Joiner, and Saini present a vision of how the healthcare industry will be transformed by advances in offshoring and information resource management. After analyzing several healthcare scenarios in detail, the authors conclude that healthcare will increasingly use a portfolio approach comprised of three closely coordinated components seamlessly interwoven together: healthcare tasks performed by humans on-site; healthcare tasks performed by humans off-site, including tasks performed in other countries; and healthcare tasks performed by computers without direct human involvement. Organizations that impede or otherwise restrict the use of this multifaceted approach will see higher healthcare costs, and will gradually become less competitive in the global marketplace, as is happening with non-adapting organizations in several other sectors of the economy. Finally, this chapter deals with intellectual property and legal aspects related to the three-pronged healthcare services paradigm. In the second chapter, Sando contends that with rising and often unreasonable costs associated with the U.S. healthcare system, Americans are becoming more inclined to seek cheaper alternatives. In some cases, their employers are offering them incentives to receive medical care at foreign institutions. Individuals can go abroad to countries and can receive medical services at prices that are half of what the procedure would cost in the U.S. After considering all affected constituencies, she concludes that the outsourcing of medical procedures is in the interest of lower- and middle-class Americans. This new trend foreshadows a push for changes in the business of U.S. healthcare. While in the initial phase, the patients need to travel abroad, the evolution of newer telesurgery concepts will enable medical professionals located abroad to perform medical procedures on patients located in the U.S. In the third chapter, Schwender and Leet examine the benefits of offshore outsourcing processes in the global entertainment and media industry, both to reduce costs as well as to better manage the quality
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and the time-to-market of entertainment industry products, such as films. Citing the rise of digitalization and faster global connectivity, they assert that global accessibility and advances in IT technology are the driving forces for the growing reliance on Asia-Pacific’s burgeoning media production industry. This chapter shows that increasing subsets of the media and the entertainment industry will be offshored over time, and that such offshoring will be in multiple directions in terms of both countries and companies. In the fourth and concluding chapter of this section, Misra describes the use of outsourcing as a business strategy at a leading telecommunications software development company. He presents a framework consisting of seven factors that can be used by companies that intend to utilize outsourcing as a business strategy. This framework includes the driving forces for offshore outsourcing, as well as the selection process of outsourcing vendors and the infrastructure (communication links, hardware, software, and organizational structure). He also presents details of what worked well, what did not, and the lessons learned.
Section IV: National and Societal Implications This section of the book focuses on the impact that offshoring is having, and will have, on nations and societies. It also examines the growing importance of India and China. Partly with the objective of decreasing the costs of U.S. labor, some states in the U.S. are beginning to use prison labor to perform call center work and allied tasks. This trend is also analyzed in this section of the book. Job loss is a pivotal issue facing organizations that are engaged in offshoring. Many people view jobs sent abroad as detrimental to the domestic economy, a programmer in India replaces a programmer in the U.S. However, these assumptions may not be true, according to experts in the field. In the first chapter of this section, Bullen, Abraham, Gallagher, Kaiser, and Simon present an analysis of a survey of IT executives. The authors find that domestic jobs will not be lost, but will experience a movement further up the value chain. The authors stress the perceived growing importance of client-facing skills and effective project management. From this analysis, the authors recommend a course of action for mid-level workers, as well as a reform of domestic IT education policies and curriculum. The second chapter provides a comparative assessment of India and China. Sharma and Chen contend that the challenge of the global outsourcing today is not “Why and what to outsource?” but “How to outsource?”. The current theme is “Let us do it right the first time.” The availability of mobile technology and superior digital infrastructure is giving way to “distributed IT,” making “homes” as the future nodes of outsourcing factories. The barriers to outsourcing are companies’ own mind-sets, local regulations, and the lack of robustness of their internal processes. The authors compare the relative strengths, challenges, and growth potential of China and India, based on their hands-on experience of offshoring to these countries over the past 15 years. The third and concluding chapter of this section examines the role and impact of prisons in offshoring. After visiting a call center at a prison in Arizona and talking with several concerned persons, Hollis observes that the outsourcing phenomenon should not be viewed in the context of foreign countries only; many jobs are being sent to prisons in the U.S., where inmates can provide low-cost, locally based labor. While prison labor has been utilized in manufacturing activities in the past, the new trend is to extend this notion to white-collar jobs, like telemarketing. This chapter analyzes this new type of outsourcing in terms of the costs and benefits for business and consumers, as well as the underlying social implications.
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Section V: Collaboration and the 24-Hour Knowledge Factory This section of the book attempts to delineate the end scenario of the ongoing advances in technologies and approaches to offshoring. Today, offshoring is viewed as an “us” (in the U.S.) vs. “they” (in lowcost countries) issue. Over time, we will individuals from multiple countries collaborating to create a “win-win” situation. The steady state will be characterized by a hybrid offshoring model that involves multiple sets of workers, based in multiple continents. Such workers could be employed in a sequential manner to create the appearance of non-stop work, as in the case of the 24-Hour Knowledge Factory paradigm. The latter concept, akin to the concept of shifts in the manufacturing industry, can significantly reduce development time and costs. In the first chapter of this section, Seshasai and Gupta introduce the 24-Hour Knowledge Factory as a global work environment where work is passed between individuals in other time zones on a daily basis. The evolution of this model is described from its foundation in manufacturing to an example implementation in software development. A pilot study, conducted at IBM, utilized a set of advanced tools for gathering social and technical data from repositories as diverse as source control systems and team meeting minutes. This pilot study provides good insights into how the 24-Hour Knowledge Factory concept will operate in a commercial setting. The chapter concludes with a set of recommendations for leveraging information resources to achieve the ideal 24-Hour Knowledge Factory. In the second chapter, Xu emphasizes that in order to be competitive, enterprises must integrate their business processes with those of their customers, suppliers, and business partners. However, very limited research activity has occurred so far on modeling multiparty business collaboration underlying semantics. To address this void, Xu introduces a semantic modeling language that can describe the structure, commitments, and behavior of multiple collaborating parties. She describes this modeling language by references to speech act theory, and includes an interesting example of how it can be applied within a business, as it gradually outsources some of its functions. In the third and fourth chapters, Denny and his coauthors provide a blueprint of the final stable-state scenario for offshoring. This scenario will involve both onshoring and offshoring, and can therefore be termed as hybrid offshoring. The 24-Hour Knowledge Factory will use three or more strategically located centers to transform the production of software and other intangibles into a process of continuous development. In the third chapter, the authors introduce the notion of composite persona as a potential collaboration model, and highlight its capabilities to mitigate problems arising from communicating across cultures, languages, and time zones. In the fourth chapter, the authors look at the issues involved when work-in-progress is handed off from one site to another. In order to enable such hand-offs to occur in an effective manner, new agile and distributed software processes are needed, as delineated in this concluding chapter of this section.
Section VI: Adaptation Paradigms for Academia and Industry This section of the book looks at options that academia and industry can and should take to address the realities of a global economy based on extensive offshoring. In particular, the first chapter of this section looks at options for the academic arena, and the concluding chapter contains pragmatic suggestions on how industry can create agile outsourcing structures, leverage available knowledge on a repetitive and incremental basis, and nurture the capability to move from one host environment to another, as and when needed. In the first chapter of this section, Tastle, White, Valfells, and Shackleton propose changes to the current IS2002 curriculum to incorporate offshore outsourcing education. They identify four options
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for successfully integrating offshore outsourcing education in the current curriculum. The authors argue that such education will benefit small- or medium-sized companies too, due to the growing complexity of contract law, contract management, and negotiation in the evolving outsourcing environment. In the second chapter, Patki and Patki profess that technical solutions should be sought for integration with current systems and practices. They present a broad collection of problems that they frame in the context of fuzzy logic and rough set theory. Based on the theoretical framework, they present insights into how these methods of reasoning can be utilized to make outsourcing more reliable and secure. In the third and concluding chapter, Crk, Sorensen, and Mitra consider collaborative work groups that span multiple locations and time zones, in terms of the underlying hurdles such as differences in concepts and terminologies between teams; difficulties in understanding the common problem under consideration; and differences in training, knowledge, and skills between teams. They propose an architectural approach for normalizing knowledge and for providing reusable artifacts in a knowledge repository. A framework for knowledge object management is also presented and compared to existing common frameworks showing that that the proposed framework represents a superset of existing frameworks and facilitates greater expressiveness and agility.
Contribution to Subject Matter In the spring of 2004, the first course on outsourcing of professional activities was taught at the MIT Sloan School of Management by the author and Professor Lester Thurow, with support from four graduate teaching assistants. Subsequently, courses of this topic have been introduced at several other universities. Faced with the shortage of independent research on economic aspects of offshoring and a general paucity of literature on professional outsourcing activities, the author and one of his teaching assistants (Satwik Seshasai) wrote a proposal for a special issue of ACM Transactions on Internet Technology that was devoted to “The Internet and Outsourcing”. After the proposal was accepted, the author found that while the technical aspects could be discussed in the special issue of ACM Transactions on Internet Technology, additional mechanisms were needed to provide coverage of business, economic, policy, and other aspects of outsourcing and offshoring. Accordingly, additional special issues and sections of several journals have been published, all devoted to offshoring. Offshore outsourcing raises interesting issues, from an academic perspective, at multiple dimensions. Alternative models of operation and adaptation to a changing global business environment are necessary at the strategic level. The organizational level holds different challenges as new relationships between buyers and suppliers are defined. At the technical level, the overheads involved in cooperating between geographically dispersed work centers have to be mitigated with novel collaboration paradigms. At the economic level, one needs to conduct an objective analysis of costs and benefits accrued to each worker, host environment, operating company, and states or countries involved in the effort. This book includes a very select group of manuscripts on diverse aspects of offshoring written by individuals with varied backgrounds. Each of them sees offshoring from a different vantage point. Initially, authors were invited to submit manuscripts based on their own feelings. This resulted in some key aspects of offshoring receiving great attention, and others getting neglected. In areas that were covered by multiple manuscripts, a multi-tier process was utilized to select the best subset and to further enhance the quality of papers in that particular subset. In the case of topics that were not adequately addressed in manuscripts submitted for consideration, personal invitations were sent to relevant domain experts to write on very specific issues. Most of such authors responded positively to the invitation. The material provided by such authors has been included in this book, and has not been published elsewhere.
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This book reflects the culmination of work performed over a 4-year period. It presents both the pros and cons of offshoring, provides multiple frameworks and paradigms, and encourages the reader to conduct a customized analysis on what is appropriate and optimal in a given situation. It also projects that the “us” vs. “they” syndrome will be gradually replaced by hybrid offshoring models that will involve close collaboration among workers in different countries and that will provide mutual benefits to the concerned individuals, organizations, and other entities. In particular, just as the industrial revolution had a major and lasting impact on nations, the 24-Hour Knowledge Factory model will lead to a similar restructuring of the global work environment. Amar Gupta University of Arizona
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Acknowledgment
Nearly 100 persons have contributed in some form to this book. Many of the authors of chapters in this book served as reviewers of manuscripts submitted by their peers. The list of additional reviewers includes the following experts: Manish Agrawal (University of South Florida) Kirk Arnett (Mississippi State University) Ravi Aron (University of Southern California) Shoey Au (State University of New York Upstate Medical University) Elisa Bertino (Purdue University) Subrata Chakrabarty (Mays Business School, Texas A&M University) Peter Chen (Louisiana State University) Rafiq Dossani (Stanford University) Patrick Fan (Virginia Polytechnic Institute) Mark Gaynor (Boston University) Heiko Gewald (Johann Wolfgang Goethe-Universität) Mukul Gupta (University of Texas, San Antonio) Shane Greenstein (Northwestern University) Lorin Hitt (University of Pennsylvania) Jeevan Jaisingh (Hong Kong University of Science and Technology) Arjun Kalyanpur (Teleradiology Solutions) Elizabeth A. Krupinski (University of Arizona) Stephen Lane (Infosys) Moustapha Lemine (IBM) Chuck Litecky (Southern Illinois University) Motiwalla Luvai (University of Massachusetts Lowell) Harvey Meislin (University of Arizona) Steve Moulton (Boston University) Benson S. Munger (University of Arizona) Sham Mysore (IBM Corporation) S. P. Raj (Cornell University) H. R. Rao (SUNY Buffalo) Indrakshi Ray (Colorado State University) Robert Rieger (University of Arizona) Vinayak Sambargi (University of Arizona) Ramesh Sankaranarayanan (University of Connecticut)
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Surendra Sarnikar (Dakota State University) Mohan Sawhney (Northwestern University) Shu Schiller (Wright State University) E. Sridharan (University of Pennsylvania) N. Venkatraman (Boston University) Phil Verghis (The Verghis Group) Dwayne Whitten (Texas A&M University) Gio Wiederhold (Stanford University) Jack Woodburn (University of Arizona) Li Xiong (Emory University) Wei Yue (University of Texas, Dallas) I am indebted to all of the above individuals for their time and effort. I also thank David Smith and several others who assisted me in the overall endeavor between 2004 and 2008. Work on this book was performed by me at the University of Arizona and at MIT. I thank both these educational institutions for facilitating my professional endeavors. Finally, I am indebted to nearly a dozen individuals at IGI Publishing for their continuing support of my publishing activities, both in terms of books and special issues of journals. Amar Gupta University of Arizona
Section I
Executive Highlight
Chapter I
Offshoring:
The Transition from Economic Drivers Toward Strategic Global Partnership and the 24-Hour Knowledge Factory Amar Gupta University of Arizona, USA Satwik Seshasai International Business Machines (IBM) Corp., USA Massachusettes Institute of Technology, USA Sourav Mukherji The Indian Institute of Management, Bangalore Auroop Ganguly Oak Ridge National Laboratory, USA
Abstract The changing economic and labor conditions have motivated firms to outsource professional services activities to skilled personnel in less expensive labor markets. This offshoring phenomenon is studied from a political, economic, technological and strategic perspective. Next, an analytical model is developed for achieving strategic advantage from offshoring based on global partnerships. The model studies the impact of offshoring with respect to the complexity and strategic nature of the tasks and presents a decision strategy for obtaining value through offshoring of increasingly complex tasks. The result is an integrated “24-Hour Knowledge Factory” that is based on a sustainable global model rather than a short term fiscal model. This 24-hour paradigm embodies the shift-style workforce that evolved for the manufacturing sector during the Industrial Revolution and relies on a set of critical success factors in the current environment. A case example is provided from IBM to illustrate these underlying critical success factors.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Offshoring
PROLOGUE The idea of Citibank developing software in India makes no sense at all. Software needs to be developed by people who can meet frequently with the persons who will use the software, so that frequent interaction can occur among the concerned persons at all stages: prior to development, during development, and after development. Even if we assume that such interaction could occur without frequent face-to-face meetings (and I don’t agree with this at all), the time difference between India and the U.S. will make it impossible for the concerned persons to talk by phone. Further, Citibank has virtually no presence in India, and doing business in India is very difficult; so if computer software has to be developed in Asia, we would probably do it in the Philippines where we have significant business presence and there are trained programmers who can interact well in India. In the context of our banking business, the cost on computers is very small. We are not looking for reductions in cost; we are looking for ways to expand our banking business. The previous opinion was conveyed by the then vice president of Citibank, Korea, in a meeting at the corporate headquarters of Citibank in early 1980s to one of the authors (Gupta) of this chapter. At that time, the latter was completing his MBA at MIT Sloan School and his doctorate in computer science. Based on his prior experience of working in India, he was trying to convince multinational companies about establishing new business endeavors in non-traditional host environments. If U.S. is the ideal place to produce certain kinds of goods and Japan is the right place for others, then India should be a good place to develop software on the basis of its core competency of having inexpensive, highly educated, English-speaking programmers. After the previous interaction with Citibank in New York, the concerned author met with the top executives of Citibank in India and the idea progressed further. While the particular author opted not to join Citibank as an employee,
the idea eventually blossomed into Citibank Overseas Software Limited.
CURRENT SITUATION With a growing labor market abroad and a challenging economic situation in U.S. and several other developed countries, large and small firms are making the push to outsource professional services to highly skilled personnel in less expensive labor markets abroad. A Nasscom-McKinsey study cited a 34% increase in Indian software and services export from 2004 to 2005, from $12.8 billion to $17.2 billion (Nasscom-McKinsey, 2005). This study states that by 2010, the U.S. IT and BPO offshoring market will be $55 billion. The current situation of reduction in costs vs. loss of jobs, at least in the short-run, bears some similarity to the dilemma faced by the automotive industry in the early eighties when some of the parts began to be manufactured in lower cost countries such as Mexico. At the time, some observers perceived that too many U.S. jobs were being sent offshore, and that the impact to the U.S. economy would certainly be negative. However, a detailed analysis of that situation highlighted the danger of adopting a restrictive policy. This analysis revealed that increasing global competition required the United States automobile companies to outsource manufacturing to a certain degree, or to risk losing the world market to other countries that could produce cars cheaper and better. As Lester Thurow puts it: “There were only two long-term viable alternatives: either half the car is produced in Detroit and the other half in Mexico, or the whole car is produced in Japan. By attempting to use legislative measures to tilt the balance in favor of Detroit over Mexico, one would in fact be tilting the balance in favor of Japan (Thurow, 2003).” The subsequent events have validated this assertion and the efficacy of the hybrid model.
Offshoring
Professional services, especially IT services such as software development and technical support, are at a similar stage, with some constituencies of the society using cost and time considerations to encourage outsourcing while other segments of the society applying pressure to maintain jobs within the U.S. Reports from leading industry groups on offshoring contain a base assumption that offshoring is a cost-driven activity. A 2006 Association of Computing Machinery (ACM) report describes opportunities for nations to benefit from offshoring due to comparative advantage but does not discuss the potential of a global workforce (Asprey, Mayadas, & Vardi, 2006). The report does describe the opportunities for all nations to benefit due to economic theories of comparative advantage, however it does not discuss the opportunity to utilize a globally distributed workforce to transform the dynamic within which offshoring is conducted. Similar reports from the Institute of Electrical and Electronics Engineers (IEEE) and the National Society of Professional Engineers (NSPE) also describe offshoring in the context of cost-savings and advocate offshoring only when talent is not available in the U.S. as well as training programs to improve talent in the U.S. (IEEE, 2004). Of the approximately $1.45-$1.47 of value derived from every dollar spent offshore, U.S. firms receive $1.12-$1.14, while foreign firms receive only 33 cents of the value (McKinsey, 2003). Further, if income taxes paid by H1-B visa holders, and software and service imports by India are considered, outsourcing provides an aggregate benefit to the U.S. economy of $16.8 billion (Endleman, 2003). Another factor to be considered is that the average age of the U.S. working population is declining, and the U.S. Census figures indicate that the U.S. will require an additional 15.6 million workers to maintain the current working population in 2015 (Economic Times, 2003). The 24-Hour Knowledge Factory concept described at the end of this chapter broadens the
view of offshoring from a cost-savings exercise to a strategic optimization of globally distributed workforce. We describe a framework for transforming to a strategic global partnership and employing a 24-hour model of continuous work on knowledge-based deliverables (Seshasai, Gupta, & Kumar, 2005; Gupta, 2007).
POLITICAL PERSPECTIVE In November 2003, Governor Joe Kernan of Indiana canceled a $15.2 million contract with Tata America International Corp., a New Yorkbased subsidiary of Tata Consultancy Services (TCS). The Tata entity had won the contract over competing bids from Accenture LLP and Deloitte Consulting LP; its own proposal was $8.1 million to $23.3 million less than those of its competitors. The late Governor Frank O’Bannon had approved the contract before his death in September 2003. Up to 65 contract employees were stipulated to work alongside 18 state workers. All work was to be done at the Indiana Government Center, but the selected vendor was free to bring in additional workers from anywhere and pay them as it deemed fit. No Indiana-based companies had submitted proposals. Governor Kernan stressed that his decision to cancel the contract did not reflect on the ability of TCS to complete the job or any other shortcomings. Stuart Anderson of the National Foundation for American Policy and Cesar V. Conda, former domestic policy adviser for Vice President Cheney, highlight the fact that the impact of this reversal on Indiana taxpayers will be very significant (Anderson & Conda, 2003). In this case, the next lowest bidder was $8.1 million more than Tata’s bid. Since the contract involved about 65 employees and since TCS was obligated to retain the existing Indiana workers, choosing a U.S. firm would impact a maximum of about 50 jobs. Assuming the extreme scenario that all these 50
Offshoring
jobs would now go to residents of Indiana, this still implies that the taxpayers of Indiana will now bear a cost $162,500 per new employee-a cost that most taxpayers would probably be unwilling to pay. Furthermore, as Anderson and Conda point out, by limiting the bidding to instate contractors, policy-makers are ignoring the economic principle of comparative advantage, and increasing the cost of future contracts since there will be fewer competitors. Contrast this with a parallel development in the city of Springfield, Massachusetts. Its mayor decided that all drugs for city employees would henceforth be bought in Canada where the prevailing prices are between one-fifth to one-half of the comparable prices in the U.S. This would save the city millions of dollars each year. This aspect acquires special importance under the current economic conditions when many state and local governments are facing significant financial problems. Bills proposed over the recent years at the federal and state levels in the U.S. have attempted to use the government’s authority in granting H1-B and L1 visas to combat companies who had replaced American jobs with offshore workers (Nanda, 2003). These bills were considered even though a GAO report had stated that more study was required to determine the true effects of the H1-B visa program on the American workforce, and the impact cannot yet be fully understood (U.S. GAO, 2003). Several states in the U.S. have pending bills that would prevent the outsourcing of government IT jobs to abroad. Other bills would require call center employees to identify themselves by their real name and the location they are based in (thereby discouraging outsourcing of technical support and other types of customer support). Many of the pending bills seek to use the power of government contracts to curb outsourcing. The proposed pieces of legislation usually fail to consider the
long-term impact on citizens, shareholders, and taxpayers. For example, keeping IT jobs in the United States is likely to be more expensive, and these costs ultimately will be transferred to citizens, either in the form of increased taxes or reduced corporate dividends. The proposed legislative actions are gaining attention and are partially fueled by the desire to capture the attention of the unemployed persons. While these proposed laws might offer some shortterm benefits to some persons, they fail to consider the long-term impact on the broader population or present the full picture to the electorate. For example, if one asks the voters to choose between retaining 1000 jobs in a particular state or letting them go abroad, virtually all voters would opt for the former option. What happens if one asks a more relevant question—“Do you prefer that 1000 jobs stay in the state or do you prefer a tax reduction of $150 per year?”—the latter benefit would occur if these jobs are permitted to go outside the state.” In this case, many voters may opt for the reduction in their taxes, even if the two numbers were different from these hypothetical numbers for their respective states From a labor perspective, most professional service workers are not unionized, though several observers have cited this possibility as being a likely trend, especially in the software industry. Groups such as the IBM union and the Seattle union represent the rights of a subset of software workers and advocate leaving American jobs in America. If an increasing number of professional workers enroll in unions, the new labor unions may impact the larger political landscape and alter the existing balance between management and labor. In order to mitigate the types of pressures previously described, one needs to think of new hybrid work paradigms that yield the best cost performance ratios by having part of the work performed in the U.S. and other parts abroad.
Offshoring
TECHNOLOGICAL PERSPECTIVE A survey of over 50 software executives participating in offshoring concluded that “offshoring will live or die based on the ability of everyone involved to communicate with each other.” (Sand Hill, 2003) Richer collaboration technologies need to become available in order to enable simultaneous use of video, audio, and other messaging capabilities to link geographically and temporally separated personnel. The outsourcing of professional services requires firms to transfer knowledge via formal and informal channels within their organizations, as well as to establish and preserve knowledge repositories both for offshore teams to come up to speed on new tasks and for onshore teams to learn what is being done offshore. Such efforts require deep understanding of evolving technology and business needs. A Merrill Lynch report concludes that India is the most preferred destination for outsourcing (Subramanian, 2002). The key is to educate the concerned individuals both on the opportunities as well as on the process, and to use technology to develop an understanding of what is best done in the U.S. and what is best done offshore. The delineation of what components of jobs should be performed in developed vs. developing environments requires an intimate appreciation of the cultural and social issues such as language and education; this also involves understanding the technical requirements of each type of job. Certain jobs that are communications intensive, or have significant hardware or infrastructure requirements, may be more suited for one location vs. another. As countries begin to appreciate this aspect, they may make critical investments in nurturing new technologies to support emerging market needs. Plambeck and Taylor’s (2005) model of original equipment manufacturers (OEMs) pooling capacity with other OEMs, as opposed to using contract manufacturers (CMs), in an effort to invest in innovation, could be used to demonstrate the importance of integrating the
various phases of the design and development process in industries such as software.
NATIONAL POLICY CHALLENGES IN A GLOBAL ECONOMY The potential distribution of work across geographic and temporal boundaries requires careful delineation of the economic ramifications of alternative distribution models in order to elicit the optimal benefits from the outsourced model. While some lessons can be learned from the experiences of globalization in manufacturing industries, the inherent distributed nature of the new paradigm presents new challenges. In testimony before the U.S. House of Representatives Committee on Small Business, Assistant Secretary for Technology Policy Bruce Mehlman has cited the United States policy strategy to be based on an investment in education, infrastructure, innovation, and to highlight existing benefits such as intellectual property protection (Mehlman, 2003). Such a strategy suggests that the most sustainable model will be to prepare U.S. professional service workers to perform higher-level tasks and allow tasks, which require less education, training, and infrastructure to be performed abroad. Rather than use these strategies to build a legislative wall around the United States, tasks will be performed much more efficiently because the U.S. engineers will be equipped to handle the more specialized parts of the shared onshore-offshore projects. The benefits of onshore and offshore engagements, as reported by the U.S. Department of Commerce Office of Technology Policy after convening business, university, and government leaders, are summarized in Table 1.1 (Mehlman, 2003). The report of the U.S. Department of Commerce entitled “Education and Training for the Information Technology Workforce” states that IT employers are looking for a specific blend of
Offshoring
Table 1.1 Onshore Benefits
Offshore Benefits
People
Talent pool is unmatched
Untapped talent pool
Business Climate
Entrepreneurial, market-based, easy access to capital
Less burdensome taxation, regulation, litigation
Infrastructure
Telecom, energy, transport
New global clusters created
Market Access
Innovation in largest market
Untapped markets
Intellectual Property
Commitment to patents
Government
Political stability
Quality of Life
Freedom, health care, security, environment
Cost
Talent, facilities cost less
Proximity to manufacturing
Plants are already offshore
technical and business skills, and that they prioritize a minimal amount of training (Meares & Sargent, 2003). This notion of flexible training that will allow workers to succeed in a changing marketplace for professional services is useful in determining the strategic direction for both onshore and offshore firms. In outsourcing of professional services, the set of relevant stakeholders involves include parties from both developed and developing nations. Now, companies in developing nations themselves are beginning to outsource to other markets to spread their labor costs. Another emerging issue relates to the digital divide created by enclaves of digitally enabled citizens benefiting from the outsourced opportunities living in close proximity to much poorer fellow citizens. The disparity in living standards creates potential political, social, and organizational risks. This is a matter of concern for governments of developing nations hosting the outsourced contracts; it is also a matter of concern for governments of nations such as the U.S. that are witnessing increasing investing in regions over which they have little control. Based on the latter concern, it may be in the interest of the U.S. government and industry to invest in the educational and economic improvement of developing nations. But this is a tough politically sustainable
strategy since the apparent goal of such investment would be to provide more opportunities for foreign workers to acquire U.S. jobs. The relationship between these stakeholders is complex. On one side, we have the workers and the need to retain professional service jobs remain within the United States; on the other, we have significant cost savings accruing to the firms who are hiring the foreign labor. Long-term solutions such as better education, better infrastructure, and better intellectual property protection, as suggested by Mehlman, are irrelevant in the short-term in terms of their ability to resolve the issues faced by these stakeholders.
CREATING NEW STRATEGIC GLOBAL PARTNERSHIPS The sustainability of offshore outsourcing practices depends critically on their ability to satisfy the needs of the stakeholders, from the dual perspectives of the offshorer and the offshoree. Emotive debates apart, dispassionate academic studies focusing on this global phenomenon have been limited. This chapter focuses on organization-level profitability resulting from offshoring activities, with respect to the complexity of the
Offshoring
Table 1.2 Outsourcing Nations
Host Nations
Professional service workers losing jobs Firms hiring foreign labor Legislators responsible for economy Regulators Government procurement Customers of professional services
Professional service workers being hired Firms providing outsourcing service Policy makers responsible for economy Citizens not being hired for professional services
tasks that are offshored. Based on insights from the literature and real-world experiences, an analytical model is created; the model demonstrates that offshoring of complex and strategic tasks can result in increased profitability and larger market share, compared to offshoring of simpler and more tactical tasks. The evolution of the business model and process capability is becoming of the mechanism for achieving strategic advantage in offshoring (Athreye, 2005). Indian firms especially are found to be moving up the value chain into strategic partnerships (Arora et al., 2001). These findings indicate that to reap the full benefits from offshoring and to develop sustainable models, one needs to treat offshore vendors as strategic partners rather than as mere low cost service providers.
Building on the Foundation of Offshoring The global phenomenon of offshoring refers to “offshore in-sourcing” (where an organization moves parts of its operations to offshore locations) or “offshore outsourcing” (where an organization assigns specific jobs or projects to other offshore companies). Offshoring can be studied at three levels: micro or individual level, meso or organizational level, and macro or national and global level. While debates concerning micro and macro levels frequently garner significant visibility in the media, this section of the chapter focuses on the organization (meso) level and proposes an analytical model to understand how the complexity
of the offshored tasks relates to the sustainability of the offshoring model. While there is a general understanding that organizations typically outsource non-core activities in order to gain from labor arbitrage, evidence from research suggests that it is often more profitable, from the client perspective, to outsource projects that are more complex and strategic in nature (Gopal, Sivaramakrishnan, Krishnan, & Mukhopadhyay, 2003). As such, there is need to develop a long-term partnership between the client and the vendor/service provider, instead of maintaining an arms length contractual relationship between them (Choudhury & Sabherwal, 2003; Kishore, Rao, Nam, Rajagopalan, & Chaudhury, 2003). The performance of more strategic services translates into greater revenue and greater “customer-stickiness” for the vendor (and hence, lesser associated risks); in addition, there is evidence that more strategic projects yield greater profitability for the client, and results in a win-win relationship that is sustainable on a long-run basis (Plambeck & Taylor, 2005). Cachon and Harker (2002) argue that by leveraging scale economies, outsourcing contracts can create economic value, both for the client and the vendor, even in the absence of other cost benefits. Accordingly, the outsourcing argument seems to be transiting from pure “cost savings from labor arbitrage” to that of “value creation through leveraging of resources”—a more sustainable proposition, only if clients and vendors are prepared to get into a strategic, longterm relationship.
Offshoring
Our real-world experiences seem to validate the previous. One of the authors (Ganguly) was employed with a couple of companies in the U.S. where he witnessed offshoring of simple and tactical tasks as well as complex and strategic tasks. The first company was a giant software vendor specializing in database and enterprise-scale applications development, and the author oversaw offshoring of simple, tactical tasks in the area of demand planning software to the company’s Indian subsidiary; the offshoring of relatively simpler tasks led to nominal returns on investments, and the offshore unit was treated as mere low-cost service provider. The second company was a venture-backed niche software vendor in demand planning and related areas, and the author oversaw offshoring of strategic, complex tasks to the company’s unit in Israel; the strategic relationship facilitated disparate skills to be leveraged almost round the clock in an efficient and cost-effective manner, and the employees of the offshore unit to be treated at par in terms of benefits and remunerations, after allowing for currency and living cost differentials. Oracle Corporation’s Indian subsidiary initially performed “low-end” routine tasks like maintenance of legacy applications; gradually, it became an integral part of team involved in developing Universal Server—Oracle’s flagship database product. The migration paths of “foreign factories” to higher strategic roles have been documented in cases of Motorola’s Singapore pager unit, Alcatel Bell’s unit in Shanghai, 3M’s operations in Bangalore, India, and HP subsidiary in Guadalajara, Mexico (Ferdows, 1997).
ANALYTICAL MODEL TO GUIDE TRANSITION TO STRATEGIC PARTNERSHIPS In this section, an analytical model is developed based on previous work of two of the authors (Mukherji & Ganguly, 2004), to study the im-
pact of offshoring specifically with respect to the complexity and strategic nature of the tasks offshored. This is done in two steps. First, the impact of project complexity on profitability is considered by developing a “two-country model.” This is followed with a “decision model” that incorporates project complexity and time duration of relationship as determinants of cost savings and risk-perception. The underlying assumptions in the analytical formulations are illustrated in Figures 1.1 and 1.2, and described in the following paragraphs. The traditional wisdom in offshoring is that vendors prefer to execute complex projects while clients prefer to offshore outsource simpler projects. The preference of the vendors stem from a desire to “move up the value chain” and to facilitate retention of employees with higher levels of core competence. The perspective of the clients is dominated by factors like the minimization of downside losses, the perception that cost benefits are maximal from offshoring simple tasks, possible compromise on product quality, and the lack of “end user” interactions of the vendors. The twocountry model explores the traditional wisdom based on a grossly simplified, but nonetheless interesting, analytical formulation. Real life outsourcing decisions can be modeled as a trade-off between cost savings and enhanced risks. Both of these are functions of the strategic nature of the project or the project complexity and the duration of relationship between client and the vendor. The simplified decision model presented here rests on four key hypotheses about the nature of the offshoring processes: (i) Marginal costs savings from outsourcing increase with the complexity of tasks; the saving from simple tasks is small, it increases linearly with complexity and approaches a limit; (ii) Marginal cost savings from outsourcing for a given task decrease with time; (iii) The perceived risks of outsourcing increase rapidly with the complexity or strategic nature of the tasks; and (iv) The perceived risks of outsourcing for a given task decrease rapidly with time.
Offshoring
Figure 1.1. A two-country model
A TWO-COUNTRY MODEL Client in country 1: Developed nation
Vendor in country 2: Developing nation % of task offshored: x
Assumptions • Single task • Complexity index : z • Cost of production is an increasing function of complexity f(z) • Constant of proportionality has greater value in country 1 • Coordination costs proportional to % task outsourced x
η = α f (z) (00-x) η = α f (z) x 0
C
Total Cost : η = α f (z) – α f (z)x + χx, Revenue
ρ = γ g(z)
where
α = α – α > 0
Profitability
P = (m + m 2 ){γg ( z1) − (α 1 f ( z ) − αxf ( z ) + χx)}
Figure 1.1 depicts the two-country model. It considers a single task, of which x% is offshored, and for which a complexity index (z) can be defined depending upon the complex and strategic nature of the task. The costs of production are assumed to be constantly proportional to an increasing function of complexity, f(z), with the constant of proportionality having a higher value in the country from where the project is offshored. The coordination task is assumed to be proportional to the percent of the task offshored. These lead to: η1=α1 f(z)
(1a)
η2=α2 f(z)
(1b)
χ
= χx
C0=χ
(1c)
η=α1 f(z)-αfx(z)+ χχ
(1d)
In (1d), η is the total unit production cost and α is the difference in the constants of pro-
portionality, reflecting the currency and other cost differentials. An implicit assumption of the model is that the dependence of the coordination cost on the complexity of the tasks offshored is considerable weaker than the dependence of the production costs on complexity. For constant market size assumption, we obtain the following set of equations: Unit revenue ρ=γg(z)
(2a)
Profit P= (m1+m2){γg(z)–(α1 f(z)– αfx(z)+ χχ)} (2b) The unit revenue is also assumed to be proportional to an increasing function of the complexity (or strategic nature) of the product. Note that we assume for simplicity that the unit revenue is identical for the same task in the two markets (even though the market sizes for the task might differ), and obtain an expression for profit of the
Offshoring
organization. Profit is differentiated with respect to the percent offshored x to understand the unit gain from offshoring, and differentiated once more with respect to the complexity index z to obtain the change in the unit gain as a function of the complexity of the task. Thus, we obtain:
margin and linear price elastic market assumptions. There, the first differential yields market share as an increasing function of percentage outsourced x, and the second differential shows market share per unit increase in percentage offshored as an increasing function of complexity.
Px =∂P/∂x=(m1+m2)(αf(z)–χ)
• (3a)
∂Px/∂x= (m1+m2)[αf'(z)]
(3b)
The right-hand side of 3a is positive as long as the cost reduction due to offshoring of a portion of the task from country 1 to country 2 exceeds the cost of coordination a pre-requisite for the offshoring to be initiated. The simple model results in increasing profits with the percent offshored. The change in the profit with change in unit offshored is itself an increasing function of the complexity, as seen from (3b). Since f (z) is an increasing function of z, f / (z) is positive. Similar calculations can be made for constant
Decision model: In real life decision-making situations, the benefits of cost saving is likely to be deflated by perceptions of risks. Thus, we develop a decision model outlined in Figure 1.2 that incorporates potential cost savings, as well as the risk potential from offshoring activities as a function of time. The model comprises of the following assumptions: 1.
The marginal cost saving potential due to offshoring, as a function of the degree of complexity (or strategic nature) of the tasks for a single time period, can be represented in the form of a logistic, as shown in the top left
Figure 1.2. A decision model
Simple Tactical
Small Cost Saving
Small Cost Saving
Task Complexity Strategic Requirements
Enhanced Risk Due to Offshoring
High Risk
10
Time Index High Risk
Complex Start Strategic Time
Low Risk
Elapsed Time
Large Cost Saving
Complex Start Strategic Time
Simple Tactical
Elapsed Time
Marginal Cost Saving Potential from Offshoring
Large Cost Saving
Enhanced Risk Due to Offshoring
Marginal Cost Saving Potential from Offshoring
COMBINING COST SAVINGS WITH RISK PERCEPTIONS: GRAPHICAL REPRESENTATION
Low Risk
Offshoring
2.
3.
4.
of Figure 1.1. This implies that the cost saving potential from tactical and simple tasks is small (asymptotically approaching zero); then as tasks get more complex or strategic, the cost saving potential increases linearly with the degree of complexity, and finally beyond a certain level of complexity, the cost saving asymptotically approaches a limit. The enhanced risk from offshoring, as a function of the degree of complexity of the task offshored for a single time period, can be represented as an exponential function, as shown in the bottom left of Figure 1.2. This implies that risks increase exponentially with the complexity or strategic nature of the tasks offshored. The cost saving potential from offshoring for a given task decreases with time in a near linear fashion with a small slope as shown in the top right portion of Figure 1.2. The functional form used there is the exponential asymptotic function, which starts from an asymptotic limit, decays almost linearly, and then asymptotically approaches a smaller limit. The enhanced risk from offshoring, for a given task, decreases with time in an exponential fashion as shown in the bottom right portion of Figure 1.2.
The curves assumed in this formulation are based on dual considerations of intuitive business sense and ease of analytical manipulation. The basic shapes can be justified from the insights obtained earlier from the literature review section. However, the conclusions presented here are generalizable to more complex curves. Further, the parameters of the curves can be changed to adjust the relative scales.
The decision model considers two decision parameters that indicate the desirability, in terms of offshoring for the organization of any given type of task, as measured by the complexity index at any given time. The first decision parameter computes the decision function as a time-varying combination of the risk potential and the cost saving where the risk potential is weighed more heavily during initial stages (i.e., when the clientvendor experience is low, but getting less weight with time). The second computes the decision function as a time-invariant function of the cost savings and risks. Figures 1.3 and 1.4 show the decision variables (higher values of these variables indicate desirability of offshoring) as a function of the complexity of the tasks and the time elapsed. The decision model considers two decision parameters to arrive at desirability of outsourcing of a given task. Additive formulations have been used for the simulations after normalization. Higher values of decision variables indicate desirability of offshoring. Here the decision metric corresponding to a time-varying function has been displayed. This function allows the risk potential to have higher weights initially caused by managerial perceptions. The decision metric shows that during the initiation of the offshoring process, complex tasks are low in the list of priorities to be offshored since the perceived or real risks are higher. The extremely simple or tactical tasks have low values initially as well caused by the lower cost benefits. The presence of an optimal task complexity is therefore a possibility even during the early phases of offshoring. This is demonstrated through the decision metric at low values of the time index. However, as the time index moves forward and the offshoring processes mature, the decision metric clearly demonstrates that the desirability of offshoring the more complex or strategic tasks increases. Figure 1.4 is similar to Figure 1.3 with the exception that the decision metric corresponding to a time-invariant function has been displayed
11
Offshoring
Figure 1.3. Time-variant decision variable
decision Metric a Time-variant cost versus risk balance
optimal
More complex tasks gets low points since risks are high
Tactical points low since cost benefits are low
With time, more complex tasks become optimal
complexity of Tasks strategic for business
Time index
Figure 1.4. Time-invariant decision variable
decision Metric b Time-invariant cost versus risk balance
Even without weighing the risk dimensions more, the direction suggests better returns from more complex projects, over time
complexity of Tasks strategic for business
12
Time index
Offshoring
here. This function keeps the risk potential constant over time to emphasize the influence of other variables. The decision metric demonstrates that even without weighing the risk dimension more over time, the desirability of offshoring the more complex or strategic tasks increases. The results from our analytical model, as seen from Figures 1.3 and 1.4, indicate that with elapsed time (i.e., more client-vendor experience), offshoring more complex and strategic projects become more desirable. Initially, the decision variable does not appear to optimally favor either the most strategic or the most tactical task, but a balance that is dictated by the nature of the curves (and parameters) selected. However, with time and experience, strategic tasks are increasingly favored.
Completion of Transition to Strategic Partnership The simulations suggest the possibility that, contrary to common wisdom in some quarters, but perhaps in line with what some experts/academicians have said, one might be able to get significant value out of offshoring tasks that are not just tactical or “simple” in nature. The possibility of an “optimal” level of complexity that maximizes the return from offshoring, at any given time period or experience level, under given situations is also suggested, within the constraint of our assumptions. In addition, the simulations indicate that the offshoring of more strategic tasks leads to higher profitability and sustainability. Accordingly, both the client and the vendor need to reinforce their efforts to explore how tasks of strategic nature can be identified and selected for offshoring, and how closer ties can be established over time between the vendor and the client. We emphasize that the managerial insights from this study are dependent on the validity of the assumptions. An interesting line of future research would be to explore the offshoring strategies from a game theoretic perspective, where clients and
vendors, as well as offshoring and offshoree nations with their respective legislative bodies, are the key players. We hypothesize, without proof, the possibility of Nash-like equilibria where the equilibrium points shift from tactical to strategic partnerships as the offshoring processes mature. The maturity of the offshoring process needs to be modeled and quantified both in terms of the tactical client-vendor relationships and in terms of strategic perceptions among the stakeholders. Advances in communication technologies and the ubiquity of the Internet, as well as the breaking of traditional cultural and linguistic barriers, are key issues influencing the maturity of the tactical client-vendor relationships. The maturity of strategic perceptions will depend on various geo-political, economic, cultural, and social considerations. The concept of the 24-Hour Knowledge Factory has the potential of influencing both the tactical relationships and the strategic perceptions.
CONCEPT OF the 24-HOUR KNOWLEDGE FACTORY The 24-Hour Knowledge Factory attempts to establish a virtually seamless relationship between the vendor and the client; this may involve one organization in a developed country as one entity, and two or more organizational entities located in other continents. The paradigm includes situations where all the collaborating entities are part of one large organization, such as IBM or Oracle. In such a model, a global team is used to work on a project around the clock; each member of the team works the normal workday hours that pertain to his or her time zone and transfers work nightly to others on the team. The 24-Hour Knowledge Factory paradigm can be applied to a broad range of white-collar activities ranging from medical services to logistics planning, and from financial analysis to product design (Gupta, 2007). The notion of the 24-Hour Knowledge Factory builds on the shift-style factory model developed
13
Offshoring
in the Industrial Revolution. Given limitations on equipment, shifts were used to optimize the productivity realized from a given set of machines. The advent of the Internet led to a similar notion that individuals working at different times could operate on the same work product--call centers are an early example. Now, it is possible to extend this model to any environment where work is primarily knowledge-based and can be passed among team members on a nightly basis (Gupta & Seshasai, 2004). The 24-Hour Knowledge Factory will involve “offshoring” of part of the endeavor. Today, offshoring is done mainly to reduce costs as discussed in preceding sections of this chapter. Over time, the growth in offshoring will be fueled more by the potential to achieve drastic reductions in turnaround times for major endeavors, as depicted in Figure 1.5 (Seshasai, Gupta, & Kumar, 2005). In a “24-hour development environment” that encompasses three or more development centers located around the world, the distributed team is envisaged to concentrate on the same problem and to perform the same function (whether it be development of code or testing of subsystem) on
a successive basis, with each collaborating center retaining ownership of the endeavor for 8-hour periods in every 24-hour cycle. A large number of industries, including the software industry, are characterized by a development cycle that relies heavily on sequential performance of specific functions such as development, testing, and verification. In a traditional software development environment where all parties are located in the same geographic area, a code developer typically waits until a fully functional portion of the product is available before passing it on to an engineer to test it. However, with the potential for receiving testing feedback overnight, the developer now has the unprecedented opportunity to build portions of the product on an incremental basis (Gupta & Seshasai, 2007).
Critical Success Factors for the 24-Hour Knowledge Factory Based on discussions with experts in a number of relevant areas, a number of critical success factors (CSFs) were identified. These CSFs are depicted in Figure 1.6. The array of short- and long-term
Figure 1.5. 24-hour global knowledge factory Singapore
California
0:00-0:00 GMT
:00-0:00 GMT
London 0:00-:00 GMT
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Offshoring
Figure 1.6. Critical success factors for 24-Hour Knowledge Factory National education system
Labor Language
Onshore Labor skills
National Labor markets
Internal Buy-in
Cultural differences Organzational model
Labor costs Communication Technology Geopolitical stability
Long-term productivity
Demand Management Diversifying investments
Political barriers
Knowledge Product
Dynamic task re-allocation
Location Choice Offshore Labor skills
factors must be assessed in their individual context, as well as in context of relationship to each other. Some of the key factors are discussed in the following paragraphs.
Demand Management A 24-Hour Knowledge Factory model allows for better management of customer demand, faster time to market for products, and superior ability to adapt quickly to changing market conditions; this is because of the lower labor costs, the greater flexibility to reallocate and reassign resources, and the ability to provide customers with access to skills that they may not already have (Srinivasan, 2004). As offshore knowledge workers gain experience and move up the learning curve, their experience interacting with customers will allow them to broaden the scope in which they serve customer demand and provide for 24-hour availability of high value resources (Suh, 2004). One example of the latter phenomenon is a company that employs home-based workers in India to perform medical transcription. As these workers
Location Time zone
Offshore value chain
move up the value chain, their home-based work environment continues to allow them to be readily accessible. Accordingly, these workers can work longer hours, as necessary, concurrently with family obligations at home, thereby serving as “agile” knowledge workers in the knowledge factory in real-time (Malhotra, 2004).
Long-Term Productivity The use of hybrid work models can provide access to higher skilled labor for tasks that previously only were done by lower skilled workers. For example, highly skilled radiologists in the United States are much less likely to prefer reading X-ray results while in India, a highly skilled radiologist will see employment by a U.S. hospital as a high-value position regardless of the task. When moving toward a 24-Hour Knowledge Factory model, factors such as ability to grow in size, quality management, and the added communication and coordination costs must be incorporated into the calculation of the improved productivity (Shah, 2004).
15
Offshoring
Integrated Value Chain
Barriers Within Firm
The application of the 24-Hour Knowledge Factory paradigm explicitly implies partial offshoring. While the initial effects of such offshoring will be an increase in productivity, the offshore workers will gradually move up the value-chain and provide a great deal of higher-value services. According to Accenture, for IT offshoring, 51.9% is in IT services such as maintaining computer networks, 36.7% is in solutions development such as building Web sites, and 11.4% is in leadership and managing projects (Christensen, 2001). The general progression can be characterized as a movement from efficiency to innovation to growth, with production moving from commodities to services to solutions, as vendors begin to do similar work for multiple customers (Barney, 1999). The movement up the value chain is not reserved simply for the offshore workers, as in the example of radiology, U.S. doctors can move to higher value tasks if X-Ray reading is done offshore.
Significant barriers to employing the 24-Hour Knowledge Factory concept exist within typical firms; several of them need to be addressed as part of the initial decision process rather than as a corrective measure at a subsequent stage. Internal resistance, especially due to a loss of control, may hinder a proposed project. Furthermore, cultural, language, and trust issues need to be approached in an upfront manner, recognizing the impact with respect to the interaction required between knowledge workers in the 24-Hour Knowledge Factory. Even if the desire exists at all levels to pursue the globally collaborative engagement, the firm should plan on process changes such as longer project planning cycles, more explicit definition of requirements and communication methods and the effects of ill-informed hiring decisions.
Organizational Models In order to maintain flexibility, one needs dynamic models that can evolve as market conditions change and learning curves impact skill levels. In choosing a model, it is important to judge the complexity of the work required and determine the right locations for each particular skill required (Christensen, 2001). This may lead to a model where the same function or skill is located in multiple geographic locations; this may involve higher management overhead but may lead to greater returns especially when taken in the context of the 24-Hour Knowledge Factory. Two matrices upon which the organizational models can be judged are coordination vs. effort, and complexity vs. project size (Barney, 1999).
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Location Choice Different geopolitical locations possess their own characteristics that impact their current and future place on the value chain. For example, China has lagged behind India in knowledge-based offshoring because of a lack of English speaking citizens, but as English becomes a more common language in China, the vast size of the labor pool will allow it to rapidly move up the value chain (Baxter, 2004). In Russia, highly skilled scientists and engineers saw a dramatic drop in high skill tasks after the Cold War; these domain experts are now making a dramatic transition into highvalue services such as optics design at a much lower cost to outsourcing firms (DiRomualdo, 1998). The hiring process is a major factor in moving firms up the value chain, as a constant reevaluation is required of whether the foreign employees are indeed the highest skilled in their area (Andre, 2004). Regardless of the locations being considered, factors to consider include the
Offshoring
geopolitical stability of the country, the investment in education, labor and skill set of citizens, and the business environment in the country, including levels of corruption and ease of setting up businesses (Lacity, Willcocks, & Feeny 1995).
•
•
CASE STUDY AT IBM INVOLVING TWO PARALLEL WORK TEAMS Two teams of workers at IBM were studied to provide an example of the relative pros and cons of the 24-Hour Knowledge Factory model. While the two teams were equal in all relevant structural and technical respects, one team was geographically separated between the U.S. and India while the other was collocated on the same hallway in the U.S. A one-year timeframe was used to cover the entire lifecycle of the teams’ software deliverable. Whereas the overall performance was found to be very similar in the two cases, there were interesting differences at the micro level. Specific forms of data were collected and analyzed, as follows: •
•
Personal interviews were conducted with each of the developers on each team, for both qualitative and quantitative insight. Developers were asked about frequency of informal vs. formal interaction, percent time spent in various communication vehicles (phone, instant messaging, and face to face), the number of tactical vs. strategic decisions made informally, and which specific developers involved interactions. Software problem reports (SPR) were process forms used to track fixes or requests to change the code. Weekly analysis of these SPRs provided insight into the reliance on structured forms for knowledge tracking and daily communication, average time to resolution of issues, and the number of developers handling each issue.
•
Weekly meeting minutes were analyzed with a coding system for strategic vs. tactical task assignments and status requests. This provided insight into formal knowledge sharing on a group-wide basis for each team. The source code control system was used by each team to log the modifications made to each element of the source code for the team’s product. The source control system stores the date, the time, the name of the developer making the change, and a comment regarding the particular change. The data provide a representation of the technical dependencies between developers on the teams by looking at number of developers interacting with each code element, and the rate of technical collaboration within the teams by looking at the number of logged modifications. Group e-mail exchanges were analyzed with a software tool that calculated statistics on individual messages and “threads” containing a set of messages written in response to an initial message. The data collected involved frequency of messages, number of messages per thread, and number of developers per thread.
Use of Electronic Mail for Asynchronous Discussion The data revealed that the distributed team made much greater use of electronic mail (e-mail) as a forum for discussion. This usage peaked during the time periods following project deadlines and was relatively constant in the periods of steady work well before the milestone. The collocated team relied on e-mail as an announcement mechanism for broadcasting a message to the general set of developers, but relied on other means for back and forth discussion. The e-mails, which were tabulated for each week of the year, and only those e-mails which were sent to the entire group were tabulated.
17
Offshoring
Overall, e-mail was used as a means for extended discussion on the distributed team, while it is primarily used for one-message announcements on the collocated team. A developer on the collocated team stated that many of the one-message announcements from the collocated team are announcements that a particular individual is heading out of the office, even for a period of just an hour. This demonstrates a significant difference in team culture on both teams. On the collocated team, face-to-face discussion is so important that team members feel the need to inform each other if they are going to be unavailable for a short period of time. On the distributed team, long discussions are done over e-mail and often last days because of the time zone differences. A developer on the distributed team cited one of the benefits of having discussions done over e-mail is that team members can take the time to think about their responses and often provide more detailed input into the discussion. The members of the distributed team also stated that when discussions reach a significant length, they are moved to a discussion forum database where responses can be better tracked and archived. When reviewing the design of a feature to be included in a product release, it was common for the U.S. portion of the team to hold a meeting with a presentation to discuss the design. Later that day, after the U.S. workday was complete, the Indian portion of the team would review the slides from the presentation and provide feedback in an organized and written manner. Both forms of feedback--immediate faceto-face and asynchronous written--were useful in the end product and neither would have been achieved if operating in the other framework. The setting of ground rules was acknowledged by all team members as an important factor in both overcoming cultural differences and encouraging uses of the different technologies discussed in this chapter. The manager of both teams stated that the discussion forum database is common to both teams; however, the distributed team is more prone to use it. This is a likely result of
18
the distributed team's familiarity with having to carry out discussions by typing their responses in e-mail format. The collocated team had more e-mail threads created, but many of these threads had just one contributor. The distributed team had less number of threads, but with a high degree of collaboration on each thread. This confirmed the anecdotal evidence from the interviews that the nature of e-mail use and the nature of knowledge based discussions on both teams is profoundly different.
Technical Collaboration Through Shared Source Code Detailed analysis of the data showed that the two teams reacted differently to project deadlines; the level of activity in the collocated team was more controlled before the feature freeze date, but increased afterwards. The collocated team was found to have a higher degree of collaboration with respect to specific code elements; while the distributed team kept the code they modified separate from each other. The weekly averages for code changes for different time periods of the project were calculated to provide a picture of how each team reacted to different parts of the project. Both teams handled the steady state before a deadline in the same manner. However, before a deadline, the collocated team was able to handle the collaboration in a steadier manner--the interviews with the collocated team speculated that this was due to questions being resolved face to face with individual developers consulting others before submitting a code modification. Multiple team members on the distributed team cited the fact that they had drawn clear lines between code elements and make an explicit attempt to only modify certain elements of the code. In contrast, when the collocated team assigned particular functional areas of the product to different developers, they often reassigned particular SPRs based on workload and felt com-
Offshoring
fortable with any developer modifying any part of the product. While the data suggested greater technical collaboration on the collocated team, there were code elements on the distributed team that involved more than one developer. Thus, even when distributed, the software developers did reach out to others for help when certain threshold barriers for requiring higher levels of collaboration were reached.
Nature of Team Meetings The team meetings held by the distributed team were found to be more tactical and task oriented than the collocated teams, further demonstrating that each team had adapted similar processes in different ways to their own geographic structure. The two team’s meeting minutes were controlled by many factors that allowed data collection to proceed with confidence. All meetings on both teams were held by the same project manager, who kept detailed minutes of each meeting in the same format. The categories for the agenda changed over the year to fit the stage of the project schedule, but were generally found to be consistent between the teams. The distributed team devoted a larger number of items in the meeting minutes to tactical issues. Items were designated as tactical if they were short term in nature and all knowledge related to completion of the item was already acquired. The meeting minutes were analyzed by inspection, and all items in the meeting minutes were designated as strategic or tactical; no other categories were used. Examples of tactical items found in both teams’ meetings included issues related to the “build” (a compilation of source code into an intermediate internal product release to be sent for testing), issues related to a particular SPR, or issues related to scheduling. Examples of strategic items found in both teams’ meetings included discussion of feature plans for the next release, discussion of major customer issues, and discussion of cross-team collaboration with other teams
in the company. The collocated team found ways of handling the tactical issues outside of the formal meeting structure, because opportunities for synchronous communication were available.
Using Technology to Update Work Item Status Data from the software problem report database were useful in demonstrating how technology was used to update work item status. SPRs represent the core work items for these software development teams, outside of feature level work. When any work is required on the source code—either a bug found by the testing team, an enhancement requested by a customer, or a feature—an SPR is logged and is used to track the status of the work. Each team was found to use the SPR system in a unique manner. While e-mail data described the social network on both teams and source control data described the technical network on both teams, these SPR data acted as a bridge between the social and technical networks. Both teams shipped a final product release in the first quarter of the year, and thus this high period of activity in the early part of the year represents the SPR “clean-up” activity, which occurred for the distributed team as they were updating status on all of the work which had been done for the release. The outliers in the data highlighted that the collocated team required a major focused one-time cleanup immediately preceding the product release, and immediately preceding the feature freeze date. When team members were not available to consult with immediately, they added updates to SPRs in the context of the particular issue and waited for a reply in the form of another action taken on the SPR. With the collocated team, since answers were available immediately, it was not useful for them to take the time to update the formal SPR system when sharing knowledge around a particular SPR.
19
Offshoring
This demonstration of adapting available technologies in different ways has positive and negative points. The positive aspects are that the team has naturally innovated and found new uses for an existing infrastructure. However, with this innovative use comes the caveat for managers that tracking results on a system such as the SPR system will not yield similar reports for teams, which use the system differently. The collocated team had more individuals modifying particular elements of the source control system while the distributed team had more individuals modifying particular elements of the SPR system. This suggests that there are certain thresholds for collaboration and different geographic structures can lead to different levels of social and technical collaboration.
24-HOUR KNOWLEDGE FACTORY: IMPACT ASSESSMENT
•
•
The variance in the data between the two teams encourages discussion of the impacts of geographic distribution of knowledge-based teams at various levels--individual, team, organizational, institutional, and national. •
20
Individuals: Individuals who work in a knowledge-based industry have the power to make choices about the global working environment. They possess the potential to use software tools similar to those used in this study to educate themselves on the work of their own teams and to become more capable in terms of the ability to work in a distributed work environment. Individuals in such environments may need to alter their work hours to spend a few minutes in their off-hours to use the telephone or instant messaging to communicate with colleagues working in a different time zone. A change in work styles may require more effort to be placed in explicit informal communication
•
on a distributed team, or in more formal documentation of informal decisions on a collocated team. Teams: At the team level, an understanding of the socio-technical forces, which impact knowledge sharing on a software team can impact the success of both the project and the product. Software tools that continually collect and display information can be useful in attaining optimal productivity in a decentralized environments. Building and implementing such tools would provide access to data, which resides in distributed and heterogeneous sources and is not currently used by managers to guide decisions. One example of the utility of such a “dash board” is in assessing the technical dependencies between members of a team by looking at the SPR and source control data. Organizations: At the organizational level, the data collected in this study demonstrates the potential for organizations to assess the tacit knowledge capital that is not readily quantifiable. Organizations currently assess knowledge capital by counting the number of patents filed or tabulating features on existing products. With new data capture tools, organizations can assess knowledge capital at a much more granular level. One can now assess the dependency on one development site or another, and on one developer or another. This is especially important in a domain such as software engineering where knowledge flows so dynamically between geographic locations. Institutions: A number of institutions are impacted by the introduction of granular knowledge sharing data analysis in globally dispersed teams. The laws and regulations that govern labor and trade are not yet built to handle redefinitions in work requirements and intellectual property sharing, which occur instantly and across geographic borders. Unions and professional associations, which
Offshoring
•
represent one region of technical knowledge workers can act as both enabling and threatened institutions. They can enable the success of global software teams by training their members to build the capabilities necessary to operate in a geographically distributed environment, and also by expanding their regional scope so that their incentives are aligned with those of the multi-national firms which employ them. However they can also act as a threatened institution by deciding that the work models, regional job opportunities, and technical expertise requirements will be negatively impacted by the distribution of work. In all of these cases, the notion that knowledge sharing can be analyzed and leveraged is important in assuring that institutions impacted are able to adapt appropriately to the changing realities of the workplace. Nations: New national policies need to be developed for training and preparing workers for globally distributed work, and also for dealing with issues related to sharing of intellectual property. In the case of the 24-Hour Knowledge Factory, intellectual property will be imported, leveraged, and exported on a daily basis. As public policy evolves to valuate and regulate exports at this level of granularity, the ability of nations to exploit wage differences would be significantly limited. This reinforces our pivotal theme that future offshoring endeavors will be fueled, not by considerations of cost savings, but by strategic considerations.
CONCLUSION From an analytic viewpoint, the authors believe that significant opportunity exists for developing theoretical and analytical models for offshoring practices. By rising above the emotive arguments based on anecdotal evidences that currently
tend to dominate debates and discussions on IS outsourcing, we can take a more comprehensive view of the situation. So far, analytical models focusing on offshoring practices have been few in number. A new generation of comprehensive analytical model needs to be created to investigate the emergent phenomenon of offshoring at a global scale. From a business viewpoint, the concept of offshoring was originally fueled primarily by considerations of reduction of labor costs. Companies continue to proceed with plans to outsource with the benefits accruing primarily to their shareholders and their customers; however, government agencies have adopted diverse practices primarily because of concern for feelings of the voting population. Based on a variety of reasons, decisions made by companies on the issue of outsourcing of professional services will increasingly be driven by strategic considerations than by considerations of cost savings. This hypothesis has been validated in this chapter using a mathematical model. In practical terms, the need to bring new products and services earlier to the market may outweigh the considerations of cost and where the work will be performed. Over time, workers will be retrained and will acquire new jobs that are more suitable for their respective background and location, both in developed and developing countries. One now has the opportunity to move towards the “24-hour global knowledge factory” where outsourcing means active engagement on knowledge intensive tasks for 24 hours a day. Already, an increasing number of companies are using the notion of two geographically work centers to improve the pace and the quality of the work; these serve as harbingers of paradigms involving three work centers configured as a 24-Hour Knowledge Factory. A detailed case study was conducted at IBM to study the relative performance of distributed and co-located work teams. The results of the case study reinforce the main points raised in this chapter. As firms, governments, and individual workers gradually
21
Offshoring
embrace the growing realities of the marketplace, offshoring could become a “win-win” situation for all, leading to the globalized world of 24-Hour Knowledge Factories.
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Choudhury, V., & Sabherwal, R. (2003). Portfolios of control in outsourced software development projects. Information Systems Research, (14) 3. DiRomualdo, A., & Gurbaxani, V. (1998). Strategic intent for IT outsourcing. Sloan Management Review, 67-80. Endleman, G. (2003, September). Fall guy: U.S. Immigration and the myth of offshoring. National Association of Software and Service Companies (NASSCOM) Media Room Retrieved from http:// www.nasscom.org Ferdows, K. (1997, March-April). Making the most of Foreign factories. Harvard Business Review. Gopal, A., Sivaramakrishnan, K., Krishnan, M. S., & Mukhopadhyay, T. (2003). Contracts in offshore software development: An empirical analysis. Management Science, (49), 12. Gupta, A. (2007). Expanding the 24-Hour workplace. The Wall Street Journal. September 15th, 2007. Gupta, A., & Seshasai, S. (2004). A knowledge based approach to facilitate engineering design. Journal of Spacecraft and Rockets, 41(1), 2938. Gupta, A., & Seshasai, S. (2007). 24-Hour Knowledge Factory: Using internet technology to leverage spatial and temporal separations. ACM Transactions on Internet Technology, 7(3), 1-22. “IEEE Position Statement on Offshore Outsourcing.” IEEE-USA Career and Workforce Policy Committee. Mar. 2004. Kishore, R., Rao, H. R., Nam, K., Rajagopalan, S., & Chaudhury, A. (2003). A relationship perspective on IT outsourcing: Insights from a longitudinal study. Communications of the ACM, (46) 12. Lacity, M., Willcocks, D., & Feeny, D. (1995, MayJune). IT outsourcing: Maximize flexibility and control. Harvard Business Review, 84-93.
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Malhotra, R. (2004, April). Unique business model. Presentation to MIT Special Seminar on International Management. Meares, C. A., & Sargent, J. F. (2003, June). Education and training for the information technology workforce. Report to Congress from the Secretary of Commerce. Mehlman, B. C. (2003, June). Testimony before the U.S. House of Representatives Committee on Small Business. United States Department of Commerce. Mukherji, S., & Ganguly, A.R. (July 2004). Sustaining the offshore outsourcing boom for software development: Transitioning from low cost service provider to strategic partners for information systems. In Proceedings of the 9th International Symposium on Logistics, 559-564. Bangalore, India.
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This work was previously published in the Journal of Electronic Commerce in Organizations, Vol. 5, Issue 2, edited by M. Khosrow-Pour, pp. 1-23, copyright 2007 by IGI Publishing, formerly known as Idea Group Publishing (an imprint of IGI Global).
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Section II
Foundations and Frameworks
25
Chapter II
Evolving Relationship Between Law, Offshoring of Professional Services, Intellectual Property, and International Organizations Amar Gupta University of Arizona, USA David A. Gantz University of Arizona, USA Devin Sreecharana University of Arizona, USA Jeremy Kreyling University of Arizona, USA
Abstract This chapter covers four issues. First, it examines evolving international conventions to determine whether countries, especially developed countries, can take any steps to inhibit offshoring with the objective of protecting jobs in their respective countries. Second, it looks at statistics from independent sources to see if outsourcing exceeds insourcing, or vice versa, in the case of the U.S. Third, it looks at trends in outsourcing in the legal arena. Fourth, it looks at the intellectual property aspects of outsourcing and presents a long-term vision on how this ticklish issue is likely to be addressed in the long-term.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Evolving Relationships
Introduction “Outsourcing” is a relatively new term for something that has been happening in the United States for at least 40 years, namely, the shifting of production of goods (and, more recently, services) to nations where wages are lower than in the United States. The most obvious example is textiles and apparel, in which factories located in New England moved to the southeast beginning shortly after World War II, in search of lowerwage, non-unionized labor and low cost electric power. Beginning in the 1960s or earlier, some producers and consumers shifted their sourcing to Asia and to Latin America, particularly to Mexico, Japan, and later South Korea, Taiwan, and Hong Kong. More recently, China, Pakistan, India, Bangladesh, Sri Lanka, and Vietnam have become popular locations, among others, for textile and apparel production. The outsourcing of service industry jobs from the United States (and Canada, the EU, and Japan, among others) is somewhat more recent, as it is only viable with very low-priced telephone and Internet communications worldwide, a feature of the fiber optic cable construction in the 1990s. Shifting of low-wage telephone service positions (for computer technical support, airline reservations, etc.) did not seem to raise a good deal of controversy in the United States, except perhaps in the communities which lost the service centers (including Tucson), and among the labor unions. Even the outsourcing, particularly from Silicon Valley, of routine computer software work seemingly raised relatively few alarms. However, the newest outsourcing phenomenon—mostly to India—is far more troubling both economically and politically to U.S. policymakers. The prospect of widespread outsourcing of relatively high wage professional services positions—software development, banking and brokerage as well as, medical, and legal services—is
26
creating a good deal of concern, and there have been various proposals to curb such trends, by legislation or otherwise. The first question this chapter addresses is what the United States can do under international trading rules to discourage outsourcing. There may be some tax laws and policies that could be modified, primarily to reduce tax incentives for production abroad and to encourage the investments supporting outsourcing to stay home. Some in Congress have suggested trying to prevent U.S. firms from investing abroad, but in most cases this would be questionable under investment treaties in the unlikely event the Congress tried to impose such restrictions, and would in any event be impossible to enforce against multinational enterprises. There is relatively little action the U.S. could take to reduce the outsourcing process that would not run afoul of international trading rules, which are designed first of all to make it possible for any consumer of goods or services to purchase the best available at the lowest prices, without interference from tariff or non-tariff barriers. The second question this chapter addresses is whether the United States is a net beneficiary or net loser when outsourcing occurs. This analysis has been done by others at various levels: at the national level, at the company level, and at the individual level. Companies adopt outsourcing practices because they of lower costs and other benefits. At an individual level, if a person loses a job, he or she is a loser. However, at the national level, the analysis needs more careful attention: outsourcing leads to jobs moving from the U.S. to other countries, and jobs moving from other countries to the U.S. The third question this chapter addresses is how outsourcing will impact the legal community in the short-run and in the long-run. Specific examples are considered. The fourth and final question is how intellectual property can be equitably protected in an economy that involves growing levels of offshoring.
Evolving Relationships
Outsourcing under international trading rules Virtually any nation that accedes to the World Trade Organization (WTO) agreements is required to take a number of specific steps toward facilitating freer trade. Most of these involve the reduction or elimination of trade barriers and opening of domestic markets and trading opportunities to foreign-owned firms. Acceding members in recent accessions have made such commitments for almost all product sectors and many service sectors as well. Again, for most nations, agreeing to take these steps through an international treaty necessarily requires a variety of modifications to domestic law and the domestic legal system.
GATT 1994 are unconditional ‘most-favored-nation’ (MFN) treatment among members (Art. I), non-discrimination and national treatment (Art. III), and a prohibition against most quantitative restraints (Art. XI). Most trade restrictions, other than tariffs, particularly quantitative restraints and non-tariff barriers, are essentially prohibited, although there are many important exceptions. Of course, the proper implementation of these principles, and the use of the exceptions to restrict imports, has become a very complex and oftencontroversial process, the subject of numerous disputes among the GATT contracting parties and, now, the WTO member states. •
MFN treatment: Under MFN treatment (“NTR” or “normal trade relations” only under United States law), each member country automatically extends the benefits afforded to any other member country to all WTO members:
With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges. ..any advantage, favor, privilege, or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. (Art. I)
Core GATT Principles Although it is an over-simplification, it is nevertheless helpful to visualize the generalized agreement on trade and tariffs (GATT)—the original 1947 version and the version adopted as part of the “Uruguay Round” negotiations in 1994, primarily as a mechanism for reducing trade barriers and increasing market access. The GATT does not prevent the use of import duties (taxes on imports), but provides a mechanism (used for eight negotiating “rounds” since 1947) for reducing such duties among member nations. One of the more unusual aspects of the GATT/WTO system—virtually unique in the international law arena—is that the WTO provides for binding third party dispute resolution of trade disputes, with sanctions for members that fail to comply with the rulings of the WTO’s dispute settlement body (DSB). More than 365 disputes have been referred to the DSB in the first nearly 13 years of the WTO’s existence. Probably the most important GATT/WTO principle is the principle of nondiscrimination, both as among members of the WTO and between foreign and domestic producers of goods and providers of services. The core principles of
For example, if the United States were to negotiate with Japan a tariff reduction from 10% to 5% on television receivers from Japan, presumably as part of a package in which Japan made other tariff concessions of importance to the United States, under the MFN principle the 5% rate would be applicable to televisions imported into the United
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States from other GATT/WTO member nations as well, without those nations having to make any further concessions in return. •
•
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Tariff bindings: GATT Article II provides a framework for multilateral negotiations for the reduction of import tariffs and assurance that once tariffs are reduced they will not be raised again in the future. When a member agrees to specific tariff commitments or reductions, either as part of a WTO negotiation or upon accession, they are incorporated in a country-specific schedule or annex, which is part of the legal agreement. Bound duties average about 3-5% for developed countries like the U.S. and Japan, but may exceed 30% for some poorer countries. Even among developed nations, some duties are much higher; U.S. duties on some apparel are in excess of 20%, and on some “plastic” footwear, over 70%. Once tariffs are reduced and “bound” at a given level, they normally cannot be increased, although there are certain exceptions. National treatment and non-discrimination: The national treatment and nondiscrimination principles embodied in Article III are designed to assure that imported goods are treated in the same manner as domestic goods, particularly with regard to a country’s internal taxation and regulation: The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1 [so as to avoid protection for domestic production].
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations, and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution, or use…
For example, if the United States imposes a 5% excise tax on imported petroleum, it must impose the same tax on domestically produced petroleum. The GATT/WTO is designed to reduce tariffs and non-tariff barriers, recognizing that tariff reductions become ineffective if they are merely replaced with quantitative restrictions or other non-tariff barriers. •
Ban on quantitative restrictions: In most instances, quotas, embargoes, and other quantitative restraints are prohibited. Even where quantitative restrictions may otherwise be permitted, they must be applied on a non-discriminatory basis under Articles XI and XIII:
No prohibitions or restrictions other than duties, taxes, or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.
This means that quotas (whether applicable to imports or exports) are prohibited unless they are authorized by a specified exception to Article XI, as with safeguards measures under GATT Article XIX.
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GATT Exceptions There are, of course, many exceptions to these principles in GATT 1994. The most important include articles VI and XVI (antidumping and countervailing duties), XII and XVIII (balance of payments) XIX (emergency action), XII (restrictions to safeguard the balance of payments), XX (general exceptions), XXI (national security), and XXIV (free trade areas and customs unions). These exceptions reflect recognition that in certain hopefully limited circumstances nations must preserve the right to depart from the principle of nondiscrimination against foreign goods. However, even where departures are permitted, they are narrowly drawn and have been interpreted narrowly by GATT and WTO panels. •
•
Balance of payments: Article XII provides that “Notwithstanding the provisions of paragraph 1 of Article XI, any contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported, subject to the provisions of the following paragraphs of this Article.” This provision recognizes that under some emergency situations—where, for example, a country’s foreign exchange reserves become dangerously low—special consideration in the form of temporary exceptions to tariff level obligations must be recognized. However, Article XII has been interpreted narrowly to prevent abuses. Article XVIII: 2 provides developing countries with greater leeway in protecting their balance of payments. Developing nations: The GATT itself provides only limited “special and differential” treatment for developing nations. Under the WTO agreements, special treatment is provided with regard to subsidies, intellectual property rights, investment, and safeguards, among others. In most instances, develop-
•
ing countries were given additional time to comply with the specific obligations of the WTO agreements, or are exempted from trade remedy proceedings if the volume of their exports of the affected product to the importing state are small. For example, India and other lesser developed countries were given 10 years from 1995 to comply with the requirements of the agreement on traderelated intellectual property (TRIPs). General exceptions: Other so-called “general exceptions” to the core GATT applications are provided, in Article XX: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: a. necessary to protect public morals; b. necessary to protect human, animal or plant life or health; c. relating to the importations or exportations of gold or silver; d. necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; e. relating to the products of prison labor; j. mposed for the protection of national treasures of artistic, historic or archaeological value;
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g.
h.
relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; undertaken in pursuance of obligations under any intergovernmental commodity agreement which conforms to criteria submitted to the CONTRACTING PARTIES and not disapproved by them or which is itself so submitted and not so disapproved.
These provisions permit a GATT member to deviate from certain GATT obligations under the circumstances listed but only consistently with the “Chapeau” requiring that the exceptions not be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade . . . .” For example, on occasion the United States has barred the importation of certain products from China, because it was demonstrated that they had been made with prison labor. The WTO’s Appellate Body has interpreted Article XX exceptions narrowly. •
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National security: There is also an exception for certain actions taken by GATT members on the grounds of national security (Art. XXI). These include preserving confidential information; “taking any action which it considers necessary for the protection of its essential security interests;” actions relating to nuclear materials; measures relating to the prevention of “traffic in arms, ammunition and implements of war...;” actions “taken in time of war or other emergency in international relations; and those relating to compliance with obligations under the U.N. Charter.” These exceptions have been used rarely.
GATT also provides an exception from MFN and the non-discrimination principle for free trade areas such as NAFTA and AFTA and ChinaAFTA, and customs unions such as Mercosur and the European Union (Art. XXIV) (a free trade agreement liberalizes trade among its members, but leaves its members free to set their own tariffs on trade with the rest of the world. A customs union not only liberalizes intra-regional trade, but provides for a common external tariff on members’ trade with the rest of the world). Under Article XXIV, only FTAs and customs unions that meet GATT Article XXIV standards are permitted, but WTO oversight and enforcement of FTAs is weak. There is more lenient treatment of regional trade agreements among developing countries under the 1979 GATT “Enabling Clause,” which also permits developed country members to offer nonreciprocal trade benefits, such as those provided under the generalized system of preferences.
Limits on the Use of Subsidies and Other Trade-Restrictive Measures The WTO agreement on subsidies and countervailing measures (“SCM Agreement”) imposes significant limitations on the use by governments of subsidies. It a subsidy as a financial contribution by a government or public body involving (1) a direct transfer of funds, (2) the foregoing of government revenue, (3) the provision of goods or services other than general infrastructure, or (4) payments made to a funding mechanism—including a private body—to undertake actions within (1), (2), or (3), provided in each of the four instances that a benefit is conferred on the recipient company (Art. 1.1; “yellow light” subsidies). In general, a subsidy is not actionable under a member country’s countervailing duty laws unless it is “specific,” in that it is provided to a specific industry or industry group, rather than generally. The subsidies agreement explicitly prohibits export subsidies and subsidies conditioned on use of domestic rather than imported materials
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(often termed “red light” subsidies), except for the least developed countries (Art. 3). Certain types of otherwise actionable subsidies—research and development grants, regional development programs, and environmental cleanup programs (termed “green light” subsidies)—were for 5 years after 1995 specifically exempt (Art. 8). Regional development subsidies are used by many developing nations to encourage industrialization in regions with high unemployment or limited infrastructure. The WTO exception for such subsidies—when generally available to industries within the disadvantaged regions—protects these nations from countervailing duty actions against such exports. The exemption has not been renewed, but presumably will be continued in some form at the conclusion of the Doha Round negotiations. The subsidies agreement contemplates two often-parallel means for dealing with illegal subsidies. First, as noted, private parties in a member nation may bring administrative countervailing duty actions under domestic law, resulting in the imposition of offsetting or countervailing duties if all the procedural and legal requirements discussed in detail in this section are met (SCM Agreement, Part V). However, a member government may also seek redress through the WTO dispute settlement body. If the action is against prohibited export subsidies, it is sufficient to show the existence of the subsidy (SCM Agreement, Part II). Where the action is against actionable when it believes that another member’s use of subsidies is causing (1) injury to one of its domestic industries, (2) “nullification or impairment” of its rights under the subsidies agreement, or (3) “serious prejudice” to any industry in its territory (Part III, Arts. 5, 6). Should the complaining member prevail, the subsidizing country would have the usual choice of complying with the decision by eliminating the subsidy or accepting trade sanctions. There are other trade remedies available to WTO Members. Most significantly, the WTO agreement on implementation of Article VI of
the GATT 1994 (anti-dumping agreement or “AD agreement”) permits members to impose antidumping duties (additional import taxes) on foreign goods that are sold in the export market at “less than fair value” and as a result cause or threaten material injury to a domestic industry. Effectively, the rules punish international price discrimination when the product at issue is sold at a lower ex factory price in the export market than in the home market. The agreement on safeguards (“safeguards agreement”) allows the “temporary” re-imposition of customs duties or quantitative restraints when increasing imports are shown to cause or threaten “serious injury” to domestic producers. The agreement on trade-related investment measures (TRIMS) effectively precludes most types of performance requirements. For example, it is generally illegal for a country to require a local manufacturer to use local parts and materials rather than parts and materials imported from another country, or to provide government benefits conditioned on exporting a certain volume of production.
Applicability to Outsourcing of Goods How can a nation such as the United States counter the use of imported goods over domestically produced goods? This is very difficult prospect. In most cases, raising tariff above agreed (MFN) levels is prohibited. Tariffs bound under GATT Article II at, say, 4%, cannot be raised to 10%. Quantitative restraints (quotas) as noted cannot normally be imposed. Most other non-tariff barriers, such as bogus health and safety standards, can be challenged in the WTO’s dispute settlement body. If excise taxes are assessed on foreign goods, taxes at the same rate must be assessed on domestic goods under GATT Article III. If foreign goods are dumped—sold at lower adjusted prices in the U.S. than in the exporting countries—dumping duties can be assessed to
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offset the difference; this may occur much more, since national administering authorities have broad discretion. The U.S., for example, routinely applies high anti-dumping duties on steel, orange juice, softwood lumber, cement, anti-friction bearings, and other products, including many from China. Imposition of dumping duties has become the remedy of choice for the U.S. and more than 100 other WTO member nations, including China and India, since most other protectionists actions are foreclosed or require compensation (as with safeguards). This is of course one way of discouraging outsourcing, although it tends to be used most often against unrelated foreign producers rather than against U.S. subsidiaries abroad. If foreign goods are recipients of government subsidies, similar penalty duties may be imposed. Safeguards in theory may be imposed where there is serious injury, usually for no more than 4 years. However, U.S. or other WTO member actions are subject to legal review under WTO procedures, and many such actions are overturned by the dispute settlement body. For example, safeguards have been challenged at the WTO in at least five instances, and in each of these cases, the protection afforded to the domestic industries was ruled illegal. Should the United States decide to subsidize certain industries in an effect to make production in the United States more financially attractive by reducing manufacturing costs, such subsidies could be subject to challenge by other WTO members as a violation of WTO rules. Nor, under TRIMS, could the U.S. government require U.S. producers to use domestic parts and components rather than foreign ones. This would be counterproductive anyway, as it would encourage the domestic manufacturer to move its entire production abroad.
Trade in Services The objective of the general agreement on trade in services (“GATS”) is simple: over time, to assure that the basic disciplines that have applied to 32
international trade in non-agricultural products for more than half a century—MFN treatment, national treatment, subsidies, transparency, and so forth—are applied to services, with a minimum of exceptions. GATS provides a series of legal rules governing market access and national treatment restrictions. GATS rules apply to regional and local as well as national governments. Members of the WTO agree through a “positive list” approach to restrict use of market access and national treatment restrictions; obligations under GATS, except as noted, are defined largely by members’ individual schedules of commitments. Services obligations are largely divided into three types: •
•
• •
Mode 1: cross-border services, such as when a Tucson, Arizona lawyer sends a legal opinion by e-mail or courier to Bombay Mode 2: consumption abroad, as when an Indian lawyer or engineer travels to the University of Arizona to attend a graduate degree program Mode 3: commercial presence, as when a U.S. bank opens a branch in Shanghai Mode 4: presence of a natural person, as when an Australian attorney travels to Vietnam to open up a travel agency
GATS provides coverage of all services other than those afforded in the exercise of governmental authority, national treatment (barring discrimination in favor of domestic suppliers), and most favored nation treatment. However, these obligations, unlike parallel ones in GATT, incorporate important exceptions: •
National treatment commitments are not universal, but are limited by each government to the services specifically designated by that government; this contrasts with the GATT 1994, where national treatment is binding once the goods have entered the national market.
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•
•
The degree of market access and national treatment can be limited, for example, by permitting foreign banks to own only 49% of a subsidiary. EvenMFNtreatmentwassubjecttoexceptions for up to 10 years, with an initial review of the exceptions after 5 years, or beginning in 2000.
GATS also has other important provisions: transparency; reasonable regulations subject to judicial review; absence or restrictions on international payments for services which may not be restricted except for balance of payments difficulties; difficulties, and; built in schedule for further negotiations. •
•
Financial services: By December 1997, GATS members were able to agree on a broader and much improved series of financial services commitments, totaling 56 schedules representing 70 member governments. A total of 104 GATS members made commitments under the Fifth Protocol. Nations representing over 95% of trade in financial services participated in the agreement. Specific commitments for banks, securities firms, and insurance firms incorporate dozens of pages. However, in general they include: fewer regulatory requirements for foreign commercial presence; “Grand fathering” existing operations that are currently majority owned, even if subsequent limitations have been tightened, and; broad coverage of insurance, reinsurance, brokerage, agency services, actuarial services, and all banking and stock brokerage functions. Telecommunications services: Telecommunications is another key services sector where negotiations could not be completed in 1994. Negotiations continued until February 1997, at which time 69 governments made market-opening commitments as part of the “Fourth Protocol” to the GATS
or Basic Telecommunications Agreement. More than 95% of the global telecommunications market was covered. While commitments in the sector are generally offered on an MFN basis, several countries took MFN reservations (e.g., U.S., one-way satellite transmission; Brazil, distribution of radio/TV programming to consumers; Turkey, transit land connections and satellite ground station use by neighboring countries; Bangladesh, Pakistan, India, Sri Lanka, Turkey, application of differential measures by governments in setting rates; Antigua, Barbuda, national treatment only for other CARICOM members, etc.). The coverage of GATS, unlike GATT rules relating to trade in goods, is still incomplete, and is under further negotiation in the now-stalled “Doha Development Round” of WTO negotiations taking place in Geneva from November 2001 to mid-2006, and sporadically thereafter. The focus of these negotiations, like those relating to telecommunications and financial services earlier, has been to eliminate market access restrictions, not to create such restrictions. Among the other gaps is very limited coverage of subsidies of services activities. GATS contemplates provisions for emergency safeguards and to restrict subsidies of services providers by host governments, but they were to be negotiated after 1995, and those negotiations have not yet succeeded. A provision exists to guard against balance of payments problems, but it has seldom if ever been used, in part because U.S. services providers are the ones which are effectively importing the benefits of the services into the United States.
Implications of GATS for Services Outsourcing The implementation of GATS has effectively made it easier for developed members such as the
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United States to outsource services jobs, since it becomes very easy, for example, for a United States firm to open a subsidiary abroad to provide brokerage back office services (often, perhaps most frequently, the U.S. firm contracts with the service provider in India or elsewhere, rather than owning and controlling the foreign operation). Market access provided by India and other countries in the GATS schedules or in through national legislation fostering foreign investment and business activity generally has also been a significant driving force for outsourcing in the last decade or so. Also, the GATS contains no effective provisions on dumping or subsidization of services. Moreover, the “product” resulting from a foreign service provider—answering your telephone query about a Microsoft computer program or receiving electronically the draft of a legal document or code for a software program—is generally not subject to any kind of effective border controls or other restriction in the importing country. The entire thrust of the development of freer trade worldwide in goods (since 1947) and in services (since 1995) has been to remove restrictions that would otherwise prevent market forces for determining sourcing decisions. The members of the GATT/WTO have achieved a high level of success in this endeavor, even though many trade restrictions and unfinished business remain. Thus, efforts to restrict such trade in the name of outsourcing are likely to violate binding WTO obligations. Should the U.S. Congress enact WTO — illegal restrictions on outsourcing or imports from certain nations (e.g., India or China) based on exchange rates, they would likely be declared illegal by the WTO’s dispute settlement body within a relatively short period of time. Probably the only solution for U.S. outsourcing is for the government to maintain a favorable investment climate and a climate for sophisticated basic and applied research, and tax policies that encourage innovation and investment in technologies that increase productivity and competitiveness, so
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that outsourced manufacturing or services jobs can be replaced by other jobs requiring special technical skills and knowledge, as has in fact happened repeatedly in the United States since World War II.
Strategy Adopted by State Governments and Local Governments in the U.S. State governments in the U.S. have used massive subsidies in recent years to attract major foreign manufacturing facilities; examples include the deals made by South Carolina and Alabama to attract BMW and Mercedes respectively. There are also examples of situations where the state government has provided a subsidy to new industries or to existing industries as an incentive to get them not to outsource, and some companies leave the state soon after the contractually mandated period is over. In the area of outsourcing of professional services, the case most cited in literature is that of the conflicting decisions made by successive governors in Indiana. In September 2003, Governor Frank O’Bannon approved a contract of $ 15.2 million in favor of Tata American International Corp., a New York-based subsidiary of Tata Consultancy Services; this was the lowest bid, between $8.1 million to $23.3 million less than other bids. In November 2003, Governor Joe Kernan canceled the bid, not on the basis of any flaw in the execution of the project by the contractor. Additional details of this decision and other noteworthy decisions by state and local governments are presented in (Gupta et al., 2007). State and local governments have to grapple between two constraints: on one side, they need to procure services at the lowest possible price; and on the other, they want to maintain the highest possible levels of employment. In the Indiana case, the additional cost of retaining jobs in Indiana was calculated to be $162,500 per job; this is the incremental cost that the taxpayer must
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Table 2.1. Job Turnover (thousands) (Source: Bureau of Labor Statistics) Year
Job Gains
Job Losses
Net Change
1993
29,665
27,032
2,633
1994
30,783
27,621
3,162
1995
31,459
29,079
2,380
1996
32,504
30,061
2,443
1997
33,725
30,757
2,968
1998
34,637
31,805
2,832
1999
35,614
32,924
2,690
2000
35,104
33,143
1,961
2001
32,491
35,442
-2,951
2002
31,691
32,047
-356
Total
327,673
309,911
17,762
bear in order to keep the job in the state (Gupta et al., 2007). The U.S. constitution specifies that the federal government possesses exclusive authority over all matters pertaining to foreign affairs. Accordingly, it is questionable whether state governments possess the authority to bar procurement of services from abroad. So apart from the international conventions delineated in earlier subsections, the ability to influence outsourcing decisions appears to be further limited by the US constitution.
Outsourcing versus insourcing in the United States There is a perception of IT job losses due to outsourcing. However, much of the job loses experienced have been due to the downturn of the economy in 2001, the IT bubble bursting, the tech-laden NASDAQ losing three-quarters of its value during the ensuing 3 years, and to productivity increases in the IT industry. That mistake is compounded when current output and employment levels are compared with levels at the frenzied peak of the boom in 2000 rather
than with more normal levels from the late 1990s (Griswold, 2004). The job market is like most other markets, a dynamic and fluid environment that operates in a cyclic manner. Jobs are created and lost, similar to other markets where goods and services are bought and sold. U.S. private-sector employment rose by 17.8 million during the decade from 1993 to 2002. To produce that healthy net increase, a breathtaking total of 327.7 million jobs were added, while 309.9 million jobs were lost. In other words, for every one new net private-sector job created during that period, 18.4 gross job additions had to offset 17.4 gross job losses (Lindsey, 2004). Table 2.1 provides a visual representation of the trends of job turnover during 1993-2002 to illustrate this point. Economic analysts and critics might argue that the jobs created are lower paying jobs that replace the more skilled or white-collar jobs that are being lost, and presumably sent abroad. However, management and professional specialty jobs have grown rapidly during the recent era of globalization. Between 1983 and 2002, the total number of such positions climbed from 23.6 million to 42.5 million—an 80% increase. In other words, these challenging, high-paying positions have jumped
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from 23.4% of total employment to 31.1%. Such high-quality jobs are likely to continue growing in the years to come. According to projections for years 2002–2012 prepared by the Bureau of Labor Statistics, management, business, financial, and professional positions will grow from 43.2 million to 52.0 million—a 20% increase that will lift these jobs from 30% of total employment to 31.5% (Lindsey, 2004). As the U.S. economy continues its shift to one that is more focused on performing services than on manufacturing, there is a concern that the U.S. is falling behind in this arena. This feeling is partially due to a shift of some high profile service positions, customer service representatives, and telemarketing sales, being sent offshore. Yet the fact is that the United States runs a trade surplus in the IT services most directly affected by offshoring. In the categories of “computer and data processing services” and “data base and other information services,” U.S. exports rose from $2.4 billion in 1995 to $5.4 billion in 2002, while imports increased from $0.3 billion to $1.2 billion over the same period. Thus, the U.S. trade surplus in these services has expanded from $2.1billion to $4.2 billion (Lindsey, 2004).
Outsourcing of legal tasks across national borders Technology has progressed to the stage that corporations can select providers of legal services in other countries, even other continents, who offer greater value and faster turnaround times. In some cases, they possess superior domain knowledge too. Limits do exist, however, mostly through state bar associations, which regulate the practice of law to members of the bar. To the extent outsourced services are made the responsibility of a member of the bar, for example, an Indian-American who is a member of the New York Bar and is responsible for supervising paralegals working in Mumbai, the state restrictions are likely not controlling.
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Issues of client confidentiality and protecting the lawyer-client privilege also arise. Further expansion of legal outsourcing will depend, inter alia, on maintaining a significant cost differential between the United States and Indian salaries for legal support professionals, and availability of such professionals for expansion.
Case Examples of Outsourcing of Legal Activities The first law firm to expand overseas was Dallas based Bickel & Brewer (Brook, 2005). They opened an office in Hyderabad, India. The founders explained initially this was a solution to “handling the millions of pieces of information that confront us in each case” (Brook, 2005). This office has since spun off to a separate entity (Imaging & Abstract International) that handles work for Bickel and Brewer in addition to several other American clients. While some American companies are reluctant to have their legal work performed by a company that is not located within the United States because of possible negative press (Jain, 2006), other corporations are setting up captive centers, or locating part of their organizations’ legal department to locations such as India (Flahardy, 2005), where labor is often 15-20% of what their U.S. counterparts charge (Rowthorn, 2005). The first U.S. corporation to do this was GE Plastics in 2001. GE had their U.S. staff interview and supervise these new employees who were located in Gurgaon, India. These employees were mainly drafting outsourcing agreements and confidentially contracts. In a 2 year period, GE reported saving “nearly $2 million in legal fees that otherwise would have gone to outside counsel” (Flahardy, 2005). This encouraged other corporations to follow G.E.’s lead, triggering the start of the legal outsourcing industry. DuPont has hired lawyers in the Philippines (Engardio, 2006) to work 24 hours a day (in three shifts), seven days a week, to prepare documents
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and code potential evidence for upcoming court cases, a process known as first level document review. As the amount of data that needs to be managed increases, so does the incentives for sending work, electronically, to a facility that can rapidly review and catalog this growing mass of information. DuPont is looking to shorten this process from 18 months to 3 months. The expected savings for this document work is 40% to 60%, a savings of $6 million from their annual budget. When Paris-based Rhodia, a leading producer of specialty chemicals, felt pressure to remain competitive, it entered into a 6 year contract with Accenture to transfer the bulk of its law and accounting functions to a service center in Prague, Czech Republic (Stein, 2003). Accenture moved Rhodia’s 15 existing systems to Prague, and then began the process of standardizing their processes. This model, a shared service center, resulted in cost reductions over 35% in less than 2 years (Cooper, 2003). While most of the work so far has been low level tasks including transcriptions, document conversions, and legal data entry, there is a shift towards higher value services such as patent law being perform by Indian firms (Sandburg, 2005). Recently, an Indian law firm specializing in patent law, Pangea3, received $4 million from private equity firms (Kannan, 2006). This funding reinforces the belief of industry analysts that legal process outsourcing market will increase to $11.5 billion per annum by 2010 (Jain, 2006).
Legal Tasks and Opinions The law industry, regardless of the type of practice, is composed largely of three components: research, writing, and litigation or negotiation (the vast majority of civil legal actions in the United States—over 90%—never reach the courtroom. They are settled or mediated). Most lawyers are not litigators. Rather, they are engaged in negotiation of complex legal agreements with private parties or government entities, and assisting clients with
regulatory requirements or such documents as wills, trusts, corporate charters, contracts, and so forth. Lawyers often have a heavy work load handling the research and writing as well as the negotiation, litigation, and interaction with clients. The negative effects of this hectic work schedule for the employer are worker burnout and fatigue (Waldmeir, 2003). During the trial phase of a case, lawyers often need to adjust their case in response to the day’s events. After they leave the courtroom, they conduct many hours of research to file a motion, or in response to a motion filed. Similarly, a time-sensitive negotiation or Securities and Exchange Commission filing may require almost round-the-clock work by dozens of legal professionals. The fatigue such professionals experience has negative effects on their performance. In addition to trial attorneys, mergers, and acquisitions, SEC and patent law and contract law among others require extensive research and revisions, and attorneys and paralegals practicing in those areas experience similar workloads. The legal tasks required for litigation support bear significant similarity to financial functions: they both share aspects that predispose them to the benefits of outsourcing. Each consists of vast amounts of information, in printed and electronic form, and requires that the data be tagged and indexed for retrieval upon demand. So, if financial functions can be outsourced at lower costs, one should be able to do the same for allied tasks. Ethics opinions issued in New York and California proclaim lawyers may ethically outsource legal support services overseas to a non-lawyer as long as the lawyer rigorously supervises the non-lawyer, obtains advance client consent to outsourcing, and bills for outsourcing appropriately (New York City Bar, 2006; San Diego County Bar, 2006). Note, however, that patent filing presents a unique set of constraints due to technology export laws. To mitigate this problem, the U.S. Commerce Department grants export waivers for technology, including blanket export waivers. Many multinational companies have blanket
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export licenses covering all of their operations (Harris, 2005).
Trends in Legal Industry Unbundling is a new trend in the legal industry; clients can identify services they want law firms to perform and then select different law firms for different services based on considerations of cost or quality. In essence, legal tasks become a set of commodities. When DuPont needed outside help to manage documentary evidence for product liability cases, it determined that this work, although requiring some judgment, was not difficult or too technical in nature. Instead of opting for a vendor that focused on legal services, DuPont opted for a company with more experience in judgment based work, specializing in back office services. It selected Office Tiger, a large business process outsourcing provider, with the stipulation that the workers assigned by the latter to DuPont cases will work exclusively on DuPont related matters (The Metropolitan Corporate Counsel, 2006). The decision-making process took nearly 2 years with several factors that needed to be examined. A common concern is U.S. export control laws restricting the amount of information on new technologies that can be sent overseas. This was a concern for DuPont, being a technological-driven company. This caused DuPont to use a U.S. law firm for such projects that could not be done overseas. For projects that could be conducted overseas, DuPont conducted onsite interviews of potential vendors before making their selection. Once security and quality concerns were addressed, DuPont utilized its own staff to personally train the foreign workers. In the future, such trips like this will not be necessary, as global standards for the legal outsourcing industry are put into place. A particular project in the Philippines was conducted by trained local persons, under the direct supervision of three persons who possessed law degrees from the U.S. and had been admitted to practice law in the
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U.S. In India, the new Global Legal Professional Certification test has been announced recently, in order to help identify the most talented subset of the nearly 200,000 individuals who graduate with degrees in law each year. Legal outsourcing is not simply a means to lower legal costs. After Andrew Corporation, a manufacturer of communications equipment, acquired a division of Deltec Telesystems, a New Zealand manufacturer, Andrew Corp. opted to use the local IP firm that Deltec had used for filing patents (Fried, 2004). This IP firm had acquired a solid reputation for filing radio frequency patents in the U.S. and other markets. Andrew Corporation decided to send all of their U.S. radio frequency patent work to this firm, located in New Zealand, based on this reputation. Further, because of the time difference between the U.S. and New Zealand, work can be conducted on a cyclic basis, with drafts from the IP firm being reviewed and sent back by the client before the firm begins work the following day. This decreases the overall time involved in the patent filing process and offers major strategic advantages and the possibility of true 24-Hour Knowledge Factory operations (Gupta et al., 2007; Gupta & Seshasai, 2007) as illustrated by the scenario in the following paragraph. There are three legal teams: Group A, B, and C; each located 8 hours (in meridian time difference, not travel time) from each other. When Group A is leaving the courtroom, at the close of the business day, Group B is entering its office. In this example, the opposing legal team is trying to get last minute evidence entered into the trial. Group A sends the case information, along with the results they would like their counter argument (motion) to produce. Group B is now responsible for acquiring all the necessary research to produce the desired result. Group B conducts the research, until the end of its working day. At this point, Group C starts its day. Group C is presented with the information from group A and the research that group B has performed. Group C is now
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charged with compiling this information into a written motion that will be submitted to the court, or an oral argument that Group A will present to the court. After 8 hours have elapsed, group C is now preparing to go home, and group A is now starting its day. Group C now forwards all information to Group A, who is preparing to return to court. Group A receives: (i) Group A’s summary of events and the intended results, (ii) Group B’s research, and (iii) Group C’s written motion and draft oral argument (could be in written form, or as an audio transcript, or both). Presumably, Group A has had sufficient rest, and was able to utilize the time for other aspects of the case. The results for using this model have been translated into a strategic advantage. Such mode of operations will allow three teams of workers to perform professional work on a round-the-clock basis (Gupta et al., 2007; Seshasai & Gupta, 2007).
Intellectual property (IP) issues The performance of tasks in an outsourced or collaborative fashion, by individuals located across state and national boundaries, raises new issues. Who owns the intellectual property such as patents on new medical or drug inventions; who can be sued for malpractice and under which set of laws and regulations; how the charges for services should be apportioned; and what are the mechanisms for seeking redress if and when it becomes necessary? Besides these, there are also other related social and policy-related concerns such as quality control of services and intensity of workflow across boundaries. In the case of patents and intellectual property, there is a common feeling among intellectual property holders around the world that others may find a way to exploit one’s patents or other technology, particularly trade secrets that are not subject to patent protection. In the U.S., there is a
feeling that some companies in foreign countries are exploiting U.S. inventions and patents without authorization and payment of royalties. On the other side, there are people in other counties that feel the same way; there are also instances of patents issued by the U.S. patent office on items of indigenous nature that have existed for thousands of years. This section looks at these issues and proposes an approach that can surmount the current problems and hurdles related to intellectual property.
Foundations of Intellectual Property Intellectual property (IP) rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time (World Trade Organization, 2007b). The key forms of intellectual property are patents, copyrights, trademarks, and trade secrets. In addition, there are variations to the common forms of intellectual property. For the purpose of this chapter, an example in the category of geographical indicators (GI) is focused on. A GI identifies “a good as originating in a locality where a given quality, reputation, or other characteristic of the good is essentially attributable to its geographic origin” (Field, 2006). Since intellectual property shares many of the characteristics of real and personal property, associated rights permit intellectual property to be treated as an asset that can be bought, sold, licensed, or even given away at no cost. IP laws enable owners, inventors, and creators to protect their property from unauthorized uses (Field, 2006). On a macro scale, the importance of IP to social and global development is three fold: •
Convenience: The most obvious reason is that these creations translate into making some of life’s most common and enduring
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•
•
activities more convenient. For example, communication between people became easier when the postal system was created. As time progressed, the telephone was developed, which allowed for direct communication across greater distances. Later, the cellular phone was developed to allow talkers to have direct communication with each other outside of their homes—in fact, anywhere. Economic growth: The World Bank’s Global Economic Prospects Report for 2002 confirmed the growing importance of intellectual property for today’s globalized economies, finding that “across the range of income levels, intellectual property rights (IPR) are associated with greater trade and foreign direct investment flows, which in turn translate into faster rates of economic growth.” Innovation: Effective IP enforcement encourages creation and invention.
The World Intellectual Property Organization estimates that copyright industries alone contributed $791 million, or 7.75%, to the U.S. economy in 2001 (Wayne, 2004). Estimates of U.S. companies’ worldwide losses to counterfeiting and piracy range from $200 to $250 billion per year (Wayne, 2004).
Intellectual Property and Role of International Organizations One of the major governing bodies related to protection of IP on an international basis is the World Trade Organization (WTO). The current policy evolved during the 1986-1994 Uruguay round of multilateral trade negotiations (World Trade Organization, 2007a). The TRIPS (agreement on trade related aspects of intellectual property rights) was an attempt to bring IP rights under the protection of shared international rules governing related trade issues. TRIPS establishes
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minimum levels of protection that each member has to give to the intellectual property of fellow members. Governments are allowed to reduce any short term costs through various exceptions. For example, this maneuver could be executed in order to tackle public health problems. The agreement covers four broad areas (World Trade Organization, 2007a): •
• • •
How basic principles of the trading system and other international intellectual property agreements should be applied How to give adequate protection to intellectual property rights How countries should enforce those rights adequately in their own territories How to settle disputes over intellectual property between members of the WTO now that the provisions of TRIPS apply to all WTO Member states
The second part of the TRIPS agreement looks at different kinds of intellectual property rights and how to protect them. Its main goal is to make certain that member countries have an understanding of its provisions for IP protection. The basis of the TRIPS agreement can be traced back to the late 19th century. More specifically, its basis was founded around the Paris Convention for the Protection of Industrial Property of 1883 (World Intellectual Property Organization, 2007b). Topics that were addressed in this agreement included, but were not limited to, patents, industrial designs, and so forth (World Trade Organization, 2007a). Later, the Berne Convention for the Protection of Literary and Artistic Works in 1886 established international copyright laws (World Intellectual Property Organization, 2007a). Evidently, some areas concerning IP were not discussed—for example, geographical indicators. Or, those protection standards that were discussed were later found to be insufficient. The WTO evaluated the proceedings of the earlier two conventions, and determined that
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higher standards were needed today, especially with respect to the enforcement aspect. Part 3 of the TRIPS agreement was written specifically to address this issue. Yet, before going into the weak points of this section, an understanding of what Part 3 attempts to enforce must be made known. According to the WTO: The agreement says governments have to ensure that intellectual property rights can be enforced under their laws, and that the penalties for infringement are tough enough to deter further violations. The procedures must be fair and equitable, and not unnecessarily complicated or costly. They should not entail unreasonable time-limits or unwarranted delays. People involved should be able to ask a court to review an administrative decision or to appeal a lower court’s ruling. The agreement describes in some detail how enforcement should be handled, including rules for obtaining evidence, provisional measures, injunctions, damages and other penalties. (World Trade Organization, 2007a). More specifically, a major difficulty that member countries face is how to enforce efficiently what the WTO has set out to be a stringent set of rules. It is thought that this problem stems from the fact that the TRIPS agreement does not require all member countries to have uniform rules on protection of intellectual property. According to the WTO, the TRIPS Agreement only: … requires members to comply with certain minimum standards for the protection of intellectual property rights covered in it; however, members may choose to implement laws which give more extensive protection than is required in the agreement, so long as the additional protection does not contravene the provisions of the agreement. (World Trade Organization, 2007a)
When the member countries adhere to the minimum requirements of the agreement, they have: …the freedom to determine the appropriate method of implementing the provisions of the agreement within their own legal system and practice—taking into account the diversity of members’ legal frameworks (for instance between common law and civil law traditions). (World Trade Organization, 2007a) Two issues arise as a result of this line of thought: While some countries believe heavily in the protection of IP and strict laws to enforce that protection, there are other countries that settle for the bare minimum requirements of TRIPS. Although there is a clear disparity, this is acceptable, and both countries are considered to be in compliance with the requirements of the TRIPS agreement. Further, the protection of IP outlined by TRIPS remains unstable due to lack of clarity surrounding the legal rules governing market access and national treatment restrictions as outlined in the GATS—which essentially bolsters IP protection. Generally, the wordings of the GATS guidelines are vague and it has rarely been tested in legal disputes; more specifically, members question its: “…market access rules and subsidies and the unwillingness or incapability of the proponents…to give guarantees that the feared negative consequences can be excluded or ruled out” (Bienefeld, 2003). This could greatly expose any IP being shared and raises the possibility of infringement. In essence, “…is still largely a terra incognita for most trading nations” (Horn & Mavroidis, 2006).
This implies that member countries need only to adhere to the minimum standards of the agreement. 41
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International Property Arguments at International Level According to Friedman (2005), the 2001 Chinese accession into the WTO was largely based on the goal of destroying internal bureaucracy as it negatively affected international trade and encouraged political and economic corruption. Friedman (2005) suggests that a more “codified law” would aid in the control of such problems. It should be noted that lack of local IP enforcement can definitely cause a lack of support for expanding trade between two countries. Such was the case in 2003 when the U.S. was apprehensive in trading with China; since then, China has strengthened the enforcement of its protection policy (Wayne, 2004), but not to the satisfaction of the United States, which has challenged the failure of China to meet its TRIPS obligations (China—Measures Affecting the Protection and Enforcement of Intellectual Property Rights (Complainant: United States), DS 232, April 10, 2007). Consider a specific example from the U.S. according to The New York Times article “U.S. Permits 3 Cancer Drugs from Cuba” (from July 15, 2004 issue) the U.S. federal government allowed biotechnology company CancerVex to license three experimental cancer drugs from Cuba. This was surprising because this allowance was essentially an exception to the highly restrictive trade policy of the U.S. with Cuba. Historically, the U.S. has imposed a series of embargos on Cuba. Most notably, the Cuban Liberty and Democracy Solidarity Act (1996) penalizes foreign companies that have done business in Cuba by preventing them from doing business in the U.S. The European Union vehemently voiced its disdain of this act because it felt the U.S. was dictating how other nations conducted their trade—which was essentially what it was doing—until negotiations were conducted. Such disputes could be better resolved if there was a good mechanism to handle them.
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Consider another example. Basmati rice serves as the traditional staple diet of tens of millions of people in South Asia. Based on research conducted on the total export of basmati rice, it was concluded that exports worth $350 million from India and $250 million from Pakistan were at stake at the time of the award of patent (Chandola, 2006). On September 02, 1997, Texas-based company RiceTec was awarded a patent by the U.S. Patent and Trademarks Office in regards to basmati rice. The patent was vague, allowing RiceTec the rights to exclusive use of the term ‘‘basmati,” a monopoly on farm-bred Indian/Pakistani basmati varieties with any other varieties in the Western Hemisphere, as well proprietary rights on the seeds and grains from any crosses (Uzma, 1998). The allowance of this patent caused uproar among the concerned parties of the South Asian subcontinent, as they feared bio-piracy by the West (Vandana, 2001). There were three main issues that concerned this patent: a theft of collective intellectual and biodiversity heritage of Indian farmers; a theft from Indian traders and exporters, whose markets are being stolen by RiceTec Inc.; and finally, deception of consumers since RiceTec is using a stolen name, basmati, for rice that is derived from a variation of Indian rice but not grown in India, and hence of a different quality. (Ray, 1998) India’s concerns, in fact, were supported by international law and RiceTec was not given new rights or any right given to market their varieties as equivalent to or superior to basmati (Chandola, 2006). According to the TRIPS agreement itself, Article 22 defines a GI as: …indications which identify a good as originating in the territory of a member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin.
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Basically, in order to be protected, the GI is not required to have the same name of a geographical place, but must be an indication of that place. In this case, “basmati” is taken to be an indication of rice coming from the Indian subcontinent. Interestingly enough, RiceTec had been selling and marketing basmati rice by the brand Texamati and Kasmati for over 20 years in 30,000 stores in North America (Chandola, 2006). So why did India not challenge the registration of this brand in the USA? Article 24.5 of the TRIPS agreement provides that:
auto manufacturer. Nevertheless, if the dispute had been tried in India, RiceTec would, most likely, have been held accountable for the infringement, and the costs to the plaintiffs would have been significantly lower too. The international IP area provides enormous challenges for companies and other holders of IP rights that wish to enforce those rights in national courts. TRIPS provides a basis for governmentto-government action where, for example, a local patent office may discriminate against foreign patent holders on a systematic basis, but is not useful for dealing effectively with individual company infringements. Under the best of circumstances, IP litigation in national courts is expensive and time-consuming, with the results often difficult to predict..
…where a trademark identical or similar to a GI has been applied for or registered or used in good faith before the application of these provisions of TRIPS in the member state or before the protection of the geographical indication in the country of origin, such a registration is valid and cannot be challenged. (“TRIPS”)
Long-Term Solution for Addressing Issues at Global Level
Based on this proviso, India could have challenged both the trademarks because they violated the provision of “good faith.” The problem, however, is that India, would have had to challenge the dispute in American courts. Historically, American courts have in some instances appeared to favor their national companies and this is a serious disadvantage to an overseas defendant [see Mother’s Restaurants v. Mother’s Other Kitchen, Inc. 218 U.S.P.Q. 1046 (TTAB1983); Person’s Co., Ltd. V. Christman 900 F.2d 1565 (Fed. Cir. 1990), 14 U.S.P.Q 2d, 1477 for correlating evidence] (Chandola, 2006). However, there are other prominent cases that culminated in a result that favors the foreign party over the U.S. firm. For example, in Bremen v. Zapata Offshore Oil, 407 U.S. 1 (1972), the Supreme Court deferred to a contractual choice of law case and forced an American party to bring its court action in England rather than the U.S. In Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985), the Supreme Court enforced an arbitration clause against a U.S. auto dealer in favor of the Japanese
Apart from the problems mentioned, the lack of global consensus on intellectual property issues is increasing the net cost to the customer in unforeseen ways. Consider this example from the healthcare arena. In the U.S., the FDA plays the pivotal role on issues related to drugs. But, each state is responsible for handling all medical professional credentialing and registration issues. The radiologist can render an initial opinion from outside the particular state or country, but the final opinion must usually be signed by another radiologist who resides within the particular state and is licensed to practice there. The use of two radiologists, though providing quicker action, tends to increase overall costs (Gupta et al., 2008). As mentioned earlier in this section, a widespread feeling exists among holders of intellectual property, both in the U.S.and abroad, that others are exploiting their work. Courts in different countries give conflicting judgments, with some evidence of bias in favor of companies domiciled in their respective countries. This is similar to
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situations where judges in different states in the U.S. would render conflicting decisions on the same case, creating confusion need for reconciling these decisions at the inter-state level; now the issue is at a nation-to-nation level. Consider a specific situation. Until fairly recently, child custody cases were handled entirely at the state level in the U.S. In divorce cases involving parents residing in two different states, the first state could grant the custody of the child to the mother (who resided in that state), and the second state could grant custody of the same child to the father (who resided in the latter state). In order to mitigate this problem of conflicting judgments, the Uniform Interstate Family Support Act (UIFSA) was drafted in 1992. According to this act, which has now been adopted in all of the U.S., states have been provided with the power to reach beyond their borders for the establishment and enforcement of support orders. A similar type of action is obviously desirable in the arena of intellectual property, at the international, nation-to-nation level, but agreement has proven elusive. Even the members of the European Union, after more than 40 years of trying, have not been able to agree on a uniform patent statute to be applied in the same manner by all member states. Let us step back from the specific aspect of intellectual property to analyze the broader subject of how laws, regulations, and norms have evolved over history. In 1000 BC, all rules were maintained and enforced at the village level. The village constituted the unit of economy. If a person engaged in inappropriate behavior, he or she could be denied the ability to draw water from the village well. The concerned person then had to plead with his or her peers in order to survive. This was a mechanism to enforce norms and mores of that village-based society. Over time and with the advent of better means of transportation, the legal unit increased in geographic size, first to a collection of a dozen villages, then to principalities, and ultimately to nation states. The lawmaking and enforcement mechanisms evolved
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too, frequently with overlapping jurisdictions. For example, a person residing in Boston today may be governed by up to five sets of regulations, of the City of Boston, Suffolk County, the State of Massachusetts, and the United States of America, respectively. Being governed by laws of the U.S. does not imply having to go to Washington D.C. to seek redress; benches of U.S. federal courts exist in most large and medium-sized cities in the United States. Why was one layer of legal infrastructure adequate 3000 years ago, but multiple layers of infrastructure (see Figure 2.1) needed today? The answer lies in the growing sophistication of society and the widening circle of influence for each individual and organization. If one drives too fast, then the legal system at the local level is adequate to address the situation. If one manufactures goods in one state of the U.S. and sells in another state, then the guidelines of interstate commerce, established at the federal level, apply to safeguard the interests of the sellers and the buyers. As global trade becomes more prevalent, new legal mechanisms have to evolve. Such trends are being witnessed. For example, in some areas, such as intellectual property, there may be a supranational layer as well, that is, the WTO’s trade related intellectual property agreement, which although not applied directly in the United States, affects U.S. intellectual property law. In the case of intellectual property, the ultimate solution may be an international regulatory system that maintains offices in large cities around the world. This organization could deal with issues that transcend national boundaries. The organization that performs this role could be a new one or an existing one such as WIPO or the WTO. Further, it is possible that different organizations would be appropriate for different areas of expertise. For example, the agency that could address issues of medical credentialing, registration, malpractice, accounting, and reimbursement could be operated under the aegis of the World Health Organization (WHO).
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Figure 2.1. Five layers of legal Infrastructure
International Legal Infrastructure
National Infrastructure
State Infrastructure
County/District Infrastructure
Local/City Infrastructure
Issues of intellectual property and trade are currently coordinated at the international level by the World Intellectual Property Organization (WIPO) the World Trade Organization (WTO), respectively. These organizations could serve as the nucleus for establishing streamlined mechanisms that would enable better coordination of emerging types of practices, in various disciplines, perhaps under the aegis of the WTO’s general agreement on trade in services. Professional services of diverse types will increasingly transcend national boundaries as efforts are made to perform them with speed, efficiency, and in the most cost-ef-
Frequently, these two infrastructures are combined into a single infrastructure or only one infrastructure is applicable.
fective manner. The availability of the proposed mechanism for global coordination of intellectual property and allied issues will be of major benefit to large constituencies of individuals and organizations around the world. In order to convert the idea into reality, a critical mass of countries would need to subscribe to the proposed approach, and to the duties and the responsibilities that are inherent in it. Under current political realities, particularly in the United States and other major trading nations (EU, India, China, Brazil, etc.), broad agreement on such a mechanism seems extremely unlikely in 45
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the foreseeable future. Note, however, that it is not necessary for all the countries to agree to the idea; further, it is not necessary that the dominant countries subscribe to the concept at the initial stage. When one of the authors of this chapter was leading the effort to establish the Internet Telephony Consortium at MIT during the nineties, the strongest opposition came from the largest telecommunications company that existed at that time. The representative of this company raised objections at each stage. Finally, this particular author told the concerned representative that his company did not need to join this consortium if it had so many reservations about the concept of the proposed consortium. Immediately, the representative said that if the consortium was formed, his company would definitely be a member of it. Usually, the company or country that is the strongest is the one who resists the consortium approach more than others. Of course, an international/supranational IP system that did not include the United States, the EU, and Japan would not have much practical utility. Historically, matters involving multiple countries have evolved at a slow pace. For example, the law of seas “…developed in the 10th to the beginning of the 11th century where the city-state of Amalfi…had a code of maritime law, which served as the model for laws on the Mediterranean Sea (UN Atlas of the Oceans, 2007)”. As time progressed these laws were expanded and redefined to satisfy the desires of the dominant world power of the time. It was not until the early 1980s, during the finalization of the United Nations Convention on the Law of the Sea (also known as UNCLOS III), that a final set of regulations was developed (The Peace Palace Library Centennial Exhibition, 2004), and the United States, the world’s largest sea power, has not acceded. There are other examples where matters have progressed very fast. Note also that despite the predictions of many experts, the European Union did become a reality, and its member governments opted to surrender
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some of their traditional powers for broader good. Further, even though the United Kingdom, Sweden, and Denmark opted to retain their own currencies, the notion of a common currency was widely accepted. In fact, nations moved from their respective currencies that were centuries old and moved to the euro in an unprecedented short period of time. The notion of countries agreeing to closely cooperate in other parts of the world is exemplified by Mercosur, NAFTA, and other regional trade agreements. So, there are several good precedents where nations have relinquished at least some of their customs, traditions, and procedures rapidly, and have accepted oversight authority that is outside national control. A more likely-to-be obtainable approach, at least in the short to medium term, would be to expand TRIPS to provide not only minimum standards for protection but uniform standards for the registration of patents, trademarks, copyrights, and so forth, which would then be incorporated into domestic law in all of the WTO member states, and enforced by existing national IP entities. This uniform law approach, which has been used successfully in other areas (e.g., Convention on the International Sale of Goods), raises far fewer “sovereignty” concerns than the designation of an international entity with offices in member countries, and would achieve most of the same objectives. However, as noted earlier, there is resistance to such IP uniformity even within major regional trading groups such as the EU. Finally, if some countries opt against joining a common approach to coordinate intellectual property enforcement and allied matters, such countries are likely to suffer over time in terms of their level of trade with other countries.
Conclusion Despite the public rhetoric of politicians and others, governments of developed countries can do little to inhibit the global trend towards
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outsourcing without violating the commitments they have made at the international level. Overall, more jobs come to the U.S. than go out, because of outsourcing. The U.S. is the net beneficiary in terms of net number of jobs and especially in terms of net dollar amounts as the job coming in carries higher remuneration than the job performed abroad. The trend towards outsourcing of legal services, among others, may accelerate over time, assuming adequate supplies of low priced, welltrained professionals in such countries as India. Finally, there is an urgent need to adopt a new mechanism for handling of intellectual property rights and allied issues at the international level, even if the first step is harmonizing national IP laws and procedures through amendments to the TRIPS or WIPO agreements.
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Some descriptive statistics. Retrieved May 18, 2007, from http://siteresources.worldbank.org/INTRES/Resources/469232 1107449512766/HornMavroidisWTODSUDatabaseOverview.pdf Jain, A. (2006). The emerging Indian legal offshoring opportunity. The Financial Times. Kannan, S. (2006). Legal outsourcing firm gets funding. The Hindu. Lindsey, B. (2004). Job losses and trade: A reality check. CATO Institute. Retrieved August 23, 2007, from http://www.freetrade.org/node/65 Romero, R.E. (2006). DuPont legal again sets the pace—Outsourcing judgment based tasks. The Metropolitan Corporate Counsel, 14(11), 59. Retrieved June 18, 2007, from http://www. metrocorpcounsel.com/current.php?artType=vi ew&artMonth=November&artYear=2006&Ent ryNo=5855 New York City Bar. (2006). The Association of the bar of the city of New York committee on professional and judicial ethics, formal opinion. Retrieved May 1, 2006, from http://www.nycbar. org/Ethics/eth2006.htm The Peace Palace Library Centennial Exhibition (2004). Collection as a mirror of the historical development of international law: The law of the sea. Retrieved March1, 2007, from http://www. ppl.nl/100years/topics/sealaw/ Ray, S. G. (1998). The stealing of basmati. Retrieved March 1, 2007, from http://www.rediff. com/business/1998/mar/12rice.htm Rowthorn, R. (2005). The impact on advanced economies of north-south trade in manufacturing and services. The Social Science Research Coun-
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San Diego County Bar Association. (2006). Ethics opinion. Retrieved May 1, 2006, from http://www. sdcba.org/ethics/ethicsopinion07-1.htm Seshasai, S., & Gupta, A. (2007). The role of information resources in enabling the 24-Hour Knowledge Factory. Information Resources Management Journal, 20(4), 105-127. (An updated version of this paper is reproduced as Chapter XIII of this book). Stein, T. (2003). Inside out: Businesses look to outsourcing for more and more business processes. Optimize. Retrieved March 17, 2007, from http:// www.optimizemag.com/issue/020/execreport. htm UN Atlas of the Oceans. (2007). History of Maritime Law. Retrieved March 1, 2007, from http://www.oceansatlas.org/servlet/CDSServlet ?status=ND0xMjg2OC4xNDUwNSY2PWVuJj zPXdlYi1zaXRlcyYzNz1pbmZv Uzma, J. (1998). Biopiracy: The patenting of basmati by RiceTec. Paper presented at the Commission on Environmental, Economic and Social Policy—South Asia & Sustainable Development Policy Institute. Vandana, S. (2001). The Basmati battle and its implication for biopiracy & TRIPS. Retrieved March, 7, 2007, from http://www.globalresearch. ca/articles/SHI109A.html Waldmeir, P. (2003). Lawyers argue the case for a lifestyle revolution. Financial Times, 15. Wayne, E. A. (2004). Address to Senate Judiciary Committee. Retrieved March 1, 2007, from http://usinfo.state.gov/ei/Archive/2004/Mar/24488795.html
Evolving Relationships
World Intellectual Property Organization. (2007). Berne Convention for the protection of literary and artistic works. Retrieved March, 1, 2007, from http://www.wipo.int/treaties/en/ip/berne/ trtdocs_wo001.html World Intellectual Property Organization. (2007). Paris Convention for the protection of industrial property. Retrieved March 1, 2007, from, http://www.wipo.int/treaties/en/ip/paris/ trtdocs_wo020.html
World Trade Organization. (2007a). Frequently asked questions about TRIPS. Retrieved February 20, 2007, from http://www.wto.org/english/tratop_e/trips_e/tripfq_e.htm World Trade Organization. (2007b). What are IPRS? Retrieved February 20, 2007, from http://www.wto.org/english/tratop_e/trips_e/intel1_e.htm
This work was previously published in the Information Resources Management Journal, Vol. 21, Issue 2, edited by M. KhosrowPour, pp. 103-126, copyright 2008 by IGI Publishing, formerly known as Idea Group Publishing (an imprint of IGI Global).
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Chapter III
Information Technology/ Systems Offshore Outsourcing: Key Risks and Success Factors Mahesh S. Raisinghani Texas Woman's University, USA Brandi Starr Texas Woman's University, USA Blake Hickerson Texas Woman's University, USA Marshelle Morrison Texas Woman's University, USA Michael Howard Texas Woman's University, USA
Abstract The offshore outsourcing of information technology and information systems (IT/IS) is being increasingly practiced among firms that are focusing on core competencies and cost-effectiveness. With the increase in offshore IT/IS operations, a growing number of companies are encountering negative experiences and unpredicted results. The analysis performed in this chapter reveals the possible risks and perceived success factors of companies outsourcing IT/IS operations offshore. The major points of interest are operational and strategic risks; legal contracts; cultural, security, and financial issues; and noted success factors by companies that participate in offshore outsourcing. The research indicates the importance of risk identification and the formulation of strategic plans that include preventive, detective, and corrective control methods of implementation and evaluation. Effective methods and metrics for measuring the success or failure of IT/IS offshore outsourcing operations is expected to be a continuing development with the increasing growth of this phenomenon.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Information Technology / Systems Offshore Outsourcing
It is not the strongest of the species that survives, or the most intelligent, but the one most responsive to change. —Charles Darwin
Introduction Offshore outsourcing with respect to information technology and information systems (IT/IS) or business processes is a key commercial phenomenon. IT/IS offshore outsourcing is the focus of this chapter and is defined as a process undertaken by an organization to subcontract or to sell the organization’s IT/IS assets, staff, and/or activities to a foreign supplier, rather than develop IT/IS resources internally. The contractual relationship requires the vendor to assume responsibility for the client firm’s IT/IS requirements. IT/IS services
include software development and maintenance; network and computer operations; and research and development (see Table 3.1) (Dolan, 2006). An extensive report by the National Academy of Public Administration prepared for the United States Congress and the Bureau of Economic Analysis defines offshoring as follows: “United States’ firms shifting service and manufacturing activities abroad to unaffiliated firms or their own affiliates” (Norwood et al., 2006). In offshore outsourcing work is outsourced to foreign countries that have cost advantages in various tasks such as application development, product manufacturing, and/or call center and back office operations. It involves complexity and risk not found in typical domestic outsourcing due to factors such as cost (i.e., labor, infrastructure, real estate, and corporate taxes); availability of
Table 3.1. IT/IS common outsourced services IT/IS Service
Function
Access Controls
Help organization establish and provision authentication needs
IDS Monitoring
Monitor intrusion detection systems on a 24/7 basis
Contingency Planning
Help facilitate crisis plans and responses, that is, disaster recovery sites
Firewall Management
Assist in configuration of software and monitor logs
Antivirus services
Monitor and act upon malicious attacks
Website Blocking
Filter services
Network Scanning
Identify network vulnerability
Remote Management
Monitor network
Encryption Services
Manage PKI
Software Development
Develop software application/s
Business Process Reengineering/ Outsourcing
Reengineer and/or outsource business process to evaluate and eliminate non-value-added activities
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Information Technology / Systems Offshore Outsourcing
highly skilled workers; market potential; country risk profile (i.e., disruptive events, security, regulatory risk, macroeconomic risk such as cost inflation, currency fluctuation, and capital freedom), and intellectual property risk; environment (i.e., government support, business and living environment, accessibility of location such as travel time, flight frequency, and time difference); quality of infrastructure (i.e., telecom and IT, real estate, transportation, and reliability of power supply); improved customer service by way of 24X7 call centers and/or fewer environmental regulations (Farrell, 2005, 2006; Kraemer & Dedrick, 2004). Table 3.1 lists the common IT/IS outsourced services.
share until one looks at the exponential growth rate of this sector. This sector managed to grow by 26% in 2005 and Michael Corbett of the International Outsourcing Professionals postulates a 40% compounded annual growth rate over the next decade (Barrett, 2006). Pressures from dynamic market conditions and market uncertainty have caused business organizations to focus on core competencies and outsource functions in which they that lack expertise in order to show profitability maintain effective cost structures and improve the bottom line. There are increased pressures on management to remain cost effective by accomplishing more with fewer resources at a faster pace. Outsourcing goals and objectives include competitiveness, time to market, round the clock customer service, agility, and access to world class technology. As illustrated in Figure 1, countries and regions with the most outsourced IT professionals are India, Canada, Ireland, China, Philippines, Israel, Eastern Europe, Russia, Mexico, and South Africa (Kripalani, Foust, Holmes, & Enga, 2006). A recent study measured employee cost; quality; English proficiency; infrastructure; and political and economic risk of countries that have
Industry Analysis IT/IS offshore outsourcing is one of the fastest growing businesses in the world due to technological advances including the Internet and mobile services. The advances have changed markets by decreasing communication costs and increasing specialization of service production. Given that the Indian software services account for about $9.9 billion, this does not seem like a huge market
Figure 3.1. Countries and their outsourced IT professionals (Source: “Countries receiving the Most Outsourcing, 2004.” Wired, February, p 101. Business Rankings Annual 2005) countries with the Most Outsourced iT professionals 0000 0000 0000 00000 0000 0000 0000 0000 0
ia ind
52
da na ca
d lan ire
ina ch
es pin ilip h p
l ae
isr
rn ste ea
pe ro eu
ia ss ru
a o ric xic af Me th u so
Information Technology / Systems Offshore Outsourcing
Figure 3.2. Best countries and regions for U.S. outsourcing (Source: Seewald, S. (2005). “Best Countries for U.S. Outsourcing, 2005.” Wired, February, Business Rankings Annual 2005, p. 101)
na Ch i
o ex ic M
Is ra el
a Ru ss i
Eu ro pe
ca Af ri
Ea st er n
So ut h
Ca na da
Ph ilip pi ne s
In di a
. . . . 0. 0
outsourced IT/IS professionals. As illustrated in Figure 3.2, according to a recent study, the best countries and regions for the United States to outsource in are India, Philippines, Canada, Ireland, South Africa, Eastern Europe, Russia, Israel, Mexico, and China (Seewald, 2005). Despite the short-term successes, IT/IS offshore outsourcing has several risks and challenges that increase the possibility of long-term adverse effects on the client company. Studies show that negative effects and consequences of offshore outsourcing such as hidden costs, vendor complacency, lack of vendor flexibility, high employee turnover, and lack of expertise are increasing among major corporations subcontracting IT/IS services (see Figure 3.3) (Dolan, 2006). A recent survey of 25 Fortune 500 corporations indicated that 70% of outsourced operations resulted in numerous negative experiences. Fifty-two percent of the companies surveyed experienced negative experiences and problems three times in two months (Accenture, 2004). The long-term effects of these negative experiences are difficult to measure because the value of IT/IS is intangible, hidden, and long term
(Arbore & Ordanini, 2006; Greaver & Kipers, 2005; Hatch 2005). This obstacle raises the following questions: What hazards contribute to encountering negative results and how are thriving companies achieving success? What topics and areas are researched the most often in the IS outsourcing field? Risks and success factors seem to be the common threads for the most frequent topics in IS outsourcing. It is also worth mentioning the increase in the number of articles focusing on offshore/global outsourcing. The use of cheaper communications technology, the Internet, economic globalization, and easy access to IT professionals with lower salaries are some of the reasons for this phenomenon. Among the many articles dealing with the economics of outsourcing, involve agency theory, transaction cost theory, game theory, resource-based theory, and resource-dependence theory (Dibbern et al., 2004; Gonzalez, Gasco, & Llopis, 2006; Iyengar & Rolf, 2007; Nyrhinen & Dahlberg, 2007). In order to evaluate possible causes for adverse long-term affects, a risk identification and success factor analysis have been developed to gain further understanding.
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Figure 3.3. Negative effects and consequences of offshore outsourcing (Source: Deloitte Consulting Outsourcing Study, October—December 2004)
negative experiences by client firms employee Turnover rate vendor complacency lack of flexibility hidden costs lack of Knowledge limited Transparency Quality/delivery issues Management change complex government 0%
Risk Identification Several risks such as cultural, political, financial, technological, commercial, and legal have been linked to the failure of IT/IS offshore collaborations. Adverse risk is heightened because of the geographical distance between the client firm and the vendor firm (Beiling, 2006). Geographical distance, costs, time, and resources prevent the client firm from exercising appropriate control over the vendor. Common risks include operational, strategic, cultural, and financial risks.
Operational Risk Operational risk is identified as the increased chance of poor quality and output due to limitations of the communications and transmission systems, complexity of operations, and geographic separation between the two firms (Patterson, 2006). Loss of control is a significant threat to the ongoing operations because it decreases the
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10%
20%
30%
40%
50%
60%
manageability and power of value chains and inhibits client firms to give accurate performance evaluation. Performance evaluation and monitoring is often overlooked due to increased pressures of keeping costs down. An agent’s lack of experience for a specific activity also increases the risk of poor quality of services, and the client’s inability to measure the performance causes the client firm to become vulnerable to the agent’s results and services.
Strategic Risk Strategic risks result from opportunistic behavior of the vendor client. Shirking is an example of strategic risk. Shirking is defined as deliberate underperformance while claiming full payment (Patterson, 2006). As globalization changes the basis of competition, strategic sourcing is moving from the periphery of corporate functions to the core, and research indicates that service providers are tempted to fail to perform their best work
Information Technology / Systems Offshore Outsourcing
when they know the performance is difficult for their client to measure (Gottfredson, Puryear, & Phillips, 2005; Willcocks & Feeny, 2006). Performance pressures cause a number of offshore companies to cut corners to make certain the product is delivered despite product reliability or product completion (Beiling, 2006). Software development integrity is often violated as a result of the competitive position of providing ISs at the lowest possible cost for the highest achievable quality at the quickest time (Gottschalk, 2006). Opportunistic recognition is another form of strategic risk. It derives from one party changing the terms of a contract after its inception. Opportunistic recognition occurs when the client discovers that it has no alternative source of support, goods, or services and, as result, must pay the supplier whatever price the supplier demands in the future (Arbore & Ordanini, 2006; Willcocks & Feeny, 2006).
Security Risks Offshore outsourcing increases the risks on intellectual property violation and loss of confidentiality because it allows vendors access to private business information (Patterson, 2006). In many countries there is a lack of adherence to security and quality standards. Integrity is often violated because of the pressures of performance standards. Many vendor companies have multiple clients and there is no guarantee that a contracting organization’s data, programs, and applications will not be duplicated for other clients (Arbore & Ordanini, 2006). Intellectual property theft is steadily increasing, and protecting rights in foreign countries can be difficult. Countries like China have copyright laws but they tend to favor Chinese companies. Privacy campaigners argue that the processing of sensitive financial and data records in foreign countries do not meet the high privacy standards of the United States (Chan, 2005; Lyons, 2006). Their argument is supported by a particular in-
stance when a woman from Pakistan threatened to post sensitive United States medical records on the Internet (McLean, 2006). As a result, other medical organizations have returned their data processing back to the United States. Other financial companies that offshore ISs are worried they will be open to lawsuits if they can not guarantee acceptable standards of privacy. In a recent study by Booz Allen Hamilton, information security has become a top concern among companies evaluating offshore outsourcing (Dunlop & Smith, 2005). The respondents also felt there was a significantly higher security risk in working with offshore providers over those in the United States, due to a lack of trust in legal and regulatory environments in developing countries. Protection of corporate and personal data in any offshore outsourcing venture is critical in order to protect the business from cyber crime and theft of customer data. Information security ranked as one of the top three factors when selecting an outsourcing partner. It was rated ahead of financial strength, business stability, and reputation. At the February 20, 2006 Outsourcing World Summit, the International Association of Outsourcing Professionals announced an increasing concern over data security while considering offshore outsourcing (Hunt, 2006). More than 90% of the respondents stated that data security breaches would be “catastrophic “to their business. A key factor is not being able to verify vendor’s claims of security capabilities. More companies are concerned with theft or misuse of outsourced data than they are about the threat of terrorism.
Cultural Challenges Culture is the “totality of socially transmitted behavior patterns, arts, beliefs, institutions, and all other products of human work and thought” (dictionary.com, n.d.). Cultural differences and communication difficulties have numerous effects on business operations including no information sharing, poor communications of decisions, and no
55
Information Technology / Systems Offshore Outsourcing
interaction between team members. Breakdown in communication often results in inadequate task priority and lack of overall business comprehension. Differences in culture often lead to miscommunication, which can result in considerable chaff. Memories of war and religious animosities make it difficult to build and maintain trust. Another concern is the simulation of a non-foreign facade to the clients who call these centers. Studies show that employees feel alienated from their own culture because of the shrinkage of local traditions to meet client expectations (Beiling, 2006). Workers become exhausted from working in a foreign language and tend to have growing resentments for the American people because of the decreased identity and cultural differences (Willcocks &Feeny, 2006). Although these overseas positions train the employees on the specifics of job expectations, there is little transferable job experience and no preparation for future career growth (Seabrook, 2004).
Financial Risks As illustrated in Figure 3.4, despite increased cash flow and cost effectiveness, there are many hidden costs associated with IT/IS offshore outsourcing. Tailored contracts, lack of transparency, and bundling of services result in costly unexpected spending. There can be extensive, unpredictable
costs due to a lack of due diligence. Vendor firms’ unclear pricing and cost structure make it very difficult to understand cost savings. Bundling or grouping of services is a frequent dilemma and causes confusion in unit costs (Dolan, 2006). Hidden costs are most likely the result of broad and ambiguous contracts that fail to define present and future IT requirements (McLean, 2006). Hidden costs can derive from dismissing or transferring staff, transfer of licenses by software vendors, travel costs, investigation costs, and the cost of developing infrastructure to support off-site operations.
Offshore Outsourcing’s Success Factor Analysis Global giant, Dupont, has developed a framework for its ISs offshore outsourcing operations. The company’s IS frame consist of nine core capabilities including: (1) leadership, (2) business systems thinking, (3) relationship building, (4) architecture planning, (5) making technology work, (6) informed buying, (7) contrast facilitation, (8) contract monitoring, and (9) vendor development (Willcocks & Feeny, 2006; Willcocks, Feeny, & Olson, 2006). IBM has been noted for its exceptional global offshore outsourcing and credits its success to their IBM Relationship Alignment Process (Petershack, 2005). Their model is cen-
Figure 3.4. Financial risks (Sources: Forrester Research, McKinsey & Co, http://pollingreport.com)
cost-related risks
Hidden Costs/Transparency
24%
42%
Vendor Management Vendor Selection
17% 17%
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Quality trade off and Vendor Profit Margins
Information Technology / Systems Offshore Outsourcing
tered on relationship determinants including: commitment, predisposition, mutual benefits, linkage, unique resources, and shared knowledge. Success factors of IT/IS offshore outsourcing consists of precise risk analysis; detailed cost benefit analysis; relationship management and cultural understanding; understanding legal issues and contracts; and implementing risk controls.
in Table 3.2, when determining IT/IS offshore outsourcing, a cost benefit analysis should include a review of potential gains, costs, and possible risk(s) of each alternative; appropriate contract period; intangibles and hidden costs; contracting and legal costs; vendor’s fee; conversion costs; IS salaries and severance payments; cash; contract cancellations; staff morale; and share price.
Risk Analysis
Relationship Management and Cultural Understanding
Risk analysis enables client firms to determine the financial consequences of risk. As illustrated in Figure 3.5, a risk breakdown structure in risk analysis involves discovering and prioritizing of important risks that need protection and analyzing threats to assets to estimate potential losses. Successful companies determine the relative importance of each risk and then verify the level of impact it will have on their company in terms of costs, schedule, and quality. Successful firms identify the priority of each risk and determine the goals of the project accordingly (Bardhan, Whitaker, & Mithas, 2006; Patterson, 2006).
Cost Benefit Analysis Potential customers need to do a cost-benefit analysis to determine whether database or application server outsourcing is right for them. Cost benefit analysis indicates whether offshore outsourcing is financially sound for companies. As illustrated
Research indicates that the level of partnership between a client firm and a vendor firm will increase when high levels of cultural similarity exist between them as evidenced by the insurance company USAA (Arbore & Ordanini, 2006; Chakrabarty, Gandhi, & Kaka, 2006). Identification-based trust is associated with successful offshore outsourcing because a mutual understanding allows for both parties to recognize and appreciate the other’s wants. Identification-based trust has been linked to information sharing behavior and the overall quality of communication between the two firms (Bardhan et al., 2006). The parties involved in an offshore outsourcing relationship belong to distinct cultures and it is vital that these differences are accepted. A recent study by Gartner (Heib, 2006) pointed to culture as a key differentiator to IT success and discussed the need for the IT organization to establish trust, commitment, two-way communication, clarity of
Figure 3.5. Risk breakdown structure Risk Analysis
Operational Risks
Loss of Control
Lack of. Monitoring
Financial Risks
Hidden Costs
Service Bundling
Strategic Risks
Shirking
Opportunistic Recognition
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Information Technology / Systems Offshore Outsourcing
Table 3.2. Cost analysis Costs
Factors
Intangibles and Hidden Costs
Administering the outsourcing contract and coordination efforts between internal users and outsourcing company upgrades
Contracting Costs
Legal costs including monetary and opportunity costs involved in contracting, renegotiating, and vendor disputes
Vendor Fees and Prices
Potential increase in costs if initial vendor low-balling of fees/ rough-order-of-magnitude price estimates lead to higher vendor fees and prices after the initial contract
Conversion Costs
Costs associated with transfer of software licenses
IS Salaries and Severance Pay
Staff retained, terminated, and possible legal costs from disgruntled employees
Contract Cancellation Costs
Cost of new negotiation, training of staff, hardware or software replacement
Share Price
Will announcement of outsourcing hurt or help stock prices?
purpose, and agility as vital components of the IT organization. Healthy communication is a crucial element to a working relationship. The effectiveness of the relationship between management personnel of both teams is dependent on the understanding and strong working relationships among the firms. Studies of offshore outsourcing success stories have demonstrated that working chemistry in management and peer friendships among employees have proved to be important determinants in forming long-term relationships that yield real value (Patterson, 2006). Industrial relatedness has also been a significant indication of successful offshore outsourcing. IT/IS offshore outsourcing between firms in related industries outperformed firms in unrelated industries (Kripalani et al., 2006). Firms from different industries have more difficulties understanding and collaborating with each other. Firms in related industries communicate their needs more effectively because they share a common language, socialization, institutional history, and organizational practices.
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Flexibility, modularity, and process knowledge are important business culture elements to study when determining a vendor firm. The client firm needs to determine the adaptability of the vendor to adjust to the changing demands of business and IT environment. The client firm must also know the vendor’s ability or willingness to add, delete, or modify services. Lastly, the vendor firm must know enough about the client firm’s industry to successfully deliver needed services.
Understanding Legal Issues and Contracts Legal issues regarding offshore outsourcing of IT/IS functions into emerging economies can be broken down into two parts: (1) the need for laws to govern international business operations, and (2) the ability to enforce international laws. Hall and Liedtka (2007) discussed the implications of the Sarbanes Oxley Act for large-scale IT outsourcing. First, companies and nations realize that international laws and agreements are needed in order to ensure that physical and intellectual
Information Technology / Systems Offshore Outsourcing
properties are protected. Second, countries have different laws and policies regarding ownership and control of physical and intellectual properties, and the ability to enforce the international laws and agreements that have been established is critical. In 1883, the Paris Convention for the Protection of Industrial Property was established (WIPO Treaties, 2006). This became the first international treaty to help people of one country obtain protection in other countries for intellectual properties in the form of industrial property rights (inventions, patents, trademarks, and industrial designs). As the volume and different types of intellectual property grew, there grew new requirements to protect intellectual property. In 1970, the World Intellectual Property Organization (WIPO) came into existence (WIPO Treaties, 2006). The WIPO was established to promote the protection of intellectual property throughout the world through cooperation between nations and, where appropriate, in collaboration with any other international organization. In 1974, the WIPO became a specialized agency of the United Nations system of organizations. At present the organization has 181 member nations and the need to expand the scope of laws to protect intellectual property continues to grow as global business grows. The World Trade Organization (WTO) plays in important part in the establishment of intellectual property rules. The WTO’s Agreement on trade-related aspects of intellectual property rights (TRIPS), negotiated in the 1986-1994 Uruguay Round, (Understanding the WTO, n.d.) introduced intellectual property rules into the global trading market for the first time. The agreement is supposed to narrow the gaps in how these rights are protected and bring common international rules into play. Although there has been extensive cooperation between many of the nations of the world, there still exist many nations that do not adhere to the international laws that have been established to provide protection to companies. As we look at emerging nations the risk of doing
business with these nations increases depending on their acceptance and enforcement of established international laws. The majority of subjects who participated in the Booz Allen survey felt that the regulatory and legal infrastructure in Asia and South America is not adequate (Dunlop & Smith, 2005). The survey revealed that only 5% of companies surveyed believed that China has a strong and legal infrastructure, South America was 5%, and Southeast Asia was 11%. The 27% of the respondents indicated that India, which is a major country for offshore outsourcing, had a good legal infrastructure. There is a feeling that there is a high potential risk for loss of customer or corporate data in these countries. Companies have to weigh the savings of lower costs that could be realized by offshore outsourcing in these countries to the potential impact to their companies from data loss. International laws continue to change as outsourcing companies and potential countries to outsource realize the importance of having legally binding contracts. Many countries have worked to improve their legal systems to work with the companies that want to outsource to their country. Russia, for example, has established laws to offer some protection to offshore outsourcing , 2005). Companies companies ( must still do due diligence in advance of any potential outsourcing contract. What can companies do to protect themselves in emerging countries? First, it is critical to understand the laws and legal infrastructure of the country that the potential vendor is located. Does the company belong to trade groups or industry associations that have established standards for security of company and customer data? A company should have legal counsel that is experienced in the laws of the offshore country and may want to hire local counsel in the country to assist in legal matters. Companies must invest the time to research trade laws of the countries they are looking to outsource in. In addition, a company should research the legal performance
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history of potential vendors. The company may want to have a third party security audit or an independent security evaluation be completed before any agreements are formalized. The terms of the contract is an important part of any potential offshore outsourcing agreement. Time should be taken to agree in detail exactly what each party is responsible for. This will lessen the potential of trying to identify which party is to blame when things are not done correctly or on time. The initial development of detailed requirements will make the working relationship operate smoother. If your requirements are not clearly documented in the contract, a company will find it very difficult for any international legal system to rule in their favor. Another area that needs to be agreed upon is the metrics that will be used to measure progress and success or failure. Service level agreements are necessary and can be an outstanding tool to have if legal issues should arise regarding performance at a future date. The service level agreements should be agreed to and fully understood by both organizations prior to implementing any offshore outsourcing relationship.
Risk Controls Best practices indicate performing risk controls decrease chances of offshore outsourcing risks (Willcocks & Feeny, 2006). Preventive, detective, and corrective controls are common tools that are implemented for risk reduction. Preventive controls lessen the impact of risk or prevent it before having an impact. Preventive controls include clarifying assumptions, involvement planning, establishment of standards, and hiring translators. Detective controls reveal the existence of a risk and expose future impact under similar conditions. Detective controls include collecting metrics on project performance and conducting frequent audits of offshore vendor sites. Corrective controls involve determining the impact of risk and require establishing measures to prohibit future impacts. Examples of corrective controls are rescheduling of tasks on a critical path, alternate offshore vendor sites, and hiring more translators (Ramanujan & Jane, 2006; Sakthivel, 2007).
Figure 3.6. Cost effectiveness of IS/IT outsourcing
percenTages
hOw well is iT wOrKing % 0%
Increase in Cost No Savings
% 0% % 0%
0 - 0% Savings - 0% Savings - 0% Savings
% 0%
+ % Sa vings reasOns
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Information Technology / Systems Offshore Outsourcing
Discussion and Final Analysis Due to the complexity of IT/IS projects and metrics, evaluating the long-term value and effectiveness of offshore outsourcing has been very difficult. Figure 3.6 illustrates that 30% of all these ventures fail to provide the desired outcome and 25% of these partnerships create no cost savings to the firm investing in them. Due diligence and strategic planning are key elements to achieve excellence in an effort to improve productivity. Dun and Bradstreet’s Barometer of Global Outsourcing study indicates that as many as 25% of all outsourcing relationships fail because the client does not clearly communicate its needs, costs exceed expectations, and quality of service is poor (Nair, 2002). As illustrated in Figure 3.7, poor client preparation and joint clientvendor planning accounted for 49% of root failure causes (Telecoms & Technology, 2005). Despite increased risks and negative statistics, IT/IS offshore outsourcing can still be cost effective and successful if the right combination of due diligence and strategic planning is in place. The most cited problem that leads to failure results from ambiguous contracts. Elements of
the contract are often overlooked and left out. Many companies have paid a significant amount of money in hidden costs due to vague contract agreements and ambiguous requirements (Kripalani et al., 2006). In order to decrease risks, companies must first identify those risks and verify the costs of each possibility. A cost analysis is also essential in the planning process. Cost analysis foresees possible cost associated with the production of the desired product. Building and maintaining relationships with the vendor company is an essential success factor that many companies overlook. Statistics show that companies that have healthy working relationships are less likely to have intellectual property laws violated and duplication of applications (Tucci, 2005). IT/IS offshore outsourcing can lead to a long relationship that should be nourished and monitored (Gupta, Seshasai, Mukherji, & Ganguly, 2007). Next we discuss the eservices capability model (eSCM) and the capability maturity model integration (CMMI) framework that help enhance the success factors and minimize negative risk in a offshore outsourcing project. The eSCM best practices framework provides direction on
Figure 3.7. Root case analysis of failures in offshore outsourcing projects (Source: Telecoms & Technology Forecast Americas; June 2005, pp. 10-16) rOOT failure causes
Client Preparation & Execution Joint Client-Vendor Planning
%
%
%
%
Wrong Answer Client Team Morale & Support Miscommunication & Culture
0% %
%
Vendor Team Performance Other
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measuring and improving the value of outsourcing relationships by way of enhanced productivity, reduced cycle time, decreased transaction costs and improved time to market. It was developed at Carnegie Mellon University (CMU) to guide organizations doing process outsourcing, especially IT enabled process out sourcing, to form, manage and expand outsourcing relationships. Adopting the eSCM framework (illustrated in Figure 3.8) enables a service provider to implement organization-wide practices required for succeeding in a process-outsourcing situation. Organizations can consider the eSCM as a holistic reference framework for implementing processes within their organization around critical elements of offshore out sourcing (organizational management, people, business operations, technology and knowledge management) and the different phases in an outsourcing relationship (precontract, contract execution, and post contract). The eSCM offers client organizations a means to select capable providers who are committed to delivering consistently high quality services and developing continually improving relationships. Also, we expect this model to provide guidance to service providers so they can more effectively manage IT-enabled outsourcing relationships (CMU, 2001; Nair, 2002;). The capability maturity model integration (CMMI) developed by the Software Engineering Institute (SEI) at Carnegie Mellon University is used to improve processes for organizations to guide projects, divisions, or entire organizations. Improving processes increases product and service quality when organizations apply them to their business objectives (CMMI, 2005). The success factors have been incorporated into the CMMI model to demonstrate how companies can integrate these factors into their goals and plans (see Figure 3.9). For example, India has far more SEI CMM Level 5 (representing the best software development practices) than any other country in the world. It had 42 companies at SEI CMM Level 5 assessment and the quality maturity of the
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Indian software industry can be measured from the fact that already 316 Indian software companies have acquired quality certifications (e.g., ISO 9000) and more companies in India, China, and the Philippines are in the pipeline to do so (www.nasscom.com; Barrett, 2006; Palvia, 2006). Companies can use the CMMI model and become successful in combining their management and engineering processes as well as ensuring that their products or services meet their customers’ expectations. Companies can incorporate lessons that they have learned and address additional organizational functions that are essential to their services and products (CMMI, 2005). Companies have also aligned their internal practices with the People CMM framework and by use of Six Sigma methodology for reducing variation and assuring “end-to-end” quality in all company operations (Palvia, 2006). It is important for the organization to apply the appropriate options such as in-house, outsourced, or hybrid options (e.g., build-operate-transfer or equity investments) to the CMMI model carefully, extend an IT service and measurement culture into business processes; map the offshore location to the organization’s global presence; identify appropriate projects for global sourcing; define and measure business process performance and progress from a focus on cost to a focus on value; and focus on measuring business value after IT projects end. Firms expect to benefit from globally recognized quality processes and will outsource offshore to get quality service which would otherwise take the in-house operation several years to achieve. To conquer the culture dilemma, IT organizations cannot simply try harder or place more pressure on their offshore vendor to deliver. Rather, they must address the issue at the source, within their own organization. Process and project management are the solutions many companies are turning toward. A sign of this trend is found with the 182% increase in companies completing the CMMI assessment from 2005 and 2006 (sei. cmu.edu, 2007).
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Figure 3.8. Overview of eSCM elements, phases and capability levels (Source: Adapted from Hyder, Kumar, Mahendra, Siegel, Heston, Gupta, Mahaboob, & Subramanian, 2002 and Nair, 2002)
Table 3.3 illustrates the comparison of the benefits and challenges of CMMI when determining if this model would best fit within the target organization.
Implications for Management The market is changing as user requirements shift from supporting customized, internally focused IT environments to shared infrastructure, applications, and processes that are based on open standards. Incremental efficiencies are not enough in the age of outsourcing and offshoring; managers need to shift their emphasis to breakthrough
innovation in processes that increase revenue (Koch, 2007). Managing successful IT/IS offshore outsourcing requires the intense strategic planning and full comprehension of the vendor firm culture. Important success factors include tactical entry strategies and planned control strategies. Due diligence and appropriate forecasting of costs and risks are essential for all projects. Appendix A lists the risk assessment factors and their implications for global/offshore outsourcing. In order for offshore projects to reach full potential, there must be a full identification and respect of cultural differences and similarities. Identification of the culture provides a foundation for a stronger
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Figure 3.9. IT/IS offshore outsourcing success factors applied to the CMMI model Process Area 1
Process Area 2: Goals and Practices
Specific Goals Due Diligence
Culture Expertise
Develop Transparent Contract
Generic Goals Risk Analysis
Achieve Specific Goals
Understand laws and legal infrastructure
Third party security audit or an independent security evaluation Research trade laws
Obtain Legal Council Identify Service level Agreement
Education of Company Hire a Translator
Perform Base Practices
Contracting Preventive Controls Vendor’s Fee Conversion Costs
Plan Process Corrective Controls Provide Resources
IS Salaries and Severance Pay Train People
Identify Culture Similarities Identify Differences Organize Social Events
Determine financial consequences of risk
Prioritize of important risks
Verify the level of impact on costs, schedule, and quality
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Develop Optimizing Process
Generic Practices Intangibles and Hidden Costs
Research the legal performance history of potential vendors
Document Detailed Requirements
Develop Managed Process
Cost Benefit Analysis
Specific Practices
Clarify Terms
Process Area n
Assign Responsibility
Detective Controls
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Table 3.3. Benefits and challenges of CMMI level 2 process adoption Benefits
Challenges
Level 2 processes increase project oversight by establishing project management processes
Requires up to 100% more formal project manager roles than previously existed
Level 2 processes enforce establishing proper project risk monitoring through status and risk reports
Requires organizations understand how to apply resource management and project management simultaneously
Change control is formalized and documented once the project scope is agreed upon
Can be viewed by the internal and external customers as bureaucracy
Establishes processes required to measure work performed for time, quality, and commitments
Requires tools to manage scheduling and project plans
Minimizes the number of different processes used by different groups to accomplish the same thing
May be taken too far, meaning processes become rigid and restricting rather than facilitating
Can create more efficiency by reducing duplicated processes and steps
Similar gains in efficiency, quality, and commitments can be achieved without CMMI; commonly consultant companies are used to recommend process lightening and improvements.
relationship and increased job focus. As a result of deficient metrics in the evaluation of IT/IS offshore outsourcing operations, ongoing tests and vendor monitoring can increase the possibility of discovering potential dilemmas as root causes of the problem. Organizations must understand the strategic business value of offshore outsourcing that is instrumental in enhancing growth, cost, speed, and agility. Success will be undermined if the organization focuses solely on cost reduction or tactical problems. To prepare for the future, organizations must assess their sourcing competencies and evaluate their sourcing execution and strategy capabilities.
Implications for Research Due to the lack of metrics in association with the evaluation of IT/IS offshore outsourcing projects, there is very little research available on the effects of offshore outsourcing on host companies and how these companies are adapting to these changes and challenges. Directions for future research include a survey methodology for crosssectional or longitudinal data collection using the CMMI framework illustrated in Figure 3.9 and inquiries concerning the client company size and
financial stability, countries of vendor firms with increasing negative results, and employee overall satisfaction of offshore outsourcing change. Future researchers may find it interesting to determine if there is a causal relationship between the degree of hierarchy within the organization, formality of relationships, and the success of the offshore outsourcing contracts. Future research could address what developing countries are doing to increase the availability and caliber of project management professionals; the real cost associated with implementing a CMMI process framework and the process level that has the greatest return on investment; and efficiency improvements in offshore outsourcing projects. IT and corporate executives would benefit from understanding the percentage of onshore versus offshore project success after factoring in the various dimensions of risk.
Conclusion This chapter has explored the risks of offshore outsourcing and integrated the success factors into the CMMI model to demonstrate how companies can integrate these success factors into their goals
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and plans. It is perceived that offshore outsourcing of IT/IS services allows companies to become more cost effective and focus on core competencies and competitive edge. Despite a growing movement of this offshore development, an alarming number of companies are experiencing negative results while outsourcing. The lack of metrics in this domain has made it very difficult to evaluate appropriate levels of satisfaction. As a result, companies should identify technical and business risks and formulate a strategic plan that includes preventive, detective, and corrective methods of implementation and evaluation. Cultural relationships should also be emphasized in order to develop a dedicated operations focus. To ensure success, firms involved in offshore outsourcing need to make use of more advanced and complex means of communication and coordination in order to overcome issues such as geographical distance and cultural differences; demand economic transparency and a strong business case; adopt flexible contracts; tightly manage service level agreements; keep and build the right skills; and build accountability at all levels. Methods of measuring IT/IS operations is expected to be a key development in years to come with the increased growth of computer technology, and more quantitative measurements and evaluations will provide companies with more precise performance evaluations in the future. Most critically, the significance of achieving win-win relationships by balancing customer savings objectives with vendor margin and overhead goals will help organizations transform competitive advantage into measurable success.
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Arbore, A., & Ordanini, A. (2006). Broadband divide among SMEs: The role of size, location and outsourcing strategies. International Small Business Journal, 24(1), 83-90. Bardhan, I., Whitaker, J., & Mithas, S. (2006). Information technology, production process outsourcing, and manufacturing plant performance. Journal of Management Information Systems, 23(2), 13-25. Barrett, D. R. (2006). Offshore outsourcing: Key commercial and legal issues. In C. Evans (Ed.), The Euromoney outsourcing handbook (pp. 39-48). Beiling, Y. (2006). Demand for skills in Canada: The role of foreign outsourcing and information-communication technology. The Canadian Journal of Economics, 39(1), 53-60. Capability Maturity Model Integration (CMMI) Overview. (2005). Retrieved May 7, 2006, from http://www.sei.cmu.edu/cmmi/general/general. html accessed 5/8/06 Carnegie Mellon University. (2001, October 4). Determining capabilities of IT-enabled outsourcing service providers: A capability model and methods. Retrieved May 25, 2007, from http://www.globaletp.com/images/clientExecSum_1.0_100401 Chakrabarty, S. K., Gandhi, P., & Kaka, N. (2006). The untapped market for offshore services. The McKinsey Quarterly, 16-22. Chan, S. S. (2005). IT outsourcing in China: How China’s five emerging drivers are changing the technology landscape and its industry. Retrieved April 9, 2006, from http://www.outsourcing, com/china_trends/index.html Dhar, S. (2008). Global IS outsourcing: Current trends, risks, and cultural issues. In M. S. Raisinghani (Ed.), Global information technology management in the digital economy. Hershey, PA: IGI Global.
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Dolan, K. A. (2006). Offshoring the offshorers. Forbes, 177(8), 1-12. Dunlop, A., & Smith, C. (2005). Outsourcing: Know your legal position. Retrieved April 2, 2006, from http://www.computing.co.uk//computing/features/2072392/outsourcing-know-legal-position Farrell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3), 675-683. Farrell, D., Dibbern, J., Goles, T., Hirschheim, Rudy & Jayatilaka, B. (2004). Information systems outsourcing: A survey and analysis of the literature. The DATABASE for Advances in Information Systems, 35(4), 6-102. Gonzalez, R., Gasco, J., & Llopis, J. (2006). Information systems outsourcing: A literature analysis. Information & Management, 43(7), 821-834. Gottfredson, M., Puryear, R., & Phillips, S. (2005). Strategic sourcing: From periphery to the core. Harvard Business Review, 132-139. Gottschalk, P. (2006). Research propositions for knowledge management systems supporting IT outsourcing relationships. The Journal of Computer Information Systems, 46(3), 110-116. Greaver, M., & Kipers, K. (2005). Outsourcing. Retrieved on March 26, 2006, from http://www. valuecreationgroup.com/outsourcing_advantages.html Gupta, A., Seshasai, S., Mukherji, S., & Ganguly, A. (2007). Offshoring: The transition from economic drivers toward strategic global partnership and 24-Hour Knowledge Factory. Journal of Electronic Commerce in Organizations, 5(2), 1-23. (An updated version of this paper is reproduced as Chapter 1 of this book). Hall, J. A., & Liedtka, S. L. (2007). The Sarbanes-Oxley Act: Implications for large-scale IT outsourcing. Communications of the ACM, 50(3), 12-20.
Hatch, P. J. (2005). Offshore 2005 research preliminary findings and conclusions. Retrieved on March 26, 2006, from http://www.ventoro. com/Offshore2005ResearchFindings.pdf Heib, B. R. (2006, May). Characteristics of successful care delivery: Organization IT cultures (pp. 2-3). Gartner Industry Research. Hunt, T. (2006, March 7). Concern over data security on the rise in outsourcing industry. Retrieved April 30, 2006, from http://www.marketwire. com/mw/release-html Hyder, E. B., Kumar, B., Mahendra, V., Siegel, J., Heston, K. M., Gupta, R., et al. (2002, October 21). eSourcing capability model for IT-enabled service providers v. 1.1. Retrieved May 25, 2007, from http://reports-archive.adm.cs.cmu. edu/anon/2002/CMU-CS-02-155.pdf IT outsourcing destination: Russia. (2005). Retrieved April 16, 2006, from http://www. sourcingmag.com/outsource_by_region/russia_central_eastern_europe.html Iyengar, P., & Rolf, J. (2007). Factors to weigh before going offshore. Retrieved April 30, 2007, from http://outsourcing.weblog.gartner.com/weblog/index.php?blogid=9 Koch, C. (2007, February 1). IT builds a better. CIO, 34-40. Kraemer, K., & Dedrick, D. (2004). Offshoring in Orange County: Leader, follower, or mirror of international trends? University of California Irvine, Personal Computing Industry Center, Graduate School of Management. Kripalani, M., Foust, D., Holmes, S., & Enga, P. (2006). Five offshore practices that pay off. Business Week, 30(3969), 60. McLean, J. (2006). Slaves to technology? The British Journal of Administrative Management, 16. Nair, N. T. (2002). eServices capability model (eSCM)—A new quality standard for outsourcing
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activities. Retrieved May 23, 2007, from http:// ewh.ieee.org/r10/kerala/April_June_2002.htm Norwood, J., Carson, C., Deese, Ms., Johnson, N. J., Reeder F. S., Rolph J. E., et al. (2006, January). Offshoring: An elusive phenomenon. A Report of the Panel of the National Academy of Public Administration for the U.S. Congress and the Bureau of Economic Analysis. Nyrhinen, M., & Dahlberg, T. (2007, January). Is transaction cost economics theory able to explain contracts used for and success of firm-wide IT-infrastructure outsourcing? In 40th Annual Hawaii International Conference on System Sciences (HICSS). Palvia, S. (2006). A model for choosing a destination country for outsourcing of IT and IT enabled services. In C. Evans (Ed.), The Euromoney outsourcing handbook (pp. 39-48). Patterson, D. A. (2006). Offshoring; Finally facts vs. folklore. Communications of the ACM, 49(2), 41-49. Petershack, R. (2005, July 18). Consider the legal issues before outsourcing offshore. Retrieved April 9, 2006, from http://www.wistechnology. com/article.php? Id=2007 Ramanujan, S., & Jane, S. (2006). A legal perspective on outsourcing and offshoring. Journal of American Academy of Business, 8(2), 51-58. Sakthivel, S. (2007). Managing risk in offshore systems development. Communications of the ACM, 50(4), 69-75.
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Seabrook, J. (2004, October 30). Offshore outsourcing. Retrieved March 30, 2006, from http:// www.countercurrents.org/glo-seabrook301003. html Seewald. (2005, February 2004). Best countries for U.S. outsourcing, 2004. Wired,101. Smarter offshoring. (2006). Harvard Business Review, 85-92. Telecoms & Technology Forecast Americas. (2005, June). Forecast on the telecommunications and technology sector (pp. 10-16). Tucci, L. (2005, April 5). Outsourcing needs strong RX. Retrieved April 9, 2006, from http://searchcio. techtarget.com/originalContent/0,289142,sid19_ gcil075783, 00.html Understanding the WTO—Intellectual property: Protection and enforcement. (n.d.). Retrieved April 9, 2006, from http://www.wto.org/english/ theWTO_e/whatis_e/tif_e/agrm7_e.htm Willcocks, L., Feeny, D., & Olson, N. (2006). Implementing core IS capabilities: Feeny-Willcocks IT governance and management framework revisited. European Management Journal, 24(1), 28-37. Willcocks, L. P., & Feeny, D. (2006). IT outsourcing and core IS Capabilities: Challenges and lessons at Dupont. Information Systems Management, 23(1), 49-57. WIPO-administered treaties, WIPO treaties, treaties and contracting parties: General information. (n.d.). Retrieved April 9, 2006, from http://www. wipo.int/treaties/en/
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Appendix Table A.1. Risk assessment factors and their implications for global/offshore outsourcing Risk assessment factor
Description
Implications for Global /Offshore Outsourcing
People
The people risk emerges from the experience level, training, and human resource deployment policies of the vendor. In addition, redeployment of existing IT staff of the customer is also a risk assessment factor.
Globally distributed teams with different skills and experience contribute to risk
Knowledge (Functional, Technological, Managerial)
Functional knowledge is the expertise, understanding, and experiences in the given functional area of the activity. Technological knowledge is associated with the expertise in the areas technology selection, analysis, architecture, design, development, integration, and maintenance support. Managerial knowledge is associated with the project management, risk management, resource management, developing and administrating management processes to carry out the activities.
The level of functional, technological, and managerial knowledge contributes to risk in offshore outsourcing. Managerial knowledge is extremely important in a global context.
Cultural
Cultural risks arise from the dominant culture prevalent with the vendor. The attitudes, communication skills, language, selection policies, performance motivation, team spirit, level of cohesiveness, autonomy, participatory decision making, work ethics, management style, customer-orientation, and related organizational behavioral factors that shape the culture.
Country specific cultures can add risk in global outsourcing. Language and work ethics vary from country to country and that may contribute to risk.
Political
Political risks arise out of trading restrictions imposed by the sovereign, permissible ownership rights, nationalistic aspirations, type of government, and political and economical stability.
Political instability is a major concern for global outsourcing as the government rules and regulations may have adverse effect on outsourcing.
Financial
Financial risks arise out of project accounting standards, cash flow, asset base, and currency stability.
Accounting standards and variation in currency exchange rate contribute to risk.
Quality Standards
Software Capability Maturity Model (CMM) and ISO 9000 compliance are hallmarks of the quality standards. The ability to prepare test plans, and performance standards is seen favorably while assessing the risks due to quality standards.
Quality standards vary from one country to another and contribute to risk.
Measurement
Performance measurement standards, benchmarking, and assurance of the performance are key elements in evaluating measurement risks.
Performance measurement standards vary from country to country which contributes to risk.
Scope, Cost, and Time Estimates
Ability to formulate the scope of the project, accurate cost and time estimation poses the risk.
It is quite difficult to accurately determine scope, cost, and time estimates in global outsourcing. This contributes to risk.
Company Specific Risks
Company specific risks are largely due to outsourcer’s financial strength, area of core competence, management, relationships and alliances with other major organizations, and (potential) acquisitions and mergers activities.
Different companies in foreign countries have different management and core competencies. Those contribute to risk.
Legal Contracts and Intellectual Property
Intellectual property rights and their legal status in the country, brand protection, contractual bindings, and arbitration policies of the outsourcer constitute the risk.
IP standards and law vary from one country to another and contribute to risk.
continued on following page
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Table A.1. continued
Security
Access control, authentication, usage of secure protocols, encryption, and security policies adopted by the outsourcer constitute the risk.
Security is a major concern in global outsourcing as protection and control of data pose a problem.
Disaster Recovery
Ability to protect software code, and related data, level of replication, redundancy, and back-up and recovery policies are the main factors in deciding the risks due to disasters.
Loss of control over disaster recovery contribute to risk.
Contract Management
Contract management involves formulating contracts, schedule planning, activity planning, sending and accepting deliveries, dispute resolution, and signing off. Inability to properly formulate or execute the contracts constitutes the risk.
Contract management in global outsourcing is a risky business as monitoring the project activities become a challenge.
Relationships & Alliances
Ability to formulate customer-vendor interface at executive and working levels, customer relationship management, and developing long-term alliances offers synergy at organizational level.
Inability to manage relationships and alliances constitutes the risk in global outsourcing.
Geographic Location
The country, province, and city may be in different time zones, which require working at odd hours for the customer or outsourcer. The communication infrastructure, distance, industrial peace and stability in the region, availability of supporting infrastructure, social-economical-political stability constitutes the risk.
Vendor’s geographic location poses some risks. Communication infrastructure failure in offshore projects incurs significant loss.
Multi-vendor Arrangements
Synchronization of development efforts, data format exchange standardizations, complexities due to multi-layer architecture dependencies or non-contagious independent parts constitute the risk with ability to work with multi-vendor arrangements.
In global outsourcing with multi-vendor arrangements, coordination has to be efficient. Otherwise execution becomes a problem and contributes to risk.
Source: Dhar S. (2008). Global IS Outsourcing: Current Trends, Risks, and Cultural Issues, in Global Information Technology Management in the Digital Economy, Mahesh S.Raisinghani (Ed.), Idea Group Inc.
This work was previously published in the Journal of Information Technology Research, Vol. 1, Issue 1, edited by M. KhosrowPour, pp. 72-92, copyright 2008 by IGI Publishing, formerly known as Idea Group Publishing (an imprint of IGI Global).
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Chapter IV
A Paradigmatic and Methodological Review of Research in Outsourcing Vanita Yadav Management Development Institute, India Rajen K. Gupta Management Development Institute, India
Abstract Due to the growing academic and practitioner interest in the field of outsourcing, there is a need to do a comprehensive assessment and synthesis of research activities to date. This chapter addresses this need and examines the academic literature on information systems outsourcing and business process outsourcing using a paradigmatic and methodological lens. The objective of this chapter is fourfold. Firstly, it examines the status of outsourcing research from 1995 to 2005 in eight leading academic journals, to compare the current research trends with past research directions in terms of methodologies applied. Secondly, it analyzes the research paradigms adopted in these research papers using the Operations Research Paradigm framework. Thirdly, it compares and contrasts the outsourcing research work published in three leading European journals with the work published in three leading American journals. Finally, it uncovers the implications of this study and the directions for future research.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
A Paradigmatic and Methodological Review of Research in Outsourcing
INTRODUCTION Eastman Kodak’s decision to outsource its information systems (IS) function in 1989 to IBM, DEC, and Businessland formally launched the phenomenon of outsourcing in the corporate world which aroused interest worldwide. Outsourcing is defined as the procurement of products and services from sources that are external to the organization (Lankford & Parsa, 1999). The e-commerce revolution has forced the transformation of traditional IS outsourcing structures into new outsourcing service configurations, like Internet service outsourcing, application service outsourcing, and business process (BP) outsourcing (Watjatrakul, 2005). Businesses today are growing in complexity and the world is moving towards globalization. As a result the forces of outsourcing have become a present-day reality and are poised for phenomenal growth in the future. The importance of outsourcing in industry has led to extensive research in this area. Most of the research done in outsourcing is in the field of IS outsourcing. In the last few years, there has been a rise in another more process-centric approach to outsourcingbusiness process outsourcing, in which the outsourcing vendor offers to take responsibility for an entire client process (Harmon, 2003). Due to the growing academic and practitioner interest in the field of outsourcing, there is a need to do a comprehensive assessment of research activities to date. This chapter aims to address this need of exploring and synthesizing the academic literature on outsourcing. Although Dibbern, Goles, Hirschheim, Rudy, and Jayatilaka (2004) and Gonzalez, Gasco, and Llopis (2006) have carried out a survey and analysis of literature in the field of IS outsourcing, the goal of this research is to extend existing insights. The focus of Gonzalez et al.’s (2006) IS outsourcing review was to identify the main topics of IS outsourcing, the methodologies most often applied, and the authors and countries that have contributed most to the area of IS outsourcing. 72
The focus of Dibbern et al.’s (2004) IS outsourcing review was on research objectives, methods used, and theoretical foundations to view outsourcing as an organizational decision process using Simon’s model of decision making. In contrast, our study covers IS as well as BP outsourcing research, and carries out a methodological and paradigmatic examination of literature. Hence this study makes a contribution to the philosophical and methodological foundations of research in outsourcing. Additionally, it also presents a comparative analysis of the outsourcing research trends in leading American and European journals. The objective of this chapter is fourfold. Firstly, it examines the status of outsourcing research in from 1995 to 2005 in eight leading academic journals, to compare the current research trends with past research directions in terms of methodologies applied. Secondly, it analyzes the research paradigms adopted in these research papers using the Operations Research Paradigm framework of Meredith, Raturi, Amoako-Gyampah, and Kaplan (1989). Thirdly, it compares and contrasts the outsourcing research work published in three leading European journals with the work published in three leading American journals. Finally, it uncovers the implications of this study and directions for future research. The chapter is organized as follows. In the next section, the review of existing research literature on IS and BP outsourcing is presented. Subsequently, the choice of methodology for collecting and analyzing data is explained, followed by discussion of the results. The chapter ends with implications of the study, directions of future research, and contributions.
LITERATURE REVIEW Outsourcing Outsourcing involves contracting with an external provider for the provision of a service which may have been provided using in-house
A Paradigmatic and Methodological Review of Research in Outsourcing
staff (Domberger, Fernandez, & Fiebig, 2000). Outsourcing has been around for more than a decade, but it got formal recognition only after the famous Kodak deal in 1989. Since then it has generated a stir in the practitioner community. Academics, by and large, have been relatively slow to research this phenomenon (Dibbern et al., 2004). While academic research has been slow to follow the practitioner community, it is now being recognized as an important area of research. This chapter focuses on the following two kinds of outsourcing: •
•
Information systems outsourcing: Willcocks and Kern (1998) define IS outsourcing as the handing over to a third party management of IT/IS assets, resources, and/or activities for required results. Cheon, Grover, and Teng (1995) define information technology outsourcing as the organizational decision to turnover part or all of an organization’s IS functions to external service provider(s) in order for an organization to be able to achieve its goals. Business process outsourcing: The Accenture Institute for Strategic Change suggests that BP outsourcing goes further than technology infrastructure or even applications. The outsourcing service provider takes primary responsibility for ensuring that the process works, interfaces effectively with other company functions, and delivers the outcome intended. BP outsourcing refers to an outsourcing relationship where a third-party provider is responsible for performing the entire business function for the client organization (Dibbern et al., 2004). A number of industries are considering BP outsourcingin particular, government, financial services, healthcare, transportation, and logistics (Millar, 1994).
Research Paradigms in IS Research Orlikowski and Baroudu (1991) and Chen and Hirschheim (2004) indicate that positivism dominates IS research while other paradigms are relatively small in number. The following three references outline the paradigmatic analysis of IS research between 1985 and 2001: •
•
•
Orlikowski and Baroudu (1991) examined 155 articles on IS research published between 1985 and 1989 in MIS Quarterly (MISQ), Communications of the ACM (CACM), Management Science (MS), and Proceedings of the International Conference on Information Systems (ICIS). Their findings indicated that positivist paradigm overwhelmingly dominated the IS research community and little attention was paid to interpretive paradigm. Chen and Hirschheim (2004) analyzed 1,893 articles on IS research published between 1991 and 2001 in MISQ, Information Systems Research (ISR), Journal of Management Information Systems (JMIS), ICIS, Information and Organization (I&O), Information Systems Journal (ISJ), Journal of Information Technology (JIT), and European Journal of Information Systems (EJIS). Their analysis indicates that while there has been some paradigmatic change in the IS research community since 1990, this change has not significantly manifested itself in journal publications. In most research journals, positivism maintains its prevailing dominant position. Dibbern et al. (2004) examined 84 articles on IS outsourcing published between 1988 and 2000 in I&O, CACM, EJIS, JIT, JMIS, Information and Management (I&M), ISJ, ISR, MISQ, Academy of Management
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A Paradigmatic and Methodological Review of Research in Outsourcing
Journal (AMJ), Academy of Management Review (AMR), Decision Sciences (DS), MS, Organization Science (OS), Strategic Management Journal (SMJ), Harvard Business Review (HBR), California Management Review (CMR), Sloan Management Review (SMR), ICIS, and Hawaii International Conference on System Sciences (HICSS). Their results indicate that there is a balanced aggregation of research approaches in IS outsourcing on the positivism-interpretivism continuum. However, the American outlets were dominated by the positivist paradigm and the European outlets were dominated by the interpretive paradigm.
nale behind the choice of leading journals in IS and management fields has been investigated by Walsham (1995), Orlikowski and Baroudu (1991), and Chen and Hirschheim (2004). The following academic journals were examined: •
•
•
Three mainstream American IS journals: Information Systems Research, MIS Quarterly, and Journal of Management Information Systems. Three mainstream European IS journals: Journal of Information Technology, European Journal of Information Systems, and European Management Journal. Two mainstream management journals: Management Science and Decision Sciences.
METHODOLOGY Paradigmatic Representations Journal Representations For the purpose of this research, the focus was on mainstream journals that would reflect progress in the field of IS and BP outsourcing in the last 10 years, ranging from 1995 to 2005. The ratio-
For paradigmatic analysis, this chapter uses the Operations Research Paradigm framework by Meredith et al. (1989) as shown in Figure 4.1. This framework has been used by researchers in the operations management area (Meredith et
Figure 4.1. Research paradigms framework (Adapted from Meredith et al. (see Appendix 1)
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A Paradigmatic and Methodological Review of Research in Outsourcing
al., 1989; Sachan & Datta, 2005). It serves as a comprehensive analysis tool in a two-dimensional format and is in the same way applicable to the field of IS research also. Hence this research extends the body of knowledge in the IS arena by using this Operations Research Paradigm framework to analyze the research paradigms in IS and BP outsourcing literature. Here it may be useful to mention that a paradigmatic perspective goes beyond the dichotomous classifications of research methods and techniques. Such a perspective helps the research community to undertake a reflective examination of its ontological and epistemological assumptions including the underlying values held by the community. The analysis of this chapter focuses on the following paradigms: axiomatic, positivist, interpretive, direct observation of object reality, people’s perception of object reality, and artificial construction of object reality.
Quantitative vs. Qualitative The criterion for categorizing research methods as quantitative or qualitative in this chapter is based on whether studies use a statistical or numerical approach to collect and analyze data (Chen & Hirschheim, 2004). There is a possibility that research could use both quantitative and qualitative methods in different stages of the study. On such occasions, they are categorized as a mixed research method.
Cross-Sectional vs. Longitudinal Chen and Hirschheim (2004) described longitudinal study as a research that evolves over an uninterrupted period of time and focuses on process. Cross-sectional study, on the other hand, is research that collects data through one snapshot at a particular point of time (Orlikowski & Baroudi, 1991).
Methodological Representations Research Designs The analysis of research methodology used in the identified journal papers focuses on the following areas: empirical vs. non-empirical; quantitative vs. qualitative; cross-sectional vs. longitudinal; research designs (survey, focus group, case study, experiment, and action research); sources of data; hypothesis testing; and the data analysis techniques (descriptive analysis, regression, factor analysis, correlation, cluster analysis, conjoint analysis, path analysis, Logit model, structural equation modeling).
Adapting the research design categorizations from Orlikowski and Baroudi (1991) and Chen and Hirschheim (2004), the following research designs were identified: • • •
Empirical vs. Non-Empirical The empirical studies rely on observations and data, and the non-empirical studies rely on ideas and concepts. The categorization in this research is established as empirical if the articles obtain real data or observations, which could be gathered through quantitative, qualitative, or a mixed approach, including archival data (Chen & Hirschheim, 2004).
•
Survey: Research articles involving data collection via questionnaires. Focus group: Group discussions exploring a specific set of issues to generate data. Case study: Research articles that are involved with a single site or a few sites over a certain period of time that involved in-depth study of a phenomenon. The case study inquiry usually relies on multiple sources of evidences (Yin, 2003). Experiment: Studies that take place within a designed, controlled environment and usually involve special treatment of different groups to contrast the precise relationships among variables (Galliers, 1991).
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•
•
Action research: The researchers are an integral part of the phenomenon under study. The researchers’ input often influences the outcomes of the phenomenon, and his/her role could change from researcher to subject (Galliers, 1991). Others: Articles that are practitioner oriented (systems or tools development), non-empirical pieces, or descriptive/argumentative as noted in Galliers’s (1991) classification. Research with secondary data such as public records or existing datasets is also included in this category.
in the research paper whether the study involves explicit formulation and testing of research hypotheses.
Data Analysis Techniques Data analysis techniques help researchers in: • • • •
Summarizing data Understanding the effect of variable (s) on the variable under study Minimizing confounding effects inherent in data, such as questionnaire data Assessing alternative future scenarios.
Sources of Data The sources of data involve collecting data from primary data sources or secondary data sources. The articles involving scenarios and examples have been categorized under the others category.
Major techniques used for data analysis are descriptive analysis, regression factor analysis, correlation, cluster analysis, conjoint analysis, path analysis, Logit model, and structural equation modeling.
Hypothesis Testing
RESULTS
A hypothesis is a specific statement of prediction (Sachan & Datta, 2005). The development of science can be seen as a sequence of revisions of hypotheses. Our knowledge of reality involves sequence of trials and errors (Sachan & Datta, 2005). Under hypothesis testing, it is checked
This chapter assessed the state of research in IS and BP outsourcing by examining the research paradigms and research methodologies adopted in 70 articles in eight leading academic journals between 1995 and 2005. The findings of the study reveal that on IS and BP outsourcing, between
Figure 4.2. Research: ITO & BPO (1995-2005) Management journals 13%
american is journals 29% american is journals european is journals Management journals
european is journals 58%
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Figure 4.3. Comparison of Total Number of Papers in American and European Journals (1995-2005) EMJ
20 MisQ 15
JIT
isr
JMIS EJIS
10 5
jMis jiT
MISQ ISR
ejis eMj
0 american journals
1995 and 2005, there were 20 articles in the three American IS journals, 41 articles in the three European IS journals, and nine articles in two management science journals (see Figure 4.2). The European journals indicated more research in the outsourcing field (see Figure 4.3).
Methodological Representations
european journals
quantitative approach, and two indicating mixedmethod approach. The European IS journals had 30 qualitative articles, six quantitative articles, and one mixed-method article. The management journals had two qualitative articles and six quantitative articles. The American journals mainly were quantitative research focused, whereas the European journals were qualitative research focused (see Figure 4.7).
Empirical vs. Non-Empirical Cross-Sectional vs. Longitudinal Forty-three articles fell under the empirical category and 22 under the non-empirical category (see Figure 4.4). In American IS journals there were 10 indicating empirical approach and 10 indicating non-empirical approach. The European IS journals had 29 empirical articles and eight non-empirical articles. The management journals had four empirical articles and four non-empirical articles. American journals had an equal balance of empirical and non-empirical articles, whereas the European journals indicated applying mostly empirical approaches (see Figure 4.5).
Thirty-four articles fell under the cross-sectional category and 6 under the longitudinal category (see Figure 4.8). In American IS journals there were 12 indicating cross-sectional approach and one indicating longitudinal approach. The European IS journals had 21 cross-sectional articles and four longitudinal articles. The management journals had one cross-sectional article and one longitudinal article. Both the American and European journals involved mostly cross-sectional approaches (see Figure 4.9). The longitudinal approach was insignificant in number.
Quantitative vs. Qualitative Research Designs Thirty-eight articles fell under the qualitative category and 24 under the quantitative category (see Figure 4.6). In American IS journals there were six indicating qualitative approach, 12 indicating
Fifteen articles fell under the survey research, one under focus group, 18 under case study, and 38 under the ‘others’ category. There were no articles
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A Paradigmatic and Methodological Review of Research in Outsourcing
Figure 4.4.
Empirical vs. Non-empirical
nOneMpirical 34%
eMpirical nOn-eMpirical
eMpirical 66%
Figure 4.5.
Empirical vs. Non-empirical Journalwise 29
30 25 20
empirical
15 10
10
10
non-empirical
8 4
5
4
0 american is
european is
Management
Figure 4.6.
Quantitative vs. Qualitative
Quantitative 37%
Mixed method 5% Qualitative Quantitative Mixed method
Qualitative 58%
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A Paradigmatic and Methodological Review of Research in Outsourcing
Figure 4.7.
Quantitative vs. Qualitative Journalwise 30
30 25 20
Qualitative
15 10 5
Quantitative
12 6
6 2
1
0 american is
Mixed Method
6
european is
2
0
Management
Figure 4.8.
Cross-sectional vs. Longitudinal longitudinal 15% cross-sectional cross-sectional 85%
longitudinal
Figure 4.9.
Cross-sectional vs. Longitudinal Journalwise 25 21 20 15
cross-sectional
12
10
longitudinal 4
5 1
1
1
0 american is
european is
Management
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A Paradigmatic and Methodological Review of Research in Outsourcing
under action research and experimental research. Research in the ‘others’ category included: one literature review paper, nine conceptual modelbuilding papers, 10 mathematical model-building papers, one research commentary paper, and 17 papers based upon secondary data analysis. Case study research was the most predominant research design, followed by secondary data analysis and survey research (see Figures 4.10 and 4.11).
Sources of Data There were 30 articles using primary data sources, 31 articles using secondary data sources, and 13 articles in the others category, which included examples and scenarios (see Figure 4.12). In American IS journals there were eight indicating primary data sources, 13 indicating secondary data sources, and seven indicating other sources. The European IS journals had 20 primary data sources articles, 14 secondary data sources articles, and five other sources articles. The management journals had two primary data sources articles, four secondary data sources articles, and one ‘other’ sources article. European journals mainly relied on primary data sources, whereas the American and management science journals relied on secondary data sources (see Figure 4.13).
Hypothesis Testing Eight articles indicated hypotheses testing out of the 70 articles reviewed (see Figure 4.14). The American IS journals had five articles indicating hypotheses testing, the European IS journals had two articles involving hypotheses testing, and the management journals had one article indicating hypotheses testing. Thus the American journals indicated a greater trend towards hypothesis testing than the European journals (see Figure 4.15).
Data Analysis Techniques There were 28 articles which indicated descriptive analysis, nine involving applied regression, four involving factor analysis, three involving correlation, two indicating Logit model, two involving structural equation modeling, and 23 under the ‘others’ category (see Figure 4.16). There were no articles applying cluster analysis, conjoint analysis, and path analysis. The ‘others’ category involved qualitative analysis of interview transcripts. American journals applied higher quantitative statistical analysis techniques whereas the European journals were restricted to mainly descriptive and qualitative techniques (see Figure 4.17).
Figure 4.10.
Research Design Commentary % Math Modeling %
Lit Rev %
Survey %
survey case study focus group sec data
Conceptual %
conceptual Math Modeling
Sec Data %
80
Case study % Focus Group %
commentary lit rev
A Paradigmatic and Methodological Review of Research in Outsourcing
Figure 4.11.
Research Design Journalwise 20
20 15
14
survey
12 10
case study 8
6
5
6
Others
3 1
0
focus group
0 european is
american is
1
1
0 Management
Figure 4.12.
Sources of Data Others 18% primary 41%
primary secondary Others
secondary 41%
Figure 4.13.
Sources of Data Journalwise 20
20 15 10
14
13 8
primary secondary
7 5
5
Others
4 2
1
0 american is
european is
Management
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A Paradigmatic and Methodological Review of Research in Outsourcing
Figure 4.14.
Hypothesis Testing yes 11% yes no no 89%
Figure 4.15.
Hypothesis Testing Journalwise 5
5 4 3
2
2
hypothesis testing 1
1 0 american is
european is
Management
Figure 4.16.
Data Analysis Techniques descriptive regression Others %
factor Descriptive %
SEM %
correlation logit seM Others
Logit %
82
Correlation %
Factor %
Regression %
A Paradigmatic and Methodological Review of Research in Outsourcing
Figure 4.17. Data Analysis Techniques Journalwise 20
descriptive 16
15 10
0
factor
10
correlation 7
5
regression 13
logit
6 33
4 2
1
american is
1
2
0000 european is
11
1 00 Management
seM Others
Figure 4.18. Direct Observation of Object Reality
People’s Perceptions of Object Reality
Artificial Reconstruction of Object Reality American Journals: • JMIS (3) Management Journals • MS (4) • DS (1)
AXIOMATIC
European Journals: • JIT (1) American Journals: • ISR (3) • MISQ (2) • JMIS (3) LOGICAL POSITIVIST/ EMPIRICIST
European Journals: • EMJ (2)
Management Journals • MS (1) • DS (1) European Journals: • JIT (4) American Journals: • MISQ (2)
INTERPRETIVE
European Journals: • JIT (2) • EJIS (6) • EMJ (6)
American Journals: • ISR (2) • JMIS (4)
American Journals: • MISQ (1)
Management Journals • MS (1) European Journals: • JIT (5) • EJIS (2) • EMJ (9)
CRITICAL THEORY
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A Paradigmatic and Methodological Review of Research in Outsourcing
Figure 4.19.
Paradigmatic Representations The paradigmatic analysis for IS and BP outsourcing research in 70 papers using the operations research paradigm framework is tabulated in Figure 4.18. The literature review highlighted that the American journals are predominantly positivist in approach, but the results show that in the area of IS and BP outsourcing, they are also adopting interpretive paradigms. Although American journals are still more inclined towards positivism (positivist and axiomatic11 articles), the trend towards interpretive research (nine articles) is evident. The European journals belong predominantly to the interpretive paradigm (interpretive30 articles; positivist and axiomaticseven articles).
IMPLICATIONS Analysis of previous review papers in IS research highlights that positivist paradigm holds a dominant position. A paper by Galliers and Meadow (2003) offers a possible explanation in this regard. They discovered that editorial board members of North American journals like ISR and MISQ were primarily North American researchers (between 75% and 87.5% for ISR, and 51.2% and 86.8% for MISQ), and these journals tended to publish articles written by North American researchers (74% for ISR and 83% for MISQ). A similar situation was reported for European journals where the editorial board members were largely European, as were the papers published (Galliers & Meadow, 2003; Chen & Hirschheim, 2004). Galliers and Meadow (2003) concluded that the IS field maintained a “homegrown” perspective. Further, traditional wisdom has long recognized that positivist research is more easily accepted because its research tradition has been more successfully established (Hirschheim & Klein, 2002). The mainstream North American journal, MISQ, had
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publicly announced its acceptance of alternate research approaches in 1993. Chen and Hirschheim (2004) reported from their empirical analysis of 1,893 articles that even after years of advocacy of paradigmatic pluralism, not much has changed. On the contrary our findings indicate that a change is noticeable as the American journalsthough still more inclined towards positivism (positivist and axiomatic11 articles)are also publishing interpretive research (nine articles). However, this can also be attributed to the recency of the phenomenon of outsourcing. Another interesting observation is that highlighted by the comparison between empirical and non-empirical studies. Our analysis revealed that 66% of the papers were empirical in nature. Chen and Hirschheim (2004) have also reported that researchers have increased their use of empirical data collection. Interestingly, our study revealed that the American journals had an equal balance of empirical and non-empirical articles whereas the European journals indicated applying mostly the empirical approach. Chen and Hirschheim (2004) state that as a field matures, theoretical and conceptual developments become less appealing, and empirical studies become more popular because of the need for theory testing and practical relevance. The European journals indicated more research in the outsourcing field (58%) as compared to the American journals (29%). For this reason the European journals could possibly regard outsourcing research as a mature field and show greater adoption of empirical studies. Both the American and European journals mainly involved cross-sectional studies. Longitudinal approach was insignificant in quantum. It can be due to the contention that cross-sectional studies enjoyed more popular positions (Chen & Hirschheim, 2004) and prevalence of a ‘publish or perish’ research publication notion (Walsham, 1995). Also, research using literature reviews, conceptual model building, mathematical model building, and research commentaries were the most predominant research designs followed by
case study and survey research. The European journals mainly relied on primary data sources whereas the American journals relied more on secondary data sources. Finally, the American journals applied higher quantitative statistical analysis techniques and indicated a greater trend towards hypothesis testing, whereas the European journals applied mainly descriptive and qualitative techniques. To summarize, this study reveals that in the area of outsourcing, interpretive paradigm is beginning to dominate if two sides of the Atlantic are put together. This can probably be attributed to the reality that European journals are publishing more in this area and they are more interpretively inclined. Newness of outsourcing could also be one possible explanation as the more positivist inclined American journals were also reporting interpretive research in this area.
DIRECTIONS FOR FUTURE RESEARCH The IS and BP outsourcing industry is poised for phenomenal growth, and this area has high potential for future research. Outsourcing has emerged as a multifaceted subject. There is a great deal of diversity in terms of research objectives, theoretical foundations, and methods (Dibbern et al., 2004). Additional exploratory content analysis of the papers revealed various emerging research areas. These are summarized as follows: •
•
Longitudinal studies: An evident need for longitudinal studies is a key finding of this study. There is an opportunity for researchers to move beyond the snapshot studies and broaden the perspective of outsourcing by incorporating temporal effects to answer questions like, How does the outsourcing process change over time? Client-vendor relationships: An in-depth understanding of the key issues underly-
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•
•
•
•
86
ing client-vendor relationships is required. Most of the studies were from the client perspective, and there was a need for further examining the vendor perspective. Additionally, dyadic studies incorporating both the client and vendor perspective would offer better understanding of the dynamics of such engagements. Client-vendor governance arrangements: An increasing number of varied outsourcing contracts have increased the complexities of governance mechanisms. There is a need to explore such engagements and understand the dynamics of control. Additionally, the impact of informal relationship between the client and vendor organizations can lead to interesting studies. There is an emerging nature of such relationships. This promising trend to move beyond the contractual engagements can be explored. What is the impact of trust on the governance of such arrangements? How does an outsourcing contract-relationship evolve over time? Risk management: Turning over the entire business process to a vendor brings with itself various risks. Studies conceptualizing and examining comprehensive risk assessment frameworks can aid in better understanding the dynamics of outsourcing risks. Operationalization and measurement of outsourcing success: Success is defined differently in various papers by various stakeholders and researchers. The complicated nature of the perception of success makes it a difficult variable to operationalize. Hence an all-inclusive view of success can be explored. Emerging role of countries: The emerging role of countries—like India, China, the Philippines, and othersfrom cost-saving outsourcing destinations to strategic valueadding outsourcing destinations is also a fertile area for future research.
Furthermore, the dataset of this research was limited to eight journals only. Hence this study can be taken forward by researchers for larger assessment by including other management science journals in the area of information systems, operations, human resources, organizational behavior, finance, and strategy.
CONCLUSION The purpose of this chapter was to study the literature on IS and BP outsourcing using a methodological and paradigmatic lens. The analysis of publication trends brings out a growing awareness of non-positivist approaches to doing research in outsourcing. However, the analysis also brings out a continuing divide across the Atlantic Ocean. The authors hope that awareness of such a divide would trigger a meaningful dialogue over the underlying perspectives so that it stimulates more wholesome research across the globe. A better balance between the positivist and interpretive is also likely to save us from making unnecessary blunders due to cultural blindness of the positivist paradigm in the outsourcing phenomenon, which by its very nature straddles far-flung continents and cultural worlds. The analysis also shows the paucity of longitudinal and action research studies, which actually have great potential to generate deeper insights about the challenges to the management of outsourcing. In sum, the chapter attempts to stimulate a reflective introspection in the research community interested in the emerging phenomenon of outsourcing.
REFERENCES Ang, S., & Beath, C.M. (1993). Hierarchical elements in software contracts. Journal of Organizational Computing, 3(3), 329-361.
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Chen, W., & Hirschheim, R. (2004). A paradigmatic and methodological examination of information systems research from 1991 to 2001. Information Systems Journal, 14, 197-235. Cheon, M.J., Grover, V., & Teng, J.T.C. (1995). Theoretical perspectives on outsourcing of information systems. Journal of Information Technology, 10, 209-210. Dibbern, J., Goles, T., Hirschheim, R., & Jayatilaka, B. (2004). Information systems outsourcing: A survey and analysis of the literature. The DATABASE for Advances in Information Systems, 35(4), 6-102. Domberger, S., Fernandez, P., & Fiebig, D.G. (2000). Modeling the price, performance and contract characteristics of IT outsourcing. Journal of Information Technology, 15, 107-118. Galliers, R.D. (1991). Choosing appropriate information systems research approaches: A revised taxonomy. In H.E. Nissen, H.K. Klein, & R. Hirschheim (Eds.), Informations systems research: Contemporary approaches and emergent traditions (pp. 327-345). North Holland: Elsevier Science.
Lankford, W.M., & Parsa, F. (1999). Outsourcing: A primer. Management Decision, 37(4), 310-316. MacCrimmon, K., & Wehrung, D. (1986). Taking risks: The management of uncertainty. New York: The Free Press. Meredith, J.R., Raturi, A., Amoako-Gyampah, K., & Kaplan, B. (1989). Alternative research paradigms in operations. Journal of Operations Management, 8(4), 297-326. Millar, V. (1994). Outsourcing trends. Proceedings of the Outsourcing, Cosourcing and Insourcing Conference, Berkeley, CA. Nash, J.F. (1953). Two-person cooperative games. Econometrica, 21, 128-140. Orlikowski, W., & Baroudi, J.J. (1991). Studying information technology in organizations: Research approaches and assumptions. Information Systems Research, 2, 1-28. Sachan, A., & Datta, S. (2005). Review of supply chain management and logistics research. International Journal of Physical Distribution & Logistics Management, 35(9), 664-705.
Galliers, R.D., & Meadow, M. (2003). A discipline divided: Globalization and parochialism in information systems research. Working Paper.
Walsham, G. (1995). Interpretive case studies in IS research: Nature and method. European Journal of Information Systems, 4, 74-81.
Gonzalez, R., Gasco, J., & Llopis, J. (2006). Information systems outsourcing: A literature analysis. Information & Management, 43(7), 821-834.
Watjatrakul, B. (2005). Determinants of IS sourcing decisions: A comparative study of transaction cost theory versus the resource-based view. Journal of Strategic Information Systems, 14, 389-415.
Harmon, P. (2003). An overview of business process outsourcing. Business Process Trends, 1(9), 1-12. Hirschheim, R., & Klein, H.K. (2002). Information systems research in the making: A critical reflection on the current state of the IS discipline. Working Paper. Klepper, R. (1995). The management of partnering development in IS outsourcing. Journal of Information Technology, 10(4), 249-258.
Willcocks, L.P., & Kern, T. (1998). IT outsourcing as strategic partnering: The case of UK inland revenue. European Journal of Information Systems, 7(1), 29-45. Yin, R.K. (2003). Case study research: Design and methods. London: Sage.
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Appendix 1
This work was previously published in the Information Resources Management Journal, Vol. 21, Issue 1, edited by M. KhosrowPour, pp. 27-43, copyright 2008 by IGI Publishing, formerly known as Idea Group Publishing (an imprint of IGI Global).
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Chapter V
An Outsourcing Acceptance Model:
An Application of TAM to Application Development Outsourcing Decisions
John “Skip” Benamati Miami University, USA T.M. Rajkumar Miami University, USA
Abstract The use of outsourcing is expanding rapidly. This chapter empirically tests a model of application development outsourcing acceptance based on the technology acceptance model (TAM). TAM-suggested perceived usefulness and ease of use mediate the effects of other variables on users’ attitudes towards a technology. The model tested in this chapter suggests that perceived usefulness and ease of use of outsourcing mediate the effects of the external environment, prior outsourcing relationships, and risks on decision-makers’attitude toward application development outsourcing. One hundred and sixty respondents to a survey sent to 3000 IT decision makers provided data to confirm the applicability of TAM and the influences of these external variables. Support for applying TAM in this alternative context was found. Three sub-dimensions of risk, project management, relationship, and employee risk emerged. Project management and employee risks along with prior relationships were found to significantly influence decision maker perceptions about application development outsourcing. Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
An Outsourcing Acceptance Model
INTRODUCTION An increased reliance on information technology (IT) for success combined with the rapid, accelerating rate of IT change, has intensified both the importance and complexity of managing this now vital corporate resource. IT outsourcing, the transferring of all or part of a company’s IT functions to an outside party, offers additional alternatives to organizational decision makers. Hence, there is an increasing focus on determining the correct sourcing strategy for IT and IT services (King, 2001). However, choosing the appropriate IT functions to outsource and the best outsourcing vendor is very complex (Kern, Willcocks, & van Heck, 2002). This is especially true now because the motivation for IT outsourcing has moved beyond traditional cost cutting or efficiency gains to become more transformational. IT outsourcing now plays a much more strategic role, enabling companies to be more adaptive and respond quickly to new opportunities (Mazzawi, 2002). Kodak brought IT outsourcing to the forefront with their landmark decision to outsource their IT functions in 1989. Recent surveys indicate that around the globe, firms of all sizes across many industries view outsourcing as a realistic alternative for some or all of their IT functions (Barthelemy & Geyer, 2001; Kakabadse & Kakabadse, 2002). The use of IT outsourcing continues to grow at a phenomenal rate (Kernet al., 2002; Ross & Westerman, 2004). A wide variety of IT functions are outsourced. This study focuses on one particular function, applications development (AD), defined as any efforts in the organization involved with the analysis, design, or implementation of information systems. AD was identified in multiple prior studies as an IT function commonly outsourced (McFarlan & Nolan, 1995; Hurley & Schaumann, 1997; Elmuti & Kathawala, 2000; Ross & Westerman, 2004). Furthermore, recent surveys indicate that AD outsourcing is on the rise (Hurley & Schaumann,
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1997; Ketler & Willems, 1999; King & Cole-Gomolski, 1999). More and more AD outsourcing is also done offshore which adds complexity to the decision making process (Elmuti & Kathawala, 2000; Robb, 2000; Prencipe, 2001). Thus, a better understanding of the AD outsourcing decision is important. More importantly, this knowledge may help to improve the understanding of other outsourcing decisions. A prior outsourcing study (Benamati & Rajkumar, 2002) proposed an application of the technology acceptance model (Davis, 1989; Davis, Bagozzi, & Warshaw, 1989) as a basis for investigating AD outsourcing decision making. The model also proposed risk, prior outsourcing relationships, and an organization’s external environment to be important antecedents to decision-maker perceptions and hence important factors in AD outsourcing decisions (Benamati & Rajkumar, 2002). The goal of this research is to empirically test and validate that model as a basis for further study and shed new light on factors that influence AD outsourcing decisions. The following section reviews the proposed model of outsourcing acceptance and develops hypotheses from it. The methodology used and findings from an empirical validation of that model are then explained. Finally, implications of both the results and the model for future research are discussed. No other research has empirically applied TAM in this way. Nor has there been empirical testing of the influence of these three antecedent factors on the decision to outsource AD.
THEORETICAL BASIS FOR THE RESEARCH MODEL AND HYPOTHESIS TAM states that users’ perception of the usefulness of a technology, defined as the degree to which a person believes that using the technology will enhance his or her job performance, and ease
An Outsourcing Acceptance Model
of use, defined as the degree to which a person believes that using the technology will be free of effort (Davis, 1989), directly affect the users’ attitude about and hence their intention to use the technology. These two perceptions also moderate the effects of antecedent constructs on the decision to use the technology. The AD outsourcing acceptance model (Benamati & Rajkumar, 2002) that is the focus of this study, shown in Figure 5.1, illustrates TAM constructs, outsourcing decision antecedent constructs, and posited relationships among the constructs. It proposes that TAM constructs are applicable to the acceptance of AD outsourcing. The TAM constructs and interrelationships are applied consistently with previous TAM research (Davis et al., 1989; Mathieson, 1991; Karahanna, Straub, & Chervany, 1999). Decision-maker perceptions of the usefulness, defined as the degree to which the decision maker believes that AD outsourcing will enhance the performance of the IT group, and ease of use, the degree to which the decision maker believes that AD outsourcing will be free of effort, are posited to influence their attitude about AD outsourcing which in turn affects their intention to do it. Consistent with TAM, the model proposes that a decision-maker positively inclined towards outsourcing is more likely to have intentions to outsource.
Many organization level decisions are ultimately made by an individual within the organization. IT managers most often prepare sourcing evaluations (Dibbern, Goles, Hirschheim, & Jayatilaka, 2004) and IT sourcing decisions elevate to the CIO, CFO, and CEO levels in organizations (Kakbadse & Kakabadse, 2002). A study of 160 French and German companies found the decision to outsource IT was made by an individual executive in 90% of the French and 75% of the German organizations studied (Barthelemy & Geyer, 2001). The studies indicate most IT outsourcing decisions are organizational decisions primarily made by individuals. The unit of analysis in prior TAM research has predominantly been individual adoption of a specific technology. Recent studies apply TAM to organizational level adoptions decisions by owners or executives in small and medium sized enterprises (SME) and more general technology categories such as ecommerce (Granden & Pearson, 2004) or having a Web presence (Riemenschneider, Harrison, & Mykytyn, 2003). Since AD outsourcing is a solution to a general technology problem, TAM constructs and relationships may be applicable to high level decision-makers’ acceptance of AD outsourcing.
Figure 5.1. Outsourcing acceptance model Antecedents External Environment
TAM
H5 H6
Prior Outsourcing Relationships
H7
H10 (-) H8 (-)
Perceived Risks of Outsourcing
H9 (-)
Perceived Usefulness of Outsourcing
H2
Attitudes towards Outsourcing
H4
Perceived Ease of Use of Outsourcing
H1
Intention to Use Outsourcing
H3
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An Outsourcing Acceptance Model
Furthermore, TAM is rooted in the theory of reasoned action (Azjen & Fishbein, 1980) and other research has drawn on attitude based choice theory rooted in the theory of reasoned action to study organizational level decisions. Mykytyn and Harrison (1993) studied the acceptance of strategic information systems by senior management and Candel and Pennings (1999), the choice of financial services by entrepreneurs. This provides further support for organizational level decision makers as a unit of analysis. Figure 5.1 also illustrates the hypotheses tested in this study. Hypotheses one through four stem directly from the established TAM relationships. It is hypothesized that these relationships will hold in the AD outsourcing decision context as well. Hence, it is hypothesized that: H1: Decision maker attitude toward outsourcing AD positively affects their intention to use it. H2: Decision maker perception of the usefulness of AD outsourcing positively affects their attitude towards it. H3: Decision maker perception of the ease of use of AD outsourcing positively affects their attitude towards it. H4: Decision maker perception of the ease of use of AD outsourcing positively affects their perception of its usefulness. The model also proposes the external environment, prior outsourcing relationships, and the perceived risk of outsourcing AD as antecedents to decision maker perceptions of AD outsourcing. Each is proposed to affect one or both of the TAM perception variables. Support for the influence of these antecedents on outsourcing decisions exists in prior literature. A firm’s external environment plays a role in decision-making (Goll & Rasheed, 1997). A dynamic, competitive, or uncertain environment
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can lead firms to focus on core competencies and outsource others (Slaughter & Ang, 1996). As hypercompetition becomes an unavoidable way of life in many industries (D’Aveni, 1994), IT plays a bigger and bigger role in achieving and sustaining competitive advantages. Furthermore, environmental change prompts organizations to maintain flexible organizational structures (Burns & Stalker, 1961; Perrow, 1970; Thompson, 1967; Woodward, 1965). Outsourcing provides flexibility and offers a way to adjust organizational boundaries in response to pressures from the environment (Lonsdale & Cox, 2000). For example, the critical contingencies that arise due to stiff competition were found to influence IT outsourcing decisions in the banking industry (Ang & Cummings, 1997). This provides support for the fifth hypothesis in the model. H5: A more competitive external environment positively affects decision maker perception of the usefulness of AD outsourcing. The importance of the client supplier relationships has received increasing attention in the outsourcing literature. Organizations and their outsourcing vendors have become more tightly coupled (Lee, Huynh, Chi-wai, & Pi, 2000) and long term partnerships are more appropriate (Nam, Rajagopalan, Rao, & Chaudjury, 1996; Saunders, Gabelt, & Hu, 1997; Mazzawi, 2002). Some outsourcing arrangements form as strategic alliances with deep levels of interdependence (Lacity & Willcocks, 1998; King, 2001) and the ability to build a trusted partnership and avoid relational trauma is imperative for success (Kern et al., 2002). It becomes critical to consider outsourcing as the management of relationships with service providers as opposed to simply managing contracts for IS commodities (Kishore, Rao, Nam, Rajagopalan, & Chaudhury, 2003). A recent survey of 700 IT professionals indicates that reliability and trust in the outsourcing vendor were the two most important factors in selecting an
An Outsourcing Acceptance Model
outsourcing vendor (Gareiss, 2002). Surprisingly, these two relationship qualities ranked above more traditional selection criteria such as cost and technical skills. Whitten and Leidner (2006) found that for varying perceptions of product and service quality (high, low or poor), poor relationship quality has caused the decision to backsource or bring application development back in-house. The quality of the outsourcing relationship is clearly important (Lee & Kim, 1999) as these relationships are becoming mission critical (Kern & Willcocks, 2002). From a decision making perspective, early outsourcing research predominantly overlooked the fact that many outsourcing decisions are not independent decisions but instead are based on prior outsourcing experiences (Nam et al., 1996; Lee et al., 2000). Past marketing research into customer-service provider relationships found that customer satisfaction with prior experiences with a provider affected their loyalty to that provider and the strength of the relationship increased with the length of prior experience (Bolton, 1998). Likewise, prior outsourcing experiences certainly influence follow-on outsourcing decisions. The outsourcing acceptance model posits that prior outsourcing relationships will influence decision maker perceptions about outsourcing’s usefulness and ease of use as stated in hypotheses six and seven. H6: Positive prior AD outsourcing relationships positively affect decision maker perception of the usefulness of AD outsourcing. H7: Positive prior AD outsourcing relationships positively affect decision maker perception of the ease of use of AD outsourcing. Risk is also an important factor in the AD outsourcing decision (Earl 1996; Aubert, Patry, & Rivard, 1998; Ketler & Willems, 1999). Risk, if ignored, leads to undesirable consequences, such as increased likelihood of project failure
(Lyytinen, Mathiassen, & Popponen, 1998; Bahli & Rivard, 2005). IS managers may perceive outsourcing to reduce risk because it can provide skills the organization lacks to develop a particular application. However, outsourcing introduces many new risks such as hidden costs, lack of proper skills or infrastructure to manage the engagement, staff morale problems, and loss of control to or key dependence on a third party (Ketler & Walstrom, 1993; Hurley & Schaumann, 1997; Smith, Mitra, & Narasimhan, 1998; Barthelemy, 2001). Offshore outsourcing adds many additional challenges and risks to the outsourcing engagement (Ramarapu, Parzinger, & Lado, 1997). For example, the project team is, by definition, virtual and must be managed across time, distance, and perhaps even borders or oceans. Although some virtual organizations succeed, the value of virtual organizations has been oversold and more fail than succeed (Chesbrough & Teece, 2002). Perceived risk has been shown to inhibit system or product evaluation and adoption in e-service settings (Featherman & Pavlou, 2003). That study also provided strong empirical evidence that perceived risk adversely influences perceived usefulness. In an AD outsourcing context, perceived risk can be expected to negatively influence the perceived usefulness of outsourcing. Hypotheses eight states this expectation. H8: Decision maker perception of the risk of AD outsourcing negatively affects their perception of the usefulness of AD outsourcing. The risks associated with outsourcing highlight the need to outsource in the right way (Ross & Westerman, 2004). When risk is perceived, users introduce standard risk management mechanisms such as risk assessment, and developing risk mitigation plans to handle the perceived risk. Contracts for example, are one mechanism used to effectively manage the outsourcing relationship and provide for early termination, in case of underperformance (Osei-Bryson & Ngwenyama, 2006). The out-
93
An Outsourcing Acceptance Model
sourcer also typically sets up an organizational unit to coordinate interactions between its information technology staff and the vendor as well as monitor the vendor’s performance. Users must pay close attention to coordination in the early stages of the AD outsourcing projects so that costly adjustments to the coordination mechanisms do not occur later (Sabherwal, 2003). This additional effort to manage risks introduces a burden on the user to invest more time and effort in governance, oversight, and coordinating mechanisms, reducing the ease-of-use of outsourcing. Hence, this leads to the hypotheses: H9: Decision maker perception of the risk of AD outsourcing negatively affects their perception of the ease of use of AD outsourcing. Today’s outsourcing relationships involve strategic alliances with shared risk between the provider and the purchaser of the outsourcing services (Lacity & Willcocks, 1998; Kishore et al., 2003). Just as good prior relationships should increase perceptions of ease of use and usefulness, it would be expected that positive past experiences would reduce the perception of risk associated with outsourcing. This expected inverse relationship forms the basis for a final hypothesis. H10: Positive prior AD outsourcing relationships negatively affect decision maker perception of the risk of AD outsourcing.
METHODOLOGY A survey instrument was implemented to empirically test the model and hence, the applicability of TAM and the influence of the antecedent variables. Most prior outsourcing studies applied more qualitative or case study research. Very few studies employed quantitative methods. This research is the first to employ a quantitative instrument to study the applicability of TAM and one of only
94
a few to quantitatively examine antecedents to outsourcing decision making.
Instrument Development The instrument items used to operationalize the constructs in Figure 5.1 were all derived from past research. All questions used a 1 to 7 scale where 1 meant “strongly disagree” and 7 meant “strongly agree.” The items for the four TAM constructs are revisions of items from previously validated TAM instruments (Agrawal & Prasad, 1999; Hu, Chau, Liu Sheng, & Yan Tam, 1999; Venkatesh & Davis, 2000). The items were reworded to change the focus from systems to application development outsourcing. For example, the TAM intention to use item “Given that I have access to the system, I predict that I would use it” became “Given that I have access to an outsourcer for applications development I predict that I would use them.” These items were applied to test the TAM hypotheses (H1-H4). Consistent with previous instruments applying TAM to organizational level adoption decisions (Grandon & Pearson, 2004), the items for ease of use focused on the decision maker’s perception of their own ability to use outsourcing. Grandon and Pearson (2004) operationalized perceived usefulness as a mix of the decision maker’s perception of the usefulness to themselves and to the organization. For example, “Using e-commerce would improve my job performance” and “Using e-commerce would enable my company to accomplish specific tasks more quickly” were used. For consistency, all usefulness items in the developed instrument addressed the usefulness of outsourcing to the organization. The items for external environment and prior relationships originated from instruments used in marketing research. To measure the competitive nature of the environment, items from Industruct (Pecotich, Hattie, & Peng Low, 1999), an instrument developed to measure Porter’s (1980) five
An Outsourcing Acceptance Model
competitive forces model were adapted. Only items from intensity of rivalry defined as “the extent to which firms in this industry frequently and vigorously engage in outwardly manifested competitive actions and reactions in their search for competitive advantage in the marketplace” (Pecotich et al., 1999) were applied. That study found that rivalry was the strongest force of the five. Competitive rivalry is also probably the one most directly applicable to help test hypothesis five. Many marketing studies have measured dimensions of relationship quality. The items for measuring relationship quality used here were drawn from two separate marketing instruments. This was done to tap into a representative set of relationship quality dimensions that may be applicable to outsourcing relationships. The first dimension adapted was relational norms (Heide & John, 1992). Relational norms allow both buyer and supplier to judge whether each party’s actions conform to established standards (Ivens, 2006). The measures tap into three aspects of the relationship norms; flexibility—the expectation of a willingness of the parties to be adaptable to changing circumstances, information exchange—the expectation that a proactive exchange of useful information will occur, and solidarity—the expectation that both parties place a high value on the relationship. Trust is also commonly identified as an important aspect of relationship quality (Crosby, Evans, & Cowles, 1990; Moorman, Zaltman, & Deshpande, 1992; Morgan & Hunt, 1994; Rindfleisch, 2000; Ulaga & Eggert, 2004; Huntley, 2006). Rindefleish’s (2000) five item scale for organizational trust, which he defined as “…confidence in an exchange partner’s reliability and integrity” was adapted. This combination of 15 measures adequately represented the dimensions of relationship quality from an outsourcing perspective. These measures were applied to test hypotheses six, seven, and ten.
Established measures for outsourcing risk were not found in prior research and hence were developed from outsourcing risks identified by Elmuti and Kathawala (2000). This was the most complete list that was found and is applied to explore risk factors and test the last three hypotheses. Table 1 details the number and the source of survey items for each construct in the proposed framework.
Instrument Pretest A pretest of the instrument was conducted with two IT academicians experienced in survey development, three IT executives who have outsourced applications development, and two executives from application development outsourcing providers. The pretest was done to ensure that the survey was clear and concise, and that items portrayed their intended meaning. Feedback was also sought on the length of the survey, its overall appearance, and how each participant would react to receiving it in the mail. Comments and suggestions were used iteratively to revise the survey. During each pretest, one of the authors met with each of the participants individually and discussed the purpose of the survey. The subjects were asked to complete the survey. They were also asked to suggest improvements and to identify anything not clear to them. After completion of the survey, the attending author clarified and recorded subject feedback and suggestions. The comments of each participant were incorporated before meeting with the next participant and the pretest iterated until all clarity issues in the survey were flushed out. The pretest resulted in substantial improvement in the clarity of the survey definitions and items. It also resulted in the addition of one ease of use item—using application development outsourcing makes it easier to share risk with the vendor. The Appendix lists all the survey items along with the instructions to subjects.
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An Outsourcing Acceptance Model
Table 5.1. Source of survey items Construct
Prior Study Factor
Number of Items
Source
Intention to Use
Intention to Use
5
Agrawal & Prasad, 1999; Hu et al., 1999; Venkatesh & Davis, 2000
Attitude
Attitude
4
Agrawal & Prasad, 1999; Hu et al., 1999
Perceived Usefulness
Perceived Usefulness
9
Davis, 1989; Venkatesh & Davis, 2000
Perceived Ease of Use
Perceived Ease of Use
5
Venkatesh & Davis, 2000
External Environment
Competitive Rivalry
9
Pecotich et al., 1999
Prior Relationships
Relational Norms
10
Heide & John, 1992
Trust
5
Rindefleisch, 2000
18
Elmuti & Kathawala, 2000
Outsourcing Risks
Data Collection To implement the survey, a random sample of 3000 IT executives was drawn from subscribers to an IS journal focusing on enterprise application issues. The journal qualified subscribers based on their level in the organization and provided a randomized sample from the over 25,000 subscribers with the level of director or higher in their organizations. Two mailings were done. The first contained a solicitation letter, the survey, and a postpaid return envelope. The letter also included the URL of an online version of the survey. The second mailing was a reminder card that also pointed to the online version. The IT executives provided a total of 160 usable responses. Subjects’ organizations represented a variety of industries. Table 5.2 summarizes them. The “other” category includes all industries represented by only one organization. Subjects’ demographics indicate they were indeed high level IT executives. They averaged
96
19.4 years of IS experience, 9.6 with their current employer. In addition, they managed on average 78 subordinates. All subjects also indicated they played significant roles in outsourcing decisions for their organizations. Table 5.3 summarizes the size of the subjects’ organizations in terms of number of IT professionals and IT budget. Subjects estimated that on average 13.2% of their IT budget was spent on application development outsourcing and 19.7% on all types of IT outsourcing. AD outsourcing decisions were being made in these organizations. Response rates in surveys of executive level individuals are often low (Pincus, Rayfuekdm, & Cozzens, 1991; Baruch, 1999) due to the numerous demands on their time. Many executives have buffer systems in place to control the receipt of requests for information such as surveys (Cycyota & Harrison, 2002). Subject organizations that are small exacerbate the low response rate problem (Dennis, 2003). Not unexpectedly, the response rate of 5.33% was low. Low response rates can introduce response bias. However, the absence
An Outsourcing Acceptance Model
Table 5.2. Subject organization industries Industry
Number
Percentage
Finance
20
12.50%
Other
19
11.88%
Education
18
11.25%
Manufacturing
18
11.25%
Consulting
15
9.38%
Government
14
8.75%
Communication
9
5.63%
Health Care
8
5.00%
Transportation
7
4.38%
Insurance
6
3.75%
Systems Integrator
5
3.13%
Utilities
4
2.50%
marketing
4
2.50%
software development
4
2.50%
Banking
3
1.88%
Publishing
2
1.25%
Construction
2
1.25%
Legal
2
1.25%
Table 5.3. Subject organization size
Number of IT Professionals 1-49
Number of Subject Organizations 77
Reported IT Budget (Thousands)
Number of Subject Organizations
Under $99
5
50-99
13
$100-$499
22
100-249
30
$500-$1,999
29
250-499
16
$2000-4,999
18
500-999
5
$5,000-9,999
22
More than 1000
18
More than $10,000
56
Not reported
1
Not reported
8
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An Outsourcing Acceptance Model
of differences in the responses received at different times would be consistent with the claim that response bias was not present (Anderson & Gerbing, 1988). The responses for all of the factors and numeric demographic variables collected were tested for responses received before and after the second mailing. None of the t-tests (continuous variables) or chi-squared tests (categorical variables) showed responses to be significantly different. Hence, response bias was not found.
DATA ANALYSIS The data analysis proceeded through two phases. The first phase examined the applicability of TAM to outsourcing decision making and the second the influence of the three antecedents on decision maker beliefs about outsourcing. The following two sections discuss these phases.
The Applicability of TAM The TAM analysis proceeded through two steps. The first employed exploratory factor analysis (EFA) techniques to establish the validity of the instrument and identify the coping mechanism categories (Hatcher, 1994; Stevens, 1996). The second used simple linear regression to test the TAM hypotheses in the context of AD outsourcing. The EFA used the principle factor method with promax oblique rotation. Oblique rotation is suggested when factors are thought to be correlated factors (Harman, 1976; Hatcher, 1994). The factors are hypothesized to interrelate (in fact, the data later showed that each resulting factor correlated with at least one other factor at .24 or higher). Based on the prior expectation of four TAM factors and the percent of variance criterion (Hatcher, 1994) with a five percent cutoff, four factors variables were retained. In the factor analysis items PU2, PU8, and IN5 (see the Appendix) cross loaded onto the attitude
98
construct, indicating multidimensionality in these measures. All three were dropped. Additionally, PU1, PU5, and EOU1 did not load above the recommended .40 cutoff on their factors and were also dropped. All remaining items loaded on their expected constructs. The constructs all had Cronbach alphas of .77 or higher, well within recommended thresholds (Nunnally, 1967). This indicated the reliability of the instrument. Table 5.4 presents the descriptive statistics for the analysis including the mean factor scores. The second step in this analysis employed simple linear regression to test the TAM research hypotheses (H1 through H4). The regression results illustrated in Table 5.5 indicate that all four hypotheses were strongly supported.
The Effects of the Antecedents The same two steps were followed to analyze the effects of the three antecedents, the external environment, prior outsourcing relationships, and the perceived risk of outsourcing. An EFA was done including all 42 antecedent items. The expectation was that three factors would emerge. However, five factors accounted for more than 5% of the variance in the data and thus were retained. The risk items loaded onto three separate factors accounting for the two additional factors. Five items were dropped in subsequent runs. Items EN9, RSK7, RSK15, and RSK17 did not load above .40 on their respective factors and REL9 cross loaded onto one of the risk factors. All remaining items loaded on their expected constructs. The constructs all had Cronbach alphas above .73 indicating the reliability of the instrument. Table 5.6 presents the descriptive statistics for the analysis. The authors named the three risk factors: project management risk, relationship risk, and employee risk based on an interpretation of the concepts embodied by the items in each. These names are reflected in Table 5.6. Table 5.7 explicitly defines these three sub-dimensions of Risk in terms of those items.
An Outsourcing Acceptance Model
Table 5.4. Final results of TAM exploratory factor analysis
Item
Attitude Towards Outsourcing
Perceived Usefulness of Outsourcing
Intention to Use Outsourcing
Perceived Ease of Use of Outsourcing
AT2
.90
.03
-.07
-.02
AT3
.79
.08
.09
-.13
AT1
.77
-.09
.09
.11
AT4
.62
-.08
.05
.17
PU4
-.13
.80
.05
.01
PU7
.07
.66
-.13
.06
PU3
.12
.63
.14
-.14
PU9
.28
.55
.09
.02
PU6
-.11
.49
.09
.06
IN2
-.02
-.01
.95
.01
IN1
.02
-.01
.91
.01
IN3
.19
.15
.48
.05
IN4
.17
.25
.41
-.04
EOU2
.04
.07
-.04
.75
EOU1
-.10
-.11
.03
.67
EOU3
.16
.21
.00
.60
EOU4
.26
-.01
.07
.46
Alpha
.87
.82
.87
.77
Eigenvalue
6.833
1.564
0.832
0.688
Percent of Variance Explained
71.0
16.3
8.7
7.2
Mean
4.25
5.12
4.72
3.23
Std. Dev.
1.16
0.96
1.19
1.09
Table 5.5. TAM hypotheses linear regression results Dependent Variable
R2
F-Value (p-value)
Independent Variable (Hypothis)
T value (P-value)
Estimate
Intention to Use Outsourcing
.37
93.44 (PR /C F; PR /CF -->Cl ai mFo rm fi
C l aim For m
In put
Ru le
C ar dam ged
as sig nedG as sig nedG ^R S - ->C ar dam ged
R ecor ds
PS -->R ecor ds
C lai m
PS -->C lai m
Insurant
Output
Ru le
In put
Outp ut
R ul e
Inpu t
Outp ut
R ul e
Inpu t
ps 4, c f1, d s1 R ul e
Inp ut
Output
R ec ords -->PS ; PS - ->a ssi gnedG a ssi gnedG
R ec ords
R ecor ds ^a ssi gnedG ^PS /C F/D S --> Re cord s R ecor ds
R ecor ds ,assi gne dG
R ule
Input
Output
ps 3
Call Center
ps 4
d s9
r s4 , d s8
d s4
r s2
Ou tpu t
R ul e
Inpu t
R ul e Ou tpu t
Input
Output
Ru le
In put
Outp ut
Paym ent
DS - ->Invo ice Inv oic e
ag reeR ep air - ->R S /D S; R S /DS -->Ca rfixe d C ar fi xed
ag reeR ep air
esti matedR C '^DS -->DS ; D S -->estim atedR C esti matedR C
esti matedR C '
Inp ut R ul e
estim atedR C '
C arda mag ed -->RS ; R S -->estim atedR C '
C arda mag ed
Outp ut
R ul e
Inpu t
Garage
ps 3
Output
R ul e
Input
ds2
cf2
R ecor ds
R ecor ds - ->D S ; D S-- >R ecor ds
R ecor ds
C la im Form
R ecor ds - ->C F; C F -->C la im Form
R ecor ds
Cl ai mFo rm fi ^Invoi ce -->PR ; PR - ->Pa yme nt Paym ent
Cl ai mFo rm fi ,Invo ice
Output
R ul e
In put
Output
R ul e
In put
Insurance Company
R ec ords -->DS
R ec ords
Ru le Output
Invoi ce Invoi ce -->D S0 /PR ; D S 0/ PR -->Inv oic e Invoi ce
ag reeR ep air
N ew R C-- >D S /R S ; D S/ RS -->agre eR epai r
N ew R C
esti matedR C -->DS /IC ; D S /IC -->assi gne dA ass ign edA
RC= 5 00 esti matedR C
In put
Output
Ru le
In put
Outp ut
R ul e
Inp ut
a ted
Output
R ule
Input
es t im
d s10 , pr 1
ds 7, rs 3
ds 5, ic1
d s3
D ay to day handling company
ic 3, d s6
ic 2
Outp ut
R ul e
Inpu t
Output
Input R ule
N ew RC
IC / D S-- >N ew RC
a ssi gnedA a ssi gnedA -- >IC
Assessor
Outsourcing and Multi-Party Business Collaborations Modeling
Figure 14.12. Interactions between parties
estima ted RC0. The three basic logical operations of intersection, union, and complementation can be performed on fuzzy sets. 1. The membership µC (x) of the intersection C = A ∩ B satisfies for each x ∈ X,
µC (x) = min {µA (x), µB (x)}
2. The membership µC (x) of the union C = A ∪ B satisfies for each x ∈X,
µC (x) = max {µA (x), µB (x)}
3. The membership µC (x) of the complementation C = A satisfies for each x ∈X,
µC (x) = 1- µA (x)
Innovative Technological Paradigms for Corporate Offshoring
Example Fuzzy logic hardware modules (Alag & Patki, 1996; Hung, 1995; Watanabe, 1991) as well as disk operating system (DOS) level FL software (Patki, Raghunathan, & Khurshid, 1997) have potential for ameliorating outsourcing/offshoring infrastructure. Basic DOS level commands like dir, list, copy, move, and del have been provided with FL support. The use of variables like old and recent in the time domain and large, average, and small in the size domain have been used to modify the existing DOS commands. A further support using hedges such as very, moreorless, and not is demonstrated in the fuzzy logic-based operating system, FUZOS© (Patki et al., 1996). This concept can be extended to the data processing unit of a BPO, in which the FL based browsers, text editors, call support utilities etc., can be incorporated. For real time response, software approaches are not adequate and there is a need for fuzzy hardware support. Although, add-on cards for computing hardware have been suggested, the practical solution calls for instruction set based processors with hardwired or micro-programmed implementations (Patki, 1997; Watanabe, 1991).
Machine Intelligence Quotient In the past, the performance of computing systems was judged purely by its constituent hardware. Thus, MIPS (million instructions per second), GFLOPS (giga floating point operations per second), and Gibson mix were the metrics for the computer performance assessment. Subsequently, with the developments in the fields of artificial intelligence and fuzzy logic, the software performance index like FLIPS (fuzzy logic inferences per second) appeared in the hardware dominated era to determine the combined hardware and software (i.e., integrated technological performance). FLIPS did not become as popular as MIPS since there were not many occasions to benchmark fuzzy logic hardware/software sys-
tems. MIPS rating for benchmarking computing hardware is slowly being replaced with machine intelligence quotient (MIQ) and is likely to have potential impact on offshoring. MIQ permits the understanding of any machine through multiple perspective analysis (Jamshidi, Titli, Zadeh, & Boveriv, 1997). Any numerical or linguistic index/structure indicating the degree of autonomy of an intelligent system module can be regarded as MIQ. Although it is difficult to obtain an absolute measure of MIQ in the strictest sense, a relative value based on a comparison of the system with an existing baseline machine in use can be determined. This allows us to rate a particular system with respect to an already established machine in use, thus, allowing us to determine its efficiency and effectiveness that can be deployed to tackle a certain problem. MIQ differs significantly from indices like control performance, reliability, fault-diagnosis (Park, Kim, & Lim, 2001). MIQ has been defined as the measure of autonomy and performance for unanticipated events. The MIQ approach can link the infrastructural needs of an offshoring/outsourcing institution with its throughput. Issues regarding the measurement of MIQ have been discussed by analyzing human-machine cooperative systems. MIQ (M) can be considered as a union of machine control intelligence (MC) and machine interface intelligence (MF). M = MC + M F Engineering systems or products that are said to be intelligent have been analyzed and a threedimensional construct space representation as entities has been suggested (Zeungnam, Bang, Kim, & Han, 2002). In order to determine the numeric value of MIQ, Sugeno fuzzy integral and Choquet fuzzy integral have been adopted. An important characteristic of the future outsourcing information systems will cater to a situation in which information needs are not defined precisely at the time of the system design
327
Innovative Technological Paradigms for Corporate Offshoring
and awarding the contract. This brings the focus on dynamically integrated intelligent information systems instead of the computer hardware and software as disjoint infrastructure entities for service sectors. In the near future, when we consider outsourcing, we shall also encompass the broad category of information producing and information lending industries that are likely to usher in a new type of global market. Thus, MIQ will occupy special significance since the outsourcing contract awarding and project-executing organizations will be part of same MNC where current trend of country-oriented legislation will serve no purpose. Example The offshoring procedure poses an operational threat in deploying commercial off-the-shelf (COTS) product procuring strategies for building IT based critical infrastructure. Such a view is expressed (Aspray et al., 2005) in the context of source and application code of COTS products procured through offshoring. This situation can be improved by introducing MIQ evaluation of subassemblies/assemblies using individually certified COTS products. Recommended methodology could include in-depth research in introducing the concept of MIQ authorization and type approval of the COTS products and the evaluation of the host and the destination companies by an international agency.
(CCI), customer satisfaction rate (CSR), and civil infrastructure status (CIS). These parameters are extremely important to compute cyber trustworthiness of a particular service unit, and to assess how far the unit succeeded in reaching its targets. This approach calls for a technological development and is not possible by merely adhering to standards and/or certification practices like the ISO. The CCI, CSR, and CIS term set has been briefly described next, as elaborate explanations are beyond the scope of this chapter. This methodology is on the lines of TIOBE programming community index, which is updated every month (TIOBE, n.d.). However, unlike TIOBE, the trustworthiness assessment requires online project data collection based on inherent cognitive styles prevailing in offshoring. In order to illustrate a cognition-based approach for such situations, we discuss how rough set theory (RST) can be applied for assessing CCI. Independent agencies should be setup centrally that provide a Web-based portal for these parameters and also provide periodic updates on a regular basis for assessing cyber trustworthiness. The data access to such an e-service must be standardized so that processing of requests for proposals (RFPs) is more effective. •
Establishing Concurrency Control and Security As brought out in the previous sections, there is a strong need to assess the figure of merit from the security point of view for any city-based infrastructure in an outsourcing/outsourced nation where the project is being executed. The infrastructure does not merely refer to the physical hardware/software setup; but also encompasses dynamic parameters like the cyber crime index
328
•
Cyber crime index (CCI): It is the cumulative measure of the various cyber crimes that occur at a particular service unit in a city where the outsourcing infrastructure has been installed and involves inter-nation as well as intra-nation successful illegal attempts that have taken place in the time period of observation. The term illegal attempt is based on a cognitive factor and cannot be determined directly. Customer satisfaction rate (CSR): It determines the percentage-based value of the number of satisfied customers per unit time (this time is the time-period of observation). The CSR value determines the reliability and the serviceability of the infrastructure
Innovative Technological Paradigms for Corporate Offshoring
•
unit. Weekly project progress of the targets as per the PERT chart serves as an important parameter. This value is fuzzy in nature as it is used to plot a membership function of CSR with the help of parameters like satisfied and dissatisfied. Furthermore, hedges like moreorless and very can be applied to these values. This membership curve can be used to determine the efficiency and the effectiveness of a service center unit. Civil infrastructure status (CIS): This is a value that is computed from the join of various other factors like the present population of the city, the administrative status of the city, the present need and urgency of a request, and several such related factors. This factor uses type-II fuzzy sets representation. This is a highly variant quantity and it generally fluctuates with parameters like the current climate/season, the socioeconomic condition of the city, the language and culture of the people, the percentage of academicians in the city, the business base of the city etc. This is a very important value as it determines the usability and accessibility of a service unit for offshoring, and needs to be consulted before investing in a particular location prior to the finalizing of the outsourcing project.
In the context of the previous discussions, when we talk of outsourcing at the most fundamental level, we refer to a collection of operations that form a single logical unit that need to be executed to perform a specified task to fulfill a particular request. This collection of operations is referred to as a transaction. Transaction management (TM) and concurrency control (CC) are thus evolving issues in outsourcing. To support such schemes, technological solutions have to be provided in the form of cognition-based protocols for TM and CC. Some important considerations with regard to TM include atomicity, consistency, isolation, and durability, popularly referred to as
ACID properties. When several transactions take place simultaneously, the isolation property may not necessarily be preserved and to ensure that it holds, a separate CC algorithm must be designed to control the interaction between simultaneous transactions. Serialization of transactions is one such method to establish CC. We can do this by the use of protocol-oriented techniques. Techniques such as lock-based, timestamp-based, graph-based, and validation-based protocols have been previously employed for database systems (Elmasri & Navathe, 2004; Silberschatz, Korth, & Sudarshan, 2002). However, these techniques fail to deliver a good output, as they are not based on the real-life problems. A major limitation of these protocol-oriented solutions is that they have been founded on the grounds of example situations, and they do not by any means address the grass-root reality of outsourcing/offshoring setup, as they cannot take intelligent decisions. In order to develop more practically efficient solutions, we have to move to the soft-computing based options (Kapoor, Patki, & Khurana, 2005). Proposed TM could be implemented using rough set theory (RST) approach, which also supports the powerful concept of information systems (IS). We provide a brief introduction to RST (Pawlak, 1982, 1984) as well as IS in this chapter and then discuss how these can be applied for security and concurrency control.
Information Systems A system that is capable of storing information for archival and reference purposes can be thought of as an IS. It is quite similar to a relational database (Silberschatz et al., 2002) in terms of its physical structuring. The difference lies in the powerful concepts of reduction and abstraction that it uses. It can also perform the task of a decision making system, allowing us to select a few attributes as decision parameters. The attributes can also be classified as relevant and irrelevant.
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Mathematically, an IS is defined as a 4-tuple system (Marek & Pawlak, 1976; Pawlak, 1984) S = {U, D, V, ρ} where • • •
•
U is a non-empty finite set of objects known as the Universe of Discourse; D is a non-empty finite set of attributes or descriptors used to represent the objects; V is the set of values, such that for every a∈D, we associate a set Va, called the domain of attribute a; and ρ is the mapping function such that: ρ : U x D → Va
Rough Set Theory Rough set theory, as the name suggests, is based on the concept of roughness or approximation of the crisp sets. It extends the conventional set theory to include a concept known as an approximation space, which can be defined mathematically as an ordered pair, A = (U, R) where U refers to the universe of discourse, and R refers to a binary relation over U, also called the indiscernibility relation of the IS (Marek et al., 1976; Pawlak, 1984). We assume R to be an equivalence relation, thus broadly classifying R as reflexive, symmetric,
and transitive. Thus, if an ordered pair (x, y) ∈ R, we say that x and y are indiscernible or indistinguishable in A. Equivalence classes of relation R are often called elementary sets or atoms in rough set theory. An empty set (i.e., φ) is assumed to be the elementary set for every A. When the union of elementary sets for a set X is finite, we say that the set X is definable or composed. Essentially, for a quantifiable set X, we can talk of two approximations in general, a lower approximation (LA or A), which refers to the greatest definable set in A of which X is a superset, and an upper approximation (UA orA), which refers to the least definable set in A of which X is a subset. The positive region is the union of the lower approximations (Pawlak, 1982). The boundary of X in A is mathematically the set difference of the upper approximation and the lower approximation. Thus, BND (X) = A – A. Figure 18.2 illustrates these operations. The negative region (or NEG (X)) is the difference between the universe of discourse and the positive region. A set can also be referred to as definable when its LA and UA represent the same set, i.e., when A = A. In all other cases, the set X is said to be undefinable. Undefinable sets in a given approximation space A are of the following four types: •
Roughly definable: When for a given set X, A ≠ φ and A ≠ U
Figure 18.2. Basics of rough sets
BND(X)
POS(X) or A Set (X) Universe of Discourse, U
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• • •
Externally undefinable: When for a given set X, A ≠ φ and A = U Internally undefinable: When for a given set X, A = φ and A ≠ U Totally undefinable: When for a given set X, A = φ and A = U
Example RST can be effectively applied for determining and analyzing the CCI. To find CCI, we need to follow up a given service unit and approximate its illegal activities/attempts. This approximation can be done in a suitable time frame, which depends on the traffic load of that particular unit. In case of a heavy traffic, we can approximate the attempts every half-an-hour; and in case of low traffic, the procedure can be carried out every 12 hours. The approximated results would give us a rough idea of the illegal attempts that are taking place. We can thus formulate two extreme limits, given by the upper and the lower approximations. These limits can be overlapped in a cumulative fashion to gather information about that particular service unit. The number of successful illegal attempts can also be determined. This value however, will not be an approximated value, as the number of crimes that have actually taken place, i.e. the number of successful illegal attempts can be determined finitely. The CCI can then be computed by considering the ratio of these two values. RST can also be applied in case of the security of transactions that are taking place in a service unit on an outsourced enterprise. This is done through the development of an intrusion detection system (IDS) for protection of a networked link (Peng, Yun, Douglas, & Dingbang, 2004). An IDS evaluates suspected intrusions and signals an alarm once a suspected intrusion happens. It also watches for attacks that originate from within the setup. The basic process extracts predictive features from the raw data stream being monitored to produce formatted data that can be used for detection. Following this, a detection model de-
termines whether the data is intrusive. RST based methods for the development of IDS is promising in terms of detection accuracy, requirement of training data set and efficiency. In a classical RST based approach, the new attack records are combined with the original training data, and a process of rule generation is employed. The rules generated are used for detection and analysis of further similar attacks. However, this process is not very practical as the entire existing knowledge base has to be re-examined. To solve this problem, an incremental learning procedure is required to approximate the attacks in a more efficient manner in a real-time environment (and not in a post-mortem style of cyber forensics’ analysis). A rough set based incremental knowledge acquisition algorithm requires that whenever a new attack type or a new variation of attack appears, the rule generation process with the entire training data need not be repeated. The only computation required is that new rules should be generated from the new attack records and these should be used in conjunction with the existing rules. This algorithm has higher speed and recognition rate and can be appropriate for processing huge amounts of data/transactions. Handheld portable gadgets for cyber police patrolling have already been proposed based on the previous ideas (Patki, Patki, Khurana, & Sivasubramanian, 2005).
Limitations of Existing software Practices Offshoring operations are heavily dependent on networked computer systems, making it essential to address software and hardware issues. The existing software practices, their limitations, and the scope for improvements are rarely studied in this context. Methodologies focused on producer/ consumer philosophy for software development, upkeep, and maintenance are no longer adequate for outsourcing as they lack of monitoring flexibility. Outsourcing practices have requirements
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for frequent cognitive interactions. In the absence of technological solutions, retrofit measures in the form of management and administrative directives are adopted. We broadly classify and discuss software issues in order of their immediate significance: operating systems, file systems, database management systems, and computer programming languages.
Issues at the Operating System Level The traditional approaches to OS focus on memory management (paging/segmentation/overlays), process scheduling, multiprocessing environment, and networking (Stallings, 2004). Not only for offshore work assignments, but also in general, OS is considered to be an extension of computer hardware, and as an interface to the users. This has led to an agglomeration of system level calls in OS implementations, to cater to each requirement. The batch processing and multiprogramming oriented approaches need to be modified to support and strengthen outsourcing. In the strictest sense, there is no accepted universal practice for measuring the performance of an OS in an outsourcing environment. On the lines of reduced instruction set computing (RISC) philosophy of microprocessors, OS will have to shed off some of its existing burden onto hardware. Some of the salient points in the context of outsourcing are presented below. •
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Emergence of application specific processor architecture (ASPA) that permits dynamic loading, configuring and remote monitoring of the software environments by the originator on the outsourced contractor’s infrastructure, should be supported by OS. Thus, the concept of information disposal arising out of this will open up issues like weeding of information records (text, graphics, images, video clips, movies, audio
•
sounds, program code—both source and binary executables). Information weeding is different from the delete commands of OS or the data compression methods for storage and retrieval as viewed by cyber forensic professionals. The cognitive aspects of raw data, processed data, raw information, and processed information will gain special significance in outsourcing to overcome today’s data theft problems and associated legislation practices. The conventional approach adopted for servers for different purposes (e.g., application-oriented servers providing ftp, mail, and database will undergo transformations using concept modeler techniques both at hardware/software modules). This will call for generation of information, determining its contents using fuzzy information inference, and processing of partial/imprecise information. Today’s OS shell programming does not permit such constructs. Thus, if we have to execute an iterative loop for few times, there is no context available or created by programming environment to map the fuzzy term few. We have to state the quantity explicitly—loop 100 times. In an outsourced scenario, to avoid misuse of resources (user’s data is also a resource for unscrupulous people as they can misuse or abuse it), resource aware programming support requires to be incorporated for OS shell programming itself, instead of library support since either deliberately or inadvertently, library support can be switched off in an outsource job processing infrastructure.
Issues at the File System and Database Levels Outsourcing at the primary level is data-dependent and calls for efficient information systems, which can endorse search and information mining opera-
Innovative Technological Paradigms for Corporate Offshoring
tions. Traditionally, partial information systems were adopted and configured for outsourcing resulting into situations leading to conflict management (Reifer, 2004). File system organization and databases are linked up and we describe them from the perspective of problems associated with data-theft in outsourcing. We suggest a fuzzy logic-based approach to overcome the existing lacuna. Two mechanisms for file systems have been proposed: 1.
2.
The files can be grouped fuzzily in a dynamic manner according to guidelines inherent to the system installation (or configured by the user), taking into account security policies. Membership function values and fuzzy relations can be computed using following considerations. a. Files open at the same time or in the same session by a single user will be strongly related. b. User as well as system profiles (including privileges) in multi-user systems deployed in BPO installations. c. File extensions and categorization like .cpp, .exe, .jpeg in the case of noncompilatory tasks. The user will specially create types of directories with certain crisp (or fuzzy) attributes for all the files associated with the directory, so that these may be updated dynamically as per the previous principle.
In the existing directory structure, organizational policies may lead to complex access restrictions as well as wastage of disk storage. The present software practices handle such situations and protect information through password-based authorization schemes, which make the system prone to attacks bordering on hacking/password cracking. Generally, there exist fuzzily definable relationships between files like pathological data and medical insurance; hence, a model based on the role theory (Kandel & Lee, 1979) must be employed to handle the complexities. Consider the case of five fuzzily related directories (D1 to D5), having degrees of association ranging from 0 to 1 (membership values), which have been listed in Table 18.1. A degree of association with the value unity indicates self and direct hierarchical subdirectories, while any real value less than unity means informal influence. Similar maps of associations may be generated among the users of the system logged on during a particular session. Such a session must be dynamically updated in accordance to the logging in and logging out of any user. Matrices to map the relationships between (a) directory/subdirectory, (b) directory/user, and (c) group/user are created in the system to analyze the attribute-value domains. Then, with the help of fuzzy equations and recursive matrix operations, the influence of different users on each Figure 18.3. Directory structure for example
Example Consider the directory structure in Figure 18.3. The directory Medical_data_ papers under MrX\Restricted contains laboratory investigations examined by pathologist DrY. Although it is desired that DrY may share rights to access MrX\Restricted\Medical_data_papers, the files under MrX\Restricted\Insurance are not to be shared with DrY.
Root Directory
Mr. X
Dr. Y
Mr. Z
Public Public
Private
Restricted Public
Insurance
Private
Medical_data_ papers
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Table 18.1. Degrees of association amongst various directories D1
D2
D3
D4
D5
D1
1
0
1
0.6
0.9
D2
0
1
0.4
0.2
0.5
D3
0
0
1
0.5
0.4
D4
0.5
0.6
0
1
0.1
D5
0.8
0.4
0
0.7
1
other as well as influence of different directories on the users and system is computed. The time and date of creation in fuzzy format will enable processes to make inferences by considering hedges regarding the file being new, very new, old, moreorless old, etc. This is useful for detecting tampering of files and assessing the damage due to unauthorized access using fuzzy role theory (Kandel et al., 1979). Unlike the text-oriented databases of the current decade, future information systems would primarily use multimedia and non-multimedia databases. The current efforts in the multimedia databases have been restricted to audio, video, and textual stimuli. In order to give them true power of expression, a concept mapping system needs to be viewed as a core, instead of considering these objects merely as collection of symbols, bitmaps, or audio signals. With provision for open ended queries comprising of textual and an ordered group/ring/field-based composition of audio/image/video clippings as language symbols displayed on the small screen of an optical keyboard (Bandyopadhyay, 1997), multimedia database systems can play a significant role in providing information for the masses (Bandyopadhyay, 1996). It is envisaged that for building large-scope information systems using outsourcing methodology, the data entry, query, and retrieval nodes would naturally be distributed. The data in the form of textual reports, audio/video clippings, and images arriving in all these information reservoir nodes would be un-modeled raw data.
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The existing password-protected schema view methods of SQL/DBMS environments can be modified to incorporate encryption and decryption methodologies operative through ASPA for sensitive data. Software tools would be required to analyze and aid modeling using raw data for concept generation.
Programming Language Considerations The conventional programming languages from the era of FORTRAN/LISP to the present day C/C++/Java are based on the following building blocks: • • • •
Iterative statements ( for loop, do loop). Conditional and non-conditional executions (If-then-else, Goto). Recursion oriented structures (Stack oriented). Assignments with associated enhancements (i= i +1, c+= 5).
A need for an effective programming medium in place of a programming language was sensed while examining various issues of information banking related activities in the development phases for SIIIS (Sivasubramanian & Patki, 1996) and FUZOS© (Patki et al, 1997). We discuss the programming medium approach, which encompasses programming languages as one of the building blocks around which other modules
Innovative Technological Paradigms for Corporate Offshoring
for monitoring information disposal, fraudulent attempts, resource aware, and context-based data collections are dynamically configured. In order to facilitate ASPA to load instruction set modules to improve trustworthiness of outsourcing projects, object-oriented programming systems (OOPS) need to include synthesis support. The existing programming languages are more in the form of large suite of tools (with associated integrated development environment IDE), which support algorithmic methodology constructs like iterative loops, multiple branch (switch-case), and conditional controls (if-then-else). These languages emphasize algorithmic programming using an iterative philosophy instead of design using synthesis approach. At present, the existing programming languages used in information systems design do not support synthesis constructs prevailing in the hardware engineering design practice like VHDL for digital VLSI circuit design. This calls for introducing basic primitive modifications at object-oriented programming languages. Ruby programming language has attempted to bring programming closer to the application space of the user (Thomas, Fowler, & Hunt, 2004). Ruby’s object-oriented features are designed to add an instance during runtime, allowing this instance of a class to behave differently from the other instances of the same class. This feature is useful in combination with ASPA loaded partial instruction set to monitor security concerns and prohibit data thefts in real time environment at outsourcing infrastructure. However, Ruby does not address features required for outsourcing. In order to address issues ranging from sharing code development across the globe to asynchronous interactions amongst developers and/or supervisors, it is essential to deploy cognition-based algorithms. We illustrate a case of document support in programming language for outsourcing environment. The debugger and documentation capabilities of object-oriented programming languages (e.g., Java) are not much useful after the software-
testing phase is over. Program understanding and documentation, which is useful for software designers, code developers, and testing personnel keeps the end-user out of loop. This bottleneck leads to conflict creation, which should be avoided (Reifer, 2004). The information retrieval and documentation approaches in the past had been traditionally configured for isolated activity and had never been considered for a group activity like outsourcing. The scope for utilizing document features is very limited in the software maintenance and practically no scope exists for its usage by the end users who use such software at their computer installations. We should concentrate on group performance in the outsourcing environment (Damian & Eberlein, 2000). Since existing documentation is not tailored for multiple perspectives, there is no provision to configure the documentation application module on a user selection basis. An end user in an outsourcing scenario rarely uses the software documentation supplied with the systems since it does not provide any cognitive assistance. Thus, OOPS should provide application semantic support on documentation so that cognitive assistance is provided individually to every category of user community consisting of management controllers, cyber forensic analysts, security supervisors, and client managers. Thus, existing broadcasting modes of documentation should be replaced by an interactive category-specific mode for users. Intelligent software agents can help to simulate such studies. Support documentation for outsourcing infrastructure should answer cognitive queries and not function as help menus or FAQs. The text analysis orientation in traditional documentation retrieval leads to the situation that two words with same underlying meaning/stem refer to the same concept for indexing, e.g. neutron and neutralize. The index terms that are derived from the text of the document use pre-coordinate or post-coordinate principles. The controversy about index language for document retrieving (Farradane, Russell, & Yates-Mercer,
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Innovative Technological Paradigms for Corporate Offshoring
1973) is primarily due to text analysis approaches adopted and can be overcome using synthesis principle. Conventional documentation retrieval techniques do not address mid-operation support and the scope of fuzzy logic and rough set techniques is promising (Bandyopadhyay, 1996; Goguen, & Lin Kai, 2000). A fuzzy logic-oriented documentation support system for programming language that will permit offshoring community to develop a dynamic view of the same output from multiple perspectives like software code obfuscation, trustworthy computing, and forensic examinations to improve the overall group performance has been proposed (Patki & Khurana, 2006). By using the lower and upper approximation techniques of rough set theory, along with fuzzy relational data view, different projections of the same information are feasible for different information consumers (Kapoor et al., 2005). This capability is a must for efficient outsourcing to restrict and partially overcome the data thefts and similar problems.
Multiplexing of BPO Infrastructure At present, BPO infrastructure is being used in absolute terms with respect to the consumer community. There is a need to think on the lines of relative BPO houses where scheduling of jobs is carried out in a manner corresponding to the demands as well as the feedback of the user. Multiplexing of infrastructure on the basis of geographical locations to provide and serve a larger user community to the fullest extent is a novel idea. Such a scheme may use a three-schema architecture at the grass root level, comprising of a physical (internal) schema, a conceptual (logical) schema, and an application (external) schema. This architecture will aid the development of secure systems and will thus revolutionalize
336
the concept of data protection and safe transfer. The OSI reference model for the TCP/IP network protocol can be extended to accommodate such multiplexed BPOs. Resource allocation should be carried out using platform independent integrated development environment (IDE). This will also cater to the increasing traffic through the network at the peak hours due to the availability of efficient resources, resulting into the optimal utilization of the BPO infrastructure. In order to provide a makeshift arrangement to incorporate concept modeling as per the client requirements, we introduce the concept of an inter-dialoguing processor (IDP). The IDP infrastructure could be based on a simple microcomputer, which takes in machine level inputs (instructions as well as data packets). The IDP acts as a transfer-establishing a resource link between the service center and the customer interface array dynamically. The main task of the IDP is to merge and route the traffic of the N service centers via a single transfer path to the customer interface array, which is responsible for interactions with the actual customer. The CCI value is computed for each service center. This value is used for handling the security issues. At the IDP level, the CIS value is calculated. The customer interface array uses the CIS value for routing information to various customers. It is also responsible for finding the CSR with the help of user feedback. Such an arrangement is depicted in Figure 18.4. The arrangement shown here is very fundamental in nature and is not necessarily a final solution to the multiplexing concept. It can however be used as a makeshift pattern in this transient phase of offshoring. Since some special customized hardware needed for such a system is not yet available, this section of the chapter may be considered as a precursor. Refinements of this design are expected. We discuss fuzzy logic-based algorithm for BPO multiplexing in the following subsection.
Innovative Technological Paradigms for Corporate Offshoring
Figure 18.4. Multiplexing architecture SC 2
SC 1 Network link 1
SC N
Network link 2
Network link N
IDP 1 (N:1 MUX, 1:N Demux) Information Transfer
CCI Det. Level
CIS Det. Level
User Feedback (CSR)
Customer Interface Array Legend: 1. 2. 3. 4. 5
Algorithmic Steps for BPO Multiplexing 1.
2.
3.
4.
Create a global FMAP of service centers available to the customers, mapping customers to the multiplexed infrastructure based on the membership function value. FMAP is a resource relation that allows customers to determine which service center stores or caches which files. The structure of a typical FMAP is given in Table 18.2 where customer interface array (CIA) index of Figure 18.4 is used. Manage metadata through proxy servers that reference the locations where data blocks of different files are placed in an encrypted format. Maintain a cache block so that some permitted, registered requests can be handled without accessing the machine disks and resources directly. Maintain cache consistency metadata (i.e., version information so that no writes can be done on obsolete data) however, read requests for this data are permitted.
SC: Service Center IDP: Inter-Dialouging Processor CCI Det. Level: Cyber Crime Index Determination Level (Misuse/Abuse) CIS Det. Level: Civil Infrastructure Status Determination Level CSR: Customer Satisfaction Rate
The control-system-managing module of inter-dialoguing processor (IDP) of BPO multiplexer acts as a load balancer and changes the FMAP by increasing the membership value of lesser-used BPO infrastructure machines and reducing those of heavily loaded machines. This representation and replication (FMAP is globally replicated and present in different machines with different entries) of FMAP enables the customers to be serviced with minimum number of network hops using BPO multiplexing, by taking into account parameters like link speed, bandwidth, and load status when assigning membership values in the FMAP. This helps in preventing network congestion. As and when a new machine joins the multiplexing infrastructure, the FMAP of the closest link is read, and the system-updating module of IDP modifies its own map accordingly. Updating of FMAPs takes place synchronously. The system can also be expanded using multiple fuzzy variables like distance between client and BPO, cyber trustworthiness, and cost factor to provide other advantages. Such an approach helps in reducing the cognitive load. It is important to observe that the conventional von Neumann
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Innovative Technological Paradigms for Corporate Offshoring
Table 18.2. Fuzzy control for BPO multiplexing CIA Index
Service Center I
Service Center II
0X00
0.5
0.9
0
0X01
1
0
0.1
….
..
..
0XFF
0
0
architecture is not efficient for handling fuzzy logic processing and IDP can be only simulated in software environment for demonstrating the effectiveness. ASPA based instruction sets can be introduced for modeling such a system. Instead of general-purpose processors, digital fuzzy hardware is required for acceptable real-time performance. In the absence of such dedicated fuzzy hardware, either the limited scaled down software solutions will be used or the approach may be abandoned altogether, as it requires very high fuzzy inference speeds (Alag et al., 1996; Hung, 1995; Patki 1996; Watanabe, 1991).
Conclusion In the past, computing technologies were framed by developed nations and were deployed domestically as well as internationally. This view of technology producers and consumers must be understood in the context of offshoring by integrating consumer experiences rigorously. Data collected at the outsourced infrastructure destinations will be a useful technology driving parameter. This is now feasible as many MNCs have set up their own infrastructure units in various countries, which are routinely undertaking outsourcing work. Thus, the trend will focus on the transformation of human resources, ethics, practices, and motivations into software intelligent agents involving cognitive processing. The present practice of isolated country specific solutions
338
…
..
Service Center N
.. 0.5
needs to be replaced with global initiative, as outsourcing is emerging as new trade and commerce vehicle for world economic growth. The exploratory and development work carried so far has validated the initial assumption that better integration using MIQ approach at hardware and software module level along with the multiplexing of BPO infrastructure is central to the next generation offshoring technology. Soft computing techniques such as the fuzzy logic and the rough set theory are vital to the expansion of such ideas. The recent announcement of the National Science Foundation of planning an effort to fundamentally re-engineer the Internet and overcome it’s shortcomings, and thus creating a network more suited to the computerized world of the next decade, indicates the willingness to redesign the net for future. The technological paradigms suggested in this chapter can be thought of as a stepping-stone in this direction.
Acknowledgment Authors wish to acknowledge their discussions with industry representatives, academic community, and government policy makers. The experimental work undertaken by various students has been the driving force to consolidate the issues to face the challenges of outsourcing technological revolution. Interactions with Mr. Mahesh Kulkarni, Group Coordinator, Center for Development of Advanced Computing (CDAC),
Innovative Technological Paradigms for Corporate Offshoring
Pune and Mr. S. Sivasubramanian, Scientist-E, Department of Information Technology, New Delhi, have been enlightening. Suggestions from editors have been useful in shaping the chapter effectively.
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This work was previously published in Journal of Electronic Commerce in Organizations, Vol. 5, Issue 2, edited by M. KhosrowPour, pp. 57-76, copyright 2007 by IGI Publishing, formerly known as Idea Group Publishing (an imprint of IGI Global).
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Chapter XIX
Leveraging Knowledge Reuse and System Agility in the Outsourcing Era Igor Crk University of Arizona, USA Dane Sorensen Raytheon Missile Systems, USA Amit Mitra TCS Global Consulting Practice, USA
Abstract Collaborative work groups that span multiple locations and time zones, or “follow the sun,” create a growing demand for creating new technologies and methodologies that enable traditional spatial and temporal separations to be surmounted in an effective and productive manner. The hurdles faced by members of such virtual teams are in three key areas: differences in concepts and terminologies used by the different teams; differences in understanding the problem domain under consideration; and differences in training, knowledge, and skills that exist across the teams. These reasons provide some of the basis for the delineation of new architectural approaches that can normalize knowledge and provide reusable artifacts in a knowledge repository.
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Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Introduction The increasing prevalence of collaborative work groups that span multiple locations and time zones create a growing demand for creating new technologies and methodologies that can enable traditional spatial and temporal separations to be surmounted in an effective and productive manner. In the specific case of information technology (IT), more than 380,000 professionals are currently focused exclusively on export-oriented activities (Aggarwal & Pandey, 2004). The hurdles faced by members of such virtual teams are in three key areas: (1) differences in concepts and terminologies used by the different teams; (2) differences in understanding the problem domain under consideration; and (3) differences in training, knowledge, and skills that exist across the teams (Chang, Dillon, Sommerville, & Wongthongtham, 2006). These reasons provide some of the basis for the delineation of new architectural approaches that can normalize knowledge and provide reusable artifacts in a knowledge repository. This chapter focuses on the issue of providing information systems agility, especially when the work is outsourced from one country (or company) to another or as the work is performed in multiple countries using a hybrid offshoring model such as the 24-Hour Knowledge Factory concept (Gupta, Seshasai, Mukherji, & Ganguly, 2007). This chapter also deals with the issue of creating an evolving knowledge repository that can be used when systems need to be redesigned or reimplemented.
Related Work The object management group (OMG) is actively involved in the creation of a heterogeneous distributed object standard. In a departure from modeling standards, such as the common object request broker architecture (CORBA) and the related data distribution service (DDS), OMG
moved towards the unified modeling language (UML) and the related standards of meta-object facility (MOF), XML data interchange (XMI), and query views transformation (QVT). The latter standards provide a foundation for the model drive architecture (MDA). In an effort to bring UML and the Semantic Web together, OMG is leading progress toward the ontology definition metamodel. More specifically, MDA, as related to software engineering, composes a set of guidelines for creating specifications structured as models. In MDA, the functionality is defined using a platform-independent model with a domain-specific language. The domain specific language definition can be translated into platform-specific models by use of a platform definition model (PDM). The ontology definition metamodel is an OMG specification that links common logic and OWL/ RDF ontologies with MDA. Common logic being an ISO standard for facilitating the exchange of knowledge and information in computer-based systems, and resource description framework (RDF) and Web ontology language (OWL) being the latest examples of framework and related markup languages for describing resources authored by the World Wide Web Consortium (W3C). OMG and W3C standards are available online at omg. org and w3.org, respectively. The notion of reuse of knowledge has been previously explored with respect to organizational memory systems. Markus (2001) identified distinct situations in which reuse arose according to the purpose of knowledge reuse and parties involved. The knowledge reuse situations exist among producers who reuse their own knowledge, those who share knowledge, novices seeking expert knowledge, and secondary knowledge miners. The solutions to the problems of meeting the requirements of knowledge storage or retrieval were presented as a combination of incentives and intermediaries. In the context of allocation of IT resources, O’Leary (2001) conducted a case study of a
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knowledge management system of a professional service firm concluding that service-wise requirements for knowledge reuse should impact the design of knowledge systems. For example, the studied firm contained three primary service lines: tax, consulting, and audit. Differential reuse, stemming from the relatively low reuse in the consulting service line to high reuse in the tax line, leads to a particular allocation of knowledge bases, software, hardware, and network resources. O’Leary’s paper supports earlier work by Vanwelkenhuysen and Mizoguchi (1995), which showed that knowledge reuse has depended on organizational aspects of knowledge systems. Their work suggested dimensions along which ontologies for knowledge reuse may be built, based on workplace-adapted behaviors. The concept of knowledge reuse and agility is especially relevant to “follow the sun” models, similar in spirit to the 24-Hour Knowledge Factory, and have been attempted by others. Carmel (1999, pp. 27-32) describes one such project at IBM. In this project, IBM established several offshore centers in a hub-and-spoke model where the Seattle office acted as the hub. Each offshored site was staffed by a phalanx, a mix of skill sets that were replicated across each spoke. Work would be handed out by the Seattle hub; each spoke would accomplish the given task and send the results back to Seattle. This hub-and-spoke model necessitates specialization of the Seattle site. With only one site offering the specialized service, the Seattle site quickly became overwhelmed. The original goal of daily code drops could not be maintained. Treinen and Miller-Frost (2006) highlight several lessons learned that are echoed in other studies, particularly problems with continuity, misunderstanding and the lag time between cycles of conversation. Cultural differences are also cited as being problematic, especially with respect to various assumptions that were held in lieu of well specified requirements and planning.
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Perhaps the most relevant study in respect to the 24-Hour Knowledge Factory, Follow the Sun: Distributed Extreme Programming Development (Yap, 2005) describes a globally distributed, round-the-clock software development project. Here, a programming team was distributed across three sites (United States, United Kingdom, and Asia). One of the three sites had prior knowledge of extreme programming. The two remaining sites were coached on extreme programming practices prior to the collaboration. These two sites believed that the first site had an advantage due to its previous knowledge with extreme programming. Individuals from the three sites also met in person, which helped to build confidence about the capabilities of the members of other sites. The team used virtual network computing (VNC) and video conferencing to facilitate communication. Hand-off of project artifacts initially consisted of a daily work summary, but later grew to include knowledge learned and new objectives. Xiaohu, Bin, Zhijun, and Maddineni (2004) discussed the situation where development teams were dispersed globally, though it seemed that each global unit was still responsible for its own module of the project. The teams did not need to discuss development decisions with each other unless they were related to interfacing or would affect another team. They used the extreme programming method, but because of the global dispersal of teams, they lacked the benefits of customer colocation and participation. They thought the inability to get rapid customer feedback when the customer was in a different location adversely impacted the development of the product and the development time. These issues could easily impact development in a 24-Hour Knowledge Factory setting because customers in one location would thus not be able to interact with all sites. The above examples highlight the need for an agile knowledge ontology that can more adequately manage the problem of change.
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bly language. As such, assembly language is not portable and does not increase flexibility, but it does provide the essential abstractions that free the programmer from the tedium of remembering numeric codes or calculating addresses (as was the case when programming was accomplished through machine code). An assembly language is an example of a second-generation language. Third generation languages, denoted by 3GL in Figure 19.1, finally freed the task of programming from the underlying hardware. This is a much overlooked, but crucial, example of adapting technology to find a solution to the problem of change. The more recent notion of component-based development (CBD) involves building software systems using prepackaged software components (Ravichandran, 2005). CBD involves reusing application frameworks, which provide the architecture for assembling components into a software system. Components and frameworks may be either developed in-house or externally procured. CBD typically involves using both inhouse developed and externally procured software components and frameworks. CBD leverages the emergence of middleware and software objects standards to make software reuse a reality (Ravichandran, 2005). Since CBD encourages the move toward more modular systems built from reusable software artifacts, it was expected to enhance the adaptability, scalability, and maintainability of the resultant software (Szyperski, 1997). CBD requires systems to be architected using a component framework necessitating developers to think through the interrelationships between
Agility and the Problem of Change Change is difficult, complex, and risky because it usually has unintended side effects. Each decision has many consequences, which in turn have many more. The Y2K problem is a classic example of a seemingly innocuous design decision that snowballed into a worldwide problem. The decision to use a 2-digit representation of the year was originally deemed to be prudent. Later, it was thought to be a problem that would cripple computer systems when their clocks rolled over into the year 2000, since 00 is ambiguous. Ultimately, it cost the world around $600 billion (López-Bassols, 1998) to convert a 2-digit representation of the calendar year to four digits!
Fundamental Computing Technologies Figure 19.1 shows the evolution of computing technology as researchers sought to tackle the problem of change and to remain agile though increasingly more complex demands are placed upon the technology. At the far left end of the spectrum lies hardware, originally physically and meticulously programmed to perform relatively simple tasks. Machine code replaced the physical machine programming by the formulation of CPU-specific words, bit patterns corresponding to different commands that can be issued to the machine. Each type of CPU has its own machine code. Similarly, the CPU architecture has a corresponding assemFigure 19.1.
Increasing Flexibility and Abstraction Hardware
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various elements of an application system at a more granular level at an earlier stage in the development process than in traditional development approaches (Sparling, 2000).
sential capabilities. The ideas of encapsulation of functionality and the standardization of system interfaces inherent in System/360 are critical to understanding the importance of leveraging and reuse of knowledge.
IBM’s System/360: The Beginnings of Agile Development A good example of a business transformation tackling the issues of agility and change through modularity is provided by IBM’s System/360 (Amdahl & Blaauw, 2000) in the 1960s (Baldwin & Clark, 2000). The hardwired instruction sets of virtually all computers in the 1950s imposed a high level of interdependence of design parameters. Each computer was designed from scratch and each market niche was matched with a different system. Searching for new ways for teams to work together on a project, IBM led the effort to use modularity as a guiding principle. System/360 was the result of that effort. Further, System/360 marks the point at which the industry was transformed from a virtual monopoly to a modular cluster comprised of more than a thousand publicly traded firms and many startups (Fergusson, 2004). What makes System/360 an important landmark in the agility effort is that it belongs to the first family of computers that was designed with a clear distinction between architecture and implementation. The architecture of each model in the 360 family was introduced as an industry standard, while the system peripherals, such as disk drives, magnetic tape drives, or communication interfaces allowed the customer to configure the system by selecting from this list. With the standardization of the architecture and peripheral interfaces, IBM opened the doors for the commodity component market. With its list of peripherals, System/360 allowed the technology to adapt to a customer’s needs. Its backward compatibility tackled the problem of change in its own right, by allowing customers to upgrade and replace their hardware without losing es-
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Business Rules and the Structure of Information Just as was the case with early computer technology decades ago, prior to 3GL in our first example and System/360 in the second, today’s business rules are replicated in dissimilar formats in intermingled ways in multiple information systems and business processes. When any rule is changed, a concerted effort must be launched to make modifications in multiple systems. It makes change and innovation complex and error-prone. The framework described in this chapter attempts to untangle business rules with an ontology derived from the inherent structure of information. By untangling business rules even in complex legacy models and systems, one gains the capability to represent specific elements of business knowledge once, and only once, in a knowledge repository. Using this repository, the specific elements of knowledge can be designed to naturally manifest themselves, in appropriate forms, to suit the idiosyncrasies of different business contexts. As business processes became more tightly coupled with automation, the lack of agility in information systems became a serious bottleneck to product and process innovation. Frameworks that have attempted to solve this problem include structured programming, reusable code libraries, relational databases, expert systems, object technology, CASE tools, code generators and CAPE tools. They were not very effective partially because they did not adequately address the ripple effects of change; ideally, business rules and knowledge should be represented so that when we change a rule once, corresponding changes
Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
should automatically ripple across all the relevant business processes (Mitra & Gupta, 2006). Knowledge transfer and reuse (Kingston 2002; Myopolous 1998; Van Zyl & Corbett, 2000) attain greater importance in the case of outsourcing. In order to achieve efficiency of resource consumption, we need new approaches to facilitate encapsulation of knowledge and the sharing of such knowledge among the relevant set of workers.
The Framework of Knowledge Reuse While meaning and understanding are abstract notions, they are rooted in the physical world. We learned in chemistry that we can continually subdivide a substance before reaching a building block, the subdivision of which would disallow us from identifying the substance and knowing its properties. Similarly, to identify the components of knowledge, we must distinguish between assertions whose division will involve no loss of information, and assertions whose division will sacrifice meaning, i.e., if an assertion is decomposed into smaller parts and the information lost cannot be recovered by reassembling the pieces. The fundamental rules that cannot be decomposed further without irrecoverable loss of information are called indivisible rules, atomic rules, or irreducible facts (Ross, 1997).
Objects, Relationships, Processes, Events, and Patterns In the real world, every object conveys information. The information content of physical objects is conveyed to us via one or more of our five senses. Objects are associated with one another. While some associations involve the passage of time, other associations, such as the relative locations of physical objects, are relationships that do not necessarily involve time. These relationships and
associations are natural storehouses of information about real world objects. Further, these relationships are objects in their own right. Processes are artifacts for expressing information about relationships that involve the passage of time (i.e., those that involve before and after effects). As such, the process is not only an association but also an association that describes a causative temporal sequence and passage of time. This is also how the meaning of causality is born: The resources and the processes that create the product are its causes. A process always makes a change or seeks information. Business process engineers use the term cycle time to describe the time interval from the beginning of a process to its end. A process, like the event it is derived from, can even be instantaneous or may continue on indefinitely. Processes that do not end, or have no known end, are called sagas. Therefore, a process is a relationship, and also an event, which may be of finite, negligible, or endless duration. Knowledge involves the recognition of patterns. Patterns involve structure, the concept of similarity, and the ability to distinguish between the components that form a pattern. Claude Shannon developed a quantitative measure for information content (Shannon, 1948). However, he did not describe the structure of information. For that, we must start with the concept and fundamental structure of Pattern and measurability in order to build a metamodel of knowledge. The integrated metamodel model of Pattern and measurability (from which the concept of “property” emerges) will enable us to integrate the three components that comprise business knowledge (inference, rules, and processes) into one indivisible whole. The interplay between objects and processes is driven by patterns. Patterns guide the creation of relationships between objects, such as the formation of a team or the modular assignment of duties within a team and across geographically distributed teams. Partnering Employee belonging to one team with that of another is caused by a skill or performance pattern that governs the
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relevant properties of Employee. As such, the ownership of an artifact under development is shared between Employee objects, which, at a coarser granularity, exist as a unified object we can refer to as a Composite Persona (CP) (Denny et al., 2008).
Perception and Information: Meaning, Measurability, and Format When an object is a meaning, it is an abstract pattern of information. Its perception is a concrete expression of this meaning, and the same information may be perceived or expressed in many ways. Lacking perceptual information, several expressions or perceptions may all point to the same pattern of information, or meaning. In order to normalize knowledge, we must separate meaning from its expression. This may be done by augmenting our metamodel to represent entities of pure information that exist beyond physical objects and relationships. This section will introduce three of these objects: domain, unit of measure (UOM), and Format. Unlike matter or energy, meaning is not located at a particular point in space and time; only its expression is (Verdu, 1998). All physical objects or energy manifested at a particular place at a point in time convey information, and the same meaning can occur in two different artifacts that have no spatial or temporal relationship with each other. They only share meaning (i.e., information content; Baggot, 1992). A single meaning may be characterized by multiple expressions. Differing understandings of concepts, terminology, and definitions are some of the problems that have characterize software developers working in a multisite environment (Chang et al., 2006). Unlike a specific material object or a packet of energy that is bound to only a single location at a single point in time, identical information can exist at many different places at several different times. The need to understand the underlying natural structures that connect information to its
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physical expressions is inherent in the effort to normalize business rules. Information mediation and expression within the real world is achieved by two metaobjects. One is intangible, emerging from the concept of measurability and deals with the amount of information that is inherent in the meaning being conveyed. The other is tangible; it deals with the format, or physical form, of expression. The format is easier to recognize. It is much harder to recognize the domain of measurability, henceforth referred to simply as domain (Finkbeiner, 1966).
Measurability and Information Content Through the behavior, or properties, of objects we observe, the information content of reality manifests itself to us. Although these are quite dissimilar qualities of inherently dissimilar objects, such as a person’s weight and the volume of juice, both these values are drawn from a domain of information that contains some common behavior. This common behavior, that each value can be quantitatively measured, is inherent in the information being conveyed by the measurement of these values, but not in the objects themselves.
Physical Expression of Domains Domains convey the concepts of measurability and existence. They are a key constituent of knowledge. There are four fundamental domains that we will consider in this chapter; two of them convey qualitative information and the other two convey quantitative information, as follows: •
Qualitative domains, containing: Nominal Domains, which convey no information on sequencing, distances, or ratios. They convey only distinctions, distinguishing one object from another or a class from another.
Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Ordinal domains, which convey distinctions between objects and the information on arranging its members in a sequence. Ordinal domains are a pattern of information derived from nominal domains by adding sequencing information. However, ordinal domains posses no information regarding the magnitudes of gaps or ratios between objects (values). Quantitative domains: Difference-scaled domains not only express all the information that qualitative domains convey, but also convey magnitudes of difference; they allow for measurement of the magnitude of point-to-point differences in a sequence. This makes difference-scaled domains to be a pattern of information derived from ordinal domains by adding quantitative information on differences between values in the domain, which makes it a subclass of ordinal domains in the ontology of the meaning of measurability. Ratio-scaled domains perform three functions; they assist in the classification and arrangement of objects in a natural sequence, are able to measure the magnitude of differences in properties of objects, and take the ratios of these different properties.
•
The hierarchy of domains provides the most fundamental kind of knowledge reuse. However, this information is still abstract. In order to give information a physical expression, it must be physically formatted and recorded on some sort of medium. A single piece of information must be recorded on at least one medium, and may be recorded in many different formats. A symbol is sufficient to physically represent the information conveyed by nominal and ordinal domains. Of course, ordinal domains also carry
sequencing information, and it would make sense to map ordinal values to a naturally sequenced set of symbols like digits or letters. Unlike qualitative domains, quantitative domains need both symbols and units of measure to physically express all the information they carry. This is because they are dense domains (i.e., given a pair of values, regardless of how close they are to each other, it is always possible to find a value in between them). A discrete set of symbols cannot convey all the information in a quantitative domain. However, numbers have this characteristic of being dense. Therefore, it is possible to map values in a dense domain to an arbitrary set of numbers without losing information. These numbers may then be represented by physical symbols such as decimal digits, roman numerals, or binary or octal numbers. There may be many different mappings between values and numbers. For example, age may be expressed in months, years, or days; a person’s age will be the same regardless of the number used. To show that different numbers may express the same meaning, we need a unit of measure (UOM). The UOM is the name of the specific map used to express that meaning. Age in years, days, months, and hours are all different UOMs for the elapsed time domain. Both the number and UOM must be physically represented by a symbol to physically format the information in a quantitative domain. Indeed, a UOM may be represented by several different symbols. The UOM “dollars,” for the money domain, may be represented by the symbol “$” or the text “USD.” In general, a dense domain needs a pair of symbols to fully represent the information in it: a symbol for the UOM and a symbol for the number mapped to a value. We will call this pair the full format of the domain. Domains, UOMs, and Formats are all objects that structure meaning. They are some of the components from which the very concept of knowledge is assembled. The metamodel of knowledge is a model of the meaning of knowledge built from abstract components. 349
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Figure 19.2 depicts a semantic model. The lower limit (1) on the occurrence of Unit of Measure highlights the fact that each quantitative domain must possess at least one unit of measure. This is because the unit of measure is not optional. A quantitative value cannot be expressed unless a unit of measure can characterize it. The arrow that starts from, and loops back to, Unit of Measure reads “Unit of Measure converts to none or at most 1 Unit of Measure.” Conversion rules, such as those for currency conversion or distance conversion, reside in the Metamodel of Knowledge. This relationship provides another example of a metaobject (since relationships are objects too), and demonstrates how a metaobject can facilitate the storage of the full set of conversion rules at a single place. The conversion rule is restricted to conversion from one UOM to only one other UOM; this constraint is necessary to avoid redundancy and to normalize information. A single conversion
rule enables navigation from one UOM to any other arbitrary UOM, by following a daisy chain of conversion rules. The upper bound of one on the conversion relationship in the metamodel also implies that if you add a new UOM to a domain, you have to add only a single conversion rule to convert to any of the other UOMs, and that such information will suffice to enable conversion to every UOM defined for that domain.
Metaobjects, Subtypes, and Inheritance Metaobjects help to normalize real world behavior by normalizing the irreducible facts we discussed earlier. The metaobjects that of interest are object, property, relationship, process, event, domain, unit of measure (UOM), and format. The kinds of atomic rules normalized by each type of metaobject are summarized in Figure 19.3.
Figure 19.2. A partial metamodel of domain Domain
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is expressed by 1 or many
is expressed by 1 or many
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is expressed by 1 or many
Unit of Measure convert to 0 or 1
Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
The ontology in Figure 19.3 organizes objects in a hierarchy of meaning. Lower level objects in the ontology are derived from objects at higher levels by adding information. Figure 19.3 shows that the meaning of process is configured by combining the meanings of relationship, an interaction between objects, with the meaning of event, the flow of time. This kind of relationship is special. It is called a subtyping relationship and forms the basis of the ontology. Subtyping relationships convey information from higher levels to lower levels of an ontology. The lower level object becomes a special kind of higher level object. Figure 19.3 shows that ratio scaled domain is a special kind of domain because of the chain of subtyping relationships that lead from Domain to ratio scaled domain via quantitative domain.
natural repositories of knowledge. They provide the basis of real world meaning. Just as molecules react with molecules in chemical reactions to produce molecules of new substances with different properties from the original reagents, atomic rules may be built from other atomic rules. As we enhance our business positions with product and process innovation, some atomic rules will be reused. These rules are examples of those that can act as reusable components of knowledge. In order to build specialized domains of knowledge, entire structures and configurations may be reused. This is similar to manufacturers creating reusable subassemblies to build machines from ordinary parts. The end product may incorporate many versions and modifications of these reusable subassemblies.
The Repository of Meaning
24HrKF: A Practical Application of Knowledge Reuse
The atomic rule is the most basic building block of knowledge and the ultimate repository of information. It is a rule that cannot be broken into smaller, simpler parts without losing some of its meaning. The metaobjects of Figure 3 are the
Suchan and Hayzak (2001) found that a semantically rich database was useful in creating a shared language and mental models. MultiMind is a collaboration tool under development at the
Figure 19.3. Basic inventory of metaobjects
Object
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} }
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University of Arizona (Denny et al., 2008), aimed at improving upon DiCE (Vin, Chen, & Barzilai, 1993) and other collaborative engineering tools. A Lifestream database (Freeman & Gelernter, 1996), is a chronologically ordered persistent database, used to collect objects and events relevant to a project. Lifestream incorporates an algebra that can be coupled to the semantics of project artifacts and knowledge events, allowing substantial opportunity for the automation of mundane tasks and higher level functions. In MultiMind, the Lifestream archives project artifacts and provides configuration management services, in a similar fashion as the Concurrent Versioning System (CVS) or Subversion (SVN) revision control system. In MultiMind, knowledge events are observed and logged into Lifestream. Activities such as reading a message, posting a message, executing a search, or reading a web page, are logged into LifeStream. The correlation of knowledge events with the evolution of project artifacts allows for the reuse of relevant knowledge between members of a development team. Communication is facilitated by the encapsulation of knowledge as objects which represent interactions with the development environment. Higher level tasks, such as the visualization of the current state of a project under development or decision facilitation can also be automated. Through MultiMind and its underlying LifeStream, information regarding artifacts and project progress can easily be visualized, identifying the artifacts which required the most maintenance or debugging. This visualization can be used as a guide for business decisions, when queries to MultiMind are filtered to visualize information relevant to a decision.
An Architecture of Knowledge Information systems are built to satisfy business requirements. Sometimes they are undertaken
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to implement purely technical changes (Smith & Fingar, 2002). Poorly formulated and ill-managed requirements have led to many of the problems that Information Systems projects currently face (Bahill, & Dean, 1999). Our first task, therefore, is to understand the meaning and structure of requirements. Requirements flow from knowledge. Knowledge is encapsulated in configurations of atomic rules. Knowledge of Information Systems involves configurations of (atomic) rules of business as well as technology. A four-layered hierarchical approach can be used, as depicted in Figure 19.4. Table 19.1 contains brief descriptions of each layer of the architecture of business knowledge, examples of the kinds of policies that may be implemented at the layer, as well as examples of change that may occur in that layer along with examples of the effects of change within a particular layer. The top business layer helps to assemble components of knowledge into business concepts, such as products, services, markets, regulations, and business practices. Consider a situation where a telephone services provider wishes to integrate cable TV and entertainment media into its business. Such changes in the Business Rules layer will impact business functions and systems functionality, whereas changes to process automation layers alone will impact only availability, timeliness, accuracy, reliability, and presentation of information. Changes in business process automation, in turn, can impose new requirements for performance, reliability and accuracy on technology platforms, which will impact the technology layer. The level of Business Process Automation is usually changed to leverage information technology or to focus on those processes that create most value while eliminating those of little value. Changes in this layer seldom impact the fundamental business of the firm. For example, the firm could deploy its ordering process on the Web, but not make any fundamental change in
Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Figure 19.4. The architecture of knowledge BUSINESS OPPORTUNITY OR ENVIRONMENTAL CHANGE
BUSINESS
BUSINESS PROCESS AUTOMATION
BUSINESS RULES
INFORMATION LOGISTICS
INTERFACE RULES (HUMAN & AUTOMATION) TECHNOLOGY PLATFORM OPERATION TECHNOLOGY RULES
Table 19.1. Layers of the architecture of knowledge Layer
Description
Example Policy
Example of Change
Business
Contains assertions about products and services and defines relationships between customers and products or services.
Obtain necessary market freedoms to effectively compete; purchase competitor fixed assets; penetrate untapped markets
Acquisition of new assets necessitates the addition of new relationships between customers and services.
Information Logistics
Contains the repository of rules related to the logistics of storage, transfer, and utilization of business information.
Digital artifacts under development will be stored using a versioning system; artifact access privileges are maintained at a fine granularity
A new employee joins an active team necessitating a change in the rules regarding access to a team-owned artifact.
Interface
Contains the rules for the presentation of business information to human entities.
Access to team-owned objects is controlled by an administrator in close contact with team members; GUI follows Microsoft’s Inductive User Interface guidelines.
A new employee joins an active team, necessitating the creation of additional security rules regarding artifact access privileges.
Technology
Contains low-level operational and strategic rules regarding the operation of technology.
Hardware and systems software is standardized through a single reputed vendor.
A change of hardware or systems software vendor necessitates change of legacy software developed for obsolete system.
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Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Table 19.2. RDF Classes (retreived from http://www.w3schools.com/rdf/default.asp) and their Metaobject Inventory Equivalents Element
Class of
Class
All classes
Metaobject Inventory Equivalent All value
Datatype
All Data types
Class
Domain, Meaning
Resource
All resources
Class
Resource
Container (set of objects)
All Containers
Resource
Aggregate Object
Collection(set membership is restricted by some criteria)
All Collections
Resource
Object Class
Literal
Values of text and numbers
Resource
Subtype of Symbol
List
All Lists
Resource
List of
Property
All Properties
Resource
Property, Feature
Statement
All RDF Statements
Resource
Irreducible fact, rule, atomic rule
Alt
Containers of alternatives
Container
Mutability; Liskov’s principle, aggregation of mutable resources
Bag
Unordered containers
Container
Aggregate Object
Seq
Ordered containers
Container
Subtype of Aggregate Object
ContainerMembershipProperty
All Container membership properties
Property
Subtype of Relationship
XMLLiteral
XML literal values
Literal
Subtype of symbol. XML is a subtype of language.
the nature of its products, services, or markets. Business Process Automation refers to process innovation and change that leverages information technology. The technology layer is changed primarily to improve computer performance in terms of speed, cost, reliability, availability or alignment, and support for business process automation. The fundamental ideas of separating systemspecific rules from software implementation, as in the case of 3GL, and separating system architecture and implementation, as in the case of System/360, are even more important today in the context of separating business rules from implementation technologies. The rules related to transporting and presenting the information would belong to the Business Process Automation
354
Subclass of
layers, not the pure business layer. Figure 19.4 shows that Business Process Automation consists of two layers. The Information Logistics layer is the repository for rules related to the logistics of moving and storing information in files, and the Interface layer is concerned with how this information is presented to human operators. Creating a business knowledge hierarchy such as the one depicted in Figure 19.4 facilitates the flow of information between the business entities responsible for managing knowledge. Organizing knowledge and information, as described in previous sections, is essential for realizing the flow of information between the layers and creating meaningful and useful relationships between objects within each layer.
Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Table 19.3. RDF properties (retrieved from http://www.w3schools.com/rdf/default.asp) and their metaobject inventory equivalents
Property
Operates on
Produces
Description
Metaobject Inventory Equivalent
Domain
Property
Class
The domain of the resource The domain defines what a property may apply to (operate on).
Domain
Range
Property
Class
The range of the resource. It defines what the property may map to (produce).
co-domain
subPropertyOf
Property
Property
The property of a property
Feature
subClassOf
Class
Class
Subtyping property
Polymorphism
Comment
Resource
Literal
User friendly resource description
Elaboration, description, synonym
Label
Resource
Literal
User friendly resource name
Name, synonym
isDefinedBy
Resource
Resource
Resource definition
Id Elaboration, reference
seeAlso
Resource
Resource
Additional information about a resource
Member
Resource
Resource
The property of being an instance of a kind of resource
Instance of
First
List
Resource
The property of being the first member of a list
A demiliting role: Lower Limit
Rest
List
List
The second and subsequent members of a list
Subtype of List
Subject
Statement
Resource
The subject of an assertion, i.e., the subject of a resource in an RDF statement
The source of a relationship
predicate
Statement
Resource
Similar to “subject”: The predicate of an assertion
Relationship, function
object
Statement
Resource
The object of the resource (in an RDF) Statement
The target of a relationship
value
Resource
Resource
The value of a property
Value
Type
Resource
Class
An instance of a class
Member of a class of classes
Efforts to process and integrate information based on meaning have been made by the W3C consortium, which recommended two modeling standards in 2004: RDF, the Resource Description Framework for metadata, and OWL, the Web ontology language for integrating information. We have seen examples of how some meanings are derived from others by constraining patterns of information they convey to create new meanings. These constrained patterns are subtypes of the
meanings they constrain, and every meaning is a polymorphism of the universal object, an unknown pattern in information space that means everything and anything, and conveys nothing. Every object in the inventory of components is a polymorphism of the universal metaobject. RDF and OWL are tailored for the Web and applications of the Semantic Web. Tables 19.2, 19.3, and 19.4 show that the various elements of RDF and OWL as well as their metaobject inventory equivalents,
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Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Table 19.4. OWL classes (retrieved from: http://www.w3.org/TR/owl-ref/) and their metaobject inventory equivalents Class
Description
Metaobject Inventory Equivalent
AllDifferent
all listed individuals are mutually different
Subtype of Exclusion partition, exclusivity constraint. The concept of distinctions emerges as a polymorphism of the concept of class as information is added o an object/pattern.
allValuesFrom
All values of a property of class X are drawn from class Y (or Y is a description of X)
Domain, Inclusion Set, inclusion partition
Subtypes of Elaboration
AnnotationProperty
Describes an annotation. OWL has predefined the following kinds of annotations, and users may add more: • Versioninfo • Label • Comment • Seealso • Isdefinedby OWL DL limits the object of an annotation to data literals, a URI, or individuals (not an exhaustive set of restrictions
Version is implicit in temporal objects. Audit properties are implicit in object histories: • The process, person, event, rule, reason and automation that caused a state to change • Time of state change • Who made the change (all the dimensions of process ownership: Responsibility, Authority, Consultation, Work, Facilitation, Information/ knowledge of transition) • When the change was made • The instance of the process that caused the change and the (instances of resources) that were used • Why it was made (the causal chain that led to the process) • How long it took to make the change Label is implicit in synonym, name Comment may be elaboration or reference. The two are distinct in the metamodel of knowledge See also: same remarks as comment. IsDefinedBy may be elaboration, Object ID, or existence dependency. Each is a distinct concept in the metamodel of knowledge
backwardCompatibleWith
The ontology is a prior version of a containing ontology, and is backward compatible with it. All identifiers from the previous version have the same interpretations in the new version.
Part of Relationship between models or structures
cardinality
Describes a class has exactly N semantically distinct values of a property (N is the value of the cardinality constraint).
Cardinality
Class
Asserts the existence of a class
Object Class
complementOf
Analogous to the Boolean “not” operator. Asserts the existence of a class that consists of individuals that are NOT members of the class it is operating on.
Set negation, Excludes, Exclusion set, Exclusion partition
DataRange
Describes a data type by exhaustively enumerating its instances (this construct is not found in RDF or OWL Lite)
Inclusion set, exhaustive partition
continued on following page
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Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Table 19.4. continued Class
Description
Metaobject Inventory Equivalent
DatatypeProperty
Asserts the existence of a property
Feature, relationship with a domain
DeprecatedClass
Indicates that the class has been preserved to ensure backward compatibility and may be phased out in the future. It should not be used in new documents, but has been preserved to make it easier for old data and applications to migrate to the new version
Interpretation. However, the specific OWL interpretation of depreciated class is considered to be a physical implementation of a real life business meaning, outside the scope of a model of knowledge that applies on the plane of pure meanings.
DeprecatedProperty
Similar to depreciated class
See Depreciated Class
differentFrom
Asserts that two individuals are not the same
The concept of distinctions emerging as a polymorphism of the concept of class as information is added o an object/pattern.; subtype of exclusion partition
disjointWith
Asserts that the disjoint classes have no common members
Exclusion partition
distinctMembers
Members are all different from each other
Exclusion Set, List
equivalentClass
The classes have exactly the same set of members. This is subtly different from class equality, which asserts that two or more classes have the same meaning (asserted by the “sameAs” construct). Class equivalence is a constraint that forces members of one class to also belong to another and vice versa.
Mutual inclusion constraint/equality between partitions or objects.
equivalentProperty
Similar to equivalent class: i.e., different properties must have the same values, even if their meanings are different (for instance, the length of a square must equal its width).
Equality constraint
FunctionalProperty
A property that can have only one, unique value. For example, a property that restricts the height to be nonzero is not a functional property because it maps to an infinite number of values for height.
Value of a property, singleton relationship between an object and the domain of a property
hasValue
Links a class to a value, which could be an individual fact or identity, or a data value (see RDF data types)
relationship with a domain
imports
References another OWL ontology. Meanings in the imported ontology become a part of the importing ontology. Each importing reference has a URI that locates the imported ontology. If ontologies import each other, they become identical, and imports are transitive.
Subtype of Composed of. Note that the metamodel of knowledge does not reference URIs. This is an implementation specific to the Web. The Metamodel of Knowledge deals with meanings.
incompatibleWith
The opposite of backward compatibility. Documents must be changed to comply with the new ontology.
Reinterpretation, Intransitive Relationship, asymmetrical relationships
continued on following page
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Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
Table 19.4. continued Class
Description
Metaobject Inventory Equivalent
intersectionOf
Similar to set intersection. Members are common to all intersecting classes.
Subtype of Partition, subtype with multiple parents, set intersection
InverseFunctionalProperty
Inverses must map back to a unique value. Inverse Functional properties cannot be many-to-one or many-to-many mappings
Inverse of an injective or bijective relationship
inverseOf
The inverse relationship (mapping) of a property from the target (result) to the source (argument)
Inverse of
maxCardinality
An upper bound on cardinality (may be “many”, i.e., any finite value)
Cardinality constraint:, upper bound on cardinality (subtype of cardinality constraint and upper bound)
minCardinality
A lower bound on cardinality
Cardinality constraint: Lower bound on cardinality (subtype of cardinality constraint and lower bound)
Nothing
The empty set
of the empty set, null value
Instances of properties are not single elements, but may be subject-object pairs of property statements, and properties may be subtyped (extended). ObjectProperty asserts the existence and characteristics of properties:
ObjectProperty
•
RDF Schema constructs: rdfs: subPropertyOf, rdfs:domain and rdfs:range
•
relations to other properties: owl:equivalentProperty and owl:inverseOf
•
global cardinality constraints: owl:FunctionalProperty and owl:InverseFunctionalProperty
•
logical property characteristics: owl:SymmetricProperty and owl:TransitiveProperty
Property, a generalized constraint, which implies an information payload added to a meaning.
oneOf
The only individuals, no more and no less, that are the instances of the class
members of a class, the property of exhaustivity of a partition
onProperty
Asserts a restriction on a property
constraint on a Feature (makes the feature (object) a subtype of the unconstrained, or less constrained feature (object)
Ontology
An ontology is a resource, so it may be described using OWL and non-OWL ontologies
The concept of deriving subclasses by adding information to parent classes
OntologyProperty
A property of the ontolology in question. See imports.
None, beyond the fact that the ontologoly is an object, which means that it inherits all properties of objects, and adds the property of interpretation
Refers to a prior version of an ontology
An instance of Object Property where a relevant instance of ontology Object Class exists, containing a Temporal Succession of concepts. The property of reinterpretation is implicit between versions of an ontology.
priorVersion
continued on following page
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Table 19.4. continued Class
Description
Metaobject Inventory Equivalent
Restriction
Restricts or constrains a property. May lead to property equivalence, polymorphisms, value constraints, set operations, etc.
Rule Constraint
sameAs
Asserts that individuals have the same identity. Naming differences are merely synonyms
Set Equality, Identity
someValuesFrom
Asserts that there exists at least one item that satisfies a criterion. Mathematically, it asserts that at least one individual in the domain of the “SomeValuesFrom” operator that maps to the range of that operator.
Subsetting constraint
SymmetricProperty
When a property and its inverse mean the same thing (e.g., if Jane is a relative of John, then John is also a relative of Jane)
Symmetry
Thing
The set of all individuals.
Instance of Object Class
TransitiveProperty
If A is related to B via property P1, and B is related to C via property P2, then A is also related to C via property P1. For example. If a person lives in a house, and the house is located in a town, it may be inferred that the person lives in the town because “Lives in” is transitive with “Located in”.
Transitive Relationship
unionOf
Set union. A member may belong to any of the sets in the union to be a member of the resulting set
offset Union, Aggregation
versionInfo
Provides information about the version
Instance of Attribute. Implicit in the concept of the history of a temporal object
showing that, in effect, the Metaobject Inventory provides a more general framework than either RDF or OWL, and that either of the restricted frameworks are special cases of the types of ontology frameworks that can be realized through the various polymorphisms of the universal object.
Conclusion In an effort to provide a framework for surmounting the temporal and spatial separations in collaborative, distributed environments, this chapter presented a framework for knowledge object management that can facilitate reuse of knowledge. The encapsulation of knowledge for
distributed environments is also highlighted. The knowledge encapsulation uses a four-tier architecture that facilitates knowledge transfer and reuse, as well as enables better understanding of the problem domain under consideration. Differences in training, knowledge, and skills that exist across the distributed teams can be surmounted by use of a common means of discourse about the problem domain under consideration.
For Further Reading The concepts described here have been utilized and extended in this chapter to cater specifically to the special needs of offshoring and 24-Hour Knowledge Factory environments. For a detailed
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Leveraging Knowledge Reuse and System Agility in the Outsourcing Era
discussion of the basic concepts and their wider applications, please refer to the following books by Amit Mitra and Amar Gupta: •
•
•
Agile Systems with Reusable Patterns of Business Knowledge —a Component Based Approach (Artech House Press, Norwood, Massachusetts) Creating Agile Business Systems with Reusable Knowledge (Cambridge University Press, Cambridge, England) Knowledge Reuse and Agile Processes— Catalysts for Innovation (IGI-Global, Hershey, Pennsylvania)
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About the Contributors
Amar Gupta is Tom Brown Endowed Chair of Management and Technology; professor of entrepreneurship, management information systems, management of organizations, and computer science at the University of Arizona since 2004. Earlier, he was with the MIT Sloan School of Management (1979-2004); for half of this 25-year period, he served as the founding codirector of the productivity from information technology (PROFIT) initiative. He has published over 100 papers, and serves as associate editor of ACM Transactions on Internet Technology and the Information Resources Management Journal. At the University of Arizona, professor Gupta is the chief architect of new multidegree graduate programs that involve concurrent study of management, entrepreneurship, and one specific technical or scientific domain. He has nurtured the development of several key technologies that are in widespread use today, and is currently focusing on the area of the 24-Hour Knowledge Factory. *** Thomas Abraham is a professor and Chair of the Department of Management at Kean University. He received his PGDM (MBA) from the Indian Institute of Management, Bangalore, and his PhD from the University of Massachusetts. He is a member of the New Jersey Chapter of the Society for Information Management (SIM) and the Association for Information Systems (AIS). His research interests include global supply chains and MIS education. He has been a consultant at various companies including Sony and BMG, and his research has appeared in Decision Support Systems, Journal of Information Systems Education, Journal of Electronic Commerce in Organizations and others. John ”Skip” Benamati is an associate professor of MIS in the Richard T. Farmer School of Business Administration at Miami University, Oxford, OH, USA. His major research interests are changing IT, IT management, and IT strategy. His work has appeared in the Journal of MIS, Communications of the ACM, Information and Management, Journal of Information Technology and Management, Information Strategy: The Executive’s Journal, and elsewhere. Christine V. Bullen joined Stevens Institute of Technology in August 2002, where she is coordinator for strategic issues in IT and director of the IT outsourcing concentration. Her current research focuses on IT workforce trends and the impacts of sourcing practices. Bullen was a distinguished lecturer at Fordham University, and for 17 years she was the assistant director of the MIT Center for Information Systems Research, where her esearch focused on strategic planning for the IT function, the organizational impact of IT, and the launching of the concepts of critical success factors and IT strategic alignment.
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About the Contributors
She received her MS in Management from the MIT Sloan School, and will shortly be awarded the PhD degree from Stevens Institute of Technology. Yuanyuan Chen jointed JS3 Global, LLC as a research fellow in June 2007. She expects to receive her PhD degree in Information Systems soon from Goizueta Business School in Emory University. She has also earned an LLM (Master of Law) from Emory Law School. Before joining JS3 Global, Yuanyuan served as a research scholar in an album sales forecasting project for the music industry, as a system analyst for HSBC Bank USA, and as a legal counsel in one of the top-20 Chinese business enterprises (Chinese Electronics Import & Export Corp). Her research is at the intersection of technology and law. In her doctoral study, she examined how law, culture, contracting behavior, and communication technology shape the business model of information technology, business process, and knowledge-based process outsourcing. Parts of her work have been published and presented at conferences of Academy of Management and INFORMS; additional papers will appear in print soon. Igor Crk is currently pursuing a doctoral degree in Computer Science at the University of Arizona. He holds a master’s degree in Computer Science from the University of Arizona. Current research interests include context-driven energy management in operating systems and the 24-Hour Knowledge Factory model for distributed agile software development. Nathan Denny is currently pursuing a doctoral degree in computer engineering at the University of Arizona. He holds a master’s degree in computer science from Southern Illinois University, and has previous publications in design automation for reliable computing, knowledge management, and computer and Internet security. His current interests include the 24-Hour Knowledge Factory and distributed agile software development. Kevin Gallagher is an assistant professor in the Department of Business Informatics in the College of Informatics at Northern Kentucky University. He holds a PhD in Management Information Systems from the Weatherhead School of Management at Case Western Reserve University in Cleveland, Ohio. Before his career in academia, he worked as an IT manager and consultant. His teaching, research, and consulting interests include strategic change, business agility, IT governance, knowledge management, and IT workforce development. Auroop R. Ganguly is a scientist within the computational sciences and engineering division at the Oak Ridge National Laboratory (ORNL) in Oak Ridge, TN, USA. Since August of 2004, he has been at his current position with ORNL, where his research involves the development of mathematical algorithms, specifically focusing on knowledge discovery from disparate data for high-priority application domains including the hydrologic sciences, climate change, transportation security, sensor networks, logistics, and disaster preparedness. He has more than 5 years of prior experience in the software industry where he has contributed to, and managed the development of, analytical products for data mining and decision support with applications. David A. Gantz is Samuel M. Fegtly professor of Law and Director of the International Trade and Business Law Program at the University of Arizona, James E. Rogers College of Law in Tucson, Arizona, and serves as Associate Director of the National Law Center for Inter-American Free Trade.
396
About the Contributors
He is a graduate of Harvard College and Stanford Law School. Professor Gantz served with the U.S. Agency for International Development law reform project in Costa Rica and as a law clerk with the U.S. Court of Appeals for the 9th Circuit. At the Office of the Legal Adviser, U.S. Department of State, from 1970-1977, he was the chief lawyer responsible for Inter-American affairs. From 1977-1993, he practiced international trade and corporate law in Washington, D.C. He joined the law faculty at Arizona in 1993. He has served as a binational panelist under the dispute resolution provisions of the CFTA and NAFTA, and has written extensively on NAFTA, NAFTA, and WTO dispute resolution, regional trade agreements, foreign bribery and other international trade, investment, and environmental law issues. Raj K. Goyal is Mallinckrodt professor of Medicine, Harvard Medical School, and staff physician at the VA Boston Healthcare System (VABHS). He earned his MBBS from Amritsar Medical College, Panjab University, and his MD from Maulana Azad Medical College, University of Delhi, in India. Following postdoctoral training at Yale University, he joined Baylor College of Medicine in 1971, and the University of Texas Southwestern Medical School in 1973. In 1978, he became chair of the Division of Gastroenterology at the University of Texas in San Antonio. In 1981, he joined Harvard Medical School and became chair of the Division of Gastroenterology at Beth Israel Hospital in Boston. He was later recruited to the VABHS, and served as Associate Chief of Staff for Research and Development at the VABHS from 1995 to 2005. Dr. Goyal is an eminent gastroenterologist, and an investigator whose research has provided some of the important advances in our understanding of esophageal and gastric physiology and diseases including Barrett’s esophagus, enteric neurotransmission, and the physiology and pathophysiology of esophageal and gastric motility. He provided the first evidence for the existence of muscarinic receptor subtypes. His work forms the basis of many current concepts regarding the regulation of esophageal sphincters, esophageal peristalsis, esophageal nocioceptors, gastroparesis, and Barrett’s esophagus. Dr. Goyal has served on numerous editorial boards and was editor-in-chief of Gastroenterology from 1986 to 1991. He was the Founder President of the American Motility Society and is the recipient of its Distinguished Achievement Award. Rajen K. Gupta is a professor of Organizational Behavior. He holds a first degree in Electrical Engineering from IIT Kanpur and is a Fellow of IIM Ahmedabad. He has worked in the State Bank of India and Jyoti Ltd before moving to IIM Lucknow and then to Management Development Institute as a faculty member. He is a member of the international editorial board of the International Journal of Cross-Cultural Management (Sage) and of the Journal of Research Practice. He is the founding member of the National HRD Network and professional member of ISABS. His main passion is to create and apply ideas that are suited to Indian culture and context. He would like to see Indian organizations achieve world-class effectiveness¸ and see MNCs to adapt well to the Indian context. Whitney Hollis is a senior at the University of Arizona in Tucson, majoring in International Studies, where she focuses on economic business development. She also has two minors in French and Business. She has received various scholarships and honors from the University of Arizona. She has had the chance to travel the globe to learn about different countries and visit businesses in parts of Asia, Europe, and West Africa. She hopes to study globalization and development in third-world countries, particularly in parts of Asia and West Africa.
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About the Contributors
Keith A. Joiner, MD, MPH, is the Vice Provost for Medical Affairs and Dean of the College of Medicine at the University of Arizona. Prior to that, he was the Waldemar von Zedtwitz Professor of Medicine, Cell Biology, and Epidemiology at the Yale University School of Medicine, and Chief of the Section of Infectious Diseases in the Department of Medicine. Dr. Joiner received his undergraduate degree from the University of Chicago and his MD degree from the University of Colorado. His residency training was at McGill University and his Infectious Diseases fellowship training was at Tufts-New England Medical Center. He was senior investigator and chief of the Unit of Microbial Pathogenesis at the National Institutes of Health in Bethesda, MD for 9 years before moving to Yale University in 1989. His laboratory at Yale investigated the mechanism by which two obligate intracellular pathogens, Plasmodium falciparum and Toxoplasma gondii, obtain required nutrients from the host cells in which they reside. He developed and directed the Investigative Medicine program at Yale. At the University of Arizona, Dr. Joiner is leading a dramatic expansion of the College of Medicine, the only allopathic medical school in the state of Arizona. In Tucson, faculty and program growth are underway at multiple new facilities and sites, including University Physicians Hospital-Kino, University Medical Center North and the newly completed Medical Research Building. In Phoenix, the University of Arizona College of Medicine Phoenix Program, in collaboration with Arizona State University, will begin in the summer of 2007. The Phoenix program of the College of Medicine also has important interactions with other research institutes and health care entities, including the Translational Genomics Research Institute, Banner Good Samaritan, Catholic Health Case West, the Maricopa Integrated Health System, Scottsdale Health Care, Sun Health Research Institute, and the Carl T. Hayden Veterans Administration Health Care System. Kate M. Kaiser, associate professor of IT at Marquette University, researches future IT skill needs and the impact of offshore outsourcing from Ireland, Russia, and India through research grants from the Sloan and 3M Foundations. Kaiser received her MBA from Kent State University and her PhD from the University of Pittsburgh. Jeremy A. Kreyling graduated from Arizona State University with a BS in Geographical Information Systems, in 2000. He worked with Sunnyside Unified School District from 2001 to 2007 as a program evaluator. He received a masters in Business Administration from the Eller College of Management at the University of Arizona in 2007, and currently works as a SAP consultant with Bytesys Technologies, Inc. Christopher Leet is a recent graduate of the University of Arizona, Eller College of Management, where he graduated with honors, magna cum laude. He majored in entrepreneurship and business management. Christopher has worked in developing content format conversion of music and video for Digital Music Group, and worked with Google to upload the content and information for public use. He worked with Filter Magazine and Records to extend its online advertising. Christopher is currently employed with the Intuit Corporation as a financial associate. Shivram Mani, currently a software engineer at Yahoo! Inc., did his masters majoring in Computer Science in University of Arizona. His interests include data management and knowledge based search. He has developed software prototypes and tools to facilitate an innovative collaboration model for a 24-Hour Knowledge Factory setup.
398
About the Contributors
Ram B. Misra is an associate professor in the Department of Management and Information Systems at Montclair State University, Montclair, NJ, USA. Prior to joining Montclair State University, Dr. Misra was an executive director at Telcordia Technologies (formerly Bell Communications Research). He has over 20 years of telecom industry experience that spans Bell Labs, Bell Communications Research, and Telcordia Technologies. He received his PhD in Operations Research from Texas A&M University, College Station, Texas. Before joining Bell Labs, he taught as an assistant professor at Texas A&M University and the University of Houston. Also, he earned an Executive MBA (Beta Gamma Sigma) from Columbia School of Business, Columbia University, New York. Dr. Misra has published in IEEE Transactions, the International Journal of Management Research, the International Journal of Production Research, the Naval Logistics Review and the Decision Sciences Journal of Innovative Education, the Journal of Innovative Education in Decision Sciences, the Journal of IT Cases and Applications, the Journal of Information Technology and Applications, the International Journal of Pharmaceutical and Healthcare Marketing, the i-Manger’s Journal of Management, the Information Technology Journal, and The Journal of Issues in Informing Science and Information Technology. Amit Mitra is a senior manager at TCS Global Consulting Practice. Prior to TCS, he was the senior vice president for process improvement and enterprise architecture at GalaxE Solutions. He also holds a black belt certification in the six-sigma, and is the author of several ground-breaking books and papers on knowledge management and process improvement to support business agility and innovation. Amit is also a visiting faculty member at the University of Arizona, which introduced a new course based on his work, and teaches executive classes at the University of California at San Diego on process modeling and Service Oriented Architecture. He led the executive round table on business agility at BPMI’s process improvement think tank 2006 in Washington DC, and has been an invited speaker at several national and international conferences on business modeling and business-IT alignment. Previously Amit was a manager of architecture and e-commerce at Bearing Point, the former chief methodologist at AIG and a former director of architecture at Verizon. He currently provides thought leadership and consulting services on process improvement, methodology, IT governance, enterprise architecture, and IT strategy to some of America’s leading firms. Sourav Mukherji is assistant professor of organization behaviour at the Indian Institute of Management Bangalore, India. An engineer from IIT Kharagpur, Sourav obtained his PhD in management from the Indian Institute of Management, Bangalore. Prior to joining the faculty at IIM Bangalore, Sourav was with the Boston Consulting Group, where he worked as a strategy consultant in projects involving corporate restructuring, mergers and acquisitions, and market-entry strategy for multinational organizations. After completing his engineering, he had worked with information technology firms like IBM and Oracle in various product management functions. Sourav is currently engaged in studying the managerial and organizational innovations that have contributed to the competitiveness of leading Indian organizations in software services, automotive components, and pharmaceutical industries. He has presented papers in international conferences, spoken at corporate forums, and published in peerreviewed journals on topics related to outsourcing of knowledge intensive services, novel organization forms, and knowledge management. From April 2006, Sourav has assumed responsibility as the chairperson of placement activities at IIM Bangalore, India.
399
About the Contributors
Ravi Sheshu Nadella earned his BE in Computer Science and Engineering from Osmania University, India in 2005. He is currently pursuing his masters in Computer Science at the University of Arizona. He joined the Nexus of Entrepreneurship and Technology and the 24-Hour Knowledge Factory project in 2006. His ongoing research interests include collaborative technologies, peer-to-peer systems, and software development methods. A.B. Patki obtained his M Tech from Indian Institute of Technology (IIT), Kharagpur in 1975. Presently, he is working as Scientist—G with the Department of Information Technology (DIT), Government of India. He has been a referee for IEEE Transactions on Reliability for over 20 years. His research areas include soft computing, software engineering, and cyber forensics and security. He has been trained in VLSI Design at Lund University, Sweden and Mentor Graphics, USA. He holds a copyright for FUZOS©- Fuzzy Logic Based Operating Software. His hobbies include Hindustani music, homoeopathy, and Vedic studies. Tapasya Patki is a graduate student at the Department of Computer Science at University of Arizona, She is also a part of the Nexus for Entrepreneurship and Technology (NEXT) group at the Eller College of Management, University of Arizona. She has an internship experience of over 6 months at the Department of Information Technology, Government of India, where she specialized in applications of fuzzy logic and rough set techniques. Her areas of interest include software engineering, artificial intelligence, and outsourcing. Presently, she is exploring potentials of soft computing to knowledge management practices and software code obfuscation. She is also a violin soloist and an amateur poet. Mahesh S. Raisinghani is an associate professor at Texas Woman’s University’s College of Management. He is also the president and CEO of Raisinghani and Associates International, Inc., a diversified global firm with interests in software consulting and technology options trading. Dr. Raisinghani earned his PhD from the University of Texas at Arlington and is a certified e-commerce consultant (CEC). Dr. Raisinghani was the recipient of the 1999 UD Presidential Award, the 2001 King Hagar Award for excellence in teaching, research, and service; and the 2002 research award. As a global thought leader on E-Business and Global Information Systems, he has served as the local chair of the World Conference on Global Information Technology Management in 2001, and the track chair for E-Commerce Technologies Management at the Information Resources Management Association since 1999. Dr. Raisinghani has published in numerous leading scholarly and practitioner journals, presented at leading world-level scholarly conferences, and has served as an editor of two books: E-Commerce: Opportunities and Challenges and Cases on Worldwide E-Commerce: Theory in Action. He serves as the associate editor for JGITM and IRMJ, and is a member of the editorial review board of leading information systems/ecommerce academic journals. He has also served as the editor of three special issues of the Journal of Electronic Commerce Research on Intelligent Agents in E-Commerce and eBusiness Security. Dr. Raisinghani was also selected by the National Science Foundation after a nationwide search to serve as a panelist on the Information Technology/E-Commerce Research Panel and Small Business Innovation Research panel. He has also been involved in consulting activities, and frequently participates in news media interviews on IS issues. Dr. Raisinghani serves on the board of directors of Sequoia, Inc. and is included in the millennium edition of Who’s Who in the World, Who’s Who Among America’s Teachers, and Who’s Who in Information Technology.
400
About the Contributors
T.M. Rajkumar is an associate professor of MIS in the Richard T. Farmer School of Business Administration at Miami University. His research interests include outsourcing, troubled project management, and impression formation. Sanjay Saini is a professor of Radiology at Harvard Medical School and serves as the Vice Chair for Finance in the Department of Radiology at the Massachusetts General Hospital. He is a specialist in gastrointestinal radiology. He has degrees from Duke (AB), Tufts (MD), and MIT (MSc) and did his postgraduate training in Radiology at the Massachusetts General Hospital in Boston. Jamie Samdal is a master’s student in Electrical and Computer Engineering, Computer Science, and Business Administration at the University of Arizona. She has undergraduate degrees in Computer Engineering and Computer Science and has interned with both IBM and Google. Her research interests include global software development processes, software engineering practices, and collaborative software tools. Shawna Sando is a senior at the University of Arizona. She is majoring in International Studies with an emphasis on science and technology, and plans to pursue a masters of science degree in physician’s assistant studies. Shawna conducted a field study in southern India in 2006. She presented her research on the use of western technology in Indian childbirth practices at the 2007 Inquiry Conference at Brigham Young University. In her senior thesis work, Shawna intends to incorporate both her field study research, as well as this chapter’s information on medical tourism and telesurgery, to analyze the appropriate use of technology in both Indian and Latin American healthcare settings. Alyssa Schwender is employed by Lions Gate Entertainment in Santa Monica, California, as the assistant to the executive vice president of corporate development in the Strategic Planning department. She is a graduate of the Eller College of Management at the University of Arizona, and also received her International Business Certificate through the college. While attending this university, Alyssa was actively involved with Delta Sigma Pi, a professional business fraternity, and was awarded the Phi Kappa Phi Outstanding Senior award for May 2007. Satwik Seshasai is the development manager for QuickPlace, IBM’s enterprise team collaboration platform, and is currently pursuing a doctoral degree in engineering systems at the Massachusetts Institute of Technology. He holds two master’s degrees from MIT, in computer science, and technology and policy, and has published research in leading journals on technology and managerial aspects of distributed teams and knowledge sharing. Assisting professors Amar Gupta and Lester Thurow, he helped found the nation’s first MBA course on offshore outsourcing at MIT. As an advisory software engineer at IBM, he has worked with many Fortune 500 companies to develop and deploy software for team collaboration across many countries and individuals. Peter Shackleton’s current research has concentrated on local e-government service delivery maturity models, transition, and attrition in higher education, social capital, and business intelligence models. He currently coordinates the schools largest subject, Information Systems for Business in Australia and overseas. He also coordinates the undergraduate Electronic Commerce degree, and he is the leader of a teaching and learning project evaluating undergraduate business core subjects at Victoria University.
401
About the Contributors
Dr. Shackleton plays veterans field hockey and is a committee member of the Moke Owners Association of Victoria. Suresh Sharma, CEO of JS3 Globalobal.com (http://www.js3global.com) is coauthor of a recently published best-selling book Global Outsourcing: Executing an Onshore, Nearshore and Offshore Strategy. A former GE executive, he is an internationally acknowledged business leader known for his pragmatic vision, operational excellence, and entrepreneurial successes. Over past 25 years, he played key roles in setting up Global Outsourcing Centers in R&D, Engineering Services, IT, Retail, BPO, Manufacturing, and Healthcare in India, Mexico, China, Canada, EU, and Asia. Furthermore, he is especially recognized for his thought-leadership, outstanding hands-on experience in business turnaround, insights into doing global business integration, and many cross-border mergers and acquisitions, thus translating inorganic into organic business growth. Judith C. Simon is a professor of management information systems and director of the Center for Innovative Technology Management at the University of Memphis. Her bachelors and doctoral degrees were received from Oklahoma State University, and her MBA was earned at West Texas State University. She was previously employed in the production management offices of a large manufacturing organization, and continues to work with a wide range of organizations on IT-related issues. Her research interests include information security management, IT quality, and healthcare information systems. She has written nine textbooks and published numerous articles in academic journals. She also serves as program chair for the Memphis Chapter of the Society for Information Management. Dane Sorensen is employed by Raytheon Missile Systems, and works with the operations business team providing financial analysis, performance and summary data to operations, supply chain, and mission assurance directorates. He is a graduate of the Eller College of Management of the University of Arizona, and was awarded a certificate for being the outstanding graduating student the Management and Policy department. While attending this university, he was the president of the Society for Human Resource Management (SHRM). Mr. Sorensen has also authored papers related to offshore activities in the Philippines and the outsourcing of human resources functions. Devin Sreecharana is an undergraduate at The University of Arizona in Tucson. He is a dual degree candidate for honors graduation in May of 2008, when he will receive a BA in International Studies and External Affairs and a BS in Psychology. He will attend law school in the fall of 2008 in order to pursue a JD in International Law and MA in Foreign Policy. Manish Swaminathan earned his bachelors degree in Computer Science from National Institute of Technology, Trichy, India in 2005. He then worked for a year as a development/support specialist at the India Software Labs, IBM Bangalore, India. He joined the University of Arizona in fall 2006, and is currently pursuing his masters in Computer Science. He joined the Nexus of Entrepreneurship and Technology and the 24-Hour Knowledge Factory project in January 2007. His areas of interest include systems and networking and high performance computing. William J. Tastle received his PhD in Advanced Technology with specialization in Systems Science from the Thomas J. Watson School of Engineering and Applied Science of the State University of
402
About the Contributors
New York, University Center at Binghamton in 1994, and an MBA in MIS from the School of Management at Binghamton. He is a professor of information systems in the business school at Ithaca College and is active in the IS community, having served as the president of the Association for Information Technology Professionals, Education Special Interest Group (EDSIG), and on many other committees. He is the managing editor of the International Journal of General Systems. Currently, he is organizing the 2008 conference of the North American Fuzzy Information Processing Society and serves on its board of directors as treasurer. He is a consultant for numerous organizations including Los Alamos National Laboratory. Dr. Tastle’s current areas of interest involve measures of consensus, dissention, agreement and disagreement, requirements analysis elicitation, fuzzy clustering, and outsourcing. He is developing an undergraduate program in economic development. He chairs the Ithaca College Academic Policy Committee, serves on numerous other academic committees, has been a department chair, and is a member of many professional organizations. When not being an academic, Dr. Tastle is the treasurer of the local county industrial development agency, and greatly enjoys being the chair of his local political committee. Ársaell Valfells received his MSc in Analysis, Design and Management of Information Systems from the London School of Economics and Pollitical Science in 2002, and MSc in Political Theory in 2001. He is an assistant professor at the Department of Business and Economics at University of Iceland and as well is director of Institute of Business Research. At the institute, he as well organizes a research center on IS. At the University of Iceland he is organizing an undergraduate program in collaboration with Department of Computer Sciences on the Information Systems and Business. Before pursuing an academic career, he was working as a Head of Research at Landsbanki, Icelands oldest financial institution. He has interest in business and takes active part in public discussion on current economic issues. Bruce White received his doctorate in Management Information Systems in 1990 from the University of Nebraska Lincoln. A native of Cedar Rapids Iowa, Dr. White has taught at Winona State University in Minnesota and Dakota State University in South Dakota prior to coming to Quinnipiac University in 2000. Dr. White is very active in his profession. He has served as conference chair for the ISECON conference four times. He is on the board of directors for the Educational Foundation of the Institute for Certification of Computer Professionals. He was one of the developers of the Center for Computer Educational Research’s Information Systems Assessment test. He is an accreditation team member for ABET information systems accreditation visits. He regularly publishes in academic journals and is on the review board for two information systems journals. He is the chair of the Quinnipiac University Information Systems Management academic department; chair of the Technology Users Group, on the campus promotion and tenure committee, an advisor to two campus organizations, and vice president of the Hamden Symphony Orchestra. Lai Xu is a senior research scientist at CSIRO ICT Centre, Australia. Previously, she worked as a post-doctoral researcher at Organisation and Information Group of the Institute of Information and Computing Sciences of the Utrecht University, the Netherlands and Artificial Intelligence group of the Department of Computer Science of the Free University Amsterdam, the Netherlands respectively. She received her PhD in Computerized Information Systems from Tilburg University, the Netherlands, in 2004. Her main research areas are in process integration, multiparty process monitoring, Web services and service-oriented applications, business process integrations.
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About the Contributors
Vanita Yadav is a doctoral student in the area of Information Systems at Management Development Institute, India. She is a science graduate with an MBA and an advanced level post-graduate diploma in Computer Applications. She has worked in the Indian IT industry with the Knowledge Solutions Business Group of NIIT Ltd. where she was involved in creation of Web-based training and computerbased training programs on the latest information technology areas. She has worked as an instructional designer, computer science faculty, school principal and social worker. Her research interests are in virtual teams, management of distributed software projects, and e-services. Her teaching interests include MIS, system analysis and design, and software project management. She has been awarded scholarships at the graduate and school levels. Her other interests include fine arts (painting). She has held various art exhibitions in major Indian cities. She has also been actively involved in social work with the Indian Air Force.
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Index
Symbols 24-Hour Knowledge Factory 133, 228 24-Hour Knowledge Factory (24HrKF) 289 24-Hour Knowledge Factory, analysis for the socio-technical aspects 237–245 24-Hour Knowledge Factory, composite personae benefits 277 24-Hour Knowledge Factory, concept 13 24-Hour Knowledge Factory, continuous feedback, adaptation, and refinement 245 24-Hour Knowledge Factory, demand management 15 24-Hour Knowledge Factory, impact assessment 20 24-Hour Knowledge Factory, key elements and key decisions 232–235 24-Hour Knowledge Factory, success factors 14 24-Hour Knowledge Factory environment, agile software processes 288–303 24-Hour Knowledge Factory paradigm, potential impact 232 24-Hour Knowledge Factory vs. globally distributed teams 229 24HrKF, a practical application of knowledge reuse 352
A activity theory 297 agent communication language (ACL) 283, 297 agile software processes 290 architecture of knowledge 353
Arizona Correctional Industries (ACI) 218 atomic rules 348
B BPO multiplexing, 337-338 business process outsourcing (BPO) 205 business rules, the structure of information 347
C changing IT skills 180–203 changing IT skills, demographics 185 changing IT skills, results/analysis 189 changing IT skills, specific skill categories 191 civil infrastructure status (CIS) 330 client facing 181 collaboration structure model 261 commitment model 262 component-based development (CBD) 346 composite persona (CP) 274, 289 composite personae 274 composite personae, benefits 277–279 composite personae scenario 275 composite personae software process (CPro) 281 computer-aided detection (CAD) 117 concurrency control, establishing 329 concurrent versioning system (CVS) 353 corporate offshoring, innovative technological paradigms 322–342 CPRO 293 critical skills and capabilities, overview 189 customer satisfaction rate (CSR) 329 cyber crime index (CCI) 329 cycle time 348
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Index
D
I
data processing, cognitive support 327 deciding what to outsource 170 decision justification 300 digitalization of media 144 distributed agile software development 292 distributed software development 290, 292 distribution offshoring 149
IBM's System/360 347 IBM case study, two parallel work teams 17 indivisible rules 348 information resource management, enabling the 24-Hour Knowledge Factory 227–250 information system education, educational implications 311 information systems model cirriculum, history 310 information technology/systems offshore outsourcing 50–70 information technology outsourcing (ITO) 205 integrated development environment (IDE) 337 integrated development environments (IDEs) 280 intellectual property 149 intellectual property (IP) issues 39 intellectual property, and legal issues 134 intellectual property, foundations 39 inter-dialoguing processor (IDP) 337 international property arguments 42 irreducible facts 348 IS 2002.10, project management and practice 317 IS 2002.2, e-business strategy, architecture and design 315 IS2002.3, information systems theory and practice 315 IS 2002.4, information technology hardware and system software 316 IS 2002.5, programming, data, file and object structures 316 IS 2002.6, networks and telecommunication 316 IS 2002.7, analysis and logical design 316 IS 2002.8, physical design and implementation with DBMS 316 IS 2002.9, physical design and implementation in emerging environments 316 IS 2002 course-by-course analysis for offshoring content 314 IS curriculum, changing the options 313 IT/IS offshore outsourcing, industry analysis 52
E eclipse extensions 284 electronic mail, for asynchronous discussion 17 evolving business models 151 evolving collaboration technologies 279 extreme programming (XP) 281
F factory to knowledge factory, evolution 229 film industry data and statistics 148 foreign direct investment (FDI) 205 foreign procedures encouragement 158 fundamental computing technologies 346 fuzzy logic (FL) 327
G GATT, core principles 27 GATT exceptions 29 generalized agreement on trade and tariffs (GATT) 27 global economy, national policy challenges 5 global level issues, long-term solution 43 globally distributed teams 229 global offshore outsourcing, new trends 204– 215 global partnerships, creating 6 global resource race, India and China 206 global software development (GSD) 272
H healthcare data, comprehensive analysis 116 healthcare information, latest dissemination 127 healthcare records management 118 hybrid offshoring 271–287
406
Index
IT employment data, full-time equivalent (FTE) 195 IT outsourcing, growing importance 205 IT skills, career development programs 199 IT skills and capabilities 183 IT skills and capabilities, organizational value 197
K knowledge query manipulation language (KQML) 283, 297 knowledge reuse, framework 348 knowledge transfer 295
L legal industry, trends 38 lifestream 283, 296
M machine intelligence quotient 328 medical outsourcing, American perspective 159 medical outsourcing, Indian perspective 160 medical outsourcing, malpractice issue 161 medical outsourcing, technological innovations 162 medical surgery, preference towards India 158 medical surgery outsourcing 157–166 medical telesurgery evolution 157–166 metamodel of multi-pary business collaboration modeling language (MBCML) 259 modeling behaviors of the parties 264 multi-party business collaboration, concepts for modeling 256 multi-party business collaboration modeling, benefits 252 multi-party business collaboration modeling, issues 255 multi-party collaboration commitment metamodel 259 multi-party collaboration modeling language 261 multi-party collaboration structure metamodel 259 multimedia, multilingual network operating software (MISNOS) 324
MultiMind 282, 296
O object-oriented programming systems (OOPS) 336 object management group (OMG) 344 offshore outsourcing, challenges of IT development in India and China 209–211 offshore outsourcing, financial risks 56 offshore outsourcing, in China 207 offshore outsourcing, in India 206 offshore outsourcing, operational risk 54 offshore outsourcing, security risks 55 offshore outsourcing, strategic risk 54 offshore outsourcing, success factor analysis 56 offshoring 1–24, 306 offshoring, building the foundation 7 offshoring, in India 145 offshoring, keys to success 309 offshoring, motivation for 145, 308 offshoring, political perspective 3 offshoring, technological perspective 5 offshoring, the role of prisons 216–226 offshoring entertainment and media to India 142–156 outsourced development center (ODC) 176 outsourcing 306 outsourcing, and multi-party business collaborations modeling 251–270 outsourcing, as a business strategy 167–179 outsourcing, in the healthcare industry 115 outsourcing, medical surgery 157 outsourcing, under international trading rules 27 outsourcing acceptance model 89–114 outsourcing era, leveraging knowledge reuse 343–363 outsourcing failure 324 outsourcing of goods, applicability 31 outsourcing of legal activities, case examples 36 outsourcing of legal tasks, across national borders 36 outsourcing research, paradigmatic and methodological review 71–88
407
Index
outsourcing research, results 76–84 outsourcing research methodology, journal representations 74 outsourcing research methodology, methodological representations 75 outsourcing research methodology, paradigmatic representations 74 outsourcing support, developing nations initiatives 325 outsourcing vendor(s) selection 172 outsourcing versus insourcing, in U.S. 35
P pair programming 278 prison operations at Televerde, first person case study 219 problem of change 346 process awareness 298 programming language considerations 335
R recorded music offshoring 149 remote diagnosis 122 repository of meaning 352 research paradigms in IS research 73 role of prisons in offshoring, human rights perspective opposition 221 role of prisons in offshoring, legislative history 216 role of prisons in offshoring, security issues opposition 222 rough set theory 331
S schedule casting 295 scrum 298 services outsourcing, implications of GATS 33 software practices, existing limitations 332
408
software problem reports (SPR) 17 speech acts theory 283 speech act theory 297 strategic partnerships, analytical model 8
T team meetings, nature of 19 technology acceptance model (TAM) 89 technology acceptance model (TAM), applicability 98 technology acceptance model (TAM), data analysis 98 technology acceptance model (TAM), effects of the antecedents 98 technology acceptance model (TAM), methodology 94 technology acceptance model (TAM), theoretical basis 90 Telcordia Technologies 168 Telcordia Technologies, management of outsourced work 176 trade in services 32 truck number 278
U U.S. prison labor, benefits 222 unified medical language system (UMLS) 129–130
V vocal annotations, in progarm source code 283
