Critical Capabilities for Offshore Outsourcing of Information Systems

Abstract

Eager to capitalize on the low-cost, high-quality IS labor markets overseas, many companies are moving their IS work offshore, but often with disappointing results. The reason, we believe, is that most firms lack the fundamental capabilities critical for success. We use the popular “capabilities thinking” approach—thinking about the fundamental capabilities an enterprise or a function needs to attain superior outcomes—to address the challenges of IS offshore outsourcing.Based on our study of eighteen firms—some effective and some ineffective in IS offshore outsourcing—we have identified ten capabilities needed for success in IS offshore outsourcing and group them into the following four categories: (1) Systemic Thinking on Offshore Sourcing: capability to strategize and offshore readiness; (2) Global IS Vendor Management: vendor selection, contract facilitation and relationship governance; (3) Global IS Resource Management: human resource management, knowledge management and distributed work management; (4) IS Change Management: managing user-related change and managing IS organizational change.We calibrate each capability to mark out specific operational routines and processes underlying them. Our study uncovered five main lessons for leveraging IS offshore outsourcing capabilities: (1) adopt a systematic approach to building offshore outsourcing capabilities, (2) focus on the entire outsourcing lifecycle, (3) recognize the dynamic nature of capabilities, (4) invest in structure and people, and (5) periodically perform capabilities audits.