Software outsourcing partnership model: An evaluation framework for vendor organizations

https://doi.org/10.1016/j.jss.2016.03.069Get rights and content

Highlights

  • This paper presents the development of Software Outsourcing Partnership Model.

  • We have executed research methodologies like SLR, Empirical study and Case study.

  • We have adopted various models such as CMMI, IMM and SOVRM for this model.

  • We have identified a total of 14 CSFs and 142 practices for their implementation.

  • The SOPM was validated through the conduction of two case studies in the industry.

Abstract

Software Outsourcing Partnership (SOP) is a new software development paradigm for developing high quality software products. A SOP is different to ordinary software development outsourcing (SDO) relationship. SOP is the enhanced form of conventional outsourcing relationship. The objective of this research paper is to develop a software outsourcing partnership model (SOPM) to identify and analyze factors that are important for vendors in conversion of their existing outsourcing relationship to partnership. We have performed a systematic literature review (SLR) process for the identification of critical success factors (CSFs) from a sample of 111 articles. Further we have categorized the identified CSFs into five partnership levels based on Capability Maturity Model Integration (CMMI) and Software Outsourcing Vendors’ Readiness Model (SOVRM). To validate the SLR findings and to find practices for the identified CSFs a questionnaire survey was conducted in the outsourcing industry in which 35 experts, from 8 different countries participated. Two case studies were conducted for evaluation of the SOPM. In this paper our newly developed model, SOPM, has been presented in detail. SOPM has been built with the intent to assist SDO vendor organizations in measuring their capabilities for successful conversion of their contractual outsourcing relationship to outsourcing partnership.

Introduction

Collaborative relationships beyond organizational boundaries are an essential part of today's business. Client vendor relation in this fashion often crossing the traditional contractual limits agreed at the initial level of the collaboration. Here risks and benefits, investments and work load of joint labors are equally divided among the collaborative members. Companies achieve competitive advantages through inter and intra-organizational collaboration. Long term working relationships are developed based on bidirectional trust, mutual interdependence and win–win mind-set between partners. Companies usually develop collaboration to decrease the costs of obtaining appropriate information/understanding and capabilities or competencies needed for well-organized professional processes. Collaborative relationships usually are in the form of joint ventures, alliances, association or partnerships (Lee and Kim, 2005, Blomqvist, 2002, Brinkerhoff, 2002, Brinkerhoff, 2002, Kelly et al., 2002, Bamford et al., 2004).

However, developing a fruitful long term cooperative relationship based on collaboration between two diverse businesses are more challenging and complex than commonly estimated. In view of Kelly et al. (2002) disappointment proportion for collaborative relationships (like associations, alliances, joint ventures or partnerships) varied from 50% to 60%. Bamford et al. (2004) reported, in their research article, that success rate was only 53%. When collaboration like partnership is in developing stage, the focus might very often be in financial and legal aspects. Besides all the complexities, collaboration still happens amongst organizations. Focusing on social aspects beside legal and financial, might lead to better-quality and long-lasting results when developing partnership (Ylitalo et al., 2004).

Building a successful inter-organizational partnership is a multi-dimensional and iterative process in which legal, psychosocial, economical sub processes are concurrently taking place (Lane and Lum, 2011). Shared goals and ownership, mutual interdependence, mutual trust, long term commitment, effective and timely communication, quality production and partner's proximity are constituent parts of a successful partnership (Ylitalo et al., 2004).

Due to big economic changes, advances in information and communication technology (ICT) and increase competition from developing low wages countries, from 1980 to 1990 many different types of organizations have been formed which includes multiple vendor contracts, strategic networks, different kind of conglomerates, alliances and joint ventures etc. (Ross, 1995, Venkatraman and Loh, 1994, Kinnula and SeppAnen, 2003). Different types of organizations having different kinds of needs and therefore different kinds of relationships are needed. Initially many of these relationships were based on the need for cost reductions. Initially the core activities were performed in-house and relationship is formed only to buy non-core activities from other organizations. Now relationship is formed to acquire the acquaintance of new technologies and skills beyond the firm's own competence. So interest in closer relationships (a partnering relationship) has grown, because a partnering relationship provides the opportunity to acquire the knowledge of new technologies. Other possible reasons include, plasticity in apportioning human resources, entry to complementary skills and new markets, to focus on firm's core competence, more focus on strategic issues, boosting innovation, reducing time to-market, increasing product or service quality, transferring static costs to variable costs, and improving competitiveness (Kakabadse and Kakabadse, 2005, Kinnula et al., 2007, Tuten and Urban, 2001).

Software companies currently use a wide variety of mechanisms to source software development; they outsource development work, develop insource, expand insource capability through acquisitions, and build partnerships and joint ventures with counterpart organizations (Moe et al., 2014). Four of the strategies are highlighted by Moe et al. (2014), including insource, outsource, separate profit center and strategic partnership. Similarly Roy and Aubert (2002) have described four internal outsourcing strategies, including internal governance, recuperation, outsourcing and partnership.

According to Kishore et al. (2003) outsourcing relationship can be categorized into four categories. These are support (provision type), alignment (arrangement types), reliance (dependence type) and alliance (coalition type). Alliance is a relation with high trust and low control. SOP is an alliance type relationship (Srinivasan and Brush, 2006).

Outsourcing partnership is a widely used terminology in the literature but still no precise definition exists for it. It is a relationship composed of two words outsourcing and partnership and therefore thoughtful understanding of individual terms is desirable for its definition. Outsourcing partnership goes beyond the outsourcing contractual relationship and is discussed in the subsequent sections.

Outsourcing is the contracting of various system sub function, programming, data entry, facilities management, maintenance operation, system integration, disaster recovery, data center management, and telecommunication by client firm to external vendor. According to Oxford English Dictionary (Dictionary, 2008) outsourcing as “the obtaining of goods or services or components from an outside or foreign supplier, especially in place of an internal source”.

The major reasons for outsourcing are cost savings, free management time, access to specialist expertise, improved quality of service, to achieve flexibility in taking strategic business decision, in house resources un-availability and enhanced financial control (Bocij and Hickie, 2008).

According to Ahmed and Zhu (2011) relocating of an in house business function(s) and (or) any associated resources such as employee by client/service receiver (SR), to an outside vendor/SP (service provider), who provides a contracted services during an agreed time spans, at specified price. The major reasons for outsourcing here is to get into particular knowledge and expertise, processes and capabilities not having inside but available outside the organization, in order to use these as inputs, to help improve the efficiency and effectiveness of organization. No doubt, if properly executed, strategically ambitious outsourcing efforts can not only help operations but can also contribute to the strategic and competitive advantages of the organization (Ahmed and Zhu, 2011).

According to Brinkerhoff and Jennifer (Brinkerhoff, 2002) reasons for outsourcing includes marked pressure on organization to reduce costs, increase core competencies and provide specialized expertise more effectively. The outsourcing decision is typically taken at the top management level in order to reduce the costs and improve the return on assets. With help of outsourcing client firms increases productivity by employment growth and greater specialization in results of outsourcing (Sako, 2006).

In the management literature, partnership relationship between companies has been studied extensively (Lane and Lum, 2011). For example, inter-firm cooperation has examined in the marketing discipline (Ring and Van de Ven, 1994), partnering between manufacturers and distributors (Anderson and Narus, 1990), manufacturers and sales agents (Anderson and Weitz, 1989), buyers and sellers (Dwyer et al., 1987) as well as auditors and clients (Levinthal and Fichman, 1988). According to Webster dictionary: “a relationship resembling a legal partnership, usually involving close cooperation between parties having specified and joint rights and responsibilities” (Dictionary, 2010). La Londe and Cooper (1989) defined partnership as “a relationship between two entities that entails the sharing of benefits and burdens over some agreed upon time horizon”.

Software outsourcing partnership (SOP) is a trustful strategic partnering relationship for software development between client and vendor organizations with mutual adjustment and renegotiations of tasks and commitment that exceeds mere contractual obligations stated in an initial phase of the collaboration.

Lee and Kim (1999) defined outsourcing partnership as “an inter-organizational relationship to achieve the participants shared goals”. Software outsourcing partnership is an inter-organizational software development relationship between client and vendor organizations to achieve the participants shared goals (Lee and Kim, 1999).

In this research study, SOP is defined in this way “a strategic partnering relationship resulting from a process of transferring the responsibility of developing software for a specific business function from an employee group to a non-employee group including transfer of assets such as personnel”. A partnership is a continuous and long term mutually beneficial relationship where confidential information concerning future visions, plans and strategies is shared proactively and openly in order to help both parties to emphasis on their capitals in the appropriate direction (Lacity and Willcocks, 2011).

Section snippets

Background

Organization usually establishes partnership with counterpart organization after identifying the limitation of conventional contractual outsourcing relationship, because contractual relationship having many barriers, e.g. (1) difficulties in writing a complete contract, (2) Investment from one or both parties on relation specific assets, (3) Strict term and fixed amount in contract, (5) Many clients wants to implement total IT outsourcing (Lee et al., 2008), (6) Insufficient management of the

Aims and objectives of the research

The objective of our research study is to develop Software Outsourcing Partnership Model (SOPM) for SDO vendors. This model will assist SDO vendors in converting their existing outsourcing relationship to SOP. This model will help organizations in identifying, analyzing and implementing the CSFs of SOP with the help of practices provided. The SOPM will be the end result of two separate SLR studies, an empirical investigation in the industry and two case studies in the relevant organization.

In

Research questions

The following research questions (RQs) motivated the work reported in this paper:

  • RQ1. What are the critical success factors, as identified in the literature, to be developed by software outsourcing vendor organizations which assist in converting the exiting outsourcing relationship into partnership with client organization?

  • RQ2: What are the critical success factors, as identified in the real practice, to be developed by software outsourcing vendor organizations which assist in converting the

Research methodology

The research design is comprised of systematic literature review (SLR), questionnaire survey and case study. Details are given as follow:

  • Phase#1: Initially literature was reviewed through two different SLRs (SLR-1 and SLR-2). SLR-1 was conducted for identification of critical success factors (CSFs) whereas SLR-2 was conducted for the identification of practices.

  • Phase#2: Questionnaire survey was carried out, in order to validate the SLRs findings and to pinpoint any other factor/practice apart

Evaluation of the software outsourcing vendors partnership model

In order to evaluate the software outsourcing partnership model (SOPM), two case studies were undertaken in software development outsourcing (SDO) vendors’ organizations.

Modification to the SOPM model

In order to evaluate the SOPM in the real-world environment, we have conducted two case studies in software outsourcing organizations. Looking at the evaluation results of these case studies, described in Table 9, Table 10, Table 11, Table 12, we have observed that some modification needs in the SOPM structure. In this regard we have moved the CSFs ‘access to new technologies, markets and complementary skills’ from the Level-5 of the SOPM to Level-2 of the SOPM structure as recommended by

Limitations of research design

We limited our SLR study to five research publication databases. However, there are other related research databases, which we did not consider in our study, which may have relevant publications. Furthermore, with the increasing number of research papers published on this topic, some recent and relevant publications could have been missed at the time of consolidating the results of the SLR. Nevertheless, we believe that our presented results cover the most relevant published literature.

Conclusion and future work

By reviewing the relevant literature through SLR1, we have identified a list of 26 factors for vendor's organization in SOP formation. Out of 26 factors 14 were marked as critical success factors (CSFs) based on the criterion of >=30% occurrences in the literature.

For the identified 14 CSFs we have collected 142 practices using another SLR, tagged as, SLR2. For validation of our findings of the SLRs (SLR1 & SLR2) and to find any new factor/practice apart from the identified ones, we have

Acknowledgments

We are grateful to all members of the Software Engineering Research Group (SERG_UOM@ yahoogroup.com) at the University for their review comments during piloting phase of the questionnaire and validation phase of the SLR protocol. We are also appreciative of all the volunteer participants of the survey and case study. We appreciate the anonymous reviewers for their valuable review comments.

Mr Sikandar Ali has recently earned his MPhil Computer Science degree under the research supervision of Dr Siffat Ullah Khan at University of Malakand, Lower Dir, Pakistan. He is also teaching at University of Swat, Pakistan. His research interest lies in Software Outsourcing Partnership, Empirical Software Engineering, Systematic Literature Review, Requirements Engineering, Green Computing, Agile Software Development and Global Software Engineering. Till date he has published a number of

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    Mr Sikandar Ali has recently earned his MPhil Computer Science degree under the research supervision of Dr Siffat Ullah Khan at University of Malakand, Lower Dir, Pakistan. He is also teaching at University of Swat, Pakistan. His research interest lies in Software Outsourcing Partnership, Empirical Software Engineering, Systematic Literature Review, Requirements Engineering, Green Computing, Agile Software Development and Global Software Engineering. Till date he has published a number of articles in well reputed International conferences and Journals.

    Dr Siffat Ullah Khan is working as Asstt: Professor at Department of Computer Science & IT University of Malakand, Lower Dir, Pakistan. He has earned his PhD degree from Keele University UK, under the supervision of Dr Mahmood Niazi and Professor Pearl Brereton. Recently Pakistan Academy of Sciences awarded Dr Siffat Ullah Khan with a Gold Medal (Dr.M.N.Azam Prize 2015) for his research achievements in the field of Computer (Software). He has been the Head of the Department of Software Engineering at University of Malakand for 3 years. He is currently leading Software Engineering Research Group (SERG-UOM) at University of Malakand. Till date he has published almost 100 articles in well reputed International conferences and Journals. His research interest lies in Software Outsourcing, Empirical Software Engineering, Systematic Literature Review, Global Software Engineering, Requirements Engineering, Embedded Real-Time Systems, Cloud Computing, Green Computing and Agile Software Development.

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