Risk Factors in IT Outsourcing and the Theories Decision Makers Use to Resolve Them

Risk Factors in IT Outsourcing and the Theories Decision Makers Use to Resolve Them

Georg Hodosi (Department of Computer Science and Systems Sciences, Stockholm University, Kista, Sweden), Sanaz Manavi (Department of Computer Science and Systems Sciences, Stockholm University, Kista, Sweden) and Lazar Rusu (Department of Computer Science and Systems Sciences, Stockholm University, Kista, Sweden)
DOI: 10.4018/ijsodit.2013040103
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Abstract

In this paper the Risk Factors (RFs) in IT Outsourcing (ITO) theories from a service buyer perspective are explored. A comparative study about how Transaction Cost Theory (TCT), Core Competency Theory (CCT) and Agency Theory (AT) cover the RFs has been performed. A framework describing, how the theories cover the RFs has been developed and tested using a case study research methodology. The interviews with companies for testing the framework have been used to get an indication about which ITO theories the decision makers are using in their ITO. This study shows that TCT fully covers all RFs, AT covers almost all and CCT has the lowest coverage. The theories, which are used by the ITO decision makers, could only partially be answered. Risk handling could not be entirely mapped to the theories. Risk and risk mitigation were the main concerns for some of the interviewees, CCT for some others. This study recommends using both TCT and CCT for a successful ITO.
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Research Goals And Questions

Several researchers describe how ITO theories have been used in scientific publications. Dibbern et al. (2004) developed a survey of the ITO literature and found nine theories that have been used. Perunović (2007) mapped eleven theories to the different outsourcing lifecycle phases. Gottschalk (2006) describes eleven ITO theories and discusses the possibilities and limitations of the theories both theoretically and empirically.

So far, no studies have been found that describe how the different ITO theories cover the risks that could occur with ITO. To fill this gap is the first goal with this paper. The second is to explore which ITO theories the decision makers actually use. As this second topic also has not been found in the study of the research literature, this paper attempts to fill this gap. It is not possible to discuss all the different theories. Therefore, Transaction Cost Theory (TCT), Agency Theory (AT) and Core Competency Theory (CCT) have been selected. How the choice of theories was performed, is described in the next section.

The following Research Questions (RQs) have been raised:

  • RQ1: How are Risk Factors represented in Transaction Cost Theory, Core Competency Theory and Agency Theory?

  • RQ2: Which are the theories that IT outsourcing decision makers use when they plan to outsource IT or not, or manage their ITO?

To answer the RQs, a framework has been developed that describes how the ITO theories cover the selected RFs. This facilitates comparison of how the RFs are supported by the theories. The framework has to be tested in a real environment, which means interviews with different ITO decision makers.

To avoid a “knowledge test” of the decision makers, RFs have been discussed. In this way, the expectation was to observe their argumentation and to map them to the three ITO theories. This study is not capable of determining the knowledge the decision makers have of the theories, rather it is an overall “practiced philosophy” what could be observed. Figure 1 displays the used methodology.

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