The Concept of Modularity in the Context of IS/IT Project Outsourcing: An Empirical Case Study of a Belgian Technology Services Company

Introduction

Globalization of the world economy has accelerated the advancements of IS/IT and due to many reasons outsourcing of IS/IT projects became a common practice among contemporary organizations in developed and in emerging economies. The global market of IS/IT project outsourcing is predicted to be nearly $445 billion in 2020 (Monitor Deloitte – 2019, “outsourcing and shared services 2019-2023”) and over 94% of ‘Fortune 500’ companies are outsourcing at least one major business function (Modarress, Ansari, & Thies, 2014). Despite the prevalence and long experiences of CIO’s in IS/IT project outsourcing, the failure of such projects is very common. The literature suggests that at least one in three projects was considered a failure and many projects were delayed, ran over budget, and were not able to meet their pre-defined targets (table 1).

Many suggestions have been uttered by both scholars and practitioners on how these problematic outsourcing initiatives can be improved. Peterson and Carco (1998) suggested streamlining operation and fixing the problem before outsourcing. Other management-oriented suggestions included the partnership model (Lambert, Emmelhainze, & Gardner, 1999), the seven steps to successful outsourcing (Greaver, 1999), knowledge sharing (Lee, 2001), knowledge transfer (Rottman, 2008), high quality service level agreements (SLA) (Harris, Herron, & Iwanicki, 2008), and the reconfiguration of organizational resources (Zheng & Abbott, 2013). The objective of this study is mainly to focus on the high percentage of failure in IS/IT project outsourcing, indicating the potential usefulness of or need for a different lens or approach than the mainstream, management-oriented research which mostly comes from the traditional domains (i.e., Economics, Management Sciences, and Organization Sciences). Indeed, several authors already pointed out inherent complexity and weaknesses in the current IS/IT outsourcing approach. Although IS/IT project outsourcing is considered by many scholars as a complex business strategy (e.g., Beulen & Ribbers, 2003; Jacques, 2006), many customer organizations do not even fully consider the risks associated with IS/IT project outsourcing and often fail to make decisions systematically and rigorously (Oshri, Kotlarsky, & Willcocks, 2015). Aron, Clemons, and Reddi (2005) suggest that the complexity of processes plays a significant role in IS/IT project outsourcing decisions. Cohen and Young (2006) argue that ad hoc sourcing approaches of yesteryears are ineffective in today’s complex world. Findings from the research of British Computer Society indicates that complexity is the most common attribute to the failed outsourced IS/IT projects (Nauman, Aziz, & Ishaq, 2009). The findings from aforesaid studies further strengthen the argument in literature that IS/IT project outsourcing is a complex maneuver and inherent complexity is one of the main reasons for high failure rate of IS/IT outsourced projects. IS/IT project outsourcing is often considered from a non-technical, IT-management point of view. But this study is using a different lens (the concept of modularity) to look at the high failure rate. The reason of using the lens of the concept of modularity is its successful use in addressing the complexity in system sciences, design sciences, manufacturing, engineering, and in many other domains (Baldwin & Clark, 2000; Schilling, 2000; Simon, 1962 & 1996). Simon (1996) asserts that systems complexity can be better managed using the concept of modularity as it offer greater flexibility and agility. This study contributes to the efforts being made in formulating a newly developed systematic approach illustrating, how the concept of modularity can be applied in identifying ‘couplings’ which may be responsible for increasing complexity to IS/IT project outsourcing. In the following literature review section, the term ‘IS/IT outsourcing’ and ‘modularity’ in the context of this paper is briefly explained.