Performance Measurement in an Outsourcing Environment

Introduction

The recent myriad of outsourcing deals, such as General Electric’s $15bn multi-sourcing deal for system integration services (Thomas, 2006), indicates the rapidly increasing propensity for companies to outsource. In the UK, 88% of companies are using some degree of outsourcing in their IT operations (Cap Gemini Ernst & Young, 2003), primarily in the areas of Infrastructure Management Services (IMS). The literature indicates that as many as 50% of these negotiated deals run into difficulties, which indicates the increasing challenge to achieve successful outsourcing (Cohen & Young, 2005; Deloitte, 2005; Overby, 2006).

This chapter outlines the application of a strategic outsourcing framework which has been developed to incorporate a tri-perspective approach that addresses the evaluation of multiple issues such as financial costing, quality of service and performance benchmarking etc. The framework, known as HABIO (Holistic Approach {Business, Information, Organisation}) is based on the well-established Information Systems Strategy Triangle (Pearlson, 2001), presented in Figure 1a, which facilitates its adoption of a holistic approach (Figure 1b). The resultant framework (Ho & Atkins, 2006a; Ho & Atkins, 2006b) is intentionally designed to be flexible because outsourcing decisions are not necessarily homogenous between companies (Dibbern et al., 2004). As illustrated in Figure 1c, the HABIO framework depicts relevant issues as “cards” which can be added or removed from each “deck” (i.e. perspective) as appropriate to the organisation under consideration.

Figure 1.

Development of the Holistic Approach {Business, Information, Organisation} (HABIO) Framework

Background

The use of outsourcing is increasingly a norm in the modern business environment and its application has significantly diversified from ancillary or non-differentiator functions (e.g. payroll processing) to more strategic functions (e.g. research and development for customer electronics such as PDAs). Outsourcing is now used in a myriad of industries, including less conventional areas such as Private Military Companies (PMCs) in conflict zones (Eyal, 2004; Traynor, 2003; Yeoman, 2003) and Auxiliary Police Forces (APFs) for security-related operations. In the island state of Singapore for example, APFs such as Certis Cisco and AETOS are engaged to conduct external perimeter security for certain government facilities and lower risk military installations.

Despite the proliferation and widespread use of outsourcing, it has not been without its fair share of complications, such as the potential breach of client privacy and confidentiality in the case of the UCSF Medical Centre medical transcription incident (Bagby, 2003; Lazarus, 2003) and supermarket giant Sainsbury’s cancellation of its $3.4bn outsourcing contract with Accenture which resulted in termination costs of $130m (Hadfield, 2006). The increasing challenge to achieve successful outsourcing is underscored in the literature, which indicates that $7.4bn was wasted by European businesses on poorly managed contracts and that as many as 50% of outsourcing arrangements run into complications contracts (Cohen & Young, 2005; Deloitte, 2005; Overby, 2006). Such findings are reflected in ComputerWeekly’s Chief Information Officers (CIOs) in 2006 where only 25% of the 140 respondents agreed that outsourcing has provided expected benefits. These statistics illustrate the potential complexity of the outsourcing decision-making, and the need to address it as a strategic process rather than a generic “make-or-buy” consideration.