OUTSOURCING INFORMATION TECHNOLOGY IN THE UNITED KINGDOM: TOWARD NEW SHAPES OF ORGANIZATION?

In the United Kingdom, the outsourcing of Information Technology (IT) is a rapidly growing phenomenon expanding at 20% per annum to a predicted 1995 revenue of £1 billion (IDC 1991). Government backed market testing in public sector IT may greatly increase this figure (Willcocks 1993). However, the bulk of academic research to date has been in the USA (for example Buck-Lew 1992; Lacie and Hirschheim 1993, Lob and Venkatraman 1992); this study seeks to redress that balance. The research questions concern outsourcing rationales, factors influencing the effectiveness of outsourcing decisions, management of contracts and vendor-client relationships, and the impact of outsourcing upon organizational shapes and the in-house IT function. The study draws upon and is informed by transaction cost, decision-making and political perspectives and the core competence and strategic network/alliance literatures. The research methodology has a number of parts: first, a series of sixteen telephone interviews; second, a structured interview program with managers of IT outsourcing in thirty large client organizations; and third, a postal questionnaire which elicited 164 responses. These instruments were supported by interviews with a number of outsourcing vendors and legal specialists. The fieldwork of the research is complete but the analysis and conclusions are still at an early stage. The study tests a framework, developed out of previous research, relating to decision-making criteria for outsourcing. The dimensions tested are whether the IT and related activities are core or commodity, strategic or useful (Feeny et al. 1993), the degree of uncertainty surrounding business and information requirements, the degree of complexity (measured by systems interconnectedness), the degree of technological maturity (Feeny, Earl and Edwards 1989), and in-house cost and expertise relative to that available on the market (Rands 1991). Preliminary findings suggest that these factors provide a robust framework for assessing decision-making effectiveness. A number of critical factors also emerge as determining the effectiveness of subsequent contract delivery. These include quality of vendor-client relationship, detailed legal contract, maintaining non-contractual leverage over vendor, careful handling of staff transfers, and retaining key capabilities in-house. The latter include an informed buyer role, control over IT strategy and business knowledge, ability to manage outsourcing contracts, and the ability to exploit IT in a business and strategic manner, particularly as technologies are changing and developing so rapidly. These are implicated in changing organizational forms. While short-term drivers of many outsourcing decisions studied have clearly been cost saving or response to financial problems, in a sizeable minority of organizations IT outsourcing has also been driven as part of larger organizational/business changes and/or part of a focus strategy. Other findings support the view that the UK outsourcing market is maturing and that larger vendors are seeking to develop from single transaction contractors to partnership roles, while most clients are preferring a selective outsourcing route, with fully defined contracts of five years or less