Managing Information Technology

Chapter 13 • Leading the Information Systems Function 557

providers (ASPs)range from providers of single-purpose
applications (e.g., a sales-force automation capability as
offered by Salesforce.com) to broad applications (e.g.,
enterprise resource planning systems). The client organiza-
tion often pays an ASP on the basis of the number of
“seats” (users) or on the number of transactions per month.
(For further discussion, see Chapter 10.)
On the other hand, security and privacy issues and
the strategic value of some data may mean that certain
applications should notbe developed by another organiza-
tion. For example, applications to support new product
research and development may be considered too sensitive
to outsource. Sometimes an outsourcer will specialize in
particular industries (e.g., retail or health care) to gain a
depth of relevant application knowledge; in such
instances, steps should be taken to ensure that the out-
sourcer is not put in a situation where its personnel could
leak competitive information.

VENDOR SELECTION Similar to selecting a vendor for a
software package (see Chapter 10), the selection of an
outsourcing vendor should include several factors about
the vendor, not just its products, including the following:

• Vendor reputation as a vendor partner, and health as
  a company


• Established record of quality service, including
  responsiveness to client issues
  Recent research also has pointed out the importance
  of assessing a vendor’s track record for knowledge transfer
  (Ranganathan and Balaji, 2007; Hawk et al., 2009). Some
  firms have also increased their outsourcing benefits
  and decreased their risks by multisourcing with a set of
  vendors with three different types of contract relationships
  (see box “Managing the Vendor Set”).

OFFSHORE OUTSOURCING While India is the current

leader among offshore outsourcingvendors, many other

countries vie for a share of this market. Not only China

but also smaller Asian countries (e.g., the Philippines,

Vietnam, Malaysia), Eastern European countries, Brazil,

and some south African countries offer highly trained IS

personnel at costs that seem to be a fraction of what is

available domestically. Although recent estimates are that

it will take about a quarter of a century before average

salaries in India will converge with average salaries in

the United States (Luftman and Kempaiah, 2007), Indian

outsourcing firms are already subcontracting some of their

own work to China, Vietnam, and other countries that

currently have lower labor rates.

It is also important to recognize that not all offshore

arrangements are the same. For example, some companies

have established offshore development centers in which

foreign technology workers are actually employees of the

client company and use the same software tools and devel-

opment processes as their domestic counterparts. The

main difference is the salaries paid for these workers. The

termnear-shorehas also been introduced to distinguish

offshore locations that are geographically closer to a

company’s home office, often with overlapping time

zones. For example, several companies in the United

States are looking more closely at sites in South America

for infrastructure outsourcing in particular, at least partial-

ly due to time zones. Many multinational firms have the

option of choosing what is referred to as best-shore

sites—meaning there are multiple options available to

them, and time zones and skill sets can be taken into

account. Sometimes a “follow-the-sun” approach is delib-

erately chosen in order to leverage the ability to hand off

help desk or application development work from workers

in one geographic area to another.

MANAGING THE VENDOR SET

A multinational company has taken a multisourcing approach to software development in which contracts exist with vendors

of three different types:

• Alpha vendors that have an established relationship with them and primarily work on their strategic applications


• Beta vendors that are newer, but aspire to be Alphas


• Gamma vendors that are the newest vendors and know the least about the client and its business operations
  Client managers work with the vendor types in different ways to build relationships and transfer relevant knowledge.
  They also routinely identify, qualify, and contract with new vendors for smaller projects, but don’t consider them part of the
  “set” until the arrangement has been proven to be successful. This allows them to incent the members of the vendor set to
  perform well as well as leverage the competitive players in the marketplace.
  [Based on Poston et al., 2009]