JIT THE MANAGEMENT OF GLOBAL SOURCING PARTNERSHIPS: IMPLICATIONS FOR THE CAPABILITIES AND SKILLS OF THE IS FUNCTION.

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1 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 JIT THE MANAGEMENT OF GLOBAL SOURCING PARTNERSHIPS: IMPLICATIONS FOR THE CAPABILITIES AND SKILLS OF THE IS FUNCTION Erik Beulen Tilburg University PO Box NL-5000 LE Tilburg The Netherlands Tel : Fax : erik.beulen@uvt.nl Abstract In 1997/1998 Feeny and Willcocks published their IT governance and management framework, defining nine capabilities the IS function of outsourcing companies should have. This framework and its underlying concepts were an important contribution to the development into maturity of many organizations IS functions. Its nine capabilities have proved to be relevant for outsourcing partnerships and the framework is considered relevant for global sourcing partnerships too, in which service delivery is executed from outside the client s country or region but not necessarily only from developing countries. Global sourcing partnerships present their partners with some specific difficulties: differences in time zone, language and culture, and geopolitical risks. These barriers and risks make global sourcing partnerships more difficult to manage, and the recipients IS functions must therefore address these issues. In global sourcing partnerships more is required of IS function professionals especially in the areas of business and interpersonal skills. Unlike outsourcing partnerships, global sourcing partnerships may also make it worthwhile for IS functions to include staff with project and program management capabilities. Finally, the growing size of global sourcing partnerships requires larger IS function staffs, since one needs more people to manage a global sourcing partnership than for an outsourcing partnership. In this paper five case studies are analyzed to assess the applicability of Willcocks and Feeny s IT governance and management framework to global sourcing partnerships. The discussion also includes lessons learnt for the IS function in such partnerships. The case studies used originate from India, Poland and South Africa. Keywords: capabilities, global sourcing partnerships, IS function, IT governance, outsourcing and retained organization

2 Introduction First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 Outsourcing has grown immensely during the past decades. IDC expects that worldwide end users will spend $1.2 trillion on information technology in 2006, increasing their IT spending at a compound annual growth rate (CAGR) of 6 % to reach $1.5 trillion in 2010 (IDC, 2006). IDC also foresees that IT investments in emerging markets - such as developing countries in Asia/Pacific, Eastern Europe, and Latin America - will continue to expand at a double-digit rate (IDC, 2006). Gartner anticipates an increase of offshore outsourcing spending, to top $50 billion in 2007 (Gartner, 2006). Other scientists, too, predict that in the period spending will continue to rise in all global sourcing markets despite the media attention for backsourcing (Lacity and Willcocks, 2006, page 276). As was expected at the turn of the century, the maturity of the service recipients in outsourcing partnerships in general has increased (Carmel and Tjia, 2005; Erber and Sayaed-Ahmed, 2005). Carmel distinguishes four offshore outsourcing maturity phases: offshore bystander, offshore experimenter, proactive cost focus and proactive strategic focus (Carmel and Agarwal, 2002; Carmel and Agarwal, 2006). His maturity model is similar to that published by Forrester, who distinguishes bystanders, experimenters, committeds and full exploiters. Of the 2003 Fortune Top 1000 companies, 60 %, %, 5 10 % and < 5 %, respectively, fell into these categories (McCarthy, 2003). Gradually, a shift is now taking place, increasing the latter figures and decreasing the former. In Information Technology (IT), outsourcing partnerships are increasingly transformed into global sourcing partnerships, an arrangement that goes a step beyond offshore outsourcing. In traditional outsourcing partnerships, services are executed from the country in which the service recipient is located. Offshore outsourcing means that service providers execute their service provisioning out of developing countries. And in global sourcing they do so from several countries, including developing countries. Global sourcing simply means that IT service execution shifts to other countries than those in which they are delivered. In this paper the implications for outsourcing partnerships versus global sourcing partnerships are addressed. Migrating to global sourcing partnerships is not a simple matter. It requires much management attention on the part of both the service recipient and the service provider. Much has been published about the risks of global outsourcing, which include cultural differences (Aeh, 1990; Rajkum and Dawley, 1997; Ramarapu et al., 1997; Carmel, 1999; Beulen and Ribbers, 2003a, Carmel and Tjia, 2005), language barriers (Aeh, 1990; Ravichandran and Ahmed, 1993; Rajkum and Dawley, 1997; Carmel, 1999; Raval, 1999; Robinson and Kalkola, 2004; Carmel and Tjia, 2005), time zone differences (Aeh, 1990; Ravichandran and Ahmed, 1993; Smith et al., 1996; Rajkum and Dawley, 1997; Carmel, 1999; Fenema, 2002, Carmel, 2006) and geopolitical risks (Aeh, 1990; Smith et al., 1996; Carmel, 1999; Erber and Sayed-Ahmed, 2005; Overby, 2006). All of these risks increase the challenge facing companies engaging in global outsourcing. While India is still by far the largest developing country to which IT services are outsourced, many other countries are playing an increasingly important role in global sourcing (Gartner, 2006; IDC, 2006). Expectations are especially high for countries such as China (Qu and Brocklehurst, 2003; Carmel and Tjia, 2005). The geopolitical risks involved and the limited proficiency in English of the staff (Overby, 2006), however, as well as the legal risks involved in technology transfer and intellectual property rights (Kennedy and Clark, 2006), require much attention from service recipients who elect to have their IT services executed in China. On the other hand there are countries such as Brazil, the Eastern European countries (including new EU members such as Poland and Hungary), Mexico, the Philippines, Russia and South Africa, to name but a few. They, too, are well qualified to increase their role in global sourcing (Carmel and Tjia, 2005; Overby, 2006). Choosing which country to source one s IT services from therefore is an essential part of the company s global sourcing strategy. Spreading IT services execution over several regions and

3 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 countries may be more complicated, but it diminishes the risks involved in global sourcing partnerships (Vestring et al., 2005). Agarwal and Sambamurthy (2002) have presented three models for organizing the IS function of outsourcing companies: the partner model, the platform model en de scalable model. According to the partner model the IS function acts as a catalyst for innovation; in the platform model its role is that of enabler. The scalable model makes extensive use of service providers, who facilitate IT-based business innovation (Agarwal and Sambamurthy 2002, page 9). Therefore, it is the scalable model that is most applicable to outsourcing partnerships and global sourcing partnerships. However, including innovation in outsourcing partnerships and global sourcing partnerships turns out to be difficult in practice (Linder et al. 2003; Ing, 2005; King, 2005; Gartner, 2006). The rise of global partnerships also has implications for the capabilities and skills required of the IS function - which still remains the responsibility of the service recipient (Beulen et al., 2005; Carmel and Tjia, 2005; Beulen et al. 2006). As part of their original IT governance and management framework Feeny and Willcocks defined nine capabilities that the IS function of outsourcing companies should have (Willcocks et al., 1997; Feeny and Willcocks, 1998a; Feeny and Willcocks, 1998b; Willcocks and Sykes, 2000). Because of its continued relevance to companies and the ongoing developments in the outsourcing field, their framework was reviewed by the authors in 2006 (Willcocks and Feeny, 2006; Willcocks et al. 2006). A distinction should be made here between the IS function s tasks in application development and those in infrastructure management, as defined by Sadlowski (1998) and Caldwell (2004). For each of them specific issues must be addressed when the company decides for a global sourcing partnership. These are: social ties, knowledge sharing and successful collaboration in the case of global application development (Kotlarsky and Oshri, 2005); and global certified processes, global tooling, communication facilities, reliable local partners, standardized service levels and contract management for global infrastructure management (Beulen et al., 2005). In this paper, the IS functions of five global sourcing partnerships are assessed on the basis of Feeny and Willcocks IT governance and management framework. To do so, we must first look into the framework s nine capabilities and the implications that global sourcing partnerships have for them. Then, five case studies are described, followed by an analysis of the capabilities of the IS functions involved. The applicability of Feeny and Willcocks framework to the IS function in global sourcing partnerships can then be assessed. Capabilities of the IS function The outsourcing literature has paid much attention to the management of outsourcing partnerships. Many different aspects were discussed. There were the problems and complications outsourcing entails for the IS function of the recipient (Lacity and Hirschheim, 1993; Lacity and Hirschheim, 1995; Lacity and Willcocks, 2001; Cullen and Willcocks 2003; Beulen et al., 2006; Gottschalk and Solli-Saether, 2006; Hirschheim et al., 2006; Willcocks and Lacity, 2006). Much attention has been paid to the topic of outsourcing contracts too (Ang and Beath, 1993; Domberger et al., 2000; Kern et al., 2002b; Beulen and Ribbers, 2003b; Cullen et al., 2005a); and several researchers have published on contract management, including issues such as suppliers lack of active contract and relation management, and their failure to build and retain the required in-house capabilities and skills (Willcocks et al., 1999; Beulen et al., 2006). Lacity en Willcocks (1998), for instance, have presented five practices, differentiating between decisions that did lead to the cost savings expected and those that did not, and including the best practice of short-term contracts, which provides greater security

4 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 with respect to achieving those savings than long-term contracts. Another subject that has received much attention was sourcing strategy (Lacity et al., 1996; Currie and Willcocks, 1998; Kern et al., 2002a). In today s practice there are few companies who outsource all of their IT services to a single provider (IDC, 2006; Gartner 2006). However, when switching costs in outsourcing partnerships were investigated on the basis of Williamson s transaction cost theory (Willcocks et al., 1995; Aubert et al. 2004; Whitten and Wakefield, 2006), they proved relatively high an important argument in favor of the continuation of current contracts. Finally, in their description of outsourcing companies, Feeny and Willcocks have defined nine capabilities that the IS functions of such companies should have (Feeny and Willcocks, 1998a; Feeny and Willcocks, 1998b). However, the dynamics of global sourcing are different from those of outsourcing. Since the IT services involved are at least partly executed in developing countries, this has consequences for the recipient s IS function too. Trent and Monczka have named several characteristics of global sourcing: the availability of the resources needed, the supportive organizational design, and structured approaches to communication (Trent and Monczka, 2005). Likewise, it is important that service providers deploy on-site engagement managers (best practice no. 12 according to Rottman and Lacity, 2006). In addition Rottman and Lacity describe 29 practices for offshoring IT work (Chapter 9 in Willcocks and Lacity, 2006). Doh, among other aspects, focuses on the dynamics of such relations and the related competence of the managers involved reacting quickly to changing market conditions (Doh, 2005). Governance is important in global sourcing partnerships too. Three principles can be distinguished here that influence the IS function: communication, relation management and reporting (Carmel and Beulen, 2005). Global sourcing implications for the IS function Feeny and Willcocks have defined the capabilities that the IS functions of outsourcing companies need (Feeny and Willcocks, 1998a, page 361 and 362). They are listed in Table 1. The author intends to assess this IT governance and management framework with respect to its applicability to global sourcing partnerships. Are its nine capabilities relevant in global sourcing partnerships? Should other capabilities be added? Which specific demands should be made of the IS function staff of companies engaging in global sourcing partnerships? This paper will attempt to answer these questions. Table 1: Feeny and Willcocks capabilities of the IS function (Willcocks et al. 2006, page 30) Capabilities of the IS function Capability no. 1 IS/IT governance. Integrating IT effort with business purpose and activity. Capability no. 2 business systems thinking. Ensuring that IT/e-business technology capabilities are envisioned in every business process. Capability no. 3 relation building. Facilitating the wider dialogue, establishing understanding, trust and cooperation between business users and IT specialists. Capability no. 4 designing technical architecture. Creating the coherent blueprint for a technical platform that responds to present and future business needs. Capability no. 5 making technology work. Rapidly trouble-shooting problems disowned by others across the technical supply chain; and identifying how to address business needs that cannot be properly satisfied by standard technical approaches. Capability no. 6 informed buying. Analyzing the external market for IT/e-business services; selecting a sourcing strategy to meet business needs and technology issues; leading the tendering, contracting, and service management processes. Capability no. 7 contract facilitation. Ensuring the success of current IT services contracts. Capability no. 8 contract monitoring. Holding suppliers to account against both existing service contracts and the developing performance standards of the services market (a role located in the exclusive space of the supply face). Capability no. 9 vendor development. Identifying the potential added value of IT/e-business service suppliers.

5 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 Research: the case studies The research methodology used for this paper was of a qualitative character and remained limited to five case studies. Its aim was to better understand the implications of global sourcing partnerships for the capabilities required of the IS function. This approach is called analytical generalization (Myers and Avison, 2002). An overview of the company profiles of the service recipients investigated is presented in Table 2, showing the homogeneity of the case studies that ensures the internal validity of the conclusions presented here (Yin, 1994). All case studies involved substantial contract values and long contract periods; and all service recipients had much experience with outsourcing and global sourcing. Except for that of company 4, all contracts had previously been prolonged once or even several times. Even though the differences between the set-up of the IS function for global sourcing partnerships and that for BPO partnerships are slight (Feeny et al. 2005; Willcocks et al. 2006) this paper looks at global IT sourcing partnerships only. The service providers concerned all used both onshore professionals and professionals in developing countries (India, Poland and South Africa) to source their IT services. The author conducted interviews for case studies no. 1, 2 and 3, and was personally involved as dealmaker in the contracting processes for companies 2, 4 and 5. The findings presented here are further based on information drawn from the corporate documents of the companies involved - requests for proposal, meeting minutes, contracts, and service level agreements. Information available in the public domain, such as annual reports and newspaper clippings, was also included in this research. This process of cross-validating the documentary data with the topics emerging from interviews and the author s observations allowed for within method data triangulation and increased interpretive validity (Jick, 1979). Table 2: The characteristics of the companies investigated for this paper Company 1 Company 2 Company 3 Company 4 Company 5 The service recipient The recipient s IS function Sourcing strategy A global software product company (more than employees) Central IS function Multiple partial outsourcing relations (< 5 service providers) A consumer packaged goods company (nearly employees) Central global IS function including continental IS functions to enable business and IT alignment Multiple full outsourcing relations (> 5 service providers) An international manufacturer including different types of subsidiaries (more than employees) Central global IS function including business unit IS functions to enable business and IT alignment Multiple full outsourcing relations (> 5 service providers) A European utility company (more than employees) Central IS function Multiple partial outsourcing relations (< 5 service providers) A Dutch multiutility company (more than employees) Central IS function Multiple full outsourcing relations (< 5 service providers) The global services involved Application development (R&D / product development) IT infrastructure management Application development Application development Application development Developing countries involved Initial contract signed in Application management Service and helpdesk management services (third level support) Application maintenance (mainly SAP related) Application maintenance (CRM related) Application maintenance (billing application) India India and Poland India India South Africa

6 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 Duration of the contract Total contract value in US$ Track record in outsourcing partnerships Track record in global partnerships 5 years 2 years Various contracts 2 years 3 years Confidential Confidential > 5 million 8 million 20 million > 10 years > 10 years > 10 years > 10 years > 5 years > 2 years > 5 years > 5 years Pilot < 2 year The maturity stage of the companies offshore IT sourcing The case studies presented here can be characterized by their maturity, according to Carmel s offshore IT outsourcing maturity phases: offshore bystander, offshore experimenter, proactive cost focus and proactive strategic focus (Carmel, 2002). Company 4, for instance, is an offshore experimenter. An offshore champion among their employees took the initiative and set up a pilot project. The primary motives to do so were realizing cost savings and countering local labor shortages with respect to technical CRM specialists. In the first quarter of 2007 a tender will be submitted for other IT domains as well. Companies 1 and 5 have a proactive cost focus. Both have much experience with outsourcing and consider global sourcing the logical next step for their service provisioning. Both also have included global sourcing explicitly in their sourcing strategy. Companies 2 and 3 have a proactive strategic focus. Both have much previous experience with global sourcing partnerships. A model for organizing the IS function On the basis of Agarwal and Sambamurthy s classification (2002) the IS functions of the recipients studied here can be characterized according to the partner model, the platform model or the scalable model. All companies investigated have much experience with outsourcing; none of their IS functions therefore operated according to the partner model. The IS functions of companies 1, 4 and 5 follow the platform model, in which IT ensures innovation across the company and an enterprisewide platform is set up for its service provisioning. There is business ownership with respect to IT innovation and the IS function has clearly defined contact persons in the business units. The IS functions of companies 2 and 3 follow the scalable model, which allows even greater flexibility and anchors IT provisioning even better in the business. These companies also use global sourcing portfolios and outsourcing contracts: multisourcing arrangements. Willcocks and Feeny predict the growth of outsourcing maturity with time, in which the company s CIO evolves from functional head to strategic partner or business innovator (Willcocks and Feeny, 2006). The CIOs of companies 1, 4 and 5 may be characterized as strategic partners. IT is important for these companies, although they still consider it a supporting feature for their operational management. The CIOs of companies 2 and 3 operate as business innovators. Their companies consider IT an important element of their operational management and an influential factor in their competitive strategy. The capabilities of the IS function

7 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 On the basis of the nine capabilities defined by Feeny and Willcocks the IS functions of the companies studied here can be assessed. The results are listed in Table 3, in which the roles within the IS function, the representatives of the business and their counterparts (at the service provider s side) are summed up per capability. Company 1 a global software product company The IT services delivered from India consist of two elements: application development (R&D and product development) and application and helpdesk management services (third level support). Since application development is directly coupled to the recipient s primary processes, the product managers and board members who are responsible for product development are closely involved in the management of this global sourcing partnership. Their central IS function ensures that the collaboration between the IS function and the business representatives runs smoothly. Monitoring the service provider, however, requires attention in a global sourcing partnership such as this. The innovative character of the IT services (for R&D and product development) makes it difficult to define agreements on requirements and service levels. Communication at all levels therefore includes much fine-tuning with the service supplier. It takes place at the recipient s head office as well as at the provider s local India office. And the people involved naturally make extensive use of , teleconferences and video conferences as well. The recipient s IS function consists of less than 10 FTEs, including a very limited number of staff capable of taking on the role of project manager. That task is therefore carried out by the service provider. The recipient s product development managers, however, are closely involved in the execution of the service provider s projects. Company 2 a consumer packaged goods company The consumer packaged goods company of this case study has much experience with outsourcing and global sourcing, both with the service provider of this case study and with other suppliers. The recipient, who outsource their IT services in order to cut costs, has evolved from outsourcing to global sourcing. Instead of sourcing only from India, services are sourced from Poland too. This is motivated by the political tension between India and Pakistan at the time the contract was signed: in case of disturbances, service execution can be moved to Poland, which guarantees its continuity. This global sourcing partnership falls under the responsibility of the recipient s European IS function. Especially with regard to the choice of supplier their corporate IS function is responsible too because they determine the company s sourcing strategy. The communication structures at all levels are concerned to a large extent with fine-tuning with the supplier. Such communication takes place at the recipient s head office in Belgium, where the service provider s management is located as well. The service provider s global tooling offers the recipient much insight in their performance, especially since the recipient s service delivery supervisor has access to it as well. Of course, everyone involved makes extensive use of , teleconferences and video conferences. The IS function in Europe consists of about 10 FTEs. Only few of these staff are capable of project management tasks. Only strategic and innovative projects are therefore led by project mangers from the IS function. The recipient also executes the program management tasks involved usually taken up by IS function staff but frequently by business unit staff as well. All other project management is carried out by the service provider.

8 First Information Systems Workshop on Global Sourcing: Services, Knowledge and Innovation Val d'isère, France March 2007 Company 3 an international manufacturer This recipient has much experience with both outsourcing and global sourcing. The service provider of this case study, the former internal automation department of the recipient but now fully independent, is an important supplier for the recipient, but the recipient remains one of the provider s most important clients. There are, therefore, many contacts on all levels between the two parties, which makes their collaboration substantially easier. An exceptional feature of the IS function of this recipient is that most of its staff have a technical background. Business and interpersonal skills are less well represented. On the other hand, most staff involved in this contract have a lot of international experience. For the contract managers this is especially valuable, since they are responsible for monitoring the execution of the IT services. The IS function consists of some 50 FTEs plus a limited number of project and program managers. But the program managers roles are embedded in the IS function s organizational structure; a total of 5 FTEs has been designated for this purpose. Most other project management tasks are carried out by the service provider. Company 4 a European utility company This company s IS function is in the process of maturing. Partly as a consequence of a number of mergers and acquisitions rapidly following one another, it is difficult for this service recipient to keep its IS function s capabilities up to standard. Fortunately, its management does pay enough attention to this issue. Since its IT services are as yet insufficiently under control, the company has entered into outsourcing partnerships with only a limited number of suppliers. The subject of this case study is a pilot project awarded to one of its preferred suppliers in a closed RFI/RFP process. The motivation to do so was partly legal (because of European tendering regulations), but it also stemmed from the fact that the company wanted a fall-back option in case its global sourcing would fail. It is easier for an incumbent service provider to carry out the required service delivery from a developing country. It is also easier for them to transfer service delivery back to Europe should global sourcing not be successful. Another advantage of this set-up is the combined commercial and service delivery responsibility of the service provider s Client Partner. This helps the IS function, preventing conflicts of interest within the supplier s organization. The recipient has chosen to have its IT services executed by a service provider while they build up their own execution capabilities. The aim is to let the company and its IS function gain more control over the service delivery. The IS function consists of less than 10 FTEs. In addition it carries out more than 50 % of the project management tasks involved. All other such tasks are carried out by the service providers. Company 5 a Dutch multi-utility company This recipient has adequately set up its IS function. In addition its procurement department plays an important role in both contracting and managing their global sourcing partnership. Their expertise well supplements that of the IS function. Because of the size of the company, only a limited number of service providers has been contracted. The responsibility for the collaboration between these providers is shared between the IS function and the service providers themselves. The contracts include explicit agreements on this issue. Another advantage for the IS function is similar to that for company no. 4: the responsibility for commerce and service delivery is combined by the service provider s Client Partner. The IS function consists of less than 10 FTEs. It has no project managers, and consequently all project management tasks are carried out by the service provider. 8

9 February 26, 2006 Table 3: The IS functions of the global sourcing partnerships investigated # Capability Company 1 Company 2 Company 3 Company 4 Company 5 1 IS/IT governance Responsibility of the CIO, supported by the Corporate Information Manager and Product Development Manager. Responsibility of the CIO, supported by the European Information Manager and the Service Delivery supervisor. Responsibility of the CIO, supported by the Corporate Information Manager. Responsibility of the CIO, supported by the Information Manager. Responsibility of the CIO, supported by the Information Manager and the Business Unit Managers. 2 Business systems thinking Bi-annual strategic contract reviews with the Global Customer Unit Manager and the Contract Manager of service provider. Responsibility of the Product Manager and the Corporate Information Manager. Monthly, ongoing risk assessments and annual strategic contract reviews with the Global Customer Unit Manager, the Contract Manager and the Service Delivery Managers of the service provider, supported by ITIL processes. Responsibility of the European Information Manager and the Business Unit Manager. Monthly, ongoing risk assessments and quarterly strategic contract reviews with the Global Customer Unit Manager, the Contract Manager and the Service Delivery Managers of the service provider, supported by ITIL processes. Responsibility of the CIO, the Corporate Information Manager and the Business Unit Managers. Bi-annual, ongoing risk assessments and annual strategic contract reviews with the Client Partner and the Service Delivery Manager of the service provider, supported by COBIT and ITIL processes. Responsibility of the CIO, the Information Manager and the Business Unit Managers. Monthly, ongoing risk assessments (external audits) and monthly strategic contract reviews with the Client Partner and the Service Delivery Manager of the service provider, supported by COBIT and ITIL processes. Responsibility of the CIO, the Information Manager and the Business Unit Managers. 3 Relation building Bi-annual contract reviews with the Global Customer Unit Manager and the Global Sales Executive of the service provider. Responsibility of those board members responsible for product development and IT. Annual contract reviews with the Global Customer Unit Manager and the Global Sales Executive of the service provider. Responsibility of those board member responsible for IT. Quarterly contract reviews with the Global Customer Unit Manager and the Global Sales Executive of the service provider. Responsibility of the CIO and the corporate Information Manager. Quarterly contract reviews with the Client Partner and the Service Delivery Manager of service provider. Responsibility of the CIO and the Information Manager. Quarterly contract reviews with the Client Partner and the Service Delivery Manager of the service provider. Responsibility of the CIO and the Information Manager. 4 Designing technical architecture 5 Making technology work Annual account planning sessions with the Global Sales Executive of the service provider. Responsibility of CIO and the Corporate Information Manager. Based on the recipient s IT strategy and described in their corporate architecture guidelines. Responsibility of the Product Manager and the Global Customer Unit Manager of the service provider. Annual account planning sessions with the Global Sales Executive of the service provider. Responsibility of CIO and the Global Information Manager. Based on the recipient s IT strategy and described in their corporate architecture guidelines. Responsibility of the Service Delivery Supervisor and the Global Customer Unit Manager of the service provider. Bi-annual account planning sessions with the Global Sales Executive of the service provider. Responsibility of the Global Information Managers. Based on the recipient s IT strategy and described in their corporate architecture guidelines. Responsibility of the Contract Manager and the Global Customer Unit Manager of the service provider. Bi-annual account planning sessions with the Client Partner of the service provider. Responsibility of the Information Manager. Based on the recipient s IT strategy and described in their corporate architecture guidelines. Responsibility of Information Manager and the Client Partner. Quarterly account planning sessions with the Client Partner and the Service Delivery Manager of the service provider. Responsibility of the Information Manager and the IT architects. Based on the recipient s IT strategy and described in their corporate architecture guidelines. Responsibility of Information Manager, the Contract Manager and the Service Delivery Manager of the service provider. Quarterly relation review meetings discussing the rolling forecast planning and release schedule. Bi-annual relation review meetings. Bi-annual relation review meetings discussing the rolling forecast planning. Bi-annual relation review meetings discussing the rolling forecast planning and the release schedule. Monthly relation review meetings discussing the rolling forecast planning and the release schedule. 9

10 February 26, 2006 # Capability Company 1 Company 2 Company 3 Company 4 Company 5 6 Informed buying Responsibility of the CIO, the Corporate Information Manager, the Product Manager and the purchase department. Responsibility of the CIO, the Global Information Manager and the local purchase department. Responsibility of the Corporate Information Manager, the contract manager and the business unit s purchase department. Responsibility of the Information Manager and the purchase department. Responsibility of the Information Manager, the Contract Manager and the purchase department. 7 Contract facilitation Supported by purchasing procedures, including authorization and approval processes. Responsibility of the Product Manager and the Corporate Information manager. Supported by corporate purchasing procedures, including authorization and approval processes. Responsibility of the European Information Manager. Supported by corporate purchasing procedures, including authorization and approval processes. Responsibility of the Corporate Information Managers and the Contract Managers. Supported by purchasing procedures, including authorization and approval processes. Responsibility of the Information Managers. Supported by purchasing procedures, including authorization and approval processes. Responsibility of the Information Manager and the Contract Manager. 8 Contract monitoring Discussed with the Global Customer Unit Manager and the Contract Manager in monthly service review meetings. Responsibility of the Corporate Information Manager and the Global Customer Unit Manager of the service provider. Discussed with the Global Customer Unit Manager and the Contract Manager in monthly service review meetings. Responsibility of the Service Delivery Supervisor and the Global Customer Unit Manager of the service provider. Discussed with the Global Customer Unit Manager and the Contract Manager in monthly service review meetings. Responsibility of the Contract Manager and the Global Customer Unit Manager of the service provider. Discussed with the Client Partner and the Service Delivery Manager in monthly service review meetings. Responsibility of the Information Manager and the Client Partner of the service provider. Discussed with the Client Partner and the Service Delivery Manager in monthly service review meetings. Responsibility of the Information Manager, the Service Delivery Manager and the Client Partner of the service provider. 9 Vendor development Monthly contract review meetings. Responsibility of the CIO and those board members responsible for product development and IT. Monthly contract review meetings. Responsibility of the CIO and those board members responsible for IT. Monthly contract review meetings. Responsibility of the CIO and the Corporate Information Managers. Monthly contract review meetings. Responsibility of the CIO and the Information Managers. Monthly contract review meetings. Responsibility of the CIO and the Contract Manager. Based on the recipient s sourcing strategy. Based on the recipient s sourcing strategy. Based on the recipient s sourcing strategy. Based on the recipient s sourcing strategy. Based on the recipient s sourcing strategy. 10

11 Analyzing the case studies The analysis of these case studies is now presented per IS function capability. The results will consist of 1) an assessment of the applicability of Feeny and Willcocks IT governance and management framework to global sourcing partnerships, and 2) an assessment of which other IS function capabilities might be relevant in global sourcing partnerships. This analysis will be followed by a discussion in which several conclusions will be drawn that go one abstraction level higher than the capabilities. The capabilities discussed are qualified on the basis of the opinions of the managers interviewed for this paper. Three levels were used: room for improvement, at level and outstanding. An overview of the qualifications is presented in Figure 1. Capability no. 1 - IS/IT governance Aligning with the company s business units is one of the IS function s internal responsibilities. Since service providers are involved here to a limited degree, the choice for global sourcing partnerships has little impact on this capability. The only aspect to which the IS function will have to pay more attention is communication with the company s business units on its global sourcing partnerships. The potential worries of business executives about global sourcing will have to be properly addressed by the CIO. The IS functions of companies 1 and 4 lack sufficient IS/IT governance capabilities; there is room for improvement here. In both companies the business is very influential. In the case of company 1 this is explained by the nature of its operational management. Outsourcing product development and R&D requires the business close involvement. It also means that additional agreements must be made with the service provider, such as securing the company s intellectual property and ensuring its physical security. Their outsourcing contract was drawn up according to American law, which offers the best guarantees for the company s intellectual property rights. In the case of company 4 the close involvement of the business is explained by their limited experience with global sourcing partnerships. In addition this company faces strict government deadlines, as does company 5. The service provider s Business Development Manager for company 1: Their product managers rule. They are responsible for the development of our software products. The IS function therefore has little say in the matter. A few years ago, company 5 realized that its IS function was insufficiently equipped in the field of IS/IT governance capabilities. The company s management then took action, following the advice of an independent business consultant and rolling out a program to improve its IS staff s capabilities. In addition, several key positions were manned with people recruited specifically for that purpose. The company s IS function capabilities are now up to par. Company 3 s IS/IT governance is adequate as well: at level. At policy level the IS function is supported by the company s corporate legal department, who also offer support with respect to the legal consequences of data processing in other geographical areas. Their extensive experience with outsourcing and global sourcing partnerships ensures that this capability of company 2 s IS function is outstanding. As with companies 3 and 5, the IS function tunes its policies well with the business, and constructive communication takes place on all levels. Its European IS function is closely monitored by its corporate IS function, resulting in outstanding IS/IT governance capabilities. 11

12 Capability no. 2 - business systems thinking Capabilities to ensure the fit between IT services and the business needs are of prime importance. Anchoring business knowledge, too, is a primary responsibility of the IS function. In the design phase it may be preferable to include the service provider s business consultants in the design process, to assist the IS function and the business units. Language and culture differences and distances may render this difficult in global sourcing partnerships. In practice, however, this seldom causes problems that cannot be solved. After all, it is mostly the provider s senior consultants who will be involved, who are usually well equipped to contribute to this process, especially since this is only a temporary activity. Company 4 s IS function has room for improvement with respect to this capability. They focus too much on the short term. Besides, they are understaffed. The business systems thinking capabilities of companies 3 and 5, on the other hand, are at level, despite their business representatives limited IT awareness. The workshops they organize keep their business people involved in IT service provisioning. In addition, company 3 is setting up a management development program in which people move from the business to the IS function and vice versa. This will significantly help developing their capabilities. Companies 1 and 2 have outstanding business systems thinking capabilities. The nature of the services company 1 delivers simply demands this: producing software is their primary process. In company 2 not only the IS function but their marketing department, too, is very actively involved in launching projects using new and especially mobile technologies. The continuous challenge by their business environment positively affects their IS function s capabilities. The most important cause of their success, however, is that both companies 1 and 2 hold monthly basic workshops. This capability, indeed, requires the IS function s constantly repeated attention. The Contract Manager of company 4: In the future I must focus more on setting up the dialogue with our business managers. So far we have been lagging and act only reactively. We must switch to a more proactive mode. Capability no. 3 - relation building In this field the IS function interacts intensively with the service provider. Distances as well as language and culture barriers certainly have their impact on the way in which this capability must be organized by the IS function. It requires personnel with outstanding business and interpersonal skills. International experience or work experience with a service provider reinforces the IS function s capabilities in this respect. All companies studied were at level in this field. This may be explained by the fact that they all have previous experience with outsourcing and global sourcing partnerships. Least proficient is company 4, which still struggles with the dynamics of recently taken outsourcing decisions. Their IS function has only just enough qualified and experienced staff to be able to collaborate effectively with their service providers. If, as is the case with company 3, the IS staff predominantly have too technically oriented profiles, this does not enhance their relation building capabilities. Fortunately the IS staff of company 3 has extensive international experience, compensating for this disadvantage. The service provider s Service Delivery Manager for company 3: Most of the IS function s staff used to be responsible for the operation of the company s internal IT department. Such 12

13 line management tasks are quite different from their current roles. Fortunately, they have much experience with service delivery and projects in an international context. And besides, I have for years had good personal relations with most of them, which helps a lot. Finally, it is striking that the service providers organizational structures form a major contribution to the success of the global sourcing partnerships. The Global Account Manager of company 1 s service provider has his office in the same geographical region as the recipient s head office, in the USA. Company 2 s service provider has located their Service Delivery Manager as well as their Customer Unit Director in Europe, close to their client s IS function. The Customer Unit Director of company 3 s service provider even has his office on the same property as his client. Companies 4 and 5 have located their Client Partners in the same geography as their client s IS function too. It is especially the combined commercial and delivery responsibility of the Client Partner that contributes to the success of their global sourcing partnerships. Capability no. 4 - designing technical architecture The outsourcing company s technical architecture is wholly determined by the IS function; service providers must comply. In the execution of their IT services the providers must ensure the match between their systems and those of the recipient. Global sourcing therefore has very limited implications in this field. The capability to guard one s IT architecture is important, of course, and one of the conditions of successful outsourcing and global sourcing. Companies 1, 4 and 5 are at level in this field. The size of company 1, however, does present difficulties in keeping sufficient qualified IT architects in their IS function. Fortunately, their management is well aware of this issue. Company 1 consciously retained all staff members with architectural skills for their IS function when the decisions to outsource were taken. Companies 4 and 5 need a lot of technical architecture design skill since they experience so many mergers, acquisitions and divestments as a consequence of the dynamics in their markets. Their management, too, has recognized this issue. Their size and complexity in terms of business units and geography render it even more necessary for companies 2 and 3 that their technical architecture design capabilities are outstanding. Their organizational structures influence the way in which they ensure that they are. Company 2 has set up a central global IS function, overarching their continental IS functions, in order to make the alignment between the business and IT possible. Company 3 does so per business unit and their central global IS function therefore includes their business unit s IS functions. The service provider s Contract Manager for company 2: This global consumer packaged goods company has offices and plants all over the world. Their supply chain therefore is of central importance, since it contains many connections with other companies like buying combinations and large-scale retail businesses. Consequently, the quality of their technical architecture is very important. Capability no. 5 - making technology work Executing IT services is the provider s responsibility. Therefore, not only the IS function but the provider, too, must play a proactive role. The interaction between the IS function and the service provider is what causes global sourcing to influence this capability, which means that the IS function s staff must have excellent interpersonal skills. 13

14 This is the most technical of the IS functions capabilities. Since company 5 has outsourced its entire IT services, all staff with technical skills were transferred to their service providers. As a consequence, their IS function has room for improvement in this field. Companies 1, 3 and 4 do have the capabilities required, especially since many of their IS staff have stayed. For these companies this capability is at level. Many have much tacit knowledge: long years of experience with the company s systems, that haven t changed much since they came. The IT Manager of company 5: My company decided to outsource its entire IT services to two providers. All my technical specialists were then transferred and they are now employees of these suppliers. To compensate for this loss, I regularly hire counter expertise from other IT service providers. This not only helps me, it also keeps my suppliers on their toes. I expect we will recruit IS function staff with technical skills again in the long term, but for now things are OK as they are. The frequent interaction between companies 1 and 2 and their service providers ensures a good knowledge exchange that is beneficial for both parties. In the case of company 1 it is the service provider s staff that participates in their client s product development sessions. They are trained to use the relevant software and learn to understand the concept of it. Of course, these sessions also have a team building effect. The IS function of company 2 has a staff that consists of both technical and contract management specialists, rendering the capabilities of the IS function as a whole outstanding. The partnership contracts that companies 3, 4 and 5 have entered into contain special agreements on their service providers making additional capacity available in order to support the IS function in case of calamities. These technical specialists, moreover, will be available on very short notice. In addition all companies investigated have a change advisory board in order to implement any changes in a controlled manner. These boards are staffed with an eye to the IS function s responsibilities, but they also contain business representatives the business being the IT client, after all. An important advisory role here is that of the service provider s lead technology architect, a senior position that aims to support the IS function in estimating the implications of any changes deemed necessary. Capability no. 6 - informed buying In a global market the IS function experiences more difficulties in gaining and keeping a good overview of its external market. The tendering process, too, is made more complex. In global sourcing partnerships it is more difficult for the IS function to find and invite the appropriate providers for the services required. The result is an even greater need for outstanding business and interpersonal skills on the part of the IS function s staff. With respect to this capability, too, international experience and work experience with a service provider are relevant for the IS function s staff. Even though company 1 has an office of its own in India, their informed buying capability is insufficient: there is room for improvement here. Their IS function does not adequately reconnoiter the market from which it sources its services. When contracts are prolonged, for instance, no new parties are invited to make a proposal as well. There is room for improvement for company 4 s informed buying capabilities too, but its management realizes this and has elected to run a global sourcing pilot project before deciding to implement this for the whole of the company. The Contract Manager of company 4: I would like much more of our IT services to be delivered from low-wage countries, but my organization isn t ready to do so yet. So I have 14