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Structuring IS Offshoring Projects

Since the last ten years, an emerging practice to offshore information technology (IT) jobs within different organizations of various sizes has been observed. A big percentage, an estimate of more than 70% of all U.S. organizations were previously reported to have outsourced IT activities of their business process (Carmel & Agarwal 2002).

According to Frances Karamouzis, an analyst at Gartner Inc., the majority of U.S. companies now have an estimated annual budget of $26 billion for services related to offshore IT outsourcing as offshore development becomes more global.  With 59%, the majority of US offshore spendings are done in India, while an account of 9% is allocated to the Philippines.  For the other slices of the pie, Canada and Brazil receive about 8% each, while Central and Eastern Europe accounts for about 7%.  For the early entrants, Mexico receives 4% and China 3%. (Thibodeau, 2006)

An evolution of added business activities including R&D, Information Systems, Finance, Human Resources and others has been observed with activities involving IT offshoring.   Outsourced IT activities usually encompass the development of applications and software, design and testing, program encoding, system maintenance, as well as help desk support / back office support.  This has drawn the attention of IT companies and specialists engaged in offshoring activities. Also the focus of countries has shifted to this evolvement, as they see possible benefits like infrastructural growth and the installation of jobs. 

Firms are now moving business activities and services to internal or external offshore sites, which are lower in cost. Cost reduction of IT operations is a major decision factor When onshore IT activities often entail higher labor costs, thus companies gain significant savings through IT offshoring. (Shao & David, 2007)  Management executives also see offshoring as a lucrative means for developing a lean cost structure as they observe their competitors gear towards offshoring for cost reduction. (Carmel & Agarwal, 2002)

Although cost savings are regarded as the main driving force, most companies are starting to discover other benefits from offshore activities. They now see the potential of offshoring activities as a source of development for other strategic business objectives.  Most firms are beginning to integrate offshoring activities also into the core activities of the business. In the bottom line offshore sourcing serves strategic purposes including the development of new products, new market accessibility, innovation, and global growth.

There are various reactions incited by the terms outsourcing and offshoring.  Those who positively react consider these terms as a new method of globalization or a way to optimize skills and talents from various environments.  While others view them as threats to their existing jobs, a decline in quality, complications in processes, and mostly, competition.

The different reactions and viewpoints to outsourcing and offshoring differ by job position, division, and location. Often employees of the client company which is outsourcing business activities to other companies, perceives offshoring as a cumbersome process that increases the complications in their existing jobs. On the other side, employees on the vendor side or companies that accept the outsourced jobs also have a certain degree of frustration. At most times, outsourced employees feel the hostility from the employees of the client companies. When being requested to travel, they often find themselves in situations where they are less welcomed, or isolated from the employees of the client company.  (Zhang, 2011)

As companies integrate offshoring activities into the main activities of the business, other challenges arise.  Such is the prevalence of competition in the workplace as individuals or departments compete for the resources available or outdo each other for recognition.

Organizations anticipate many benefits as they increase their IT offshoring.  However the collaboration between onshore-offshore employees presents various challenges and risks.  One prevalent challenge is the competition for numerous factors such as volume of projects, resources, budgets, and most especially, job security. (Zhang, 2011)

Research in IS offshoring has often emphasized the negative effects of competition

between onshore and offshore employees on successful collaboration.  Especially where knowledge workers interact closely, as for example in software development, such effects have shown up.

Researchers in organizational behavior, however, have addressed the question of how to create organizational structures that benefit from both, teamwork as well as competition.

This thesis will examine, in if the findings from organizational behavior are transferable to IS offshoring settings and if competition within IS offshoring projects is rightly deemed to have negative effects only.

The terms Offshore and Outsourcing are often mixed up, or worse, used as synonyms.

However they describe two different concepts.

Offshoring is about location. A company that is offshoring is moving processes or whole departments outside the country. In contrast outsourcing is the moving of processes / departments to a different company. Every combination of both strategies is also feasible like indicated in Table 1. Competition is a common challenge in a workplace.  An individual with an ambition always strives to be the best performer similarly as a department outperforms the others to receive the higher budget. 

Researchers of organizational structures have been studying whether competition is helpful or causes negative effects.  Previous studies noted that competition results to an increase in anxiety levels, "low productivity, and lack of motivation and should be eliminated from workplace". (Johnson & Johnson, 1999; Kohn, 1993; Maeher & Midgley, 1991)  On the other hand, recent research implies that a healthy competition may occur when there are no political schemes involved or an unbiased environment is practiced.  (Loch et al, 2000; Tjosvold et al, 2003)

Methodological consideration to the study of offshore draws upon qualitative interviews and Six Sigma assessment approaches to interpretation of cultural intelligence (CI) in the multinational enterprise (MNE) and business processing outsourcing (BPO) environment. Research design on the project includes: 1) Cross cultural analysis of dyads or conjoint analysis of maturation and stage in human resource development on outsource projects; 2) PESTLE (Political, Economics, Social, Technological, Environmental) case analysis of BPO in India; and 3) Trend analysis of the global picture of human resource functions in the outsourcing sector.

Factors in lean and agile operations and marketing CI is what Hampden-Turner and Trompenaars (2006) define as the logic of information side in situation analyses; the axis for 'Synergy Hypothesis' where 'every culture more or less reconciles its own contrasting values', toward deeper integration. Distance from the nucleus of decision making and practice enables managers to define priorities according to 'value' subjective to the tasks at hand,'(a) Cultures are said to be entirely relative in their values, so holding one culture to be more intelligent than another is discriminatory; (b) cultural studies are said to be a form of postmodernism, whereas to have one central definition of culture is modernist-an imposition of our own dominant beliefs; and (c) attempts to categorise cultures are said to be crude stereotypes lacking subject' (Hampden-Turner & Trompenaars 2006).

Triandis offers methodological imposition of the CI concept in application to study of organizations in 'dyads' using cross-cultural models to assess knowledge sharing capacity. Google India, Sirs, Madams, Dears and Nears presents an excellent site for the development of convenience samples on CI exchange in the offshore outsourcing relationship between firms in India and the UK (Triandis 2006).

It is in the day-to-day application of CI to business intelligence  micro inference is built into the macro strategies of MNEs, where 'cultures consequences' suggest Hofstede (2001) will continue to have far reaching effects as transactional trade and work relationships through communication. Google's popularity in India offers and exceptional case study in this regard, as the interface is 'open' and available to companies and workers for free. Google's external impact on values and expectations into the BPO process in India is indisputable.

Risk to profitability is also present, yet difficult to measure in aggregate. Missed opportunities in chat are part of the blind side to using CI as the sole strategy in research.  Financial trends pick up where qualitative data leaves off, offering a 'total' operational prospectus to the sector. Since the 1990s, a virtual Empire in the MPO sector has been carved out by India's outsourcing firms. Their continued domination in the sector will be highly dependent upon those organisations to optimise CI approaches to the fullest.

As cultural norms in outsourcing become more and more defined by lead Indian firms operating in the UK and US, it is quite likely that CI emanating from those partnered MNE will forge profound changes to human resources through communications protcol and technologies. In service to feasibility studies, CI acquisition is a shared asset.   How well outsourcing firms utilize their communications channels is critical to performance of those firms in the global market.

The offshoring process follows a pattern. By interviewing executives from 13 mayor US companies, Carmel and Agarwal (2002) noticed that the offshoring of IT functions "follows a stage model, based on increasing maturity and sophistication in the offshore effort."

Outcomes to the interview research reveal that the stage the company is currently operating in, has effects on the form of competition between onshore and offshore employees. Suling Zhang made this abstraction by building on  the "Sourcing of IT work Offshore" stage model (SITO) but focusing on the employees' perspective. The separation of the different stages of the "Sourcing of IT work Offshore" stage model (Carmel and Agarwal 2002) and the "Onshore-Offshore Competition" stage model is not clear cut. In the following the behavior of the employees and strategies of the management, as well as the maturity of the organization are allocated in the most sound way.

This thesis is based on both articles and shows up linkages to other models and theories, which can balance the negative effects of competition between onshore and offshore employees.

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