Information Technology Business Outsourcing Issues

Introduction

Emergence of web 2.0 paradigm opened windows for Information Technology (IT) business outsourcing and off-shoring (Garner, 2004). Outsourcing has developed mainly due to changes in the market and industry conditions. There has been a common boost in outsourcing of information processes within business cycles. The needs and expectations of customers in different markets are becoming more specific and highly demanding on businesses. This increase is a result of the need to constantly generate value and develop competitive advantage. This has led to a general appreciation of outsourcing as a cost cutting mechanism and strategy to ensure professionalism in delivery of products and services (Jae-Nam, 2008).

Gibb and Buchanan (2006) claim that IT outsourcing involves organization outsourcing of computer based tasks or internet based tasks to an external company or consultant. Companies commonly outsource IT tasks like programming and software development. Yeaple (2006) advanced the argument that IT outsourcing is a subset of business process outsourcing (BPO) that involves outsourcing of organizational tasks that need less technical skills. An organization outsources for a variety of reasons for instance lack of adequate technical and human resources, lack of enough resources to support implementation of a functional IT department or need to reduce costs and maximize on marginal revenue (Adeleye, Annansingh, & Nunes, 2004). IT outsourcing increases organizational flexibility through increasing lead times, throughput and turnaround times that reflects positively on business processes (Doh, 2005). IT outsourcing is dependent on efficiency of organizational supply chain management (SCM).

IT outsourcing results in the transformation of business fixed costs into variable costs, which contribute into an organization’s management of its costs structure and capability to manage its marginal returns (Lall & Narula, 2004). Through achievement of capability to manage variable costs, Cuadros, Orts & Alguacil (2004) claim that an organization reduces opportunities for investing in assets which makes an organization to have the potential to respond timely to market changes and hence focus on managing its core competencies and capability to sustain its competitive advantage in a competitive market (Willcocks & Feeny, 2006). Investment in IT outsourcing by an organization has been determined to make it possible for employees to reflect on rationale for restructuring, redesigning and developing business core competencies (Adeleye, et al., 2004). For example, customer engagement, development of customer relationships, and improvement of business operational processes towards increasing customer interactivity and achieving sustainable customer relationships, This forms a basis for building lasting customer loyalty brand engagement and positive customer engagement. The focus of this study is to examine the cost benefits, performance and customer relationship improvement, as well as the risks that firms face when making the decision to outsource or off-shore their IT services (Iacovou & Nakatsu, 2008).

Statement of the Problem

Organizations are currently under increased pressure to improve their performance and gain a competitive advantage along with continuous review of their operations with the aim of addressing threats emanating from changes in the external environment and harnessing the opportunities (Mani, Barua, & Whinston, 2010). IT outsourcing and business off-shoring by firms is driven by various challenges that firms face such increased operating costs, need for innovation and improvement of business processes. The ability to outsource has been enhanced by advanced technology and globalization. In spite of the ability of firms to outsource, outsourcing and off-shoring brings with it many challenges that may affect effective business operations. IT outsourcing has led to the emergence of homogeneous organizations that have equivalent core competencies resulting to loss of business core competencies through exploitation of best practices in IT competitive advantage (Gibb & Buchanan, 2006). Risks and information insecurity associated with IT outsourcing and off-shoring have increased leading to a loss of customer loyalty. There has been increasing threats that IT outsourcing cannot be implemented across continents because of threat of data access by unintended users, threats of virus and lack of device interoperability (Rist, 2008).

In spite of these challenges, outsourcing and off-shoring firms have reported some benefits that result from outsourcing. Outsourcing companies have been able to reduce their operating costs through improved business processes that result in improved competitive advantage and performance (Cuadros et al., 2004). IT market competitiveness has provided opportunities for firms to improve the quality of provided services and goods through innovativeness that leave customers satisfied (Levina & Vaast, 2008). Customer satisfaction leads to customer loyalty, increased market share and profitability. In the light of these positive and negative factors, this study seeks to examine the impact of outsourcing and off-shoring to firms.

Purpose of the Study

The purpose of this quantitative descriptive study is to examine IT outsourcing as applied in multinational corporations. Therefore, the research would seek to establish the relationship between IT outsourcing and business performance regarding their operations, cost reduction and profitability. IT business outsourcing comes with some risks that could mean something to an organization that makes a decision to adopt the usage of IT business outsourcing and off-shoring. As a result, this study also aims to determine the risks and security threats firms face when outsourcing or off-shoring. The study will cover the current and previous IT consultants in outsourcing and off-shoring, business individuals using outsourcing, consultants or sellers of the technology. The study will use structured questionnaires in providing direct insight on the advantages as well as the limitations associated with this trend. The importance of administering the questionnaires is to cover a wider scope of contributions to the study (van den Bergh, 2009).

The framework of this study is the relevant researches and studies on the field of information technology and process of business outsourcing and off-shore. Therefore, this study will be based on the concepts and the factor of endowment theory while determining variables through quantitative analysis.

Research Questions

In this study, the two types of quantitative research questions will be employed, descriptive and predictive. Descriptive research questions will be utilized to seek answers pertaining to queries asking the frequency at which IT outsourcing and off-shoring in businesses takes place. Predictive quantitative research questions could strive to determine whether a variable can be utilized in foreseeing some future results.

Many organizations in the modern business environment have adopted the use of IT business outsourcing and off-shoring. Advances in any technology come with intended purposes but other side effects are attached to their usage. IT business outsourcing and off-shoring may not be left out since its adoption could be associated with gains as well as losses. Therefore, questions such as the ones presented below will be answered in this study.

1. Is there a significant relationship between IT outsourcing and off-shoring and its drivers such as cost minimization and improved business processes?
2. What is the existing relationship between risks firms experience and IT outsourcing and off-shoring?
3. Does IT outsourcing and off-shoring lead to information insecurity?
4. Is outsourcing and off-shoring linked to reduced innovation and poor customer relationship in outsourcing firms?
5. Does outsourcing or off-shoring of all IT functions affect the overall performance of the firm?

Hypotheses

• H1_. There is statistically significant relationship between IT Outsourcing and its drivers such as cost minimization.
• H1₀. There is no statistically significant support to show that organizations achieve their planned objectives from IT outsourcing and off-shoring.
• H1_a. There is no statistical significant relationship between IT Outsourcing and its drivers such as cost minimization.
• H2_0. IT outsourcing, including off-shoring, have a statistical significant relationship to outsourcing risks.
• H2_a. IT outsourcing, including off-shoring, does not have a statistical significant relationship to outsourcing risks.
• H3₀. There is a statistical significant relationship between IT outsourcing and information insecurity.
• H3_a. There is not a statistical significant relationship between IT outsourcing and information insecurity.
• H4₀. Outsourcing, including off-shoring, is a statistical significant relationship with poor customer relationships in outsourcing firms.
• H4_a. Outsourcing and off-shoring is not the essential cause to poor customer relationships in outsourcing firms.
• H5₀. There is statistical significant evidence that outsourcing and off-shoring enhances a firm’s effectiveness and efficiency of its operation through improvement in its innovativeness.
• H5_a. There is no statistical significant evidence that outsourcing and off-shoring enhances a firm’s effectiveness and efficiency of its operation through improvement in its innovativeness.
• H6₀. There is a statistically significant relationship for IT outsourcing, including off-shoring that are related to the performance of an organization.
• H6_a. Statistically IT outsourcing, including off-shoring, are not positively related to the performance of an organization.

Brief Review of the Literature

Information technology is an important factor in the modern world given the advance in technology. It helps firms innovate and produce high quality products that meet customer needs and demands. Due to changing business environment, firms have found it necessary to reduce operating costs while exploiting the comparative advantages of human IT skills offered by other countries (Manaschi, 1998). Therefore, companies have opted to outsource critical IT skills from other firms from other nations that are endowed with the expertise. In spite of the benefit of cost reduction and improved operations, IT outsourcing poses security and generic risk issues to the firm (McKendrick, 2010). If these issues are well managed, the outsourcing firm is likely to benefit through increased innovativeness and high product quality that could positively improve customer satisfaction hence increasing customer loyalty. This study examines outsourcing and explores outsourcing as applied in IT organizations.

Outsourcing is the act in which a company or an organization pays another firm to produce goods or offer services on their behalf (Blokdjik, 2008). In many cases, the company could have produced the goods or offered the service themselves but sometimes it involves higher costs. Off-shoring on the other hand is a business process that companies use when they decide to relocate their operations to lower cost locations, mainly overseas (Trojahn, 2009).

The requirements and expectations of customers in different markets are becoming more demanding. Businesses are therefore required to take appropriate actions in order to satisfy the demands of a certain market. Value addition to products has for a long time been used as a means of creating a competitive advantage by many businesses, however these strategies are not enough in themselves, thus outsourcing was embraced. Outsourcing and off-shoring has been around for many decades and companies seek these services due to a number of reasons. No matter what the reason, the rate at which companies are outsourcing and off-shoring their services are steadily increasing. This has led to the globalization of services, consequently boosting trade and commerce all over the world (McKendrick, 2010).

The level of trade has grown remarkably over the last few decades because of the advancements that are being experienced in the field of information, communications and technology (ICT) (Jovanovic, 2011). These advancements have also increased the number of tradable services in the field of IT and ICT, which have made the outsourcing and off-shoring of services to be that much easier. The ease in the tradability of these services coupled with the increased independence of the location has contributed to the off-shoring of services by many companies in the west (Kapila, 2009). Companies are now outsourcing services such as support, customer care, research and consultancy. The main reason behind this is that outsourcing for services is much cheaper and the result is desirable (Tenner, 2011). The development in IT and ICT has motivated organizations to outsource their products and services all over the world. India is the country, which provides most of these services (Blokdjik, 2008).

India is a prime location for IT outsourcing and off-shoring. It has a strong labor force that is comprised of personnel who are skilled and talented. Their high population increases the competition for employment. This has made the country to have a workforce that is comprised of relatively cheap labor force. India also has a high number of competent personnel in almost all the fields of the economy. These individuals are highly educated, professional, have many experiences, knowledge and skills, which are required to execute their respective tasks effectively and efficiently. This group can also speak and write fluent English, an aspect that makes them stand at a competitive edge over rival countries such as China, Singapore, and Malaysia (McKendrick, 2010).

With the revolution in IT and ICT, location is not of a high concern as it used to be. The advancement in technology has made the transmission of inputs and outputs to be much easier. These processes can now be conducted digitally and transmitted via electronic means (Smith, 2006). Companies have therefore off-shored much of their services especially white-collar jobs to improve their sustainability and efficiency. The customer care for the giant computer manufacturer Dell, for example is located in India (Kurtz, 2010). When local residents call the customer care, they are being served with an operator who is located in India (Tenner, 2011).

Despite the benefits accrued from outsourcing and off-shoring, there has been a lot of debate on the effectiveness and sustainability of this new trend. It is evident that outsourcing and off-shoring benefits both the origin and destination country. The destination country enjoys increased rates of employments and free trade. The origin country on the other hand enjoys the availability of goods and services. The mutual relationship between these two countries is beneficial since both of their Gross Domestic Product (GDP) will increase in the short run and in the long run (Jae-Nam, 2008).

Outsourcing and off-shoring has been referenced with success, effectiveness and efficiency. As a result, many companies have adapted these mechanisms. However, some analysts claim that such companies may lose the control of their overseas organizations, an occurrence which maybe very risky (Plunkett, 2006). IT market competitiveness has provided opportunities for equivalence of service level, which result into loss of brand identity, and brand community and decreased market share (Plunkett, 2006).

These criticisms of outsourcing and off-shoring raise many questions as to the effectiveness and efficiency of outsourcing. Outsourcing and off-shoring has increased trade to a new level, enhanced globalization, and improved the operations of organizations all around the world (Doh, 2005). These outcomes have only been experienced in the short run. The sustainability of outsourcing and off-shoring remains a big mystery. This is because there are a number of drawbacks that are coupled with outsourcing and off-shoring of IT services (Hirschheim, 2009). These drawbacks affect the free market by changing the balance of trade. A study should therefore be conducted to investigate the viability and sustainability of IT outsourcing and off-shoring (Lacity, Willcocks, & Feeny, 2004).

Drivers of Outsourcing

Every organization in a given industry aims at various goals (Jae-Nam, 2008). However, major objectives include maximizing profit or revenues earned from sales. In order to achieve this objective, the management focuses on reduction of all costs incurred by the firm. A study conducted by Oshri (2011) established that firms outsource IT services to other firms in different countries and regions in order to minimize operating costs. Since costs are important factors in profit determination, the organization use various strategies to minimize costs, one of them being outsourcing among others such as large-scale production.

The theory of factor endowments that was put forward by Heckscher and Ohlin postulates that countries have different factors of production that enable them to poses the comparative advantage over other nations (Manaschi, 1998). This theory could be used to explain the pressure for companies to outsource IT services from other countries. Countries that have enough skilled IT expertise have a comparative to countries that do not have the expertise. Therefore, organizations operating in such deficient countries tend to outsource the services from well-endowed nations in order to improve their competitive advantage. Therefore, outsourcing is a form of international trade occurring because IT skill differentials between countries. Tenner (2011) supports this theory as applied in outsourcing by noting that organizations that outsource IT expertise obtain best skills for the right cost and at the right time. Organizations have identified IT talent limits within their employees and talents from outside the region best fill the gaps. Outsourcing IT expertise enables an IT firm to be nimble in the quest to fulfill business unit requests especially operations that are likely to run behind schedule (Plunkett, 2009).

Generic Risks in IT Outsourcing and Off-shoring

Every organization gets an outsourcing and off-shoring collaborate that it deserves (Adeleye et al., 2004). Therefore, firms that experience inefficiency in IT management end up getting incompetent outsourcing partners. On the contrary, organizations that do efficient management of their IT departments always obtain competent IT outsourcing partners. In addition, other firms that do not conduct enough research in determination of outsourcing partners are worse off because they may end up overhauling their better IT expertise for worse outsourced expertise. In addition to these risks, there are many others, for instance, outsourcing requires best management skills. Organizations that lack good management skills may not reap maximum benefits from outsourcing.

According to Varadarajan (2009), some companies have difficulties in managing their IT departments. Such organizations may face challenges of maintaining outsourcing. Other corporations that do not undertake market testing for IT outsourcing have the risk of missing the benefits of IT outsourcing.

Most companies focus on cost reduction as the main driver of outsourcing (Yang et al., 2007). However, overreliance on this factor is not necessary since most of the benefits of IT outsourcing are not transparent. The supply of un-updated technology is another risk common with firms that are engaged in long term IT outsourcing contracts. This may result in unfruitful relationship between the two companies. It is evident that IT skill outsourcing can reduce operating costs of a firm. However, this can only be realized if the company can manage its IT management costs.

Security Concerns

Security concerns have been raised concerning outsourcing and off-shoring of IT expertise from other countries. Outsourcing firms run risks of information security hence there is need for auditing and restricting system users for the organizations (Tenner, 2011). Not all foreign software coders could be trusted by outsourcing firms. It is important that outsourcing firms conduct proper background investigations of foreign software coders. Given that only few firms conduct such investigations, outsourcing corporations are not safe since their confidential information could be compromised (Mani, Barua, & Whinston, 2010).

Customer Reactions

The reactions of customers regarding company products vary depending on the overall effects of outsourcing. To begin with, outsourcing can be preventing the innovative nature of the firm. Companies usually have high expectations of outsourcing including innovativeness at lowest costs resulting to unrealistic expectations (Gibb & Buchanan, 2006). However, innovation requires that the firm provide the necessary resources, flexibility and in-house competency (Couto, et al. 2007). Due to these inadequacies, the firm may be disappointed hence disappointing the clients in terms of quality of produced goods. The customers may react by finding alternative products. On the contrary, the benefits of outsourcing could result in increased innovativeness, low costs, high product quality and customer satisfaction and loyalty (Garner, 2004).

Reduced Differentiation

It is difficult for firms to decide on what to outsource and what not to outsource (Mitra & Ranjan, 2010). The rule of thumb is the basis of many outsourcing contracts in IT. This rule postulates that firms should outsource non-strategic IT functions while strategic IT functions should be left to the internal IT team of the firm (Nambiar, n.d.). Firms initially outsourced all IT functions from one vendor leading to lack of variety and low quality services hence reduced differentiation in the products offered by the company. However, this trend has changed over time with organizations distributing the outsourced IT functions to different corporations. For instance, British Petroleum (BP) decided that the company no longer needed to own the technologies that provide business information to its employees. With that decision, BP outsourced its IT expertise and functions from different firms from different regions (Nambiar, n.d.).

Following outsourcing of IT functions, the firm was able to benefit in many ways. Firms that outsource strategic IT functions are in position of bringing necessary organizational cultural change needed for creation of competitive advantage (Bhalla et al., 2008). The business processes are also improved because outsourcing enables firms to improve their operations. For instance, outsourcing encourages business managed budget development and controlled project expenditure. Thus, firms are encouraged to outsource latest IT technologies that can enable them properly budget and manage undertake projects. Another benefit that firms realize is the cost management controls. Outsourcing and off-shoring helps firms to minimize expenditures while increasing company savings (Doh, 2005). In a survey conducted by Lall & Narula (2004), it was noted that outsourcing and off-shoring is able to reduce costs incurred by an organization up to 20% of the annual budget. Although many organizations dispute outsourcing costs, IT costs could have risen for corporations in the industry.

Doh (2005) examined the implications of outsourcing to multinational IT corporations. He began by examining multinationals and their international ventures in order to assess the elements of theories that could explain internationalization of firms. The survey was conducted among multinational corporations that outsource IT technology and personnel from other countries. The survey found out that most concerns of outsourcing raised by outsourcing firms could be mitigated by international labor, environmental standards, and corporate codes.

The data collected during a study by Garner (2004) is vital for the relevance of the study. In a survey conducted by Garner to measure the economic impact of off-shoring on IT firms, a study population comprising of all outsourcing firms was selected. However, only a small sample of the study population was selected for the purposes of the study. The sample selected was by stratified sampling technique. Similarly, this survey would examine a population of all off-shoring firms in the U.S. However, a sample of 200 firms would be selected using stratified sampling technique to represent the entire population.

Lacity, Willcocks, & Feeny (2004) revisited the importance of strategic partnership and outsourcing to commercialization of the back office at Lloyds in London. Their survey collected data on the importance of outsourcing to the firm. Data was collected using questionnaires and interviews. The two methods are important in collecting data for a survey since they enable respondent to provide all his/her has concerning the study topic without bias or prejudice. The interviewer should not provide lead questions to the respondent to avoid biasness. This would grant the study findings credibility and reliability.

Mani, Barua, & Whinston (2010) conducted a study that sought to establish the impacts of information capability on the ability of a firm to outsource IT technology and personnel. The survey measured service satisfaction as applied in other outsourcing studies. It was established that satisfaction is a proxy for perceived effectiveness of outsourced technology. Following their survey, this study would measure several variables that would include effectiveness of outsourced technology, cost reductions, satisfaction and innovativeness. The data in the variables would be collected using interviews and questionnaires as explained above. The coding process would take place in preparation for analysis by SPSS.

A study conducted by Mitra & Ranjan (2010) focused on the impacts of off-shoring on unemployment. In their survey, they established that in a two-sector labor market, an increase in off-shoring of IT skills given labor mobility would result in increased wages and reduced unemployment. They used questionnaires to collect data on the level of outsourcing in the different sectors. The questionnaires were subjected to pilot studies to establish their effectiveness. Similarly, this survey will develop a number of questionnaires that will be administered to the respondents.

Summary

Outsourcing is the ability of firms to seek human capital from other nations. Many firms operating in different fields have been reported outsourcing different skilled human capital from different countries. One of the most significant skills sought is IT, outsourced by IT firms. The outsourcing of IT personnel is driven by many factors including need to minimize costs while maximizing on the profits, need for innovation, inadequate skills in IT locally among other reasons. IT outsourcing is good for IT firms because it enables the firms obtain rare skills that cannot be obtained locally, ability to minimize operating costs and improved business processes among other benefits. In spite of the benefits, outsourcing poses some generic risks to the firm (Shachaf, 2008). The outsourcing firm is likely to obtain incompetent IT personnel or obtain IT technology that has not been tested. In addition, untrustworthy vendors that may also compromise the security of confidential information of the firm may exploit the firm. It is therefore important that the outsourcing firm conduct enough investigation regarding IT technology vendors before outsourcing (Bhatt, et al. 2010).

Organizations have resorted to carrying out IT business outsourcing and off-shoring by pursuing the advantages that comes with it. To the contrary, this process may not be entirely what it brings assessing it by its word value. This research shall therefore bridge the gap of the knowledge claim of the advantages or disadvantages of IT business outsourcing and off-shoring. The design chosen will help interact with people with knowledge in this field thus providing required information that will be used to validate the findings. Since analysis shall purely be done, using categories there will be little in the conclusions made pertaining to the population at large (Safizadeh, et al. 2003).

Research Method

This study examines the drivers, impacts and usefulness of IT outsourcing to organizations’ business processes and operating costs. In conducting this study, the researcher appreciated the need to integrate both quantitative and qualitative research methods. According to Thomas (2003), quantitative research method entails use of statistical methods and numbers. It entails use of numeral measurements in evaluating a particular phenomenon. The method involves collection of quantifiable data that can be subjected to statistical treatment. The collected data is analyzed using mathematical tools such as regression analysis. In conducting this study, the researcher will blend quantitative method with qualitative method. This will enable the researcher to develop a comprehensive understanding of the impacts of outsourcing on firms. Integrating both methods will enable the researcher to understand the existing situation in IT with regard to outsourcing and off-shoring. Incorporation of the two methods will contribute towards understanding of all the attributes of outsourcing and off-shoring. For example, the exploration will contribute towards understanding of the correlation between its application in firms and the outcome experienced in terms of improved business processes, costs and performance.

There are three aspects of this study that include reasons for emergence of IT business outsourcing, risks associated with its use, organization’s customer relationships and performance. The method is suitable for this study because it will enable the researcher to obtain first hand data that will increase the reliability and validity of the study hence making the study valid for any user (Tashakkori & Teddlie, 2010).

Quantitative study gives the possibility and convenience of applying statistical tools like standard deviation, mean and correlation analysis that enable the researcher establish the existing relationship between various variables of the study such as IT outsourcing and business process improvement. This will provide for the measurement of variables in the business entities (Pollard & Pollard, 2005). Other statistical tools used include mode, percentages, probability, and statistical table tests. They are indispensable in testing the level of significance. The level of significance is vital in treating the study hypothesis. A properly designed and implemented study is pertinent in making a convincing argument about the meaning and significance of research findings. Quantitative method avoids the generation of abstracted empiricism. This can be attributed to inconsequential descriptions instead of an indictment of a descriptive research itself.

Research Design

A research design as defined by Leedy & Omrod (2005) is the logical structure of a given study. A research design ensures that the data collected during a study enables the researcher to answer the research questions unambiguously hence being in a position to meet the set objectives of the study. This study utilizes both qualitative and quantitative research method to examine the impact of outsourcing and off-shoring on the performance of organizations. In addition, the study will take a positivist philosophy and deductive reasoning hence working form the known to the unknown. Therefore, the study would begin from a known theory to the fulfillment of the hypothesis that outsourcing and off-shoring are positively correlated to improved performance and business processes of an organization.

According to Mitchell and Jolley (2010), descriptive research method is effective in evaluating the relationship between two or more phenomenon. Therefore, descriptive research design is ideal for the study of the stated problem of information technology in business. In this research, quantitative method is used because the attributes being studied can be expressed in numerically values. Quantitative study gives the possibility and convenience of applying statistical tools like standard deviation and mean. This will provide for the measurement of variables in the business entities (Pollard & Pollard 2005). Other statistical tools used include mode, percentages, probability, and statistical table tests. They are indispensable in testing the level of significance. The level of significance is vital in treating the study hypothesis. A properly designed and implemented study is pertinent in making a convincing argument about the meaning and significance of research findings. According to Kothari (2008), poor research design makes the findings be interpreted or explained in multiple and wrong ways. This will limit the value of a research study in this field. Descriptive research design in studying this problem fits in the whole process of research from the research questions through to final analysis and data presentation.

Although descriptive research may be perceived as a mere description, a cogent description has enormous benefits to business enterprises. This is because it adds immeasurably to the knowledge and information of information technology to the business entities. This study design is ideal in addressing different types of variables because it gives an opportunity for collection wide range of indicators and economic information of business entities during data collection. In this study design, there is the use of structured questionnaires administered to business entities. This will retrieve data for analysis and presentation thus quantitative method is used in this application. This can be abstract or concrete description achieved with quantitative method of research. Accurate descriptive research will be the basis for policy development which is an ideal approach for business entities in the current, competitive market economy (Burge, Carroll, McCall, & Mistrík, 2008).

According to Mitchell and Jolley (2010), a competent descriptive study has the capability to challenge the commonly accepted assumptions about the way business establishment operate thus provoking action. Descriptive research also provokes the ‘why’ questions of explanatory research. This gives room for further research studies to be conducted. This will eventually result to full outsourcing of the benefits of information technology in business enterprises. It hence results to the utilization of technology in business for maximized profits.

Data Collection method and Analysis

The study population for this study includes all outsourcing and off-shoring IT firms in the U.S. Considering the large number of IT firms involved with outsourcing and off-shoring in the US, the researcher will select a sample of 50 firms using stratified sampling technique. Stratified sampling is suitable for the sample selection because it enables the researcher to obtain proportions that are even and fair from each stratum. The study will utilize both primary data. The primary method of data collection that will be utilized in this study entails use of surveys. For the surveys to be effective, the researcher will design questionnaires which will be administered to the respondents. Prior to the actual study, a pilot study will be conducted in order to determine their effectiveness of the questionnaire in collecting the data.

The surveys will be sent to the respondents through the internet. This will aid in saving time and cost of conducting the survey.

The questionnaires used in the study will include both open ended and closed ended questionnaires. In addition, the researcher will also incorporate the likert scale so as to aid in the interpretation of the qualitative data collected. The researcher considered incorporating likert scale since the responses from the questionnaires can be easily coded for ease of analysis. By coding the responses, it is easier for the researcher to incorporate computer software such as excel.

In addition, the researcher will also conduct face to face interviews on a number of employees. Decision to consider the employees as the respondents to the study arose from the fact that they have a comprehensive understanding of outsourcing and off-shoring in IT firms. The interviews will give the researcher an opportunity to clarify on some issues. This will increase the probability of gathering more data. Decision to use of survey arose from the need to increase the reliability of the study.

Operational Definition of Variables

Variables are measurable attributes that assume different values among the subjects under consideration. The variables used in this study fell in the broad category of dependent variable and independent variable. The variables that have been considered independent are those that the researcher doctored in order to determine its effect on another variable. The variables that were considered to be dependent are those that the researcher measured, predicted or monitored and were generally expected to be affected by the researcher’s manipulation of the independent variable (Lind, Marchal, & Wathen, 2010). Some variables were qualitative in nature (non-numeric, that is, they are attributes) while others were quantitative (numeric) and were either discrete or continuous.

Outsourcing and off-shoring helps the organization cut down on operating costs while at the same time achieving optimal customer service. Outsourcing was identified on a nominal scale by asking the respondents “Do you outsource or off-shore any of your operations from another provider?” The responses were given labels as follows; 0 = No and 1 = Yes.

Operating costs are the expenses incurred by a business venture on a daily basis during its operations such as administration, sales and marketing expenses. It does not include depreciation expenses, interest expense or income taxes. The data sources used will be obtained from the income statements of the different companies. Operating costs are identified on an interval scale by the determination of the total operating cost of the specific company (Thouin, Hoffman, & Ford, 2009).

Customer satisfaction is the degree to which the client is contented with the service provision of the company. Customer satisfaction was identified on an ordinal scale by asking the respondents “How satisfied are you with the products of the company?” Their responses were then used on a five-point likert scale as follows; poorly satisfied = 1 and very satisfied = 5 (Francis, 2006). This variable involved the ordinal level of measurement as the responses were ranked in an order based on their level of satisfaction.

Customer loyalty relates to the customers remaining loyal to the products manufactured by a company. Customer loyalty was identified on a nominal scale by asking the respondents “Would you switch to a product produced by another company?” The responses were then coded and given labels as follows; 0 = No and 1 = Yes.

Market share relates to the proportion of the total sales volume of a certain service or product in a given economy that can be attributed to a specific company. Market share was identified on an interval scale by considering the volume of sales made by a company in relation to that made in the economy as a whole. The level of measurement relating to market share was interval since the market share can hardly be zero.

Profitability indicates the ability of a company to yield a financial gain or profit. It is commonly measured by “price to earnings ratio” which is “market price per share” or “earnings per share”. To assess the profitability, the researcher used the profitability ratios from different companies that could purely be attributed to the business outsourcing and off-shoring of IT. The data sources were obtained from the survey information collected from various companies. The figures were interval level of measurement as it is not possible to have zero profitability (Blumann, 2009).

Participants are operational defined as the position the respondent currently holds. The responses were then coded and given labels as follows; IT Technician = 1, IT Manager = 2, Senior Manager = 3, IT Program Manger = 4, and IT Director = 5.

Organization performance is an accumulated end result of organizational process and activity. Commonly organizational work measures include organization effectiveness, productivity, profitability, innovation and operational efficiency (Hazra, Turban, MacLean, & Wetherbe, 1999). The construct is a composite series of questions.

Measurement

The effectiveness of any study device calculates in terms of consistency, validity and sensitivity as well as specificity. These impressions will as well be useful in this quantitative study since it is imperative for the researcher to establish the consistency of the study. To facilitate the development of figures for quantitative investigation (facts), a measurement procedure should take place. Alternatively, the canvasser in this study will translate a few human phenomena precisely into statistical figures. The procedure of changing observable facts into data is referred to as measurement. Grover, Cheon and Teng (1996) are of the opinion that in social sciences, much of what is endeavored to be calculated may be biased. Consequently, measurement turns out to be a tricky and multifaceted subject, and clamor is forever formed in the information because of imprecision in the procedure of measurement. Therefore, it is imperative to reduce clamor by utilizing consistent and suitable techniques of measurement.

The achievement of whichever study tool is typically measured in terms of consistency, soundness and sensitivity in addition to specificity. These ideas will also be useful in this study. The researcher employs them to determine the reliability of the researcher (Heeks, Krishna, Nicholsen, & Sahay, 2001). Clarke suggests that consistency is the capability by which an investigation is competent enough to generate results that are reliable and firm over a specified period of time and given comparable state of affairs (Clarke, 1998). A variety of validities subsists, which consist of interior validity and exterior validity. Interior validity pertains to the relationship between objects when measured on a range. At whatever time that an investigation offers equivalent outcomes after the use of two diverse measures, the result is alleged to be corresponding.

Validity is the point at which a specified tool is calculated to measure. The validity of a research can fluctuate in dissimilar illustrations employed. In one state of affairs, an investigation can be convincing whereas in other state of affairs, it may possibly not. The validity of a research is calculated by what the research alleges to measure and the accessibility of coherent errors in the conclusions gotten from the exploration. Crotty (2003) argues that interior validity is the scope to which it is feasible to make self-regulating orientation from the conclusion of a study particularly if the independent variable controls the dependent variable. It is possible to measure variables in this study since IT outsourcing and off shoring, being a dependent variable is controlled by other variables such as the availability of finances to undertake it and the accessibility of skilled labor. Conversely, outside validity is the universal submission of the results of a study to other sceneries. The findings on IT outsourcing and off shoring are critical to the improvement of business performances in the global market (Jennex & Adelakun, 2003).

The measurement of the hypothetical construct of an exploration is calculated using construct validity while convergent validity makes judgment between the achievements that are attained from diverse apparatus that are utilized in the exploration. Unlike convergent validity, divergent validity compares the instruments used in the study that calculates conceptions, which are conflicting. Due to the above validity and reliability, the exploration is convincing and consistent for application by several individuals or calculated branches (Clarke, 1998).

Summary

Organizations have resorted to carrying out IT business outsourcing and off-shoring by pursuing the advantages that comes with it. To the contrary, this process may not be entirely what it brings assessing it by its word value. This research shall therefore bridge the gap of the knowledge claim of the advantages or disadvantages of IT business outsourcing and off-shoring. The design chosen will help interact with people with knowledge in this field thus providing required information that will be used to validate the findings. Since analysis shall purely be done using categories there will be little in the conclusions made pertaining to the population at large.

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Appendix

Annotated Bibliography

Adeleye, B. C., Annansignh, F., & Nunes, M. B. (2004). Risk management practices in IS outsourcing: An investigation into commercial banks in Nigeria. International Journal of Information Management, 24, 167-180.

These academicians conducted a research work that focused on risk management that is related to outsourcing and off-shoring of information systems by commercial banks in Nigeria. The study was conducted due to the limited amount of research conducted on this field in developing countries. Outsourcing and off-shoring of services has become very common in the world and developing countries are adopting this new idea. However, they do not have risk management mechanism which makes their information systems to be vulnerable to failure and fraud. The research found that most banks in Nigeria were outsourcing IS services without having proper policies, programs or guidelines may lead to the failure of the IS system in Nigeria and consequently to all developing countries.

Bhalla, A., Sodhi, M. S., & Son, B. (2008). Is more IT offshoring better?: An exploratory study of western companies offshoring to South East Asia. Journal of Operations Management, 26(2), 322-335.

The article looks at performance of a company and the extent of its information technology services that it has enabled. The research concentrates on the large western corporations. The article reveal that these companies outsource their services differently with some doing it in very small extents, while others engage in outsourcing extensively. The authors use five models to elucidate how these companies differ in their outsourcing. The models used include the fee-for-service model, dedicated offshore centre, the built-operate-transfer, the captive model and lastly the value centre. In addition, the authors demonstrated the breath of off-shoring in regards to the activities off-shored. They used three valuables to show it. The variables employed are IT; this represents the off-shoring of software development and IT maintenances. BO; entails business process that such as human resource and the management of documents. CC stands for call centers and customer assistances. Nevertheless, the research failed to show the link of outsourcing and performances. The authors give three reasons for the lack of the link. One of the reasons given is that companies that outsource are mostly those that underperform. Another reason given is that engaging in outsourcing disrupts a firm from engaging in other activities or the cost that is involved with outsourcing negates its benefit.

This article will be very instrumental in this research in revealing the extent of off-shoring in the USA and also informing the scholars on the various models that these companies use to outsource.

Bhatt, G., Emdad, A., Roberts, N., & Grover, V. (2010). Building and leveraging information in dynamic environments: The role of IT infrastructure flexibility as enabler of organizational responsiveness and competitive advantage. Information & Management, 47(7-8), 341-349.

In this discussion the authors examines the importance of the flexibility of an organization information technology in order for it to facilitate its information generation and dissemination. In addition, the flexibility of IT enables the company to quickly respond to the ever changing market demands. The authors advocates that companies which outsource should develop flexible IT infrastructure for essay configuration in response to rising information demands to meet the market dynamics. They argue that a dynamic IT infrastructure will act as a very strategic competitive advantage for such companies.

This article is very necessary for this research as it will act as the base for advising the management of the outsourcing firms on the best IT infrastructure to adapt. Appropriate IT adaption will enhance the performances of these organizations since it will help them being dynamic with the ever changing e-business demands.

Citroen, C. L. (in press). The role of information in strategic decision-making. International Journal of Information Management. Retrieved from Science Direct.

The author depicts that the aspects of information in a strategic –decision making process are rarely addressed. Thus, the article concentrates on examining the way information is received, processed and used by the executives in multinational companies that are required to execute strategic decisions. The research reveals that the executives that employ the concept of rational approach gather and use plenty of information in a structured decision making process which entails transitory through various diverse stages in time. The use of ample information greatly reduces the uncertainty in the decision making process. Internet business Information plays an important role in the process. The author also emphasizes about the importance of the quality of information to be used by the board.

The article will inform the executives to ensure that the information they use in their decision making process is of very high quality. To ensure high quality of information, the executive should adapt the concept of rational approach.

Couto, V., Mani, M., Sehgal, V., Lewin, A. Y., Manning, S., & Russell, J. W. (2007). Offshoring 2.0: Contracting knowledge and innovation to expand global capabilities. Web.

The research argues that off-shoring should not be focused on minimizing the costs of operations by outsourcing the back office operations to more economic locations such as China and India, but instead it should also entail sourcing the expertise required to sustain innovation within a company. It depicts that companies that were previously undertaking outsourcing services are currently being engaged in other firm’s processes such as new product development, Research and development among others.

The article will be used to advice those companies that outsource to diverse their outsourcing services and not only concentrating on off-shoring the back-office operations, but also to include sourcing of expertise which will enable them sustain innovations. Adequate innovation within a company will act as its competitive advantage.

Daghfous, A., & Barkhi, R. (2009). The strategic management of information technology in UAE hotels: An exploratory study of TQM, SCM, and CRM implementations. Technovation, 29(9), 588-595.

The research explores on the importance of the hotel industry in expanding their information technology to cater for their other service processes and strategy rather than limit it to only handling their hotel routine operations. The article will be very instrumental and especially to the hoteliers as it will informs them on how they can enhance their IT to address their other processes to enhance their performances.

Garner, A. (2004). Offshoring in the service sector: Economic impact and policy issues. Journal of Economic Review (Kansas City), Q3(89), 5-36. Retrieved from Academic OneFile.

This article investigates the consequences of off-shoring to the US economy and appropriate policy responses. It starts by summarizing the past trends and giving an overview for service-sector off-shoring. Then the discussion looks at the technological, economical and regulatory aspects that support the process. It identifies elements that promote a service job to become outsourced. The authors discuss the various policies that regulate the effects of off-shoring in US. This article will be very vital to the US government since it will inform appropriate office holders on the appropriate policies that they need to be enacted to regulate those companies that are involved in outsourcing to ensure well being of all stakeholders involved.

Gibb, F., & Buchanan, S. (2006). A framework for business continuity management. International Journal of Information Management, 26(2), 128-141.

Gibbs and Buchanan conducted a research that explored on the risks that businesses are vulnerable. Outsourcing and off-shoring were among the list of risks which they gave. According to them, risks affect customer satisfaction, disrupt operations and revenue streams and develop a bad reputation for the organization. Due to this, they proposed a frame work which will control changes that occur in a business to ensure that proper implementation and monitoring is done. This will guarantee the sustainability of the firm.

Hirschheim, R. (2009). Offshoring and the new world order. Communications of the ACM, 52(11), 132-135.

The negative and positive aspects of off-shoring by firms to meet their information technology needs have been vastly analyzed and discussed by the author. The study focuses primarily on the negative effects of off-shoring in US firms. Information technology as per the article has been commoditized to a set of skills that can be outsourced to the lowest bidder. The authors assert that the US corporate community has been imprudent and lost its objectivity by focusing primarily on short term profits whereas ignoring the resulting loss of skills. Loss of skills affects organizational human resource capabilities and may affect the levels of innovation and creativity afforded by US firms. The negative and positive aspects of off-shoring discussed in the paper are important in making decisions and make the article suitable for the study. However, the qualitative critical research methodology adopted in the article raises questions on the authenticity of some of the assertions made.

Iacovou, C.L., & Nakatsu, R. (2008). A risk profile of offshore-outsourced development projects. Communications of the ACM, 51(6), 89-94.

The main aim of the study is to identify the risks associated with outsourced technology projects. The study used a quantitative survey methodology that involved experienced project managers. Fifteen years of project management experience was required of all participants involved in the study. A total of 15 individuals were involved in the study. The findings show that three broad classes of risks which include communication between clients and offshore vendors, client’s internal project management and capabilities of the vendor can affect outsourced projects. The study further shows that outsourced projects are prone to customary project risks and others that are specific to outsourcing. The study highlights the importance of risk assessment and management in successful outsourcing and provides important pointers on risk assessment when outsourcing. Though the article reinforces the importance of risk assessment, its main strength is its approach to analyzing and describing how risks develop in outsourced projects and processes.

Jennex, M. E., & Adelakun, O. (2003). Success factors for offshore system development. Journal of Information Technology Cases and Applications. 5(3), 12–31.

The research investigates the factors that affects the success of IT development. The factors discussed include knowledge skills of the outsourcer, technology, knowledgeable client contact and trust, intellectual property protection right and finally the infrastructure and telecommunication. The authors posits that traditional offshore applications are highly structured which makes them good for outsourcing since performances and risks are predictable. The current IT applications that are used for off-shoring are the e-business and web applications. They are associated with being less structured such that they are not easy to predict deliveries risks and costs. This article will be used to advise the management on the best outsourcing IT applications to adapt in terms of their efficiency and risks involved to assists them make appropriate decisions.

Lacity, M., Willcocks, L., & Feeny, D. (2004). Commercializing the Back Office at Lloyds of London: Outsourcing and Strategic Partnerships Revisited. European Management Journal, 22(2), 127-140.

The discussion explores on the current outsourcing trend and the prevalent challenges affecting outsourcing back-office services. The author discovers seven paramount lessons for successful development of the information technology outsourcing and business process outsourcing. These lessons call for the back office executives to implement major internal capabilities and processes to control global outsourcing. The information from this article will be used to inform those companies that are about to outsource about the challenges they are likely to encounter and how they can handle them effectively.

Levina, N., & Vaast, E. (2008). Innovating or doing as told? Status differences and overlapping boundaries in offshore collaboration. MIS Quarterly, 32(2), 307-332.

This article seeks to determine if differences in status and overlapping boundaries have an effect on the levels of innovation attained in outsourcing IT processes. A practice perspective which is quite similar to a case study methodology and dependent on phenomena observed in practice is the main methodology used in the article. The authors acknowledge an increase in outsourcing of complex as well as strategic IT projects and processes. Achieving collaboration between participants which is a critical success factor in such projects is noted as a difficulty. The findings show that proper communication and incorporation of various strategic considerations may help address the challenges resulting from status differences and overlapping boundaries in offshore collaboration. The article highlights and explores the risks posed by status differences and overlapping differences in offshore outsourcing and collaboration which makes it relevant to the proposed study. The only undoing of the article is the practice perspective methodology which is gullible to researcher bias.

Mitra, D., & Ranjan, P. (2010). Offshoring and unemployment: The role of search frictions labor mobility. Journal of International Economics, 81(2), 219-229.

The authors discuss the general equilibrium model. The model shows that unemployment increases within the outsourcing sector, while there is a reduction in the unemployment to those sectors that are not outsourcing. The article will be very important and especially to those in the US government as they will be able to understand how outsourcing affects unemployment of the sectors involved with outsourcing. Thus, they will be able to come up with appropriate measure to address it by enacting appropriate policies to regulate it.

Shachaf, P. (2008). Cultural diversity and information and communication technology impacts on global virtual teams: An exploratory study. Information Technology, 45(2), 131-142.

The article outlines the various challenges that are faced by companies that are involved in outsourcing as a result of the diverse environment they operate on as conduct their business. It looks at how the virtue environment in which these companies operate on impacts on team effectiveness. This article is very instrumental for this discussion as it will help the companies involved in outsourcing learns on how to enhance their team effectiveness across diverse multicultural environment.

Smith, B.Q. (2006). Outsourcing and digitized work spaces: Some implications of the intersections of globalization, development, and work practices. Journal of Adolescent & Adult Literacy, 49(7), 596-607.

The article seeks to determine the implications of outsourcing information technology and business processes on workforce literacy. Though the study was carried out in Ghana it provides important information on how workforce literacy can be affected by business processes and IT outsourcing in any functional organization. The author argues that global restructuring of capital and literacy’s have broadened the understanding of the inflections on workplace literacy practices and employees. This article is suitable for the study for it provides insight on how outsourcing affects employees psychologically. However, the main undoing of the article is that it is based on critical evaluation. This methodology is gullible to bias and reduces the validity of the findings. Overall, the article is well presented and borrows considerably from various studies that have analyzed the interrelationship between workforce literacy and outsourcing. Biases are only limited to critical literature review as the researcher has paid special attention to proper referencing.

Willcocks, L.P., & Feeny, D. (2006). IT outsourcing and core IS capabilities: Challenges and lessons at Dupont. Information Systems Management, 23(1), 49-56.

The main aim of this study is to determine the core IS capabilities that need to be retained and nurtured by companies that have outsourced major portions of their IT functions to ensure a strong IS capability over time. This aim is explored and driven at by analyzing the challenges and lessons learned from implementing IT outsourcing arrangements between 1997 and 2004 at Dupont. The case study methodology used in the study allows for integration of theory and practical observations in supporting the assertions made by the authors. The article highlights what capabilities can be considered core and therefore unsuitable for outsourcing and can therefore be used in determining information processes to outsource. Lessons from past outsourcing provide important pointers on the critical decision factors and areas that have to be adequately considered when making decisions to outsource. The paper is well presented and suited for the study due to its incorporation of theory and practice.