EXAMPLE SUMMARY OF READING

(When I was a Ph.D. student, I decided to summarize all the articles for myself because the act of creating the summary served to commit the paper to memory--but this is a personal choice).

To serve as a model, I have provided a summary of your first reading:

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Summary by: Mary Lacity Date Summarized: 12/5/01

Lacity, M., and Willcocks, L., "Practices in Information Technology Outsourcing: Lessons From Experience," MIS Quarterly, September, Vol. 22, 3, 1998, pp. 363-408.

Research Subject: Best Practices in Information Technology Sourcing Decisions, primarily from a Customer perspective

Research Method:

- Empirical Study

- On site interviews with 145 participants including senior executives, IT managers, consultants, and supplier account managers

- 61 IT sourcing decisions covered in interviews

- Participants came from 19 US and 21 UK companies

Theoretical Foundation: none

Major Findings:

Proven Practice 1: Selective outsourcing decisions achieved success (85%) more frequently than total outsourcing decisions (29% success rate) and total insourcing decisions (67% success rate)

Proven Practice 2: Senior executives and IT managers who made decisions together achieved success more often (87%) than when either stakeholder group acted alone.

Proven Practice 3: Organizations that invited both internal and external bids achieved success more often (89%) than organizations that merely compared a few external bids with current IT performance (72% success rate) or had no formal bid process (50% success rate).

Proven Practice 4: Short-term contracts (less than 4 years) achieved success more often (83%) than long-term contracts (greater than 7 years) (40% success rate).

Proven Practice 5: Detailed fee-for-service contracts achieved success more often than other types of contracts (91% success rate); standard contracts (50%); loose (0%); Mixed (40%)

Finding: Recently signed contracts had a 90% success rate compare to contracts signed before 1989 (40%)

Finding: Size of IT function, as assessed by data center MIPS, size of IT budget, and Size of IT department, did not differentiate successful from unsuccessful decisions.

Definitions:

Outcome Measure: Because most sourcing decisions were made to save costs, the success measure used was "expected cost savings achieved" (56% of decisions); "expected cost savings not achieved" (23% of decisions), unable to determine/too early to tell 16% of decisions)

Total Outsourcing: the decision to transfer the equivalent of more than 80% of the IT budget for IT assets, leases, staff, and management responsibility to an external IT provider.

Total Insourcing: the decision to retain the management and provision of more than 80% of the IT budget internally after evaluating the IT services market.(4).

Selective Outsourcing: the decision to source selected IT functions from external provider(s) while still providing between 20% and 80% of the IT budget internally. This strategy may include single or multiple suppliers. In practice, by 2000, a selective sourcer most typically outsourced between 20-30% of the IT budget.

Standard Fee-for-service Contracts: the customer signed the supplier’s standard, off-the-shelf contract.

Detailed Fee-for-service Contracts: the contract included special contractual clauses for service scope, service levels, measures of performance, and penalties for non-performance.

Loose Fee-for-service Contracts: the contract did not provide comprehensive performance measures or contingencies but specified that the suppliers perform “whatever the customer was doing in the baseline year” for the next five to ten years at 10-30% less than the customer’s baseline budget.

Mixed Fee-for-service Contracts: For the first few years of the contract, requirements were fully specified, connoting a “detailed” contract. However, participants could not define technology and business requirements in the long run, and subsequent requirements were only loosely defined, connoting a “loose” contract.

Strategic Alliance/Partnership: Collaborative inter-organizational relationships involving significant resources of two or more organizations to create, add to, or maximize their joint value. In the contract, the partners agree to furnish a part of the capital and labor for a business enterprise, and each shares in profits and losses. Among our cases, only four outsourcing relationships are strategic alliances.

Buy-in Contract: A customer buys in supplier resources to supplement in-house capabilities, but the supplier resources are managed by in-house business and IT management. Because the customer retains responsibility for the delivery of IT services, we have labeled this option “insourcing”. (This contract type is also discussed in the Managerial Implications section).

Limitations:

- Selection of Cases was opportunistic & does not statistically represent a population

- Interview Method relied on self-reports after the fact

- Data analysis--the data categories overlap, such as most loose contracts are long-term; expected cost savings not only

possible outcome indicator.

Future Market Trends:

- Flexible pricing (avoid paying higher than market prices a few years into the deal)

- Competitive Bidding beyond the contract (reduce monopoly supplier condition)

- Begin long-term relationships with short-term contracts to incent suppliers

- Performance-based contracts in which supplier only gets paid for performance

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