FORT Framework
FORT Framework
FORT Framework
PERSPECTIVE ON
ITOUTSOURCING
A longitudinal study at four companies provides valuable insights
about the evolution of IT outsourcing relationships.
87
sible when complex portfolios of ITS assets are out- examine the movement of organizations changing
sourced.
ITS outsourcing relationships over time within or
Earlier research by the authors [9] developed a across the four relationship cells.
framework that classifies client-provider outsourcing
In the support relationship, the role of the outside
relationships into Four Outsourcing Relationship service providers is limited and insourcing is more
Types, (a framework we call FORT). A client firms prevalent than outsourcing. The alignment relationrelationship with an xSP firm can be classified into ship enables firms to obtain service providers technione of these four generic
client-provider relationship
types. However, outsourcing Key Questions for Assessing Extent of Substitution by xSPs
what extent:
relationships between client To
High
Reliance
Alliance
are service providers involved in routine day-to-day operation of
existing application systems of the client firm?
firms and their service do service providers have managerial control and decision-making
authority over the operations of existing application systems of the
providers may change over
client firm?
are service providers involved in the planning, development, and
time. Here, we discuss the four
implementation of new application systems for the client firm?
do service providers have ownership of hardware, software and
Low
Support
Alignment
relationship types in terms of other
physical infrastructure of the client firm?
do client data reside on hardware platforms owned and operated
by service providers
the competencies and moni do service providers personnel replace in-house ITS personnel of
the client firm?
toring mechanisms required are
Low
High
service providers responsibilities restricted to off-site activities?
Strategic Impact of Outsourced ITS Portfolio
for effectively managing them,
and then trace the movement Key Questions for Assessing Strategic Impacts of Outsourced ITS Portfolio
of client-vendor relationships To what extent:
the outsourced ITS portfolio provide the client firm with competitive advantage?
within and across relationship does
will the outsourced ITS portfolio affect the long-term competitiveness of the client firm?
does
the outsourced ITS portfolio call for a close partnership between the provider and the client firm?
cells over time. This discussion
does the outsourced ITS portfolio allow for the development of strategic interorganizational relationships?
is based upon conceptual does the outsourced ITS portfolio provide opportunities for identification of value points that can be
leveraged in the ITS portfolio?
development from extant liter- does
the outsourced ITS portfolio provide opportunities for business process improvements?
does the outsourced ITS portfolio open up new revenue opportunities?
ature and case data longitudinally collected from four client
sites during two different time
Figure 1. The FORT cal expertise on a project basis. The reliance
periods.
framework.
relationship requires more commitment to the relaThe FORT Framework
tionship from vendor firms because significant porThe FORT framework consists of two dimensions tions of a clients in-house operations are transferred
most germane to outsourcing relationships. The first to external service providers. In contrast to other types
dimension deals with the extent of ownership sub- of outsourcing relationships, clients and service
stitution by outsourcing service providers. Owner- providers work together in alliance types of relationship substitution focuses on the aspect most ships as strategic partners that have common goals.
important in an outsourcing relationshipthe
These four outsourcing relationships require differdegree to which ownership and/or control of various ent types of competencies and monitoring mechaITS assets such as hardware, software, telecommuni- nisms [2] as described in Table 1, and a client firm
cations infrastructure, and data center operations should consider these as they make choices concernhave been transferred to xSPs. The second dimen- ing outsourcing relationships with service providers.
sion deals with the strategic impact of outsourced For example, the support relationship involves low
ITS portfolio. This dimension captures the influ- coordination costs and monitoring the relationship is
ence the outsourced ITS portfolio has on a firms easy because the extent of substitution by the vendors
competitive positioning and its long-term strategy. is low. In contrast, in the alignment and alliance relaIf the outsourced ITS portfolio adds value to a firms tionships, coordination is much more complex and
competitive advantage (for example, by improving monitoring becomes more difficult in the alignment
key business processes, or by enhancing its relation- and alliance relationships because specifications for
ships with its customers or suppliers, and so on) the outsourced information services are difficult to specstrategic impact of the outsourced portfolio will be ify completely a priori, and outcomes are generally
deemed to be high. The four resulting types of out- ambiguous and uncertain.
sourcing relationships are support, alignment,
Alliance relationships typically grow and build
reliance, and alliance (Figure 1). The framework can upon previous small, but successful, exchanges
be used to depict both static and dynamic aspects of between organizations. The evolution of alliance relaclient-provider relationships and then utilized to tionships is thus preceded by interactions; and current
88
89
Alternatively, they may decide to remain within the ship, or due to its slow diffusion in the marketplace.
support cell. Movement from the support to the
The degree of locked-in relationships is the highest
alignment cell is the least risky because it usually does in the alliance cell. Since a successful locked-in relanot involve large investments. Instead, such a move- tionship is built on mutual trust over a period of time,
ment facilitates acquisition of service providers exper- strategic movement generally needs to be based upon
tise without long-term commitments. From the prior substitutional movements. Therefore, if client
alignment cell, client firms may decide to move to firms move into the alliance cell from the support cell
reliance or alliance cells progressively increasing their directly without prior alignment or reliance relationcommitment. On the other hand, they may revert ships, both parties will suffer due to lack of built-in
back to the support cell once they
Industry /
ITS Department
Key Informant ITS Portfolio Out- Key Informant ITS Portfolio Out
Firm
Characteristics:
1st Round of
sourced at the time 2nd Round of
sourced at the time
have acquired the expertise from
Pseudonym Budget/Headcount Interviews
of 1st Interview
Interviews
of 2nd Interview
the service providers. Movements
PRPM (DDD) $7 million/45 persons Director of the IS Application
Vice president of Technology scanning,
department
development
the IS department in-house IS staff
into the reliance and alliance cells
for non-strategic
(the director inter- mentoring, IS strategic
applications
viewed earlier was planning, application
require progressively more compromoted to this development of some
position)
strategic ITS applications
mitment to the relationship from
MM (FFF)
Before Merger: $15
CIO (Senior Vice Adhoc IS projects,
IS Director
Data center operations,
million/100 persons;
President)
coding, disaster
PC maintenance, training
client firms because of the
After Merger: Separate IS Director
recovery
of IS staff
budget for merged IS
increased level of involvement of
department not
available/50 persons
service providers in client firms
CIRA (MMM) $10 million (additional Vice President of Insourcing of the
Vice President of Application development
IS activities. Therefore, outsourc$40 million for systems IS Operations
major Systems
IS Operations
on a selective basis
upgrade)/40 persons
Upgrade Project;
only for non-strategic IS
ing decisions become more irreSome outsourcing
applications
versible as client firms get into
H (EEE)
IS budget not available/ Head of IS
Training and support Head of IS (now
Data center, tele35 persons
(reports to
of IS staff (hired
reports to the
communications, and
reliance or alliance types of relaFinance Manager) consulting staff from CEO)
enhancement and
their xSP)
modernization of
tionships with their service
important application
systems
providers. As the outsourcing
relationship moves from the support type to the alliance type, Table 2. Description rules and procedures. Moreover, the impact of the
the four cases in alliance relationship on the organization and the
there is increased transfer of theoflongitudinal
study.
information; increased level and
degree of lock-in with the particular service provider
content of services that are transacted; and develop- is so large that it is usually difficult to reverse this relament of mutually shared expectations and evaluations tionship. In this sense, a direct movement from a supof each other by service provider and client.
port relationship to an alliance relationship is much
Outsourcing of traditional types of IS services cor- more risky than a movement from either a reliance or
responds to a movement within the support cell we an alignment type of relationship to an alliance type
the supportive movement. Movements from the of relationship.
support cell to the reliance or alignment cell are
named substitutional movement because either Case Studies
strategic or operational in-house IS activities are taken Data for this research was collected using the case
over by outsourcing service providers. Movements to study approach. We initially selected 15 firms of
the alliance cell from other points in the matrix follow diverse sizes in different industry groups based in the
a trend accentuated by the fact that service providers northeastern U.S. and southern Ontario, Canada
are consistently striving to expand their offerings in for our research study on sourcing practices. The
the outsourcing market. We name this strategic industries represented in our sample include chemimovement because service providers become strate- cal manufacturing, plastics and rubber products
manufacturing, computer and electronic product
gic partners of the client firms.
One of the current trends of outsourcing is the evo- manufacturing, manufacturing, food and beverage
lution from the supportive movement to the substitu- stores, credit intermediation and related activities,
tional movement and in the long run to the strategic insurance carriers and related activities, professional,
movement. However, strategic movement is less preva- scientific, and technical services, and hospitals. Of
lent than substitutional movement due to the nature the 15 firms in our initial sample, we chose four for
of commitment required on the part of both clients this particular research study for a variety of reasons.
and service providers and the amount of time it takes First, we needed only firms involved in outsourcing
to develop mutual trust between them. The low fre- of some aspects of their ITS portfolio. We also
quency of strategic movement may also be due to the wished to include firms from different industries in
recency of the alliance type of outsourcing relation- the longitudinal study to provide us with a broader
90
sample. We wanted to
have a sample of firms that
covered different types of
movements within the
High
FORT framework; and it
was important to gain top
management commitment
for repeated interviews.
Details of these firms are
provided in Table 2.
Low
The longitudinal study
was carried out over a
period of three years. Data
was gathered primarily
through interviews of
senior IS executives, and
outsourcing experiences of
the firms were analyzed by
the following key topics
and the questions shown in Figure 1:
Managerial
Implications
FFF
Firms should consider the
EEE
costs and difficulties of
DDD
MMM
moving from one quadrant to another in determining the direction of
Support
Alignment
movement. Not all firms
choose the least expensive
choice. Firms should clarify
Low
High
their decision criteria for
Strategic Impact of Outsourced ITS Portfolio
outsourcing. The decision
Legend:
Supportive Movement
to outsource is a firm-speSubstitutional Movement
cific problem. Even though
Strategic Movement
many firms consider outsourcing in order to reduce
costs, technical expertise
Figure 2. The evolution of
outsourcing relationships
for new IT is a major reaAn illustration of four client
son for outsourcing. For
ITS competencies possessed by the firm
firms outsourcing relationships over time.
example, in the case of one
Motivations for outsourcing
firm the final service
Process for xSP selection
provider was not the least expensive service provider.
Criteria for selecting the xSPs
Similarly, insourcing was not the cheapest option for
ITS portfolio outsourced
another.
Contract period and contract governance
Another major reason for not choosing the least
Recurring and ongoing operations costs and
expensive outsourcing option is that the types of comswitching costs
petencies and measurement and monitoring mecha Trust with the xSP
nisms differ across the four outsourcing relationships,
Future ITS strategic plan
and the level and type of skills available within a client
The experiences of these firms show that IS man- firm may restrict the choices of client firms to only
agers approach and implement outsourcing in differ- some outsourcing relationship types. Hence, firms
ent ways even though they may have similar should develop their own outsourcing strategies as
motivations for outsourcing, such as cost reduction or dictated by their pool of managerial skills.
Firms can consider multiple movements from
acquisition of technical expertise [3, 6].
Figure 2 represents the movement within the FORT one cell to other cells in the matrix through selecframework of each of the four firms that we examined. tive outsourcing. For certain projects a firm can
Firm MMM remained within the support cell. The move from the support cell, to the reliance cell, and
firm decided to operate their strategic applications in- for others, the firm can move to the alliance cell
house and use external service providers only for non- through selective outsourcing. An advantage of selecstrategic IS functions. Firm FFFs movement from the tive outsourcing [7] is that several service providers
support to the reliance cell is similar to the IBM-Kodak can be used simultaneously by a client firm depending
type of outsourcing. Firm EEEs outsourcing became upon service providers expertise and special offerings.
more strategic and so it moved to the alliance cell. Firm In addition, it allows client firms to minimize costs
DDDs outsourcing decision corresponds to a move- and maximize business benefits simultaneously. HowReliance
Alliance
91
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