Outsourcing bag gardinerne

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Outsourcing bag gardinerne

IT Projektleder ERFA, Teknologisk Institut, Aarhus 8. september 2011

Per Svejvig, PhD , psve@asb.dk Per Svejvig, PhD , psve@asb.dk

TATION

pRÆSEN TAT ON

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Agenda g

› Brief about Per

› Project Management and theories

› Enterprise Systems Outsourcing “Behind the Curtain”

› Introduction

› Two complementing theories: Transaction Cost Theory & Institutional Theory

› The case study

› Discussion about practical implications

› Q+A

Outsourcing bag gardinerne - Per Svejvig, PhD v1.00 2

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Brief about Per

Ed ti & C tifi ti

› Educations & Certification

› PhD in Enterprise Systems

› M.Sc. in IT (Cand.it), Aarhus University

› B.Sc. in Engineering, Engineering College of Aarhus

› Teaching Aarhus School of Business, Aarhus University (ASB) & University of Southern Denmark (SDU)

› Project Management Aarhus

› Certified Senior Project Manager (IPMA level B)

E i

› Change Management

› IS Research and Practice

› Information Systems Development

› Research Areas

› Experience

› Aarhus School of Business since 2007

› Partner ProConsulting A/S since 1995

› LEGO System A/S 1992-1997

› Project management of complex IS/IT projects

› Virtual Project Management

› Outsourcing

› LEGO System A/S 1992 1997

› Digital A/S 1986-1992

› Pasilac Electronics A/S 1983-1986

› About 25 years experience in project

› Enterprise Systems Research

› Institutional theory in IS research

› ES implementation and use with technical and organizational aspects management and information systems

development › Managing IT-enabled change

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Project Management and theories

(Gregor 2006: 620)

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Enterprise Systems Outsourcing

“B hi d h C i ”

“Behind the Curtain”:

A Case Study Showing How Rational C

and Institutional Explanations Coexist and Complement Each Other

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Introduction

› Outsourcing of ES is becoming more and more important in today’s global business

› Outsourcing of ES is becoming more and more important in today s global business environment to gain cost savings (Olson, 2007)

› The reasons why organizations outsource are dominated by rational

l ti h t i t b ili l ti t d i

explanations…where cost savings seem to be a prevailing explanation repeated in literature!

› However, though a majority of extant literature finds mainly rational explanations for

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engaging in ES/IS outsourcing (e.g. Dibbern et al., 2004), our own experience from many companies and from many outsourcing arrangements made us speculate whether there was more to it

› Could it be that there were both “front stage” rational explanations as well as other different “back stage” explanations “behind the curtain”? - to use a theater metaphor

› To address this curiosity we set out to study ES outsourcing in a large Scandinavian y y g g high-tech organization, SCANDI…our research question being:

› Why does SCANDI engage in very complex ES/IS outsourcing arrangements?

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C

Conceptual framework combining rational and institutional factors

One perspective:

S i ti l

Another perspective:

S i i i i l

Seeing rational explanation(s)

Seeing institutional explanation(s)

We are outsourcing because because…

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C ( C ) Transaction Cost Theory (TCT) Definitions & Concepts p

› Transaction has been defined as “ when a good or service is transferred across a technologically separable interface ” (Williamson, 1981: 552)

› Transaction costs are defined as the costs of negotiating, monitoring, and governing exchanges between people

› TCT seeks to minimize the costs of exchanging resources internal or external

› TCT links economics and organization theory

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T ti C t Th (TCT) Transaction Cost Theory (TCT) and Outsourcing Decisions

C t T ti C t P d ti C t

 Cost = Transaction Cost + Production Cost

 Bounded rationality is the idea that in decision making, rationality of individuals is limited by the information they have

 Transaction Type

 Frequency

 Assets Specificity

 Opportunism: People are not only bounded rational, but also sometimes

opportunistic , which means that they act on “self-interest seeking with guile” where people (and hence organizations) are not trustworthy and honest, they even lie,

cheat and steel

 Uncertainty

(Lacity and Hirschheim, 1993; Scott and Davis , 2007;

Simon 1957; Williamson 1981, 1991)

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C ( C ) Transaction Cost Theory (TCT) Outsourcing Cost Curves g

Outsourcing option Outsourcing option In sourcing option

Outsourcing Cost Curves

(Vitharana et al. 2007: 353)

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Institutional Theory

Concepts and definitions p

› Institutional theory attempts to describe the deeper and more resilient aspects of how institutions are created, maintained, changed and dissolved (Scott, 2004, Scott, 2008) g

› Institutions are multi-faceted, durable, resilient social

structures, made up of symbolic elements, social activities, and material resources (Currie, 2009, Scott, 2001: 48-50)

Institutional Theory

material resources (Currie, 2009, Scott, 2001: 48 50)

› Examples of institutions are human rights, societies, enterprise systems, families, handshakes and

belief systems like Buddhism

Theory

belief systems like Buddhism

› Game analogy: Institutions are the rules of the game, and organizations are the players (North 1990: 4-5)

Organizational Institutionalism

› Organizational institutionalism addresses the overall question:

What does the institutional perspective tell us about organizational behavior? (Greenwood et al. 2008a: 1).

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Institutional Pressures(1 of 2)

Example: PhD Defense = Institution p

Iron Cage Iron Cage

Regulative pressures

Normative pressures

Mimetic pressures

Per

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Institutional pressures (2 of 2) p

› Institutional pressures from the organizational field (society) leads to isomorphism (structural similarity) among organizations

(DiMaggio and Powell 1983, 1991)

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Rationalized Myths y

› Examples Examples

› The un-customized enterprise System as the most efficient system

› The old legacy system was deinstitutionalized by creating a story of “performance crisis”, and a myth- making process took place “constructing the new ERP system as an integrated system” (Alvarez 2002)

(Meyer and Rowan 1977)

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The Interdependence of Rational and Institutional Factors

Rational Factors

Institutional Factors

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Research Methodology gy

› Interpretive research, longitudinal case study

Data Collection SCANDI SCANDI SCANDI SCANDI Oracle

Data Collection

Methods SCANDI

Project Group SCANDI Finance Dept.

SCANDI Purchasing Dept.

SCANDI

Supply Chain Requester

Oracle

Semi-structured

I i

5 interviews 7 interviews 10 interviews 5 interviews 3 interviews Interviews

Short unstructured phone interviews

3 interviews 8 interviews 9 interviews 9 interviews

Focus group interviews

1 interview

Participant

observations 18 meetings 1 meeting 2 meetings

observations Document

analysis Unpublished documents: plans, reports, minutes and presentations; press releases from SCANDI; Oracle information (e.g. www.oracle.com) news articles; magazine reports etc.

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The SCANDI Case Study

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About SCANDI

› Large Scandinavian organization with representation in Denmark

Denmark

› 10.000+ employees

› Produces and sells high tech services

› Started in 1996 to implement Standard Enterprise System Package ac age

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1996 Milestone 1 – January 1996:

Financial System implemented y p The

SCANDI St 1

2001 Milestone 2 – January 2001:

Supply Chain System project initiated

Story 1

2004

pp y y p j

2004 Milestone 3 – Spring 2004:

Major conversion of legacy system complete

Outsourcing event #1

2007 Milestone 4 – Summer 2007:

Re implementation started

Outsourcing event #1 Outsourcing event #2

2009

Re-implementation started Milestone 5 – January 2009:

Outsourcing event #3 Outsourcing event #4 Outsourcing event #5

19 Outsourcing bag gardinerne - Per Svejvig, PhD v1.00

2009 Go Live Outsourcing event #5

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The SCANDI Story 2

20 Outsourcing bag gardinerne - Per Svejvig, PhD v1.00

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Said about outsourcing

› “I think…that it gives prestige to undertake outsourcings…the people who got promoted at SCANDI, are the people who have carried through several outsourcings and cut down the number of employees”

outsourcings and cut down the number of employees

Supply Chain Manager

› He [specific top-level manager] created an extreme large power base and

› He [specific top level manager] created an extreme large power base and position, by virtue of good outsourcing deals for SCANDI…

› and I am quite sure that the “outsourcing silver bullet” from the purchasing q g p g department also characterizes the governance of the IT department

Consultant

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S f E l i f

Summary of Explanations for ES Outsourcing

Rational Explanations “Behind the Curtain” Institutional Explanations

Economic Explanations

Cost savings in order to elicit a healthy and attractive company for shareholders – to make

l bl

Management consultants “bring” in benchmark numbers from other companies to SCAND I. They

“ l b ”

SCANDI saleable.

Financial incentive for the management team to outsource (fulfilling the balanced scorecard).

“travel in best practices”.

Agreement with trade union about the maximum number of dismissals per year.

Technical The ERP area is not business critical and Outsourcing becomes an institutionalized Technical

Explanations

The ERP‐area is not business critical and therefore suitable for outsourcing.

The ERP area is in control internally , so outsourcing does not pose a big risk.

Outsourcing becomes an institutionalized practice i.e. a habitual choice.

New competencies enabling further

improvement of the quality of IS.

Outsourcing enables SCAND I to further

modernize and consolidate its applications to

d l h b l h b

deliver the capabilities that business requires.

Sym bolic‐

Interpre tive Explanations

Outsourcing appears to be a w ay to force a cultural change from a “highly institutionalized culture of dissimilarity” to a “more agile and

Outsourcing is seen as prestigious in SCANDI.

Employees are promoted if they have mastered outsourcing.

p

y g

streamlined company ”.

g

Outsourcing is a silver bullet – a recipe for success.

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Practical implications:

Two by two discussion y

› What can be learned from the case?

› How can you as project manager utilize the two theories?

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S O

References “IS Outsourcing behind the curtain”(1 of 2)

› Alvarez, R. "The Myth of Integration: A Case Study of an ERP Implementation," in: Enterprise Resource Planning Solutions and Management,F.F.H. Nah (ed.), Idea Group Inc (IGI), Hershey, 2002.

› Berger, P.L., and Luckmann, T. The Social Construction of Reality. a Treatise in the Sociology of KnowledgeDoubleday, N Y k 1966

New York, 1966.

› Currie, W. "Contextualising the IT artefact: towards a wider research agenda for IS using institutional theory," Information, technology & people(22:1) 2009, pp 63-77.

› Dibbern, J., Goles, T., Hirschheim, R., and Jayatilaka, B. "Information Systems Outsourcing: A Survey and Analysis of the Literature " Database for Advances in Information Systems(35:4) 2004 pp 6-102

Literature, Database for Advances in Information Systems(35:4) 2004, pp 6-102.

› DiMaggio, P., and Powell, W.W. "The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality," in: The New Institutionalism in Organizational Analysis,W.W. Powell and P. DiMaggio (eds.), University of Chicago Press, Chicago, 1991, pp. 63-82.

› DiMaggio, P.J., and Powell, W.W. "The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in gg , , , g p y Organizational Fields," American Sociological Review(48:2) 1983, pp 147-160.

› Gosain, S. "Enterprise Information Systems as Objects and Carriers of Institutional Forces: The New Iron Cage," Journal of the Association for Information Systems(5:4) 2004, pp 151-182.

› Hirschheim, R. and J. Dibbern (2006). Information Technology Outsourcing in the New Economy - An Introduction to the Outsourcing and Offshoring Landscape. In R. Hirschheim, A. Heinzl and J. Dibbern (Eds.), Information Systems Outsourcing:

Enduring Themes, New Perspectives and Global Challenges. Berlin: Springer-Verlag, 3-23.

› Lacity, M.C., and Hirschheim, R.A. Information Systems Outsourcing; Myths, Metaphors, and RealitiesJohn Wiley & Sons, Inc.

New York, NY, USA, 1993.

McFa lan F W and DeLace B O tso cing IT The Global Landscape in 2004 Ha a d B siness SchoolHa a d B siness

› McFarlan, F.W., and DeLacey, B. Outsourcing IT: The Global Landscape in 2004, Harvard Business SchoolHarvard Business School, 2004.

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S O

References “IS Outsourcing behind the curtain”(2 of 2)

› Meyer, J.W., and Rowan, B. "Institutionalized Organizations: Formal Structure as Myth and Ceremony," American Journal of Sociology(83:2) 1977, pp 340-363.

› Nicholson, B., and Sahay, S. "Deinstitutionalization in the context of software exports policymaking in Costa Rica," J Inf t h l) 2009

technol) 2009

› North, D.C. Institutions, Institutional Change and Economic PerformanceCambridge University Press, Cambridge, 1990.

› Olson, D.L. "Evaluation of ERP outsourcing," Computers and Operations Research(34:12) 2007, pp 3715-3724.

› Scott, W.R. Institutions and Organizations, (Second ed.) Sage, Thousands Oaks, 2001.

› Scott, W.R. "Institutional Theory: Contributing to a Theoretical Research Program," in: Great Minds in Management: The Process of Theory Development,K.G. Smith and e. Michael A. Hitt (eds.), Oxford University Press, Oxford, 2004.

› Scott, W.R. Institutions and Organizations: Ideas and Interests, (Third ed.) Sage, Thousands Oaks, 2008.

› Scott, W.R., and Davis, G.F. Organizations and Organizing: Rational, Natural, and Open System PerspectivesPearson Prentice Hall Upper Sadle River 2007

Prentice Hall, Upper Sadle River, 2007.

› Svejvig, P. and J. Pries-Heje (2011). Enterprise Systems Outsourcing “Behind the Curtain” - A case study showing how rational and institutional explanations co-exist and complement each other. International Journal of Enterprise Information Systems 7(1): 1-17.