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This chapter summarizes the growing understanding of reasons for the success and disappointment of IT outsourcing, and of how best to use the IT outsourcing market. It begins with an overview of the research findings on past, current, and emerging IT outsourcing practices. It then focuses in detail on proven practices across the life-cycle of a typical IT outsourcing arrangement. Using illustrative case material and survey findings, it investigates how effective IT sourcing decisions can be made using decision matrices that pinpoint the key business, economic, market capability, and technical factors. Next, the processes of assessing vendor bids and then arriving at a suitable contract and system of measurement are considered. Finally, the chapter details the key in-house capabilities needed to make any IT outsourcing arrangement work.

Over the last decade the growth in significance and in the size of outsourcing deals has resulted in rising concern with the actual management of outsourcing arrangements, in particular with the twin issues of risk mitigation and relationship management. This chapter develops a risk analysis framework for helping to understand and analyse the critical components of client-supplier relationships. It shows that the juxtaposition of these two subjects — risks and relationships — is far from coincidental. Risk and relationships in IT outsourcing are undermanaged and understudied, and previous studies have never systematically linked the two issues. However, the case studies provide convincing evidence that managing the relationship dimension has also proven to be a major contributor to risk mitigation.

This chapter discusses a case study of British Petroleum Exploration's (BPX) IT outsourcing arrangements. Outsourcing at BPX presented a novel way of using multiple suppliers to deliver best-in-class services for all areas contracted out. The use of multiple suppliers in part was driven by BP's desire to keep control, yet at the same time seek benefits from their expertise and capabilities. BP's objectives of maintaining high global service and technology standards, while reducing the overall IT costs beyond what the internal IT group could possibly have achieved was accomplished. Vendors, on the other hand, benefited from the risk-reward arrangements, the new business projects and BPX's expansion globally, and of course from BP's prestige as a ‘blue chip’ company and leading-edge technology user.

This chapter discusses a case study of the outsourcing arrangement between British Aerospace (BAe) and Computer Science Corporation (CSC). The case study presents an example of a total outsourcing contract, where the client company has successfully manoeuvred itself into a win situation, and by doing so is slowly improving the suppliers' economic situation in the venture through additional and new areas of business. This case highlights the importance of a detailed contract in a long-term exchange-based relationship, and especially the important role of the contract in providing a continuing governance structure for the relationship. Because of the centrality of the contract, it was recognized that realignment procedures needed to be mutually implemented to ensure the contract properly represented BAe's business and technological changes, but also the shifting basis on which CSC could provide services at a reasonable profit.

This chapter presents a cross-case analysis of the case studies discussed in Chapters 3–7. A cross-case analysis provides further insights into the relevance and strength of factors in any causal scheme — something of which the analytical frameworks could only provide limited prior understandings. This process also enables a further testing of the relevance, and a potential deepening, of the analytical frameworks themselves and the insights they can bring to bear in future studies of the phenomena. Three patterns emerge that characterize relationship arrangements as inefficient, adequate, or efficient. Xerox, British Aerospace, and Inland Revenue's arrangements were found generally to be inefficient in the first few years, raising serious doubts over whether the relationship arrangements offered operational advantages or benefits over the previous in-house operations. Subsequently, all three sets of arrangements were improved to a more than adequate level. BPX's arrangements described an overall adequate arrangement in terms of relational efficiency, even though the Alliance approach generally proved operationally ineffective. Finally, after a bad start, ESSO's arrangement showed the nearest to what could be termed relationally efficient, although certain practices (e.g. contract renewal) do introduce considerable transaction costs. The ideal scenario in terms of efficiency would be low results on all three accounts.

This chapter discusses a case study of Xerox Corporation's outsourcing arrangement with EDS. In 1994, Xerox contracted EDS for $3.2 billion to handle its information technology (IT) requirements worldwide. The deal was part of Xerox's strategic restructuring initiative to halt its dwindling turnover and to redevelop its global competitiveness. Outsourcing of any IT function — but even more so in mega-deals like Xerox — requires a cooperative strategy to convert the objectives into reality. The case revealed the complexity of total outsourcing at a global level, and the complex impacts of business and technical uncertainties and contractual incompleteness. At the same time the impacts of size and complexity of the undertaking of global IT outsourcing is revealed as considerably underestimated both by the vendor and client — a frequent feature of other such deals that have been studied.

This chapter discusses a case study of the UK's Inland Revenue's (IR) IT outsourcing arrangement with US-based supplier EDS. The case study reveals a complicated set of issues being managed through a strategic relationship in a difficult public service context. The case raises the issue whether the UK public sector environment in the early and mid-1990s was actually appropriate for anything other than relatively short-term contracts on a selective basis. At the IR it became clear that volatility in government policy added a high-risk project to an already complicated large-scale outsourcing arrangement in ‘start-up’ mode. The fact that this cut across attempts to develop several major new systems using new technologies that the supplier as well as the in-house IT staff were not clear on, only heightened the uncertainty, risks, and difficulties for developing a relationship. However, the high-profile nature of the deal, and the importance of the IR as the tax raising department for the government has probably served to counterbalance many of the uncertainties that would not be so easily offset in other strategic partnering cases.

The cross-case analysis in the previous chapter illustrated the adequacy of our framework in characterizing IT outsourcing relationships. Prior to that, the individual case analyses in Chapters 3–7 elicited a number of strong links between the dimensions that, combined with Chapter 8's detailed analysis, provide a number of important pointers for outsourcing relationship management. This chapter makes use of the framework in a normative sense to determine a number of critical propositions for relationship management practice. It also suggests some small but important revisions of the framework, for future use by practitioners. The discussion follows closely the main dimensions of the framework, and, for coherence in the discussion, some repetition here of findings from the previous chapter is inevitable.

This chapter discusses a case study of ESSO UK's IT outsourcing arrangement with ITNet. The case illustrated ESSO's IT department's initiative to deliver on the mandated request by its parent organization EXXON to improve its operational efficiency, including cost cutting, and downsizing the number of staff. Selective IT outsourcing did contribute to meeting these requests, although making outsourcing work in favour of ESSO's operation was shown to be problematic at times, especially in its dealings with ITNet. The ITNet venture highlighted the difficulties of a competitive takeover bid and the resulting complexities the vendor faces when picking up services provision where a long-term deal left off. It also emphasized the lack of attention both parties had given to the post-contract management structure, and the resulting breakdown of the relationship. However, the greatest impact on the relationship was ITNet's false assumptions and hence erroneous calculations concerning ESSO's operations, which forced them to request an early renegotiation.