Relationships in Government Information Technology Outsourcing. Richard Rannard

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1 Relationships in Government Information Technology Outsourcing Richard Rannard 2014

2 Agenda Observation: some governments didn't do as good a job managing an outsourcing provider than private sector companies I.e., governments maintaining a relationship with private sector IT outsourcing Narrow this to contracts versus relationships in (private sector) IT outsourcing Relationship management and contract management I call it the classic view of relationships in IT outsourcing Contracts and relationships are complementary Combined views of relationships in IT outsourcing, including Relational Exchange Theory (I call it the new approach ) Government versus the private sector in IT outsourcing Government IT outsourcing: differences to private sector E-Government and its differences to private sector IT outsourcing Preliminary relationships in government IT outsourcing Research question: What is the role of relationships in government IT outsourcing? 2

3 Outsourcing in IT Private sector IT outsourcing: A company outsourcing IT to another company Or, significant contribution by external vendors in the physical and/or human resources associated with the entire or specific components of the IT infrastructure in the user organization (Loh et al. 1992). Well researched: client readiness, good strategy, good processes, sound contracts, and good relational management are key success factors (Lacity et al. 2009) Government IT outsourcing: A public sector agency outsourcing work to a private sector company. Originated same time as private sector IT outsourcing (Graham et al. 1997). IT outsourcing has many components. I focused on two viewpoints: the contract viewpoint and the relationship viewpoint. 3

4 Classic views of IT outsourcing: The contract lens Formal contracts represent promises or obligations to perform certain actions in the future; for instance, detail roles and responsibilities to be performed, specify procedures for monitoring, penalties for non-compliance, and determine outcomes to be delivered. (Poppo and Zenger 2002) Cheung (1969): Pre-TCS: considers if transaction costs are not zero; investigates contracts. Theoretical perspective: Transaction Cost Economics theory (Williamson 1988a; Williamson 1991). Defines a continuum between regulated hierarchical structure and open, market-driven behaviour (Gregory 2011). According to TCS, if complexity of task is low and specificity of the resources used are low, then amongst other things the contract is easy to draw up, and managing the contract is easy; outsourcing is possible according to the theory. If complexity of task is high and specificity of the resources used are high, then amongst other things the contract is not going to cover every situation, and managing the contract is hard; outsourcing is discouraged. More elaborate TCS is covered in Lee et al. (2004): identified three IT outsourcing strategies that are in turn linked to the outcome desired (Gregory 2011): combines traditional Transaction Cost Economics with the relational view of the firm (Dyer et al. 1998) However if another viewpoint is used, IT outsourcing becomes possible - relationships. 4

5 Classic views of IT outsourcing: The relationship lens The enforcement of obligations, promises and expectations that occur through trust and social identification (Goo et al. (2009) p.121). Heightens the probability that trust and cooperation will safeguard against hazards that are poorly protected by a formal contract (Goo et al. (2009)) Basis: Agency Theory Dore (1983): the importance of goodwill a precursor to relationships Macneil (1985): Introduced the relationships viewpoint Sabherwal (1999): creates a typology of trust and sketches virtuous and vicious cycles Hutt et al. (2000): investigated an example - case of two private sector Fortune 500 firms who developed a cobranded product; a struggle between compatibility and opportunism Lee (2001): introduces knowledge management - the relational management between knowledge sharing between the service receiver and provider and outsourcing success TCE says that there are two types of organisations, market-based and hierarchy-based. Adler (2001) adds a third ideal type of organisation: trust Gottschalk et al. (2006): a maturity model for IT outsourcing relationships Haried et al. (2009): studied relationships in IT outsourcing and offshoring initiatives Not pure contract lens or relationship lens a little of both(beinecke et al. 1999) 5

6 Classic views of IT outsourcing: Several papers argue that the contract lens and the relationship lens complement each other The contract lens and the relationship lens were typically seen as distinct or quite separate. (Poppo et al. 2002): Poppo and Zenger argued that contracts and relationships actually function as complements; managers tend to couple their increasingly customised contracts with high levels of relationship management, and vice versa Koh et al. (2004): found five obligations that are significantly related to success in clients (clear authority structures, taking charge, effective human capital management, knowledge transfer, and effective organisational teams), and four obligations that are crucial to success in vendors (clear specifications, prompt payment, project monitoring and project ownership); together this lead to improvement in perceived outsourcing success greater than singly. Goo et al. (2009): confirmed the finding of Poppo and Zenger that contractual governance and relational governance are complements and explores deeper, finding service level agreements affect relational governance in IT outsourcing firms. 6

7 New view of IT outsourcing: Relational Exchange Theory and after New views that combine the contract lens and the relationship lens in IT outsourcing Kern and Willcocks (2000) [one of a number of papers]: first to synthesise Social Exchange Theory and Social Contract theory to produce a new theory: not only address the recurrence of exchanges, the legal, and economic issues, but also the social Relational Exchange Theory (Goles and Chin 2005): both the spirit of exchange and the implications of a contract (Goles and Chin 2005) Based on Social Exchange Theory: (Emerson 1976) Voluntary transactions involving resource transfer between individuals for mutual benefit Blumenberg, Beimborn and Koenig (2008) [one of three papers]: takes the paper of (Goles et al. 2005) and tried to further clarify the border between determinants [Goles and Chin s proceses ] and dimensions [Goles and Chin s attributes ] introduced phases of the outsourcing relationship Sargent (2008): surveys the field of IT outsourcing relationship theories 7

8 Relational Exchange Theory in more detail From (Goles and Chin 2005): Classified the attributes of relationships and contracts Six attributes - inherent characteristics or properties that contribute to the functionality and harmony of the relationship Commitment Consensus Cultural compatibility Flexibility Interdependence Trust Five processes - the means by which attributes are developed Communication Conflict resolution Coordination Cooperation Integration Theory of relationships is quite developed but only for private sector IT outsourcing. What about government IT outsourcing? 8

9 Government IT outsourcing: the difference between government and private sector Problem: cannot simply apply private sector thinking operations or approach. Different between private sector and government IT outsourcing: Bozeman and Bretschneider (1986) public versus private sector MIS; develop a typology of IT performance measures which reflect the public and private measures of performance in IT. Bretschneider (1990) MIS in public organisations differs from private firms due to interdependence, red tape, evaluation of hardware, evaluation of software, planning, and top management Campbell, ACIS 2013 issues in government IT in Australia Bozeman and Kingsley (1998) risk culture in public and private orgs, due to: bureaucratic routine ( red tape ), formalisation, low goal clarity, weaker links between performance and promotion, and higher involvement between elected officials Willcocks et al. (1999) case study of government IT outsourcing: investigates formal communication mechanism; investments in resources, knowledge and time; mutual goals / objectives; social / cultural adaptation of retained and transferred staff, and social and personal bonds. Dawes et al. (2004): gives a layer of risks unique to the public sector IT: divided authority and other legal and political constraints, multiple stakeholders with competing goals, short-term budgets, high regulation of procurement, reduced capacity to design or operate integrated programs, and risk aversion Gantman (2011) - issues and concerns in public IT outsourcing research, including issues and concerns regarding the decision to outsource and the management of public IT outsourcing contracts, and cross sectoral controversies in IT outsourcing relationships. These differences are sufficient so that we need to treat government IT outsourcing as a different case 9

10 Government IT outsourcing: papers from e-government Further evidence: look for a new strand based on the uniqueness of government IT There is one: e-government E-Government looks at all organisations that interact electronically with government. E-government concentrates on IT in government-to-individuals (not applicable), but there is some literature on IT in government-to-companies Comes from Information Ecology (Davenport et al. 1997) E-Government has a strand on the differences between private sector IT outsourcing (e-commerce) and government IT outsourcing to the private sector (e-government) (Barzilai-Nahon et al. 2007), (Scholl et al. 2009), and (Barzilai-Nahon et al. 2010) Similarities and differences of e-commerce and e-government. Transaction processing is higher in the private sector Information processing was higher in the public sector The drivers of innovation were different for each sector Government leadership supported more e-projects and collaborative structures Melin and Axelsson (2010) and (2013): carries on from Barzilai-Nahon and Scholl, comparing the case of private-sector IT and government IT (two pairs in each). we have also identified differences in the level of formality, asymmetry, technical organisational structure economic bonds and administrative links (Melin et al. (2010) p.46). Currently working through implications of this work for government IT outsourcing 10

11 Government IT outsourcing: papers covering relationships in government IT outsourcing Focus down on relationships in government IT outsourcing Lee (2001): relational management between knowledge sharing between the service receiver and provider and outsourcing success; the result shows that it is an important variable for outsourcing success Ni and Bretschneider (2007): investigates whether or not a contract is outsourced or done in-house in government IT outsourcing among others market size is correlated negatively with contract outsourcing, and the competitiveness of the bidding process and professional management of contracts were both positive Moon et al. (2010): high-level quantitative study on relational management; used FORT 2x2 matrix (extent of substitution by the vendor versus strategic impact of the outsourced IT), arguing that different corners will be associate with different IT outsourcing strategies Swar et al. (2012): attempt to define an IT relationship model, consisting of relational quality determining capabilities (communication, cultural compatibility, confidentiality maintaining, flexibility, information sharing, and conflict handling capacity), leading to relational quality (cooperation, trust and mutual understanding) leading to performance Yu (2014): Explores the process of public-private partnership building in IT outsourcing - a model based on trust and mutual dependence, which flow into equipment investment and information sharing, which leads to long-term partnership. But these were all high-level quantitative studies different to my qualitative study. Only one qualitative study: Alaranta et al. (2010): case study of a switch from one long-term outsourcing provider to another - the switch was successful due to the modularisation of the system, the reuse of outside experience, joint collaboration between client and vendor, and the identities of both client and vendor personnel becoming tied to the success of the project Need to know more about relationships in government IT outsourcing 11

12 Research questions Research question: What is the role of relationships in government IT outsourcing? I use the Relational Exchange Theory (Goles and Chin 2005) in relationships in private sector IT outsourcing and adapted to government IT outsourcing. For example: Barzilai-Nahon and Scholl (Barzilai-Nahon et al. 2007), (Scholl et al. 2009), and (Barzilai-Nahon et al. 2010), and Melin and Axelsson (2010) and (2013). This is a work in progress 12

13 Why this research question needs solving? The relationship element in government IT outsourcing is under-studied Relationships between a public client and a private vendor are probably the most under-represented issue in the public [IT outsourcing] research no study adopts the relationship perspective and no study focuses specifically on relationship management (Gantman (2011), p ). despite high-profile failures Example: Commonwealth government abandons its highly promoted whole-ofgovernment IT outsourcing (Rouse et al. 2002) and despite a large expenditure IT or IT-related initiatives came in at just under a $1 billion in 2012 in Australia (source: CRN) Centrelink s 31-year old Model 204 Data Base Management System manages payments to around 7 million Australians Commission of Audit endorsed an upgrade and put the price tag as high as $1.5 billion (source: 13

14 Proposed method Need to understand what government IT managers are actually doing Approach: semi-structured interviews Participants: Managers across Department of Employment who have responsibility for outsourcing Recruitment: targeted; 6-10 managers Data collection: semi-structured interview; taped Data analysis: coding 14

15 ANY QUESTIONS? 15

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