A New Instrument to Measure the Success of IT Outsourcing

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1 A New Instrument to Measure the Success of IT Outsourcing Tomi Dahlberg, Mari Nyrhinen Helsinki School of Economics P.O. Box 1210, FIN Helsinki, Finland Abstract IT outsourcing has changed fundamentally since its start in the 1960 s. Since IT outsourcing services evolve and expand continuously, instruments to evaluate outsourcing success in user organizations need to be modified to meet these changes. Our study develops and conceptually validates a coherent and meaningful new instrument to measure the success of IT outsourcing. The instrument combines strategic, economic, technical and social success factors. The instrument is offered to researchers to be used in future studies. Correspondingly, our instrument provides practitioners with a useful tool to use in setting goals for IT outsourcing and for evaluating their achievement. 1. Introduction The continuous need to improve efficiency and effectiveness in organizations is one of the main driving forces for the development of IT outsourcing services. Although many outsourcing transactions have fallen short of set goals, IT outsourcing services as a whole have developed into a major and continuously growing IT services business. Over the years, these services have matured and the breadth and depth of IT outsourcing transactions have increased. Today, an organization may selectively outsource specific IT services, the organization s entire IT infrastructure, and/or even entire IT-enabled business processes. As the criticality and risks of large IT outsourcing transactions have grown, both outsourcing service providers and their clients (outsourcers) need to understand what makes IT outsourcing successful. Prior research has identified several factors, which impact the success of IT outsourcing, such as the roles and responsibilities of parties, the characteristics of outsourcing contracts, or measures and procedures applied to govern IT outsourcing services. Yet, in spite of several proposed instruments (see e.g. [31]) there seems to be no consensus on how to measure the success of IT outsourcing [10]. The instrument probably most widely used to measure the success of IT outsourcing in user organizations was introduced by Grover et al. in 1996 [6]. However, IT outsourcing services have changed profoundly since the 1990 s. New instruments are needed if established instruments no longer capture the success factors of these changed services. The motivation for this paper came from our efforts to apply the instrument of Grover et al. [6] to investigate the success of IT infrastructure outsourcing. We received critical feedback from both practitioners and researchers. The essence of the critique was that the instrument no longer sufficiently covers (the success of) IT outsourcing. We discovered that also some researchers (e.g.[16]) demanded better instruments. The purpose of our paper is to present a new instrument and its validation. The instrument is a multi-item survey instrument aimed to be used in future studies, and to help practitioners to set goals for IT outsourcing services, and to evaluate the achievement of set goals. Our instrument offers several contributions. Firstly, our instrument measures the strategic, economic, technological and social benefits of IT outsourcing. A new factor and several new items have been added as compared to, e.g., the instrument of Grover et al. [6]. Secondly, our instrument consolidates factors and success items proposed in literature, and validates them with expert opinions and a multiple case study. Thirdly, our instrument can be used to measure the goals set for outsourcing, the achievement of these goals, and to determine the difference between the two. The instrument can also be used to analyze differences in the goals and achieved benefits between outsourced IT services and between IT user organizations. To present our instrument and its validation, we describe in section two how IT outsourcing has changed and by doing so specify the context for the IT outsourcing success measures. In section three, we define the factors and the items of the instrument. We /06/$20.00 (C) 2006 IEEE 1

2 then address methodological issues in section four, and present the results of the conceptual validation in section five. Finally, section six discusses the contributions of our instrument and considers alternatives to our instrument with implications for future research and for practitioners. 2. The Development of IT Outsourcing with Implications for Success Measures 2.1. How IT outsourcing has developed The evolution of IT outsourcing services reflects the developments of IT in general. The roots of IT outsourcing date back to the 1960s and 1970s, in the form of time-sharing and facilities management services. Until the late 1980s, increases in IT efficiency were sought from the hiring of contract programmers, the use of predefined application packages, and from specialized processing services. IT outsourcing became highly visible, received a lot of attention, and turned into an established concept after Kodak s decision to outsource their IT functions in Since then, knowledge and experience concerning IT outsourcing have increased significantly. Today IT outsourcing services are used for many different reasons, and the variety of services increases continuously. An organization may decide to focus on its core-competencies or just save costs, outsource highly technical services or entire IT enabled business processes. The focus in outsourcing has widened from technical to service management and relationship management issues. Grover et al. [6] summarized the main differences in outsourcing between the 1970s and 1990s. According to them in the 1990s: 1) Larger companies became outsourcers, 2) the sizes of outsourced services were bigger and their depth deeper, 3) entire functions were outsourced, 4) service providers accepted management responsibility and risks, 5) the nature of the relationship between the service provider and the outsourcer had changed towards a partnership. We continue this list by stating that since the 1990s, organizations 6) have started to use multiple outsourcing service providers instead of a single/main vendor, 7) change vendors more easily and often, 8) reserve more rights to discontinue contracts. 9) The markets of some outsourcing services have become very matured, and 10) the overall professionalism of outsourcers and vendors has increased. The definitions of IT outsourcing reflect this evolution. Grover et al. [6] defined outsourcing as the practice of turning over part or all of an organization s IS functions to external service provider(s). The main responsibility of an IT function is no longer to deliver and maintain computer systems. The processes and outputs of an IT function are managed as IT services [24]. This service focus is inbuilt also in the definition of Hirschheim and Dibbern [7]. They define outsourcing as the use of external agents to perform one or more organizational activities (e.g. purchasing of a good or service), to apply everything from use of contract programmers to third party facilities management. The definition of Hirschheim and Dibbern no longer implies a transfer from internal to external resources, nor makes a distinct difference between IT outsourcing and IT service purchase. Traditionally, years ago, the goal of outsourcing was to transfer to a service provider something that an organization did itself, but this may no longer be the case. For example, an organization might need an IT service never used before. If we apply the traditional definition of outsourcing, such a new service is purchased, not outsourced. Further, an organization may have used several outsourcing service providers successively over a long period, and has lost the capability to conduct the service itself. Does this transform outsourcing into purchase? Among practitioners the difference between the concepts of outsourcing and IT service purchase seems to be fading. During the validation of our instrument, we found no generic understanding for the outsourcing concept among the interviewed practitioners. In order to investigate outsourcing, it is necessary to define outsourcing so that outsourcing is differentiated from purchasing. We claim that this difference lies in what is necessary for an organization. We use the firewall as an example. To exploit the Internet an organization has to purchase and operate firewall applications. The development of firewall applications does not belong to the actions of the organization, whereas procurement and application management do. The organization cannot outsource firewall application development, but may outsource the procurement and application management. Thus, if the operation(s) of an organization requires that a certain activity is performed by the organization, and that activity is knowingly transferred to a third party, that is outsourcing. We define IT outsourcing as a conscious decision to contract out to an external service provider IT activities, processes and/or related services, which are necessary to the operation of the organization. Outsourcing has specified objectives and the goal of the outsourcing transaction(s) is to achieve these objectives. In summary: a new instrument to measure the success of IT outsourcing in user organizations is needed since 1) the development of IT outsourcing services requires 2

3 new/modified instruments, especially to facilitate comparisons between different services. Further, 2) the objectives of outsourcing are organization specific, and there is a need to compare the differences between the set objectives and their achievement 2.2. Impact on Success Measures Grover et al. [6] defined the success of IT outsourcing as an overall organizational advantage gained from an outsourcing strategy. Success was measured by the strategic, economic, and technological benefits obtained through outsourcing. Strategic benefits were defined as the ability of a firm to focus on its core business and outsource routine IT activities, so that the organization can focus on strategic uses of IT, and enhance IT competence and expertise through contractual arrangements with an outsourcer. Economic benefits were defined as the ability of a firm to utilize the expertise and economics in scale in human and technological resources of the service provider, and to manage its cost structure through unambiguous contractual arrangements. Technological benefits were defined as the ability of a firm to gain access to leading-edge IT and to avoid the risk of technological obsolescence. Those measures for the success of IT outsourcing were appropriate years ago. Additional objectives are now set for IT outsourcing, reflecting the development of outsourcing services and the increased understanding concerning IT outsourcing. Based on our definition for IT outsourcing, we reason that the benefits of IT outsourcing have to match the organization and the service-specific objectives of outsourcing transactions. If the achievement of objectives fails, also outsourcing fails. Although the benefits of individual outsourcing transactions vary, depending on the size, depth and other characteristics of the transaction, we believe that it is possible to create a generic instrument to measure the success of IT outsourcing by classifying specific benefits into strategic, economic, technological and social factors. Misra [21] suggests that success means that both the outsourcer and vendor achieve their objectives. The three factors affecting overall success are client characteristics, vendor characteristics, and the vendorclient relationships, see also [17]. Even other stakeholders influence outsourcing. However, we limit our instrument to outsourcers, and will develop a new instrument to measure the success of IT outsourcing from a managerial perspective in user organizations. 3. The New Instrument: Theoretical Basis and Factor Definitions We started the development of our instrument by identifying outsourcing articles for this paper from three main journals; MIS Quarterly, JMIS and Information Systems Journal. From the identified 24 articles, we selected those which address the objectives/reasons of outsourcing. Further, we added to the list other regularly cited articles. We were thus able to identify the core of the IT outsourcing reasons/success literature, and to create a list of generic reasons for IT outsourcing, even if specific reasons differ in each organization. Our final list includes nine studies; Loh and Venkatraman, 1992 [18]; McFarlan and Nolan, 1995 [20]; Pinnington and Woolcock, 1997 [25]; Lacity and Willcocks, 1998 [12]; Smith et al., 1998 [32]; Hirschheim and Lacity, 2000 [8]; Beaumont and Costa, 2002 [3]; Seddon et al., 2002 [30]; Lee et al., 2004 [16]. As most studies listed similar factors, we claim that our procedure leads to a coherent and meaningful core of IT outsourcing reasons/success factors. We classified items into strategic, economic, technological and social factors. The classification of some items seemed initially vacillating, and demanded analytical reasoning. For example, Eliminate an IT burden; assume a vendor will solve problematic IT functions(s), may include two factors. If IT is seen as a routine non-core function which is outsourced to free management and other resources, and to improve IT performance, the reason for outsourcing is strategic as we reasoned. Alternatively, if IT is a burden because there is a troubled relationship between IT and other personnel, the reason is social. In addition to specifying the factors and items for the instrument, we include three additional elements in our instrument. Firstly, we facilitate the comparison of set objectives and their achievement, that is, the comparison of the ex-ante and the ex-post success factors. Secondly, we measure the overall success of IT outsourcing. Thirdly, the instrument should suit every organization, but also capture the differences in outsourcing success factors. For that reason our instrument includes the importance of each measure Strategic benefits Porter [27] defines strategy as the creation of a unique and valuable competitive position. Unless IT is a core-competence offering long-term competitive advantage, it could be outsourced [28]. Yet, the outsourced IT must be flexible to support the strategy of the organization, for example, allow rapid market 3

4 entry of new innovations and support changes in business processes. Management has a central role in fitting human and technological resources into the activities of an organization with the objective of achieving the best possible outcome [27]. According to the resource based view (RBV) of strategy, organizations need to identify core internal resources and capabilities [2] as well as external resources [1] to complement internal resources. We include these items in our definition and instrument, see table 1. We define the strategic benefit factor of IT outsourcing as An organization s ability to continuously leverage and manage IT resources (internal and external), and to fit resources to activities so as to underpin a strategy position leading to the achievement of competitive advantage. Potential instrument item (reason to outsource) Our objective was to increase concentration on core business. Our objective was to improve the capability of IT to support the needs of business operations. Our objective was to improve the management of technology and human resources. Research Report [18], [20], [25], [12], [32], [8], [3], [30] [18], [20], [25], [8], [3], [16] [18], [20], [12], [8], [3], [16] Table 1: Strategic factor with potential items 3.2. Economic benefits Grover et al. [6] consider the utilization of expertise an economic benefit item. We regard it as a strategic benefit item, although learning and using new competences may lead to increased profitability. The other economic item recognized by Grover et al. is cost structure control. A broader list of economic items is needed to define economic benefits. The economic value added (EVA) is commonly used as the measure of value created by an organization. EVA is defined as the after-tax cash flow generated by a business, minus the cost of the capital deployed to generate that cash flow [9]. EVA can be improved with increased profitability, lower costs, or more effective use of capital. As companies are evaluated (by capital markets) on the basis of these three EVA factors, the outsourcing of IT should also increase EVA. Economic benefits of IT outsourcing can be reaped by decreasing IT costs, by releasing fixed capital from IT, and/or by increasing profitability through IT outsourcing. In practice, EVA improvement might be easiest to achieve with cost control. If the improvement of cost control is communicated to investors, they may perceive that the expected value of the outsourcer has increased, and reward such news with a rise in stock price. We define the economic benefit factor of IT outsourcing as An organization s ability to increase its value by increased profits, decreased costs, and/or accelerated capital flow. Potential instrument item (reason to outsource) Our objective was to reduce IT costs. Our objective was to release fixed capital from IT to other economic activities. Our objective was to increase profitability. Research report [18], [20], [25], [12], [32], [3] [8], [30], [16] [18], [20], [25], [12], [32], [3], [30], [16] [18], [20], [25], [12] Table 2: Economic factor with potential items 3.3. Technological benefits Grover et al. [6] measure technological benefits by improved access to new technology and reduced risk of technological obsolescence. Yet, an organization may not want to use new technology, but could be satisfied with current and/or prudently tested technology, and define the required technical skills accordingly. The majority of IT technological skills are seldom strategic [19], and therefore we consider technological skills as part of technological benefits. The training, development, maintenance, and followup of an individual s IT skills with the objective of establishing a harmonic and flexible set of necessary skills requires a lot of coordination and organizing activities from an organization. For these reasons, the availability of technological competencies could be seen to be related to strategic benefits. Yet we separate technological benefits intentionally from strategic benefits. We define the technological benefit factor of IT outsourcing as An organization s ability to access required key information technology components and skills. Potential instrument item (reason Research report to outsource) Our objective was to ensure the [25], [32], [3], [16] availability of necessary or new technology. Our objective was to ensure the [25], [3], [32], [30], availability of necessary or new [16] IT skills. Our objective was to establish a A new item well functioning IT environment. proposed by us. Table 3: Technological factor with potential items 4

5 3.4. Social benefits Grover et al. [6] do not consider social benefits. We follow the proposal of Lee et al. [14], and regard social benefits as an important factor of IT outsourcing success. Lee et al. [14] apply the social perspective to explain interrelationships between IT outsourcing service providers and outsourcers. The relationship between these parties has been considered a prerequisite for outsourcing success [6] [15] similarly to other factors, such as organizational capability and knowledge sharing [13]. We limit our instrument to the organizations internal success factors. This means that our instrument measures social benefits within user organizations, although we recognize that, for obvious reasons, external factors affect the success of IT outsourcing. Our instrument is not designed to evaluate the success of the relationship between two (or more) organizations, but to evaluate the achievement of benefits in the outsourcer organizations. According to Scott [29], social structures in organizations refer to relationships among the participants of an organization. These relationships are affected by technology, participants, goals and environment. Social benefits cumulate from all background factors, bonds and influences which, as a whole, contribute to the attitudes and development of employees in the environment of which they are a part. Sociality differs between organizations and countries, because contextual factors such as norms, culture, history, and group differences influence sociality. In this way sociality is the working environment of an organization, including humans and facilities. If the working environment encourages employees and increases their satisfaction, social benefits cumulate to net benefits, that is, to strategic and economic benefits. This chain of events has been labeled as the IS Success Model by DeLone and McLean [5]. The chain starts from system, information, and service quality, which in turn influence user satisfaction. We apply service quality and user satisfaction in our instrument as the items of social benefits. The service quality item includes four intangible dimensions of the SERVQUAL instrument developed by Parasuraman et al. [22] [23]. Note that we do not use the SERVQUAL instrument, nor its individual items, but only the dimensions - reliability, responsiveness, assurance and empathy - to describe service quality. We consider the fifth dimension of SERVQUAL, tangibles, to be a technical benefit item. We added this item as a new item to technological benefits with the wording our objective was to establish a well functioning IT environment as was shown in table 3. Similarly we added user satisfaction as a new item by applying the IS success model [5] as a complementary item to social benefits. We define the social benefit factor of IT outsourcing as An organization s ability to create a working environment which leads to improved motivation and user satisfaction. Potential instrument item (reason to Research report outsource) Our objective was to improve [20], [25], [12], quality of IT services (reliability, [32], [8], [3], responsiveness, assurance, empathy) [30], [16] Our objective was to improve user A new item satisfaction. proposed by us. Table 4: Social factor with potential items 4. Methodology of Conceptual Validation 4.1. Building Process of the Instrument Our initial idea was to use the instrument presented by Grover et al. [6] by augmenting the instrument with social benefit items, verify the enhanced instrument, and use it to investigate the success of IT infrastructure services outsourcing. During the pretest phase, as Straub [33] calls it, we tested and discussed each sentence of the enhanced instruments with 11 co-researchers, and in three organizations which had outsourced their IT infrastructure services. The feedback concerning the instrument was very negative, both from researchers and practitioners, especially concerning the original items of the instrument. The basic tone of the critique was that the items of the instrument did not sufficiently describe (the success of) IT outsourcing. Our tentative conclusion was that this could be caused by the developments in IT outsourcing, and respective service offerings. We immediately started to discuss and explore what items best describe and measure IT outsourcing success. Soon after the first discussions, we decided to reject the instrument of Grover et al [6] and to develop a new instrument, as described in section three. We did three things to define the initial factors and items of the instrument shown in Tables 1-4. Firstly, we analyzed the deficiencies of Grover s et al. instrument on the basis of the received feedback. Secondly, we went back to literature to identify alternative IT outsourcing success instruments, as well as critical comments, and improvement proposals. Finally, we identified the core items for the reasons to outsource and/or for pursued benefits of IT outsourcing based on literature, and augmented the list thus created with items found relevant on the basis of the received feedback. During the development process, repeated discussions and tests were 5

6 conducted involving practitioners, researchers and service providers in order to define the right items, to assess the semantic content of each item, and to find the relationships between candidate items. Finally, to test, develop, and validate our new instrument further, we decided to adopt a qualitative approach in order to understand the real issues behind each item. We deemed case study methodology appropriate, since how questions are posed, since we as investigators have little control over events, and since we focus on and investigate a contemporary phenomenon within real-life contexts [34]. More specifically, we conducted an exploratory case study, with the goals of not only confirming and improving (the wording) of existing items of the instrument, but also of conceptually developing the items, rejecting them, and/or identifying missing items. We conducted a multiple case study, which is considered desirable when the intent of the research is theory testing [4] Conceptual Verification of the Instrument with a Multiple Case Study Since our goal is to confirm that our instrument includes necessary items for conceptual validity, and can be generalized, we opted for cases which represent 1) different industries, 2) different types of organizations (enterprises and public entity organizations), 3) differences in the breadth and depth of IT outsourcing (from limited, selective IT outsourcing to extensive outsourcing), and 4) which allow the collection of data from both business and IT managers and experts. The cases satisfy these four criteria, as Table 5 shows. Note, however, that the differences in the depth and breadth of IT outsourcing appear only implicitly in Table 5. Qualitative data collecting methods involved semistructured interviews, written materials, and telephone interviews [34]. All interviews were tape-recorded. Semi-structured interviews lasted from 20 minutes to 2 hours. Table 5 shows the characteristics of the interviewees in the five cases. The purpose of the interview was not only to list the reasons for making outsourcing decision(s) in the respective organizations, but also to collect experiences about pursued benefits as such, and in comparison to reasons for outsourcing. We also wanted to understand the history and current situation of each organization including outsourcing status, and especially measures used to evaluate the success/benefits of outsourcing. Table 6 shows the data collection dimensions of the semi-structured interviews. Case IT function Business functions Publicly listed company, Forest industry Assistant Vice Presidents of (1) Vendor Management, (2) Infrastructure and (3) Internal Sales Senior Vice President, Management Support and Control Project Executive (Phone Public healthcare organization Corporation in engine building industry, part of a consolidated, publicly listed Swedish corporation Public healthcare organization Government owned property managing enterprise Interview) IT Manager (CIO) Senior IT Director Table 5: Cases and interviews Dimension Outsourcing in case organizations The goals of outsourcing and their achievement Measures of outsourcing success Description Director of Information Management; Information System Manager IT Director (CIO) Financial Manager (CFO) Financial Director Administrati ve Medical Director, Ph.D., M.D. Director (executive committee) General overview of outsourcing: History on how the case organization has reached the current outsourcing situation Overview of what is insourced and what is outsourced Overview of the relationship with (significant) vendors. The duration of outsourcing and description of outsourcing contracts Reasons/goals set for outsourcing at the time of outsourcing Pursued benefits of outsourcing and comparison to the reasons/ goals set for outsourcing How case organization measures the success of IT outsourcing Table 6: Dimensions of the semi-structured interview All the tape-recorded interviews were transcribed for analysis. The aim of the analysis was to detect qualitative verifying correlation to our instrument. In other words, we analyzed whether reasons/goals set for outsourcing and/or pursued benefits have a 6

7 counterpart in our instrument. On the basis of the analysis, we formulated the final instrument Assessment of the Validity of the Instrument A potential methodological problem with case studies is the interpretation of the findings [34], because statistical tests cannot be used. For that reason we combined case study tactics [34, p.41] with Straub s [33] guidelines on validity assessment. Content validity refers to an instrument s ability to measure all possible properties of the investigated phenomenon [33]. The developed process of the instrument is based both on theory and practice. We conducted several review rounds during the development of our instrument. Input was collected cumulatively from 21 co-researchers, 8 vendor experts and 9 outsourcer experts. Some of the persons were involved in two rounds of interviews and/or instrument validation tests to remove any discrepancies. Construct validity refers to an instrument s ability to capture the theoretical construct [33]. This ability is usually tested for by statistical tests of convergent, discriminant and nomological validity. We assessed the construct validity of the instrument by using multiple sources of evidence [34], by conducting separate interviews with at least one business and one IT manager/expert in each of the five cases. Public and written material was used to provide further additional evidence to support interviews. Construct validity will be validated further as we conduct a survey study (currently in progress). Reliability describes the accuracy of measurement [33]. To increase the reliability of the instrument we followed the same interview-protocol in every interview. Internal validity refers to the causality of a research setting [33]. We found consistency between our theory-based formulated sentences (items of the instrument) and the case observations. In addition, findings were similar between cases, and also between the responses collected from IT and business experts/managers. External validity refers to the ability to generalize the findings of a study [34, p.43]. We increased the analytical ability to generalize by conducting similar interviews with the same protocol in five different organizations, which were selected for maximum diversity. The findings concerning the ability of our instrument to measure the success of IT outsourcing were similar, even though the objectives and emphasis of IT outsourcing varied between case organizations. In the future, statistical validity testing will be conducted based on the final instrument shown in the next section. 5. Results After the analysis of the transcribed interviews, we modified our instrument to its final content Strategic benefits In our case study the strategic role of IT in the expectations of the outsourcers was significant. The outsourcers biggest disappointments were probably in the perceived disability of outsourcing vendors to propose new innovations and/or to present better ways to work, as compared to the outsourcer s current practices. This finding as such is important, since such claims are often the prime sales arguments of IT outsourcing service providers. Since the importance of the strategic role of outsourcing was seen as increasing even further in the future, we added this item to our instrument. The reduction of IT personnel seems to be another very important objective for outsourcing, and was also included in our final instrument. It relates to other strategic objectives such as focusing on corebusiness, or improving the control of resource usage. The impact of outsourcing announcements on stock valuation was discovered to be important in publicly listed companies. As soon as a company communicated that they will reduce their personnel by (IT) outsourcing, the market rewarded the company with an increase in stock value. From strategic and senior executive perspectives, higher valuation of a company can be one of the reasons to outsource IT Economic benefits Two of the theoretical items in the initial instrument were found to be either too specific or too far reaching. Releasing fixed capital from IT to other business purposes was defined too narrowly. The theoretical formulation was not applicable to financially strong organizations. When we changed the wording to support for freedom in financial actions, it became applicable to all case organizations. Freedom in financial actions includes not only the release of capital, but also flexibility in budgeting and investments. Increase in profitability was considered too far reaching. By IT outsourcing, organizations seem to seek solutions to imminent concrete needs. This means that various short-term economic impacts of IT outsourcing are more important than far reaching 7

8 objectives (although there is strong evidence that significant changes in IT take several quarters, years or budgeting cycles to materialize). Since long-term economic impacts were not considered in the case organizations, we dropped the profitability item from our instrument and added cost control instead. This item was involved in almost every case, and was also an item in the Grover s et al. instrument Technological benefits To establish a standardized IT environment emerged clearly as a technical reason for outsourcing. This reason was present in all cases, but the urgency or importance of the need varied. By outsourcing, organizations tried to standardize their technology and/or applications, but also to cut down vendor specific and/or bespoke IT (software development) processes. To include these findings in our instrument, we modify our definition of the technological benefit factor of IT outsourcing to read An organization s ability to gain access to required key information technology components, skill, processes, and their combinations Social benefits User satisfaction is not only dependent on a working IT environment and/or the quality of service. IT services must be available when people work, or more generally, as much as possible, not only during office hours, for example, between 8 am and 5 pm. The ability to secure access to a wider range of services, for example, 24 hours and 7 days a week, was given as a reason for outsourcing in all cases, although the importance of the need varied. This item was added to the instrument The Final Instrument In the final instrument all factor items are split into two measures. First, our instrument asks how important a particular item was as an objective for outsourcing. Next, our instrument asks how well that objective was achieved. Both the importance of items as objectives for outsourcing, and the achievement of objectives are measured with the 7-point Likert scale. Since the importance of objectives for IT outsourcing varies between organizations, our instrument is able to capture differences between organizations with this simple measure. The final items of our instruments are shown below (claims concerning the objectives for outsourcing). Our objective was Strategic factor To increase concentration on core business. To improve the capability of IT to support the needs of business operations. To improve the management of technology and human resources. To increase the number of IT based innovations. To reduce the number of IT staff. Economic factor To reduce IT expenditure. To improve financial freedom and flexibility (releasing capital, flexibility in budgeting and investments). To improve control over IT expenditure. Technological factor To ensure the availability of necessary or new technology. To ensure the availability of necessary or new IT skills. A standardized IT environment (hardware, software, processes). A well functioning IT environment. Social factor To improve the quality of services (a safe, reliable service corresponding to our needs, capable of adapting to individual requirements). To improve the availability of services (e.g. more services, 7d/24h). To improve user satisfaction. After each statement the following evaluation has to be made (claims concerning the achievement of set objectives). We have achieved the objective very well. Overall satisfaction is measured with the following evaluative claim We are satisfied with our overall benefits from outsourcing. To help practitioners to identify potential goals for improvement, we calculate the difference between realized benefits and objectives set for each measured item, see example below. Our objective was to reduce IT expenditure: We have achieved the objective very well: where 1 = totally disagree, 7 = totally agree Realized results objective set = 5-7 = -2 Improvement is needed 8

9 Significant differences between objectives and achievements may indicate items for management consideration. Note however, that the scale is ordinal, and caution is necessary. This means that one has to evaluate how wide and important the difference of -2 is. Had the objective been evaluated to 4 and its realization to 1, the difference is -3 (1-4). Is this difference wider and more important than the -2 between 5 and 7? The use of the Likert-scale to measure the successes and failures of IT outsourcing only points out differences. 6. Discussion and Conclusions This paper responds to the demands of researchers [16] and the needs of practitioners for new instruments to measure the success of IT outsourcing. We validate our instrument conceptually by including both the results of earlier research and the requirements of contemporary IT outsourcing service arrangements. The instrument is also able to capture differences between outsourcing targets in separate organizations, since each organization is able to indicate the importance of each specific reason for outsourcing, and how well respective objectives were achieved. This procedure helps organizations to identify strengths and weaknesses in their outsourcing behavior, and to start corrective actions if deemed necessary. Our study is valuable to researchers, since it not only points out weaknesses in earlier instruments, most notably the instrument of Grover et al. [6], but also proposes a new instrument which uses as much of the earlier instruments as possible. The instrument combines the use of strategic, economic, technological and social benefits to evaluate the success of versatile IT outsourcing services. We suggest that researchers will use, validate and further develop our instrument in future empirical studies. Is our validated instrument ideal? What alternative instruments could have been developed? We regard our instrument to be conceptually carefully validated. We applied an interactive process, a thorough literature review, and versatile expert opinions, including outsourcers, vendors and researchers. Yet, the instrument has so far - been only conceptually validated, whereas statistical validation remains to be conducted in the future and caution is necessary. Also some other weaknesses are pointed out. The instrument captures snap-shot type current situations, and does not verify history. Neither does the instrument include contingency factors which may influence the success of IT outsourcing. The duration of outsourcing relationships, the role of IT, experience, knowledge, and learning are examples of potentially relevant contingency factors. Further, our instrument indicates only overall potential for improvements. More detailed instruments should be used for more detailed analysis. For example, the SERVQUAL instrument modified to the IS context [26] could be used to analyze service quality at a more detailed level. Another example is the framework of Seddon et al. [31], which could be used to analyze effectiveness in more detail. As noted, there are many factors which influence the success of IT. The functioning of IT is one such factor. It has been proposed that the success of an IT function depends on nine capabilities, whether IT is outsourced or not [11, p ]: IS/IT governance, business system thinking, business-it relationship building, designing technical architecture, making technology work, informed buying of IT services, contract facilitation, and contract monitoring. Outsourcing impacts most of these activities. When an organization utilizes outsourcing services, the organization has to weld IT to functions and capabilities in order to achieve high organizational performance. Our instrument could be used to identify needs for improvement. There might be alternatives to classifying the outsourcing success items into factors, or for the wordings of individual items. Some other classifications, e.g. [11, p.152], are similar to the classification of Grover et al. [6], and thus support also our instrument. Chosen wordings are theory based and confirmed by practitioners views and a case study. Even though the cases were limited in scope, as we concentrated on development of the instrument, we feel that our classification of success items into four benefit categories is ideal to describe the success of IT outsourcing in user organizations. In spite of the above raised limitations, we conclude that our conceptually validated instrument responds well to the needs of researchers and practitioners to measure the success of IT outsourcing from a managerial perspective. 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