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Degree Project Inter-cultural problems of IT-services outsourcing from Sweden to India Ahtsham Gul & Amir Zaib 2010-06-23 Subject: Information Systems Level: Master Course code: IV9024 Abstract IT-services outsourcing from Sweden to India has increased in the last few years and it is often regarded as a strategic measure to handle the increasing costs of IT-related development and maintenance operations. There are a number of advantages of outsourcing however, there are many challenges that outsourcing initiatives face.
One of the challenges mentioned by many researchers is the cultural differences between the Swedish culture and the Indian culture. At the same time there is not enough research done about these cultural differences in the context of IT-services outsourcing from Sweden to India. It creates difficulties for the partners involved in an IT services outsourcing initiative to achieve the desired results. In this work we have researched these problems by sending questionnaire to IT- outsourcing companies in Sweden. The questionnaire was prepared after a thorough literature review.
The participants were asked if they are still facing the problems identified in the literature review and to also mention any other cultural problems faced by them. The questionnaires were analysed and the results obtained are presented in this work. The results show that the practitioners were still facing the problems. This thesis identifies the root causes, the negative effects and also suggests ways for handling the problems. This research will help the IT-services outsourcing practitioners to manage these problems for achieving better result. II Acknowledgement
We are grateful to Almighty Allah, whose blessings have always been enormous and who gave us the ability and strength to complete this task. It is a great honour and privilege for us to record this deep sense of gratitude and indebtedness to our honourable supervisors, Prof. Darek Haftor and Prof. Anita Mirijamdotter for their guidance, help and availability during this period. We thank to our teacher Jan Aidemark who gave us valuable comments for improving this work. We thank the participants of the survey for responding to our questionnaires and extending their experiences.
We thank our friend Mr. Arif-Ur-Rahman (doctoral student, faculty of engineering, university of Porto, Portugal) and the opponents for their comments. Last yet not least, thanks to our families who have always been supporting and teaching us the value of education. III Table of Contents ABSTRACT …………………………………………………………………………………………………………………….. I ACKNOWLEDGEMENT ………………………………………………………………………………………………. III 1 2 3
INTRODUCTION ……………………………………………………………………………………………………. 1 1. 1RESEARCH PROBLEM AREA AND JUSTIFICATION ……………………………………………………………. 1 1. 2RESEARCH QUESTIONS …………………………………………………………………………………………….. 3 1. 3SCOPE AND LIMITATION OF THIS RESEARCH …………………………………………………………………. 3 1. 4RESEARCH OBJECTIVE……………………………………………………………………………………………… 1. 5EXPECTED RESULT OF RESEARCH ………………………………………………………………………………. 4 1. 6THESIS STRUCTURE…………………………………………………………………………………………………. 5 CURRENT THEORY ………………………………………………………………………………………………. 6 2. 1 OUTSOURCING……………………………………………………………………………………………………….. 6 2. 2IT OUTSOURCING………………………………………………………… ………………………………………… 7 2. 2. 1Domestic IT outsourcing…………………………………………………………………………………. 7 2. 2. 2Global IT outsourcing…………………………………………………………………………………….. 7 2. 3CONDUCTING AND SET-UP IT-SERVICES OUTSOURCING ………………………………………………….. 8 2. 3. 1 2. 3. 2 2. 3. 3 2. 3. 4 Generaloutsourcing ………………………………………………………………………………………. Transitional outsourcing…………………………………………………………………………………. 8 Business process outsourcing…………………………………………………………………………… 9 Business benefit contracting…………………………………………………………………………….. 9 2. 4MOTIVES OF IT-SERVICES OUTSOURCING TO INDIA ……………………………………………………….. 9 2. 4. 1 2. 4. 2 2. 4. 3 2. 4. 4 Cost Reduction and Saving…………………………………………………………………………….. 0 Better Quality ……………………………………………………………………………………………… 10 Skill labour …………………………………………………………………………………………………. 10 Investing on Technologies……………………………………………………………………………… 10 2. 5OUTSOURCING DIFFICULTIES…………………………………………………………………………………… 11 2. 6CULTURE ……………………………………………………………………………………………………………. 1 2. 6. 1 2. 6. 2 2. 6. 3 Culture & organization …………………………………………………………………………………. 12 Corporate culture ………………………………………………………………………………………… 12 Culture and Artefact …………………………………………………………………………………….. 12 2. 7INTER-CULTURAL PROBLEMS OF OUTSOURCING ………………………………………………………….. 13 2. 8INTER-CULTURAL PROBLEMS IN IT-SERVICES OUTSOURCING BETWEEN SWEDEN AND INDIAN . 14 2. 8. 1 2. 8. 2 2. 8. 2. 8. 4 2. 8. 5 2. 8. 6 2. 8. 7 The Yes and No – to customer question ……………………………………………………………. 14 Managementstyle ………………………………………………………………………………………… 14 Risk taking – meet to deadline…………………………………………………………………………. 14 Conflicts – misunderstandings………………………………………………………………………… 14 Appreciation – reward ………………………………………………………………………………….. 4 Organizational differences …………………………………………………………………………….. 15 Educational difference ………………………………………………………………………………….. 15 2. 9PROPOSED SOLUTIONS TO INTER-CULTURAL PROBLEMS OF IT-SERVICES OUTSOURCING………. 15 2. 9. 1 2. 9. 2 2. 9. 3 2. 9. 4 2. 9. 5 2. 10 Strategic choice of project……………………………………………………………………………… 15 Managing and developing relationship…………………………………………………………….. 5 Staffing Issues……………………………………………………………………………………………… 16 Training …………………………………………………………………………………………………….. 16 Elimination of organizational and educational difference ……………………………………. 16 SUMMARY ………………………………………………………………………………………………………. 17 RESEARCH METHOD ………………………………………………………………………………………….. 19 3. RESEARCH METHOD ……………………………………………………………………………………………… 19 3. 1. 1Qualitative research …………………………………………………………………………………….. 19 3. 1. 2Quantitative research……………………………………………………………………………………. 19 3. 2SURVEY RESEARCH STRATEGY ………………………………………………………………………………… 19 3. 2. 1Sample selection ………………………………………………………………………………………….. 0 3. 3DESIGNING SURVEY AND INTERVIEW QUESTIONS ………………………………………………………… 20 3. 4PROCEDURE OF DATA COLLECTION…………………………………………………………………………… 24 3. 4. 1Source of data……………………………………………………………………………………………… 24 IV 4 5 6 7 8 3. 4. 2Searching for Swedish IT-services outsourcing companies to Indian companies………. 25 3. 4. 3Designing tools for conducting interview and questionnaire distribution………………… 25 3. DATA COLLECTION THROUGH MAIL SURVEY AND TELEPHONIC INTERVIEW……………………….. 25 3. 5. 1Telephonic Interview………………………………………………………….. ………………………… 25 3. 5. 2Survey mail…………………………………………………………………………………………………. 26 3. 6DATA ANALYSIS …………………………………………………………………………………………………… 26 3. 7LIMITATION IN THE RESEARCH METHODOLOGY…………………………………………………………… 7 3. 8RELIABILITY AND VALIDITY……………………………………………………………………………………. 28 3. 8. 1Reliability …………………………………………………………………………………………………… 28 3. 8. 2Validity………………………………………………………………………………………………………. 28 3. 9ETHICAL CONSIDERATION ………………………………………………………………………………………. 8 RESULT ……………………………………………………………………………………………………………….. 30 4. 1DATA COLLECTION ……………………………………………………………………………………………….. 30 4. 2RESULT OF ANALYSIS PER QUESTION BETWEEN PERSONS ………………………………………………. 31 4. 3RESULT OF PRE-DEFINED INTER-CULTURAL PROBLEMS…………………………………………………. 37 ANALYSIS AND DISCUSSION ………………………………………………………………………………. 51 5. ANSWER TO RESEARCH QUESTION NO. 1 ……………………………………………………………………. 51 5. 1. 1 5. 1. 2 5. 1. 3 5. 1. 4 5. 1. 5 IT-services outsourcing…………………………………………………………………………………. 51 MotivesofIT-servicesoutsourcing ………………………………………………………………….. 51 Inter-cultural relations between two firms ………………………………………………………… 51 Key difficulties of IT-services outsourcing ………………………………………………………… 2 Inter-cultural problems in the context of IT-services outsourcing from Sweden to India 53 5. 2ANSWER TO RESEARCH QUESTION NO. 2 ……………………………………………………………………. 54 5. 2. 1 5. 2. 2 5. 2. 3 Causesofinter-culturalproblemsofanIT-servicesoutsourcing …………………………… 54 Negative effects of inter-cultural problems for an IT-services outsourcing ……………… 54 Suggestion for handling inter-cultural problems in the IT-services outsourcing……….. 55 5. 3ANSWER TO RESEARCH QUESTION NO. 3 ……………………………………………………………………. 5 5. 3. 1Analysis and discussion of pre-defined inter-cultural problems…………………………….. 55 CONCLUSION………………………………………………………………………………………………………. 61 6. 1 CONCLUSION……………………………………………………………………………………………………….. 61 6. 1. 1Implication for researcher……………………………………………………………………………… 62 6. 1. 2Implication for practitioners ………………………………………………………………………….. 63 6. RECOMMENDATION ………………………………………………………………………………………………. 63 6. 3PROPOSITION FOR FURTHER RESEARCH ……………………………………………………………………… 63 REFERENCES………………………………………………………………………………………………………. 65 APPENDICES ……………………………………………………………………………………………………….. 73 8. 1APPENDIX A: RESULT OF PATTERN ANALYSIS …………………………………………………………….. 3 8. 1. 1Result of analysis per pattern of all questions and between person………………………… 73 8. 1. 2Result of analysis per pattern of all questions and between person for pre-defined inter- cultural problems …………………………………………………………………………………………………….. 75 8. 1. 3Comments…………………………………………………………………………………………………… 78 8. 2APPENDIX B: PRE-DEFINED INTER-CULTURAL PROBLEMS ……………………………………………… 8 8. 2. 1 8. 2. 2 8. 2. 3 Rootcausesofallpre-definedinter-culturalproblems ………………………………………… 78 Negative effects of pre-defined inter-cultural problems……………………………………….. 79 Managing of all pre-defined inter-cultural problems in positive manner ………………… 80 8. 3APPENDIX C: NEGATIVE EFFECTS OF INTER-CULTURAL PROBLEM …………………………………… 81 8. 4APPENDIX D: QUESTIONNAIRE ………………………………………………………………………………… 82 8. 4. 1 8. 4. 2 8. 4. 3
Letter of support ………………………………………………………………………………………….. 82 Questionnaire ……………………………………………………………………………………………… 83 Emailformatusedtocontactparticipants…………………………………………………………. 93 V List of Tables TABLE 2. 1 SUMMARY OF LITERATURE REVIEW …………………………………………………………………………………. 18 TABLE 3. 1SURVEY AND INTERVIEW QUESTIONS ………………………………………………………………………………… 2 TABLE 3. 2 PRE-DEFINED INTER-CULTURAL PROBLEMS AND SUB-QUESTIONS ………………………………………………… 23 TABLE 4. 1 PARTICIPANTS DESIGNATION ………………………………………………………………………………………… 30 TABLE 4. 2 RESPONSES PERCENTAGE…………………………………………………………………………………………….. 30 TABLE 4. 3 IT OUTSOURCING INITIATIVES BETWEEN SWEDEN AND INDIA ……………………………………………………. 31 TABLE 4. MOTIVES OF IT-SERVICES OUTSOURCING…………………………………………………………………………… 32 TABLE 4. 5 PROBLEMS FOR AN IT-SERVICES OUTSOURCING……………………………………………………………………. 33 TABLE 4. 6 INTER-CULTURAL PROBLEMS OF IT-SERVICES OUTSOURCING ……………………………………………………… 34 TABLE 4. 7 NEGATIVE IMPACTS OF INTER-CULTURE DIFFERENCES FRO AN IT-SERVICES OUTSOURCING …………………….. 35 TABLE 4. 8 ROOT CAUSES OF INTER-CULTURE CHALLENGES ……………………………………………………………………. 6 TABLE 4. 9 HANDLING OF INTER-CULTURE CHALLENGES OF AN IT-SERVICES OUTSOURCING IN POSITIVE MANNER ………… 37 TABLE 4. 10 ROOT CAUSES, NEGATIVE EFFECTS AND SUGGESTIONS TO MANAGE “ALWAYS YES” INTER-CULTURAL PROBLEM …………………………………………………………………………………………………………………………….. 39 TABLE 4. 11 ROOT CAUSES, NEGATIVE EFFECTS AND SUGGESTION TO MANAGE “ON TIME” INTER-CULTURAL PROBLEM … 42 TABLE 4. 12 ROOT CAUSES, NEGATIVE EFFECTS AND TO MANAGE INTER-CULTURAL PROBLEM “NO CONFLICT” ………….. 4 TABLE 4. 13 ROOT CAUSES, NEGATIVE EFFECTS AND MANAGING INTER-CULTURAL PROBLEM “AVERAGE IS GREAT” ……… 46 TABLE 4. 14 ROOT CAUSES, NEGATIVE EFFECTS AND MANAGING INTER-CULTURAL PROBLEM “ORGANIZATIONAL HIERARCHY” ………………………………………………………………………………………………………………. 48 TABLE 4. 15 ROOT CAUSES, NEGATIVE EFFECTS AND MANAGING INTER-CULTURAL PROBLEM “CRITICAL QUESTION”…….. 50 TABLE 5. 1 KEY DIFFICULTIES OF IT-SERVICES OUTSOURCING, LITERATURE VS. PARTICIPANT’S VIEWS. ……………………… 53 TABLE 5. INTER-CULTURE PROBLEMS OF IT-SERVICES OUTSOURCING, LITERATURE VS. PARTICIPANT’S VIEWS. ………….. 54 TABLE 5. 3 VIEWS OF PARTICIPANTS DESCRIBE CAUSES OF INTER-CULTURE PROBLEMS ……………………………………… 54 TABLE 5. 4 MANAGING OF INTER-CULTURE PROBLEMS IN POSITIVE MANNER. ……………………………………………….. 55 TABLE 8. 1 SUMMARIES ROOT CAUSES OF PRE-DEFINED INTER-CULTURE PROBLEMS. ……………………………………….. 79 TABLE 8. 2 SUMMARIES NEGATIVE EFFECTS OF PRE-DEFINED INTER-CULTURE PROBLEMS. ………………………………….. 80 TABLE 8. MANAGING OF PRE-DEFINED INTER-CULTURE PROBLEMS IN POSITIVE MANNER PARTICIPANTS VIEWS VS. LITERATURE REVIEW ………………………………………………………………………………………………………. 81 TABLE 8. 4 NEGATIVE EFFECTS OF INTER-CULTURE PROBLEMS FOR AN IT-SERVICES OUTSOURCING ………………………… 81 List of Graphs GRAPH 2. 1 NASSCOM (INDIA’S SOFTWARE EXPORT BETWEEN 1999 AND 2005)………………………………………….. 9 GRAPH 4. 1 PARTICIPANTS VIEWS ABOUT INTER-CULTURAL PROBLEM “ALWAYS YES”………………………………………. 7 GRAPH 4. 2 IMPORTANCE TO MANAGE INTER-CULTURAL PROBLEM “ALWAYS YES”. ……………………………………….. 38 GRAPH 4. 3 PARTICIPANTS VIEWS ABOUT INTER-CULTURAL PROBLEM “ON TIME” ………………………………………….. 40 GRAPH 4. 4 IMPORTANCE TO MANAGE INTER-CULTURAL PROBLEM “ON TIME” …………………………………………….. 41 GRAPH 4. 5 PARTICIPANTS VIEWS ABOUT INTER-CULTURAL PROBLEM “NO CONFLICT” …………………………………….. 42 GRAPH 4. 6 IMPORTANCE TO MANAGE INTER-CULTURE PROBLEM “NO CONFLICT”…………………………………………. 3 GRAPH 4. 7 PARTICIPANTS VIEWS ABOUT INTER-CULTURAL PROBLEM “AVERAGE IS GREAT” ……………………………….. 44 GRAPH 4. 8 IMPORTANCE TO MANAGE INTER-CULTURAL PROBLEM “AVERAGE IS GREAT” …………………………………. 45 GRAPH 4. 9 PARTICIPANT’S VIEWS ABOUT INTER-CULTURAL PROBLEM “ORGANIZATIONAL HIERARCHY”………………….. 46 GRAPH 4. 10 IMPORTANCE TO MANAGE INTER-CULTURE PROBLEM “ORGANIZATIONAL HIERARCHY” …………………….. 47 GRAPH 4. 11 PARTICIPANTS VIEWS ABOUT INTER-CULTURAL PROBLEM “CRITICAL QUESTION” ……………………………. 48 GRAPH 4. 2 IMPORTANCE TO MANAGE INTER-CULTURE PROBLEM “CRITICAL QUESTION” ………………………………… 49 VI 1 Introduction This chapter is an introduction to the dissertation and provides an overview of research problem area and justification. It describes research questions, scope, limitation, aims, objective, expected result, and thesis structure. 1. 1Research problem area and justification Outsourcing of IT-services from Scandinavia to India has become frequent; outsourcing is often regarded as a strategic measure to handle the increasing costs of IT-related development and maintenance operations.
Outsourcing is becoming a new huge business in the world, management expert Peter Drucker says that outsourcing is the fastest growing industry in America (Corbett, 2004, p. 3, 4). Due to competition using new tools and information technologies, organizations turned their focus on the core business activities. Therefore, IT outsourcing has become a viable source for organizations where organization hand over IT-based services that would otherwise be an in-house service to third party (Gasco et al. , 2005, p. 399).
Besides this, many organizations turn to IT outsourcing for seeking high external skill and cheap labour in order to achieve better quality of services on low cost. The reasons for the fast growth of IT outsourcing market are due to firms trying to reduce cost and to increase productivity as well as the change of external environments (Yang et al. , 2000). Outsourcing is not an easy task, according to research of (Ozanne, 2000) stated that 20 to 25 % of all software outsourcing relation fail within 2 years and 50% fail within 5 years.
Nearly 70% of the companies that outsourced their IT-services are not happy from the services provider reported by (Lacity et al. , 1994, p. 7). These companies cannot do anything and as a result, they have to back-source the services to the home country. Outsourcing is facing a lot of problems for example high coordination costs, geographical distance, information security, lack of communication, different time zone, knowledge gap, knowledge loss, political risks and inter-cultural differences (Foote, 2004, p. 56).
Inter-cultural problems in the context of IT-outsourcing are those problems that occur due to cultural differences between companies. Such problems are more obvious in offshore outsourcing where both outsourcers and insourcers are located in different countries. Cultural differences between two national cultures and between two companies have lead to different problems for example communication problem (Messner, 2008, p. 27). According to above citations, we can argue that due to cultural differences outsourcing companies could face more problems, communication problem is just one of them.
Venkat Narayanan, the founder and CEO of Knowledge Dynamics in Singapore, noted that people from the US and UK share a similar Western culture and when these managers are confronted with an Indian team the culture divide is the first major issues (Hillary, 2004, p. 220). Further, he explores this by giving an example in a meeting, a Western manager will want to pursue a discussion to its logical conclusion and then create team action points. However, it is common for an Indian team member to change the subject once they personally understand the point being discussed (Hillary, 2004, p. 220).
According to (Radoff, 2006) lack of knowledge regarding cultural differences negatively affects outsourcing. His report shows that companies offering inter-cultural communication education increase their productivity with 30%. The most common causes for problems between the staff in the sending country and the receiving country are communication problems, different ways to conduct the work, different attitudes and different ways to 1 come to decision (Radoff, 2006). We can argue that inter-cultural problems have brought challenges for outsourcing IT services. Due to different culture, we could find knowledge gap.
In the culture, language could be big obstacle for both companies, if we consider US and India both have different languages. According to survey which states that an American financial services manager emailed to a counterpart in India laying out a project and asking for a work plan, her counterpart’s replies that he would do the needful (Kearney, 2007, p. 33). In this example, actually the Indian partner is literally translating his native language in English. The meanings of this sentence were clear to people in India, but not clear to a native English speaker.
The importance to know inter-cultural problems are more increased when companies are going to outsource IT-services from Sweden to India as both countries have different culture and both face inter-cultural problems. Seeking IT-services IT-services provider Figure 1. 1 Outsourcing IT-services to India from Sweden According to research work of (Gislen et al. , 2006, p. 1 – 6) in which they have claimed negative feedback due to inter-cultural problems between India and Sweden. Swedish people are often scared of conflicts and may therefore not communicate dissatisfaction to their Indian counterparts.
Indian employees may therefore take lack of negative feedback as a sign of satisfaction. Furthermore, Indian IT companies have extensive experience working with American clients, who generally communicate their dissatisfaction much more directly (Gislen et al. , 2006, p. 1- 6). The organizations vary from different prospective, from cultural point of view, political and structure. Nicholson (2004) reported that Scandinavian organizations are generally flat and employee would have easy access to higher levels in the organizations.
He further argues that Indian employee do not have easy access to higher authority of the organization. Gislen et al. , (2006) noted that due to organization cultural differences – the employees might not suggest ways to improve the product unless asked for explicitly According to (Hirschheim et al. , 2006, p. 6) stated that working in the contemporary world, we need to make extra efforts to tackle the cross-cultural issues that arise, this should lead not only to more effective business practices, in areas such as cross- border software outsourcing, but also to a world of increased cross-cultural understanding.
In this quotation, we could see cross-cultural issues, which are related to inter-cultural issues, to interpret this quotation one could assume that identification of such inter-cultural issues are important in the context of IT-service outsourcing. According to the mentioned quotations we can argue, that outsourcing companies facing inter-cultural problems as we could see big culture difference, without consideration of inter-culture problems while outsourcing IT-services from Sweden to India will be towards failure rather than achievement success. Outsourcing IT-Services Sweden Insourcing IT-Services
India 2 1. 2Research questions We have narrowed down our research to – identification of inter-cultural problems/challenges in context of outsourcing IT-services from Sweden to India. Our research focus will be on the following questions Question No 1: What are the central intercultural challenges or problems, in the outsourcing relations, between the outsourcers in Sweden and the insourcers from India, with regard to IT-services outsourcing? Question No 2: For each identified challenge or problem, what is the possible factor(s) that cause it, its negative effects and how it could be handled?
Question No 3: What are the causes, negative effects of pre-defined inter- cultural problems and how it could be handled? 1. 3Scope and limitation of this research We propose this research to conduct like an analysis of individual and organization with relation of their corporate culture and further this corporate culture in an organization have relation with other organization in different regions with different cultural constraints. These organizations are going to participate in a business and have a common goal and they make contracts of different type concerning their intellectual, knowledge and information resourced.
This whole process is causing a multi layer problem of culture and we have to address inter-cultural problems of outsourcing IT-services. This thesis target Swedish and Indian companies, which face inter-cultural problems while outsourcing IT-services from Sweden to India. Apart from inter-cultural problems, there are various other kinds of problems relating to IT-services outsourcing such as, political problems as the management and stakeholder consider political condition of a country where they suppose to outsource business.
The problem of communication channel, country demography and ideology as well. Infrastructure problems such as telephone system, internet services, electrical power systems and technological information system. These problems lead to many serious issues but we will not consider these problems as part of our research. Moreover, outsourcing is not confine only to IT-services, there are other business options, which could be outsourced i. e. financial services, logistic services, manufacturing services, staffing, procurement, assembling etc.
This research focus to identify inter-cultural problems of IT-services outsourcing from Sweden to India, its root causes, negative effects and handling of these problems in positive manner. This research also identifies causes, negative effects of pre-defined inter-cultural problems and handling of these problems. 1. 4Research objective Outsourcing considered as a business strategy. In theory, it is easy to say a company has outsourced, but in practice, outsourcing companies face many problems one of which is inter-cultural problems.
Our research objective is to identify those inter- cultural problems which are faced by the companies especially in the context of IT- services outsourcing from Sweden to India and root causes, negative effects and handling of these problems. We intend to present these inter-cultural problems in a scientific way that will be new knowledge for the IT-service outsourcing companies and will be helpful in general for any insourcing / outsourcing company around the world and in specific for Swedish outsourcing companies and Indian insourcing companies. 3 1. 5Expected result of research
To identify inter-culture challenges in the context of outsourcing IT-services from Sweden to India, the outsourcers will be able to use findings as guidelines for achieving better quality of services. The knowledge can be use to guide successful management of outsourcing relations, from the inter-cultural point of view. The management, stakeholder and the employees will be aware from the inter-culture gap between Sweden and India. ?The result can be use to raise the awareness of inter-cultural problems in IT- services outsourcing relationship. ?The management could be able to use research findings for further policy and decision-making. This research work can be use for successful IT-services outsourcing relationship between organizations of Sweden and India. ?Organizations could use the research findings in order to increase the success of their IT-services outsourcing project. ?Researchers could use findings for future research. 4 1. 6Thesis structure The following diagram give an over view of how this research has done. Diagram 1. 1 Structure of thesis 5 2Current theory This chapter establishes a toolkit according to existing theories to study cultural problems of outsourcing.
Literature review is important to understand different aspects of the topic. According to (Berndtsson et al. , 2002) and (Webster et al. , 2002, p. 13), a review of relevant literature in the research area is essential when conducting any research. It uncovers areas where further research is required and provides a foundation for future work. Furthermore; literature study is a systematic approach that deals with analyzing previous published literature. The literature been examined and studied comes from recent journals, books, magazines and conferences.
We used library and online database sources such as ACM Portal, Emerald, Spring Link and Wiley Inter science. This part of literature review is focusing on the acquisition of understanding IT-services outsourcing. In this part, we tried to answer questions i. e. what is outsourcing, what is IT outsourcing? How IT-services outsourcing conduct and set-up? What are the motive factors for outsourcing IT-services from Sweden to India? What are reported difficulties of outsourcing? 2. 1 Outsourcing The term outsourcing is not a new, but its name is new to us as there were outsourcing before 1970.
Lee et al (2003, p. 84, 89) reported that outsourcing originated from the professional services and facility management services in the financial and operation support areas during the 1960s and 1970s. The very common reasons behind the emergence of outsourcing are cost reduction, competition and the emergence of information technologies. Besides this during the 1980s outsourcing became less progressive, it happened because companies started buying the necessary systems and application software to assemble them into an infrastructure suitable to their requirements rather than outsourcing the development.
However, a decade later, due to information technologies outsourcing became a core business. Idea of outsourcing is simple that organization should not perform the activities that are not actual business of organization because others can give such services and activities better, faster and in way that is more professional. In common words, outsourcing describes the use of an external provider to perform one or more organizational activities or to get services from another company i. e. the development of software from an external company. Gonzalez et al. , (2006, p. 21 – 834) mentioned that outsourcing has become a basic strategy of the IS field and has experienced a considerable growth in recent years. Further, they argue that European enterprises will spend over 128 billion Euros on computer outsourcing and the Gartner group has estimated that worldwide IT outsourcing market will grow from the US 180. 5 billion dollar revenues in 2003 to 253. 1 billion dollar, at a compound annual growth rate of 7. 2 %. Some of the largest (IS) outsourcing providers are IBM, EDS, CSC, Hewlett Packard, Oracle, General Electric and HSBC. Why should every automaker, publisher or doctor’s office have to be a technology company too, employing highly paid staffs who spend all of their time fiddling around with computers”(Larry, 2004). Every organization conducts business in its specialized way but still they have needs from other sources to perform some activity effectively. Laplante et al. , (2004, p. 19 – 23) identified two basic types of work which IT organizations can outsource, given below ? Explicit functions relevant to the operations of IT (for example, software development and infrastructure), and 6 Business operations that have direct impact on IT systems (for example, customer call canters and manufacturing) 2. 2IT outsourcing Major IT-services outsourcing companies focus on their core business activities and find its advantages to outsource IT-services to third party. The most common IT- services outsourcing include data/information processing, software development, system hosting and maintenance. Laplante et al. , (2004, p. 19 – 23) describe that hiring a few consultants and high skill professional to serve as internal members of the IT organization is not considered as IT outsourcing.
To give comprehensive definition of IT outsourcing (Laplante et al. , 2004) argue that IT outsourcing is the transferring of applications to servers that are physically located in a vendor’s facility Where the vendors are responsible for the up time, connectivity, and maintenance (of both hardware and software). A Service level agreement for performance is an example of outsourcing an explicit IT function. Our research is more focus on IT- services outsourcing, to give detail overview of IT outsourcing, we divide it in two broad types, domestic IT outsourcing and global IT outsourcing. . 2. 1 DomesticIToutsourcing Domestic IT outsourcing the client handles management of some IT activities to third party situated in the same country. Willcocks et al. , (1995) defines that domestic IT outsourcing means handling over the management of some or all of an organization’s information technology, information systems, and related services to a third party. This definition trend towards domestic IT outsourcing, it is more specific, which describes the handling of IT services to third party. According to (Gasco et al. 2005) different value chain activities are carried out internally, are being replaced by the idea of a network organization or even a virtual organization, in which fewer and fewer operations are performed within the firm. It is quite general definition of outsourcing. However, it also stated that the activities, the organization is dealing with internally are handed over to a third party. In the light of the above definition we can define that domestic IT outsourcing is handling some IT services i. e. software developing and data processing etc to a third party situated in the same country. 2. 2. GlobalIToutsourcing In the literature, there are different terms used for global outsourcing, such as offshore outsourcing. We use both the terms global IT outsourcing or offshore IT outsourcing. In case of global/offshore IT outsourcing, the vendor is located in foreign country. Narender et al. , (1997) describe that foreign or offshore outsourcing is the sharing or transferring of responsibility for some or all IS services to a third-party vendor who operates from a foreign country. This definition clearly describes the outsourcing IS services to a third party vendor, who provides services from another country.
Global outsourcing involves assignment of task related to developing and/or maintaining application to one or more providers overseas (Tafti, 2005). In these definitions, we could see both the terms used i. e. global and offshore are consider as the same terms in the context of outsourcing. In the light of above definitions, we could define that global IT outsourcing is the process of getting IT services i. e. software development and data processing etc from third party situated in a foreign country. Barthelemy (2003) describes that IT outsourcing is the practice of turning over all or part of an organization’s IT to an outside vendor.
Sakthivel (2005) has discussed both terms as he mentioned that, domestic IT outsourcing and global IT outsourcing project are 7 dealing more or less with virtual workgroups. Managing a global virtual team is more complex than managing a local virtual team. Further, he describes that virtual teams consist of workers who are located in different geographical places, working interdependent with shared purposes across space, time and organizational boundaries and using communication technologies to collaborate.
Virtual workers have to rely on each other in order to complete their tasks even though they have to deal with time pressures and loss of control. To give a comprehensive definition of IT outsourcing based on the above description and with reference to the mentioned authors, this thesis defines IT outsourcing as: Domestic IT outsourcing is the process of handling over some IT services that cannot be consider as part of core business to an external services provider located in the same country. This definition could be used for general or regular IT outsourcing and hence for domestic IT outsourcing.
As our research is about identification of inter-cultural challenges between Sweden and Indian in context of IT-services outsourcing, we focus more on global IT outsourcing. In light of the above mention definitions of global IT outsourcing, this thesis defines global IT outsourcing as: Global IT outsourcing is the process of handling over some IT services that are not consider as a part of the core business activities to an external services providers located in a foreign country. 2. 3Conducting and set-up IT-services outsourcing
There are various articles those have described different stages for set-up IT-services outsourcing. Carmel et al. , (2002) noted that companies that conduct IT-services outsourcing follow different paths, some are far along in their efforts while others are struggling to begin, while some follow vertical integration. Following discussion could answer the question i. e. , how IT-services outsourcing conducted and set-up? To conduct or arrange IT-services outsourcing, Millar (1994) defines four basic types of outsourcing arrangement. 2. 3. 1 Generaloutsourcing
According to Millar (1994), this type of outsourcing encompasses three alternatives. 1. 2. 3. Selective outsourcing – in selective outsourcing, in which a particular area of IT-activity is chosen to be outsource over to a third party, such as data canter operation. Value-added outsourcing – in value-added outsourcing, some area of IT- activity is outsourced to a third party who is thought to be able to provide a level of support or service which adds value to the activity that could not be cost effectively provided by the internal IS group.
Co-operative outsourcing – in co-operative outsourcing, some targeted a third party provider and the internal IT departments jointly perform IT-activities. 2. 3. 2 Transitionaloutsourcing Transitional outsourcing deals with the migration from one technological platform to another. It is divided in three phases; these three phases could by outsourced to a third party provider. 1. Management of the legacy systems 2. Transition to the new technology/system 3. Stabilization and management of the new platform 8 2. 3. 3 Businessprocessoutsourcing
Business process outsourcing is a new business technique. Dibbern et al. , (2004) state that business process outsourcing refers to an outsourcing relationship where a third party provider is responsible for performing an entire business function for the client organization. Millar (2004) describes that a number of industries are considering business processes outsourcing i. e. government, financial services (bank and insurance companies), health care, transportation, and logistics. Target services include hotlines, help desks, call canters, claims management and document processing.
In business process outsourcing, we conclude that in this sort of outsourcing all business activities are managed by a third party. 2. 3. 4 Businessbenefitcontracting Business benefit contracting is the last type of IT outsourcing arrangement. It is also considered a new phenomenon. Millar (2004) describes that business benefit contracting outsourcing refers to a contractual agreement that defines the vendor’s contribution to the client in terms of specific benefits to the business and defines the payment the customer will make based upon the vendor’s ability to deliver those benefits.
The associated risks with traditional outsourcing, there is considerable interest in this form of outsourcing. Millar (2004) notes, that while business benefit contracting is frequently used in the marketing of outsourcing services by third party providers, typically it is not actually adopted because of the difficulty associated with measuring benefits. 2. 4Motives of IT-services outsourcing to India It is important to have an overview of Indian IT services providers. Today, India is a leading IT services provide to USA and other countries.
There have been many reports published who claim that India leads in the provision of IT-services to other countries. Mclaughlin (2003) argues that Indian offshore outsourcing will grow because of its capability to provide cheaper and better software services. In the literature of (Taylor, 1996) reported that the greatest conscious effort by any single country to provide external vendor services to client companies in the West is India with a 12% share of the total foreign opportunity. The following chart of Indian’s National Association of Software and Services Companies (NASSCOM) shows Indian’s software export.
Graph 2. 1 NASSCOM (India’s software export between 1999 and 2005) 9 From the above figure, it is clear that the India’s IT industry has progressed rapidly. The figure shows that in 2004 software exports reached more than 12 billion dollars. This proves that the software export has at doubled in 2004 than that of 2002. The report shows that Indian has been providing IT-services continuously and consistently. This literature helps us to answer question such as what are the motivation factors to seek IT-services from Indian companies. 2. 4. 1 CostReductionandSaving
To hire skilful personnel from another country is quite hard and lengthy as there are many issue involved like immigration rules, visa processing time and settlement. The local labour is not cheap, and it is very costly for a company working in Sweden to hire labour from other country instead they outsource to save labour cost. In India, (Chordas, 2003) reports that high qualified software engineers earn an annual salary of less than 10,000 dollar, while this figure for a typical software engineer in the US is more than fifty thousand dollar by outsourcing companies reduce cost. . 4. 2 BetterQuality Quality is another motivation factor. India provides a high quality services as (Bhatnagar et al. , 1997) noted that Indian IT-companies have been reported to provide particularly high quality software. Moreover, there is highest number of CMM level 5 companies situated in India. Moitra (2001) reports that half of all CMM level 5 companies in the world are located in India. Most IT-companies have achieved ISO 9001 certification. There are two reasons that Indian IT companies seek quality certification identified by (Arora et al. , 1999).
Firstly, it is marketing strategy to convince the potential customers that the company follows a well-defined and documented development process. Secondly, a well-defined process has improved the ability of companies to estimate and manage the time and resources required for a project. 2. 4. 3 Skilllabour The shortage of skill in the local market is another motivation factor for getting services from other country. The European countries have a shortage of human resource particularly in the IT field. On the other hand, there is large number of IT professional in the country like China and India.
According to reports of (Gupta, 2001) Indians are very good in mathematics and science. He claims that in India there are over 2500 government recognized polytechnic institutions, which provides more than seventy thousands IT professionals every year. McLaughlin (2003) referred to another quotation about Indian labour skill “Anything you can do I can do better, and cheaper”. 2. 4. 4 InvestingonTechnologies This is another factor, which motivates companies to go for outsourcing. Rather than buying new and advance technologies for business activities, that is not part of their core business activity.
Therefore, the companies seek services from other companies already having the same technologies and expertise they required. It could be cheap for companies to outsource rather than to install new technologies. Other factors for which companies seek services in the context of IT-services from Indian companies are reliable communication infrastructure, political stability and democracy. 10 2. 5Outsourcing difficulties There are many challenges faced by outsourcing companies especially in the case of offshore outsourcing. According an investigation (Nam et al. 1996), there are more than 90 North American Client companies of which 36 companies did not intend to continue their relationship with their IT services providers. Instead of the fact that outsourcing is increasing, there are some reasons which are obstacles and challenges in the way of outsourcing. Due to these challenges companies back-source and fail in the very first step. According to the report of (Foote, 2004) 90 outsourcing companies, he confirms that more than half of the outsourcing companies fail in the very beginning, and it failed to achieve its objective in terms of cost saving.
There are more challenges for outsourcing companies seeking services from other countries that are geographically far from the services providers. According to (Godwin, 2000) IT outsourcing can classify an organization IT functions into two categories including commodity and strategic services. He argues that commodity services can be outsourced while strategic services should stay in-house. Kakabadse (2005) agree with Godwin in that core services should stay in-house. Godwin (2000) has identified the following problems with IT outsourcing. ?The “chemistry” may be lacking between the organization and the outsourcing vendor. It may be scary to depend on a third party when the organization has handed over critical information. ?Outsourcing can lead to loss of flexibility. ? The organization may lose competitive advantages in information management. ?Employees may feel a decline in morale and performance. ?Long-term cost saving are not guaranteed. It would be a serious mistake for an organization if they outsource their strategic IT because once the system is outsourced, it fails to play a strategic role and the organization strategy is in the hand of the outsourcing provider (Godwin, 2000).
Foote (2004) mentioned that offshore outsourcing is more complex than domestic outsourcing. There is higher level of risk with offshore outsourcing as compared to domestic outsourcing. For example high coordination costs, geographical distance, information security, lack of communication, different time zoon, knowledge gap, knowledge loss, political risks and cultural differences. 2. 6 Culture Anthropologists and other behavioural scientists believe that culture is the pattern of the full range of learned human behaviour. The term was first used in this way by the pioneer English Anthropologist (Edward, 1871) in his book, Primitive Culture.
He said culture includes knowledge, believes, art, law, morals, customs, and any other capabilities and habits acquired by human as a member of society. Of course, it is not limited to individuals, organizations also possess and create. Since Edward’s time, the concept of culture has become the central focus of anthropology. Culture is a powerful human tool for survival, but it is a sensitive issue. Our written languages, governments, buildings, and other man-made things are merely the products of culture. They are not culture in themselves. They are things that were made and used through cultural knowledge and skills.
And our organizations and their infrastructure and working style are much more dependent on this. 11 2. 6. 1 Culture&organization Organizational culture is the personality of an organization. Culture is made of the assumptions, values, norms and artefacts of organization members and their behaviours. Members of an organization soon come to sense the particular culture of an organization. Culture is one of those terms that are difficult to express distinctly, but everyone knows it when they sense it. For example, the culture of a large business corporation is quite different than that of a hospital which is quite different than a university.
The organizational-culture of every organization depends on the culture of the host country. Therefore, it is difficult for an organization to understand the culture of a foreign organization. 2. 6. 2 Corporateculture Corporate culture can be analyzed as a system. Inputs include feedback from society, professions, laws, stories, heroes, values on competition or service, etc. all the processes in this systems are based on our assumptions, values and norms, our values on money, time, facilities, space and people.
Outputs or effects of our culture system are organizational behaviours, technologies, strategies, image, products, services, appearance, etc and this output of corporate culture is important in outsourcing relations. The concept of culture is particularly important when attempting to manage organization wide change. Practitioners are coming to realize that, regardless of the best laid plans, organizational change must include not only changing structures and processes, but also changing the corporate culture as well. 2. 6. 3 CultureandArtefact
In outsourcing of software services, values of some organization can’t be ignored, (Hofstede, 1980) proposed a framework to better identify these cultural values, In 1986 a model of a distorted mirror describes the relationship between culture and compares to a mirror that reflects “values that already exist” in different companies which are part of different culture (Holbrook, 1987). This relationship results from the ICT links and as a result it established a relationship between cultural values and its relation with socio-technical struggle in different countries projecting these values.
Many people agree that this socio-technical struggle is with the aim to design (or contribute to the design of) artefacts facilitating human work. Examples of such artefacts are information technology systems and organizational settings with a corporate culture. The distinctiveness of culture on Cognitive Ergonomics is the use of the joint human-technology in a culture as frame of reference (Hollangel, 2001). The measurement of culture’s effect on organization communication is the central point of much past research (Albers-Miller et al. , 1996 and Cho et al. , 1999).
These articles support a strong theoretical and methodological tradition regarding the study of cultural values and customer communication, and provide strong evidence of culture’s reflection in symbolic communications. On other hand a number of approaches are projected for the analysis of socio-technical systems and the ergonomic design of artefacts that become part of corporate culture and a cognitive system which is derived from a big union of culture exist on some particular geographic location. Among the most well known ones are Rasmussen’s Cognitive Systems Engineering (Rasmussen et al. 1994),
Hutchins’ Distributed Cognition (Hut- 12 chins, 1995) and approaches based on Activity Theory (Leontiev, 1974, Engestro? m 1997). 2. 7Inter-cultural problems of outsourcing Inter-cultural has been given too many names i. e. cultural difference, cultural distance and cross culture stated by (Shenkar, 2001). Cultural differences or cultural distance is common concept which has been applied in a variety of cross-cultural research in order to assess differences between two national cultures. Culture is considered an important figure in any project therefore it is always blamed when organizations experience failure.
For examples the Columbia and Challenger disaster experienced by NASA were in part attributed to culture that valued conformity to rules resulting in the overlooking of potential risks (Vaughn, 1996). Similarly, national culture has also been implicated in organizational failures. Avianca Airlines has twice experienced crashes. The reasons include the uncomfortably of subordinates with their superiors and it was blamed on the national culture of the crew (Helmreich, 1994). Therefore it is important to have better overlook on the inter-cultural problems of outsourcing.
Krishna et al. , (2004) in their long term research on offshore outsourcing found that differences in norms and values cannot be harmonized as they derive from differences in cultural background, education and working life. They cite a practical example from (Nicholson et al. , 2000) saying that British managers in an outsourcing relationship with an Indian software supplier found that Indian programmers, in difference to authority would not argue in meetings but would sometimes send their opinions in email messages after the meetings had disbanded.
Instead the British managers used to interact and develop ideas through meetings. Chordas (2003) got comments from an offshore client saying that it is very important to know the culture of the people with whom you are doing business. Even simple cultural differences, such as waving hands, may have different meaning in different cultures. In the US, this gesture generally implies ‘yes’, but to an Indian employee it signifies that he or she is listening to what you are saying. Offshore outsourcing becomes more critical and complex as clients and vendors operate from different countries.
Their socio-technical understanding of any problem is according to their local culture and artefacts they use. For example, (Herbsleb et al. , 2001) work on global software development shows how distance among project members has a variety of effects. The effects include rise in problem of miscommunication, lack of coordination, infrastructure incompatibility, cultural misunderstanding, and conflicting expectations. Differences in geography may not seem problematic with access to communication tools. However meaningful communication can still be difficult.
For example, (Kobitzsch et al. , 2001) indicate companies should consider the local customs of the region where the work has been outsourced. They report that clients and vendors follow different off-days and religious or national holidays which should also be taken into consideration. There are different cultural events of India, which do not even exist in the UK or American. Although these seems minor inter-cultural differences, but ignoring such inter-cultural problems could produce resentment and damage morale (Kobitzch et al. , 2001). Samaddar et al. (2005) observed that success can be achieved in outsourcing by maximizing reliability and relationship in the Korean 13 context rather than by maximizing flexibility and control, as was observed in the Western context. They argued that this difference is a function of cultural diversity. 2. 8Inter-cultural problems in IT-services outsourcing between Sweden and Indian It is a fact that inter-cultural differences exist between India and Sweden. Gislen (2006) gives the detail of the practical experience the authors had while doing IT- services outsourcing. A detailed discussion follows. 2. 8. 1 TheYesandNo–tocustomerquestion
Gislen et al. , (2006) have identified that Indian workers would reply as ‘Yes’ where Scandinavians employees would say ‘Not sure’. For example, Indian software developers say ‘Yes’ to a query on the delivery date even when they are not sure of the possibility to meet the deadline. Due to big cultural gap – both the counties India and Sweden face such problem in establishing successful outsourcing relationship. Indian developers may not understand a customer needs but would hesitate to ask detail from their customers. 2. 8. 2 Managementstyle Another inter-cultural difference is – Scandinavian managers would in general ot ask frequent progress reports, since that would be considered as lack of trust on the employee. While in India, if the managers do not follow up frequently then the task itself would be perceived as an unimportant task (Gislen et al. , 2006). Scandinavian managers focus on outcome rather than behaviour while Indian manager focus on behavioural control. We believe that such inter-cultural difficulties might not good for an outsourcing relationship. 2. 8. 3 Risktaking-meettodeadline It has been mentioned that Scandinavians are strict and obey time schedule and deadlines.
Therefore, they take more risks and make reasonable assumptions before going ahead as it is considered better to deliver tasks on time with some errors than not meeting a deadline (Gislen et al. , 2006). But on the other side, Indians often wait till they perceive that everything is clear to them before handing over the task. Late delivery is assumed to be acceptable and no attention is given to deadline. 2. 8. 4 Conflicts–misunderstandings The other important difference is that Swedish people are often scared of conflicts and may therefore not communicate dissatisfaction to their Indian partners.
The Indian partners take lake of negative feedback as a sign of satisfaction (Gislen et al. , 2006). Moreover, Indian companies have huge business to American clients who generally communicated their dissatisfaction very directly. 2. 8. 5 Appreciation–reward This is another, important inter-culture difference that the Americans always appreciate the work as – Americans and Indians may say “great” for an average but acceptable performance, while Swedes would generally not give any positive feedback unless the performance is above expectation, often this creates dissatisfaction for the Indian partner. 4 2. 8. 6 Organizationaldifferences Organizations vary from cultural, political and structure point of view. Nicholson (2004) reported that Scandinavian organizations are generally flat and employees have easy access to higher levels in the organizations. On the other side Indian employee do not have easy access to higher authority of the organization. Gislen et al. , (2006) noted that due to cultural differences between organizations – the employees may not suggest ways to improve the product unless asked explicitly about it.
Since in some cultures these kinds of suggestions are expected from management, it can create frustration and misunderstandings when Indian consultants are not doing it based on their cultural experience that a subordinate should not criticize the manager. 2. 8. 7 Educationaldifference There is huge difference in the education systems between India and Sweden. Gislen et al. , (2006) mentioned that Indian education system stress learning by heart without questioning and there is very less focus on application of knowledge while the European education system focuses on application of knowledge using more creativity.
Due to this reason, Indian developers may avoid questioning the validity of obvious erroneous requirements. 2. 9Proposed solutions to inter-cultural problems of IT-services outsourcing The problems discussed in the previous section may hamper the progress and performance of the companies involved in outsourcing projects. It is very important to find reasonable solutions to such problems otherwise they may result in failure of the projects. Following is an overview of the solutions to minimize such problems proposed by researchers in the past. . 9. 1 Strategicchoiceofproject Inter-cultural problems can be minimized by selecting appropriate project or appropriate part of a project for outsourcing (Krishna et al. , 2004). For example, software that is to be embedded in operating systems or consumer products can often be specified in a relatively culturally-neutral way, so less inter-cultural understanding is needed. The value in learning that can be gained through the particular project is another part of strategic choice of project (Krishna et al. , 2004).
Before outsourcing a project to an Indian company, their previous experience should be kept in mind. If a company has experience in the field only then a project should be outsourced to them. For example some Indian companies have gained experiences and knowledge in e- business and telecommunication domains by working for North America and European companies. Therefore, projects in the mentioned fields should be outsourced to them. 2. 9. 2 Managinganddevelopingrelationship Management of a relationship in outsourcing business is an important factor.
The use of common procedures is one way a relationship can be facilitated (Heeks et al. , 2001). Such procedures include agree coordination and control mechanisms (Krishna, et al. , 2004). Furthermore, inter-cultural problems could be solved by: ? Using systems to bring harmony between outsourcers and vendors, for example coordination, control systems, processes and technology. 15 ?Understand differences in norms and value, for example hierarchy, power and business practices ? Encourage negotiation between culturally different teams working on the same project. . 9. 3 StaffingIssues In case of developing application software client contact is needed (Krishna et al. , 2004) the client has to face