Deciding Information Systems (IS) Outsourcing: A Multi-Criteria Hierarchical Approach

Abstract

Attracted by the desire to cut cost and improve performance continuously, managers across the continents are showing interest in outsourcing their Information Systems. Influenced by this global trend, Indian firms, e.g., Bharti Telecom, Ballarpur Industries, Bank of India and many others have followed the path of extensive outsourcing of their IS services. However, while there is optimism regarding the benefits of outsourcing, there are also concerns regarding security issues, technological obsolescence, vendor captivity, risk assessment in IS outsourcing relationship and so on which require serious consideration in deciding on IS outsourcing, Outsourcing is a complex decision process, which is the interplay of various internal as well as external environmental factors. The concerned manager has to factor various dimensions, both short term and long term. Strategic alignment of business and information technology dimensions influence IS outsourcing strategy. Further, outsourcing drivers would also influence the IS outsourcing decisions in any organization. The manager therefore needs to identify various factors and also measure the intensity of each factor influencing the outsourcing decision. In this paper, Analytical Hierarchy Process (AHP)—that has been used extensively in complex decisions and situations where hierarchical structure in factors are involved in decision goals—has been applied for analysing the IS outsourcing decisions. The.key outcome of the study are as follows: • High IS outsourcing is the preferred strategy over low and selective IS outsourcing strategy. • Strategic alignment of business and information technology emerges as the most important factor followed by the medium-term impact of outsourcing in deciding the degree of IS outsourcing. • Among the sub-factors, business strategy is the most important factor in deciding the IS outsourcing degree, and its role is maximum in high IS outsourcing option. The second most important decision element emerges to be outcome-based performance. • Among the business drivers, focus on core operations comes out to be the most important outsourcing driver. While the illustration in this paper tries to cover broad factors, it gives flexibility to practitioners to account for different sub-factors under these factors. The application of AHP using these broad array of sub-factors would lead to a decision model and customized solutions for the IS outsourcing in the particular situations.