Presentation of findings

Bjarne Berg

UNCC December 5th, 2006

Issue and Literature

As companies have become more focused on IT expenditures over the last few years, some organizations have decided to outsource parts of their on-line transaction processing systems (OLTP). The predictive factors for success in outsourcing IT, as well as the factors actually being considered, have been established in the literature.

This paper builds on this research and examines if there are different factors that are considered when outsourcing decision support systems (DSS), and if so, if there are differences in the factors considered for large, medium and small organization; or if the competitive strategies of the organizations influences the factors that are considered.

Measures from Literature

Where Construct MeasuresBahli & Rivard (2002) Asset specificity Supplier's investmentPredictive model of success Human Resources specificity

Small number of suppliers Small number of suppliersUncertainty UncertaintyInternal relatedness Internal relatednessExternal relatedness External relatednessMeasurement problems Task complexityExpertise Expertise of the client with the IT operations

Expertise of client with outsourcingExpertise of this supplier with the IT operationsExpertise of the supplier with the outsourcing

Gable (1996) Need expert advise on what to computerize Consultant's demonstrated understanding of client needs

Outsourcing success Do not have adequate knowledge of software market apparent trustworthiness of consultantprediction model (expertise) Need someone objective to confirm own ideas The consulting company's prior experienceDjavanshir (2005) Cost reduction - (benefits) Labor cost reductionIT manager's reasons for Skills - (benefits) Access to host country's skilled workforce and talents

outsourcing Taking advantage of host country's universitiesContinuous operations - (benefits) 24/7 operationsFlexibility - (benefits) Improved flexibility and agility

Survey Instrument

What are the estimated revenues of your organization? Less than 1.3 billion Between 1.3 and 3.6 billion Over 3.6 billion

Please circle the most appropriate response 0-20% 21-40% 41-60% 61-80% 81-100% N/A

What portion of the IT budget is spent on outsourced transaction systems (excluding projects) today?

1 2 3 4 5 n/a

What portion of the IT budget is spent on outsourced decision support systems (excl. projects) today?

1 2 3 4 5 n/a

What portion of the IT budget do you expect will be on outsourced transaction systems in 3 years?

1 2 3 4 5 n/a

What portion of the IT budget do you expect will be on outsourced decision support systems in 3 years?

1 2 3 4 5 n/a

How much do you agree with these statements?Disagree

completelyDisagree

somewhat NeutralAgree

somewhatAgree

completely N/A

My organization competes primarily by providing different products/services than our competitors

1 2 3 4 5 n/a

My organization competes primarily by providing low cost products/services 1 2 3 4 5 n/a

My organization competes primarily as a specialized provider of products/services 1 2 3 4 5 n/a

Outsourcing of transaction systems in my organization were done to reduce overall costs 1 2 3 4 5 n/a

Outsourcing of decision support systems in my organization were done to reduce overall costs 1 2 3 4 5 n/a

Which factors were important in deciding whether or not to outsource some, or all, of your on-line transaction processing system(s) (OLTP).

Not Important

Little importance

Somewhat important Important

Very important N/A

To reduce labor costs 1 2 3 4 5 n/a

To provide 24 hour transactional operations 1 2 3 4 5 n/a

To improve our transactional flexibility and agility 1 2 3 4 5 n/a

To take advantage of different education systems at our service partner's location 1 2 3 4 5 n/a

To take advantage of the skilled workforce of our service partner 1 2 3 4 5 n/a

Uncertainty in our long-term transactional system technology choice 1 2 3 4 5 n/a

Our unfamiliarity with OLTP technology 1 2 3 4 5 n/a

The complexity of the transaction system 1 2 3 4 5 n/a

Our unfamiliarity with outsourcing in general 1 2 3 4 5 n/a

The number of available outsourcing service providers 1 2 3 4 5 n/a

The service provider's current overall investments in transaction systems 1 2 3 4 5 n/a

The service provider's prior experience with the transaction system 1 2 3 4 5 n/a

The service provider's experience with performing similar activities as us 1 2 3 4 5 n/a

The service provider working in a similar industry as our organization 1 2 3 4 5 n/a

Knowing the service provider's employees 1 2 3 4 5 n/a

The service provider's employees' understanding of our needs 1 2 3 4 5 n/a

The trustworthiness of the service provider's employees 1 2 3 4 5 n/a

The service provider's expertise with outsourcing in general 1 2 3 4 5 n/a

More than 5,100

While there are no risks in participating in the study, you may stop at anytime and you do not have to complete it. The university wants to make sure that you are treated in a fair and respectful manner. If you have questions about how you are treated as a participant, contact the university’s Research Compliance Office (704-687-3309) or if you have any questions about the survey please contact Dr. Susan Winter (swinter@email.uncc.edu).

This is an anonymous survey (do not sign your name or your company's name) conducted by Dr. Bjarne Berg (bergb@lrc.edu) to examine current outsourcing trends. The survey is part of a research project in conjunction with the University of North Carolina at Charlotte and should take about 10 minutes to complete.

What are the estimated number employees?Less than 2,700Between 2,700 and 5,100

Which factors were important in deciding whether or not to outsource some, or all, of your decision support systems (DSS)?

Not Important

Little importance

Somewhat important Important

Very important N/A

To reduce labor costs 1 2 3 4 5 n/a

To provide 24 hour DSS operations 1 2 3 4 5 n/a

To improve our DSS flexibility and agility 1 2 3 4 5 n/a

To take advantage of different education systems at our service partner's location 1 2 3 4 5 n/a

To take advantage of the skilled workforce of our service partner 1 2 3 4 5 n/a

Uncertainty in our long-term DSS technology choice 1 2 3 4 5 n/a

Our unfamiliarity with DSS technology 1 2 3 4 5 n/a

The complexity of DSS 1 2 3 4 5 n/a

Our unfamiliarity with outsourcing in general 1 2 3 4 5 n/a

The number of available outsourcing service providers 1 2 3 4 5 n/a

The service provider's current overall investments in DSS 1 2 3 4 5 n/a

The service provider's prior experience with the DSS technology 1 2 3 4 5 n/a

The service provider's experience with performing similar activities as us 1 2 3 4 5 n/a

The service provider working in a similar industry as our organization 1 2 3 4 5 n/a

Knowing the service provider's employees 1 2 3 4 5 n/a

The service provider's employees' understanding of our needs 1 2 3 4 5 n/a

The trustworthiness of the service provider's employees 1 2 3 4 5 n/a

The service provider's expertise with outsourcing in general 1 2 3 4 5 n/a

Responses from 5 conferences March-Nov. 2006

Survey Number for surveys Issued vs. returned

Response rates Fortune-500 Fortune-1000 Smaller organizations No answer

SAP NetWeaver & Portals conference 2006

623 / 466 75%220

(47%)65

(14%)173

(37%)8

(2%)

American SAP User Group conference and Sapphire 2006

968 / 802 83%400

(50%)108

(13%)274

(34%)20

(2%)

Shared Insights and SAP Project management conference 2006

492 / 391 79%234

(59%)36

(9%)108

(28%)13

(3%)

SAP Reporting and Analytics conference 2006

298 / 230 77%125

(54%)19

(8%)83

(36%)3

(1%)

2381 / 1889 79% 979 228 638 4452% 12% 34% 2%

Responses Organization Size

Findings – Company size matters – 2 factor Anova

Note: 268 respondents did not engage in any form of outsroucing and was not planning to do so either (within 3 years) or had no responses to factors considered. Sample size is therefore 1577

ANOVASource of Variation SS df MS F P-value F crit

Organization size 1991.03 1576 1.263 2.365 6.6749E-110 1.069Factors considered 299.29 3 99.762 186.791 1.806E-114 2.607Error 2525.14 4728 0.534Total 4815.46 6307

Ho: Factors considered when outsouring are different depending on company sizeH1: All factors are equal

Factors considered when outsourcing IT

2.25

2.50

2.75

3.00

3.25

3.50

3.75

Fortune-500 Fortune-1000 Smaller org

Supplier factors

Internal factors

Technology factors

Costs

Supplier factors

Internal factors

Technology factors

Costs n

Fortune-500 2.98 2.64 2.44 3.18 920Fortune-1000 3.12 3.50 2.59 2.79 177Smaller org 3.12 2.96 2.57 2.82 480

3.07 3.03 2.53 2.93 1577

* findings are significant at 95% confidence level

Factors considered when outsourcing

.. Most important factors for OLTP outsourcing

1.00 1.50 2.00 2.50 3.00 3.50

Our unfamiliarity with OLTP technology

To take advantage of different education systems at our service partner's location

Uncertainty in our long-term transactional system technology choice

Knowing the service provider's employees

The number of available outsourcing service providers

Our unfamiliarity with outsourcing in general

The service provider working in a similar industry as our organization

The complexity of the transaction system

To provide 24 hour transactional operations

To reduce overall costs

To reduce labor costs

To improve our transactional flexibility and agility

To take advantage of the skilled workforce of our service partner

The service provider's current overall investments in transaction systems

The service provider's experience with performing similar activities as us

The service provider's employees' understanding of our needs

The trustworthiness of the service provider's employees

The service provider's expertise with outsourcing in general

The service provider's prior experience with the transaction system

.. Most Important factors for DSS outsourcing

1.00 1.50 2.00 2.50 3.00 3.50

Uncertainty in our long-term DSS technology choice

Our unfamiliarity with outsourcing in general

To take advantage of different education systems at our service partner's location

The number of available outsourcing service providers

The complexity of DSS

Knowing the service provider's employees

The service provider working in a similar industry as our organization

To provide 24 hour DSS operations

To reduce overall costs

To improve our DSS flexibility and agility

To take advantage of the skilled workforce of our service partner

The service provider's experience with performing similar activities as us

The service provider's current overall investments in DSS

Our unfamiliarity with DSS technology

To reduce labor costs

The service provider's prior experience with the DSS technology

The service provider's employees' understanding of our needs

The trustworthiness of the service provider's employees

The service provider's expertise with outsourcing in general

Significant Differences between factors considered for outsourcing OLTP Vs. DSS*

Questions and average scores OLTP DSS DifferencesOur unfamiliarity with OLTP/DSS technology 2.06 3.39 1.32To reduce labor costs 3.07 3.41 0.34Knowing the service provider's employees 2.42 2.74 0.32The service provider's expertise with outsourcing in general 3.56 3.77 0.21The trustworthiness of the service provider's employees 3.50 3.66 0.15The service provider's current overall investments in OLTP/DSS 3.18 3.30 0.12The service provider's employees' understanding of our needs 3.44 3.53 0.09To take advantage of different education systems at our service partner's location 2.18 2.27 0.09The service provider working in a similar industry as our organization 2.68 2.76 0.08The complexity of OLTP/DSS 2.70 2.73 0.03To improve our OLTP/DSS flexibility and agility 3.08 3.05 0.02The service provider's prior experience with the OLTP/DSS technology 3.57 3.50 0.07To take advantage of the skilled workforce of our service partner 3.18 3.08 0.09The service provider's experience with performing similar activities as us 3.38 3.27 0.11The number of available outsourcing service providers 2.59 2.44 0.15To reduce overall costs 3.05 2.89 0.16Uncertainty in our long-term OLTP/DSS technology choice 2.23 2.05 0.19To provide 24 hour OLTP/DSS operations 3.03 2.77 0.26Our unfamiliarity with outsourcing in general 2.65 2.11 0.54

Factor that are more important to a DSS outsourcing effort

Factor that are more important to an OLTP

outsourcing effort

No major differences

*95% confidence; n=1577

Strategy Determination – Minikowski clustering

Q 7 Q 8 Q 92.8963 1.8532 2.23001.3093 2.9965 1.44211.7677 1.5835 3.5547

Survey ID Q 7 Q 8 Q 9 Distance x Distance y Distance zSurvey 00001 3 5 2 1.253 4.693 0.903 ySurvey 00002 1 1 1 2.103 2.103 2.103 xSurvey 00003 5 2 4 3.952 0.903 2.560 xSurvey 00004 4 2 5 2.560 0.903 3.952 zSurvey 00005 3 1 5 1.253 2.103 3.952 zSurvey 00006 2 2 3 0.903 0.903 1.253 zSurvey 00007 4 4 5 2.560 2.560 3.952 zSurvey 00008 4 1 5 2.560 2.103 3.952 zSurvey 00009 4 1 4 2.560 2.103 2.560 xSurvey 00010 2 5 2 0.903 3.952 0.903 ySurvey 00011 5 3 4 3.952 1.253 2.560 x

Minkowski - p metric (p=3) New Membership

Final centroid- group xFinal centroid- group yFinal centroid- group z

How much do you agree with these statements?Disagree

completelyDisagree

somewhat NeutralAgree

somewhatAgree

completely N/A

My organization competes primarily by providing different products/services than our competitors

1 2 3 4 5 n/a

My organization competes primarily by providing low cost products/services 1 2 3 4 5 n/a

My organization competes primarily as a specialized provider of products/services 1 2 3 4 5 n/a

Findings StrategyEmployer's

organization size Niche

strategyDifferentiation Low cost

strategyNo stated strategy

Total number of respondents

Fortune 500 279 361 327 12 979Fortune 1000 68 135 13 12 228Smaller organizations 182 365 79 12 638

Total 529 861 419 36 1845

Note: 44 did not identify company size, n= 1845; total return size = 1889

Supplier factors

Internal factors

Technology factors

Costs

Niche strategy - Fortune-500 2.90 2.33 2.38 3.33 Niche strategy - Fortune-1000 2.69 3.20 2.57 2.89 Niche strategy - Smaller org 3.20 2.88 2.35 2.72

Niche strategy 2.93 2.80 2.43 2.98

Differentiator - Fortune-500 2.78 2.56 2.31 2.96 Differentiator - Fortune-1000 3.41 3.64 2.78 2.87 Differentiator - Smaller org 3.15 3.05 2.81 3.09

Differentiator 3.11 3.08 2.63 2.98

Low cost - Fortune-500 3.24 2.98 2.60 3.39 Low cost - Fortune-1000 2.38 3.41 2.17 2.79 Low cost - Smaller org 2.73 2.69 2.28 2.38

Low cost strategy 2.78 3.03 2.35 2.85

Factors considered when outsourcing

Outsourcing factors most important to a niche Strategy

2.00

2.25

2.50

2.75

3.00

3.25

3.50

Niche s trategy - Fortune-500 Niche s trategy - Fortune-1000 Niche s trategy - Smaller org

Supplier factors

Internal factors

Technology factors

Costs

Outsourcing factors most important to a low cost producer

2.00

2.25

2.50

2.75

3.00

3.25

3.50

Low cost - Fortune-500 Low cost - Fortune-1000 Low cost - Smaller org

Supplier factors

Internal factors

Technology factors

Costs

Outsourcing factors most important to a differentiator

2.00

2.25

2.50

2.75

3.00

3.25

3.50

Differentiator - Fortune-500 Differentiator - Fortune-1000 Differentiator - Smaller org

Supplier factors

Internal factors

Technology factors

Costs

Future direction of Outsourcing

Size % of IT budget spent on OLTP

outsourcing today

% of IT budget spent on DSS

outsourcing today

Expected % of IT budget spent on OLTP outsourcing within 3

yrs

Expected % of IT budget spent on DSS outsourcing

within 3 yrsFortune-500 11.9% 10.5% 20.1% 17.6%

Fortune-1000 11.4% 9.1% 16.4% 13.6%Small organization 12.0% 10.5% 15.1% 12.8%

Average 11.8% 10.1% 17.2% 14.7%

13.4%7.60%

Status and expectations (%)

Expected annual growth rate in OLTP outsourcing (2007-2009)Expected annual growth rate in DSS outsourcing (2007 - 2009)

Lots of work left to be done

Question and Answers

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