Step 4 and 5: Identification of patterns, synthesis and generalisation

The factors identified in Steps 1, 2 and 3 were examined to identify underlying themes and patterns (refer Appendix F, Table F16 Drivers of Outsourcing, Table F17: Critical Success Factors and Table F18: Factors Touted as Outsourcing Advantages). The items were classified and patterns identified as shown in Appendix F, Table F18: Factors Proposed and Identified and summarised in Table 4.2:

 reduces and controls operating costs;

 improves the company focus;

 provides access to world-class talent and capabilities;

 frees internal resources for other purposes;

 accelerates re-engineering benefits;

 helps to handle functions that are difficult to manage or are out of control; and

 makes capital funds available.

No. Identification of patterns

1 Management was concerned with the size and spend of IT, outsourcing was seen as a way to control or stifle spend

2 Employees saw in-house ‘build’ as better managed and more flexible with shorter timeframes and the ability for ad hoc changes to be accommodated

3 Employees see outsourcing as a loss of business knowledge and intellectual capital that adversely affects total service cost, time and quality

4 While most contracts are built around cost and time, which are easily identified, key performance indicators the subset ‘Quality’ was easily the most relevant from interviews

5 Management culture is getting it done with a ‘work smarter’ emphasis but the processes do not support changes or improvements

6 Quality of service was highlighted as a significant factor, in most cases it was expressed around ‘time’

7 Relationship with vendor both positive and negative

Table 4.2: Identification of Overall Patterns from Interviews

From the data analysis of perceived outsourcing drivers, critical success factors and outsourcing advantages, it was evident that:

 management was concerned with the size and spend of IT, and outsourcing was seen as a way to control or stifle spend (refer Appendix F at Table 19);

 employees perceived in-house ‘builds’ as better managed and more flexible, with shorter timeframes and with the ability for ad hoc changes to be accommodated; and

 employees perceived outsourcing as resulting in a loss of business knowledge and intellectual capital, and in this manner outsourcing was adding to the total service cost and resulting in a poor quality product.

4.9.4.1 Management: efficiency improvements

By the mid-1990s, Telstra as an organisation had over 1,400 IT systems, its annual IT budget was over $1.5 billion per year (Thomsen-Moore, 2002) and there had been a succession of CIOs. Overemphasis on financial (performance) controls can also reduce the incentive to build inter-relationships among business units or to learn and acquire new skills internally. These concerns were reflected in the interviews with Telstra employees and are highlighted at Appendix F, Table F19, Items 1, 2, 4 and 7.

4.9.4.2 Employees: reduced flexibility

Many factors impacted on the decision to outsource and many of the outcomes supported the decisions to outsource as they resulted in a competitive advantage for Telstra. Outsourcing has been deemed by various researchers to significantly increase the speed of work, and thereby create greater organisational efficiencies (Sriwongwanna, 2009; Thompson, Strickland & Gamble, 2005). However, the responses from Telstra interviewees contradicted this as they highlighted concerns and difficulties with the outsourcing processes. Dess et al. (2008) describe the importance of channelling employees throughout the organisation toward common goals, and the experience described by the Telstra interviewees also demonstrated this. The lack of user participation in contract development was an issue; as Lee and Kim (1999) have found, user participation is a key predictor of outsourcing success.

4.9.4.3 Associated business costs: business knowledge and intellectual capital

In addition, employees saw outsourcing as resulting in a loss of business knowledge and of intellectual capital. In this manner, outsourcing was adding to the total service cost and resulting in a poor quality product.

Issues with the outsourcing process (refer Appendix F, Table 3) were the loss of internal knowledge and the loss of control of the outsourcing process by Telstra. Outsourcing was seen as reducing the quality of what was delivered, causing both ‘unseen’ work for Telstra business and ‘unseen’ costs to the Telstra management. The loss of Telstra business knowledge, intellectual capital and the reduction in the quality of service were significant factors (refer Appendix F, Table F19). The impact of outsourcing on Telstra could be summed up by one interviewed employee’s statement that: ‘The outsourcing partner has control of your business’ (A4, 2006). This meant the relationship with the outsourcing partner was critical. The total costs of outsourcing were not always covered by the money paid to the outsourcing partners as there were additional costs to the business due to loss of:

 ownership of the process;

 intellect; and

 knowledge.

Lei & Hitt (1995) point to the use of outsourcing as an attractive means to control and lower the costs of operation, but they also point to the loss of knowledge and human capital as well as a loss of skills that leads to additional outsourcing of human embodied skills and technologies.

4.9.4.4 Quality of outsourcing partnerships

While most contracts are built around cost and time, which are easily identified as key performance indicators, the issue of the ‘quality’ of the outsourcing partnership was seen as most relevant from interviews. Previous research has highlighted the quality of the outsourcing partnership as a significant factor in successful outsourcing (Chakrabarty et al., 2007; Goles & Chin, 2005; Han, Lee, & Seo, 2007). Many factors contribute towards the concept of ‘quality’ including communication, participation, cooperation, knowledge sharing, joint action and conflict resolution (Lee and Kim, 1999). Lee and Kim propose four activities to improve partnership quality:

 active participation towards a cooperative relationship;

 increased communication to achieve and monitor integrative agreements;

 sharing information to build a competitive synergy; and

 building trust among partners so that neither partner will act opportunistically.

Telstra contracts are built around cost, not quality; service was highlighted as a significant factor and in most cases it was expressed around ‘time’. Quality of service has become an essential parameter in outsourcing, and buyers now look beyond cost and labour arbitrage (Bhagowati, 2005; Dahl, 1996). Researchers have recognised on- time delivery and performance reliability as indicators of the service provided (Alzola, 2005). Previous research has highlighted perceptions and expectations as being important factors in successful outsourcing (Kim, Chen, & Aiken, 2005; Otorowski, 2007). Instruments such as SERVQUAL have been developed to measure these factors but Telstra interviewees made no mention of an evaluation methodology.

The management culture was to get projects done with a ‘work smarter’ approach, but often the processes in use did not support changes or result in improvements. Employee involvement and communication have been found to be significant factors in successful outsourcing (Sriwongwanna, 2009). In addition, minimising the gap between management and employees’ perceptions of outsourcing has been shown to be a contributing factor for successful outsourcing. The Telstra ‘Six Sigma’ initiative, a quality management program, disappeared in 2005 with the arrival of the Sol Truillo management team and was not replaced by enterprise-wide change management programs or process improvement programs (A8, 2007). Researchers point to change management being an important facet of outsourcing (DiRomualdo & Gurbaxani, 1998; Han, Lee & Seo, 2007; Levina & Ross, 2003).

The relationship with the vendor often has both positive and negative aspects to it and the relationship between outsourcers and outsourcing partners can have many facets. A relationship where significant aspects of performance are to be measured using intangible criteria requires a cooperative or partnership relationship (Beaumont & Sohal, 2004; Bourbeau, 2004; Burdon, 2004 and Lin, Pervan & McDermid, 2007). Telstra with its complexity of IT systems, processes and procedures required all levels of the organisation to share the responsibility for making the relationships work. Benefits that could be gained by outsourcing were:

 forcing strategic thinking for an end-to-end process; and

 providing clear reporting and costing for this process.

However, outsourcing also required the introduction of additional layers of management between the business and the IT functions. Telstra attempted to use

outsourcing as a tool to control or stifle spending on IT (refer Appendix F, Table 19). The benefits of outsourcing, such as a competitive advantage and cost savings,-may be negated by other effects of outsourcing, such as rigid processes (refer Appendix F, Table F19), the loss of intellectual knowledge and longer lead times.

Outsourcing was seen by Telstra management as critical in controlling costs within the individual business units of Telstra. However, business units themselves questioned the true costs and cost savings involved. The quality of service provided by the outsourcing partner was also identified as a concern (refer Appendix F, Table F19).