Managing Risks in Business Critical Outsourcing : A Perspective from the Outsourcer and the Supplier

Abstract: Companies are increasingly outsourcing business critical activities to suppliers of outsourcing services. As the complexity and business  criticality of the outsourced activities increases, the risk of poor performance increases. This thesis studies large scale outsourcing in the telecom industry where a recent trend is to transfer the development, operation and maintenance of the telecom infrastructure to telecom equipment suppliers. The significance of this type of outsourcing is that the outsourced activity is the revenue generating part of the telecom operators business.Part 1 discusses the purpose and research questions followed by the theoretical underpinning in the research. The research strategy is to study the outsourcing relationship in three distinct stages of its development and the theoretical underpinning applies transaction costs analysis in the Scoping & Search stage and Das &Teng’s (2001) framework of trust and control for managing risks in the Negotiation and Transition stages. This design is in response to calls for a more detailed understanding of how organizations manage risks, it therefore takes the perspective of both the outsourcer and the supplier in the research.Part 2 is a multiple case study of telecom operators in Holland, Sweden and Australia where the supplier in all three cases is Ericsson Global Services organization. The study is further supplemented by mini-cases of large scale IS/IT infrastructure outsourcing.Part 3 has three main parts. Firstly, a cross case analysis of the cases in Part 2; secondly, a discussion of the findings linked to the research questions resulting in a set of propositions. The third and final part covers additional insights and learnings from studying business critical outsourcing and suggestions for further research.The main contributions in the research can be summarised as:Physical asset specificity follows transaction costs logic, however human asset specificity is largely ignored by both outsourcer and supplierBusiness critical outsourcing by its nature faces a limited market for capable suppliers. This results in single-source negotiations followed by a cooperative stance and open book negotiations.Das & Teng’s (2001) framework for management of risks has been found to have specific directions, some bi-directional and others uni-directional. Furthermore, different dimensions in the framework operate at different managerial levels. Goodwill trust-building operate at the corporate executive level, competence trust-building, output and behavioural control at the level of the negotiation team, and the research indicates that the social control dimension is not applied in business critical outsourcing negotiations.A further finding is that goodwill trust-building precedes all other dimensions of trust and control, and is a pre-requisite for establishing a cooperative stance in the negotiations.