Chapter 11: Managerial Implications


Chapter 11: Managerial Implications

11.1 Introduction

This chapter is concerned with developing implications to aid managers currently engaged in establishing, managing and strengthening GSA relationships. Our aim is to develop implications that are grounded in rich empirical data that has been subjected to rigorous theoretically informed analysis of ˜how the GSA process evolves over time . This analysis develops relevant management implications around the six analytical themes discussed so far: standardization, identity, space and place, knowledge transfer, power and control and communication. The theoretical and empirical basis of the analysis helps us to transcend providing mere prescriptions and ˜how-to-do-it guides for GSA management and instead, develop a set of questions around key tensions that managers can analyse in the process of managing GSAs.

The GSA literature has a number of examples of prescriptions for management (see for instance Apte 1990; Apte and Mason 1995; Rajkumar and Mani 2001; Karolak 1998; Carmel 1999). For example, the rule to ˜outsource only structured tasks may work in certain situations but this is not always the case. Such rules, while useful in sensitizing managers to issues of importance for managing GSAs, are limited in the face of the complexity of the unfolding process over time, which makes it difficult to apply ˜best practices or ˜universal methodologies . Prescriptive rule-based approaches tend to downplay the local and contingent situation in favour of broad generalizations and ignore the possibility that what worked well in one relationship may cause problems in another. In the Eron “Gowing case (chapter 8) the perceived deference and compliance of Indian developers was a key element of Gowing s strategy, while the same traits were seen as a major problem in Sierra. While North American clients tend to favour outsourcing of highly structured work, we found the Japanese firms to be more willing to venture into relatively unstructured and new-technology domains. Thus the inter- case comparisons we conducted help to emphasize how varying contextual conditions can shape relationships differently.

While technological advances in telecommunications and in the use of various software development methodologies imply the normalization of global sourcing of IT services, effective management strategies are far from being a given. The tremendous complexity of the environment forces us to look at aspects of control and risk associated with GSA relationships quite differently in comparison to traditional businesses. We have tried to develop such a reconceptualization in analysis through the metaphors of the ˜runaway world (Giddens 1990), ˜risk society (Beck 1992) and ˜network society (Castells 1996). These metaphors, while helping to theorize about the influence of globalization processes that cause turbulence and complexity in GSAs, are also extremely useful in developing practical implications. Placing GSAs within the context of globalization has a direct implication in emphasizing the need for managers to acknowledge the extreme complexity and turbulence of the context in which they operate and that changes and surprises in the relationship are the norm rather than the exception. As a result, managers have first and foremost to acknowledge the ˜ out-of-control nature of their task and the futility of attempting to build tightly controlled and predictable environments. We summarize in table 11.1 some key implications for management that arise from the three metaphors discussed above.

Table 11.1: Key implications for GSA management

Metaphor

Implications

Out of control

Complex, volatile nature of GSA environment

Risk

Problem of risk redistribution, assessment, control and management in a situation of change

Networks

Evolving options and tensions can be understood with a network perspective

This ˜out-of-control aspect is emphasized by Hutton and Giddens (2001) who describe contemporary life as being ˜on the edge . Macro-level changes as a result of inter- connected economic, political and other global processes have direct implications for firms and individuals engaged in the GSA domain. Examples abound of these macro-level changes and their impact on GSAs. The significant downturn of the global economy and the IT industry in particular in 2001 led to the ˜benching of large numbers of programmers in India. The entry of China into the WTO in 2001 can only stimulate new avenues for outsourcing. Faced with this new competition and the need ˜not to put all their eggs in the US basket , supplier firms in India and elsewhere have actively begun to explore new European markets such as Germany, Italy and Scandinavia, while also trying to establish their own software development centres in China and Vietnam where labour costs are relatively cheaper than India. The devastating 11 September terrorist attacks on New York have introduced new risks with the tightening up of immigration policies. This will directly impact on GSA strategies that depend on the free movement of developers across global borders. The extremely fragile political and military situation existing between India and Pakistan raises serious doubts among potential and existing GSA customers about continuing or entering into new GSA arrangements in India. The birth of the Euro and the combined efforts of the European Union to deal with IT skills shortages will no doubt become an important factor for developers to consider when they make a choice of whether they should go to North America to find employment. Changes in the technological and business context open up new challenges and also opportunities for GSAs; for example Sierra (described in chapter 7), because of wider global business trends (toward e-commerce), decided that offshore development in India was no longer viable for them. But as a result of this decision the Indian developers were relocated to the other Sierra offices (in London, San Francisco and New York), which no doubt led to other unknown opportunities (of working with new technologies) and risks (of potentially being ˜benched in a downturn).

These rapid environmental changes have direct implications for the networks and business models adopted by firms for GSAs. Offshore software services were once the sweatshop of the IT industry for low-cost programming and data processing. This is no longer the case and current global outsourcing trends include applications service provision (ASP), enterprise resource planning systems (ERP), as well as a range of business process outsourcing (BPO) services. GSA is no longer just concerned with developed countries moving work to developing countries for cost savings but with securing opportunities in a diverse and thriving global services industry. In India, ASP and BPO trends are likely to display a similar value chain trajectory to the software industry. The more mature Indian software outsourcing companies expect to continue to move up the value chain by localizing their services in new countries and markets and also by entering into JV arrangements with foreign consulting firms. India s Mastek, for instance, entered into such an arrangement with Deloitte Consulting in 2001 with a view to expanding Mastek s technological strengths with domain expertise in customer businesses. Existing strategic business models of GSA options need to be reconsidered in the light of the potential for localization of firms in new countries and the establishment of new kinds of business relationships.

In chapter 1, we discussed the influence of global trends, organizational forms and the nature of GSW itself on the progress of a GSA relationship. Planning and implementing strategic directions for GSA is problematic , as environmental turbulence continuously creates the need to make sense of benefits and risks. The benefits of GSAs shown in the GlobTel and Gowing cases lay in flexibility, skills and resource availability. Strategies aimed at obtaining cost savings alone can be disappointing because of the significant hidden management costs. Royal Sun Alliance conducted trials and concluded that the average saving was 30 “35 per cent with 10 “12 per cent expenses in intangible costs of management time spent on control ( Computer Weekly , 16 “17 May 2001). Agency fees, handover costs, rising salary bills and cost of communications links rapidly eat into expected savings. The future success of GSAs may lie with those companies that do not only have cost saving objectives, but with those who also have other strategic objectives such as new markets or technology development.

A network perspective on GSA permits consideration of various possible relation- ship forms and multiple suppliers in different countries (Faulkner and Child 1998). The cases show a range of GSA approaches based on a single sourcing (Gowing and Sierra) or multiple sourcing strategy (GlobTel), all involving India. Adopting a network perspective emphasizes that other countries also need to be assessed based on technical specialism, costs, market potential and maturity of the industry. Assessment of risk needs to take into account cost savings, language, distance, infrastructure, available incentives and political stability. These are difficult to reduce to a list of factors that can be quantitatively modelled. The risks faced by GlobTel s GSA are very different to those faced by a small company like Sierra because of the very different scales of operation. Multinationals such as Microsoft are actively courted by states in India (such as Andhra Pradesh) and have the size and financial muscle to overcome some of the contextual variables so troubling to Sierra.

The cases also show a range of relationship types, from the wholly owned subsidiary (Sierra), to ˜vendor-contract relationships (GlobTel), to third-party outsourcing (Gowing). These different organizational forms, as discussed in chapter 1, have varying implications for risks, such as that relating to IP ownership. To try and mediate these risks a range of middlemen and brokers has emerged acting as bridges between onshore and offshore in setting up arrangements or incubating offshore subsidiaries. The ˜nearsourcing option opens up another whole new range of possibilities of outsourcing to firms in Mexico, the Caribbean and even Canada. These different possibilities heighten the need to look at GSAs with a ˜networked perspective and evaluate the possibilities and risks that result.

Keychallenges in the management of GSAs can thus be encapsulated in the metaphors of ˜out of control , ˜risk and ˜networks . While ˜out of control refers to the futility of implementing tightly controlled operations in such a turbulent evolving environment, ˜risks refer to the multi-level challenges that arise as a result of the new forms of GSAs and associated technologies. The network approach to the ongoing strategic planning of GSA emphasizes the need to make simultaneous sense of the range of evolving business relationships and services available globally.

We now discuss the specific management implications of GSA, not with a view to prescribing ˜recipes for management but to identify particular areas that are dynamic and subject to processual tensions. We formulate five questions around the thematic areas discussed earlier to provide a frame of reference for critical reflection on the key challenges in managing GSA relationships:

  • Managing knowledge : How can knowledge be managed across time, space and culture in an effective manner?

  • Managing people : How can managers attract , retain and motivate their workforce in the light of global demand for scarce human resources?

  • Managing communication : How can communication practices be managed effectively?

  • Managing relationships : How can relationships be initiated, fostered and sustained over time?

And last but not least:

  • Managing ethically : How can managers engage in GSAs in an ethical manner?

The remainder of the chapter is organized around these questions separated into our thematic areas. For each question, we present an overview of the thematic area together with the key challenges and issues illustrated with examples. Finally, we present a summary of the questions that managers may ask in relation to unpacking the complexities of specific GSA situations that will help them to develop creative responses.