1.2 Organizational forms and GSW

1.2 Organizational forms and GSW

Globalization is a key characteristic of change in many domains at the turn of the twenty- first century. The most visible aspects of globalization have been a bewildering collage of transformations “ increasing religious fundamentalism coexisting with greater secular human concern, development of centres of advanced technology amid regions of poverty and interconnectedness of systems and regions in ways that did not exist before. International business environments and organizational forms are being significantly reshaped as part of a new scenario that has variously been labelled as the ˜new economy , the ˜digital economy, the ˜network society , or the ˜information age . In these new environments, changes are especially visible in the kind of organizational forms being adopted to enable global work. A distinctive and defining aspect of these new forms is the manner in which space and time have become the primary medium through which to rethink the nature of the organization (Friedland and Boden 1997). An example of one such new organizational form is the ˜Global Software Alliance (GSA), a term we use to describe the nature of organizations established to enable GSW.

A GSA can be conceptualized as a relatively long-term inter-organizational relationship established between the outsourcing organization (the outcomes ) and the outsourced organization (the contractor) based in different countries to enable software development in both real time and asynchronous time. This development occurs primarily in shared electronic domains with developers being located in the physical premises of their respective organizations (referred to as ˜offshore ). The opening vegnette demonstrates a case of offshore programming and emphasizes the additional dimensions of managing projects across distance, time, language and culture. Offshore arrangements contrast with earlier ˜body-shopping (see below) where programmers from the outsourced firm carried out development while being physically located in the outsourcing organization (referred to as ˜on-site ). Taking advantage of the increasing sophistication and capacity of telecommunication links and relatively lower labour costs in the outsourced organization, work in GSAs is done primarily in electronic spaces created through the use of information and communication technologies (ICTs) such as videoconference and email. While the physical travel of personnel between the vendor and contracting organizations can never be completely eliminated, the ongoing quest of both sides is to optimize costs by minimizing travel and finding the appropriate blend between on-site and offshore development. As GSAs seek to find synergies between remote and face-to-face work, time, space, organizational and national boundaries are recombined in novel ways where the experience of ˜here and ˜now loses its immediate spatio-temporal referents and becomes tied to and contingent on actors and actions at a distance.

Historically, the fortunes of firms in developing countries were seen as tied to the fortunes of those in the developed world. Our research into GSW provides some examples of firms in the developed world whose own fortunes are tied with equal potency to those in the developing world. Prior to GSW arrangements being possible, global work was primarily conducted by large organizations by virtue of their substantial direct investment transcending national borders. Based on their theory of a strategic mentality , Bartlett and Ghoshal (2000) categorized such firms as being international , multinational , global or transnational . At one end of the spectrum are international organizations that use their overseas operations in a marginal way, for example, simply to supply raw materials and marketing contacts to the parent company. At the other end, transnational organizations seek to integrate overseas operations more fundamentally by developing global efficiencies while also creating locally responsive approaches. In between, there is the multinational corporation (MNC) which takes a flexible approach by modifying its practices and products across countries. Managers of transnational organizations adopt a global outlook and seek to develop standardized approaches based on the assumption that there are more similarities than differences across countries. In centralized global companies, foreign units are dependent on headquarters for funds and expertise, but the transnational selectively centralizes some resources at home and some abroad in keeping with the need to respond flexibly to different issues. The transnational corporation is characterized not by structure alone but by formal organization, information systems (IS), culture and values.

Although the Bartlett and Ghoshal typology may still hold in the categorization of different kinds of software firms doing work globally, what is interesting is that these firms are quite different from those that have traditionally operated internationally. Size and ability of the firm to make large-scale investments on infrastructure are no longer terminally limiting factors in whether or not they can undertake GSW. Rapid upgrades in information and communication technologies (ICTs) have reduced the cost of communication and increased the scope of operations so that relatively small companies can potentially have business relationships and can address markets in different geographical domains. Some firms, particularly in such sectors as software, web development and other new media supported by networked and shared IT infrastructures , are capable of competing with larger companies in the global marketplace . Being an Indian or Russian firm is less of a perceived disadvantage and such firms are in fact sometimes actively sought by larger ones by virtue of the knowledge capital they hold, the cost advantages they offer and the potential they provide to serve as a basis to access new markets. Along with large IT companies such as IBM and Microsoft there are many examples of firms who despite being small, are ˜born global and are capable of operating in a multitude of domains and countries (Saxenian 2001).

Saxenian argues that today new transportation and communication technologies permit even the smallest firms to build partnerships with foreign producers and tap overseas expertise, cost savings and markets. Start-ups in Silicon Valley today are of ten global actors ˜from the day they begin their operations (2001: 5). This multiplicity of networks in which these firms operate makes it difficult to categorize them on single dimensions of domains of work or countries of operations. They are better understood on their ability to develop and sustain networks that enable the flows of information, expertise, knowledge, and capital. Networks allow these firms to switch rapidly between local and global domains and build competence in different functional areas and markets. For example, Arrk, a small UK-based software house located in the University of Manchester Science Park employing only forty people, has the majority of its programmers in India and an international portfolio of customers. Cisco Systems has defined its core competence as product innovation, marketing/customer service and business relationship management. It delegates the rest, such as manufacturing assembly and product configuration, to its partners .

In operating these multiple networks, software firms deal not only with the strategic issues of whether or not and where they should globalize , but also with day-to-day operational issues including the creation of infrastructure, defining management processes and developing language and cultural understanding. Global projects have independent, autonomous links, and modules of work are distributed and coordinated using ICTs across wide physical and cultural distances. ICTs help both to intensify and redefine the nature of interactions across these different nodes which are not only confined to large organizations but also take place at the level of small firms and work teams. For reasons of geography and history, such as physical separation of different units and limited prior relationships of partners, these networks can comprise multiple short- lived global software teams (Carmel 1999). This is fundamentally different from firms composed of relatively autonomous units located in several countries as described by Bartlett and Ghoshal. However, the GSA relationship between the outsourcing and outsourced firms can take on different forms including joint ventures (JVs), vendor contract relationships and fully owned subsidiaries. New relationship models are also emerging: broker companies, for example, build databases of users and providers of outsourcing services and match firms based on predefined criteria. Some of these broker firms try to give more value than mere matching and provide project management services once the relationship is established. Another example is the ˜hub model where, for example, a Japanese firm may use its Singapore subsidiary through which to outsource to India. This model is used in an attempt to cost effectively and bridge some of the language, cultural and infrastructural gaps that would exist if work were carried out in India.

The organizational model adopted directly influences the pricing basis, that can vary from ˜time and materials to ˜turnkey or ˜fixed price . While in a time and material model development is priced on the programmers time spent, in the other two cases, the basis is the estimated value of the whole project. The basis adopted has significant implications for intellectual property (IP) issues and the project control measures that need to be adopted. Where commitment in the relationship is not long term, and the aim is not to contract out new and core technologies, vendor contracts rather than JVs and subsidiary arrangements might be preferred. Relationships operate over different levels of a trust continuum (Heeks 1995) that is shaped by various considerations, including the length of the relationship, the kind of projects being done, the material investments made by both parties and the management capabilities to deal with the complexities of time, space and cultural distance. As the level of trust deepens, higher-end work can potentially be contracted out because of the increased level of confidence on both sides that work can be carried out effectively at a distance.

In summary, we have noted at least three distinctive aspects of GSAs:

  • The manner in which different units of the network are physically separated and electronically coordinated across time, space and cultural boundaries.

  • The ability to enter into GSAs is no longer restricted to large firms with the inherent capacity to make financial investments, but is also populated with small and innovative ˜born global firms driven by technology, ambition , intellectual capital and cost advantages.

  • There is a central role for ICTs , for coordinating activities across different work units and for defining the content of work. Interdependent work requires the outsourcing and outsourced firms to be linked together by much higher bandwidth than that required for more stand-alone projects. While these ICTs help facilitate effective coordination and communication, they come with their own challenges related to access, compatibility, protocols and standards and issues of power and control.

We build on these themes in the next section.