Term Paper on "Cross-Cultural Differences Risks of Outsourcing"

Term Paper 9 pages (4111 words) Sources: 9

[EXCERPT] . . . .

Cross-Cultural Differences (Risks of Outsourcing)

What has played the role of an important foundation in seeking to identify the driving forces behind the success of offshore IS project is the agency theory. As a result, the contribution of relational concepts in leading the project towards success has not been given much attention in text books and literature. Thus, this analysis attempts to deal with the gap by bringing together the literature on culture along with the "social embeddedness" standpoint to relate the reasons and the process of how the relational elements have an impact on the longevity and productivity of offshore information system projects that are quite critical by their nature (Rai, Maruping and Venkatesh, 2009).

This paper outlines cultural variations that are both interpersonal and organizational in nature as examples of critical success factors. Employing information that was gathered from a longitudinal field research of over a hundred and fifty offshore information system projects administrated by over twenty project managers, it was revealed that a connection exists between the two ways of measuring success of offshore IS projects and the conceptualized relational elements. The two measures of success for the offshore IS projects are customer satisfaction and project cost excesses. The relationship between the two went beyond the impact of the characteristics of the project and the factors underlying the agency theory (Rai, Maruping and Venkatesh, 2009).

In the study conducted by Rai, Maruping and Venkatesh (2009) it was revealed particularly that a smooth flow of information, collective problem solving and collaborations that give rise to trust decrease instances of cost excesses and enhance the contentment of customers. A connection between the cultural variations at both the collective and organizational level was revealed with the success of offshore information system project. The paradigm went on to account for approximately forty percent of the differences in the two measures. This was for projects that were represented by a client (Rai, Maruping and Venkatesh, 2009).

The model only accounted for around thirty five to thirty seven percent of the costs excesses and customer contentment for projects that had no client representation. Together, the findings have essential conceptual and pragmatic implications in terms of managing the relationship between customer and vendor when working together with outsourcing organizations and coming up with project teams for offshore information systems (Rai, Maruping and Venkatesh, 2009).

The analysis revolves around the outsourcing of development projects that are centered on information systems. The process entails the development project being off-shored by the organization of a client to the vendor organization, which is situated in a different country (Carmel and Agarwal 2002 as cited in Rai, Maruping and Venkatesh, 2009; Gopal et al. 2002 as cited in Rai, Maruping and Venkatesh, 2009). Two of the biggest hubs for outsourced it jobs have come to be India and China. What further adds to their status is that the populations of both the countries are increasing promising human capital in the field of information technology for the future as well as supplying enough for the present (Friedman 2005 as cited in Rai, Maruping and Venkatesh, 2009).

What is of even more interest is that the outsourcing of tasks related to IS development in these countries continue to gain speed as an increasing number of organizations aspire and work towards reducing their costs related to the project. The costs that they are striving to reduce are not confined to the routine, transaction-centric systems but also incorporate complicated systems of a strategic nature (Carmel and Agarwal 2002 as cited in Rai, Maruping and Venkatesh, 2009).

This increasing emphasis and move towards outsourcing had led to a yearly growth percent of twenty and it has been approximated that over seventeen billion dollars have been spent on off-shored IS development projects in India (Thibodeau 2005 as cited in Rai, Maruping and Venkatesh, 2009). It is also predicted that the outsourcing industry of the country alone will touch the sixty billion dollar mark by the end of the year 2010 (Ribeiro 2005 as cited in Rai, Maruping and Venkatesh, 2009).

The increasing attention of overseas countries to offshoring has resulted from an increasing demand to reduce labor costs. However this is not the only reason and other factors that have led to the triggering of outsourcing decisions include the "Six Sigma quality control systems" and "Level-5 Capability Maturity Model (CMM) certifications" along with other process capabilities (Kaiser and Hawk 2004 as cited in Rai, Maruping and Venkatesh, 2009).

Even though there are a number of possible benefits that can be derived from outsourcing projects related to the development of information system, there also exists certain challenges that do not render outsourcing the best solution to every problem. Even after following suggestions related to the appropriate outsourcing of tasks given by the agency theory, a number of organizations and corporations have claimed that they still experienced cost excesses in their activities and went ahead of their budgeted time and costs when their projects were outsourced.

A closer examination of projects that were not successful when outsourced, were further investigated and finally led to the revelation that they were unsuccessful because of relational factors. Relational factors include such things as miscommunication between the client-vendor organizations because of the cultural variations. These, in turn contribute to the increase in costs and hamper customer satisfaction (Bertch 2003 as cited in Rai, Maruping and Venkatesh, 2009; Krishna et al. 2004 as cited in Rai, Maruping and Venkatesh, 2009; Sahay et al. 2003 as cited in Rai, Maruping and Venkatesh, 2009).

The challenges translate into various substantial implications for the organization, particularly when the projects are strategic and unique by nature and have an intricate scope, provided that projects like these need to make use of the integration of underlying information over the setting of customer and vendor organizations (Nicholson and Sahay 2004 as cited in Rai, Maruping and Venkatesh, 2009). The type of the interaction in the process of exchange between the two organizations is characterized by relational factors. These factors can have a substantial effect on the transfer and bringing together of the respective information (Uzzi, 1997 as cited in Rai, Maruping and Venkatesh, 2009) that is important for the success of outsourced tasks related to IS development. Thus, the task that remains is of comprehending the contribution of relational factors in affecting the success of the important outsourced IS projects after considering the strategic and intricate nature of the respective projects and the challenges to be faced (Rai, Maruping and Venkatesh, 2009).

Looking through a conceptual standpoint, considerable advancements have been carried on about how to administrate and deal with outsourced information system projects, mainly by considering and reviewing the literature present on the subject that has assessed the factors related to the agency theory. These factors also included the contracts, both official and psychological as well as the details of the characteristics of the project (e.g., Banerjee and Duflo 2000 as cited in Rai, Maruping and Venkatesh, 2009; Choudhury and Sabherwal 2003 as cited in Rai, Maruping and Venkatesh, 2009; Gopal et al. 2003 as cited in Rai, Maruping and Venkatesh, 2009; Koh et al. 2004 as cited in Rai, Maruping and Venkatesh, 2009; Nidumolu and Subramani 2003 as cited in Rai, Maruping and Venkatesh, 2009).

The respective analysis offers substantial backing about the fact that official and structured systems of controls, services and characteristics of the project have an effect on the viability of outsourced information system projects. Nevertheless, agency theory does have some limitation when it comes to its power of explanation. It confines the focus of the researcher or the organization to the incentives of people acting in their own self-interest and to structured paradigms that protect those behaviors (Dyer and Singh 1998 as cited in Rai, Maruping and Venkatesh, 2009; Uzzi 1997 as cited in Rai, Maruping and Venkatesh, 2009). It also is not very direct in dealing the relational components of inter-organizational affairs.

The outsourcing of projects related to the development of information system entail that team working in the organizations be of a certain level so that effective collaboration can be carried out to bring together specialized and implicit information spread over the setting of the organization and the existing culture (Koh et al. 2004 as cited in Rai, Maruping and Venkatesh, 2009; Nicholson and Sahay 2004 as cited in Rai, Maruping and Venkatesh, 2009).

The social embeddedness standpoint, in these situations puts forth that the framework of the exchange has a considerable effect on economic decisions (Uzzi 1997 as cited in Rai, Maruping and Venkatesh, 2009). The primary point to note here is that the unlike atomistic fair exchanges, the embedded relations depict mutual standards and principles, decrease the use for managing and keep a check and provide support to the exchange of information as well as to the bringing together of specialized information and competencies.

The financial implications of social embeddeness are forecasted to be particularly essential in a setting like that of an important information system project development… READ MORE

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