Session Information:

Exploring the role of Organizational Competencies in Information Technology Outsourcing: A Holistic Case Study on Decision-making for Outsourcing of Cloud-based Services

Explore the decision-making process and particularly the criteria used by executive decision-makers for identifying and selecting organizational competencies when engaging in ITO for cloud-based services.

Executive decision-makers are not always able to anticipate and fully understand the implications of their ITO decisions for the long-term processes, capabilities, and performance of the organization.

Executive decision-makers face difficulties distinguishing between organizational core and noncore activities and competencies, and find it problematic to identify an outsourcing provider (vendor) with suitable resources, competencies, and capabilities as well as to establish an effective outsourcing agreement or relationship.

Although extensive research exists on ITO decision-making, there is limited research specific to ITO decisions for cloud-based services and implications for the long-term processes, capabilities, and performance of organizations.

Takeaways include:

• The selection of organizational competencies to target for ITO for cloud-based services is based on the need to fulfill application, security, regulatory, or compliance requirements; to fill a gap; and/or to increase capabilities not found within the organization.
• Organizational competencies selected to outsource to the cloud are not core to the business, and are identified through a process of either intuitively understanding the gap or using the expertise of an external vendor.
• Decision models used for selecting organizational competencies for ITO for cloud-based services include a combination of formal decision models and common sense or intuition.
• Redeploying internal resources to develop new products and services and to increase speed to market is a key outcome anticipated from ITO for cloud-based services.
• There is a need to create contingencies for cloud-based outsourcing solutions, though those contingency plans vary based on the ITO strategy. 
• Security and risk management oversight to protect sensitive data and to ensure data privacy and security when engaging in ITO using cloud-based services is important. 

Session Transcript:

Hi and good day everyone, I'm Dr. Marlene I'm the vice president of centralized services for Ricoh USA. I'm so glad you can join me today for this session on exploring the role of organizational competencies in information technology outsourcing.

It's a holistic case study on decision making for outsourcing of cloud-based services so i'm going to go ahead and share my presentation with you and we'll get right to it terrific so before i get into our presentation today I'd like to tell you a little bit about Ricoh. It is an information management and digital services company traditionally we were thought of as a printer or a hardware based company but we're really transforming into the digital age today and around the world.

We serve approximately 1.4 million businesses and really for us it's about connecting processes and technology and helping people work smarter and making data accessible to people faster and with more insight than ever before so last year I had the opportunity to publish research on outsourcing to the cloud and how executive decision makers make those decisions in terms of identifying core and non-core competencies during that process.

So we first had to define the business problem which was how do executive decision makers anticipate and really truly understand the implications of their i.t outsourcing decisions as it relates to the long-term processes their organizational capabilities and the performance of their organization and so the purpose was to really take a real close look at the decision-making processes and really how do executives and those executive decision makers use criteria to identify and select what competencies for their organization to outsource.

When engaging in that process for cloud-based services so we had to really ask the question how do executive decision makers describe that process and how do they follow that process to identify and select those competencies for consideration as part of that IT outsourcing engagement when it when when outsourcing to the cloud well we had to break down the research questions.

The first research question was not only to describe the criteria for selecting those competencies as they outsource to the cloud but as the second part is what are the what's the methodology that they use how do they how do they anticipate those long-term impacts how do they how do they know what impact their decisions have on their processes on the organizational capabilities and on the performance of their teams and then how did they think about or what did they observe.

When um when they actually outsourced the cloud and then how did that outsourcing uh differ in terms of the impact to what they expected to happen then to what actually happened when they went through the outsourcing engagement and process so to break it down.

What we found was selecting the organizational competencies is really based on the need for more security or to address regulatory or compliance requirements maybe to fill a gap for application support and increase the capabilities that they just didn't have within their organization and their team and then the competencies that they selected were not core to their business meaning this isn't this isn't their secret sauce this isn't what they were really good at these.

Were competencies that could be found outside of their company and it didn't lead to actually having to create um or or develop new uh products and new services and then the decision models that were used were a little bit of intuition and a little bit of common sense um a little bit of of formal models and so it really was a combination of that sort of formalized um review of all the data along with hey i kind of feel like or this kind of i know this or my experience tells me and then these executive decision makers as part of that IT outsourcing were able to redeploy their internal resources and as a key outcome.

Which was anticipated as part of that process and then certainly they found that was a need to create contingencies um when outsourcing to the cloud for their solutions so as we continue going through the summary of findings we also noticed that there were security and risk management that needed to be accounted for that some of the participants felt that what they anticipated as an outcome was actually different and it resulted in a negative experience for them and certainly communication was key effective communication with the outsourcing provider was found as an outcome and it's not just i mean it sounds so obvious but it goes deeper than that around how they communicated what the expectations were how often they had a conversation.

What was also interesting is the previous experience the outsourcing to the cloud and the more experience you had the more successful your subsequent engagements were we found that when people were inexperienced not just outsourcing in general but outsourcing to the cloud it was more likely to have a failure or to have a more of a challenge when actually engaging in that that experience but the more they did it the more successful subsequent engagements were and the amount of vendor management is usually underestimated.

So that goes back to the communication with the outsourcing vendor and setting those expectations it's also around setting the expectations on how you manage the vendor and how much time is needed on your side to manage the vendor and then certainly the knowledge transfer to that outsourcer took much longer than was expected or anticipated.

So the expected outcome was certainly a reduction of total cost right that that was the main driver that people found was reducing their costs to provide a service but then they also found there were unexpected costs in other areas and that they're using outsourcing to the cloud to increase their speed to market but the lack of those resources provided by the outsourcing provider had a negative impact to move their daily operational tasks.

So what they meant was when they couldn't find um quality quality people quality resources on the outsourcing provider especially for specific tasks that were key to the engagement they weren't able to move those operational tasks to the provider and so there were subsequent delays to additional work that needed to be accomplished and then the processes that worked before didn't work after they moved to the cloud it's not a one-to-one transfer.

So there was work that needed to take place to create new processes or to adjust existing processes in order to make them work once it was moved to the cloud so there were some unexpected findings and there were two major differences in these unexpected findings one was that there was a difference between male and female participants in their perception of the outcome for their i.t outsourcing engagement and then the second one was that there were financial model implications for it outsourcing to cloud-based services so here's the example for the financial piece is that normally when you have a say a data center or a large implementation.

Let's use servers as an example in that data center it's generally a capital expense when you move to the cloud that capital expense changes to an operating expense and there were a number of engagements that just didn't anticipate that change and then there were contrasting perspectives based on gender for an i.t outsourcing engagement we found that females actually perceive their i.t outsourcing engagement not as successfully as their male counterparts regardless of the outcome meaning that if you looked at all of the outcomes for IT outsourcing engagements and they were all equal the females perceived the results of their IT outsourcing engagement as less successful.

I think that would be an interesting area to pursue as a study so how did it contribute to the business problem that we specified initially well we know that executive decision makers use their intuition and understand those competencies that make their organization successful they also know that those core competencies shouldn't be outsourced and these executive decision makers target the use of the cloud to either build up internal competencies that they already have or add new competencies that they don't have but yet are needed to make themselves successful and competitive in their business landscape executive decision makers though in U.S. based multinational corporations can't really articulate well or clearly define the methods.

That they use to make those decisions or how they select those organizational competencies as part of those IT outsourcing engagements to the cloud so while these executive decision makers use methods and data and this is what this is what we were told but the research shows that it's really more intuition-based it's more based on feeling and it's more based on understanding their organizations and what would work well both adding from a competency perspective to their organization as well as moving from a competency perspective to the cloud retaining in-house knowledge and ensuring that internal resources function as subject matter experts held a key strategic advantage and that had implications on the long-term impact of those decisions to outsource to the cloud for these organizations.

That executive decision makers not only need to plan and anticipate the need to develop those clear objectives and deliverables but they have to focus on that organizational alignment and communication between themselves and the outsourced provider to have an effective outsourcing engagement so in conclusion by being able to identify that gap in competencies.

Whether it's competencies that are needed or competencies that they have and they want to move they use the cloud to strengthen or add and that helps these companies remain competitive decision makers as are able to use their intuition to identify those non-core competencies and we're talking about operational competencies architecture design simple sales management and even supporting corporate systems can be targeted very easily for cloud outsourcing and then identifying those competencies to outsource is really informal.

There's formal processes such as multi-criteria decision making to select externally for the cloud-based service provider but they can't articulate and define the decision-making criteria that they use to select the competencies to consider as the ITO engagement and then more experienced executive decision makers have with outsourcing and we said this a little earlier the more successful that engagement will be so i appreciate you spending a few minutes with me today and I'd love to hear your questions and i want to thank you for attending uh my session today.

I do have some research i have my fully published uh information that you can find out on the web as well as my email address but thank you again for attending I appreciate your time today.

Thank you.