Governance of Outsourcing Projects

Although the outsourcing industry has demonstrated impressive growth during the past few years, some outsourcing relationships have yielded poor results, and some have even been terminated early. Both the professional press and academic publications have identified poor governance as a primary factor in these outcomes. For our purposes governance can be defined as specifying and enacting the decision rights and accountability framework that encourages desirable behaviour when outsourcing IT and business services (Willcocks, Global business: Management. SB Publishing, 2021a; Journal of Information Technology, 36(2), 188–194, 2021b). After looking at 881 global companies, Joshi et al. (Decision Support Systems, 153, 113668, 2022) report that firms with IT governance processing capability, specifically the ability to identify, design, implement, and leverage IT decision-making, IT planning, IT infrastructure modernisation, IT service delivery, and IT monitoring, can significantly improve IT performance, and ultimately enhance business performance. This underpins the long-standing finding of Weill and Ross (IT governance. Harvard Business Press, 2004) that firms with superior IT governance have more than 25% higher profits than firms with poor governance, given the same strategic objectives. Recent research confirms this to be the case for modes of outsourcing governance as well (Lioliou & Willcocks, Global outsourcing discourse: Exploring modes of IT governance. Palgrave Macmillan, 2019; Oshri et al., Journal of Management of Information Systems, 36(4), 1248–1283, 2019; Krancher et al., Journal of the Association of Information Systems, 21(1), 2022). One interesting dimension is that contracting for steady state delivery of services versus innovation requires different governance arrangements and relationships (Oshri et al., Relational and contractual governance for innovation. In L. Willcocks, I. Oshri, & J. Kotlarsky (Eds.), Dynamic innovation in outsourcing. Palgrave Macmillan, 2018). Another is that governance through strong relationships may take time to build and might not be a good way to start contracting for outsourcing (Lioliou & Willcocks, Global outsourcing discourse: Exploring modes of IT governance. Palgrave Macmillan, 2019). A further dimension is whether the structure of the client organisation is centralised, federal, or decentralised. In this respect, Weill and Ross (IT governance. Harvard Business Press, 2004) found that if profit is the strategic goal, then a centralised governance structure is most effective. With an asset utilisation target, then a blended structure is better, while if looking for growth, a business should adopt a more decentralised governance structure. Outsourcing governance works best when it mirrors organisational structure (Miranda & Kavan, Moments of governance in IS outsourcing: Conceptualising effects of contracts on value capture and creation. In L. Willcocks, M. Lacity, & C. Sauer (Eds.), Outsourcing and offshoring business services. Palgrave Macmillan, 2017; Lioliou & Willcocks, Global outsourcing discourse: Exploring modes of IT governance. Palgrave Macmillan, 2019). The inexorable trend towards cloud sourcing—according to a 2022 MarketsandMarkets report, the cloud computing market is expected to grow from US$148.8 billion in 2019 to US$246.8 billion by 2023—is bringing additional governance factors into play (see Chap. 3 ). Our focus in this chapter is therefore understanding governance issues related to traditional outsourcing and the practices that support formal structures. In particular, we review the following issues: The governing structures for outsourcing ventures The roles involved in governing outsourcing relationships The most effective governance practices for outsourcing relationships.