STRATEGIC FACTORS ENABLING EFFECTIVE OFFSHORE RELATIONSHIPS OF SRI LANKAN IT CONSULTING & OUTSOURCING COMPANIES; A MODEL FROM THE VENDOR PERSPECTIVE MASTER OF BUSINESS ADMINISTRATION IN INFORMATION TECHNOLOGY De Zoysa D. P. M. Department of Computer Science & Engineering University of Moratuwa December 2008 STRATEGIC FACTORS ENABLING EFFECTIVE OFFSHORE RELATIONSHIPS OF SRI LANKAN IT CONSULTING & OUTSOURCING COMPANIES; A MODEL FROM THE VENDOR PERSPECTIVE By De Zoysa D. P. M. The Dissertation was submitted to the Department of Computer Science & Engineering of the University of Moratuwa in partial fulfilment of the requirement for the Degree of Master of Business Administration. Department of Computer Science & Engineering University of Moratuwa December 2008 ii DECLARATION I hereby declare that the dissertation titled “Strategic Factors Enabling Effective Offshore Relationships of Sri Lankan IT Consulting & Outsourcing Companies; A Model from the Vendor Perspective” is my own work and effort and in part or whole has not been submitted for any other academic qualification at any institute. Where other sources of information have been used, they have been acknowledged. 2nd February, 2009 Signature: _______________________ Date: ________________ Approved by: Prof. Niranjan D. Gunawardena (Supervisor) Professor Department of Civil Engineering University of Moratuwa Signature: _______________________ Date: ________________ MBA in IT Department of Computer Science and Engineering, Faculty of Engineering University of Moratuwa Sri Lanka December 2008 iii ABSTRACT Outsourcing is one of the emerging and most profitable business activities in the global market. It has already grabbed the focus of investors in the past few years and possesses the potential to sustain in the years to come. With amazing growth opportunities and immense competition, the decision to select the best suitable destination to outsource has become crucial. Therefore, it is more imperative than ever for Sri Lankan consulting and outsourcing companies to distinguish their delivery through a strategy. The winners are those that strategically align industry best practices with a customised delivery model in order to exceed customer satisfaction while optimizing profits. It is with that interest this research is focused in diversified business operational areas towards identification of strategic factors facilitating effective offshore relationships. The research analysed the complexities of these factors using a hybrid methodology mainly focusing on qualitative analysis techniques. The resulted factors are categorised into primary and supportive strategic factors in view of facilitating organisation-specific concepts. The primary factors include; professional values, strategic drives, supply & delivery management, service marketing capabilities, value- creation approaches, innovation management, client segmentation & alignment, personal relationships, dealing with management theories, and sustainable development. The supportive factors are; business nature, planning & control, knowledge management, CSF awareness, offshore effectiveness, team management, governance, PEST factors, risk awareness, and Sri Lankan offer/branding. These factors are then used to craft an effective offshore relationship model and it followed by a 3-Step policy undertaking process to reinforce the relationship model. Finally the research recommends an offshore relationship index to standardise the proposed model and it highlights future research areas in strengthening operational effectiveness and strategic alliances to harness Sri Lankan offshore industry. Key Words: ITO, Consulting and Outsourcing, Offshore Relationship Index, Strategic Factors iv ACKNOWLEDGEMENTS I would like to extend my sincere gratitude to several key individuals and organizations for the support and guidance towards the completion of this research and thesis. The completion of this research would not have been possible if not for the invaluable insights and guidance of Prof. Niranjan D. Gunawardena, my supervisor. Moreover, my sincere appreciation is extended to Dr. Buddhinath Jayatilleke for the immense support towards completing and finalising the research with expert reviews. Also I would like to thank the academic and administration staff at the Department of Computer Science & Engineering headed by Mrs. Vishaka Nanayakkara and Dr. Chandana Gamage for the continuous support, guidance, and progress reviews towards completion of the research. I would like to warmly appreciate and deeply indebted to: - Mr. Madu Rathnayake and Mr. Suresh Dominic for the support given to my research and providing opportunities to meet entrepreneurs and strategic/policy level managers in the offshore industry - My team and the management of Virtusa (Pvt.) Ltd. for extending support in numerous ways to complete my research - All of my friends and colleagues who supported throughout my research effort Finally, I would like to extend heartfelt gratitude to my family for the continuous support and inspiring me to make this research a successful completion. v TABLE OF CONTENTS CHAPTER 1: OVERVIEW......................................................................................1 1.1 BACKGROUND & MOTIVATION ..............................................................................................1 1.2 PROBLEM STATEMENT ...........................................................................................................2 1.3 RESEARCH OBJECTIVES .........................................................................................................3 1.4 SIGNIFICANCE OF THE STUDY ................................................................................................4 1.4.1 Theoretical Significance ...................................................................................................4 1.4.2 Practical Significance ......................................................................................................5 1.5 SCOPE AND LIMITATIONS .......................................................................................................5 1.5.1 Scope ................................................................................................................................5 1.5.2 Limitations........................................................................................................................6 CHAPTER 2: LITERATURE REVIEW ................................................................7 2.1 THE OFFSHORE BUSINESS ......................................................................................................7 2.2 STRATEGIC INSIGHTS .............................................................................................................9 2.3 EXPERT VIEWS.....................................................................................................................14 2.4 SUMMARY............................................................................................................................19 CHAPTER 3: METHODOLOGY & DESIGN.....................................................22 3.1 CONCEPT FRAMEWORK........................................................................................................22 3.1.1 Offshore Industry............................................................................................................23 3.1.2 Strategy Management .....................................................................................................23 3.1.3 Data Collection Framework ...........................................................................................24 3.1.4 Conceptualizing the Strategic Relationship Model ........................................................25 3.1.5 Effective Relationship Model..........................................................................................25 3.2 THE DESIGN FRAMEWORK ...................................................................................................25 3.3 CONCEPTS MAPPING ............................................................................................................29 CHAPTER 4: DATA COLLECTION ...................................................................32 4.1 DATA COLLECTION ..............................................................................................................32 4.1.1 Interviews .......................................................................................................................32 4.1.2 Review of Documents .....................................................................................................33 4.1.3 Questionnaire .................................................................................................................33 4.2 SAMPLE SELECTION .............................................................................................................33 4.3 QUESTIONNAIRE DESIGN FRAMEWORK................................................................................34 CHAPTER 5: ANALYSIS ......................................................................................37 5.1 INDUSTRY INSIGHTS .............................................................................................................37 5.2 COGNITIVE MAP ..................................................................................................................41 5.3 DOMAIN ANALYSIS ..............................................................................................................43 5.4 CONCEPT CENTRALITY ANALYSIS .......................................................................................44 5.5 COMPLEXITY MAP ...............................................................................................................45 5.6 QUANTITATIVE ANALYSIS ...................................................................................................46 5.6.1 Industry Demographics ..................................................................................................47 5.6.2 High-level Analysis of Strategic Factors ........................................................................51 5.7 RESULTS MODELING ............................................................................................................56 5.7.1 The Relationship Model..................................................................................................56 5.7.2 The 3-Steps Policy Undertaking Process .......................................................................58 CHAPTER 6: RECOMMENDATIONS................................................................62 CHAPTER 7: CONCLUSION ...............................................................................65 REFERENCES ...........................................................................................................67 APPENDIX 1: QUESTIONNAIRE..........................................................................72 APPENDIX 2: THE FACT SHEET TEMPLATE .................................................78 vi List of Figures Figure 1-1: Conceptual View of the Problem Statement ............................................... 3 Figure 2-1: Research Focus and Component Mapping.................................................. 7 Figure 2-2: Transformation of the Value Net .............................................................. 10 Figure 2-3: Corporate Risks......................................................................................... 15 Figure 2-4: Strategy Management Process .................................................................. 18 Figure 3-1: The Concept Framework........................................................................... 22 Figure 3-2: The Data Collection Framework............................................................... 24 Figure 3-3: The Research Design Framework ............................................................. 28 Figure 4-1: Questionnaire Design Framework ............................................................ 35 Figure 5-1: Cognitive Map of Factors and Relationships............................................ 42 Figure 5-2: Concept Mapping Overview ..................................................................... 45 Figure 5-3: Central Ranking Vs Domain Ranking ...................................................... 46 Figure 5-4: Company Vs Years of Establishment ....................................................... 47 Figure 5-5: Company Size Distribution....................................................................... 47 Figure 5-6: Client’s Region Distribution ..................................................................... 48 Figure 5-7: The Proposed Relationship Model............................................................ 56 Figure 5-8: Conceptualising Strategic Positioning ...................................................... 58 List of Tables Table 1-1: Stakeholder Vs Significance Map ................................................................ 5 Table 2-1: Application of Theories.............................................................................. 16 Table 2-2: Strategy Management Discussion .............................................................. 17 Table 3-1: Tabular Representation of Concept Source Mapping ................................ 29 Table 4-1: Data Collection Methods Summary ........................................................... 32 Table 4-2: Sample Selection Summary........................................................................ 34 Table 4-3: Questionnaire Design ................................................................................. 35 Table 5-1: Summary View of Domain Analysis.......................................................... 43 Table 5-2: Summary View of Centrality Analysis ...................................................... 44 Table 5-3: Overall Results Summary........................................................................... 49 Table 5-4: Policy Undertaking Definition Template ................................................... 59 Table 5-5: Sample Policy Undertaking Definition ...................................................... 59 Table 5-6: Impact Analysis Template.......................................................................... 60 Table 5-7: Sample Impact Analysis............................................................................. 60 Table 5-8: Action Plan Template................................................................................. 61 Table 5-9: Sample Action Plan .................................................................................... 61 Table 6-1: Rating Scales .............................................................................................. 63 vii List of Acronyms ASP – Application Service Providers ATC – Advanced Technology Centre BPO – Business Process Outsourcing BPR – Business Process Re-engineering CSF – Critical Success Factors FDD – Feature-driven Development GDP – Gross Domestic Product GSLI – Global Service Location Index HBR – Harvard Business Review HR – Human Resources IT – Information Technology ITO – Information Technology Outsourcing KPO – Knowledge Process Outsourcing ORI – Offshore Relationship Index PEST – Political Economic Sociocultural and Technological R&D – Research & Development SBU – Strategic Business Unit SDLC – Software Development Lifecycle XP – Extreme Programming