What determines the success or failure of IT ‘impact sourcing’ relationships?
We have known for some time that various factors affect the outcome of IT outsourcing relationships. But no-one has yet applied this to IT ‘impact sourcing’: outsourcing to bottom-of-the-pyramid employees with the aim of socio-economic development impact. This was the focus for a study recently conducted within the Centre for Development Informatics at the University of Manchester by postgraduate researcher, Sheng Lu under the supervision of Dr Brian Nicholson.
As detailed in a previous blog entry (“The Research Agenda for IT Impact Sourcing”), Rockefeller/Monitor research estimates that impact sourcing is already a US$4.5 billion market employing 144,000 people and “has the potential to be a $20 billion market by 2015, directly employing 780,000 socio-economically disadvantaged individuals”.
The most common model of impact sourcing involves three main actors: the client, the BoP sub-contractor employees/enterprise, and an intermediary that sits between the other two and provides quality control. This creates two relationships: client—intermediary; and intermediary—BoP sub-contractor of which the former will be the main focus here.
Numerous models have been used to help understand IT outsourcing relationships in general:
- Some have been more factor-oriented. For example, Lee and Kim (1999)[i] argue that trust, business understanding, benefit and risk sharing, conflict, and commitment are factors that influence the relationship.
- Some have been more process-oriented. For example, Kern and Willcocks (2002)[ii] take an interactional approach that focuses on different types of exchange that occur during an outsourcing relationship.
The model chosen to explain IT impact sourcing was Alborz et al’s (2003)[iii] IT outsourcing relationships model, shown in the figure below.
The model divides an IT outsourcing relationship into three stages: pre-contract, contract development, and post-contract implementation. It identifies eight elements which operate during those three stages and which contribute to a successful relationship, some of which can be broken down into further sub-components:
- The initial strategy for outsourcing
- Due diligence through supplier selection, evaluation and development
- Development of the outsourcing contract
- Governance of the relationship through the role and support of senior management, the structure and style of the relationship, and the skills brought to bear upon it
- Monitoring and management of supplier performance
- Management of the contract
- Management of the working relationship between client and supplier
- Knowledge exchange and learning
Alborz et al’s model was selected because it integrates a number of earlier models, and combines both process- and factor-oriented approaches.
The model was tested through a review of IT impact sourcing case study secondary data, and through development of primary data from two interviews, providing a client- and intermediary-side perspective from one of the largest IT impact sourcing intermediaries, with operations in a number of developing countries.
Many of aspects of the client—intermediary impact sourcing relationship mirror those found in traditional IT outsourcing. However, the social mission within impact sourcing was found to affect various elements including:
- Due diligence 1: clients select IT impact sourcing intermediaries on a quadruple-criterion basis of cost, delivery timescale, perceived quality of service, and social mission. The latter may be perceived in terms of alignment with the client’s own mission statement (a number of clients themselves have, in part, a social mission). The outsourcing activity may also be given a higher profile by the client than traditional IT outsourcing; for example, in annual reports or corporate social responsibility statements. This pressurises impact sourcing intermediaries to maintain a strong public image of corporate and developmental responsibility.
- Due diligence 2: supplier development encompasses not just the intermediary, but also the terminal sub-contractors at the bottom of the pyramid. These are selected from poor areas or communities, trained and screened for both service quality and social impact by the intermediary.
- Contract development: in some cases (though not all) social impact indicators may be written in to the supplier—intermediary contract.
- Governance 1: the social mission within IT impact sourcing may provide a hook that snags greater senior management support from the client than traditional outsourcing, but it may also create a gap in understanding and knowledge that must be bridged.
- Governance 2: the style of relationship management must, at least initially, be one that incorporates more patience and latitude than required within some traditional IT contracts. Information and knowledge gaps are particularly significant between client and BoP sub-contractors, and all actors tend to be on a learning curve since impact sourcing is too new to contain significant repeat business. But repeat business is growing and there seems to be a general assumption that clients, intermediaries, and BoP sub-contractors will be forming long-term contractual relationships.
- Performance management: as with contract development, this may include monitoring of the socio-economic impact of the contract within the developing country.
- Management of the working relationship: trust is a key factor. But not just trust that the IT services will be delivered on time, on cost, on quality but that any explicit or implicit social impact will be delivered and – more importantly – than any implicit corporate reputational gains will also be delivered. Once again, this emphasises the greater scrutiny that impact sourcing value chains may be subject to compared with traditional IT outsourcing, and the consequent need for intermediaries to exercise care over their reputation and image.
In sum, the limited base of data means this is only a proof of concept that indicates the potential relevance of the model, and points the way for future study. Within those limits, it appears that Alborz et al’s model can be applied to help understand IT impact sourcing relationships. While the core stages and elements work as specified, the context of IT impact sourcing and the influence of social mission mean that specific issues do arise.
We hope that the model will be used for further research, exploring in more detail the processes and factors that underpin success – or failure – of IT impact sourcing relationships.
The model can also be used by impact sourcing practitioners as an analytical tool to assess their own client—supplier relations either before or during contract implementation. Analysis can investigate each of the components of the Alborz et al. framework, adding in the social mission modifications indicated above.
(This item is also available as a CDI Short Paper: http://www.sed.manchester.ac.uk/idpm/research/publications/wp/di/#sp)
[i] Lee, J.N. and Kim, Y.J. (1999). Effect of Partnership Quality on IS Outsourcing Success: Conceptual Framework and Empirical Validation. Journal of Management Information Systems 15(4), 29-61.
[ii] Kern, T. and Willcocks, L.P. (2002). Exploring relationships in information technology outsourcing: the interaction approach. European Journal of Information Systems 11(1), 3-19.
[iii] Alborz, S., Seddon, P.B., and Scheepers, R. (2003). A Model for Studying IT Outsourcing Relationships. 7th Pacific Asia Conference on Information Systems, Adelaide, Australia. 10th-13th July, 1297-1313.
So, what is “impact sourcing” and why is it important?
It is part of a continuum of approaches that clients can take when they outsource IT-related work to bottom-of-the-pyramid suppliers, summarised in Figure 1, adapted from a previous blog entry on IT sourcing from the BoP:
- Exploitative outsourcing seeks to bear down on wages and working conditions in order to minimise costs and maximise profits.
- Commercial outsourcing is a mainstream approach that reflects the steady diffusion of outsourcing from cities to large towns to small towns and beyond.
- Ethical outsourcing (also known as socially-responsible outsourcing) takes commercial outsourcing and requires that it meets certain minimum standards; typically relating to labour practices but also starting to include environmental issues.
- Social outsourcing (also known as developmental outsourcing) differs from ethical outsourcing as fair trade differs from ethical trade. Ethical outsourcing involves existing commercial players with either a commitment to or measurement of adherence to standards. Social outsourcing involves new non-market intermediaries who sit between the client and the BoP supplier.
Figure 1: BoPsourcing Approaches
As shown in the diagram, “impact sourcing” is a rather loose agglomeration of a number of these models, defined as “employing people at the base of the pyramid, with limited opportunity for sustainable employment, as principal workers in outsourcing … to provide high-quality, information-based services to domestic and international clients” in order “to create sustainable jobs that can generate step-function income improvement”.
Impact sourcing received a significant fillip in 2011 when the Rockefeller Foundation released its report on “Job Creation Through Building the Field of Impact Sourcing” which suggested that this activity was already well established in countries like India, South Africa and Kenya. (The definitional quotes above are taken from p2 of that report.)
Report authors Monitor estimated that impact sourcing was already a US$4.5 billion market employing 144,000 people and “has the potential to be a $20 billion market by 2015, directly employing 780,000 socio-economically disadvantaged individuals”. Rockefeller has subsequently set about funding and encouraging significant growth in this market.
The various terminologies can be confusing and, personally, I prefer the more immediately-meaningful “BoPsourcing”. However, this new model is clearly already sizeable, and likely to be growing fast in future. It also – despite the absence from the name – has IT as a foundation: all these types of outsourcing are IT-based and IT-focused whether they involve data entry, digitisation, back-office processing, search engine optimisation support, etc.
In that case, where is the research on impact/BoP sourcing? The answer is: almost entirely absent as yet. The journal article on “Social Outsourcing as a Development Tool” is a rare exception, which traces the developmental impact of one initiative using this new model.
In that case, what research should we be doing: what is the impact sourcing research agenda?
A helpful guide comes from two articles recently published in the Journal of Information Technology by Mary Lacity and colleagues: “A Review of the IT Outsourcing Empirical Literature and Future Research Directions” and “Business Process Outsourcing Studies: A Critical Review and Research Directions“. These papers review the literature to date on IT outsourcing overall, and on BPO specifically, summarise that literature in an overview model, and propose a future research agenda.
Figure 2 – from the first article – summarises the review of IT outsourcing research (including overlaps with BPO research), which boils down to the factors which affect outsourcing decisions by client firms (e.g. whether to outsource or not; or what type of contract to use), and the factors which affect the outcomes of outsourcing (typically the outcomes for the client firm or its relationship with the supplier).
Figure 2: Review of IT Outsourcing Research
Given the lack of existing work on impact sourcing, all these relations are yet to be investigated, so Figure 2 already sets a sizeable research agenda. However, we can tease out more in three ways.
First, because Lacity et al lump rather a lot together into the “outcomes” category. The nature of the client-supplier relationship is better understood as part of the process by which outcomes are achieved. From this, we can identify a set of outsourcing process research that could be applied to impact sourcing – from the “COCPIT” approach to maximising client-supplier relations in IT outsourcing, to work on the development of intermediaries in IT outsourcing relations. Treating decisions as key inputs, the research agenda can be shaped around an Input – Process – Outcome structure.
Second, because the Lacity et al map is of past research. Their papers also identify generic IT outsourcing research priorities for the future that will apply equally to impact sourcing, including the effect of broader environmental factors on client decisions, such as public attitudes; the capabilities required within suppliers; and the different financial and business models being used.
Third, because impact sourcing is different from mainstream outsourcing: it involves different suppliers, often different intermediaries, different business models, different objectives, etc. This adds a set of additional research agenda items not previously identified, such as:
- Needs and means for building capabilities within BoP suppliers.
- A broader typology of business models that spans the boundaries of traditional business and traditional development.
- The requirement to judge business models in terms of their accessibility (to lower-income groups), ethicality (e.g. providing a decent income for the suppliers involved) and sustainability (for BoP suppliers, their clients and the intermediaries).
- Understanding that clients may want more than just a financial bottom-line outcome from impact sourcing.
- Analysing the developmental outcomes of impact sourcing, including the effect on the livelihoods of individual suppliers.
Putting all this together, we get the research agenda summary shown in Figure 3.
Figure 3: Impact Sourcing Research Agenda
If this research is to be done well, in a way that adds lasting knowledge, it must be well-theorised. Dealing fully with this issue would require pages of text, but we can identify some examples:
- Inputs and Processes: transaction cost economics can provide a quantitative basis for exploring decisions and business models; resource-/capabilities-based perspectives on organisations offer a more qualitative route (see Mahnke et al 2005).
- Outcomes: the livelihoods framework or Sen’s capability approach can be used to assess the developmental effects of impact sourcing.
Beyond these initial pointers, though, there are many other theoretical foundations waiting to be used.
If you identify some gaps here – i.e. some other priority research issues that need to be addressed, or some other theoretical models that will be appropriate to apply to impact sourcing – then do add your thoughts.Follow @CDIManchester
Development 2.0 is the ICT-enabled transformation of international development. An earlier paper and blog entry discussed transformative Development 2.0 models and impacts. This entry looks at a potential example; a case study of direct development and digital production from rural India.
The case is one of “socially-responsible outsourcing” (SRO): the use of – in this case IT – outsourcing contracts to drive livelihood benefits directly into poor communities. I’ve already written up an impact analysis of SRO that delivered new jobs, incomes, skills and empowerment into poor urban communities in Kerala.
The case study analysed here also involved SRO to poor communities in India, but this time to telecentres in rural Bihar. It contracted from city-based clients both data work (data entry, data editing, digitisation for three clients) and voice work (call centre-based service/technical support and tele-sales for six clients including the Govt of Bihar). The full case report is available online.
The Development 2.0 promise is that it will bypass traditional development blockages to bring digital production – that is ICT-based productive work – to the bottom of the pyramid. If that was the promise, what was the reality of this pilot project, run by the social enterprise Drishtee?
The first reality is that this is far from ‘direct development’. It is a re-intermediated model of development that interposes two layers between urban clients and village production: a city-based head office that interacts direct with clients, a regional office based in a large village (6,000 inhabitants) in rural Bihar which can undertake both data and voice work and quality assurance of the third layer: individual telecentres in relatively remote villages where data (but not voice) work can be done.
The second reality is that the technical and human infrastructure in rural areas requires significant investments before it can get close to the promise of this type of Development 2.0. The regional office (20 PCs, two printers, 512 kbps Internet connection via VSAT and ISDN, UPS and generator: see Figure 1) had to be created at a cost of US$13,000. The village telecentres (at least two PCs, GPRS Internet link (114 kbps),and electricity plus back-up: see Figure 2) were within 35km of the regional office and were already in existence. They had cost an average US$1,500 to set up with running costs (inc. loan costs, rent, telecoms, maintenance) of US$150 per month. Some needed additional investment to ensure greater reliability of power supply.
Figure 1: Main rural outsourcing office
Figure 2: Village telecentre
The staff who were to do the work in both the large and the remote village locations were selected from unemployed youth (presumed to be under 25 years old) who had some school education including English language skills and IT familiarity. However, they all required two-three month training programmes covering IT, language, typing, and communication skills before there were seen as ready to participate in this particular part of the digital economy. Even then, their initial accuracy rate for data work was around 75%, rising to 95% after about two months of work. They still required the layered superstructure of quality control between them and the clients.
In all, the pilot project created 19 new jobs in the large village (regional office) and 5 overall in the village telecentres, with earnings of US$80 per month (for 25 days of eight-hour shifts; a pay level set at the top of the typical US$40-80 range for rural business process outsourcing work) when there was sufficient work. In such circumstances, the telecentre owners could net US$90 per month from the SRO, thus strengthening telecentre sustainability. In addition to the creation of jobs and incomes at the bottom of the pyramid, this project confirmed the findings of the Kerala SRO programme that there are key gains in skills and self-confidence.
If the message is that the BoP isn’t quite ready, but can be made ready, for this particular fraction of Development 2.0, the news from the top of pyramid is less cheery. Having largely addressed the technical, skill and quality challenges of SRO, Drishtee’s main difficulty has been demand: getting enough clients.
They charge US$1 (Rs.45) per job hour for domestic clients, which is the going rate, and rural outsourcing has clear advantages over outsourcing to urban areas (c.35% cost advantage, and much lower staff turnover rates than the c.40% per year in urban locations). But there have been difficulties of awareness of the rural/socially-responsible outsourcing model, and of trust of the model and of a new entrant into the field like Drishtee.
Scaling – even sustaining – this particular model is therefore difficult. Experiences in Kerala show that both scalability and sustainability are achievable, but those all occurred within one large state government rather than via the more commercial sales and marketing approach that Drishtee must follow.
In conclusion, the Bihar pilot demonstrates that the benefits of the digital economy – specifically, ICT-based jobs – can be brought to rural areas, and can deliver livelihood benefits of income, skills, and empowerment. The poor in rural communities therefore do not just have to be digital consumers, they can also be digital producers.
It is also an example of ICT helping bring new development actors into play; in this case a multi-layered social enterprise that provides a new form of intermediation between urban business and rural livelihoods. It is disappointing that the same constraints we got bored of discussing in the 1980s – power, telecommunications, skills – are so deeply persistent. And troubling that new constraints – trust, awareness, demand – may be holding back realisation of Development 2.0′s potential. But increasing numbers of new intermediaries are bringing ICT-based SRO to poor urban and rural communities, so we can expect that realisation to increase in future.
Links: see also blog entry on BoPsourcing: Fighting or Fuelling Inequality?
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