Small and medium-sized enterprises (SMEs) are traditionally associated with high levels of technology failure due to factors such as lack of readiness for networking with other entities, incapacity for knowledge retention, and inefficiency in IT governance (Devos, Van Landeghem, & Deschoolmeester, 2008). Other factors include reluctance to employ advanced IT capabilities and incapacity to obtain sustainable competitiveness. Additionally, most SMEs that implement IT projects using outsourced environments are known to experience unique challenges (Grossman, 2011). The author of this paper assumes a consultant’s perspective with the view to providing recommendations aimed at addressing the failure of IT projects in outsourced environments.
Problem statement
The problem identified in this case study is outsourced information systems (IS) failure (OISF) in SMEs due to differences between the principal (owner of SME) and agent (contractor or vendor). These differences revolve around inconsistent project goals, risk behavior variations, and information asymmetry or loop-sidedness (Devos et al., 2008). Outsourcing of IT projects occasions other problems which include lock-ins (inability of a client to get out of a relationship without experiencing extra costs) as well as legal or non-legal disputes. However, these secondary problems will not be addressed in this forum. The paper will focus on attempting to understand why outsourced IT projects fail in SME contexts and how this problem and the underlying symptoms (e.g., lack of trust, information asymmetry, goal differences and risk behavior variations) can be resolved.
Analysis
From a consultant’s perspective, it is important to use a business tool to address the problem since it is not related to IT security. As such, value chain analysis can be undertaken to work out a mechanism that could be used by the principal and agent to create the greatest possible value for the IT project. This tool revolves around three steps, namely “activity analysis, value analysis, as well as evaluation and planning” (Gunzenhauser & Bongulielmi, 2008, p. 465). In IT projects, all parties need to come together to identify the activities that need to be performed to deliver the project. These activities include establishing the project scope, defining work standards, and ensuring free flow of operational processes. The first step encourages information sharing between the principal and the agent, thus addressing the problem of information asymmetry. This step also encourages the synchronization of the project’s goals, which in turn addresses the challenge of goal differences.
The second step in the tool (value analysis) ensures that the principal and the agent work together to develop an IT project with the greatest value for customers (Gunzenhauser & Bongulielmi, 2008). This step is important as it not only encourages the creation of trusting relationships between the principal and the agent, but also facilitates project success due to value addition. For example, the agent and the principal can work together to increase a project’s value propositions in terms of effectiveness, efficiency, lower costs, faster response times, and security considerations. The final step entails evaluating the viability of the IT project and designing a plan of action for successful implementation (Gunzenhauser & Bongulielmi, 2008). This step addresses the challenges of hidden costs and risk behavior differences.
Alternatives
The three alternatives which can be used to put forth options from a diverse range of solutions include:
- Ensuring the SME’s vision, mission and objectives are effectively aligned with outsourcing management capabilities to enable the enterprise to manage IT vendors according to the laid down expectations (Grossman, 2011).
- Guaranteeing that all contractual agreements are short-term and substantially flexible in order to reduce opportunistic behaviors and goal differences (Devos et al., 2008).
- Facilitating the realization of stakeholder objectives to curtail information asymmetry and goal differences (Mahaney & Lederer, 2011).
Potential solutions to the identified problem include:
- Entering into more structured and outcome-oriented contracts,
- Monitoring and addressing possible areas of goal conflict,
- Facilitating the equal sharing of information among parties, and
- Ensuring that IT projects take into account customer value propositions and requirements.
Recommendations
To address the problem of failure of outsourced IT projects, it is important for customers, vendors and project owners to work together to develop value for the project in line with the value chain analysis. The spirit of working together should be informed by stakeholder objectives as well as the entity’s vision and mission. Overall, such cooperation is instrumental in establishing trusting relationships between relevant parties, decreasing information asymmetry, and minimizing potentially opportunistic and unfavorable forms of behavior (Mahaney & Lederer, 2011). It is also recommended that SMEs should undertake shorter, more flexible, outcome-based contracts that are in line with their mission, vision, and business objectives. Such contracts not only reduce risk-averse behavior among interested parties, but also set out more precisely the mutual approach in which the stakeholders to a complex IT project want to work (Grossman, 2011).
From a consultant’s perspective, it is also important to provide customers (eventual users of the IT project) with internal resources that will enable them to specify any technical and operational requirements related to the project. Such a recommendation will increase the project’s value and also reduce goal differences between what may be of value to customers and what the agent may actually want to implement.
Conclusion
This paper has analyzed a case study to demonstrate why outsourced IT projects fail in SME settings and also to provide several recommendations aimed at addressing the problem. The recommendations identified include (1) establishing mutually beneficial and cooperative relationships, (2) undertaking shorter, more flexible, results-oriented contracts, and (3) providing customers with internal capabilities to enable them specify needed technical and operational requirements of the IT project. The evaluation of the implementation process should be done by the principal and the agent/vendor to achieve project success.
References
Devos, J., Van Landeghem, H., & Deschoolmeester, O. (2008). Outsourced information systems failures in SMEs: A multiple case study. Electronic Journal of Information systems Evaluation, 11(2), 73-82. Web.
Grossman, I. (2003). Why so many IT projects fail…and how to find success. Financial Executive, 19(3), 28-29. Web.
Gunzenhauser, M., & Bongulielmi, L. (2008). A value chain oriented approach for the development of global platforms in the systems business. Journal of Engineering Design, 19(6), 465-487. Web.
Mahaney, R.C., & Lederer, A.L. (2011). An agency theory explanation of project success. Journal of Computer Information Systems, 51(4), 102-113. Web.