Executive decision-makers cannot always anticipate and fully understand the implications of information technology outsourcing (ITO) decisions for the long-term processes, capabilities, and performance of their organization, especially when considering ITO for cloud-based services.  My doctoral research explored the decision-making process, and particularly the criteria used by executive decision-makers, for identifying and selecting organizational competencies when engaging in Information Technology Outsourcing (ITO) using cloud-based services. Findings indicate that executive decision-makers are unable to articulate decision-making criteria and to define processes used for identifying and selecting organizational competencies to consider as part of ITO engagements for cloud-based services.

While the study participants were asked a number of questions, the desire was to answer the question “How do executive decision-makers describe the process followed for the identification and selection of organizational competencies to consider as part of ITO engagements?”.  Of course, there were additional questions, such as a) “How do executive decision-makers describe the criteria used for selecting organizational competencies to consider as part of ITO engagements?”; b) “What methods do executive decision-makers use to anticipate the long-term impact of their ITO decisions on organizational processes, capabilities, and performance?”; and c) “How do observations on anticipated impact differ from realized impact on organizational processes, capabilities, and performance from ITO decisions?”.

The good news is those questions helped identify these five things regarding executive decision-making when outsourcing to the cloud.

#1: Executive decision-makers identify competencies primarily using intuition. It’s not new news that executive decision-makers select organizational competencies to target for ITO for cloud-based services based on the need to fulfill application, security, regulatory, or compliance requirements; to fill a gap; and/or to increase capabilities not found within their organizations.  What is new is the research found executive decision-makers identified organizational competencies to outsource to the cloud through a process of intuitively understanding the gap or criteria in their applications, security, regulatory, or general requirements. These decision-makers also made sure those competencies were not a core part of their business.

#2: Executive decision-makers thought they used a formal decision-making processes (but not really). While executive decision-makers used their intuition to select organizational competencies to target for ITO for cloud-based services, they also believed a standard decision model was used. Executive decision-makers assumed they used a formal multi-criteria decision-model (MCDM) as part of their decision-making process, when in actuality, their decision was intuitive but happened to align with a formal MCDM.

#3: Executive decision-makers rely on external expertise (though they really used their intuition). While now know executive decision-makers intuitively identify competencies to outsource to the cloud prior to initiating the outsourcing process, but the researched also showed  executive decision-makers engaged in a formal request for proposal process with external vendors. Although some participants used the expertise of external vendors to identify competencies to reduce cost, the identification of organizational competencies is much more of an organic process. Executive decision-makers decided to retain core competencies such as customer-facing applications and business relationship management activities while moving noncore competencies such as internal corporate systems, architecture design, cloud operations, simple sales management, and support to an outsourcing provider.

#4: Executive decision-makers build in contingencies (and are flexible). Executive decision-makers retain some onsite infrastructure for business continuity but also construct their ITO using cloud-based services with the flexibility to move data to another cloud-based service provider or back in house. Executive decision-makers also avoided outsourcing core competencies and are willing to insource those previously outsourced competencies should those competencies change to core competencies and become strategic. Essentially, executive decision-makers identified their core competencies prior to engaging in outsourcing to the cloud; understood their internal strengths, what made them unique, and what competencies were missing; and used the cloud to strengthen internal competencies or add new competencies to remain competitive, and revisited those competencies they outsourced to make sure those competencies were where they should be.

#5: Executive decision-makers built muscle memory (practice, practice, practice). Executive decision-makers experienced negative outcomes when engaging in their first cloud-based outsourcing, but subsequent cloud-based outsourcing engagement were perceived as having more successful outcomes. The an initial outsourcing engagement requires creating new frameworks and processes, whereas subsequent outsourcing engagements rely on the previous structure and lessons learned from prior engagements, thereby reducing the negative impact. Essentially, the more outsourcing you complete, the more successful each engagement will be.

Previous research suggests the decision to outsource is an organizational strategy considered by many organizational leaders a requirement for staying competitive in the marketplace, given its potential for reducing costs, increasing profits, or developing competitive advantage. Executive decision-makers agreed that decision-making regarding ITO for cloud-based services commonly ignores the effort required to integrate applications into the infrastructure and underestimates the people, effort, and cost implied. Essentially, executive decision-makers are intuitive in their decision-making for ITO using cloud-based services, do not purposefully use a formal MCDM, rely on external expertise when needed, ensure they have contingency plans and are flexible, and are more successful as they outsource more.

Dr. Marlene R. Kolodziej
Author

AVP, Service Delivery, Northwell Health