eThesis - School of Business electronic theses

The objective of this study is to understand what the most important attributes of IT outsourcing are that the organization needs to assess in order to measure the overall value of the outsourcing decisions. This study also aims to understand the various practical methods that could be used to measure IT outsourcing value and what implications such extra tasks or process steps might have on the sourcing process and sourcing manager incentives.

This study uses the Analytic Hierarchy Process to estimate the sourcing managers' preferences towards chosen outsourcing attributes mentioned in the academic literature. This is done by creating a hierarchy of the outsourcing attributes and organizing them into certain and uncertain strains and then further into four categories of benefit, opportunities, costs, and risks. This study also utilizes in-depth interviews with sourcing managers in the case company to further understand their impressions towards value measurement and its potential implications for employee incentives.

Based on the results of the Analytic Hierarchy Process, it can be said that the most important value attributes are hard savings, cost avoidance, and soft savings. This study also concludes that outsourcing value can be measured accurately enough by creating well-defined value categories, rules, definitions, and examples to guide the sourcing personnel. This study also concludes that there is risk for the overstatement of the achieved value especially when there is much emphasis on the monetary savings. The value measurement tool used by the case company was well defined and allowed many value categories to be claimed and thus an understatement of the achieved value was not considered a problem. The interesting question raised by this research is whether the benefit of having such a tool exceeds the extra work and overhead that it creates. Finally, there are many pitfalls even in a well-defined value measurement tool that allow the overstatement of value. The use of these reporting pitfalls has the potential to affect the total cost of ownership in a negative way.