Unraveling the impact of cultural distance on IT outsourcing success – insights from three major sourcing reconfigurations

Abstract

PurposeIT outsourcing (ITO) has developed into an established practice for organizations but the interorganizational and oftentimes international collaboration it involves comes at a price: Reports from academia and practice suggest that more than 25% of all ITO projects fail, many because of cultural differences between client and provider organizations. Against this background, this paper analyzes the complex nature of cultural distance and its multi-faceted effect on ITO success.Design/methodology/approachThis paper builds upon extant literature on culture on the national, organizational and team level, conceptualizes its effect on relationship quality and ITO success, and hypothesizes a model on potential moderators and management techniques to offset culture-induced challenges. It then evaluates and refines the model by means of an interpretive qualitative research design for an in-depth single-case study of ProSiebenSat.1 Media SE (P7S1), a leading European media company that reconfigured its IT sourcing model three times in 10 years.FindingsThe results from interviews with top managers from client and provider organizations represent one of the first integrated views on the critical importance of cultural compatibility on multiple levels, provide manifold examples for its complex effect on ITO success, as well as moderators and potential management techniques to promote ITO success.Research limitations/implicationsThis paper contributes relevant empirical insights to the growing body of literature on culture and its underestimated role in ITO success. It builds on tentative theory that is confirmed and refined.Practical implicationsThe paper helps in substantiating the complex and intangible nature of culture and demonstrates means for its effective management.Originality/valueThe results from interviews with top managers from client and provider organizations represent one of the first integrated views on the critical importance of cultural compatibility on multiple levels, provide manifold examples for its complex effect on ITO success, as well as moderators and potential management techniques to promote ITO success.

Overcoming cross-organizational barriers to success in offshore projects

“…Contracts, which stipulate specific service-level agreements (SLAs), have been the core mechanism through which client and vendor firms aim to achieve alignment in quality goals and expectations for software services (Chen and Bharadwaj, 2009; Goo et al , 2009; Kranz, 2021; Nassimbeni et al , 2012; Oshri et al , 2015). However, even with SLAs in place, variations in quality continue to persist in offshore software projects (Rai et al , 2009; Konning et al , 2020). The fact that SLAs cannot resolve variation signifies a gap in our understanding about the complex interplay between SLAs and efforts by offshore project teams to coordinate and integrate knowledge, and how these efforts affect project teams.…”

“…Such a complexity arises from the differences in contextual factors that pertain to individuals in project teams (i.e. clients and knowledge workers) and their organizations (Konning et al , 2020). Much of the variation in quality is attributable to the challenges in coordinating and integrating knowledge across organizational and cultural boundaries (Gonzalez et al , 2006; Hahn and Bunyaratavej, 2010; Levina and Vaast, 2008; Zahedi et al , 2016).…”

“…Research on offshore software development broadly recognizes that consequential differences exist between the organizational work practices of client and vendor firms (e.g. Konning et al , 2020; Zahedi et al , 2016). Except for the recent empirical work that examined the role of project managers in reconciling some of these differences (Venkatesh et al , 2018), however, there has been little attempt to integrate differences into theory development in this domain (Vial and Rivard, 2016).…”

“…Except for the recent empirical work that examined the role of project managers in reconciling some of these differences (Venkatesh et al , 2018), however, there has been little attempt to integrate differences into theory development in this domain (Vial and Rivard, 2016). Considerations of differences in the way client and vendor firms operate is important, as they affect the ability of vendor firms to deliver software services effectively and have been shown to lead to cost overruns above what was initially budgeted for the project (Konning et al , 2020; Naor et al , 2010; Rai et al , 2009). Such differences are also a potential impediment to coordination and knowledge integration across organizational boundaries (Zahedi et al , 2016).…”

“…Through this lens, we are able to open up the blackbox linking SLAs to project outcomes through teamwork and uncover the important team-related mediating mechanisms that underlie the relationship between SLAs and project outcomes. We also draw on the organizational culture theory (Hofstede et al , 1990), which serves as a theoretically grounded lens for understanding differences in the organizational work practices of client and vendor firms in offshore arrangements (Konning et al , 2020). This theory allows us to shed light on the challenges that offshore software project teams face when differences between client and vendor firm operations exist.…”