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In the labyrinth of offshore IT outsourcing, project leadership stands as the North Star, steering service firms through the currents of risk in the UK. This study delves into the essence of leadership, illuminating its paramount role in navigating the complexities and safeguarding success in offshore IT services.
In today's globalized business landscape, offshore IT outsourcing has become a fundamental strategy for many organizations seeking cost-effective solutions, access to specialized talent, and round-the-clock service delivery. The United Kingdom, as a major player in the global services industry, has witnessed a substantial increase in the outsourcing of IT projects to offshore locations. While this approach offers numerous benefits, it presents unique challenges and risks.
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Offshore IT outsourcing offers several advantages, including reduced operational costs, access to a global pool of skilled professionals, and the ability to provide uninterrupted services. However, it is not without its challenges. Cultural differences, language barriers, time zone disparities, and concerns about data security are just a few of the hurdles that organizations face when managing offshore outsourcing projects. To navigate these complexities and ensure the success of such endeavours, effective project leadership plays a pivotal role. In this blog post, we will delve into the critical importance of project leadership in mitigating the risks associated with offshore IT outsourcing, specifically focusing on a study of service firms operating in the UK.
Introduction
Project management can be defined as a dynamic blend of skills, knowledge, and best practices that empowers both a project and its manager to remain within predefined budget constraints, adhere to specified timeframes, and successfully meet the project's requirements. Shendar's 2015 research underscores the increasingly strategic nature of project management, recognizing the inherent risks that could jeopardize a project's prospects. Consequently, businesses have begun to place a stronger emphasis on project leadership. Project leadership encompasses the role of leaders within a project, charged with inspiring and motivating their teams. This study underscores the critical and indispensable role of strategic project leadership, shedding light on the responsibilities of project managers and business leaders who grapple with the strategic facets of a project, often articulated as a vision that galvanizes the team and adapts their leadership style to the specific project context. The rising significance of project leadership is attributed to its capability to address the "triple constraints" of a project—time, budget, and performance. Notably, Leisen, Steffen, and Weber (2019) have observed a growing trend related to risk identification in the outsourcing of IT infrastructure, a trend driven by organizations seeking heightened efficiency in other departments. Consequently, outsourcing IT to specialized experts contributes to the overall efficiency of the organizational system.
The research initiated by Sauer, Gemino, and Reich in 2007 reveals a critical relationship between project size, quality, and risk. As project size, complexity, and quality requirements increase, so does the associated risk. Carbone and Tippett's study in 2004 further corroborates this finding by emphasizing that project quality and size are principal determinants that elevate the level of risk. In response, they stress the importance of implementing risk assessment strategies to mitigate these inherent risks. One such approach for risk reduction involves project managers identifying, labelling, and evaluating risks and their potential impact through Failure Mode and Effect Analysis (FMEA), thereby assisting businesses in assessing the likelihood of potential failures. Given that maintaining excellence across all domains can be challenging, organizations are increasingly turning to business process outsourcing to enhance the quality of their services.
Kediashi et al.'s research in 2012 sheds light on the strategic advantages of outsourcing, allowing businesses to excel in domains where they may face inherent risks, particularly in delivering high-quality services and safeguarding data privacy.
Research Aim
This study seeks to identify effective strategies for managing risks associated with outsourcing IT infrastructure within service firms and companies operating in the United Kingdom. At its core, the study focuses on two pivotal dimensions: project leadership and project management. Collectively, the research explores the nuanced realm of leadership and project management, delving into their benefits and challenges and how they collectively inform the development of suitable risk management approaches when embarking on the outsourcing of IT infrastructure.
Research Objectives
A set of well-defined objectives underpins the study:
Investigate the role of project leadership in the management of risks inherent in offshore outsourcing.
Assess both the challenges and benefits entailed in outsourcing IT functions within project environments.
Heighten awareness regarding the risks associated with IT outsourcing to enhance the overall efficiency of firms' operational systems.
Analyze the process of identifying risks in the outsourcing of IT infrastructure and the strategies employed to mitigate these risks.
Research Questions
The concept of project leadership in managing the risks associated with offshore outsourcing revolves around the central role that leaders within a project play in steering it toward success. Project leaders are responsible for inspiring and motivating their teams, ensuring clear communication, and aligning the project with the organization's strategic goals. In offshore outsourcing, effective project leadership involves bridging cultural and communication gaps, understanding the unique challenges of global collaboration, and providing a clear vision that guides the team. Project leaders work to reduce risks by implementing risk assessment, mitigation strategies, and contingency plans, ultimately ensuring that the offshore outsourcing venture is successful.
Challenges and Advantages of Outsourcing IT Functions in a Project:
Outsourcing IT functions within a project environment comes with its own set of challenges and advantages. The challenges may include communication barriers due to geographical and cultural differences, quality control concerns, data security risks, legal and compliance complexities, and the reliability of offshore vendors. On the flip side, the advantages include cost savings, access to specialized skills, scalability, and the potential for round-the-clock service delivery. Effective project management can help maximize these advantages while mitigating the challenges through clear communication, quality assurance, risk management, and strategic vendor selection.
Impact of Risk Identification on Outsourcing IT Infrastructure Effectiveness:
Identifying risks in outsourcing IT infrastructure is critical for the effectiveness of the outsourcing venture. Failure to identify and address potential risks can lead to project delays, budget overruns, and subpar performance. Risk identification enables organizations to develop mitigation strategies and contingency plans proactively. By understanding the specific risks associated with IT outsourcing, businesses can take necessary precautions to minimize their impact, ultimately ensuring the smooth operation and quality of the outsourced services.
Strategies for Risk Mitigation and Quality Improvement by UK Service Firms:
Service firms in the UK can implement several strategies to mitigate the risks of outsourcing IT infrastructure and enhance the quality of their services. These strategies may involve thorough vendor due diligence, robust data security measures, clear service level agreements (SLAs), continuous monitoring and performance evaluation, and effective communication channels. Additionally, fostering strong project leadership and management within the organization can go a long way in ensuring the success of offshore outsourcing endeavours and consistently delivering high-quality services.
Concept of Offshore Outsourcing:
Offshore outsourcing refers to the practice of contracting out business processes, tasks, or projects to external service providers located in different countries, typically to achieve cost savings, access specialized skills, and enhance operational efficiency.
Problem Statement
The outsourcing industry in the UK is a significant contributor to the country's economy, generating approximately £262.8 billion in revenue annually. However, despite significant investments in sourcing outsourced partners, the industry remains susceptible to potential risks. Existing research has primarily focused on the risks associated with offshore outsourcing but has often overlooked the role of project leadership in identifying and mitigating these risks. This study seeks to fill this gap by examining the relationship between project leadership and the reduction of outsourcing risks. It aims to introduce a novel approach to risk mitigation by leveraging project management and leadership concepts. The study also aims to integrate these concepts, emphasizing the crucial role of project leadership in the context of offshore outsourcing and risk management.
Rationale
With the proliferation of outsourcing practices in the business world, a common predicament emerges - the loss of direct control over outsourced projects, which inherently translates into risks primarily borne by the client. This study places its focal point on the principles of project management, seeking to unravel the pivotal role of project leadership in mitigating the risks associated with outsourced projects. Outsourcing often encompasses areas not part of a company's core processes, creating a notion that external agencies may not always treat such projects with the utmost diligence. However, through the lens of project management, any outsourced project can be rigorously evaluated based on quality metrics, adherence to timelines, and overall performance.
The central objective of this study revolves around integrating project leadership to reduce the risks intertwined with offshore outsourcing effectively. It primarily strives to raise awareness, particularly within IT companies, regarding the nuances of outsourcing IT infrastructure and the potential pitfalls that come with its implementation. Given that a failure to deliver a project within the prescribed quality, budget, and timeframe constitutes a project failure, the study aims to delve into the transformative impact of project leadership in reducing the risks associated with offshore outsourcing, ultimately ensuring the success of such ventures.
Unraveling the Synergy of Project Leadership in Mitigating Offshore Outsourcing Risks
This study, in particular, sheds light on the integrated concept of project leadership and how it can be utilized to manage better the risk associated with offshore outsourcing. This chapter aims to gather information about the concept that a previous research study has initiated. The initial section provides an overview of the service sector in Europe. It then provides emphasis on the concept of project leadership, and it further provides evidence of the significance of project leadership in project success. The body of the chapter conceptualizes offshore out-sourcing; it then emphasises the underlying reasons for a business going towards the option of offshore out-sourcing. The ending section sheds light on the factors that contribute to the risk associated with outsourcing a project.
Overview of the Service Sector in Europe
The service sector plays a significant role in contributing to economic growth in developed and under-developed countries. Usually, the advanced nation retains 90% of the enterprises, especially service firms, and it is one of the important factors in developing the country's financials (Zafar and Mustafa, 2017). The service-based firms are not the only solution for economic progress but also the transformation and development of employment, generation of income, and scientific progression around the globe (Syed et al., 2012). According to the report of Government UK (2019), the service sector can target different groups, as explained in the available literature.
Service sector definition may differ from nation to nation, especially in the European region, but mostly depending on the employment or assets, either combination of both. Amino (2018) defines the service sector as those firms that deal in different client services. On the other hand, the total worth of the service-based enterprise, with total assets of around fifty million but not exceedingly more than five hundred million with a total workforce between 50 to 5,000 (Schulz and Volianska, 2011)
As compared to product-based companies, service sectors have characteristics that help to analyze and identify the needs and sell services accordingly. Therefore, the service companies have some distinguishing characteristics from other firms, such as small size, independence, and close relationship with the customer and the business partner. Still, they have limited resources (Mac and Bharied, 2010). The service sector in Europe is considered the economic lifeblood, while in 2006, businesses with up to 249 service companies exemplified around £1.4 trillion (49%) of turnover and employed 14 million people (GOV.UK,2009).
The most common definition of the service sector is that any business with services as its core market offering can be classified as a service business. In 2018, there were around 5.7 million service-based companies, which were exactly 99% of all businesses (Rhodes, 2018). The service sector significantly influences revenue assortment in a tax form, developing entrepreneurship culture, creating employment chances, income generations, developing human capital skills, and, most importantly, enhancing the standard and quality of living. Covering all the above main economic benefits, it develops a perfect competition environment and fair distribution of wealth (Qureshi and Herani, 2011). When there are benefits, there is also a potential risk that should be studied while outsourcing. Even today, there is limited empirical research done to analyze the success of the service sector internationally. Current research emphasizes that service sectors are increasing their share in the global market. Nevertheless, minorities get involved in exporting beyond the domestic market (Wynarcyzk, Piperopoulus, Mcadam, 2013). In most developed and developing industries, the number of service-based firms is increasing, so there is a need to utilize the extensive range of foundations of finance. Seemingly, well-working capital markets could encourage access to funds, advance enterprise, and empower development-situated organizations to work gainfully and make a huge commitment towards business and financial stability. It is recommended that the service sector must consider its flexibility, size, and adaptability while administrating and developing information. In this manner, such firms can react quickly to new chances, expand their tasks and contribute altogether to net occupation creation.
The significant job attributed to smaller organizations experts at service-based division to the critical edge of the UK government motivation, bringing about various relevant activities and strengthening approaches (Hussain, Millman and Matlay, 2006). When there are benefits, there are also risks that organizations must face, whether they are small or large. The risk may include operational risk, strategic risk, security risk, transparency risk, and other risks like the difference between the supplier and consumer ethos, loss of protection and control, and security of the intellectual assets become difficult, especially when they become outsourced to another supplier. Specifically, in the outsourcing agreement of IT infrastructure, if the price of the contract rise or the term and conditions of the contract are not well explained and performance measurement is not established. It is believed that due to outsourcing, the business process risks losing the know-how of that particular activity. For example, outsourcing IT infrastructure to a vendor that operates with higher power distance concepts would contradict the firm’s performance in terms of the services of that vendor. The foremost reason for contradiction in this scenario will be cultural differences in the organization. The lack of a strategic plan and a poor contract are also part of outsourcing risks (Iqbal and Dad, 2013).
Concept of Project Leadership
At first, it is essential to outline the project management concept so that a better understanding of project leadership can be obtained. In association, a project is defined as a collaboration of entities and individuals to accomplish a certain goal. In correspondence, Besteiro, Pinto, and Novaski (2015) defined project management as a series of activities that are strategies for completing a specific outcome. Similarly, Beringer, Jonas, and Kock (2013) defined project management as a set of measures that are input by responsible individuals and an output is obtained from these measures. A project manager is composed of systematic procedures. The systematic procedures indicate chances of effective achievement of desired objectives. Here, effective achievement is referred to as more than desired benefits from the project through management. At this stage, the role of a project manager is crucial as he/she plans, organizes, leads, and controls the entire project (Moeller, 2010). Further, the leading role of a project manager determines the guiding and motivating aspects. Consequently, the concept of project leader initiates at this stage. Altogether, project leadership has been identified as a leading act to redirect a team toward successful outcomes when a project is allocated.
The integrated term of project leadership can be defined as an act through which the project manager leads the business towards completing the project. The research initiated by Lundy (2013) found that the main reason the project is initiated is it helps sustain and meet the change that has been formulated in the form of project requirements and project objectives. The study denotes that many projects fail and cannot meet project requirements because they are restricted by bounded rationality, where the lack of resources, time, and cognitive thinking ability restricts decision-making. By linking the concept of better managing change to project leadership, the study reveals that by dedicating a leader and leadership skills to a project, the project itself can facilitate the changes that, if not catered to, can emerge as project failures and constraints. As stated by the research, the concept of project leadership emerged better to manage the prospect of projects and their success rate. In general, project leadership is essential to ensure that the project team is intrinsically motivated.
Moreover, the literature also indicates that project leaders deliver a fresh perspective on the projects. These perspectives reflect the best strategies for managing the business (Garg and Jain, 2019). Further, a project leader also emphasizes prioritization of the resources and ensures efficiency throughout the process (Macintyre et al., 2011). Efficiency is referred to as the accurate use of resources concerning the requirement. Additionally, the scope of the project is also controlled by the project leader so that the schedule and budget of the project are all managed in an efficient manner AB. In response, a project leader is equipped with the tendencies and capacities to get the work done in a particular manner from his/her followers (Beringer, Jonas, and Kock, 2013).
As the job role of a project leader is wide, the set of skills and traits to motivate and keep the employees on a productive track is also extensive. In association, Musteen and Thomas (2009) defined that a leader is obliged to be a visionary so that the long-term vision of the project is successfully understood by him/her. Additionally, Jordan (2017) defined that a project leader must be able to manage the relationship with their followers through effective communication strategies. Further, a project leader is loyal and devoted to his/her work. Eventually, Verma (2009) defined a set of characteristics present in a project leader, namely charisma, vigilance, and decisiveness. Conclusively, a project leader is an essential entity that assists the organization in obtaining the desired objective.
The study denotes that by applying the concept of project leadership in a typical project environment, a project manager can ensure the integration of the stakeholders, ensure the team members are motivated and, most importantly, strike a balance between the time, cost and requirement through the project life cycle. Therefore, the project leader is important for project success. Considering the change's important and necessary aspect of the project, the combination of leadership skills and attitude allows the project manager to reduce the resistance to change. However, to ensure the project's success, the project leadership must support the member with project management support, guidance, and direction; plus, it should also be ensured that the project leadership style carries a positive attitude and engages the team; lastly, it should be incumbent by through communication. Specifically, the current study is related to the project of offshore IT outsourcing in the service sector of UK firms. In this regard, a project leader is referred to as an individual who is responsible for leading the people who are involved in the outsourcing measures of the selected area.
Underlying Reasons for Offshore Outsourcing
According to the research initiated by Zafar and Kantola (2018), offshore outsourcing has gained importance and attention both theoretically and practically; the most known reason is it allows businesses to take advantage of the low cost that results while a transaction is done in a foreign currency. According to the author, certain reasons force the management to choose an outsourcing option. The prime reason for the research study is revealed to be lower operational cost, which allows the foreign-based business to gain a significant cost advantage. The other reason revealed is to allow the business to focus on the core process of the business where its core competency is; in contrast, outsourcing is a time-consuming process where the business does not have expertise. These reasons give rise to the decision to outsource. Outsourcing an area where the business is less experienced allows it to gain a competency advantage. Additionally, it is not only about gaining a free hand and bargaining more time, but it also allows the business to leverage global knowledge and a competent firm. Since a business concentrates on the core process and does not have dedicated a department to an unknown area of expertise, it can better manage the internal resources and expertise.
A study initiated by Di Gregorio, Musteen, and Thomas (2009) reveals that offshore outsourcing mainly reduces the cost of manufacturing business; it allows the business to be freed up from administrative and technical services. The research confirms that many outsourcing tasks and activities are outsourced to SMEs. The research study denotes a positive association between the outsourcing of technical and administrative services and a greater scope of internationalization. In association with the findings from the literature, the role of a project leader is to list the reasons for outsourcing and design a vision. Later on, the project leader is responsible for accomplishing the designed vision by motivating and redirecting the employees towards the desired goals.
Characteristics of Outsourced IT Projects
It is essential to denote the characteristics of outsourcing projects as it allows the project leader to strategise using resources and redirect the people accordingly. In association, the following are some characteristics of outsourcing offshore;
Characteristics refer to the main factors or features (Moeller, 2010). Service of intangibility is worthy as it cannot be possessed or even touched but can be produced and used respectively. Some researchers somehow do not agree with the idea of intangibility, mentioning the physical environment and the goods or facilities as the straight part of the service. Therefore, accepting that service can be measured and accessed through a tangible viewpoint. (Macintyre et al., 2011). In this regard, the leaders must manage the moral hazards while implementing the project.
Regarding the nature of physical merchandise, the buyers are responsible for ensuring the products (Bebko, 2000). Standardization of administration is troublesome as its convenience cannot be controlled or checked like in the manufacturing business (Verma, 2009). Service ensures the result of the assistance between the benefactor and consumer, in which the consumer is mostly the co-producer of the proposal. Establishment and consumption of the offer occur respectively, meaning that the service is ordered, produced, sold, or consumed (Macintyre et al., 2011). Due to this feature, services are vulnerable to variations in demand. It cannot be examined in advance, leading to risks for the provider and the consumer (Verma, 2009). Execution of administration changes relies upon the high points and participants (Macintyre et al., 2011). This concludes the end "item" changes each time it is delivered.
IT Outsourcing and Project Management
Businesses are striving towards reducing their cost to maximize their profits and thus sustain a suitable position in the highly competitive and saturated marketplace. Business corporations and even small and medium-sized firms outsource some of their functions mainly to reduce their costs (Jordan, 2017). According to Bi et al. (2017), businesses outsource their functions to optimize their processes. The auxiliary functions of the organizations are delegated to contractors or third parties so that they can focus on their main operations. Thus, it can be stated that by outsourcing IT functions, an organization can better focus on its core operations and thus sustain a competitive edge in the market. By outsourcing IT functions, the company is not only able to decrease its costs and focus on its main functions, but it can also get its IT work done by professionals and experts (Garg and Jain, 2019). In the current times, many companies are outsourcing their IT functions to attain flexibility in terms of achieving the core aims of their projects.
Factors Influencing the Success of IT Outsourcing Projects
The critical review of the literature indicates that certain factors contribute to the success of outsourcing IT in projects. Ward and Griffiths (1996) have defined critical success factors as the areas of business that contribute to business flourishing. Healy and Linder (2002) have identified some of the essential factors that have a major role in supervising the outsourcing of different functions in a business. The authors have mentioned that one of the major reasons why projects can succeed by outsourcing their IT functions is that they can receive high-quality support from IT specialists. It has been mentioned by Gottschalk and Solli-Sæther (2005) that the effectiveness of outsourcing does not simply depend on cost-cutting; still, the quality controls and quality parameters defined by the third part are also of great importance. This means that the measures used by the third party to monitor the quality standards and benchmarks also play an important role. Williamson (2008) has also pointed out the importance of correspondence with the third party in ensuring outsourcing success. This means that the goals of the project should efficiently align with the goals and objectives that are set out by the third party or supplier and contractor.
The abundance of literature about outsourcing has indicated various benefits such as business growth, cost-cutting, production growth, acceleration of production, speed, and professional expertise (Linder, 2004). Regardless of the wide-ranging benefits of outsourcing, there is a significant percentage of projects that fail due to outsourcing their functions, especially IT functions. As per one of the reports of Deloitte (2008), only 34% of the managers confirmed that delegating IT infrastructure to a third party of contractors yields fruitful results. The report also indicated that managers thought that a significant amount of their time was wasted in searching for the relevance and quality of IT companies that could match their project goals and objectives. From the review of the literature, it can be inferred that lack of quality in the services provided by the IT service providers, undistinguishable tasks, lack of proper communication between outsourcer and service provider, mismatching goals of outsourcer and service provider, and neglecting the service agreements are some of the reasons due to which outsourcing IT functions result in project failure. In this regard, cost-saving, minimal supervision, advanced technological assistance, and decreased error are crucial to offshore IT outsourcing in the UK.
Project Manager’s Skills in IT Outsourcing
IT projects all around the globe are considered to be complex and highly technical, and thus, they require multifaceted management skills. A project manager does not only need to possess management skills but should be equally efficient in terms of technical skills and knowledge. The skills of project managers are not limited to management and defining the scope and objectives of the project, but they should also include technical and risk management skills. In the case of IT outsourcing, the project managers need to communicate and collaborate with service providers (Hirscheim et al., 2002). Espinosa et al. (2007) have pointed out that usually, the IT functions of an organization are distributed geographically, which means that some parts are outsourced and offshored, requiring a great deal of communication and collaboration. In this regard, the project manager needs to lead the team efficiently. Here, efficiency reflects the tendency of a team to accomplish the desired outcome at the right time.
Leadership is an important trait for a project manager who outsources IT infrastructure. It is composed of different sets, such as soft skills and hard skills. Soft skills are referred to as innate tendencies of a leader, such as logical reasoning, persuasiveness, and analytical skills (Zafar and Kantola, 2018). On the other hand, the hard skills are learned behaviour of the leaders, such as numeracy, communication strategies, and diplomacy. The set of soft skills enables the leader to analyze potential risks, whilst the hard skill helps in determining measures to address the risks identified. Thus, as per the findings of the research conducted by Banker and Kirsch (2000), a project manager should have a balanced level of both soft and hard skills so that they can be able to manage the team and also be able to make sure that the outsourced functions produce fruitful results. A significant amount of literature has pointed out that if the project manager is efficient, it directly and positively influences the project's performance.
The Significance of Project Leadership in Project Success
Baloh, Jha, and Awazu (2008) discovered that the project management of organizations which are used to manage the innovative outsourcing to their business partners to maintain the project success. Project management enhances corporate business planning and increases the rate of project success. The objective of this section is to explore the areas of project management and to what extent the stages of project management are essential for project success via managing risk. Risk identification is one of the major elements for each company, and they cater to the element of the risk associated with the corporate dimension in which the project management aspects are critical in risk mitigation (Ahmed, Azmi bin Mohamad, and Tahir, 2013). The issue of project leadership in assessing the benefit for the company and achieving the objective of the company has been getting more attention over the past decade. Various companies are adopting the strategies of project management to ensure the success of the project and to contribute to the project's success successfully. Many global companies have adopted project management measures to enhance operational value and increase the efficiency of the project (Ahmed and Abdullahi, 2017).
Nowadays, companies hire more project managers and employees who have expertise in the areas of project management and project success. Using effective time management via work plan methods, project planning, project coordination techniques, and project value methods. These are some of the methods which are widely used to enhance project success (Novo, Landis, and Haley, 2017). Project leadership is an essential way to examine the area of research and to examine the leadership profiles of successful project managers. The project manager’s ability to define the roles and manage and control the various dimensions of project management successfully adds value to the project's success in the corporate sector. In a hyper-competitive environment, companies took measures such as ensuring effective leadership techniques to influence project management for multiple project success (Murugesan2012). Leaders initiate project success via project controlling and project monitoring stages.
According to Laslo and Goldberg (2008), outsourcing is used for project management. Projects must be completed within a specific time, budget, and resources. Managers and organizations must complete in time with favourable outcomes and success. Organizations often use outsourcing when they face a shortage of required resources or to find cost-effective solutions to the problems arising in the completion of the projects. Outsourcing provides a solution for the possible insufficiencies of resources.
Challenges and Risks Associated with Planning of Resources for Outsourcing
Globally, numerous industries have outsourced their IT infrastructure, the main reason being to achieve low cost and precision, enhanced productivity, industry-level quality, and increased customer satisfaction. More importantly, outsourcing lets a company outsource weaker and unstable departments such as information technology, allowing companies to focus on other core areas where it is expert and dominates. While admiring the ease and advantage outsourcing gives to a company, it’s important to address the risk associated (McIvor, 2017).
Research initiated by Dhar and Balakrishnan (2006) emphasizes risks found in the IT outsourcing industry; the study enlightens that the outsourcing industry usually poses inherent risks; besides, outsourcing a process or department means inviting hidden costs, unexpected out, some and diminishing service that distort and negatively influences customer expectation and satisfaction. The further study evaluates various costs by entailing transaction cost theory (TCT), which refers to transaction costs incurred in terms of time and effort; it further classifies efforts wasted in searching, monitoring, and negotiating with an outsourcing agency. Other research studies suggest that there are two sorts of costs: production and coordination costs. Production cost refers to the cost incurred in developing or creating a product or service, and coordination cost refers to the cost allocated in managing and controlling staff. Transaction cost is commonly increased by asset specificity involvement, where production cost increases.
Besides others, the threat involved can be opportunism, where an outsourcing agency or vendor might be taking advantage, for instance, aiming towards capturing competitors' market and might not perform as per promise and lastly, uncertainty. Other unforeseen risks include the risk of undesirable events where unsatisfactory service can cost companies repute, risk of probability function where there is the possibility that it would result in an adverse outcome, risk of variance is a difference in perceived quality by the customer,r and lastly unexpected loss which usage of insurance. As the concluding research suggests, the risk of outsourcing can be avoided by properly managing and maintaining contractual agreements and quality standards. Moreover, the risk associated with outsourcing can also be managed to keep regular checks. A risk management plan should be initiated, and the organization should set its service level agreement (SLA) goals. And finally, companies should frequently manage their portfolios (Rost, 2016).
A study initiated by Kodwani (2007) concentrates on the business process of outsourcing and how it has gained increased importance in human resources, where companies are shifting employees’ payroll to outsourcing companies. According to a survey conducted by Hewitt Associates, among various activities and functions, prominent ones being outsourced are outplacement services, employee assistance programs, defined contribution 401(K), COBRA administration, pension calculation, and health benefits. Human resource outsourcing (HRO) is extended to a range in which its processes can be divided into specialists, one-stop shops, and super suppliers. Specialist includes outsourcing companies such as Hewitt Associates and ADP that deals with payroll processing, training and development, hiring and recruiting, performance management, and performance appraisal. One-stop-shop includes industry players such as Exult and Fidelity Employer Services, which combine human resource services. Super Supplier offers above industry-level service, which includes outsourcing companies such as IBM.
However, there are also numerous reasons an organization would outsource its department, mainly to reduce information technology requirements and delivery costs, standardize quality and professionally improve the strategic IT practices. However, outsourcing information technology might cause certain challenges, such as difficulty operating the designed IT program among employees and staff in embracing outsourced IT infrastructure conflict with certain policies; more importantly, organizations might be endangered of completely losing their data that external supporters of the firm back up. Additionally, the risk associated with outsourcing IT infrastructure entails spillover risk where the company’s secrecy and confidential manner might face a threat of getting leaked.
Outsourcing can also distort a company’s culture; an organization can meet the risk of losing personal touch with its employees and even discriminate between permanent and outsourced employees. The study suggests that due to increased data privacy, it required that companies carefully and cautiously outsource their business processes. It was also observed that more importance should be placed on the outsourcer’s end where employees are not experts as outsourcers become more self-reliant; there lies a threat that employees are forced to perform advanced calculations such as 401 (K). Thus, it remains the responsibility of outsourcing companies to improve their process to provide better and enhanced service (Patel, Budhwar, Witzemann, and Katou 2017).
Transaction Cost Theory
Factors Contributing to Risk Related to Outsourcing of Project
Iqbal and Dad (2013) analyzed the trends related to future outsourcing. The paper suggests that outsourcing today has become unavoidable for business; renowned multinationals have been embedding outsourcing into their various business process. In understanding the trends of the past ten years, it has been seen that it is a decision to make or buy; mainly, the decision of business is related to cost-reduction motives. Numerous MNCs have been outsourcing their processes to gain higher operational efficiency. However, the risk is unavoidable as there is a trade-off between cost and quality. Not all outsourced firms can meet international standards, which refers to the challenge of getting work done. Outsourcing is where a complex and critical department of the business is outsourced; however, business processing offshore outsourcing (BPOO) is now regarded as an evolution of the outsourcing business. It entails a range of services from simple to complex and critical, for instance, data entry and medical transcription, legal advisory, and processing of bases of pre-set rules; one of the most common examples of offshore out-sourcing is call centres. Risk related to outsourcing is usually a company losing control over knowledge, mainly due to weak intellectual property rights (BPOD, 2019).
The study conducted by Gozman and Willcocks (2019) has illustrated that the risks involved in the IT infrastructure and its influence on the privacy of the cross border and regulations and policies of Projects are vital to consider for service firms. To improve the background, this research provides the concept of IT projects, which is a trend from the year 1990s till the current era. There are a lot of sources used in the development of the system, which leads to firms incurring huge costs. The investments in the IT systems are big risks because this investment revolves around the probability of zero and one. Therefore, the risk related to the IT infrastructure reduces and changes over time. Moreover, from the various sources, a few sources related to the system development are exported from different countries to build a strong network. The strong system of IT reduces the risks associated with the Project, and the latest security detection systems, such as firewalls and modern security devices, provide security and decline the risk related to the Project IT.
The study conducted by Erdogmus et al. (2018) supports the concept of the distribution of the risks by taking the facilities management services from the different vendors. For risk identification, the different systems are designed by the companies, which also involves a huge cost, but it can prudently facilitate risk identification. There are various alternatives as well which provide support in the outsourcing of the IT infrastructures. For instance, a large company provides facilities management and various relevant services linked to outsourcing. This gives the benefits of the cost distribution, and eventually, it distributes the risk as well. This provides support in the risk identification of IT infrastructure in outsourcing. Some factors are impacting the IT infrastructure in the procedure of reducing the risk. These factors are further discussed.
Loss of Control
The loss of control is the major risk factor for the ineffective project execution of outsourcing projects. The loss of control of the IT infrastructure is one of the factors which increases the threats to security and problems in the IT infrastructure. Moreover, when any firm outsources its IT infrastructure, it gives the entire authority to the third person by trusting the third party with one of its integral internal operations. The dependence on the experience and expertise of the people involved in outsourcing, along with their services and resources, leads to a loss of control where autonomy is transferred to the party to whom the service is outsourced (Mathew, 2017). The Loss of control in the project management could be due to the ineffectiveness of the leadership. Moreover, the control ineffectiveness increases the project failure rate, negatively impacting the company's business or financial revenues.
Lack of Compliance
Lack of compliance is one of the major factors contributing to the failure of project management. The risk of ineffective compliance increases the risk of the project's failure and adds negative value to the project's success. Compliance is one of the major elements for project leaders, which affects project management stages and enhances the practical implications of the project management stages (Alexandrova, 2015). Project compliance is one of the major elements the company's shareholders recognize and ensure strong compliance to complete the project on time and correctly.
Communication Flow
Communication flow poses a certain threat if ineffective communication between one party and another is done. The management of the company enhances communication to ensure the success of the project, and via effective communication, managers strive to control the outsourcing project. Whereas the failure in the communication method poses a certain threat that could increase the risk associated with the project's failure (Iqbal et al., 2017). Project control can be done via effective communication between the functions and divisions to mitigate all the risks and implications caused by miscommunication.
Clarifying the scope of the outsourcing project
Many times, companies fail to predict the scope of the project and how the project could benefit the company to achieve the business objectives and to conduct a proper plan to make decisions regarding project management and execution (Chavdarova and Wang, 2010). Paying attention to the details of the project which is to be outsourced and calculating the financial return of the outsourcing project to minimize the risk associated with the project. Conducting a project management plan to clarify the scope and the needed requirements for the outsourcing of a particular project, undertake the project risk factors, and shape the strategies accordingly. Failure to measure the scope of the project and the needed resources to execute the process of outsourcing the project could add value to the failure of the project due to ineffective measures. The scope of responsibilities associated with outsourcing the project is one of the major factors for organizations, and the failure in this element could pose a certain threat, such as loss of money, failure of the project, and loss of resources.
The Role of Project Leadership in Managing the Risk of the Project
The role of project leadership in managing the risk associated with the project, such as some of the risks, is outlined above, and the project leader directs the company's management to enhance corporate strategies to mitigate associated risks. Project managers continuously strive to improve project performance and ensure the motivation of employees. Additionally, the project managers are inclined towards forming an effective working environment to enhance project success. However, the role of a project leader is much wider than just the comprehensive management of the project. In today’s global economy, the role of the project leader is significant, and executing each stage of project management requires sufficient resources to execute mass projects (Anantatmula, 2010). Leadership is vital to achieve the projected efficacy and to increase the chances of the project's success in the organization. The objective of this section is to ensure the employment of correct measures and strategies by the project leaders and to ensure the efficacy of various projects.
In association, the potential risks under an offshore IT outsourcing project include loss of control, limited accessibility, continuous development cost, moral hazards, and loss of privacy (Ahmed and Abdullahi, 2017). In response, the project leaders ought to employ their analytical skills to determine the probability of occurrence and impact of the listed risks while executing the project. Additionally, the swiftly rising change in the behaviour and actions of the project leadership influences the rate of failure and success of the various projects (Ahmed, Tahir, and Azmi bin Mohamad, 2013). In contrast, the fundamental responsibility and function of the project leader are to ensure the project leadership produces change and to set a direction for its employees to ensure the effective control and execution of the project. Therefore, the leader’s strategies are the risk management plan composed of risk probability, impact, scope, severity, and mitigation methods. Here, the mitigation method comprises avoiding, sustaining, and preventing practices.
Factors of Project Success
The project's success is contingent upon the influence of five key factors, which are given below:
Strategic Focus
For any project, the strategic focus is considered the most important factor. In detail, it defines the strategies employed by the project managers and related authorities. It is essential because the continuity of operation depends on the project's strategy. To compete with the deadline, a comprehensive strategy ought to be determined that also shapes the quality of the project. (Besteiro, Pinto and Novaski, 2015).
Leadership
In project management, leadership is a crucial determinant that defines the motivational guidance of the people working on the project. If the project's leadership is effective, it results in timely completion of the project along with an accurate amount of resources (Petit, 2012). This is because the increment in the allocation of resources is managed comprehensively.
People
There are various people with different technicalities involved in the projects, and the projects will change and mainly rely on the type of people involved. Project management becomes increasingly challenging if the stakeholders are related to different backgrounds, which creates the probability of disagreement among them during the decision-making of the projects (Beringer, Jonas, and Kock, 2013). The people also confront the challenges that the managers face in terms of project management. The skills, decision making and work environment of the project members also impact the project management (Besteiro, Pinto, and Novaski, 2015). Hence, a competent team results in the success of the project.
Project Process
The project process relies on a few determinants, such as the nature of the services and different sorts of products and the usability of those products and services. To sustain and fulfil the demands of customers and the business, suitable techniques are used by the project managers to offer the timely delivery of goods and services (Turner and Müller, 2005). A project process that engulfs the demands of customers and business subsidizes into a successful project.
Risk Management
Eventually, risk management is ranked as a significant success factor in a project’s success. Risk management allows the project team and managers to identify potential risks and set preventive measures (Wynarcyzk et al., 2013). As a result, smooth execution of activities is practised, and timely project completion occurs.
Methodology for Investigating Risk Identification in IT Infrastructure Outsourcing for UK Service Firms
This chapter provides insight into the methods used in the entire research study. This research defines the methodology used to undertake the research related to risk identification in outsourcing IT infrastructure for the service firms operating in the UK. In this section, all methods, tools, and techniques are discussed, which are being used to conduct the entire research study. Initially, this section highlights the research philosophy along with the research approach that is used in this study. Moreover, this chapter includes the research design, risks related to the research, and pilot study to obtain the initial results. The data collection method, sample size, and sampling technique are also part of this section. The most important part of the research methodology is the data analysis that defines the test methods and tools to examine the collected data. Lastly, this chapter comprises the ethical considerations and limitations of the research.
Research Philosophy
The research philosophy is the pathway through which the complete research is undertaken (Cazeaux, 2017). The research philosophy is classified into three types: interpretivism, positivism, and pragmatism. In this study, a suitable philosophy is interpretivism. The justification for using interpretivism philosophy in the study of the role of project leadership in outsourcing IT infrastructure in UK service-based firms is because the focus has been implicit on the explanation and understanding of reality within the extent of human reasoning. Interpretivism replicates reality and can be attained through socially built instruments such as emotions, feelings, language, and shared meanings. Interpretivism is the subjective approach in which the researcher makes an in-depth comparison of the project leadership and its ability to manage risk in outsourcing IT infrastructure in UK service-based firms. The other benefit is that this approach is dynamic flexible, and provides a detailed understanding of the research.
Research Approach
The research approach is classified into two categories: one is inductive, and the other is deductive (Armat, 2019). This research is based on the inductive research approach. The advantage of selecting an inductive research approach for project leadership in outsourcing IT infrastructure for service firms in the UK is that the researcher works with greater possibilities compared to the deductive approach. The inductive approach starts with a specific observation. It does not trail any pre-determined information. Following the wide range of information would often be caused by constructing a new theory. Further, the other advantage of the inductive approach is that it helps the researcher to incorporate current theories and literature.
Research Design
Research design is also known as methodological choice; it is the systematic description and explanation of the procedure of the research study (Dannels, 2018). There are three major types of research design: qualitative, quantitative, and mixed research methodology. The qualitative research design is used to undertake the study. The major advantage of using this research to identify the risk in outsourcing IT infrastructure in the UK is that this research design builds insight and understanding of the problems and ideas incorporated in the research study. In this research design, the collected data can be examined in detail by comparing and contrasting with the previous studies on the risk of outsourcing IT infrastructure globally and how it can be managed through project leadership companies in the UK.
Pilot Study
Pilot Studies are small-scale, preliminary studies that aim to examine the important factors of the study (Scaife et al., 2016). The study explores the project leadership techniques in managing the risk of outsourcing IT infrastructure in service-based firms in the UK; the researcher takes an interviewed with one participant in the initial stage. The advantage of a pilot study is that the researcher forecasts the findings and the right direction about the researcher. Hence, from the sample size of 4 managers, the researcher interviews one participant, observes the nature of the data, and decides the right direction for collecting interviews.
Research Risk
There is a certain risk related to the collection of data that is mitigated through the agreement and permission from the company for the interviews of the employees. The other risk is related to the data conducted through interviews, which might be biased. Hence, this business creates trembling information related to the project leadership technique of outsourcing IT infrastructure to service firms in the UK.
Sample Size
This study is related to the risk identification of outsourcing IT infrastructure in service-based firms in the UK. The data is collected by the primary research method through the interviews. Hence, the sample size for this study is the 4 managers of multinational companies in the UK who have specific knowledge about the project leadership of outsourcing IT infrastructure in service firms in the UK.
Data Collection Method
The data collection is categorized into two main types, which are primary data collection and secondary data collection (Ostrow, 2017). In this study, the researcher uses the primary data collection method to gather data about the project leadership technique of outsourcing IT infrastructure in service firms in the UK. The advantage of primary data collection is that it is accurate and first-hand data. In the primary data collection method, the interview technique is used for the data gathering. The managers are selected from companies that aggressively participate in the operations and functions that are outsourced. The selection of managers is based on the experience of the managers with proper knowledge about outsourcing operations. The interviews are collected from the multinational companies that are operated in the different countries of Europe. The justification for conducting interviews with the managers of multinational companies is that the researcher wants all-inclusive views, ideas, and perceptions about the risk identification related to outsourcing IT infrastructure in service firms in the UK.
Sampling Technique
There are many types of sampling techniques used in research studies (Etikan, Musa, and Alkassim, 2016). The most suitable sampling technique for this study is the snowball technique. The main reason for using this sampling technique is the approach of one manager of the multinational company and through that manager to reach the other experienced managers. The justification for using the snowball sampling technique is that it is a time-consuming and costly process to find and meet each manager who is related to the multinational company and has knowledge of project leadership in outsourcing IT infrastructure in service firms in the UK. Hence, the researcher found one manager and used the contact of those managers to meet the other managers for data collection.
Data Analysis Technique
It is the part through which the study results are declared and illustrated. In light of a study conducted by Mihas (2019), it has been depicted that it is the technique through which collected data is investigated, organized, examined, and analyzed. This study is based on primary data collection and qualitative research design. Hence, the suitable method for the analysis of collected interviews is thematic analysis. This analysis caters to both the theoretical assumption and research question of the study related to the project leader in outsourcing IT infrastructure in service firms in the UK. The thematic analysis allows the researcher to develop and progress the range of study based on past individual experiences. This technique of analysis is based on themes that are generated by the researcher and supports the existing data with the findings of previous research studies. As the thematic analysis does not need the comprehensive technological and theoretical knowledge of preceding qualitative studies, it provides a more reachable and accessible form of analysis, specifically for those initially in the career of the research.
Ethical Consideration
Ethical considerations are essential parts of any research study; in consideration of this, the researcher has taken care of the values, policies, rules, and regulations of the research while conducting the study (Bryman, 2016). While interviewing the project leadership in outsourcing IT infrastructure in E-service firms in the UK, the researcher has never forced any respondents to participate in this study; every participant related to a multinational company has taken part in the research by their consent and by their company's permission. Furthermore, they were given the choice of contributing to the study at any time they deemed suitable. The most important thing is that the researcher is guaranteed the secrecy and privacy of participants. The participants are assured that the confidentiality of their identities and names will be demolished after the accomplishments of the research study.
Research Limitation
Research limitations are the boundaries through which the complete research procedure is undertaken (Serra-Pompei, 2019). This research is based on project leadership in outsourcing IT infrastructure in service firms in the UK. The other limitation is the time and budget while undertaking the research study. This research is undertaken only from the perspective of the service firms of the UK; therefore, the results of this study can be mainly used in that particular sector and the relevant country. For future purposes, this can be conducted from a global perspective. This is based on the qualitative interviews with a small sample size and specific information. This can be conducted through secondary sources for comprehensive information related to the project leader in outsourcing IT infrastructure in service firms in the UK.
Conclusion
The analysis above underscores the critical role of project leadership in managing risks associated with offshore outsourcing, particularly in the context of service companies operating in the UK. Effective project management and leadership are indispensable for the sustainability of projects, regardless of the business's location. This assertion is corroborated by a study conducted by Leisen, Steffen, and Weber in 2019, which emphasizes the significance of project leaders who inspire and motivate their teams, leading to increased productivity and cost savings.
The UK's outsourcing industry, which generates approximately £262.8 billion in annual revenue, is substantial. Its size makes it susceptible to various challenges and risks, as noted by Blakeley in 2018. Thus, companies are advised to implement effective risk management and risk identification processes. To gain comprehensive insights into these processes, the researcher interviewed managers from various organizations, finding that risk identification strategies vary depending on a company's size.
To address the specific risks associated with project leadership in offshore outsourcing, this research delves into risk assessment strategies. It focuses on the relationship between risk reduction in outsourcing and effective project leadership. Various global strategies, including risk assessment models, are employed by companies engaged in outsourcing. Outsourcing enables organizations to concentrate on their core competencies, capitalize on their expertise, and delegate non-core activities, fostering innovation and adaptation to market changes.
The service sector significantly contributes to the economic growth of developed, emerging, and underdeveloped countries. Zafar and Mustafa's 2017 research underscores the importance of a robust economy in mitigating financial risks related to offshore outsourcing. The UK's service industry is a key economic driver, further supporting this conclusion, as outlined by Vojtech et al. (2017). The research also categorizes risk identification into three groups: project-specific risk, relationship-specific risk, and macroeconomic risk.
Project-specific and relationship-specific risks are interconnected, with client attitudes affecting project outcomes and poor strategy implementation negatively impacting client relationships. Macroeconomic risk, on the other hand, is distinct and revolves around financial accountability, where cost allocation and expenditure evaluation can either reduce or increase risk.
Risk identification directly influences the quality and performance of outsourcing services. High dependence on a service provider poses a significant risk, as service levels can fluctuate, potentially harming a company's reputation and competitive advantage. Offshore outsourcing is vital for reducing manufacturing costs and enhancing competitiveness, particularly in the era of advancing technology.
The skills and competencies of management and leaders also play a pivotal role in risk assessment in offshore outsourcing, along with technical expertise in areas like IT, which can lead to substantial time and budget savings for projects.
The research holds theoretical significance, particularly in the context of transaction cost theory, which addresses cost allocation changes within the governance structure. Factors such as control loss, compliance deficiencies, communication flow, and project scope clarification all impact the risks associated with outsourcing. Additionally, factors related to project management, such as budget, deadlines, team members, and stakeholders, exert varying influences on management, which, in turn, affect offshore outsourcing outcomes.
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