CHAPTER II

LITERATURE REVIEW

This chapter -literature review- will consider many view points from the wide range of information and literature available regarding change management models, theories and approaches relevant to the generic business perspective and also those that have direct reference to the implementation of IT outsourcing process.

Throughout this section, the research centres on change management, the different types of change models and theories, and the key change management factors affecting the outcome of an IT outsourcing implementation.

Following the objectives introduced in chapter 1, the literature critically reviewed in this chapter will be used as a basis to compile the necessary questions to be able to analyse how the various components, such as top management support, user involvement, open communication with employee and Human Resources aspects (i.e., employee resistance, job insecurity, kill moral, lack of trust and turnover) that affects the outcome.

Therefore, this literature review will begin with a short brief of historical overview on IT outsourcing, which will answers the three comprehensive and basic questions that an organization need to answer when outsourcing IT functions; those being Why, What and How. Consequently, answering the first question an organisation which is thinking of outsourcing its IT should ask is "why", this likely to raise other questions marks of outsourcing aspects which are, what is the aim and goal of the outsourcing arrangement and which are the benefits(i.e. financial, strategic and technical factors)and risks(i.e. relationships, transition, strategic and vendor/technical risks )involved. Followed by discussing the crucial capabilities involved when using IT outsourcing.

Then, will begin with a short exploration into the development of change management before moving onto analysing the use of change models, identifying their effectiveness within IT outsourcing implementation.


2.1 IT Outsourcing

IT Outsourcing as a phenomenon is not a new occurrence. Actually it entered the IS/computer industry when it was still in an early stage. For example, the company Electronic Data Systems handled the data processing services for other businesses as early as 1963 (Lacity & Hirschheim, 1994).

In this early stage of outsourcing, computer service companies were mainly used to run programs within areas of financial and operational support, for example payroll and administration (McFarlan et al., 1995). The concept of IT outsourcing got its real breakthrough when Eastman Kodak in 1989 signed under to outsource its total IT operations to the three outsourcing vendors; IBM, DEC and Businessland. (McFarlan et al., 1995; Lacity & Hirschheim 1993:1994) Until this point, outsourcing for medium to big companies had primarily been a sideshow and most common amongst smaller companies with problematic IT departments (McFarlan et al., 1995).

Never before had such a big and well-known organization, with IT as part of the strategic weapon, outsourced its IT operations. This became an outsourcing success and was the start of a tremendous interest and growth in the business. The Kodak deal sent the message that IT had matured into a commodity and therefore suitable to be managed by an external vendor. Company executives from all industries open their eyes for the outsourcing possibility and a "bandwagon effect" could be observed, and many big organizations like Xerox, Sears, British Aerospace, Continental bank followed. (Lacity et al., 1998; Lacity & Hirschheim 1994)

Explaining the "enormous" interest in IT outsourcing could, according to Lacity & Willcocks (2000), be seen as a consequence of a shift in overall business strategy. During the 1990's many companies changed directions and abandon their diversification strategy to instead focus on their core capabilities.

Many business leaders came to the conclusion that the only sustainable competitive advantage a company could have was to concentrate on what it does best. As a result of this new focus on core competence, the internal IT function became questioned as a competitive tool and was regarded as a commodity, thereby becoming a subject for outsourcing. IT outsourcing can in many cases be a strategy in itself and seen as a reactive move, part of bigger and more long-term changes of the organisation and its management (Willcocks & Lacity, 1998).

The last driver explaining the growth of the IT outsourcing market is the uncertainty of the value delivered by IT. The term "money sink" explains how many managers viewed and still view IT, experiencing problems with seeing the immediate benefits and not being able to measure e.g. increased revenue from IT investments.

The desire to get rid of a troublesome IT function that is hard to asses and has problems with demonstrating its business value made the IT function and its services a hot target for cost reduction initiatives, often leading to outsourcing. (Lacity & Willcocks, 2000) Today's IT outsourcing industry has come a long way from the start in the early 60s. Some of the main differences are:

1. The size of the companies that are outsourcing - today large companies outsource to a greater extent.

2. The industry has matured, now offering a wide range of services and in great number of alternative ways.

3. Outsourcing vendors are generally accepting to take on more of the risk and responsibility of the arrangement.

4. The relationship between the client and the vendor is increasingly seen as a partnership.

5. The complexity and technological intensity has increased, "giving more companies the option of outsourcing in a competitive provider market".

(Lacity & Willcocks, 1998)


2.2 Why should organisations outsource?

The first question an organisation which is thinking about outsourcing its IT should ask is "why". Answering this question is likely to raise other question marks; what is the aim and goal of the outsourcing arrangement and which are the benefits and risks involved?


2.2.1 The aim and goal with the outsourcing

To ensure a positive end result it is important in an early stage to manifest clear goals with the outsourcing arrangement and a well-defined objective. This is necessary to give the organisation guidelines to work with during the outsourcing process. The goal and aim of the IT outsourcing arrangement should be aligned with the overall business strategic requirements to get the best results (Capgemini European CIO survey, 2006)


2.2.2 Benefits

Behind an outsourcing decision there can (as discussed in the previous chapter) be numerous incentives and factors. In general, IT outsourcing arrangements can be said to deliver one or more of the three following capabilities: infrastructure services and data centre operations, application development and maintenance, and business processes. Extensive research has been conducted on the subject of the benefits of IT outsourcing, presenting a number of potential benefits for organisations that let external vendors provide some or all of the IT related capabilities needed. (McFarlan & Nolan, 1995; Ross & Westerman, 2004) When evaluating the option to outsource different stakeholders' perceptions and interests tend to bring a mix of financial, strategic and technical factors into play (Willcocks & Lacity, 1998).

In the section below some of the most important benefits are presented. These are not ranked in any particular order and the reader should keep in mind that the relative importance of the benefits will vary for each organisation and are dependent on its specific situation.


2.2.2.1 Financial factors

Cost reductions have for a long time, and still is, the most important driver for outsourcing. (Lacity & Hirschheim, 94; Capgemini European CIO survey, 2006) An external vendor can primarily save money to its client by its ability to control economics of scale but also, since frequently managing similar projects, provide the scope to manage it effectively. Substantial cost savings can especially be made by offshore IT vendors, using low cost labor found in for example India. (McFarlan et al., 1995; Ross & Westerman, 2004) Another financial aspect, motivating the use of outsourcing is increased control over the IT costs. Since IT costs are split with a rough allocation key in many organizations it is hard to get a clear overview of the cost drivers, which consequences can be excessive demand and consumption. Hence, the transaction costs theory (TCT) aroused by (Lacity and Hirschheim, 1993) to assume that organizations make outsourcing decisions based on an economic rationale. TCT is obviously relevant as IT specifically addresses outsourcing decisions in regards to producing a good or service internally or externally (Williamson, 1975) and as proposed by Williamson that managers need to consider both production and transaction co-ordination costs. By using an external vendor organizations can also increase the financial flexibility by replacing the fixed IT costs with a price model that allows costs to vary with usage, thus containing costs and increasing control by having a system that more directly link costs to usage. (Lacity & Hirschheim, 1994). TCT logic and conclusion rest on the assumption that efficiency is the dominant criterion for organizational success (Amundson, 1998). = = = article no.1 /p 3


2.2.2.2 Strategic factors

Since the 1990's there has been a general trend towards specialization in most of the business world. Companies have abandoned the once so popular diversification strategy in order to focus on the business' core competences (Lacity & Hirschheim, 1994). By outsourcing IT processes that falls outside the core business vendors can free up resources in the organization to focus on more value adding activities within its core competencies (Ross & Westerman, 2004; Erber & Sayed-Ahmed, 2005). Moreover, Core competencies theory suggests activities should be performed either in house of by suppliers. Activities, which are not core competences, should be considered for outsourcing with best-in-the-world suppliers. Some non-core activities may have to be retained in house as they are part of a defensive posture to protect competitive advantage. (Gottschalk & Solli-Sather, 2005). Due to extreme competition, organizations are forced to reconsider their resources to where they make the greatest positive impact, i.e. the organization's core functions. Thus, the complexity of IT, and it's core nature, may make the contracting out of IT a particularly challenging exercise. In addition to the above, other strategy issues which encourage the consideration of outsourcing are restructuring, rapid organisational growth, changing technology, and the need for greater flexibility to manage demand swings (Eisele, 1994; Iyer and Kusnierz, 1996) = = article 2 /p 3. However, outsourcing of non-core competencies will continue to be important, as such arrangements place responsibilities, e.g. for IT, logistics or production functions, in the hands of the constituent most capable of performing these successfully. (Chandra and Kumar, 2000).


2.2.2.3 Technical factors

Since outsourcing vendors, unlike their clients, have IT as their core competence they can build and leverage best practice in IT management. So by using the expertise provided by an outsourcing vendor it does not only enable the client to focus on its special core activities but also allows the firm to get access to "cutting edge" technology. By taking advantage of the experience the vendor has collected by managing several similar projects, the external vendor can provide technical skills which are hard to build and manage in-house and can thereby help the organization to create important business advantages. (Lacity & Hirschheim, 1993) In some cases the main reasons for outsourcing can be to find crucial competencies that are lacking within the internal IT organization. The organization may feel that it is too expensive to build these internally, both time- and money wise (Willcocks & Lacity, 1998). Technical considerations are captured by resource-based theory, such theory are more concerned with internal analysis of a firm in terms of resources and capabilities (Barney, 1991) = = article 1 /p5.

Follows, in order to generate sustainable competitive advantage, the resource-based theory of the firm must provide economic value and must be presently scarce, difficult to emulate and non-substitutable. (Priem and Butler, 2001) = = Article 3/p3

According to Pettus (2001) = = article 3/p2 , outsourcing for this specific purpose, demands careful considerations when choosing the vendor. For the arrangement to be efficient it is important to realize that the external supplier not only has the required expertise but also a compatible company culture.


2.2.3 Risks

When an organisation is evaluating whether to outsource or not, it is important not to forget the risks associated with outsourcing arrangements. When outsourcing IT services or capabilities the company will hand over a substantial part of its control. Ross and Westerman (2004) divide the risks with outsourcing into four major types: relationships risks, transition risks, strategic risks and finally vendor/technical risks.


2.2.3.1 Relationship risks

Going into an outsourcing relationship with an external vendor both parties should realize that the situation for the client today could be quite different in the end of the contractual period, and not only when dealing with long term contracts. As the market changes and new technologies create new opportunities and challenges for the client, the needs can also change dramatically. Since these changes and their impact are very hard to foresee the client always takes a risk when signing a contract with a vendor that later might not meet future needs. This risk should be taken seriously, particularly when signing long time contracts. (Ross & Westerman, 2004; Lacity et al., 1995)


2.2.3.2 Transition risks

All IT outsourcing arrangements includes a transition phase where the organisation, the processes and the staff need to adjust to the new situation. This phase often involves great technical challenges; e.g. linking outsourced applications together with internal applications or transferring technical staff to the vendor. Other challenges are related to dealing with organisational changes, which are likely to appear as the vendor makes changes to the old IT processes. (Ross & Westerman, 2004) It is important not to underestimated the time and money needed during the transition phase. If not calculated correctly these additional costs can easily turn the positive margin of the outsourcing deal into negative. According to the Ross and Westerman (2004) it can particularly become an issue when handling new technologies since the vendor are probably selling undeveloped competencies. Dealing with new technologies can hence be particularly hard for the parties involved.


2.2.3.3 Strategic risks

As concluded earlier, organisations in general want to outsource what they consider to be non-strategic activities (Ross & Westerman, 2004). But using this approach only when deciding upon which part of the IT-function to outsource can lead to problems. The risk lies in simplifying the complexity of IT and the uncertainties surrounding it. Since IT often is a highly integrated part of the business it can be hard to identify so called nonstrategic activities. The rapid technical advances in this area together with the complexity and unpredictability of the global market make it possible for the commodity of today turn into a strategic advantage tomorrow. (Lacity et al., 1995)


2.2.3.4 Vendor - Client risks

When signing an outsourcing contract the client loses some of its control over the IT function and processes, becoming dependent on the external vendor for delivering the capability needed in the way and the quality agreed upon in the contract. Therefore, the client should always be aware of the risk that the supplier goes out of business or for other reasons not be able to deliver the agreed upon service level. (Ross & Westerman, 2004) Thus it is important to choose the vendor with care in order to minimize the risk of this occurring.

Another issue concerning the vendor selection is the occurrence of a so called bidding war over attractive outsourcing contracts between different vendors. This situation, which at first can seem positive, will in worst case result in vendors making unrealistic bid offers. Sometimes the vendor already knows or discovers by hand that they are unable to recover their business results and operational costs for the near future. This situation is called the "Winner's curse" and can lead to additional costs, poor service or considerable switching costs for the client. (Kern et al., 2002) It can particularly become an issue when handling new technologies since the vendor are selling capabilities they may not be fully developed. When dealing with new technology it is hard for both parties to weigh the potential benefits against the technical and organisational difficulties that might arise. (Ross & Westerman, 2004)


2.3 What should organisations outsource?

One question all managers need to answer when structuring the IT function of the organization is what parts should be performed internally and what should be managed by an external vendor? (Willcocks & Lacity, 1998) Since every organisation looks different and faces different challenges it is impossible to give a simple answer. IT is today a highly important and integrated part of most businesses and can therefore be said to affect and shape most processes within an organisation. This contributes to making IT outsourcing far more complex than most other forms of outsourcing. (Kern & Willcocks, 2002) In a study by Lacity and Hirschheim (1994) it was concluded that the activities that require extensive knowledge of business needs, IT planning and strategy, IT architecture are unwise to outsource.

In an article published by Jane Linder (2004) a change in attitude was reported when looking at areas to be considered for outsourcing. Instead of outsourcing IT processes regarded as noncore, the author believe that outsourcing is increasingly becoming a mean to address more fundamental needs, for example addition of new capabilities and facilitate strategic and structural changes.

This emerging outsourcing practice will introduce the Centralization vs. Decentralization Model within companies that have outsourced parts of their IT function were, several decisions are pushed outside the company. At the same time, many of the decisions in this situation will be taken on a central level.


2.3.1 Outsourcing effects on centralization vs. decentralization:

Earl et al. (1996) state that outsourcing of operations and development may lead to downsizing of the IT function but it does not necessarily alter the centralization versus decentralization axis. Thus, the internal IT function has the option and also the responsibility to define where the decisions are to be taken, centrally or decentralized as stated below:


2.3.1.1 Small vs. large IT functions:

The very size of the IT function will also affect how it is set up and operates. Taking two extremes, in large IT functions (e.g. more than 800 employees) it is possible to have dedicated resources to strategic functions, e.g. strategic planning, company architecture, technology research and vendor management. In small IT functions (e.g. less than 60 employees) these roles will typically be shared or even not required and the IT function will focus more on day-to-day activities. In the first situation there is risk that the IT function will be forced into complex structures and also become more bureaucratic and isolated from their clients. Realizing expected synergies can then be tough. Although, having dedicated resources means that the IT function can apply more sophisticated management techniques and also influence the company's management team to a great extent. In the latter example the advantage is that small IT functions could change direction and respond to customers needs much easier. The disadvantage is that the IT manager will have to manage more and lead less since managers below the CIO is less mature than within larger IT functions. (Forrester, 2005: b)


2.3.1.2 Capabilities crucial when using outsourcing

In the view of Feeny et al. (1995), companies, after decided upon what parts of their services they should outsource will need to appoint a team to function as contract administrators and system/service integrators. The main tasks for the members of this group should be to; ensure that vendors provide the agreed upon services, that the user's (reasonable) needs are being satisfied, address disputes over contractual issues and asses penalties. This team should also decide when the service level is too low but also when it's too high. For example do many users not take advantage of the agreed upon training or companies insist on extraordinary service levels, which can become extremely costly. To have a successful contract-management team require people with extensive knowledge of the vendors, the users and different contracts. Therefore these teams call for a mix of competencies; contract management skills, technical skills of what is required from the IT-service, a systems integrator for the externally provided systems and those already in-house. Feeny et al. (1995) believes that these three different roles should be found in-house for the best result to be achieved.

Companies who outsource but who lack these competencies are likely to run into system gaps which makes the information sharing in the organization difficult. This can in turn lead to a negative attitude toward the outsourcing situation (and the vendor), which often leads to building on own solutions in parallel, creating a mess of ad hoc systems. The result can be increased costs which is often the opposite of the aim with the initiative.


2.3.1.3 IT function key stakeholders

IT involves many stakeholders, which all have different kind of demands depending on the company's' specific situation. If the management is to ensure that the exploitation of IT meets its needs, the stakeholders must be managed. (Earl, 1989; Rau, 2004) Increasingly as IT is used as a strategic weapon, businesses are linked up with their suppliers by networking. A supplier could in this case also be interpreted as a service provider or a "vendor", executing parts of the organizations value chain and processes. The demands on the IT function have increased a lot during past decades and systems delivery now also includes procurement and integration (Rockart et al., 1996). Firms are increasingly recognizing that they do not have the time, money and expertise to develop large integrated systems. They are instead purchasing software and sub-contracting development to third parties who have access to the latest tools and techniques. (Ibid) Other important stakeholders are business and management, which have to have good communication with the IT people in order to ensure that both business and technology perspectives are involved in understanding business opportunities. Employees are another stakeholder as they are the users of the technology and they need to be involved when designing systems and changing work routines. (Earl, 1989)


2.3.1.4 Business capabilities

According to Rockart et al. (1996) IT leaders often find that their staff is lacking in business knowledge and skills. If the necessary relation between the business and IT are to be built, the IT personnel's competence will need to change. Funding of internal education programs and creating partnerships with outside companies are example of initiatives to meet this demand. Outsourcing some IT responsibilities to computing services firms can compensate for skill shortages. However, making outsourcing work is a different proposition than deciding to outsource. The IT managers must be informed buyers, good negotiators and as skilled as the vendor in each area.


2.3.1.5 IT capabilities

Willcocks et al. (1997) suggests that to determine what the core of IT is you should answer the question; "which IT capabilities are core to the business's future capacity to exploit IT successfully". Following this line of thought, the authors divide the core of IT capability into four different categories;

- Understanding of IT capability

- Business and IT vision

- Delivery of IT services

- Design of IT architecture

The challenge of understanding IT capability is not just about keeping track of different technologies. Their usage is defined by the consumer rather than the producers. Therefore it has more to do with understanding the functional characteristics of the applications and how they are being deployed. The second category, business and IT vision, concerns the alignment of business and IT strategy where the systems should meet the business demands, and, as we have discussed earlier, IT may enable new and superior business strategies. The third capability mentioned was the challenge of delivering IT services, with low-cost and high quality. This area is transforming as the market for external providers of competence has grown vastly during past decades. The effect of this change is that sourcing skills have become more important for the IT managers. The last capability needed has to do with designing the IT architecture. The capability required in this case is twofold, partly a deep technical knowledge concerning systems, standards and technical trends, but also an understanding of the business and its needs. (Willcocks et al., 1997).


2.4 How should organizations outsource?

After answering the questions why and what, the organisation must find a way to realise their goals and anticipation with the IT outsourcing. Outsourcing of IT can vary a great deal, both in form and degree of outsourcing. As the industry has grown so have the different options available. Today there are numerous of different outsourcing models to choose from, designed to suit a ray of different organisations and all with various benefits and risks. In this section we will start of by explaining different IT outsourcing alternatives based on two criteria; the amount of an organisation's IT function that is outsourced and under what forms. The degree of outsourcing is a quantitative measure of categorizing different outsourcing options. Lacity et al (1997) present an outsourcing model where the different types are separated in terms of their shares of the total IT resources

  • Total outsourcing: Meaning that at least 80 % of the IT budget is outsourced.

  • Total in-sourcing: At least 80% of IT budget is kept in-house after outsourcing alternatives has been evaluated.

  • Selective outsourcing: A mix of outsourced and in-sourced functions, neither reaching 80 % of IT total budget.

  • De facto in-sourcing: The internal IT department is used without any evaluation of external alternatives.

In general, large scaled outsourcing deals (total outsourcing) is often a part of a bigger and more lasting change involving the way in which the organization need to be structured, focused and managed. (Willcocks & Lacity, 1998) Applying total outsourcing while using one or a few vendors can put the client at risk since it tends to increase costs and decrease flexibility over time. An alternative to total outsourcing is to use selective outsourcing. This approach assigns specific functions or services to the different vendor's best suited for the job. According to Lacity et al. (1997) selective outsourcing can be a successful form of outsourcing since it incorporates the fact that the information technology span includes a variety of activities different in terms of business contribution, integration with existing processes and level of technical maturity. Typically there is no one supplier or internal IT department that possesses the experience and economies of scale to perform all IT activities effectively. By using selective outsourcing the organisation should be able to increase its flexibility and control and also minimize risks by spreading it onto different vendors and time horizons. This approach also takes into consideration that IT activities, depending on their characteristics, require different amount of management attention, security and consideration to be successful IT outsourcing objects (Lacity & Willcocks, 2000). The authors also stress that selective sourcing works most effectively within the context of business strategic concerns and an overall IT-sourcing strategy that retains both flexibility and control.

From this point, the implementation of an IT outsourcing involves often structural as well as cultural changes in a company. Significant change, however, is a disruption in our expectations of the future which is viewed as a loss of control (Marshall & Conner, 1996). People are not likely to change the way they have been (successfully) working, especially when it is not clear what the goal of the whole operation is and who will benefit from the changes (Doppler and Lauterburg, 2000). Fear of the unknown and uncertainty is often the source of resistance and reduce productivity (Stark, 1999). Therefore, changing a culture, structures and processes is risky and can even produce negative results which is proved by many studies.

Moreover, if change has been carefully planned and the change process is managed and overviewed properly a positive result will be achieved. In the next section, the importance of change management in the implementation of IT outsourcing is introduced.


2.5 Change Management:

2.5.1 What is Change Management?

Smith (2004) describes change as interventions ranging from small staged improvements to major changes resulting in extreme restructuring of the organisation. Moreover, the roots of Change Management found in soft science of psychology where Change Management is applied to help people deal with hurtful emotional issues like death in the family or knowledge of one's own impending death (anon., 1996). In addition, organisational Change Management has proved as a useful tool to facilitate successful cultural transformations by helping people dealing with 'unknown territory' and Mitchell (2000) put it, the 'neutral zone' to ensure that the outcome of the change initiative is positive.

There are many models and theories that can be generically termed change management although there is not one strategy that will suit every situation. The approach chosen to manage the change process should be the most appropriate for the particular change being implemented (Markus and Benjamin, 1996). Some experts propose that the key is to concentrate on components such as information dissemination, employee involvement (Baronas and Louis, 1988), while others focus on the role that the change manager plays and the competencies required (Kotter, 1996; Markus and Benjamin, 1996; Miller, 2002). In contrast, some reflect on the social psychology aspects to change management (Kanter, 1996).

One common fact is that change at some stages will inevitably be a needed. Whether it is a case of responding to changes in the macro or micro environment or within the organisation's market niche, striving for competitive advantage or responding to government legislation, organisations often have to respond by implementing either new working practices or more often than not, new technologies. One thing is for sure that no sooner one change initiative is complete the organisation tends to be forced to move to another.

The beginnings of change management, and therefore the development of models and theories, could arguable be attributed to Kurt Lewin. Lewin is most noted for models such as the three-step approach of unfreeze-change-refreeze, which emerged during the 1950s, and later the action research model. It is evident that the early development of change management focused on a rather mechanistic approach to the analysis and implementation stages of change although it has now become apparent that the human relation aspect are now clearly adopted within all theories.

Many organisations accurately predict the changes the organisation needs to make, however, they often get the management of the change process wrong. Organisations waste vast amounts of resources and time and in extreme cases go 'bust' due to their failure in the management of the change process. There are some staggering statistics relating to change initiatives that many contribute to poor change management skills.


2.5.2 Approaches of Change Management?

Through the vast quantity of literature available on the subject of change management a common subject that has surfaced is that there are two approaches to the theory; the planned approach and the emergent approach. Although, all these are internally focused, and they attempt to provide solutions to help management obtain commitment to change and improve productivity with lease resistance.

In the next sections the approaches to change management will be discussed; the planned and emergent approaches as well as their importance to IT Outsourcing Process.


2.5.2.1 Planned approaches to Change Management:

The planned approach focuses on change that the organisation decides to implement. It considers taking the organisation, or the change subject, from one fixed state to the next state using a series of pre planned stages which are analysed with various 'tools'. Although many theories and models could be attributed to operate within this type of context the most notable are those developed by Kurt Lewin, which emerged during the 1950s, such as the three-step model of unfreeze-change-refreeze, and the Organizational Development (OD) model.

To provide a basic overview of Lewin's three step model, the first stage is unfreezing the existing situation; 'unlearning' the old system and way of doing things. The change is then introduced and the new behaviours are enforced by the third stage of refreezing.

Then, the unfreezing stage involves gaining the people's 'buy-in', or support, of the change initiative that differs from simply 'informing' them of the reason and focuses on what would make people want to change. The issue of safety is also key as people affected are more likely to be receptive of the change if they perceive safety. Once the people are in the desired conducive stage the change is implemented and the new behaviour is adopted by refreezing the new situation (Schein, 1996).

Lewin's planned approach has been further developed and utilised by advocates of organisation development (OD). The concept of OD is increasingly popular as organisations become more adaptable and responsive to change and attempt to develop structures and systems that nurture innovation (Peters and Waterman, 1982; Kanter, 1989; Senge, 1990).

By many practitioners the OD model is defined as planned approach, medium to long term change strategy with the aim of improving the effectiveness of the organisation and its workforce by means of systematic change programmes, often inter-related, based on behavioural sciences of psychology, sociology and politics. Central to the OD process is the use of a change agent as an expert who facilitates and guides the change process. Although this person can be internal to the organisation more often than not they are external consultants. (French and Bell, 1995; Burke, 2000; Cummings and Worley, 1997).

Although opinions on where OD should start varies from top-down, middle-out, bottom up, the consensus seems to be that OD should begin at the top and filter down to lower the levels of the organisation (French and Bell, 1990; Cummings et al, 1997; Burges, 2000), which clearly places it in the camp of the planned approach.

Both the earlier models of the planned approach, the three-step and the more recent evolution of organisational development are human relations approaches to change management based in social psychology, where they clearly focus on the individuals involved rather than solely the outcomes desired. However, these models, and the planned approach in general, do have their critics. Major criticisms are that the planned approach, which assumes the organisation operates in a stable state, has a one-dimensional approach that is only likely to generate short-term outcomes and in fact is more likely to increase instability than reduce it (Dawson, 1994). It is further criticised as it is considered to ignore organisational power and politics (Burnes, 2004) and tends to lend itself to change being 'forced' onto employees by senior management due to the nature of the top down approach (Clarke, 1994).


2.5.2.2 Emergent approaches to Change Management:

As the environments in which organisations currently operate in can no longer be considered stable there has become a constant need for the organisations to scan the environment in order to adapt which as a result the planned approach is not best suited but instead the relatively new emergent approach is deemed more applicable.

The emergent approach can be described as a bottom-up approach to change which claims to achieve a broader understanding of the complexity issues involved in the change process. The reasoning behind the bottom-up approach is that as the pace of change is often so rapid it is not possible for senior management to plan and develop every action but instead, as the name implies, it simply self emerges (Kanter, 1992).

It is best suited to small incremental changes, which over time can lead to major restructuring of the organisation. The role of the manager is not to plan or implement the change but rather to create a suitable structure and culture that it is more likely to be receptive to the desired change, which is achieved through the encouragement of learning, innovation, and experimentation. Unlike the planned approach it does not overlook the fact that change is often a political process where individuals, and often groups, operate as resistors to change in order to protect their interests (Kanter, 1992; Dawson, 1994, Burnes et al, 2000).

The change manager needs to be aware of a number of key factors that either promote or obstruct the change success; structures, cultures, organisational learning, management & leadership behaviour, plus power and politics (Burnes et al 2000).

The culture of an organisation, or group, can often be one of the main inhibitors to the change process. If change is to be successful it needs to be embedded into the culture of the organisation (Kotter and Schlesinger, 1979).

The literature suggests that it can not be overestimated how important leadership, and management behaviour, is to the success of any change management initiative (Kotter & Schlesinger, 1979; Kanter 1983; Kotter 1996; Clarke, 1994; Kanter 1998). Kotter (1996) explains that effective leadership is important to the change process because it can define and effectively communicate how the organisation will appear after the change inspiring personnel to make it happen.

Power and politics, and the power struggles produced when change is inevitable, can often be closely linked the outcome of a change implementation (Wilson, 1992; Kanter, 1995). In order to deal with resistance the change manager will often need to work politically to build support amongst employees at all levels; the change recipients, fellow managers, and senior executives.

In summary therefore, those organisations that are able to respond best to change will remain successful and in many instance will be market leaders. Those organisation which are inflexible, unable to adapt to change quickly will stagnate, will lose their market share and will quite often go out of business. Therefore the importance of change and the change process is essential for survival in today's global economy where competition is fierce. It is also important that organisations develop a capacity to change without disrupting their ongoing business operations.


2.6 Employee Resistance in an IT outsourcing change process:

Any change process will undoubtedly experience problems along the way; some over run their planned timescale, some kill morale, some cost a great deal of management time therefore it is important to concentrate on reasons behind employee resistance and ways of dealing with it as it is encountered (Kotter and Schlesinger, 1979; Bocij et al, 2003; Johnson et al, 2005).

Baron and Louis (1988) state that resistance can often arise from the stress of the implementation where this feeling can produce such reactions as unwillingness of individuals to learn the new system, often reverting back to old systems of working. Some may resist change through sabotage, many feel that the computer will take away their decision making responsibilities, while some feel insecure and are therefore resistant due to their fear power or job loss (Markus, 1979; Ainsworth 1977; Argyris 1971: Dickson et al., 1967, cited in Baronas & Louis, 1988).

Kotter and Schlesinger (1979) propose four most common reasons why employees resist change; firstly, A desire not to lose something of value, for example, their power, their job etc., which often produces political behaviour resulting from the individual placing their personal interests and goals before those of the organisation (Kotter and Schlesinger, 1979). Secondly, Misunderstanding and lack of trust between employees and their managers often lead to misunderstandings occurring which unless quickly rectified can result in resistance. Thirdly, Different assessments are another cause of resistance where individuals interpret the costs and benefits of the change implementation differently. Lastly, tolerance to change differs between individuals as all human beings are limited in their ability to change.

Resistance can occur even if they know the change to be beneficial. This can result from the person's perception that they are unable to develop necessary skills to cope or even from peer pressure not to comply.

However, the change agent needs to be aware that participation is time consuming and therefore may not be available when the change is required immediately.

As participation and communication have been discussed as being key to reduce resistance for the proposed change implementation, it is also apparent that communication and involvement needs to continue right up to implementation and beyond to which many experts recommend devising an appropriate training programme. Although, rather than simply attributing success to the use of an appropriate program, through their studies, Markus and Benjamin (1996) expand upon this by stating that to increase the probability of success, training must be carried out in-house by the Facility Management (FM) department.


2.7 Chapter II Summary:

In the prior theory sections we have aimed at providing two different aspects of our field of research. Concerning the theories around outsourcing you can conclude that it is and has been an evolving topic, influenced not only by heavy research and studies, but also by large macro economic factors and trends. In sum, the theories underline the many reasons for outsourcing and the many risks connected to such initiatives. In every given business situation the rational manager will try to reduce the risk as much as possible while maintaining the benefits. Based on the theory, this is also an approach that could be valid when deciding on the scale and number of vendors to use. Using many different vendors will imply more access to expertise and specialist, and using one or a few vendors will imply higher volume and hence larger scale effects that both parties benefit from. Thus there is a balance between cost and competence in this aspect which needs to be assessed against the risk undertaken. The section also brings up the questions of what to actually outsource. Since IT today is an integrated part of most businesses there is a challenge in choosing the right processes to outsource so that the rest of the business avoids negative impact. The challenge lies in defining and isolating the processes, and in many times the people, which can be "moved" to an outside vendor. The IT function's mission is to execute the IT strategy in such a way that the overall business strategy is supported.

In this sense, the usage of outsourcing should be an act in line with the IT and business strategy. The high level effect of outsourcing on the IT function is that some parts of the supply chain is taken over by an outside player, who then delivers services/value to the company's chain of value adding activities. The organizations structure, its principles of governance, capabilities and stakeholders are dimensions of the IT function which could be affected when using outsourcing. Coming back to the alignment of IT strategy and business strategy, the IT manager (or CIO) needs to secure that these dimensions will continue to support the overall target in situations when outsourcing is introduced and implemented in the operating model.