Determinants of Service Quality in Offshore Software Development Outsourcing

Offshore outsourcing has assumed great importance as a strategic option for many firms over the past few years. Primarily driven by cost considerations, increasing number of software projects have been outsourced by organizations in the US and Europe to firms in countries such as India and China. In recent times, managers of both outsourcing and vendor firms have realized that cost considerations, generally assumed to be the primary reason for offshore outsourcing, need to be balanced with the need to maintain quality. For instance, mixed experiences with respect to quality forced firms like Valicert and Dell to significantly rethink their offshoring strategies (Thurm, 2004). In addition, as the offshore industry in locations such as India mature, vendor firms have to look beyond being the low-cost option and understand the dynamics in providing high-quality services to their clients as a source of competitive advantage (Carmel & Agarwal, 2002). There is currently little work that has explicitly studied the antecedents of quality in offshore software projects. Much of the previous research in studying software quality has focused on projects that were conducted in-house. The presence of relative homogeneity amongst platforms and applications in in-house development made it easier to model the quality of software produced as the result of a “production process” (Russell & Chatterjee, 2003). Offshore outsourcing differs from these contexts in some significant ways. First, outsourcing involves operating across organizational boundaries significantly reduce the ability of client managers to directly control the software development process. Second, offshoring such work compounds the difficulty inherent in such issues because of factors such as geographical distance, culture and language. Both these reasons lower the ability of client managers to control quality compared to in-house IT services, where the risks of mismatch between the incentives of the IT group and user community are reduced due to the presence of administrative hierarchy within the firm. In the offshoring context, however, incentive alignment and monitoring may play a larger role in affecting quality. In such contexts, in addition to traditional drivers of quality, we need to examine the role of factors such as the contract type governing the relationship and client MIS experience in determining the quality of the project. In this study, we address these issues by developing and testing hypotheses on the drivers of quality in the offshore outsourcing context.