A Governance Mechanisms Framework for Multisourcing in Business Groups

Many large corporations are adopting multisourcing strategies. Multisourcing is described as the blending of services from multiple company-internal and external suppliers in the pursuit of business goals. To date, governance-related aspects in terms of multisourcing have been scarcely covered in the academic literature. With this research study, the authors examine how business groups utilize governance mechanisms in a multisourced IT environment. This article contributes to the body of knowledge in three ways. First, it describes established IT governance mechanisms; second, it presents insights into three real-life examples of IT governance mechanisms at leading international insurance companies; and third, it extends current literature toward multisourcing in a group context by proposing and applying a framework of IT governance mechanisms targeting the different relationships of multisourcing in business groups. In addition, this research is useful for corporations facing similar challenges. Rottman, & Willcocks, 2009). Cohen and Young describe multisourcing as the blending of services from multiple company-internal and external suppliers (Cohen & Young, 2006). The major part of current studies addresses dyadic IT outsourcing relationships; however, linear extensions of those are not sufficient to capture the details of multisourcing (Bapna et al., 2010). Moreover, governance-related aspects in the context of implementing a sourcing decision (Dibbern, Goles, Hirschheim, & Jayatilaka, DOI: 10.4018/jitbag.2011070103 34 International Journal of IT/Business Alignment and Governance, 2(2), 33-47, July-December 2011 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 2004) have scarcely been covered despite their great relevance (Busi & McIvor, 2008; Clark, Zmud, & McCray, 1995; Davis, 1996; Dibbern et al., 2004; Gottschalk & Solli-Sæther, 2005; Klepper, 1995; McFarlan & Nolan, 1995; Weimer & Seuring, 2009; Willcocks & Choi, 1995) and the extensive research that has been conducted in general on IT governance (e.g., De Haes & Van Grembergen, 2009; Henderson & Venkatraman, 1993; ITGI, 2007; Loh & Venkatraman, 1992; Sambamurthy & Zmud, 1999; Weill & Ross, 2004). This study builds upon those findings and aims to extend current literature toward multisourcing in business groups. Preliminary expert interviews with senior IT management consultants have indicated that governance aspects in multisourcing are of great practical relevance. Serving as an example, one interviewee stated: In our clients’ frequently multi-sourced IT function, governance is of high relevance, yet the clients struggle to identify the right levers to implement. With this research study, we intend to broaden understanding of how business groups implement governance mechanisms in a multisourced IT environment. Therefore, we have defined one comprehensive research question: [RQ] How do business groups apply governance mechanisms in multisourcing? This question has been further specified into two detailed sub-research questions: [RQ.1] What are relevant IT governance mechanisms based on the current body of knowledge? [RQ.2] Which mechanisms could a multisourcing governance framework in a business group encompass? To answer these research questions, we conducted both a qualitative in-depth single case study and a qualitative multiple case study to investigate multisourcing relationships at leading international insurance groups providing primary insurance, re-insurance, banking and asset management services. We have chosen this industry because financial services providers such as banks and insurance companies are in the forefront of outsourcing and offshoring both IT and business processes (Levina & Su, 2008). This article aims to contribute to research on IT outsourcing in general and IT governance mechanisms in a multisourcing context specifically, and is structured as follows. Section 2 outlines the research methodology. Section 3 provides an overview of fundamental terms and related research. Section 4 considers the single case of a leading insurance group. Section 5 reveals the main case study findings and discusses our proposal toward a framework of IT governance mechanisms. In Section 6 we apply the proposed framework in a multiple case study in the insurance industry, and in Section 7 we highlight the lessons learned before we conclude in Section 8. 2. RESEARCH METHODOLOGY We have chosen a five-step research approach. In order to validate our research questions with regard to relevance, we interviewed sourcing experts. Furthermore, we analyzed the current body of knowledge and conducted an in-depth single case study in order to investigate a real-life example of governance mechanisms in multisourcing. Based on those findings, we synthesized and proposed a framework of governance mechanisms targeting the different relationships of multisourcing in a business group. The framework has been evaluated with experts. Finally, we conducted a multiple case study in the insurance industry in order to apply and further verify the governance mechanisms framework. 2.1. Expert Interviews In order to manifest the relevance of the research questions, we conducted expert interviews. We chose three senior experts from management International Journal of IT/Business Alignment and Governance, 2(2), 33-47, July-December 2011 35 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. consulting firms based on their exceptional experience in dealing with multisourcing cases (Table 1). Each interview was conducted in a 30-minute to one-hour period. The interviews were semi-structured and all were transcribed (Yin, 2003). 2.2. Literature Review We conducted a thorough literature review, according to Vom Brocke et al. (2009), of IT governance in general and governance mechanisms in particular, in order to provide an overview of the current body of knowledge and to share understanding of basic terms (Zorn & Campbell, 2006). By focusing our research study on multisourcing, we could also investigate governance mechanisms that are utilized in IT outsourcing relationships (Section 3). 2.3. Single Case Study – In-Depth Insights into Governance Mechanisms A thorough single case study (Yin, 2003) constituted the basis for developing a governance mechanisms framework. Its purpose was to analyze the global multisourcing approach of Insurer A and to identify the governance mechanisms applied. In general, case studies allow for a facilitation and deeper understanding of complex phenomena. Consequently, they are beneficial research designs for qualitative research in IS (Benbasat, Goldstein, & Mead, 1987; Palvia, Pinjani, & Sibley, 2007). The leading insurance group, in the following Insurer A, is advantageous as a single case because it is characterized by a high level of complexity, an enormous number of business entities in the context of a business group organizational model, and an intense multisourcing approach. These features are considered rare, thus justifying the selection of Insurer A for a single case (Yin, 2003). Additional rigor is gained through access to previously inaccessible key documents and a close relationship between the researchers and the key stakeholders at Insurer A (GoldenBiddle & Locke, 2007; Yin, 2003). Moreover, according to Yin (2003), a single case study adds value if it is used to explore a previously unresearched field. Yin acknowledges that a complete and detailed description of a scarce phenomenon is a contribution to knowledge itself. In order to meet the requirements identified by Yin (2003), detailed information about the global multisourcing approach of Insurer A was gathered through multiple interviews with its representatives and external suppliers, as illustrated in Table 2. The data collection process was conducted over a four-month period in spring 2010. Each interview lasted one to two hours. The interview guidelines were based on the expert interviews conducted before the single case study and covered the multisourcing approach chosen with a special emphasis on governance mechanisms. In addition to the semi-structured interviews, the researchers had access to the following: documentation of multisourcing approach, contracts, transition documents, board reports, and performance and supplier relationship management reports. Table 1. Expert interviews Expert Company Background 1 Management consultant A IT governance, IT sourcing, IT performance management 2 Management consultant B IT strategy, IT organization, IT sourcing, IT shared service centers 3 Management consultant C IT strategy, IT governance, IT sourcing (especially offshoring) 36 International Journal of IT/Business Alignment and Governance, 2(2), 33-47, July-December 2011 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 2.4. Analysis and Evaluation The process of data collection and analysis conforms with guidelines suggested by Glaser and Strauss (1967) and Patton (2002). Thus, theory construction resulted simultaneously from interview guidelines based on previous interviews (theoretical sampling) and continuous interviews until theoretical saturation was reached. For data analysis, we applied open coding as suggested by Corbin and Strauss (1990). All interviews were transcribed. To verify the transcripts, we subsequently challenged the transcripts in an iterative process with the interview partners. The additional internal documents of Insurer A were also examined and the data were triangulated with the findings of the single case study (Denzin, 2009; Patton, 2002). In order to validate the findings from the single case study with Insurer A, we had the opportunity to present and discuss our generalized model with sourcing practitioners and IT management consultants during an expert workshop. Additionally, we carried out three follow-up expert discussions in the fall of 2010. 2.5. Multiple Case Study – Application of Governance Mechanisms Framework After evaluating the framework we conducted a multiple case study with leading international insurance companies according to Yin (2003) and Eisenhardt (1989). We interviewed four insurance companies. One of them is acknowledged as one of the world’s leading re-insurance companies. The other three were primary insurance companies and were amongst the top five insurance companies based on their operating profit in 2010. The data collection process was conducted over a two-month period in 2011. Each interview lasted two to three hours. The focus of the interviews was mainly on governance mechanisms applied in multisourcing and the relation to the chosen multisourcing approach. We analyzed the cases and aimed to validate the applicability of the framework that we developed on the previous single case with Insurer A. The multiple case study derived two extreme cases of multisourcing that serve as an illustrative example in the course of this article (Table 3). Table 2. Case study interviews with Insurer A ID Role / Affiliation Responsibilities 1 Multisourcing program manager at Insurer A Overall program responsibility 2 Multisourcing project manager at Insurer A Project responsibility 3 Transition manager at Insurer A Transition to business entities and support of local