An Evaluation of Sourcing Strategies’ Relationship with Software Development Project Performance

University essay from Blekinge Tekniska Högskola/Institutionen för industriell ekonomi; Blekinge Tekniska Högskola/Institutionen för industriell ekonomi

Abstract: Background: The rapid improvement of technological infrastructure over the past three decades have led to increased connectivity and communication possibilities. This has allowed firms to develop sophisticated firm-specific governance structures with the use of different sourcing strategies. The main objectives have been to cut costs and gain competitive advantages by outsourcing activities offshore to developing countries or third-party vendors. The decision to outsource has its roots in the classical transaction cost theory and resource-based view. Some outsourcing partnerships have resulted in failures while others in success stories. The stories are evident in the software industry as the industry is highly susceptible to sourcing strategies, hence outsourcing is often used in global software development (GSD) projects. Firms engage in GSD with the ultimate goal of producing products faster, at a low-cost, and of high quality. In spite of this, GSD projects face huge challenges in terms of geographical-, temporal-, and cultural distances while the added complexity and issues associated with different sourcing strategies amplifies these challenges. The use of different sourcing strategies in GSD projects has not received as much attention as the debate about whether co-located or distributed teams perform better. Objective: The objective of this thesis is to explore how outsourcing, insourcing, and the combination of both in a co-located and distributed development setting relates to the software development project performance measured in terms of quality and productivity. The aim is to enrich and add to the scarce literature of global software development project performance in relation to sourcing strategies and when these are combined in projects. Method: In this thesis, we employed a case study at a software firm which engages in large-scale global software development projects. A total of 64 projects were selected for the study and data was collected primarily from archival documents where we made use of management documents and code databases. The data analysis was conducted using statistical tests in SPSS to investigate relationships and differences in quality and productivity for the four strategies. Results: The results revealed a statistically significant difference in quality among the sourcing strategies. Insourcing projects are associated with the highest quality followed by outsourcing projects and co-located mixed sourcing projects. Distributed mixed sourcing projects are generating the lowest quality. Although not statistically significant, distributed mixed sourcing projects are the most productive strategy followed by outsourcing projects, insourcing projects and lastly co-located mixed sourcing projects Conclusions: The recent trends in GSD which indicate that many companies turn back to insourcing after outsourcing is justified in our results as insourcing projects displays the highest quality. While outsourcing projects have been associated with poor quality and productivity, our findings suggest they are very competitive in terms of both. The mix of internal employees and third-party consultants in a co-located and distributed setting is associated with lower quality while poor productivity is only attributed to the co-located case.

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