Strategic Use of Service-Level Agreements

A s the role of information technology continues to grow, firms are frequently turning to information systems outsourcing to achieve operational and strategic goals. When outsourcing succeeds, firms can enjoy significant operations savings, access to new technologies, and flexibility in strategic decisions. This success, however, is by no means guaranteed—the Gartner Group estimates that half the outsourcing projects in 2003 failed to deliver on their promises.1 Equally shocking is a Dun and Bradstreet survey that indicates 20 percent of IT outsourcing relationships fail in the first two years, and 50 percent within five years.2 Pitfalls to outsourcing success include weak management, high hidden costs, poor communications, and business uncertainty.3 To address these challenges, academics look to relational governance in interorganizational relationships, which focuses on “soft” control mechanisms such as trust and commitment. Rajiv Sabherwal at the University of Missouri, for instance, recommends balancing structural control with trust to complete a “virtuous cycle” of outsourcing.4 In practice, however, trust and commitment are hard to operationalize. Instead, most companies rely on contractual agreements to mitigate risks. In particular, service recipients often use a service-level Rescuing IT Outsourcing: Strategic Use of Service-Level Agreements