Identification of multi-criteria for supplier selection in IT project outsourcing

Prashaya Fusiripong, Fauziah Baharom, and Yuhanis Yusof

Citation: AIP Conference Proceedings 1891, 020042 (2017); doi: 10.1063/1.5005375

View online: https://doi.org/10.1063/1.5005375
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Published by the American Institute of Physics

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 Identification of Multi-Criteria for Supplier Selection in IT
Project Outsourcing
Prashaya Fusiripong1, a), Fauziah Baharom1, b), and Yuhanis Yusof1, c)
1
Human-Centered Computing Research Lab, School of Computing, Universiti Utara Malaysia
Sintok, 06010, Kedah, Malaysia
a
Corresponding author: prashaya.f@rsu.ac.th
b
fauziah@uum.edu.my
c
yuhanis@uum.edu.my

Abstract. In the increasing global business competitiveness, most organizations have attempted to determine the suitable
external parties to support their core and non-core competency, particularly, in IT project outsourcing. The IT supplier
selection is required to apply multi-criteria which comprised tangible criteria and intangible criteria in consider optimal
IT supplier. Most researches attempted to identify optimal criteria for selecting IT supplier, however, the criteria cannot
be the considered common criteria support the variety of IT outsourcing. Therefore, the study aimed to identify a
common set of criteria being used in the various types of IT outsourcing. The common criteria are constructed by multi-
criteria and success criteria, which were collected by literature review with comprehensive and comparative approach.
Consequently, the researchers are able to identify a common set of criteria adopted in the variety of selection problem IT
outsourcing supplier.

INTRODUCTION
Projects outsourcing can simply be defined as
transferring part or full activities of a project to the selected
supplier for providing products or services (Faisal & Raza, 2016; H. Smuts, Kotz, Merwe, & Loock, 2015). The IT
products and services that can be outsourced are software development, data center operation, help desk, network
management, disaster recovery and web hosting (Karami & Guo, 2012). Outsourcing involved a contractual
business between an organization and selected supplier. Nowadays, due to competitiveness in the global business

many
organizations have
sought alternatives to improve their businesses and operations strategy through
outsourcing (Rezaeisaray, Ebrahimnejad, & Khalili-Damghani, 2016). According to Bahli and Rivard (2013) IT
projects outsourcing will grow in the
global market by approximately $US320 billion in 2015. Organizations
applied various perspectives of IT projects outsourcing such as onshoring (Qiang & Li, 2015; Thakur &
Anbanandam, 2015) and offshoring (Mukherjee & Mukherjee, 2015), Enterprise Resource Planning (ERP) (Khan &
Faisal, 2015), and software testing (Ismail & Razali, 2014).
There are some reasons for outsourcing of IT projects and this includes enabling the organization to focus on its
core business, lack of expertise, knowledge and skills within the organization, quality and service improvements,
increase productivity and reduce cost (Chang, Yen, Ng, & Chang, 2012; Karami & Guo, 2012; Hanlie Smuts,
Merwe, Kotz, & Loock, 2010; Thakur & Anbanandam, 2015). However, Karami and Guo (2012) claimed that half
of all outsourcing agreements in United States are failed. This is supported by, Hanlie Smuts et al. (2010) who
highlighted that based on their case study research in the United Kingdom, United States and Australia, only 50%
out of 192 respondents are satisfied with the benefits of outsourcing. These findings indirectly show that outsourcing
decisions for selecting a qualified supplier is complex. According to Karami and Guo (2012) outsourcing decisions
are often made under uncertainty and incomplete information and lack of comprehensive decision models which
leads to wrong decision, resulting in loss of core competencies and exposure to unexpected risks. Hence, many
studies were conducted to improve the supplier selection process for outsourcing. As stated by (Hermann,

The 2nd International Conference on Applied Science and Technology 2017 (ICAST’17)
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Published by AIP Publishing. 978-0-7354-1573-7/$30.00

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Baumgartner, Vorbach, Ragossnig, & Pomberger, 2015) the supplier selection can be done either based on single
criterion decision making or multi-criteria decision making.
In Single Criterion Decision Making (SCDM) approach, the decision making process for selecting the suitable
supplier is simple as the task involved with evaluating only criterion which is cost-benefit or financial based
criterion (Hermann et al., 2015). However, SCDM cannot support the real practice as a wide range of criteria is
employed to select the qualified supplier
(Adhikary, Roy, & Mazumdar, 2015).
As a result, Multi Criteria Decision
Making (MCDM) approach has been introduced. In MCDM, supplier selection should consider both tangible criteria
and intangible criteria (Thakur & Anbanandam, 2015). The tangible criteria refers to quantitative criteria such as
price (Digalwar, Borade, & Metri, 2014). In contrast, qualitative criteria can be referred to intangible criteria such as
delivery and performance history (Thakur & Anbanandam, 2015). Each criterion will influence the decision making
process with an equal or different weighing factor. Therefore, this study aims to identify a set of criteria to be used
in selecting supplier for IT projects outsourcing. In order to improve the effectiveness of decision making in
supplier selection, the identified criteria will be aligned with the critical success factors of IT projects. The
organization of this paper is as follows. Section 2 presents the review of literature on IT outsourcing, multi-criteria
and success criteria in IT outsourcing. Section 3 discussed the research methodology used to achieve the specified
goal. Discussions on the findings are provided in section 4 while the last section describes the conclusion and future
work.

LITERATURE REVIEW

IT Outsourcing

Today, IT outsourcing is an increasingly important strategy for organizations. The trend of IT outsourcing have
been growing due to the reduction of expenditure, increasing productivity and services, and advantage of global
business competitiveness (Karami & Guo, 2012). There are three types of outsourcing: onshore (within the same
country), nearshore (within the common border) and offshore (countries sea border). Each organization has a
different requirement for using IT outsourcing which depends on organization’s need. For example Thakur and
Anbanandam (2015) state that outsourcing in e-banking system is used for improving the system to achieve
customer satisfaction. Due to the growth of advancements in information and communication technologies,
organizations have employed the outsourcing strategies to improve the quality at lower cost within inadequate
skilled human resource (Faisal & Raza, 2016). As a result, studies were conducted to identify criteria for improving
outsourcing decisions in selecting qualified supplier. Supplier selection has been focused by academicians since
1960s where the early research is largely focused on financial implications and single criterion assessments. Due to
imprecise decision, many researchers have proposed multi criteria for supplier selection and this includes the price,
quality, delivery time, supplier financial and performance criteria.

Multi-Criteria Supplier Selection in IT Outsourcing

MCDM considers both tangible (measurable) and intangible (immeasurable)
(Digalwar et al., 2014; Thakur &
Anbanandam, 2015) criterion. The performance criteria of a supplier was proposed by Dickson (1996) who
identified 23
criteria such as quality, delivery and performance history, and so on. Chang et al. (2012)
divided 19
criteria into the four categories based on number of using in academic papers. The criteria
were retrieved from the
referenced literature by matching the meaning similarity among criteria being used in IT outsourcing. Likewise,
Khan and Faisal (2015) provided criteria being used in ERP supplier selection. They proposed four criterions that
are price, technical capability/quality, service, and market leadership/reputation. In addition, for banking industries
that aim to use IT service outsourcing, they required the critical criteria in supplier selection process. According to
Thakur and Anbanandam (2015), the important criteria in IT outsourcing selection of the banking industry includes
quality, cost/price and delivery/reliability.

Selection Criteria based on Successful IT Outsourcing

Base on literature, various criteria for IT supplier selection problem are from expert’s experience and
organization’s needs (Qiang & Li, 2015). However, there are some studies that provided criteria based on the
successful IT outsourcing projects. For example the work by, Kronawitter, Wentzel, and Papadaki (2013) that

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proposed a group of criteria for successful IT outsourcing. Hanlie Smuts et al. (2010) pointed out that IT outsourcing
management should concern twelve criteria in for IT outsourcing success. This is also study by, Alexandrova (2012)
that identified key criteria influencing the successful IT outsourcing partnership. Later, there is a study by Ismail and
Razali (2014) who provided success criteria for software testing outsourcing on two viewpoints that are
onshoring
and offshoring such as expertise, language and culture, politic stability, turnover rate, reputation, and sufficient
resources. Furthermore, Ullah Khan, Niazi, and Ahmad (2010) identified seven criteria for offshore software
development outsourcing selection, which these criteria comprised with cost-saving, appropriate infrastructure,
efficient project management, quality of products and service and so on.

RESEARCH METHODOLOGY

This study is performed through comprehensive review approach. First the study began by defining the keywords
to be used in searching articles related to IT outsourcing. The search keyword used are “IT outsourcing”, “IT
supplier/vendor/provider selection”, “IT offshoring”, “IT onshoring”, “IT service supplier/vendor/provider”,
“Software outsourcing”, “ERP supplier/vendor/provider”, “Supplier Selection Problem” and “Multi-Criteria
Decision Making”. The reviewed papers were from various resources including publication in Web of Science
database such as IEEE Explore, ScienceDirect, Emeralds, Springer as well as ACM journal. This study used the
“Count” approach as adopted from Chang et al. (2012); Khan and Faisal (2015) to order the criteria for supplier
selection process. Then, the study continues by determining the successful criteria for IT outsourcing. Findings
obtained from these two activities were then analyzed to determine a set of criteria for supplier selection in IT
projects outsourcing. The analysis was done through matching technique by looking on the similarity (i.e. meaning)
of each criterion. According to Chang et al. (2012), they applied the similar meaning concept with grouping criteria
in the same aspects and characteristic such as group of “software and hardware capacities”, it included “software
technique capacity” and “hardware technique capacity”.
Therefore, the flow of matching technique (refer to Figure
1) between the identified criteria; successful and multi-criteria. Finally, the proposed criteria were classified into
tangible and intangible criteria.

FIGURE 1. Proposed Flow in determining multi criteria for effective supplier selection in IT project outsourcing

RESULT AND DISCUSSION

The result determined a set of the suitable criteria being used in IT outsourcing selection problem. These criteria
were sought from literature as multi-criteria and successful criteria in IT outsourcing. Therefore, this section
explained into three sub-sections, namely ordering the identified criteria in IT outsourcing, success criteria of IT
outsourcing, and multi-criteria for effective supplier selection in IT outsourcing.

Ordering the Identified Criteria

The study adopted the “Count” approach to determine the significance of criteria being used in IT outsourcing
selection problem. Therefore, the approach can be applied to determine multi-criteria and successful criteria with a
number of contribution in the literature of IT outsourcing. Thus, the results of both criteria show in Figure 2 and
Figure 3 respectively.
In Figure 2, the criteria in IT outsourcing selection problem which were collected from literature and through the
“Count” approach. As a result, it can identify criteria into twenty-nine criteria being used in the selection process.
There are four criteria which were considered as first priorities to be used in IT outsourcing selection problem which
are; quality (16 times), cost/price (12 times), flexibility (9 times), and technical capability and expert (8 times)
criteria respectively. In other words, this approach was preferred to use in determining the criteria of successful IT

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outsourcing projects, the result is showed in Figure 3. From the result, the project outsourcing stated that the
relationship and communication management, human resources, and executive management level criteria have great
impact on the project success.
Obviously, most of the successful IT outsourcing project required the criteria in the perspective of management
and communication between the outsourcer and supplier, while another of the IT outsourcing focused on the
financial and quality of product and service as well as supplier's flexibility.

FIGURE 2. Criteria ranking in the IT outsourcing selection process

FIGURE 3. Criteria ranking in the successful IT outsourcing projects

Success Criteria of IT outsourcing projects

The criteria identified in the previous section includes all criteria, regardless if they are from successful or
unsuccessful projects. Hence, this study proposed to consider the criteria from successful IT outsourcing projects as
listed in Table 1.

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 TABLE 1. List of success criteria in IT outsourcing

Success Criteria Domain References

Cost / Financial Management IT application outsourcing, IS outsourcing, Kronawitter et al. (2013); Hanlie
and Offshore software development Smuts et al. (2010); Ullah Khan et al.
outsourcing (2010)
Professional Human Resource / Staff IT outsourcing partnership, IT application Alexandrova (2012); Kronawitter et
Management outsourcing, IS outsourcing, and Offshore al. (2013); Hanlie Smuts et al. (2010);
software development outsourcing Ullah Khan et al. (2010)
Quality and Service Performance IS outsourcing, and Offshore software Hanlie Smuts et al. (2010); Ullah
Success Criteria Domain References
development outsourcing Khan et al. (2010)
Relationship and Communication IT outsourcing partnership, IT application Alexandrova (2012); Kronawitter et
Management outsourcing, IS outsourcing, and Offshore al. (2013); Hanlie Smuts et al. (2010);
software development outsourcing Ullah Khan et al. (2010)
Knowledge IT outsourcing partnership, IT application Alexandrova (2012); Kronawitter et
outsourcing, and Offshore software al. (2013); Ullah Khan et al. (2010)
development outsourcing
Flexibility IT application outsourcing and IS outsourcing Kronawitter et al. (2013); Hanlie
Smuts et al. (2010)
Technology / Physical Infrastructure IS outsourcing, and Offshore software Hanlie Smuts et al. (2010); Ullah
development outsourcing Khan et al. (2010)
Executive Management Level Support IT outsourcing partnership and IT application Alexandrova (2012); Kronawitter et
outsourcing al. (2013)
Multi-Culture and Language Software testing outsourcing and Offshore Ismail and Razali (2014); Ullah Khan
software development outsourcing et al. (2010)
Reputation Software testing outsourcing Ismail and Razali (2014)
Risk Management and Assessment IT application outsourcing Kronawitter et al. (2013)
For example,
the financial management/cost
were considered to be one of successful criteria in IT outsourcing
project. The criteria can be referred as the expenditure’s firm and supplier to handle IT project such as
economic and
finance of client and supplier (Kronawitter et al., 2013; Hanlie Smuts et al., 2010; Ullah Khan et al., 2010). In
addition, the staff management and ability of IT professional criteria have become significant part of the IT
outsourcing project success. These criteria are considered in the competence of supplier to assign the suitable IT
project and supplier’s staff management (Alexandrova, 2012; Kronawitter et al., 2013; Hanlie Smuts et al., 2010;
Ullah Khan et al., 2010). The other successful criteria related to the previous criterion that is knowledge. The
knowledge criteria emphasized to the specific cognition of IT and business process of each organization which
included efficient knowledge transfer from supplier to a client (Alexandrova, 2012; Kronawitter et al., 2013; Ullah
Khan et al., 2010). Therefore, these successful criterions in listed of Table 1 can indicate the suitable criteria in the
selection problem of IT outsourcing by the meaning.

Proposed Multi Criteria for Effective Supplier Selection in IT Outsourcing

The matching technique (refer to Figure 1) is able to point out the criteria should be adopted in the selection
process with the variety of IT outsourcing. This is because of these criteria were comprehensive the various
perspective of literature's IT outsourcing based on case study. Along with, they were interpreted meaning through
the process of matching technique with criteria of the successful IT outsourcing. For instance, the cost/price,
finance, and economic criteria in the case study of IT outsourcing selection problem can be interpreted
meaning to
financial management/cost of the successful IT outsourcing. Finally, the result of the technique can be
classified as
tangible and intangible criteria. It can be represented followed by Table 2.

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 TABLE 2. Tangible and Intangible criteria

CONCLUSION AND FUTURE WORK

The IT project outsourcing are widely used by organization to be competitive in global business. However,
determining the criteria to be used in selecting IT outsourcing could be troublesome. This study has proposed a set
of criteria based on the literature of multi-criteria and also success factors in IT outsourcing. In particular, the study
includes a matching technique to finalize the selection criteria. The technique composed comprehensive and
comparative approach. However, most of listed criteria are difficult to measure as they are of intangible criteria.
Thus, in the future, the study will be extended to focus on measuring and evaluating intangible criteria.

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