an analysis of it/is outsourcing provider selection for small- and medium-sized enterprises in...

Information & Management 49 (2012) 199–209

An analysis of IT/IS outsourcing provider selection for small- and medium-sizedenterprises in Taiwan

She-I Chang a, David C. Yen b,*, Celeste See-Pui Ng c, Wei-Ting Chang a

a Department of Accounting and Information Technology, Advanced Institute of Manufacturing with High-tech Innovations, National Chung Cheng University, Taiwan, ROCb Department of DSC & MIS, Miami University, United Statesc Department of Information Management, Yuan Ze University, Taiwan, ROC

A R T I C L E I N F O

Article history:

Received 29 June 2010

Received in revised form 2 February 2012

Accepted 7 March 2012

Available online 12 April 2012

Keywords:

IT/IS outsourcing

Small- and medium-sized enterprises

(SMEs)

Delphi method

Analytic Hierarchy Process

Outsourcing provider selection model

A B S T R A C T

Outsourcing is important in highly diversified business environments, but while there have been many

studies on outsourcing, none have explicitly tackled the problem of how SMEs should assess and select

their outsourcer. Numerous benefits might be gained if SMEs could utilize evaluation models to help

select their IT/IS outsourcer effectively. Prejudices arising from selection through impartial analysis

could be avoided and a more accurate and an objective decision could be made. We investigated the

selection process of an enterprise needing an IT/IS outsourcing provider in Taiwan. Our recommended

process quantitatively sorts the criteria using the AHP. An evaluation model was developed based on the

needs of the SME who should use it to obtain a better outsourcing provider resulting from improved

information vital to maintain outsourcing efficiency. Use of our model should reduce costs and potential

risks in adopting new IT/IS applications and promote an objective standard with which to evaluate IT/IS

outsourcing providers.

� 2012 Published by Elsevier B.V.

Contents lists available at SciVerse ScienceDirect

Information & Management

jo u rn al h om ep ag e: ww w.els evier .c o m/lo c ate / im

1. Introduction

Outsourcing is the provision by an outside company of productsand/or services that implement functions or activities of the userorganization. In general, an outsourcing provider differs from theapplication service provider (ASP), which merely supplies softwareapplications, hardware, and/or related services. In addition, aservice agreement with an outsourcing provider is usually basedon a long-term contract, while that with an ASP may be short-term.A review of the IT outsourcing (ITO) literature by Lacity et al. [14]suggested that:

(1) research studies of ITO practice in the early 1990s focused onthe determinants of IT outsourcing, IT outsourcing strategy,and mitigating IT outsourcing risks;

(2) studies from mid-1990s to the late 2000s focused on bestpractices and client and supplier capabilities; and

(3) recent studies have considered offshore outsourcing, businessprocess outsourcing, and the resurgence of application serviceprovision.

* Corresponding author at: Department of DSC & MIS, Miami University, Oxford,

OH 45056, United States. Tel.: +1 513 529 4826; fax: +1 513 529 9689.

E-mail addresses: [email protected] (S.-I. Chang), [email protected] (D.C. Yen),

[email protected] (C.-P. Ng), [email protected] (W.-T. Chang).

0378-7206/$ – see front matter � 2012 Published by Elsevier B.V.

http://dx.doi.org/10.1016/j.im.2012.03.001

Taiwan, affected by the global economic downturn andincreased competition, has confronted the issue of how SMEscan survive. Over time, SMEs have realized that IT utilities havebecome one of the most important ways of maintaining globalcompetitiveness. However, there has been no effort to develop amodel to aid in selecting an IT/IS outsourcing provider for an SME.

While outsourcing has been perceived as viable and economi-cally beneficial for large enterprises, the new business environ-ment has shown that this may be a misconception: oftenoutsourcing has proven to be less effective than internal IT/ISprocessing. Various factors affect the effectiveness of outsourcing;while some results from the supplier’s capabilities, including theirsystem and service quality [16], partnership, trust, and servicelevel agreements [8], other factors depend on the client-firm’sneeds and abilities, including their IT capability, internal organi-zational, participation, and communication [9], as well as theirshared/common processes and procedures for testing and ensuringquality and same Capability Maturity Model (CMMI) capabilities[20].

The right choice of an outsourcing provider has a positiveimpact on the productivity and performance of the client company,and probably on market reaction to increased or decreased marketreturns [1]. Studies point out those enterprises should carefullymanage their pre-planning activity, recognizing that choosingoutsourcing companies with excellent service quality is a crucialfactor in making a successful selection. Similarly, the choice ofoutsourcing providers is one of the most important factors


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S.-I. Chang et al. / Information & Management 49 (2012) 199–209200

affecting outsourcing performance. Jayatilaka et al. [10] identifiedfifteen factors influencing the choice of ASP; of these, eight aredirectly associated with outsourcing providers. Outsourcingproviders play a significant role in the success of outsourcingactivities and careful management of the receiver–providerrelationships is required to sustain a successful outsourcing ! itcan facilitate a successful turnaround in a failing outsourcingventure [11]. However, the outsourcing approach may have tochange with time and due to new technology development [12].Thus the selection of an outsourcing company is crucial in ensuringthe success of the relationship between an enterprise and itsoutsourcing service provider.

2. Theoretical foundation and discussion

SMEs are more inclined to rely on the support of external IT/ISservice providers than are large enterprises. Therefore, the searchfor SME IT/IS outsourcing services should comply with theiroperational model and demands.

2.1. Current development of small and medium enterprises

Taiwanese SMEs manage their operations based on the Small

and Medium Enterprises White Paper (2005) law which defines anSME as a company based on two criteria: (1) the net capital for themanufacturing, mining, or quarrying industry should be less thanNT$80,000,000; and (2) the total capital should be less thanNT$120,000,000.

It is evident that SMEs are small-scale businesses that havelimited resources. Taiwanese Institutions such as the Chung HuaInstitution for Economic Research have summarized the char-acteristics of SMEs and described them as firms having small-scaleoperations, an insufficient workforce, high fluctuation rates,unhealthy financial structures, insufficient resources, rapid deci-sion-making processes, a high efficiency of resource operation, andan insufficient internationalized capacity. Apart from being highlyheterogeneous, they value their relationship with other enter-prises as flexible and aggressive, and their operation is dynamic.

As SMEs face increasingly complex systems in areas such asERP, distributed hardware and software management, storagemanagement and business intelligence, they have learned todepend on other providers for operating their businesses.Maintaining such systems requires resources and expertise, butobtaining them at an affordable price can be difficult. Morespecifically, monetary resources are needed to purchase tools andproactively manage IT (e.g., support remote connectivity, monitorsystem performance, and tune the system) and recruit personnelskilled in installing and updating software and hardware.Typically, an SME does not possess the necessary skill set tohandle all IT issues; most have limited working capital, tools andskills, and their IT application is usually far behind that of largeenterprises [4]. Thus when SMEs introduce a new IS, theoperational procedures and intended introductions are difficultto fully integrate because of a lack of skills and experience of theirIT staff. Furthermore, SMEs in Taiwan often still regard IT/IS as aunit under the accounting function, resulting in a lack ofmanagerial experience in planning for and/or managing theinformation resources.

Outsourcing can upgrade the operational efficiency of compa-nies [2]; thus, it is an excellent way to upgrade the operations ofSMEs.

2.2. IT/IS outsourcing service

Outsourcing service types are diverse. Taiwan’s GovernmentDirectorate-General of Budget divided IT/IS outsourcing services

into: overall planning, systems integration, systems inspection,systems management, Internet management, software develop-ment, software verification, software maintenance, hardwaremaintenance, hardware operation, management of facilities,supporting services, Internet services, consulting services, estab-lishment of databases, information dealing, and data registrationor training promotion.

In terms of business functions, outsourcing services can also beseparated into two groups: information techniques and businessprocedure outsourcing services. Currie [5] stated that there wereeight stages of outsourcing services:

(1) planning and analysis, which allows the participation of users;(2) design and establishment, which allows the participation of

users and applies self-management;(3) design and establishment, which also allows the participation

of users and employs outsourcing management;(4) design and establishment that do not employ the participation

of users;(5) specific projects which allow the participation of users and

apply self-management;(6) specific projects which allow the participation of users and

employ outsourcing management;(7) overall outsourcing which allows the participation of users;

and(8) overall outsourcing which does not employ the participation of

users.

The performance of IT/IS outsourcing is affected by manyfactors, as shown in Table 1, which were all derived directly fromthe referenced literature. Outsourcing contractors tend to beevaluated according to each crucial factor to ensure outsourcingsuccess. Thus SMEs should carefully evaluate their respectiveenvironments and corporate cultures while assessing their needs.

The ‘‘Count’’ suggests that the capacity of software, hardware,and specific project management and the reputation of theprovider are the most important factors in the selection process.The other factors may also be crucial criteria depending on thespecific needs of the firm.

Since the meanings of some factors are similar, we integratedthe aspects of ‘‘software technique capacity’’ and ‘‘hardwaretechnique capacity’’ into ‘‘software and hardware capacities,’’ and‘‘presence or absence of testing procedures,’’ ‘‘presence or absenceof procedures for testing and ensuring quality,’’ and ‘‘qualityassurance’’ into ‘‘property, quality, and reliability of the products’’.For more intuitive terms, ‘‘number, experience, and specialty of theprofessional personnel’’ was changed to ‘‘capacity of employees,’’and ‘‘involvement in research and development’’ was renamed‘‘capacity for research and development.’’ Based on a similarprocedure, the refined 20 factors (from the original 24 shown inTable 2) affecting the choice of enterprises with respect to ISoutsourcing companies, were further placed into four groups:‘‘capacity of professional skills,’’ ‘‘capacity of service,’’ ‘‘capacity ofoperation,’’ and ‘‘external evaluation.’’ The main idea/rationalebehind these four groupings was to provide a grouping that was aparsimonious set of IT/IS outsourcing provider evaluation dimen-sions, and an appropriate information structure for data analysis.These serve as bases by which each factor can be measured.

Often, SMEs rely on professional skills and service capacityrather than on completeness of system documentation andinitiatives to absorb the capacity of the personnel of theoutsourcing provider. In order to examine how SMEs shouldassess and select potential outsourcers, empirical data wascollected from Taiwanese SMEs using Delphi and other surveymethods.

Table 1Evaluation criteria of SMEs in the selection of IT/IS outsourcing service providers.

Item A B C D E F G H I J Count

Article number 6 22 13 7 15 23 17 18 21 24

Software technique capacity V V V V V V 6

Hardware technique capacity V V V V V V 6

Information security technique V V V 3

Knowledge on clients’ industry V V V 3

Capacity for system integration V V V 3

Service, relationship, and support of contractor V V V V V 5

Completeness of system documents, manuals, and process improvement capability V 1

Developmental tools of system V V 1

Presence/absence of procedures for testing and ensuring quality V V 2

Property, quality, and reliability of products V 1

Capacity for specific project management items V V V V V V 6

Number, experience, and specialty of professional personnel V V V V V 5

Presence/absence of initiative to absorb capacity of current information personnel V 1

Financial affairs stability V V V V 4

Involvement in research and development V V V 3

Reputation V V V V V V V 7

Maintenance of confidentiality of business V 1

Enterprise culture V V V V V 5

Lawsuits with other clients V V 2

Location of companies V V V 3

Previous cooperation with proprietors V V 2

Quality assurance V V V 3

Organizational resources V V 2

Flexibility of contracts with respect to the deadline V V 2

S.-I. Chang et al. / Information & Management 49 (2012) 199–209 201

3. Research methodology and design

To assess our model for selecting IT/IS outsourcing serviceproviders, a two-phase approach was employed. The first phaseused the Delphi method, while the second used AHP. This processrequired that the client had enough budgetary flexibility to makethe best vendor selection based on the outcome of the Delphi test.Then the AHP allowed multiple criteria and both quantitative and

Table 2Salient factors considered by SMEs in selecting IT/IS outsourcing service providers.

Dimension/definition

Capacity of professional skills: Current technique and prospective developmental cap

outsourcing provider companies

Capacity of service: IT/IS outsourcing provider companies after-sales service, and deg

of products

Capacity of operation: Internal operations and management, and stability of IT/IS ou

companies

External evaluation: IT/IS outsourcing provider companies’ knowledge on client’s ind

locations

qualitative considerations to be included [19]. Moreover, itfacilitates pairwise comparison of the various criteria to be madeand inconsistencies in the input data are allowed.

In our study, we used the Delphi technique to: (1) explorewhether enterprises have different considerations in choosingoutsourcing service providers; (2) investigate the factors used bySMEs in selecting outsourcing service providers; and (3) categorizethese factors and generalize them in discussions with experts.

Factor

acity of IT/IS � Software and hardware capacities

� Information security technique

� Capacity for system integration

� Property, quality, and reliability of products

� Capacity for research and development

� Developmental tools of the system

ree of description � Service, relationship, and support of contractor

� Completeness of system documents, manuals,

and process improvement capability

tsourcing provider � Capacity for specific project management items

� Capacity of employees

� Stability of financial affairs

� Maintenance of confidentiality of business

� Lawsuits with clients

� Previous cooperation with proprietors

� Organizational resources

� Flexibility of contracts with respect to the deadline

� Enterprise culture

ustry and their � Knowledge on clients’ industry

� Reputation

� Location of companies

Table 3Hierarchical categorizations.

First hierarchy Second hierarchy Third hierarchy

Establishing the evaluation model through

which SMEs can select IT/IS outsourcing

service providers

Capacity of professional

skills

� Software and hardware capacities � Developmental tools of the system

� Information security technique � Property, quality, and reliability of

products

� Capacity for system integration � Capacity for research and development

Capacity of service � Service, relationship, and support

of contractors

� Completeness of system documents,

manuals, and process improvement

capability

Capacity of operation � Capacity for specific project

management items

� Enterprise culture

� Capacity of employees � Lawsuits with clients

� Stability of financial affairs � Previous cooperation with proprietors

� Maintenance of confidentiality of

business

� Organizational resources

� Flexibility of contracts in relation to the

deadline

External evaluation � Knowledge on the clients’ industry � Location of companies

� Reputation


The first round of our Delphi discussed the structure of Table 3:it gathered the opinions of our experts on the evaluation criteria. Afive-point scale was employed as a measure of the criteria. Thedesign of the first round questionnaire was similar to Table 2except that a five-point scale was added for evaluation. After thefirst round of questionnaires was analyzed, the less importantcriteria (with averages less than 3) were deleted. This was followedby the distribution of the questionnaires for the second round andfurther analysis. Likewise, the second round questionnairefollowed the design of the first round which included items ofdimension, factor, and five-point scale. The consistency of theexperts’ opinions served as the evaluation criteria in the AHPhierarchies.

The AHP technique is mainly applied to decision-makingactivities with various evaluation criteria under uncertain condi-tions. Its objective is to systemize complicated issues and analyzethem in different hierarchies. The prioritization of factors withineach hierarchy is established to provide a quantitative evaluation.This allows decision makers to obtain information on the plansselected, reducing the potential risk of a major error.

The second phase involves the third-round design of the largesampling questionnaires, based on the first-phase AHP hierarchicalstructure and the distribution of questionnaires to IT/IS executivesof the SMEs, who had also been invited to evaluate the degree ofimportance of each factor. The design of the questionnaire alloweda pairwise comparison of each factor. Expert Choice 2000 was usedto analyze the related weighting of the evaluation dimensions,criteria of each hierarchy, and assess the consistency of the results.Fig. 1 illustrates this procedure.

Designi ng the first-rou nd Del phi Method questi onnaire per Table 3

After analy sis of the re sults, the Delph i questio nnaire was d esi gned, and this was

tested for consen sus to ensure an AHP struc tur e

AHP questionnaire design and surve y

Statistical analysis: (1) background information of the co mpany, (2) co nsiste ncy

of the test, and (3) related weighting of eac h pri nciple

Presenting suggestions for the e val uation model for SMEs f or the selecti on of

IT/IS o utsourcing co mpanie s

Fig. 1. Procedure of data collection and analysis.

We therefore had established the hierarchical structure of thestudy. Our study followed by evaluating the dimension of thesuppliers and determining the evaluation criteria. Appendix Ashows the AHP questionnaire.

4. Data analysis and discussion

4.1. Establishing the evaluation model

The experts in our Delphi study included 25 participants fromthe industry, academia, and government. Six were academics, 18came from industry, and one was a government employee who hadpreviously been involved in outsourcing service provider evalua-tion. The first-round questionnaire generalized 20 factors. Theexperts were asked to rank the degree of importance of eachdimension. In addition, several blank columns were left for theexperts to indicate other factors or considerations they deemedimportant (such as the adequacy of the classification). During thefirst round, 12 questionnaires were returned, yielding a return rateof 48%. The number of experts was within an acceptable range (10–18). Table 4 shows the demographics of the respondents. Thequestionnaire was based on a five-point scale, which combined theopinions of the 12 experts in calculating the average, maximum,minimum, and variances of each factor. The goal of calculating theaverage was to identify the average degree of importance. Dueregard was given to the opinions of the subjects on each factorbased on their expertise and involvement in SMEs. The purpose ofcalculating the maximum, minimum, and variance was tounderstand the degree of differences between the opinions ofthe experts and scholars.

The objective of the first-round Delphi Method questionnairewas to eliminate less important factors (with average less than 3),and design the second-round questionnaire based on the opinionsof experts and scholars. Generally, most of the opinions weresimilar. For example, ‘‘location of company’’ was deleted becauseits average was only 2.7. Although the maximum and theminimum were found to be 4 and 2 respectively, the average ofimportance was less than 3. Meanwhile, the items consideredimportant were ‘‘service, relationship, and support of contractors’’and ‘‘capacity for specific project management items.’’ Both had anaverage of 5, and their maximum and minimum values were 5 and5 for the former and 5 and 4 for the latter. Furthermore, 12 expertsregarded ‘‘service, relationship, and support of contractors’’ as themost important factor, since it obtained the highest evaluation of 5

Table 4Background of the experts.

Expert community Designations and affiliations

Government Director, Department of Information Service, Taiwan

Institute of Economic Research.

Industry Manager, FAST Technologies Inc.

Manager, ALLTOP Computer Co. Ltd.

Manager, Deloitte & Touche.

CIO, Tatung Co.

Manager, Oracle Taiwan LLC.

Manager, Department of Operation, Microsoft

Taiwan Corporation.

Project Manager, Alpha Technologies Inc.

Academia Associate Prof., Department of Information

Management, Far East University.

Associate Prof., Department of Information

Management, National Sun Yat-Sen University.


Management, National Pingtung Inst. of Commerce.


Management, National Kaohsiung First University of

Science and Technology.


points. Thus, most experts believed that the understanding of SMEswas limited, underscoring the need for external experts.

Meanwhile, the item ‘‘completeness of system documents,manuals, and process improvement capability’’ indicated whethersystem documents are detailed, concise, and complete. Since SMEsdo not fully comprehend IT/IS and its required skill sets, they haveto communicate with outsourcing service providers for assistance.In doing so, they are able to obtain detailed instructions that arecritical to the success of their operation. Thus, the importance ofthis item was just under 5. The item ‘‘knowledge on clients’industry,’’ had an average of 4.7. In the survey, it was noted thatmost experts suggested that this item was a critical factor affectingthe selection of IT/IS outsourcing providers. Table 5 presents theresults of the first-round Delphi questionnaires.

After analysis of the first round of the Delphi methodquestionnaires, 19 factors were selected as the most important,then the second-round Delphi was distributed and the same set ofexperts served as participants. The opinions were returned by and

Table 5Results of the first-round Delphi method.

Hierarchy Item

Capacity of professional skills Software and hardware capacities

Information security technique

Capacity for system integration

Developmental tools of the system

Property, quality, and reliability of products

Capacity for research and development

Capacity of service Service, relationship, and support of contrac

Completeness of system documents, manua

improvement capability

Capacity of operation Capacity for specific project management it

Capacity of employees

Stability of financial affairs

Maintenance of confidentiality of business

Enterprise culture

Lawsuits with clients

Previous cooperation with proprietors

Organizational resources

Flexibility of contracts in relation to the de

External evaluation Knowledge on clients’ industry

Reputation

Location of clients

on a web page. Overall, 10 questionnaires were returned for areturn rate of 83%. Their opinions were essentially consistent withthose from the first round. The averages of ‘‘capacity for systemintegration,’’ ‘‘service, relationship, and support of contractors,’’and ‘‘capacity for specific project management items’’ were 4.9, 4.8and 4.8, respectively. Thus these three items were the mostimportant factors according to our experts. In addition, theaverages of most factors were greater than 3, which revealedtheir importance. Therefore, 19 items were used as the AHPquestionnaire factors. The results of the second-round question-naire are shown in Table 6.

In the second round, the degree of importance for ‘‘capacity forsystem integration’’ was 4.9, or extremely important; the averagewas 4.3 during the first round. The second round averages of‘‘service, relationship, and support of contractors,’’ ‘‘capacity forspecific project management items,’’ ‘‘completeness of systemdocuments, manuals, and process improvement capability,’’ and‘‘knowledge on the clients’ industry’’ were 4.8, 4.8, 4.4 and 4.6,respectively. We adopted a stopping criterion that the meanrankings for two consecutive questionnaires were not significantlydifferent. The Wilcoxon signed rank test was also used. Thecalculated test statistic (W = 90) is larger than the critical value (of46 for a two-tailed p-value of 0.05), and it was not significant. Thus,the null hypothesis was not rejected and the difference in the IT/ISoutsourcing evaluation factors rankings between the two rounds ofDelphi questionnaire was not significant. Thus, consensus can beassumed to have achieved.

4.2. Analyzing the evaluation model of IT/IS outsourcing service

providers selection

The evaluation dimension, evaluation criteria of the IT/ISoutsourcing service provider selection model, and a prejudged AHPmodel were obtained. Expert Choice 2000 software was utilized toobtain the weighting of both the evaluation dimension and criteriafor each hierarchy.

The AHP questionnaire (see Appendix A) was used to examinecompanies that had received the National Award of Small andMedium Enterprise, SME Award, Innovation and Research Award,or Rising Star Award in 2005. Since these companies were our mainresearch targets, the questionnaires were randomly distributed at

Mean Max. Min. S.D.

3.3 5 1 0.3

3.7 5 3 0.3

4.3 5 4 0.3

3.7 5 3 0.3

4 5 3 1

4 5 4 0

tors 5 5 5 0

ls, and process 4.7 5 3 0.3

ems 5 5 4 0

4.3 5 4 0.3

4.3 5 3 0.3

4.3 5 3 1.3

4.3 5 3 0.3

4. 5 3 0

4.3 5 3 0.3

4 5 2 0

adline 4.3 5 3 0.3

4.7 5 3 0.3

4.3 5 3 0.3

2.7 4 2 0.3

(1) Capacity of

profession al skill s 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Capaci ty of

servi ce

(2) Capacity of

profession al skill s 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Capaci ty of

operation

(3) Capacity of

profession al skill s 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Exte rnal

evaluation

Fig. 2. Example of the AHP questionnaire.

Table 6Second-round Delphi results.

Hierarchy Item Mean Max. Min. S.D.

Capacity of professional skills Software and hardware capacities 3.4 5 2 0.8

Information security technique 3.9 5 2 0.6

Capacity for system integration 4.9 5 4 0.1

Developmental tools of the system 4.1 5 4 0.1

Property, quality, and reliability of products 4.3 5 2 1

Capacity for research and development 4.3 5 3 0.5

Capacity of service Service, relationship, and support of contractors 4.8 5 3 0.4

Completeness of system documents, manuals, and

process improvement capability

4.4 5 2 1.0

Capacity of operation Capacity for specific project management items 4.8 5 3 0.4

Capacity of employees 4.2 5 2 0.9

Stability of financial affairs 4.2 5 3 0.4

Maintenance of business confidentiality 4.6 5 3 0.5

Enterprise culture 4 5 2 1

Lawsuits with clients 4.1 5 3 0.4

Previous cooperation with proprietors 4.2 5 2 0.9

Organizational resources 3.7 5 2 0.8

Flexibility of contracts in relation to the deadline 4 5 3 0.3

External evaluation Knowledge on the clients’ industry 4.6 5 2 1.0

Reputation 4.4 5 3 0.5


places where MOEA holds conferences for SMEs. Approximately500 AHP questionnaires were distributed. In our cover letter, weasked that only companies and respondents (i.e. IT managers ormanagers) that had prior outsourcing experiences or werecurrently making an outsourcing decision should fill out thequestionnaire.

Respondents were requested to compare the relative impor-tance of both left and right factors/items as illustrated in Fig. 2. Ifthe left factor/item is considered to be more important, thenencircle the figure in the left. The larger the circled number, thestronger its importance. Thus the importance of the left item‘‘Capacity of professional skills’’ is equal to the right item ‘‘Capacityof service.’’ In the second-part of Fig. 2, the importance of the leftitem ‘‘Capacity of professional skills’’ is eight times more than theright item ‘‘Capacity of operation.’’ On the other hand, theimportance of the right item ‘‘External evaluation’’ is six timesmore than the left item ‘‘Capacity of professional skills.’’

Table 7CR of valid questionnaires.

Q# A B C D Q# A B

1 0.02 0 0.03 0 16 0 0

2 0.04 0 0.04 0 17 0.08 0

3 0.09 0 0.07 0 18 0.09 0

4 0.02 0 0.02 0 19 0.08 0

5 0.06 0 0.07 0 20 0.1 0

6 0.06 0 0.09 0 21 0.1 0

7 0.05 0 0 0 22 0.1 0

8 0.03 0 0.07 0 23 0.06 0

9 0.03 0 0.07 0 24 0.07 0

10 0.1 0 0.09 0 25 0.03 0

11 0.06 0 0.08 0 26 0.08 0

12 0.07 0 0.05 0 27 0.08 0

13 0.05 0 0.1 0 28 0.08 0

14 0.08 0 0.1 0 29 0.04 0

15 0.05 0 0.06 0 30 0.03 0

Q#: questionnaire number; A: capacity of professional skills; B: capacity of service; C:

Only 86 out of the 500 distributed questionnaires werereturned, representing a response rate of 17.2%. However, onlyone half (43) of them were valid. The AHP was special and probablymade the process of answering the questions more complicated.Moreover, we used the 43 questionnaires and focused onbusinesses with a capital below NT$100 million or fewer than200 employees.

Among these questionnaires, 79% of companies are engaged inmanufacturing, 66% had less than NT$50 million in capital, 77% hadless than 100 employees, 61% had an annual average informationbudget of less than NT$500,000, and 68% had had computer-basedoperations for less than nine years. Generally, SMEs have lowbudget allocations for capital and information. SMEs generally relyon the IS/IT outsourcing providers to assist them in theintroduction and operation of IS in their business.

Our study employed consistency tests to ensure intra-partici-pant consistency of the paired questions answered by the

C D Q# A B C D

0.03 0 31 0.08 0 0.1 0

0.01 0 32 0.08 0 0.1 0

0.1 0 33 0.08 0 0.1 0

0.1 0 34 0 0 0.0.3 0

0.04 0 35 0.07 0 0.1 0

0.1 0 36 0 0 0.03 0

0.1 0 37 0.07 0 0.08 0

0.6 0 38 0.06 0 0.07 0

0.1 0 39 0.08 0 0.07 0

0.03 0 40 0.07 0 0.08 0

0.08 0 41 0.1 0 0.09 0

0.02 0 42 0.08 0 0.03 0

0.1 0 43 0.05 0 0.03 0

0.1 0

0.09 0

capacity of operation; D: external evaluation.

Table 8aWeighting statistic analysis – by dimension.

Dimension Mean S.D. Var. C.V.

Capacity of professional skills 0.31 0.17 0.03 0.56

Capacity of service 0.26 0.11 0.01 0.43

Capacity of operation 0.23 0.15 0.02 0.65

External evaluation 0.20 0.12 0.02 0.62

Table 8bWeighting statistic analysis – by factor.

Dimension Factor Mean S.D. Var. C.V.

Capacity of professional skills Software and hardware capacities 0.12 0.06 0.004 0.52

Information security technique 0.16 0.08 0.006 0.49

Capacity for system integration 0.19 0.06 0.004 0.33

Developmental tools of the system 0.14 0.07 0.005 0.50

Property, quality, and reliability of products 0.23 0.10 0.009 0.42

Capacity for research and development 0.16 0.08 0.006 0.46

Capacity of service Service, relationship, and support of contractors 0.62 0.21 0.043 0.34

Completeness of system documents, manuals, and process

improvement capability

0.38 0.21 0.043 0.54

Capacity of operation Capacity for specific project management items 0.12 0.04 0.002 0.32

Capacity of employees 0.10 0.05 0.002 0.48

Stability of financial affairs 0.12 0.06 0.003 0.48

Maintenance of confidentiality of business 0.13 0.06 0.004 0.47

Enterprise culture 0.10 0.05 0.002 0.47

Lawsuits with clients 0.08 0.03 0.001 0.37

Previous cooperation with proprietors 0.10 0.04 0.001 0.36

Organizational resources 0.12 0.04 0.002 0.36

Flexibility of contracts in relation to the deadline 0.11 0.05 0.003 0.46

External evaluation Knowledge on the clients’ industry 0.48 0.24 0.057 0.49

Reputation 0.52 0.24 0.057 0.46

Table 10Weighting of professional capacity.

Dimension Factor Hierarchical

weighting

Global

weighting

Ranking

Capacity of

professional

skills

Software and hardware

capacities

0.11 0.035 6

Information security

technique

0.17 0.050 3

Capacity for system

integration

0.19 0.057 2

Developmental tools

of the system

0.13 0.040 5

Property, quality, and

reliability of products

0.24 0.072 1

Capacity for research

and development

0.16 0.050 4


respondents. A consistency ratio (CR) of 0.1 was set as themaximum acceptable error. A questionnaire with CR 2 0.1 wasdeemed valid. All 43 valid questionnaires passed the consistencytests. Table 7 shows the CR of these valid questionnaires.Furthermore, with respect to inter-participant consistency, thecoefficient of variance (CV [the ratio of the standard deviation tothe mean]) of each dimension and factors within the dimensionswas computed [3]. Thus, if CV was large, then the variance was alsolarge. In Table 8a, the CV for the capacity of service dimension is thesmallest; this meant that this dimension had the highestconsensus. Similarly, in Table 8b, there are small values of CV(some less than 1). This indicates that the variances in eachdimension and factors within the dimensions are small.

From Table 9, it can be seen that when SMEs select outsourcingcompanies specializing in IS, they first consider ‘‘capacity ofprofessional skills’’ of the service providers, followed by ‘‘capacityof service’’, ‘‘capacity of operation’’, and ‘‘external evaluation’’. IT/ISadoption and implementation require a large amount of capital.Logically, most SMEs seek the assistance of external professionalcompanies proficient in IT/IS application. The results of theweighting are shown in Table 10.

Our results indicated that SMEs place a high value on the qualityof products offered by outsourcing service providers and expectnew systems to operate smoothly and be compatible with other

Table 9Weighting of each dimension.

Dimension Hierarchical

weighting

Global

weighting

Ranking

Capacity of professional skills 0.30 0.30 1

Capacity of service 0.27 0.27 2

Capacity of operation 0.21 0.21 3

External evaluation 0.21 0.21 4

systems. SMEs also consider the security of the system. Develop-mental tools of the system and capacity of software and hardwaretechniques were relatively less important. Also, they focused moreon immediate returns from outsourcing services.

In Table 11, the importance of ‘‘capacity of service’’ appearedsecond only to ‘‘professional capacity’’. The ‘‘capacity of service’’

Table 11Weighting of capacity of service.

Dimension Factor Hierarchical

weighting

Global

weighting

Ranking

Capacity of

service

Service, relationship, and

support of contractors

0.65 0.18 1

Completeness of system

documents, manuals,

and process improvement

capability

0.36 0.10 2

Table 12Weighting of capacity of operation.

Dimension Factor Hierarchical weighting Global weighting Ranking

Capacity of operation Capacity for specific project management items 0.12 0.026 3

Capacity of employees 0.10 0.021 8

Stability of financial affairs 0.12 0.025 4

Maintenance of confidentiality of business 0.13 0.027 2

Enterprise culture 0.11 0.022 6

Lawsuits with clients 0.10 0.018 9

Previous cooperation with proprietors 0.10 0.022 7

Organizational resources 0.13 0.028 1

Flexibility of contract in relation to deadline 0.11 0.024 5

Table 13Weighting of external evaluation.

Dimension Factor Hierarchical weighting Global weighting Ranking

External evaluation Knowledge on the clients’ industry 0.50 0.10 1

Reputation 0.50 0.10 1

Table 14The suggested IT/IS outsourcing service provider selection instrument for SMEs.

Items for evaluation Description of content Point

Capacity of professional

skills (30 points)

Software and hardware capacities Provision of various software programs used by companies

such as document management software, business productivity

software, anti-spam software and data backup facilities; and

hardware capacity such as hardware sizing, future expansion

flexibility, access speed

3

Information security technique The capacity of maintaining a secure system, such as through the

installation of a firewall, data encryption, anti-virus, anti-spyware,

and relevant user login management technique

5

Capacity for system integration The capacity to integrate various isolated information systems, e.g.

through the use of enterprise application integration software or

middleware

6

Developmental tools for the system The programming languages used in the IT/IS system, e.g. Visual Basic,

Java, ASP and C++

4

Property, quality, and reliability of

products

Whether the property, quality, and reliability of the products comply

with the demands of the users, e.g. ISO 9000 compliance

7

Capacity for research and

development

The capacity for creativity and assimilation of new knowledge, such

as having a knowledge management system and investing in

product-related R&D

5

Capacity of service (27 points) Service, relationship, and support of

contractors

The outsourcing provider’s after-sale attitude, and whether the system

complies with ITIL and ISO 20000 standards

17

Completeness of system documents,

manuals, and process improvement

capability

Whether the description of the system document is detailed, simple, and

complete; and is ISO 9001 (quality assurance standard) compliant

10

Capacity of operation (21 points) Capacity for specific project

management items

The efficiency of the providers’ planning and execution of specific projects,

e.g. compliant with the project management body of knowledge (PMBOK)

3

Capacity of employees The employees’ working efficiency, e.g. short turnaround in resolving

complaints

2

Stability of financial affairs Whether the companies had serious financial crises in the previous five

years; and have proper corporate and IT governance in place,

e.g. ISO/IEC 38500 compliance

2

Maintenance of confidentiality of

business

Provision for confidentiality in business transactions and corresponding

documents in the companies

3

Enterprise culture The vision and managerial idea of the top executive of the outsourcing

provider companies

2

Lawsuits with clients Whether the provider had previous lawsuits with clients 2

Previous cooperation with proprietors Whether or not companies maintain an excellent relationship with

previous clients

2

Organizational resources The overall resources of the companies such as human resources and

capital

3

Flexibility of contracts in relation

to the deadline

The flexibility of the deadline or change of the contract after the

contract is signed

2

External evaluation (22 points) Knowledge on the clients’ industry The factories’ understanding of the clients’ industry 11

Reputation External personnel’s evaluation of companies 11

Total score



factor can be further divided into the two sub-factors of ‘‘service,relationship and support of contractors’’ and ‘‘completeness ofsystem documents, manuals, and process improvement capabili-ty.’’ The data indicated that the former was considered moreimportant.

Under the ‘‘capacity of operation’’ dimension in Table 12, themost important factor was ‘‘organizational resources’’ followed bythe ‘‘maintenance of confidentiality of business.’’

Under the dimension of external evaluation in Table 13,‘‘knowledge on the clients’ industry’’ and ‘‘reputation’’ were rankedas equally important. Decision makers tend to follow thesuggestions of and/or recommendations from friends whenselecting outsourcing companies. Generally, external evaluationof companies is a critical factor that SMEs should consider whenselecting an outsourcing company specializing in IS.

4.3. Suggestions for an IT/IS outsourcing service provider selection

model for SMEs

The AHP questionnaire survey results were generally consistentwith the opinions of the experts. Each dimension and its associatedfactors were shown as critical elements that SMEs should considerwhen selecting IT/IS outsourcing service providers. Thus, wesuggest a selection instrument for SME evaluation (Table 14) thatcan act as a reference for SMEs in the selection of their outsourcingservice provider. The scoring system was based on the weighting ofeach criterion, with the total score set at 100 points. In general, ourresults showed that ‘‘capacity of professional skills,’’ ‘‘software andhardware capacities,’’ ‘‘information security,’’ ‘‘system integra-tion,’’ ‘‘developmental tools of the system,’’ ‘‘property, quality, andreliability of products,’’ and ‘‘capacity for research and develop-ment’’ had the most influence on SMEs selection. In reviewing theweight of each factor, the service, relationship, and support ofcontractors in the capacity of service aspect was the mostimportant determinant.

5. Conclusions and implications

Overall, 19 factors were split into four dimensionsbased on their similarity, such as ‘‘capacity of professionalskills,’’ ‘‘capacity of service,’’ ‘‘capacity of operation,’’ and

Appendix A. Questionnaire for the Analytic Hierarchy Process

Assessment scale is shown below:

Scale Definition

1 Equal importance

3 Weak importance

5 Essential importance

7 Very strong importance

9 Absolute importance

2, 4, 6, 8 Intermediate values

I. The First Hierarchy1. Please make pairwise comparisons among the following capacities to

Outsourcing service Provider Selection Model for Small- and Mediu

Capacity of professional skills v

v

v

Capacity of service v

v

Capacity of operation v

II. The Second Hierarchy2. Please make pairwise comparisons among the following factors to as

skills.’’

‘‘external evaluation.’’ Subsequently, we calculated the weight-ing of each factor and dimension to show their priorities.The resulting instrument can be used to evaluate the selectionof IT/IS outsourcing service providers and help in futureprovider selection. Taiwanese SMEs do not fully understandthe importance of IT/IS service outsourcing. Although manystudies have explored IT/IS outsourcing in business, mosthave only focused on large enterprises. Unfortunately, none ofthese efforts have tackled the problem of how SMEs shouldassess and select potential partners when considering out-sourcing. Therefore, our study focused on SMEs and exploringthe factors affecting their selection of IT/IS outsourcing serviceproviders.

Based on our results, providers should not only enhance theirprofessional knowledge but also improve the quality of theirservice. First, considering that SMEs possess limited capital and IT/IS implementation and maintenance require considerableresources, the result of an IT/IS introduction plays a crucial rolein the enterprise as a whole. In order to reduce the risk of failure, itis worth considering providers with excellent skills and customerservice abilities as important parts of the process. By using theresults from this study, SMEs can understand and control criticalfactors affecting the selection of IT/IS outsourcing service providersin Taiwan. Additionally, a government agency can improve thecritical factors affecting its outsourcing service. The governmentagency can also establish policies promoting IT/IS outsourcingactivities of the local SMEs and enhancing opportunities forproviders.

There were several limitations of our study. It was notable to include all SMEs of Taiwan because of their number,and time constraints. Thus, our findings may have beenaffected by the selection of the samples and the sample size.However, it showed that a scoring methodology could be used toquantify and justify an IS/IT outsourcing provider selectiondecision.

While the AHP model leads to a ranking of the factors weconsidered, the rankings are not necessarily broadly applicable tothe whole category of SMEs for other countries with differentbackgrounds and cultures. Unfortunately, time constraints re-stricted our research from using a specific company as a case studyto verify our findings.

Explanation

The degree of contribution by both factors has equal importance

Experience and judgment show slight inclination to a certain factor

Experience and judgment show strong inclination to a certain factor

Actuality shows considerably strong inclination to a certain factor

Enough evidence supports absolute recognition of a certain factor

Range between the aforesaid explanations

assess the strength of relative importance in constructing ‘‘An IT/ISm-sized Enterprises.’’

ersus Capacity of service

ersus Capacity of operation

ersus External evaluation

ersus Capacity of operation



sess the strength of relative importance in ‘‘Capacity of professional

Capacity of software and hardware techniques versus Information security technique

versus Capacity for system integration

versus Developmental tools of the system

versus Property, quality, and reliability of products

versus Capacity for research and development

Skill of information security versus Capacity for system integration

versus Developmental tools of the system



Capacity of system integration versus Developmental tools of the system



Developmental tools of the system versus Property, quality, and reliability of products


Property, quality, and reliability of products versus Capacity for research and development

3. Please make pairwise comparison among the following factors to assess the strength of relative importance in ‘‘Capacity of service.’’

Service, relationship and support of contractors versus Completeness of system documents, manuals, and process improvement capability

4. Please make pairwise comparison among the following factors to assess the strength of relative importance in ‘‘Capacity of operation.’’

Capacity of specific project management versus Capacity of employees

versus Stability of financial affairs

versus Maintenance of confidentiality of business

versus Enterprise culture

versus Lawsuits with clients

versus Previous cooperation with proprietors

versus Organizational resources

versus Flexibility of contracts in relation to the deadline

Capacity of employees versus Stability of financial affairs







Stability of financial affairs versus Maintenance of confidentiality of business





versus Flexibility of contract in relation to deadline

Maintenance of business confidentiality versus Enterprise culture




versus Flexibility of contract in relation to deadline

Enterprise culture versus Lawsuits with clients




Lawsuits with clients versus Previous cooperation with proprietors



Previous cooperation with proprietors versus Organizational resources


Organizational resources versus Flexibility of contracts in relation to the deadline

5. Please make pairwise comparison among the following factors to assess the strength of relative importance in ‘‘External evaluation’’.

Knowledge in the clients’ industry versus Reputation

Basic Information:

1. Name of Company/Organization:2. Occupation:3. Number of years of establishment:4. Type of Business: & Manufacturing & Hi-Tech Industry & Service Industry & Others

Appendix A (Continued)


5. Organizational Capital: & Under 10 Million & 10–50 Million & 50–100 Million & Over 100 Million6. Number of Full-Time Employees: & Under 20 & 21–50 & 51–100 & 101–150 & 151–200 & Over 2017. Yearly budget for information systems (including use of both computing soft and hardware and system development) (unit: NT$): &

Under 100 thousand & 110–500 thousand & 510 thousand to 1 million & 1.1–1.5 millions & 1.51–20 million & Over 2.1 million8. Years of experience in computerization: & Under 3 years & 3–6 years & Over 6–9 years & 9–12 years & Over 12 years

More comments:

Appendix A (Continued)


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She-I Chang is currently a professor at the Department

of Accounting and Information Technology, National

Chung Cheng University, focusing on ERP systems, with

a particular emphasis on the issues, challenges and

benefits realization associated with ERP life cycle-wide

implementation, management and support. Currently

at CCU, Taiwan, He has extended his research interest

around the area of information technology governance

and computer auditing. His research work and articles

have appeared in Decision Support Systems, Journal of

Global Information Management, Communications of the

Association for Information Systems, Information Systems

Management, Information Systems Frontiers, Computers in Human Behavior, Total

Quality Management & Business Excellence, Expert Systems with Applications and

among others.

David C. Yen is currently a Raymond E. Glos Professor in

Business and a Professor of MIS of the Department of

Decision Sciences and Management Information Sys-

tems at Miami University. He is active in research and

has published books and articles which have appeared

in Communications of the ACM, Decision Support Systems,

Information & Management, Information Sciences, Com-

puter Standards and Interfaces, Government Information

Quarterly, Information Society, Omega, International

Journal of Organizational Computing and Electronic

Commerce, and Communications of AIS and among

others. His research interests include data communica-

tions, electronic/mobile commerce, database, and systems analysis and design.

Celeste SP Ng is currently an Assistant Professor of the

Department of Information Management at Yuan Ze

University. She has published research work and

articles in the Journal of Information Technology, Journal

of Systems and Software, Journal of Software Maintenance

and Evolution: Research and Practice, Information Sys-

tems Frontier and among others. Her research interests

include electronic/social commerce, IS/IT success,

cross-cultural issues, Enterprise Resource Planning

(ERP) maintenance and upgrade issues.

Wei-Ting Chang received her Master degree in

Accounting and Information Technology from National

Chung Cheng University, Taiwan. She is currently a

Consultant at the PricewaterhouseCoopers (Taiwan).

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