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Evaluating IT outsourcing customer satisfaction and its impact on firm performance in Korea

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In Information Technology (IT) outsourcing environments, customers' requirements and feedback are essential to the development of Information Systems (IS) applications and the improvement of the service quality of IT service vendors. This study proposes an instrument of IT Outsourcing Customer Satisfaction (ITOCS). We test its reliability and validity and its association with the firm performance using questionnaires administered to IT outsourcing service receivers in Korea. Survey results suggest that our instrument is a reliable and valid measure of ITOCS and also that the ITOCS positively affects the firm performance. Interestingly, it is found that the satisfaction on maintenance and repairing service by IT vendors is the highest among other services. Moreover, we find that larger IT vendors provide customers with more satisfied IT outsourcing services.
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160 Int. J. Technology Management, Vol. 43, Nos. 1-3, 2008
Copyright © 2008 Inderscience Enterprises Ltd.
Evaluating IT outsourcing customer satisfaction and
its impact on firm performance in Korea
Yong Ki Yoon*
Strategy Planning Team,
LG Electronics,
Seoul, Korea 150-721
E-mail: yongki@yonsei.ac.kr
*Corresponding author
Kun Shin Im
School of Business,
Yonsei University,
Seoul, Korea 120-749
E-mail: ksim@yonsei.ac.kr
Abstract: In Information Technology (IT) outsourcing environments,
customers’ requirements and feedback are essential to the development of
Information Systems (IS) applications and the improvement of the service
quality of IT service vendors. This study proposes an instrument of IT
Outsourcing Customer Satisfaction (ITOCS). We test its reliability and validity
and its association with the firm performance using questionnaires administered
to IT outsourcing service receivers in Korea. Survey results suggest that our
instrument is a reliable and valid measure of ITOCS and also that the ITOCS
positively affects the firm performance. Interestingly, it is found that the
satisfaction on maintenance and repairing service by IT vendors is the highest
among other services. Moreover, we find that larger IT vendors provide
customers with more satisfied IT outsourcing services.
Keywords: customer satisfaction; firm performance; IT outsourcing.
Reference to this paper should be made as follows: Yoon, Y.K. and Im, K.S.
(2008) ‘Evaluating IT outsourcing customer satisfaction and its impact on firm
performance in Korea’, Int. J. Technology Management, Vol. 43, Nos. 1-3,
pp.160–175.
Biographical notes: Yong Ki Yoon is a Senior Manager at LG Electronics. He
received his PhD degree in Technology Management from Yonsei University,
Korea. His research interest includes information technology valuation,
information strategy planning and IT outsourcing in e-business environments.
Kun Shin Im is an Assistant Professor of Information Systems at School of
Business, Yonsei University, Korea. He holds a PhD in Management
Information Systems from the University of South Carolina and a PhD in
Accounting from Yonsei University. His research interests include IT impacts
on organisational structure, IT investments evaluation, IT adoption, IT
outsourcing and IT training effectiveness. He has published several studies in
these areas in Information Systems Research, Journal of Information
Technology Management, Journal of Organizational & End User Computing
and Journal of Global Information Management.
Evaluating IT outsourcing customer satisfaction and its impact 161
1 Introduction
Information Technology (IT) outsourcing is defined as the act of subcontracting part or
all IT functions of a company to one or more external vendors (Loh and Venkatraman,
1992; Cheon, Grover and Teng, 1995; Grover, Cheon and Teng, 1996; Sengupta and
Zviran, 1997; Lacity and Willcocks, 2001; Gelbstein, 2002). Various corporations
introduced IT outsourcing chiefly to achieve cost-effectiveness until the mid-1990s, and
thus mostly pushed ahead with computing-related services or system integration in the
form of strategic alliances (McFarlan and Nolan, 1995; Grover, Cheon and Teng, 1996).
Recently, however, new forms of IT outsourcing, such as ASP, system integration and
system management outsourcing, have new characteristics that are totally different from
those of traditional IT outsourcing (Young and Berg, 2001). Thus, IT outsourcing plays
an increasingly important role in acquiring the firm’s competitive advantage and downing
cost of Information Systems (IS) implementations. A properly implemented outsourcing
strategy brings together the industry knowledge and IT to create systems that help
organisations acquire and maintain a competitive advantage and provide better service at
a lower cost (Sengupta and Zviran, 1997). In IT outsourcing environments, customers’
requirements and feedback are essential to the development of IS applications and the
improvement in the service quality of IT service vendors or companies. From the
vendor’s perspective, it is important to minimise complaints and dissatisfaction as well as
the cost of a service recovery plan. It is also important for vendors to establish a track of
direct feedback from customers on their reactions to complaints and dissatisfaction
(Abubakar, Mavondo and Clulow, 2001).
Therefore, it is particularly useful to study a customer satisfaction for IT outsourcing
providers and their customers. In this paper, we present a measure of IT Outsourcing
Customer Satisfaction (ITOCS) through literature reviews and experts’ interviews, and
test the robustness of the concept of ITOCS and its relationship with the firm
performance. The measure is applied in IT outsourcing customer companies in Korea to
demonstrate the practical value and effectiveness of the proposed measure. We used
Partial Least Squares (PLS) to analyse and verify the data collected from a sample of
100 customers.
The main contribution of this study can be summarised in the following four areas.
First, we propose a new instrument of customer satisfaction for IT outsourcing
environments. Traditional instruments of User Information Satisfaction (UIS) evaluate
the user satisfaction on information (i.e. output) of IS or IS themselves. However, in IT
outsourcing context a comprehensive measure of customer satisfaction on the IT
outsourcing provider’s service is required (Sengupta and Zviran, 1997). The customer
satisfaction measure for IT outsourcing should be able to evaluate IS (i.e. outcome of IT
outsourcing), information (i.e. output of outsourced systems) and other services provided
by IT vendors such as education, maintenance and repairing and consulting. Second, this
study may be useful and helpful to practitioners, IT managers and customers who are
faced with outsourcing services. Using the instrument as a tool for measuring ITOCS, IT
outsourcing providers can monitor their service level and understand customers’
requirements precisely. The observed values of customer satisfaction can provide
important guidelines in the improvement of IT outsourcing services and improve their
competitive position in the market. Third, customers can also utilise the results of
customer satisfaction in choosing IT outsourcing vendors. Fourth, we show that ITOCS
162 Y.K. Yoon and K.S. Im
has impact on firm performance. This result verifies whether our measure of ITOCS has
validity as a satisfaction instrument for serving in IT outsourcing context.
2 Related literature
2.1 Traditional measures of user satisfaction
The assessment of IS effectiveness is an important issue for both IS practitioners and
general management (Sengupta and Zviran, 1997). Many pieces of research on user
satisfaction, IS usage and information value have been done to evaluate IS effectiveness
(Cho, 2000). Several studies have employed UIS as a dependent variable to demonstrate
IS effectiveness and acceptance (Ives and Olson, 1984; Igbaria and Nachman, 1990).
Although there is no standard measure of satisfaction in these studies, it is argued that the
user satisfaction is an indicator of system usage and effectiveness (Sengupta and Zviran,
1997). Bailey and Pearson (1983) measured the user satisfaction as the weighted sum of
the user’s positive and negative reactions to a set of factors regarding an IS and identified
39 factors that can represent the user satisfaction domain. Ives, Olson and Baroudi (1983)
suggested some modified factors, which are based on the study of Bailey and Pearson
(1983). Baroudi and Orlikowski (1988) developed simple and short-form measures that
include 13 questions with two response scales per question. Doll and Torkadeh (1988)
verified that five factors, such as content, accuracy, format, ease-of-use and timeliness,
are suitable to measure end-user computing satisfaction. However, UIS measures are not
suitable for evaluating overall customer-oriented service quality and satisfaction
regarding IT outsourcing. This is because those kinds of instruments are not directly
related to the service and product quality of vendors and their end users, rather they focus
on the IS itself and on an internal information department.
For example, Lee and Kim (1997) measured user satisfaction as the success of
outsourcing and empirically proved that the user satisfaction increases when the firm’s
current outsourcing strategy matches the recommended strategy in the case of affiliated
firms of the Korean conglomerate groups. However, they viewed the user satisfaction as
a satisfaction on outsourced IS. Sengupta and Zviran (1997) also assessed the utility of
the widely used short-form UIS questionnaire in outsourcing environments and suggested
the existence of a fourth factor relating to contractor services. They measured the user
satisfaction using information department staff and service, contractor services,
information output and user’s knowledge and involvement. However, the four factors of
Sengupta and Zviran (1997) are mainly related to maintenance and repairing service,
education service and information quality. Since factors are generated from the short-
form UIS questionnaire, moreover, they did not fully reflect the user satisfaction in
outsourcing context. In spite of the importance of consulting service and Service Level
Agreement (SLA) in outsourcing environments, Sengupta and Zviran (1997) did not
incorporate these factors in evaluating the customer satisfaction. They suggested that the
development of a comprehensive measure of user satisfaction in outsourcing
environments and the construction of new instruments for serving IT outsourcing
environments were needed in academia and industry.
Although previous work was tried to reflect outsourcing environments, it still focused
on outsourced IS itself and internal information department. On the contrary, we consider
ITOCS as a measure for total solution or service from providers, not IS itself.
Evaluating IT outsourcing customer satisfaction and its impact 163
In outsourcing environments, customer or user satisfaction evaluation has to consider
various dimensions such as supporting services and contracts between outsourcing
vendors and customers, as well as IS.
2.2 IT outsourcing customer satisfaction
Scholars of different academic backgrounds have different analyses of customer
satisfaction by looking at it both theoretically and practically (Wong, 2000; Chien, Su
and Su, 2002; Leem and Yoon, 2004). Typical customer satisfaction evaluation models
such as SERVQUAL (Parasuraman, Zeithaml and Berry, 1988; Pitt, Waton and Kavan,
1995, 1997; Kettinger and Lee, 1997) and SERVPERF model (Cronin and Taylor, 1992)
and their utilised practical models such as ACSI (National Quality Research Center,
1995) and NCSI (Korea Productivity Center, 1997) are difficult to apply directly to
customers or users of IT outsourcing service vendors. Although they are widely used in
the world regardless of product or service types, they do not assume that customers
possess a certain level of professional knowledge about products or services that are often
required to use IS or services provided by IT outsourcing vendors. In this study, we view
customer satisfaction as a broad concept that includes a perceived evaluation of products
and services. In particular, in IT outsourcing context we regard customer satisfaction as
an instrument evaluating IS themselves as well as other dimensions such as various
supporting services and contracts between outsourcing vendors and customers.
In order to generate key items that have an effect upon ITOCS, an initial list of items
was established through the review of literatures on IT outsourcing, user or customer
satisfaction in IS and software and general customer satisfaction evaluation models
represented in earlier references and Table 1. From them, we identified about 40 items.
Once the list was generated, we conducted interviews with nine IT outsourcing experts
from IT outsourcing service industry, academia and government. Through IT outsourcing
professionals’ review, the initial list of items was revised by adding or dropping items.
Q-sort technique was then applied to the revised list of items. Finally, we defined 23
customer satisfaction items and classified them into five evaluation categories or factors:
consulting service quality, maintenance and repairing, education, SLA quality and
information quality as shown in Table 1.
Capability Maturity Model (CMM) is the most popular and basic software evaluation
model for the software or software company which are designed to evaluate the
capability level of software (Paulk, Curtis and Chrissis, 1991, 1992, 1993; ISO/IEC TR
15504, 1998). Based on CMM, consulting service quality, maintenance and repairing and
education are considered as important measurements of software organisation or IT
service level (Frank and Hans, 1999). Consulting service quality is related to outsourcing
providers’ business and service quality such as best-practice and human resource. Leem
and Yoon (2004) used consulting service capability as a factor in evaluating customer
satisfaction of software vendors. Maintenance and repairing factor refers to various
customer-supporting service related to maintenance and repairing service by IT
outsourcing vendors (Paulk, Curtis and Chrissis, 1991, 1992, 1993). Education is related
to the service from outsourcing service vendors. Previous researches found maintenance
and repairing and education as important factors in evaluating IT service or software
customer satisfaction (Leem and Yoon, 2004; Yeo and Nam, 2004). Yoon, Seo and Kim
(2004) used education as a service quality factor in developing IT consulting
SERVQUAL and showed the effects of education on customer satisfaction and service
164 Y.K. Yoon and K.S. Im
quality. Thus, we consider maintenance and repairing and education as factors in IT
service and outsourcing satisfaction.
Table 1 Measures and references for IT outsourcing customer satisfaction and firm
performance
Factors Items Related references
Consulting
Service
Quality
(CONS)
Advanced methodology and business
adaptation (CONS01)
Systematical and standardisation consulting
(CONS02)
Consulting knowledge and experience (CONS03)
Understanding of business environment and project
(CONS04)
Participation intention and communication skill
(CONS05)
Paulk, Curtis and Chrissis
(1991, 1992, 1993), ISO/IEC
TR 15504 (1998), Frank and
Hans (1999), Yeo and Nam
(2003), Leem
and Yoon (2004), Sengupta
and Zviran (1997), Baroudi
and Orlikowski (1988), Byrd
and Turner (2000)
Maintenance
and
Repairing
(MNR)
Customer care and management (MNR01)
Quickness in emergency and repairing (MNR02)
Continuous and periodical service in maintenance
(MNR03)
Reflection of updated requirements and changes
(MNR04)
Service attitude and specialty (MNR05)
Paulk, Curtis and Chrissis
(1991, 1992, 1993), ISO/IEC
TR 15504 (1998), Frank and
Hans (1999), Yeo and Nam
(2004), Leem and Yoon
(2004), Cho (2000)
Education
(EDU)
Quick response for customer (EDU01)
Instructor’s specialty and kindness in education
(EDU02)
Continuity of education service (EDU03)
Continuous contents development (EDU04)
Education effectives (EDU05)
Paulk, Curtis and Chrissis
(1991, 1992, 1993), ISO/IEC
TR 15504 (1998), Frank and
Hans (1999), Yeo and Nam
(2004), Leem and Yoon
(2004), Cho (2000)
SLA Quality
(SLAQ)
Contents specification and precise requirement
(SLAQ01)
Accuracy of SLA (SLAQ02)
Realisation and reality of SLA (SLAQ03)
Clarification and clearness of SLA (SLAQ04)
Doll and Torkzadeh (1988),
Gartner (2000), Lee (2003),
Yoon, Seo and Kim (2004)
Information
Quality
(INQ)
Information relevance (INQ01)
Information accuracy (INQ02)
Information precision (INQ03)
Information completeness (INQ04)
Baroudi and Orlikowski
(1988), Sengupta and Zviran
(1997)
Firm
performance
(FP)
Market share (FP01)
Sales growth (FP02)
Competitive advantage (FP03)
Profitability (FP04)
Overall firm performance (FP05)
Powell and Dent-Micallef
(1997), Bharadwaj (2000),
Keskin (2005), Choi and Lee
(2003)
Evaluating IT outsourcing customer satisfaction and its impact 165
In addition to those factors, SLA quality is involved in our ITOCS. SLA forms an
essential part of the IT outsourcing service (Gartner, 2000) because it sets up expectations
between the consumer and the provider. Lee (2003) argued that SLA is an important
factor in outsourcing performance. Yoon, Seo and Kim (2004) also suggested that the
development and management of SLA’s measurement are needed to obtain a success in
IT outsourcing. SLA quality includes SLA contents, reliability and clarification.
Finally, information quality that is well known as an important evaluation factor of IS is
also included in our ITOCS (Baroudi and Orlikowski, 1988; Sengupta and Zviran, 1997).
Information quality is the information output performance from services and products of
IT outsourcing vendors.
2.3 IT outsourcing customer satisfaction and firm performance
Despite large bodies of literature on IT outsourcing, the study on the effect of ITOCS on
the firm performance has been insufficiently conducted. Most of the studies agree that IT
has a positive impact on firm performance and productivity (Hu and Quan, 2005) and that
IT outsourcing provides an opportunity of improving firms’ IS services and departments
(King and Malhotra, 2000). However, there is no study on the association between the
customer satisfaction for IT outsourcing and the firm performance.
It is argued that user satisfaction is a surrogate of IS effectiveness (Ives and Olson,
1984; Igbaria and Nachman, 1990). Accordingly, we argue that ITOCS is also a surrogate
of IT outsourcing success. We then expect that ITOCS is positively associated with firm
performance. To examine this, we reviewed previous work on the impact of IT on firm
performance. To investigate the impact of IT on firm performance, Powell and Dent-
Micallef (1997) used market share, sales growth and profitability as measures of firm
performance. Keskin (2005) and Choi and Lee (2003) also measured the corporate
performance in terms of market share, profitability, innovation level and so on. Based on
these studies, we measure various dimensions of firm performance as shown in Table 1.
Through the examination of the relationship between ITOCS and firm performance, we
can also demonstrate the predictive validity of ITOCS instrument.
3 Research model
Figure 1 presents our research model with a second-order factor model for ITOCS.
ITOCS is indirectly measured through five factors: consulting service quality,
maintenance and repairing, education, SLA quality and information quality. In other
words, the five factors are measured by a total of 23 items and then the factor scores of
the five factors are used to measure ITOCS. In addition, firm performance is measured by
five items. The items are listed in Table 1. To collect data on these variables, we
developed a five-point Likert-style questionnaire (see Appendix).
166 Y.K. Yoon and K.S. Im
Figure 1 Research model
4 Research method
4.1 Data collection
To collect data on ITOCS and firm performance, we conducted a survey by supplying
questionnaires to the IT outsourcing customer companies in Korea. In Korea, IT
outsourcing market is rapidly increasing and many corporations introduce IT outsourcing
in many fields. Outsourcing has become an very important issue to outsourcing service
receivers and providers. IT outsourcing providers focus on customer satisfaction to retain
existing customers as well as attract new customers, and service receivers want to select a
good vendor among various service providers in Korea. The participants in the survey or
respondents are IT engineers and staff involved in performing IT outsourcing project and
contracting outsourcing service providers. We sent 320 questionnaires to 40 customer
companies that had outsourced their IT functions to external service providers. We
received 100 usable questionnaires from 28 companies that participated in the survey.
The response rate is about 31% through the survey.
4.2 Data analysis
The analysis of the data was done using PLS that enables the specification of both
relationships among the constructs and measures underlying each construct (Wold, 1989).
The PLS procedure has been gaining interest and use among researchers in recent years
because of its ability to model latent constructs under conditions of non-normality and
small to medium sample sizes (Chin and Gopal, 1995; Compeau and Higgins, 1995;
Chin, 1998; Chin, Marcdin and Newsted, 2003). The PLS analysis can examine how well
measures are related to each construct and whether the hypothesised relationship at the
theoretical level is empirically true. It also can be employed to estimate the parameters in
a hierarchical (i.e. second-order factor) model (Guinot, Latriell and Tenenhaus, 2001).
We choose PLS Graph Version 3.00 to perform the analysis.
Evaluating IT outsourcing customer satisfaction and its impact 167
4.3 Test of measurement instrument
For the validity of measurement instrument, we assessed the individual measurement
reliability by analysing loadings of measures in their corresponding construct. Table 2
shows the factor loading and cross-factor loading of constructs with more than one item.
All the factor loadings exceed 0.6 except for CONS05, and each of the factors loaded
stronger on their associated factors rather than on any other factors. It shows the
convergent and discriminant validity of our ITOCS instrument.
Table 2 Factor loadings and cross-factor loadings
Factor loadings
Measurements CONS MNR EDU SLAQ INQ FP
CONS01
0.716
0.370 0.450 0.309 0.329 0.368
CONS02
0.873
0.451 0.399 0.434 0.389 0.544
CONS03
0.834
0.469 0.380 0.345 0.357 0.408
CONS04
0.624
0.271 0.207 0.216 0.280 0.215
CONS05
0.543
0.436 0.343 0.313 0.373 0.221
MNR01 0.306
0.701
0.528 0.370 0.333 0.382
MNR02 0.269
0.708
0.269 0.333 0.376 0.297
MNR03 0.440
0.794
0.385 0.342 0.364 0.434
MNR04 0.452
0.785
0.459 0.418 0.428 0.396
MNR05 0.547
0.835
0.541 0.557 0.529 0.570
EDU01 0.426 0.482
0.700
0.428 0.407 0.326
EDU02 0.392 0.411
0.839
0.271 0.250 0.261
EDU03 0.356 0.488
0.846
0.452 0.257 0.426
EDU04 0.436 0.494
0.848
0.524 0.283 0.379
EDU05 0.365 0.427
0.747
0.339 0.288 0.135
SLAQ01 0.412 0.488 0.420
0.892
0.432 0.459
SLAQ02 0.370 0.399 0.409
0.866
0.453 0.435
SLAQ03 0.450 0.519 0.464
0.856
0.510 0.476
SLAQ04 0.360 0.481 0.537
0.882
0.524 0.505
INQ01 0.440 0.484 0.267 0.467
0.850
0.518
INQ02 0.415 0.489 0.377 0.549
0.887
0.476
INQ03 0.437 0.470 0.343 0.426
0.853
0.353
INQ04 0.184 0.283 0.213 0.323
0.666
0.300
FP01 0.472 0.431 0.386 0.512 0.385
0.887
FP02 0.493 0.500 0.462 0.540 0.450
0.903
FP03 0.427 0.450 0.310 0.464 0.446
0.902
FP04 0.353 0.362 0.293 0.355 0.458
0.790
FP05 0.478 0.640 0.347 0.431 0.504
0.828
168 Y.K. Yoon and K.S. Im
Internal consistency was examined using the Composite Scale Reliability Index (CSRI), a
measure similar to Cronbach’s alpha (Yoo and Essex, 2004). Fornell and Larcker (1981)
recommended using a criterion cutoff of 0.7. The reliability of each scale is shown in
Table 3. The CSRI values range from 0.763 to 0.936. All the CSRI values are greater
than 0.7, indicating the internal consistency of our measures. Discriminant validity was
also assessed by comparing the Average Variance Extracted (AVE) values associated
with each construct to correlations among constructs (Barclay, Higgins and Thompson,
1995). AVE measures the percentage of variance captured by a construct by showing the
ratio of the sum of the variance captured by the construct and its measurement variance
(Gefen, Straub and Boudrean, 2000). Table 3 represents results of the correlation matrix
for constructs.
Table 3 Reliability and discriminant validity
Correlation of constructs
Variables No. of items CSRI
*
CONS MNR EDU SLAQ INQ FP
Consulting Service Quality
(CONS)
5 0.763
0.734
– –
Maintenance and Repairing
(MNR)
5 0.876 0.546
0.767
– –
Education (EDU) 5 0.897 0.494 0.583
0.798
– –
SLA Quality (SLAQ) 4 0.928 0.455 0.542 0.527
0.874
– –
Information Quality (INQ) 4 0.853 0.466 0.539 0.369 0.551
0.744
Firm Performance (FP) 5 0.936 0.52 0.562 0.421 0.538 0.521
0.864
* Composite Scale Reliability Index.
The bold diagonal elements show the square root of the variance shared between
constructs and their measures (i.e. the AVE), whereas the off diagonal elements are
correlations among constructs. For discriminant validity, diagonal elements should be
larger than any other corresponding row or column entry. According to Table 3, each
construct sufficiently differs from other constructs. Therefore, measures demonstrate the
discriminant validity. In brief, all constructs in this study are deemed acceptable
1
.
5 Results
Figure 2 represents overall results for the full sample. It shows the result of the statistical
significant of the path coefficient between ITOCS and firm performance as well as factor
loadings of five factors on ITOCS. We used bootstrapping procedure to assess the
statistical significance of the path coefficient (Barclay, Higgins and Thompson, 1995).
As shown in Figure 2, all five evaluation factors of ITOCS have large factor loadings.
Specially, the factor loading of maintenance and repairing is greatest. And, the path
coefficient between ITOCS and firm performance is 0.637 (p 0.00). These results are
consistent with our expectation and confirm the validity of our ITOCS instrument.
To evaluate whether ITOCS instruments can be used regardless of the size of IT
outsourcing service provider, we divided our sample into two sub-samples: small and
large IT vendors. About 48 questionnaires answered that they use service by small
providers and 52 use large providers. Table 4 shows the mean value of all variables
Evaluating IT outsourcing customer satisfaction and its impact 169
including ITOCS and firm performance for small and large IT vendors. It is found that
ITOCS and five sub-factors are consistently greater for IT outsourcing provided by large
IT vendors than by small IT vendors. However, the difference between two sub-groups is
not significant except for consulting service quality.
Figure 2 PLS results
Table 4 IT outsourcing customer satisfaction by size of vendors
ITOCS CONS MNR EDU SLAQ INQ
Sample
Mean
(SD)
Mean
(SD)
Mean
(SD)
Mean
(SD)
Mean
(SD)
Mean
(SD)
Total 3.102
(0.805)
3.114
(0.651)
3.192
(0.704)
2.994
(0.692)
3.073
(0.787)
3.138
(0.657)
Large (A) 3.168
(0.595)
3.151
(0.722)
3.332
(0.740)
3.042
(0.682)
3.137
(0.831)
3.179
(0.697)
Small (B) 3.027
(0.460)
3.072
(0.565)
3.034
(0.632)
2.940
(0.706)
3.000
(0.735)
3.090
(0.460)
A–B 0.141
(t 0.61)
0.079
(t 2.15*)
0.298
(t 0.46)
0.102
(t 0.86)
0.137
(t 0.67)
0.089
(t 0.10)
*p 0.05.
6 Conclusions and discussions
This paper has focused on evaluating ITOCS and showing its impact on firm
performance. To measure ITOCS, we used five factors: consulting service quality,
maintenance and repairing, education, SLA quality and information quality. The
developed instrument was applied to IT outsourcing service receivers in Korea. All five
factors were found important for ITOCS. We also found that customer satisfaction on IT
outsourcing services (i.e. ITOCS) is positively associated with firm performance. Our
study is a first study confirming that in IT outsourcing environments a high level of
170 Y.K. Yoon and K.S. Im
customer satisfaction leads to increases in customers’ firm performance. Given our PLS
results, it could be concluded that our ITOCS is reliable and is an valid instrument for
serving in IT outsourcing environments. Other notable conclusions could be also made as
follows:
x Consulting service quality, maintenance and repairing, education, SLA quality and
information quality are significant in evaluating customer satisfaction in IT
outsourcing context. Maintenance and repairing is the highest associated with
ITOCS, and SLA quality is the second (see Figure 2). This result suggests that IT
outsourcing vendors in Korea have to focus their services on improving maintenance
and repairing service as well as SLA quality to increase customer satisfaction on IT
outsourcing comparing with other factors. In the survey, the average customer
satisfaction on maintenance and repairing service is greatest among that of any other
sub-factors of ITOCS (see Table 4). It implies that IT outsourcing service provider is
focusing their service on the maintenance and repairing mainly in Korea.
x Customer satisfaction on IT outsourcing service is significant in the direction to firm
performance. It suggests that high-quality service by IT outsourcing provider is
helpful to improve its customer’s firm performance.
x The average customer satisfaction on large IT vendors is consistently higher in all
areas than that on small providers. Although this is statistically unsupportable, it
might indicate that large IT vendors provide more stable IS and continuity service to
customers than small vendors because large vendors have more systematic IT
outsourcing departments and experienced service knowledge. Based on these results,
it may seem that small vendors are still weak in terms of their enterprise resource and
service levels in Korea.
In this study, we consider both outsourcing service providers’ and receivers’ perspective,
comparing previous researches. We regard IT outsourcing as a total solution and then
develop comprehensive measurement of customer satisfaction in IT outsourcing
environments. Compared with previous satisfaction measures in IT outsourcing context
(cf. Lee and Kim, 1997; Sengputa and Zviran, 1997), our instruments combined
maintenance and repairing service, education service, consulting service and SLA quality
with traditional UIS to make more comprehensive satisfaction instrument. Further, our
ITOCS measure can easily be adapted to evaluate ITOCS by outsourcing areas such as
application service provider, hosting and data centre operations and system operations
and support.
Despite some meaningful implications, our work has several limitations. First, our
instrument of customer satisfaction in IT outsourcing environments was not a perfect
measure. A more broad and detail measure would be required to incorporate additional
customer satisfaction dimensions that are related to outsourcing environments. The
continuous improvement of the proposed customer satisfaction evaluation measure is
needed to maintain the reliability and applicability of the measure by including more
relevant factors of the ITOCS. Such efforts could facilitate the development of a theory
for the ITOCS. Second, the proposed instrument did not consider the characteristics of
each outsourcing service type and the new IT outsourcing services such as business
process outsourcing and strategic alliance. Future research can examine whether the
proposed instrument works for different type of outsourcing services. Third, the results of
our study may have to be carefully interpreted since the sample was restricted to Korea.
Evaluating IT outsourcing customer satisfaction and its impact 171
In future studies, it can be tried to develop the maturity model of ITOCS for systematical
comparison of customer satisfaction levels among IT outsourcing vendors and nations.
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174 Y.K. Yoon and K.S. Im
Appendix: Simplified questionnaire for IT outsourcing customer
satisfaction and firm performance
1 Customer satisfaction in IT outsourcing service
For consulting service quality
Disagree
strongly
Disagree
somewhat
Neutral
Agree
somewhat
Agree
strongly
They take advantage of advanced methodology
and applications
1 2 3 4 5
They do consulting systematically 1 2 3 4 5
They have a great store of consulting knowledge
and experience
1 2 3 4 5
They understand our business and service 1 2 3 4 5
They have a great deal of participant intention
and communication skill
1 2 3 4 5
For maintenance and repairing service
Disagree
strongly
Disagree
somewhat
Neutral
Agree
somewhat
Agree
strongly
They have customer care and management
system
1 2 3 4 5
They have quickness in emergency and
repairing service
1 2 3 4 5
They give us continuous and periodical
maintenance service
1 2 3 4 5
They reflect our requirements and changes
timely
1 2 3 4 5
They have excellent service attitude and
specialty
1 2 3 4 5
For education service
Disagree
strongly
Disagree
somewhat
Neutral
Agree
somewhat
Agree
strongly
They have customer care and management
system
1 2 3 4 5
Instructor has specialty and kindness in
education service
1 2 3 4 5
They have continuity of education service 1 2 3 4 5
They keep up their education service and
contents development
1 2 3 4 5
Their education takes effect in our IT
applications
1 2 3 4 5
Evaluating IT outsourcing customer satisfaction and its impact 175
For SLA quality
Disagree
strongly
Disagree
somewhat
Neutral
Agree
somewhat
Agree
strongly
SLA contents are specific and precise
SLA is accurate 1 2 3 4 5
SLA is realisable and have reality 1 2 3 4 5
SLA contract is clarified and clear 1 2 3 4 5
For information quality
Disagree
strongly
Disagree
somewhat
Neutral
Agree
somewhat
Agree
strongly
Information output is relevant 1 2 3 4 5
Information output is accurate 1 2 3 4 5
Information output is precise 1 2 3 4 5
Information output is complete 1 2 3 4 5
2 Firm performance
Through IT Outsourcing
Disagree
strongly
Disagree
somewhat
Neutral
Agree
somewhat
Agree
strongly
Compared to key competitors, my company has
greater market share
1 2 3 4 5
Compared to key competitors, my company is
growing faster
1 2 3 4 5
Compared to key competitors, my company is
more successful
1 2 3 4 5
Compared to key competitors, my company is
more profitable
1 2 3 4 5
Overall performance has improved 1 2 3 4 5
Note
1
It should be noted that since ITOCS is a second-order factor, only five sub-constructs of ITOCS
were compared in Tables 2 and 3. When five sub-constructs and firm performance are tested in
terms of cross-factor loadings, however, we also found the construct validity and the reliability of
measures used in our study.
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