Information Technology Outsourcing Reasons in Aviation Industry

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Information technologies (IT) have had a substantial role in improving the affordability, safety, capability and efficiency of the air transportation system and influencing the consumer demand for air transportation. There are rapid changes in
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  Proceedings of 39th International Business Research Conference   15 - 16 December 2016, Shinjuku Washington Hotel, Tokyo, Japan    ISBN: 978-1-925488-24-1   Information Technology Outsourcing Reasons in Aviation Industry Nuray Tokgoz* and Dilek Erdogan ** Information technologies (IT) have had a substantial role in improving the affordability, safety, capability and efficiency of the air transportation system and influencing the consumer demand for air transportation. There are rapid changes in information technology so aviation companies need to adapt to these changes in order to survive. Aviation companies may prefer to transfer their IT assets, leases, staff and management responsibility for delivery of services from internal IT function to third-party vendors. Information technology outsourcing provides organizations with greater capacity for flexibility, especially in the context of the purchase of rapidly developing new technologies, new people, and myriad components of complex systems. This study aims to answer (1) "How does information technology management differ in the aviation industry?" (2) What are the reasons for aviation organizations to opt for outsourcing?" This study used qualitative research methods to answer questions. Data were collected by making semi-structured interviews with aviation company’s IT managers. Data were analyzed via content analysis by using Nvivo 11. JEL Codes:  L93, M15 and L24 1. Introduction Information technologies are based on data processing used to access information in short time and make it available for use by anybody. These technologies enable obtaining, processing, storing, analyzing and communicating information (Tutar, 2006). Since Kodak’s initial foray into outsourcing (Applegate and Montealegre, 1991), IT outsourcing has emerged as a strategic option for many firms. The well-publicized decision by Eastman Kodak to hand over its entire data center to IBM, its microcomputer operations to Businessland, and its telecommunications and data networks to Digital Equipment Corporation and IBM is a classic illustration (Loh and Venkatraman, 1992). Hirschheim and Lacity (2000)) consider information technology outsourcing as the practice of transferring IT assets, leases, staff, and management responsibility for delivery of services from internal IT function to third-party vendors. The degree of outsourcing and IT functions to be outsourced vary by the operation strategies of buyers and various reasons for outsourcing. There are different sourcing decisions in the literature. Lacity and Hirschheim (1995) suggest that sourcing decision options are total outsourcing, total insourcing, selective outsourcing. Regardless of the type of outsourcing decision, major IT assets that can be procured from a supplier are as follows: data center, application development, application maintenance, help desk, voice network, data network, desktop, office/field support, telecommunications, asset acquisition, disaster recovery, print management, training (Halvey and Melby, 2005). *Assoc. Prof. Dr. Nuray Tokgoz,   Department of Management and Organization, Faculty of Business Administration, Anadolu University, Turkey, Email: nuzkesici@anadolu.edu.tr  ** Dilek Ergogan, Department of Aviation Management, Faculty of Aeronautics and Astronautics, Anadolu University, Turkey, Email: dilekc@anadolu.edu.tr Department of Business Administration  Proceedings of 39th International Business Research Conference   15 - 16 December 2016, Shinjuku Washington Hotel, Tokyo, Japan    ISBN: 978-1-925488-24-1   There are a wide range of reasons as to why organizations to opt for outsourcing for information technologies and these include focusing on their main line of business, reducing information technologies costs, using information technologies appropriately, ensuring resource continuity or reducing costs and technology risks. A great number of studies examined outsourcing reasons of businesses (Ang and Straub, 1998, Beaumont and Costa, 2002, Gonzalez et al., 2010, Lacity and Willcocks, 1998, Quinn and Hilmer, 1994, Seddon et al., 2007, Van der Zee and Van Wijngaarden, 1999). However, this paper intends to reveal the reasons for organizations to opt for outsourcing in the aviation industry entailing extensive use of information technologies. Information technologies are used in air transport industry to a great extent with sub-branches such as airline transport, aircraft production and maintenance, airport management, air traffic services and ground handling. Use of information technologies in the aviation industry has a significant impact on security, efficiency, capacity, environmental effects of organizations and financial performance (Hansman, 2005). Institutions operating in the aviation industry are characterized by immense use of IT outsourcing. According to the results of a survey conducted with 200 airline in 2016, organizations use 35% of IT budget for internal IT department, while they allocate the remaining 65% of their budget for outsourcing. The goal of this paper is to obtain in-depth understanding of why organizations operating in the aviation industry use IT outsourcing through qualitative research methods. However, before we attempt to achieve this, we tried to answer the questions such as "How does information technology management differ in the aviation industry?" and "What are the reasons for aviation organizations to opt for outsourcing?" respectively. 2. Literature Review Reasons and advantages of IT outsourcing have been discussed frequently in the literature. Results of some studies investigating the reasons of IT outsourcing are provided below: •  According to Quinn and Hilmer (1994), the reasons of IT outsourcing include reducing costs, increasing service quality, and improving the ability of focusing on core business. •  Ang and Straub (1998) suggested a model involving the variables such as production cost advantage, transaction cost, financial slack, and firm size to determine the degree of outsourcing in their research across the U.S. banks. Their test showed that cost saving is one of the main reasons for outsourcing in the U.S.A. banking, in spite of the fact that transaction costs are generated. •  Van der Zee and Van Wijngaarden (1999) address decreasing the total cost of ownership of the IT services, increasing IT services flexibility and achieving innovatively IT services as the most important reasons of IT outsourcing. •  Beaumont and Costa (2002) found that close to 40% of Australian organizations outsource one or more IT application. Large organizations tended to outsource more than small ones. This paper suggests that three most important reasons for outsourcing are access to skill, improved quality and focus on core business. •  Results of case study conducted by Levina and Ross (2003) suggest that reasons for IT outsourcing are not pure tactical and economic reasons. They are rather more strategic.  Proceedings of 39th International Business Research Conference   15 - 16 December 2016, Shinjuku Washington Hotel, Tokyo, Japan    ISBN: 978-1-925488-24-1   •  The study of Seddon et al. (2007)) tests Domberger's theory of the contracting organization applies in an IT context. The paper indicates that Domberger's four factors do appear to provide a simple way of summarizing senior IT managers’ explanations of the reasons for why their organizations decided to outsource IT service provision. It concludes that it is important to note that cost savings are not the only benefits that a client firm can derive from outsourcing; non-monetary benefits such as opportunity costs avoided through access to better advice, growth opportunities through concentrating on its own core capabilities, and flexibility options need to be factored into the overall cost  – benefit equation. •  (Gonzalez et al., 2010) examined Spanish companies and found that the opportunity to have better IT services and the possibility to achieve technological improvements emerge as priority reasons than reduction of cost savings in staff and technology. The paper indicates that only small companies with very few employees in their IT department consider the advantage of cost reduction as the main reasons of outsourcing. 3. The Methodology According to Creswell (2009) qualitative researches are subjective and conducted to understand a phenomenon and make sense of participants' perceptions of it. In an effort to understand and examine a social phenomenon in depth in line with the purpose of the aforementioned study, this paper used the qualitative research method. Participants of this study are IT managers of organizations operating in Turkish aviation industry. Qualitative research involves no upper or lower limit for the number of participants. Collecting data from participants who will provide rich data is more important than having high number of participants (Creswell, 2007). This study therefore involved a purposeful choice of sampling (Glesne, 2012) and collected in-depth data from 14 IT managers working at 11 different aviation businesses. All participants were managers with varying titles such as IT Director, IT Manager, IT Specialist or IT Project Manager. Of the participants, 3 worked at airport companies; 5 at airline companies; 2 at air freight companies; 4 at ground handling companies and 1 participant at an aircraft maintenance and production company. Participants' positions at different lines of business in aviation industry provided data diversity to the study. Characteristics of study participants are provided in the table 1. Data was collected through face-to-face interview method. A semi-structured interview form was used during interviews. Prepared interview form was reviewed by four specialists and was revised based on their feedbacks. Furthermore, a pilot experiment was made to see if the interview form serves its purpose effectively in line with the goals of this study. Interviews were made in April 2016 by a single interviewer. Interview form used for the study was reviewed by Anadolu University Ethics Committee and accepted for use in the study before the study was initiated. During the appointment stage, participants were informed about the subject matter, purposes, scope, and use of audio recording during the study. Participants were also informed that they would not be facing any risk during and after the study. The participants were therefore mentioned anonymously and code names were used to protect their confidentiality.  Proceedings of 39th International Business Research Conference   15 - 16 December 2016, Shinjuku Washington Hotel, Tokyo, Japan    ISBN: 978-1-925488-24-1   Table 1: Characteristics of Participants Participant Code Name Firm Type Education Work Experience Position Alpha Airport Postgraduate 9 IT Project Management Office Manager Bravo Aircraft Maintenance and Production Undergraduate 16 IT Director Charlie Air Freight Undergraduate 4 IT Professional Echo Airport Postgraduate 20 IT Director Foxtrot Airline Postgraduate 25 IT Manager Zulu Ground Handling High School 24 System and Network Manager Mike Airline High School 14 System and Network Supervisor Oscar Airline Undergraduate 10 Software Development Supervisor India Airline Undergraduate 9 Project Team Leader Sierra Ground Handling/Catering Undergraduate 12 Project Manager Romeo Ground Handling Undergraduate 11 Technical Office Manager Delta Ground Handling Postgraduate 17 IT Manager November Airport Management Postgraduate 17 System Development Supervisor Yankee Air Freight Undergraduate 16 Information Systems Manager Interview form used for the study was reviewed by Anadolu University Ethics Committee and accepted for use in the study before the study was initiated. During the appointment stage, participants were informed about the subject matter, purposes, scope, and use of audio recording during the study. Participants were also informed that they would not be facing any risk during and after the study. The participants were therefore mentioned anonymously and code names were used to protect their confidentiality. Audio recordings of all interviews were transcribed upon completion of the interviews. NVivo 11, qualitative data analysis software, was used during data analysis process. Data obtained from the interviews was processed through inductive analysis. Inductive analysis can be described as categorizing data by coding the data obtained from participants through interviews, discovering intersections between these categories and identifying themes and sub-themes in an effort to understand the symbolic world of participants (Patton, 2002). In this study, data analyzed by two researchers was analyzed separately, and themes and codes were identified accordingly. Differences between analyses were discussed by researchers and then codes and themes were finalized upon agreement on codes and themes. Several strategies exist to ensure trustworthiness in qualitative research (Glesne, 2012). In this study, methods such as confirmation of participants, recording the interviews, consistency and confirmation review by specialists on methods and fields were followed to improve trustworthiness and all data collected was kept confidential.  Proceedings of 39th International Business Research Conference   15 - 16 December 2016, Shinjuku Washington Hotel, Tokyo, Japan    ISBN: 978-1-925488-24-1   4. The Findings 4.1. Research Question 1: How Does Information Technology Management Differ in the Aviation Industry? Upon inductive analysis of research data, two themes and seven codes were identified to answer this research question. Participants extended two different opinions as follows: "Information technology management differs in the aviation industry" and "Information technology management does not differ in the aviation industry". These were individually addressed as two separate themes. Seven codes were identified under the theme "Information technology management differs in the aviation industry": Requirement for uninterrupted maintenance of operations in the aviation industry, comprehensiveness and complexity of projects, long term investments, impact of regulations in the industry, dynamic structure of the industry, pioneering nature of the industry for new technologies and industry as a service sector. Codes identified to answer why IT management differs in aviation industry are shown in Figure 1. Figure 1: Codes for IT Management Differences in the Aviation Industry The subject which was emphasized the most by participants under the theme "Information technology management differs in the aviation industry" was the requirement for uninterrupted maintenance of operations. Interruptions in operations in the industry result in significant tangible and intangible losses suffered by businesses. The ultimate goal of information technology management in the aviation industry is uninterrupted maintenance of operations. IT systems are therefore expected to function for support on a 24/7 basis in a way to ensure maintenance of operations.
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