LV thạc sỹ_Solutions to improve CRM at vietnamese software outsourcing enterprises

ACKNOWLEDGEMENT
To come to this closing part of the MBA course, I have many people to thank for their kind
support and help. I am grateful to all of my teachers …


2

TABLE OF CONTENTS
Table of Contents....................................................................................................................2
ABBREVIATIONS................................................................................................................4
LIST OF TABLES..................................................................................................................5
LIST OF FIGURES................................................................................................................6
EXECUTIVE SUMMARY....................................................................................................7
INTRODUCTION..................................................................................................................9
1.Rationale.............................................................................................................................................9
2.Research objectives..........................................................................................................................10
3.Research questions...........................................................................................................................10
4.Research methodology.....................................................................................................................10
4.1.Research process...........................................................................................................................10
4.2.Data collection...............................................................................................................................10
4.3.Data Analysis..................................................................................................................................11
5.Research Scope.................................................................................................................................11
6.Research structure............................................................................................................................12

CHAPTER 1.........................................................................................................................13
THEORETICAL BACKGROUND ON CUSTOMER RELATIONSHIP MANAGEMENT
..............................................................................................................................................13
1.1.CRM definitions..............................................................................................................................13
1.2.Benefit of CRM...............................................................................................................................15
1.3.CRM business cycle........................................................................................................................16
1.3.1.Customer acquisition..................................................................................................................17

1.3.2.Customer relationship enhancements.......................................................................................17
1.3.3.Customer retention.....................................................................................................................17
1.4.Customer service/sales profile model...........................................................................................17
1.5.CRM in offshore software outsourcing industry...........................................................................20
1.5.1.The importance of CRM in offshore software outsourcing.......................................................20
1.5.2.Frameworks in offshore software outsourcing..........................................................................21
1.5.3.Critical factors in CRM in offshore software outsourcing industry............................................23

ANALYSIS OF CRM PRACTICE AT VIETNAMESe SOFTWARE OUTSOURCING
ENTERPRISES....................................................................................................................24
2.1.Situation of offshore software outsourcing industry....................................................................24
2.1.1.Offshore software outsourcing...................................................................................................24
2.1.2.The growth of offshore software outsourcing...........................................................................25
2.1.3.Motivators of offshore software outsourcing............................................................................26
2.1.4.Offshore software outsourcing industry in Vietnam.................................................................27
2.2.Analysis of CRM practice at offshore software outsourcing enterprises in Vietnam..................34
2.2.1.Analysis of CRM practice in customer acquisition.....................................................................34
2.2.2.Analysis of CRM practice in maintenance and enhancement phase........................................43
2.3.Summary of chapter 2...................................................................................................................56


3

CHAPTER 3.........................................................................................................................57
SOLUTIONS TO IMPROVE CRM AT VIETNAMESE SOFTWARE Outsourcing
ENTERPRISES....................................................................................................................57
3.1.Objectives.......................................................................................................................................57
3.2.List of recommended solutions.....................................................................................................57
3.3.Recommendations for implementing solutions............................................................................57
3.3.1.Solution of building customer-oriented culture........................................................................57

3.3.2.Solutions of re-structuring customer care group.......................................................................59
3.3.3.Solution of building a network of sales partners.......................................................................60
3.3.4.Solutions to improve the training program for CRM department............................................61
3.3.5.Solution of building keep customers’ loyalty programs............................................................65
3.4.Summary of chapter 3...................................................................................................................66

REFERENCES.....................................................................................................................68
APPENDICES - A................................................................................................................69
APPENDICES – B...............................................................................................................71


4

ABBREVIATIONS
BPO
BSA
CEO
CMMI
CRM
eSCM-SP
EU
FDI
GDP
IDC
ISO
IT
MGC
MPC
MPT
MTC

MVC
NASSCOM
SWOT
TRIP
UK
US
USA
WTO

Business Process Outsourcing
Business Software Alliance
Chief Executive Officer
Capability Maturity Model Integration
Customer relationship management
e-Sourcing Capability Model-Software Provider
Europe
Foreign Direct Investment
Gross Domestic Product
International Data Corporation
International Standard Organization
Information Technology
Most Growable Customer
Most Profitable Customer
Ministry Of Posts And Telecommunications
Most Troubling Customer
Most Vulnerable Customers
National Association of Software and Services Companies
Strength Weakness Opportunity Threat
Trade-Related Aspects of Intellectual Property Rights
United Kingdom

United State
United State of America
World Trade Organization


5

LIST OF TABLES
Table B.1: List of interviewees.............................................................................................71


6

LIST OF FIGURES


7

EXECUTIVE SUMMARY
The introduction part of the thesis introduces the basis of the topic including rationale,
research objectives, research questions, research methodology.
The rationale talks about the opportunities and challenges of Vietnamese software
companies when facing the intense growth of software outsourcing industry. The growth of
the industry has brought more potential customers for software outsourcing companies in
the global market. However, the growth also creates challenges in CRM to retain current
customers and attract new ones against high competitive environment and challenges in
CRM to against the failures of software outsourcing projects.
There are three main purposes of the topic is to define the practice of CRM in Vietnamese
software companies, the shortcomings and solutions to overcome the shortcomings.
Qualitative research methodology is used in this thesis: interview and consult with a

number of leaders, managers at all levels of software outsourcing companies in Vietnam, as
well as external experts and relationship management with enterprise business software;
content exchange to focus on the basics of strategic management of Vietnamese software
outsourcing companies.
The thesis goes through the concept of managing customer relationships, a general
introduction to the outsourcing industry and a number of characteristics in managing
customer relationships. The analysis of management relationships with customers is made
up from a number of software companies in Vietnam. In common, CRM practice in
Vietnamese software outsourcing companies is being aware but it’s fragmented,
unprofessional and poor in management. Software outsourcing companies haven’t created
customer-oriented culture in working environment of companies. Activities related to
customer care are not well managed affect maintenance and development of relationship.
Weakness of sales and marketing affects the effectiveness of building up initial
relationship.
In the ending part, this thesis provides five recommended solutions which help to improve
outstanding issues are analyzed. "Building customer-focused culture" recommendation
helps to have a good foundation and align all activities toward customer care. All
Vietnamese software outsourcing companies need to focus more on sales team, customer
care activities which can help them to have more customers building relationship and keep
the relationship last in a long-term. The five recommendations help to strengthen the


8

management of customer relationships from the set-up of first relationship to the
maintenance and to the development of customer relationships for Vietnamese offshore
software outsourcing companies.
There are some limitations of this thesis. This thesis mostly studies CRM practice in
Software companies located in Hanoi. Not fully information is provided for the study by
respondents regarding the issues of confidentiality. So, there are sighted constraints and

limitations which might have caused Gaps in this research paper.


9

INTRODUCTION
1. Rationale
Offshore software outsourcing is regarded as ‘The potential industry’ for Vietnamese market
in the context of globalization and this is further assisted by the government’s investment
focus on this market. Because it trends towards reducing costs and coping with human
resources scarcity and outsourcing will reduce a company’s internal costs while allowing it
to focus on the core competencies.
While software outsourcing powers such as India, China are facing increasing human
resources scarcity and are losing price competitiveness due to skyrocketing wages at home,
Vietnam is emerging as one of the foremost choice for software outsourcing firms. Young
human resources and low cost have brought Vietnam to stay among the top ten of countries
attractive to software outsourcing.
Besides, software outsourcing industry has many advantages from the support of the
government. Realizing importance of outsourcing, the Ministry of Information and
Communication spends VND 60 billion in support of enterprise’s CMMI deployment in 3
years from 2010 to 2012.
In face of 2009’s challenges, software outsourcing recovered at the end of 2009 and in
2010 with the growth rate of 20-40% comparing with the growth rate of 10% in first six
months of 2009

[7]

. There are increasing numbers of software outsourcing contracts

between companies with differences in geographical locations, different languages and

cultures, and those differences bring many difficulties in managing business relationship.
Thus, facing the opportunities brought by the new context of global economic cooperation
in software outsourcing industry, the more rapidly the market develops and the more rivals
appear, then the more challenges to manager in CRM there are, in order for them to
maintain long-term ties with present customers preventing them to move to other vendors
and to attract new customers through references from old ones.
With the growing volume of offshore outsourcing, the number of failures is also
increasing. According to a recent study, it found that 20-25% of all software outsourcing
relationships fails within 2 years and 50% fail within 5 years. The literature indicates that
problems with the ‘relationship’ between clients and vendors are the underlying reason for
many failures and mismanagement of client-vendor offshore outsourcing relationships can
have far reaching consequences for both clients and vendors. Subsequently, it is imperative


10

to identify critical factors that can help to better manage offshore software outsourcing
relationships. Furthermore, it is also important to identify the difficulties faced in
managing offshore relationships and also how clients and vendors develop mutual trust.

2. Research objectives
-

To review practice of CRM at software outsourcing companies in Vietnam.
To identify common shortcomings that Vietnamese software outsourcing

-

companies have in CRM.
To suggest solutions for the companies to overcome the shortcomings in CRM

practice.

3. Research questions
-

Question 1: How has CRM been implemented by Vietnamese software outsourcing
enterprises?
This question specifically asks about software outsourcing company’s model and
important factors in managing relationships with clients. From the responses of this
question, the basis for identifying business model, methodology in managing
relationships that companies use is formulated.

-

Question 2: What factors impact on effectiveness of CRM at the Vietnamese
software enterprises?
This question helps to focus on the important factors in managing successful
outsourcing relationships and on factors that can cause the ineffectiveness.

-

Question 3: What solutions can be used for mitigating or eliminating adverse
impacts?
This question helps to list out the solution that company use to solve the issues
from response of previous question.

4. Research methodology
4.1. Research process
The research process is presented in the following figure 0.1.
The literature review is implemented to identify research objectives. To identify the

shortcomings of CRM at Vietnamese software outsourcing enterprises, the in-depth
interviews were performed and secondary data were collected and analyzed.

4.2. Data collection
In this thesis, both secondary and primary sources are used to generate qualitative data.


11

a. Secondary Data Collection
The research is conducted with existing information and documents including research
publications, the results of the investigation, research, maps, statistics, reports on issues
related to research topics.
The sources for secondary data are:
Books, Journals,
Previous researches,
On-line, web-based information postings.
All the secondary data are searched by keys related to software outsourcing, relationship
between clients and vendors in software outsourcing, number of projects, failures and
success in recent years.

b. Primary Data Collection
In-depth interviews and consult with 15 key people at different positions in 9 Vietnamese
software companies such as Managing Directors, Account Managers, Marketing Managers,
Team Leaders and Senior Software Engineers. This was conducted with a number of
different software outsourcing companies within Vietnam (mostly in Hanoi) to collect
information about CRM’ practices of software companies. Content exchange to focus on
the basis of strategic management of Vietnamese software outsourcing companies.

4.3. Data Analysis

Content analysis and frequency analysis is used to examine the data.
Design guideline
questions for indepth interviews
Implement
Literature
Review

Implement in-depth
interviews with 15
participants in 9
software companies

Identify
research
objectives

Analyze
research data

Write
thesis

Collect
secondary data

Figure 0.1: Research Process
Source: Author of the thesis

5. Research Scope
For time and budget constraints, Author of the thesis conducted the most research:

-

Research subject: CRM practice at Vietnamese software outsourcing Companies.

-

Location: in Hanoi.


12

-

Time:
o Secondary research data was limited to period of 3 previous years (From 2008 to
2010).
o Primary data was collected from July 2010 to March 2011.

6. Research structure
Besides acknowledgement, abbreviation, table of Contents, table of Figures, executive
summary, and introduction parts, the thesis is structured by three main chapters including:
•
•

Chapter 1 – Theoretical Background
Chapter 2 – Analysis of CRM practice at Vietnamese software outsourcing

•

enterprises

Chapter 3 – Solution to improve CRM at Vietnamese software outsourcing
enterprises


13

CHAPTER 1
THEORETICAL BACKGROUND ON CUSTOMER RELATIONSHIP
MANAGEMENT
1.1. CRM definitions
There are many definitions on CRM.
According to Kristin Anderson and Carol Kerr [2002]

[1]

, Customer relationship

management is a comprehensive approach for creating, maintaining and expanding
customer relationships.
First, consider the word “comprehensive”. CRM does not belong just to sales and
marketing. It is not the sole responsibility of customer service group. Nor is it the
brainchild of the information technology team. While any one of these areas may be the
internal champion for CRM in your organization, in point of fact, CRM must be a way of
doing business that touches all areas. When CRM is delegated to one area of an
organization, such as IT, customer relationships will suffer. Likewise, when an area is left
out of CRM planning, the organization puts at risk the very customer relationships it seeks
to maintain.
The second key word in Kristin Anderson and Carol Kerr’s definition is “approach”. An
approach, according to Webster, is “a way of treating or dealing with something”. CRM is
a way of thinking about and dealing with customer relationships. We might also use the

word strategy here because, done well, CRM involves a clear plan. In fact, we believe that
your CRM strategy can actually serve as a benchmark for every other strategy in your
organization. Any organizational strategy that doesn’t serve to create, maintain, or expand
relationships with your target customers doesn’t serve the organization.
Strategy sets the direction for your organization. And any strategy that gets in the way of
customer relationships is going to send the organization in a wrong direction.
You can also consider this from a department or area level. Just as the larger organization
has strategies, plans for shareholder management, logistics, marketing, and the like, your
department or area has its own set of strategies for employee retention, productivity,
scheduling, and the like. Each of these strategies must support managing customer
relationships. Sounds are too logical to need to be mentioned. Yet it is all too easy to forget.
For example, in times of extremely low unemployment, how tempting is it to keep a less
than ideal employee just to have a more comfortable headcount? Or, consider the situation


14

all too familiar to call centre environments, where pressure to keep calls short goes head to
head with taking the time necessary to create a positive customer experience.
Now, let’s look at the words, “creating, maintaining and expanding.” CRM is about the
entire customer cycle. When you implement your CRM strategy, you will capture and
analyse data about your targeted customers and their targeted buying habits. From this
wealth of information, you can understand and predict customer behaviour. Marketing
efforts, armed with this customer intelligence, are more successful at both finding brand
new customers and cultivating a deeper share of wallet from current customers. Customer
contacts, informed by detailed information about customer preferences, are more
satisfying.
Finally, what do we mean by “customer relationships” in today’s economy, where we do
business with individuals and organizations whom we may never meet, may never want to
meet, much less know in a person-to-person sense? In short, customers want to do business

with organizations that understand what they want and need. Wherever you are in your
organization, CRM is about managing relationships more effectively so you can drive
down costs while at the same time increasing the viability of your product and service
offerings.
According to the definition on Wikipedia, Customer relationship management (CRM) is a
widely-implemented strategy for managing a company’s interactions with customers,
clients and sales prospects. It involves using technology to organize, automate, and
synchronize business processes—principally sales activities, but also those for marketing,
customer service, and technical support. The overall goals are to find, attract, and win
new clients, nurture and retain those the company already has, entice former clients back
into the fold, and reduce the costs of marketing and client service. Customer relationship
management describes a company-wide business strategy including customer-interface
departments as well as other departments [Wikipedia link]

[10]

. In this way, CRM is

intended to help companies understand, as well as anticipate, the needs of current and
potential customers.
In the view of the CEO GartnerG2 (2002) [8], CRM is that a company needs to understand
what customers they have, and who they want, and then they can put in place a strategy for
developing the value of each segment.
Several other definitions of CRM are listed below.


15

CRM is a comprehensive way to manage the relationships you have with your customers
including potential customers for long lasting mutual benefit. Effective CRM systems

capture information about customer interactions and present that information to customerfacing users to service those customers more effectively and efficiently.
CRM combines business processes, people, and technology to achieve one goal: keeping
satisfied customers. It's an overall strategy to help you learn more about your customers
and their behavior so you can develop stronger, lasting relationships that will benefit both
you and your customer [11].
CRM actually enables organizations to create, sustain and enhance customer relationships
in a way that adds business value, which can be increased revenue, profit, or market share,
reduced operating costs, insight gained from more meaningful and accurate CRM
information, reduced time to market, and even improved quality in your products and
services.
A common misconception is that Technology equals CRM.

Many organizations expect

ROI once they have deployed a CRM application without incorporating the strategy or
people components. Technology simply enhances or enables your CRM capabilities
CRM is a combination of enterprise strategies, business processes and information
technologies used to learn more about customers' needs and behaviors in order to develop
stronger relationships with them.
Thus, CRM is a part of a company strategy. It links the firm value and its profit. Most
company are operating for more profit and its value, in which CRM helps them to hit the
targets. CRM is the tire of marketing and company strategy. CRM is one of the keys to
company success.

1.2. Benefit of CRM
Many businesses gain benefits from the implementation of CRM strategies.
Excellent customer service is being aware of customers’ needs and responding to those
needs efficiently. CRM helps companies understand, predict and meet customers’ needs in
a consistent manner within and across enterprise organizations.
CRM implementation requires a system of internal business operations coordinated

smoothly and efficiently. Many businesses benefit from the mechanism and application of
CRM principles in an organized way, as well as coordinating with modern technology.
CRM will help your business if you view it as a set of tools that let you do more for, and
get more back from your customers.


16

A major benefit of CRM is the development of better relationships with existing customers,
so CRM implementation can lead to:
•

Increased sales through better timing by anticipating needs based on historical
trends of customer purchases;

•

Identifying

needs

more

effectively

by

understanding

specific

customer

requirements;
•

Cross-selling of other products by highlighting and suggesting alternatives or
enhancements;

•

Identifying profitable customers and non-profitable customers.

This can lead to better marketing of products or services of companies by focusing on:
•

Effective target marketing aimed specifically at customer needs;

•

A more personal approach and the development of new or improved products and
services in order to win more business in the future.

Eventually this can lead to:
•

Enhanced customer satisfaction and retention, ensuring that a company good
reputation in marketplace continues to improve.

•

Increased value from your existing customers and reduced costs associated with
supporting and servicing them, increasing your overall efficiency and reducing total
cost of sales.

•

Improved profitability by focusing on profitable customers and solving most nonprofit customers in more cost effective way.

1.3. CRM business cycle
The life cycle of CRM (Figure 1.1) consists of three phases - customer acquisition,
customer relationship enhancements and customer retention.

Figure 1.1: The CRM business cycle
Source: Kristin Anderson and Carol Kerr, 2002


17

1.3.1. Customer acquisition
This is the stage where companies market their products and their services to potential
customers and turn them into real customers.
This phase focuses on the management of:
•

Marketing channels and customer communication tools

•

The factors that make the initial confidence to customers

1.3.2. Customer relationship enhancements
At this stage, CRM helps companies better understand customers’ current needs and
behaviors and enhance profitability from existing customers by cross-selling. Companies
can customize the products and services to individual customers’ needs and preferences
and sell more services and products to existing customers. The sale to customers that
already know the company is considered much easier than the sale to a new group of
customers.

1.3.3. Customer retention
This is the stage where CRM enables businesses to perform the customer support and call
center services. This is a process to ensure customer satisfaction. Customers are very
important to maintain the overall profitability of an organization. A company spends
hundreds of dollars and many months to get a customer, but can also lose customers in
seconds in the result of the poor customer services.

1.4. Customer service/sales profile model
There are three service/sales levels of customer service/sales model:


Level 1 is initial transactions. At this level, enterprises are focused on the discrete,

initial transactions or stand-alone sales. This is the foundation for every business or
organization. But the more money, time and effort companies invest in getting customers to
come to you in the first place, the more difficult it is to be profitable if just working at this
level.


Level 2 represents

repeat customers. At this level of business, companies are

focused on making customers come back for a second times, third time or more to buy the
same product they purchased or customers may turn to companies for a variety of products
or services.
Repeat customers develop greater economic and emotional ties with companies. And they
bring with them an expectation that companies will value those ties.


18



Level 3 is the highest level. This is the level of customer advocates. It is shown

that the level of customer satisfaction and those not just satisfied and willing to do business
with companies again. These customers actively tell others about their positive experience
and introduce products or services companies that they have been purchasing to new
people.
Depending on the percentage difference of the number of customers at each level of
service models that customers have different models.
Each level actually builds upon the level before. Without quality initial transactions,
customers
won’t want to do business with companies again. And it’s the customer who sees himself
or herself in a positive relationship with companies who can provide the strongest
advocacy for you and your products and services.

Figure 1.2: The Pyramid model of customer service/sales profile
Source: Kristin Anderson and Carol Kerr, 2002
Pyramid model of services (Figure 1.2) is the traditional model, and applies to most

businesses, the transaction will initially be led naturally to continue trading and some
percentage of repeat customers will switch to support.
The second model is the Hourglass model (Figure 1.3) is less common. The model shows
a broad base of initial transactions, and only few of which become repeat. This model
focuses on creating as many customer advocates as possible from initial transactions.
Hourglass model is suitable for long-buying cycle or when the nature of the product and
service purchases happens only once.


19

The hexagon model (Figure 1.4) describes a very stable business. The enterprise model is
an enterprise with an enough amount of repeat buyers so it feel little motivation to search
for new customers and also less incentive to seek for customer advocates at level 3.

Figure 1.3: The Hourglass model of customer service/sales profile
Source: Kristin Anderson and Carol Kerr, 2002
However, the model will be vulnerable when there are factors that impact on the
interruption of regular buyers, businesses must urgently find alternative customers. And
once the business has been a long time does not make the marketing process they will
encounter difficulties in finding the starting point for this work.

Figure 1.4: The Hexagon model of customer service/sales profile
Source: Kristin Anderson and Carol Kerr, 2002


20

1.5. CRM in offshore software outsourcing industry
CRM in offshore software outsourcing industry also includes the basic phases such as

CRM in any other industry that are customer acquisition, customer relationship
enhancement and customer retention.
Many published reports show that the relationship management in offshore software
outsourcing is important. Software outsourcing has grown in volume, geographic area, and
activities and the emergence of outsourcing overseas really makes customer relationship
management more challenging.

1.5.1. The importance of CRM in offshore software outsourcing
The importance of effective relationship management is evident from the failures and
challenges reported in offshore outsourcing. Ineffective relationship management can lead
to a failure in an offshore outsourcing project. Many challenges such as distance, cultural
difference and incomplete contracts can be resolved with effective relationship
management.
Kirkpatrick (1991) argues that an understanding of the relationship arising in outsourcing
is critical. Outsourcing to foreign countries not only brought new challenges but also made
existing challenges more severe to tackle. As well as new challenges for managing
outsourcing relationships abroad is important.
Moreover, it is also reported to be difficult to achieve a successful outsourcing project
without successful relationship management between customers and suppliers (Foote,
2004).
Managing relationships in offshore outsourcing is highly important. Krishna et al.'s (2004)
longitudinal work on cross-cultural issues in offshore software outsourcing concludes
that active

management of the client-vendor relationship is of key importance .

Brereton’s (2004) on software supply chain also indicates that a relationship between
customers and suppliers of outsourcing is critical for success. Furthermore, Kern and
Willcocks (2000) in an investigation based on their experiences throughout the seven UK
outsourcing relationships found that “Outsourcing seemingly is only successful when

relations are effective and functioning”.
Despite the importance of relationship management is evident, it is still relatively under
explored in the context of research studies. A dearth of research, guiding practitioners to
manage the offshore software outsourcing relationship, is obvious. Many studies assert that
research is needed in this area. For example, Kern and Willcocks (2000) suggest that the


21

outsourcing relationship and the characteristics that describe such a relationship is the
area in outsourcing that has received the least research attention.
Khan et al. (2003) confirm that most studies have focused primarily on providing case
study material on individual offshore outsourcing scenarios.

This

limits

the

generalisability of the results as the results are reported only from the individual cases.
Furthermore, Currie (2000) looks at the strategic positioning of large IT service
providers in the software and computer services industry. She calls for further research in
the management of outsourcing relationships particularly to focus more on the vendor
community. Khan et al. (2003) also report that the supplier market has received little
emphasis in previous research.
It is critical to manage offshore outsourcing relationships effectively. It is also clear that
more research is necessary to tackle the growing challenges in offshore outsourcing. So far
only a few studies have addressed solutions to build successful offshore outsourcing
relationships.

Some of the frameworks helpful in managing offshore outsourcing are

reviewed in the next subsection.

1.5.2. Frameworks in offshore software outsourcing
Smith et al. (1996) propose a framework from the resource, environmental and project
management perspectives of outsourcing. This framework covers a wide range of issues
such as resource requirements, factors that affect resources and the characteristics of
software projects that affect resource requirements in offshore outsourcing. Kern and
Willcocks

(2000) propose exploratory framework of outsourcing relationships. Their

framework is based on an empirical investigation of twelve UK based companies. Their
framework focuses on behavioral, contractual and financial issues relevant to outsourcing.
However, none of these frameworks concentrate on relationships issues as part of their
proposed frameworks. Most frameworks

concentrate on specific issues such as

outsourcing decision (Willcocks and Fitzgerald, 1993); types of contracts (Nam et al.
1996); feasibility of an offshore option (Ravichandran and Ahmed, 1993) and financial
issues (Loh, 1994) but seem to have overlooked the management of outsourcing
relationships.
Few outsourcing projects seem to be using the above frameworks. Most outsourcing
companies use quality frameworks such as ISO, CMM, or SixSigma to demonstrate their
capabilities in managing offshore software outsourcing projects. However, these
frameworks do not cover offshore outsourcing or relationship issues. Recently a few

22

frameworks such as COPC (for customer contact centres and

transaction processing

centres) and BS-15000 (for software service management) have been

presented

specifically for outsourcing. Outsourcing clients may impose a variety of these
frameworks (such as ISO, CMM, COPC etc.) on their vendors (Hyder et al. 2004).
Implementing a variety of such frameworks may not prove productive as IT Service
Qualification Center of CMU (ITsqc) notes (Hyder et al. 2004):
‘Even if each of the frameworks provides a significant value-added increment to a vendor's
capability, the diversity of emphases and perspectives could be counter productive’.
Carnegie Mellon University (CMU) has presented a framework – eSCM-SP
(eSourcing Capability Model) which claims to cover ‘all’ sourcing issues. At this stage,
CMU has presented eSCM for vendors (eSCM-SP). A similar model for clients is currently
under development. The main objectives of eSCM-SP (Hyder et al. 2004) are to:
1) Give service providers guidance that will help them improve their capability across the
sourcing life-cycle
2) Provide clients with an objective means of evaluating the capability of service providers
and
3) Offer service providers a standard to use when differentiating themselves from
competitors.
Although eSCM-SP goes some way to address the needs of outsourcing partners, it is not
tailored specifically to software outsourcing. The framework seems more relevant to
business process type of outsourcing (BPO). eSCM-SP is also at a high level of granularity

which means low level detail of relationships is not addressed. e-SCM-SP attempts to
cover all issues of outsourcing project. This limits the amount of low level detail presented
for specific areas of outsourcing project management. The framework also concentrates
primarily on evaluation of the vendors’ capabilities.
e-SCM does not directly emphasize relationship management. However, some relationship
practices are suggested in the framework. e-SCM mentions trust as one of the critical
factors in the analysis but there is not any further research presented on trust-building
mechanisms. The guidelines presented in this thesis will complement eSCM-SP with
guidelines for client-vendor relationships. These guidelines will be at a lower level of
detail and tailored specifically for software outsourcing relationships. However,

to

develop detailed guidelines a review of critical factors in offshore outsourcing
relationships is necessary.


23

1.5.3. Critical factors in CRM in offshore software outsourcing industry
Most outsourcing studies directly or indirectly suggest that relationship management is
critical to the success of an outsourcing project. However, only a few studies (e.g. Lacity,
2002; Kern and Willcocks, 2000; Kishore et al. 2003) concentrate on the critical factors to
manage the relationship in offshore outsourcing. Therefore, it is vital to study the critical
factors in managing offshore outsourcing relationships. This subsection reports some of
the critical factors documented in previous investigations.
Kern and Willcocks (2000) suggest that issues such as communication, exchange of
information,

and cultural convergence are critical in managing the relationship.

Brereton’s (2004) study on software supply chain indicates mutual respect and a
willingness to share information transparently as critical for successful relationships.
Stralkowski and Billon (1988) claim that the success of the relationship relies mainly on
the level of customer satisfaction, achievement of expectation, and longevity of the
venture. Kishore et al. (2003) claim that a mutual understanding between clients and
vendors is very critical for the success of outsourcing relationships. In relation to this,
Kishore et al. (2003) suggest that mutual understanding between clients and vendors
should be developed by adequate mechanisms for information sharing.
Lacity (2002) on the basis of long term research experience in outsourcing suggests that
the ability to commit to what was agreed, to fairly adapt to change, and to identify valueadded services are critical to success. Nam et al. (1996) emphasise the technical
competence of the vendor as critical in the relationship. Nystrom’s (1997) findings indicate
that understanding different cultures and developing cross-cultural communication skills
are critical success factors in offshore outsourcing.
In addition all of the above studies suggest the role of trust in outsourcing relationships.
For example, Stralkowski and Billon (1988) focus on customer satisfaction,
achievement of expectation and longevity of the venture, and Kishore et al. (2003) claim
about mutual understanding have echo of trust. Moreover, other studies more directly
suggest that trust is one of the most critical factors in managing outsourcing relationships
(e.g., Kern and Willcocks, 2000; Kishore et al. 2003; Sabherwal, 1999; Nam et al. 1996).
However, the importance of trust is described at highly abstract levels by most studies. A
detailed investigation into trust is lacking. This thesis not only investigates how CRM is
applied at Vietnamese software outsourcing companies enterprises, but also jump
specifically into how critical factors in trust building of relationship are managed.


24

CHAPTER 2
ANALYSIS OF CRM PRACTICE AT VIETNAMESE SOFTWARE

OUTSOURCING ENTERPRISES
2.1. Situation of offshore software outsourcing industry
Outsourcing generally describes the use of an external provider to perform one or more
organizational activities (e.g. the purchasing of a product or service). Outsourcing is a
business activity through which business firms attempt to reduce or eliminate its non-core
areas of functioning.
Software outsourcing is defined as a situation where a company (a client) contracts out all
or part of its software development activities to another company (a vendor), who provides
agreed services for remuneration. [Kern and Willcocks, 2000; Loh and Venkatraman, 1992;
Palvia, 1995].
Different terms such as ‘facility management’ and ‘contracting-out’ were in use until the
word outsourcing emerged in the 1970s. Software outsourcing emerged in the late 1980s
and has been reported as one of the strongest and most sustained business trends since
then. [Lee et al. 2003; Hendry, 1995; Kern and Willcocks, 2000].

2.1.1. Offshore software outsourcing
Offshore outsourcing comes from “offshore” and “outsourcing”.
Offshore outsourcing literally means outsourcing your activity to one who is not on your
shore or who is beyond your shore. Offshore outsourcing is a concept in which the buyer of
the service is located in some other country than the provider of the service. Organizations
are tempted to invest in offshore outsourcing resources because when compared to their
own countries, certain nations have vast & easily accessible resources that can be exploited
to gain competitive advantage.
Many developing countries are attracting business organization from developed countries
because developing countries are providing quality services at economically cheap price in
comparison to developed countries. Various issues affect the decision of a client regarding
offshore outsourcing. Factors like manpower cost, manpower quality, and infrastructure
facilities in a nation decide the attractiveness of that country as a offshore outsourcing
resource location. Legal and business environment in the service provider’s country plays a
major role in the development of offshore outsourcing.

25

Offshore outsourcing has revolutionized industry segments. Information technology being
in the lead, offshore outsourcing is also helping many industries in manufacturing
segments to gain competitiveness. Outsourcing offshore software development to countries
like India, China and Philippines are proving beneficial to the industries world over.

2.1.2. The growth of offshore software outsourcing
Offshore outsourcing was initially used for data processing work. However, since the
1990s companies have been outsourcing many software activities offshore. For example,
software design, testing, development and maintenance have been outsourced offshore
since the 1990s. Gurbaxani (1996) in his study of 50 outsourcing contracts suggests:
‘The nature of software outsourcing is changing in significant ways and that the strategies
and options managers can pursue are becoming more diverse and varied. Many evidences
are published in the literature to highlight this growth’.
Along with software activities, generally, the amount of software outsourcing has
consistently increased during the last decade (Hendry, 1995; Krishna et al. 2004).
During this period, companies have also started to outsource their software activity outside
their own country. This outsourcing was referred to as an offshore outsourcing because
software activity was outsourced to a country other than the country of the client company.
The trade press (e.g. Computing Express, IT weekly, Computing) and the academic
literature (e.g. Lee et al. 2003; Lacity, 2002) suggest that offshore outsourcing has
maintained a 20 percent growth rate. Mckinsey Global Institute predicts that offshore
outsourcing will continue to increase and may achieve growth rate of 30 to 40 percent
annually (Drezner, 2010). According to the International Data Corporation (IDC) the
offshore market for the US companies is at $6.9 billion in 2005, with a 20% annual growth
rate.
IDC also estimates that the US firms will outsource $27 billion worth work offshore by

2012. Trade press magazines such as IT Week and research companies such as Gartner and
Forrester regularly report the growth projections of offshore outsourcing. For example,
Forrester predicted that European companies will spend more than $10bn on offshore
outsourcing by 20012, and that a quarter of this money will come from the UK companies.
McCarthy (2010) argued that the near-term growth of offshore outsourcing will accelerate
due to broadening of offshore outsourcing services, increasing visibility and increasing
centers from client companies in countries such as India, China, Russia and other countries
including Vietnam.