Barbarian Syndrome: The Failure of Enterprise Risk Management in Outsourcing and Offshoring

Enterprise risk management (ERM) is the process of managing and controlling risks ' that is, the unknown events that could endanger an enterprise and its operations. How ERM is being used in practice to reduce an organisation's exposure to the risks associated with outsourcing and offshoring remains largely undocumented. In analysing the current information technology (IT) sector to understand how ERM is being applied, this research has identified key gaps in the mitigation of outsourcing risk in the Australian IT industry as well as potential impacts that could plague any enterprise worldwide. The study revealed a number of new concepts in the management of offshoring and outsourcing risk. Supply-chain detriment is a new concept identified through this research, whereby an enterprise outsources a service or business function to an outsourcing firm that then, in turn, subcontracts part or all of the work to another entity. In this scenario, the outsourcer is effectively outsourcing to another party, introducing additional risk with even less visibility. The research also identifies what it calls the four fluctuations ' that is, four key outsourcing conditions that must be considered throughout an outsourcing engagement ' and has developed a tool, called the Location Assessment Tool, to help an organisation determine the most appropriate offshore location based on the enterprise's risk appetite. Two potentially destructive afflictions that can significantly impact on an enterprise when outsourcing were identified. These are competitive mitosis, whereby intellectual property can be absorbed by an outsourcing firm from an enterprise leading to detrimental impacts on the organisation's ability to maintain a competitive advantage, and barbarian syndrome, an affliction whereby the enterprise places itself at immense risk by outsourcing the wrong business function, crippling the enterprise and opening up the potential for its prosperity to be undermined.