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The complexity and scope of outsourced information technology (IT) demands relationship-specific investments from vendors, which, when combined with contract incompleteness, may result in underinvestment and inefficient bargaining, referred to as the holdup problem. Using a unique data set of over 100 IT outsourcing contracts, we examine whether co...
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Context 1
... contrast, the text of the contract provides objec- tive evidence of the parties' ex ante understanding of the transaction. Table 2 details the coding proce- dure for the task complexity measure. A summary of the information systems (IS) activities per contract, which are used to generate the task scope measure, is shown in Table 3. ...
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Citations
... Other studies have adopted a narrow conceptualization, focusing on relational dynamics within one development stage (Law, 2018;Rottman, 2008) or without specifying the stage the analysis relates to (Könning et al., 2020;Su, 2015). Some studies have even adopted a static approach by investigating relationships between ITO motivations, structural conditions, choices, and performance (Goo et al., 2009;Susarla et al., 2010). While this conceptual diversity is valuable for understanding different aspects of relational dynamics within and across relationship stages, its fragmentation limits a more holistic conceptual development. ...
... Our final selection led to the following classification: 27 transaction-stage, 32 strategic-stage, 23 transformationstage, 5 termination-stage, and 40 across-stage articles. In terms of research design, there is a balanced Close project monitoring (Koh et al., 2004) Contract specificity & explicitness (Heuer de Carvalho et al., 2022;Koh et al., 2004;Srivastava and Teo, 2012) Goal misalignment (Huber et al., 2013;Kim et al., 2013) InformaƟon asset misappropriaƟon (Mathew and Chen, 2013) IntenƟonal informaƟon distorƟon (Lioliou et al., 2019) Role ambiguity (Solli-Saether, 2011) Shirking (Mathew and Chen, 2013) Short-term bias (Heuer de Carvalho et al., 2022;Koh et al., 2004) Behavioural & requirements un certainty (Jun et al., 2011;Lioliou et al., 2019;Mehta and Bharadwaj, 2015;Shi et al., 2005) Power asymmetry (Zhang and Liang, 2022) Periodic demand esƟmates (Sen et al., 2010) Opportunism opposes (Haried and Claybaugh, 2017;Susarla et al., 2010) ObligaƟon Governance ambidexterity ...
... Contract extension (Koh et al., 2004;Mahnke et al., 2008;Susarla et al., 2010) TransacƟonal objecƟves ...
This paper reviews the literature on relational dynamics in information technology outsourcing (ITO) relationships, a type of interorganizational relationship (IOR) between client and vendor firms that can vary considerably in complexity. While relational dynamics are understood to reflect changes in an IOR ex-post contract which can substantially influence relationship performance and development , prior IOR research is limited in its conceptualization. The extensive ITO literature offers fertile ground for exploring this limitation but has advanced different conceptualizations and is fragmented in empirical findings, which warrants a systematic assessment. We conduct an integrative review of 127 peer-reviewed empirical studies to enhance our understanding of the constituents of relational dynamics. The findings reveal that relational dynamics involve the occurrence and management of tensions within and across four relationship development stages (transactional, strategic, transformational, and termination). For each stage and between stages, we identify the main tension, the firms' strategies to manage the tension, and the outcomes. Based on these findings, we develop an integrative framework that offers a comprehensive and multifaceted conceptualization of relational dynamics, revealing that as ITO arrangements progress (or regress), partner firms are confronted with structural and transitional tensions inherent in relationship stability and instability. Based on this framework, we offer future directions for developing a more comprehensive understanding of relational dynamics in ITO and, more broadly, IORs.
... IT can be used as any of these three control mechanisms: to measure output, process adherence, or inputs. Resultantly, the concept of control has been incorporated in various topics in information systems research, such as software development [104], outsourcing [65,108], alliances [107], governance [102], auctions [92,93], and platforms [106]. ...
Family-owned businesses differ in their strategic intent and behavior as they serve as a reservoir of wealth and social status for their family owners. Family-owned businesses demonstrate relatively conservative strategic decision making that aspires long-term wealth preservation and enhancement. For family owners, investments in information technology (IT) raise a predicament as they are risky, yet a long-term imperative. We propose three hypotheses that build upon the thesis that family owners combine a deep understanding of the business with a strong influence on stakeholders within and beyond the firm’s boundaries to exert strategic control in the extended enterprise. First, family ownership negatively influences IT investment, because family owners are likely to avoid investments in IT that are frivolous, reduce information asymmetry, or leave auditable digital trails. Second, the negative influence of family ownership on IT investment is weakened when a career professional is appointed in the senior-most executive position of a family-owned business. This is because professional executives strive to utilize IT for control and performance benefits, and family owners desire to use IT to monitor and control the non-family professional executive. Third, family ownership weakens the negative influence of environmental hostility on the relationship between IT investment and firm performance, as family-owned businesses incur less dynamic adjustment costs and maintain better alignment between IT and business strategy. Empirical analysis, consisting of panel regression estimations, on archival data of publicly listed Indian firms in the years 2006 to 2018 provides support for our theory that highlights how IT for control acts as a noneconomic motivation for the strategic IT behavior of firms. In doing so, we bring family ownership into the theoretical foreground for future IS scholarship. We contribute to theory and practice by advancing the nature of ownership and executive management as sources of heterogeneity in IT investment and its business value.
... However, IT outsourcing initiatives are not standardized, and vendors are heterogeneous in their capabilities, making it difficult to generalize such advice beyond a few large and reputed IT vendors. Prior research employing a contract theoretic perspective contends that uncertainty in vendor capabilities [4], and post-contractual holdup by the vendor [5] critically influence client vendor selection decisions. Theories of relational governance predict depth of relationships between exchange partners that transact frequently [6], and theories of transactional outsourcing predict that firms should diversify risks through developing a portfolio of vendors [7]. ...
... IT outsourcing also involves considerable deployment of specific investments to tailor processes to an organizational context [21]. Specific investments combined with contract incompleteness make contracts for IT outsourcing fraught with ex-post opportunism [5]. For this reason, failures are common, and it can be difficult to ascribe responsibility for failure to one party alone [4]. ...
... In the context of a bipartite outsourcing network, indirect ties are the paths with length three. 5 As posited by Gulati [54], two companies having an indirect tie have "access to more information about each other than two firms with no such connection, and the larger the number of third partners two firms share, the more information these two firms are likely to have about each other." Ahuja [55] argues that the network of indirect ties serves as a conduit of information, wherein each firm acts as both a recipient and a transmitter of information. ...
The outsourcing of IT services poses a conundrum to the traditional theories of the firm. While there are many prescriptive sourcing metrics that are geared towards the evaluation of tangible and measurable aspects of vendors and clients, much of the information that is traditionally important in making such decisions is unstructured. To address this challenge, we train and apply our own NLP model based on deep learning methods using doc2vec, which allows users to create semi-supervised methods for representation of words. We find two novel constructs, vendor–client alignment and vendor–task alignment, that shape partner selection and the alternatives faced by clients in IT outsourcing, as opposed to agency or transaction cost considerations alone. Our method suggests that NLP and machine learning approaches provide additional insight, over and above traditionally understood variables in academic literature and trade and industry press, about the difficult-to-elicit aspects of vendor–client interaction.
... However, expert-level projects have two distinct features: 1) it is difficult for the client to completely specify in the contract all the project requirements and all the contingencies that may arise during project execution (Al-Najjar, 1995;Susarla et al., 2010), and 2) the outcome of the project is usually difficult to verify for clients unfamiliar with the knowledge domain (Aubert et al., 2002;Bapna et al., 2010). Under such conditions, moral hazard can still arise even when an FP contract is used, because a freelancer's opportunistic behavior cannot be easily detected by the client. ...
... A large body of research in the information technology (IT) outsourcing area (Dibbern et al. 2004, Oshri et al. 2015, Kotlarsky et al. 2018) examines questions such as when and what IT services work clients outsource (Loh and Venkatraman 1992a;1992b;Lacity and Hirschheim 1993;Grover and Teng 1993); how to contract for outsourcing (Koh et al. 2004, Aron et al. 2008, Gopal and Koka 2010, Susarla et al. 2010, Han et al. 2011, Susarla 2012; and how to manage the client-vendor relationship (Sabherwal 1999;Choudhury and Sabherwal 2003;Kishore et al. 2003;Kirsch 2004;Levina 2005;Levina and Vaast 2005;2008;Bandopadhyay and Pathak 2007;Sia et al. 2008;Gopal and Gao 2009;Mani et al. 2012;Vaidyanathan et al. 2012;Su et al. 2016). However, this body of research largely focuses on the dyadic client-vendor relationships where a client outsources to just one IT vendor, commonly referred to as single-sourcing. ...
Single-Sourcing Versus Multisourcing: An Empirical Analysis of Large Information Technology Outsourcing Arrangements
Policy Abstract
As the information technology (IT) services landscape matures, clients are increasingly adopting multisourcing arrangements that involve multiple vendors. Although a large body of IS literature addresses issues of whether to outsource (to a single vendor), what types of contracts to use, and how to achieve optimal relational governance, little is known about the antecedents and consequents of the single versus multisourcing decision. Moreover, although conceptual and analytical models of single-sourcing versus multisourcing have been developed, there is no empirical IS research using a large-scale data set with rigorous econometric analysis that examines the antecedents and consequents of multisourcing in the IT context. This paper fills this void, using the transaction cost economic lens and a data set of 49,057 large IT outsourcing arrangements that spans multiple industries and dates back 25 years. For managers who plan to multisource IT outsourcing arrangements, this research provides guidance to minimize exchange hazards through a better understanding of the relationship between sourcing choice, client IT outsourcing capabilities, the competitiveness of the vendor landscape, and the number of IT services in an IT outsourcing arrangement. We provide empirical evidence that the choice between single-sourcing and multisourcing is material to the performance of outsourcing contracts, as an incorrect sourcing choice is likely to result in negative contract outcomes.
... The question of whether more complete contracts are required for strategic innovations, where behaviors and outcomes are extensively formalized, or more incomplete contracts that allow the parties flexibility to deal with new contingencies as they arise (Argyres et al., 2007), has attracted considerable research attention. Prior research on contract completeness is heavily influenced by TCE (Argyres et al., 2007;Goo et al., 2009;Susarla et al., 2010) and control theory (Kirsch, 1997;Wiener et al., 2016). ...
... TCE suggests that economic actors are limited by bounded rationality and can therefore not craft fully complete contracts (Argyres et al., 2007;Susarla et al., 2010). Unable to foresee all possible future contingencies, the actors need to incorporate complex safeguards to protect themselves from hold-up problems arising from contract incompleteness (Susarla et al., 2010). ...
... TCE suggests that economic actors are limited by bounded rationality and can therefore not craft fully complete contracts (Argyres et al., 2007;Susarla et al., 2010). Unable to foresee all possible future contingencies, the actors need to incorporate complex safeguards to protect themselves from hold-up problems arising from contract incompleteness (Susarla et al., 2010). Under control theory, formal safeguards are broadly categorized as outcome controls, such as project milestones, and behavior controls, such as monitoring routines (Kirsch, 1997;Wiener et al., 2016). ...
Competition in the Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) industry is increasingly moving from being motivated by cost savings towards strategic benefits that service providers can offer to their clients. Innovation is one such benefit that is expected nowadays in outsourcing engagements. The rising importance of innovation has been noticed and acknowledged not only in the Information Systems (IS) literature, but also in other management streams such as innovation and strategy. However, to date, these individual strands of research remain largely isolated from each other. Our theoretical review addresses this gap by consolidating and analyzing research on strategic innovation in the ITO and BPO context. The article set includes 95 papers published between 1998 to 2020 in outlets from the IS and related management fields. We craft a four-phase framework that integrates prior insights about (1) the antecedents of the decision to pursue strategic innovation in outsourcing settings; (2) arrangement options that facilitate strategic innovation in outsourcing relationships; (3) the generation of strategic innovations; and (4) realized strategic innovation outcomes, as assessed in the literature. We find that the research landscape to date is skewed, with many studies focusing on the first two phases. The last two phases remain relatively uncharted. We also discuss how innovation-oriented outsourcing insights compare with established research on cost-oriented outsourcing engagements. Finally, we offer directions for future research.
... The question of whether more complete contracts are required for strategic innovations, where behaviors and outcomes are extensively formalized, or more incomplete contracts that allow the parties flexibility to deal with new contingencies as they arise (Argyres et al., 2007), has attracted considerable research attention. Prior research on contract completeness is heavily influenced by TCE (Argyres et al., 2007;Goo et al., 2009;Susarla et al., 2010) and control theory (Kirsch, 1997;Wiener et al., 2016). ...
... TCE suggests that economic actors are limited by bounded rationality and can therefore not craft fully complete contracts (Argyres et al., 2007;Susarla et al., 2010). Unable to foresee all possible future contingencies, the actors need to incorporate complex safeguards to protect themselves from hold-up problems arising from contract incompleteness (Susarla et al., 2010). ...
... TCE suggests that economic actors are limited by bounded rationality and can therefore not craft fully complete contracts (Argyres et al., 2007;Susarla et al., 2010). Unable to foresee all possible future contingencies, the actors need to incorporate complex safeguards to protect themselves from hold-up problems arising from contract incompleteness (Susarla et al., 2010). Under control theory, formal safeguards are broadly categorized as outcome controls, such as project milestones, and behavior controls, such as monitoring routines (Kirsch, 1997;Wiener et al., 2016). ...
Competition in the Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) industry is increasingly moving from being motivated by cost savings towards strategic benefits that service providers can offer to their clients. Innovation is one such benefit that is expected nowadays in outsourcing engagements. The rising importance of innovation has been noticed and acknowledged not only in the Information Systems (IS) literature, but also in other management streams such as innovation and strategy. However, to date, these individual strands of research remain largely isolated from each other. Our theoretical review addresses this gap by consolidating and analyzing research on strategic innovation in the ITO and BPO context. The article set includes 95 papers published between 1998 and 2020 in outlets from the IS and related management fields. We craft a four-phase framework that integrates prior insights about (1) the antecedents of the decision to pursue strategic innovation in outsourcing settings; (2) arrangement options that facilitate strategic innovation in outsourcing relationships; (3) the generation of strategic innovations; and (4) realized strategic innovation outcomes, as assessed in the literature. We find that the research landscape to date is skewed, with many studies focusing on the first two phases. The last two phases remain relatively uncharted. We also discuss how innovation-oriented outsourcing insights compare with established research on cost-oriented outsourcing engagements. Finally, we offer directions for future research.
... IT can be used as any of these three control mechanismsto measure output, process adherence, or inputs. Resultantly, the concept of control has been incorporated in various topics in information systems research, such as software development [104], outsourcing [65,108], alliances [107], governance [102], auctions [92,93], and platforms [106]. ...
Family owned businesses comprise a large stratum of the global economy. These firms differ in their strategic intent and behavior as they serve as a reservoir of wealth and social status for their family owners. Family owned businesses demonstrate relatively conservative strategic decision making that aspires long-term wealth preservation and enhancement. For family owners, investments in information technology (IT) raise a predicament as they are risky, yet a long-term imperative. We propose three hypotheses that build upon the thesis that family owners combine a deep understanding of the business with a strong influence on stakeholders within and beyond the firm’s boundaries to exert strategic control in the extended enterprise. First, family ownership negatively influences IT investment, because family owners are likely to avoid investments in IT that are frivolous, reduce information asymmetry, or leave auditable digital trails. Second, the negative influence of family ownership on IT investment is weakened when a career professional is appointed in the senior-most executive position of a family owned business. This is because professional executives strive to utilize IT for control and performance benefits, and family owners desire to use IT to monitor and control the non-family professional executive. Third, family ownership weakens the negative influence of environmental hostility on the relationship between IT investment and firm performance, as family owned businesses incur less dynamic adjustment costs and maintain better alignment between IT and business strategy. Empirical analysis, consisting of panel regression estimations, on archival data of publicly listed Indian firms in the years 2006 to 2018 provides broad support for our theory. We contribute to research by advancing nature of ownership and executive management as sources of heterogeneity in IT investment and its business value. We also highlight how IT for control acts as a noneconomic motivation for the strategic IT behavior of firms.
... Finally, to avoid disadvantageous deals, buyers tend to hedge the risk of adverse transactions into the negotiation, leading in many cases to protracted and complex discussions with high costs for the involved parties (Akerlof 1970). In general, the greater the set of possible outcomes, the greater the complexity of the negotiation as it increases the transaction space (i.e., the space of possible offers and counteroffers that buyers and sellers take into account) (Susarla et al. 2010;Susarla 2012). The complexity in negotiations and the fear of dishonesty and deception deter buyers and sellers from entering and using the platforms and eventually reduce the number of closed deals on these platforms. ...
... A conversation is less complex when this is more predictable, i.e., the conversation patterns are simpler (fewer options). In other words, complexity is inversely correlated with the uncertainty about the structure and outcomes of a conversation as it reduces the width of the transaction space (Susarla et al. 2010;Susarla 2012). In the negotiation context, the conversational complexity influences the decision of how to react to tactical actions (i.e., which move/turn do I take as a negotiator or how do I respond with a move/turn to the action of my counterpart?). ...
Online peer-to-peer (P2P) sales of used and or high-value goods are gaining more and more relevance today. However, since potential buyers cannot physically examine the product quality during online sales, information asymmetries and consequently uncertainty and mistrust that already exist in offline sales are exacerbated in online markets. Authenticated data platforms have been proposed to solve these problems by providing authenticated data about the negotiation object, integrating it into text-based channels secured by IT. Yet, we know little about the dynamics of online negotiations today and the impact of the introduction of authenticated data on online negotiation behaviors. We address this research gap based on two experimental studies along with the example of online used car trade. We analyze users’ communicative and strategic actions in current P2P chat-based negotiations and examine how the introduction of authenticated data affects these behaviors using a conceptional model derived from literature. Our results show that authenticated data can promote less complex negotiation processes and more honest communication behavior between buyers and sellers. Further, the results indicate that chats with the availability of authenticated data can positively impact markets with information asymmetries. These insights provide valuable contributions for academics interested in the dynamics of online negotiations and the effects of authenticated data in text-based online negotiations. In addition, providers of trade platforms who aim to advance their P2P sales platforms benefit by achieving a competitive advantage and a higher number of customers.
... Therefore, it is asymmetrical with the concept of opportunistic transactions within the company that generate imbalances (non-Pareto optimal) in favor of one of the parties. Contractual provisions are seen as a way to mitigate the lack of information in outsourcing (Susarla et al., 2010). Nevertheless, although very strongly related to agency theory, the concept of opportunism is defined more generally by encompassing notions of moral hazard and adverse selection (Williamson, 1993;Grossman and Hart, 1992) and applies to relations within the company but also between rival firms (Rindfleisch et al., 2010). ...
The main purpose of this thesis is to analyze the central role of public procurement
organizations in the defense sector and to confirm their role in creating a balance between
increasingly outsourced public capacities (due to new public management methods) and
the partner industry's increasing propensity to add services to the sale of goods or to offer
integrated solutions combining the supply of goods and services within the framework of
servitization. Outsourcing of capabilities is an important but not new phenomenon in of the
armed forces. The context of New Public Management has led to a rationalization wave in
defense and to strong trends to outsource certain functions. The role of procurement
organizations is discussed here as central to reducing transaction costs associated with
meeting public outsourcing willingness and suppliers servitization offers. This thesis first
proposes a study of the case of the British armed forces DES organization in charge of
relations between the forces and the industry. Secondly, the case study of the German
Bundeswehr and two procurement agencies, the former GEBB (now BW Consulting) and
BAAINBW, provides a different perspective upon the researched issue. The conclusions
drawn by this study enlighten the role of procurement organizations in both countries and
confirm the benefits of these organizations within the scope of transaction costs economics.
