We study the determinants of contract choice in offshore software development projects and examine how the choice of contract and other factors in the project affect project profits accruing to the software vendor. Using data collected on 93 offshore projects from a leading Indian software vendor, we provide evidence that specific vendor-, client-, and project-related characteristics such as requirement uncertainty, project team size, and resource shortage significantly explain contract choice in these projects. Our analysis suggests that contract choice significantly determines project profit. Additionally, some ex ante vendor-, client-, and project-related characteristics known at the time of choosing the contract continue to significantly influence project profits after controlling for contract choice. We also provide evidence to show that project duration and team size affect project profits.Software Development;, Offshore Contracting;, Contract Choice;, Software Outsourcing
P ast research has studied how the selection and use of control portfolios in software projects is based on environmental and task characteristics. However, little research has examined the consequences of control mode choices on project performance. This paper reports on a study that addresses this issue in the context of outsourced software projects. In addition, we propose that boundary-spanning activities between the vendor and the client enable knowledge sharing across organizational and knowledge domain boundaries. This is expected to lead to facilitation of control through specific incentives and performance norms that are suited to client needs as well as the vendor context. Therefore, we argue that boundary spanning between the vendor and client moderates the relationship between formal controls instituted by the vendor on the development team and project performance. We also hypothesize the effect of collaboration as a clan control on project performance. We examine project performance in terms of software quality and project efficiency. The research model is empirically tested in the Indian software industry setting on a sample of 96 projects. The results suggest that formal and informal control modes have a significant impact on software project outcomes, but need to be finely tuned and directed toward appropriate objectives. In addition, boundary-spanning activities significantly improve the effectiveness of formal controls. Finally, we find that collaborative culture has provided mixed benefits by enhancing quality but reducing efficiency.
Prior research has indicated that, on average, offshore vendors have higher profits associated with time and materials (T&M) contracts than fixed price (FP) contracts. This research raises two questions. First, Is the relative importance of various profit drivers different across two contractual regimes? Second, Does it follow that vendors unconditionally prefer T&M contracts for all projects? We address these questions by using data on 93 offshore projects completed by a leading Indian vendor. We use an endogenous switching regression framework and the program evaluation methodology to show that profit equations are distinctly different for the two contractual regimes. Using these two profit equations, we also identify contingencies under which the vendor prefers an FP contract to a T&M contract. We hypothesize that the vendor's ability leverage information asymmetry about capabilities and experiences translates into the vendor preferring FP contract to secure larger information rents. Our results support this hypothesis and suggest that the vendor would prefer the FP contract for larger and longer projects with larger teams. However, vendors would prefer a T&M contract when the risk of employee attrition from the project team is high. In addition, we discuss managerial implications of these results in the paper.
Third-party process certification programs such as the ISO 9001 and capability maturity model (CMM) have been widely adopted in recent years. In this study we employ three competing theoretical frameworks--signaling, efficiency gains, and institutional theory--to analyze the motivations for a firm to acquire quality certification and the performance implications thereafter. We test these hypotheses in the context of CMM certification based on data from the Indian offshore IT services industry between 1997 and 2002. Our results indicate that more cost-effective firms and export-oriented firms are more likely to seek out and acquire certification. In addition, CMM-certified firms show significant improvements in exports, but not on the firm's cost structure. Furthermore, our findings suggest that CMM certification helps indicate firm capabilities to potential customers and thus appear to be most consistent with signaling explanations of certification rather than the efficiency gains or institutional theories.certification, signaling, outsourcing, quality management, OM-information technology interface, technology management, process design, service operations
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