Organizations today outsource diverse business processes to achieve a wide variety of business objectives ranging from reduction of costs to innovation and business transformation. We build on the information processing view of the firm to theorize that performance heterogeneity across business process outsourcing (BPO) exchanges is a function of the design of information capabilities (IC) that fit the unique information requirements (IR) of the exchange. Further, we compare performance effects of the fit between IR and IC across dominant categories of BPO relationships to provide insights into the relative benefits of enacting such fit between the constructs. Empirical tests of our hypotheses using survey data on 127 active BPO relationships find a significant increase (decrease) in satisfaction as a result of the fit (misfit) between IR and IC of the relationship. The results have implications for how BPO relationships must be designed and managed to realize significant performance gains. The study also extends the IPV to identify IC that provide the incen tives and means to process information in an interfirm relationship.

Multisourcing, the practice of stitching together best-of-breed IT services from multiple, geographically dispersed service providers, represents the leading edge of modern organizational forms. While major strides have been achieved in the last decade in the information systems (IS) and strategic management literature in improving our understanding of outsourcing, the focus has been on a dyadic relationship between a client and a vendor. We demonstrate that a straightforward extrapolation of such a dyadic relationship falls short of addressing the nuanced incentive-effort-output linkages that arise when multiple vendors, who are competitors, have to cooperate and coordinate to achieve the client's business objectives. We suggest that when multiple vendors have to work together to deliver end-to-end services to a client, the choice of formal incentives and relational governance mechanisms depends on the degree of interdependence between the various tasks as well as the observability and verifiability of output. With respect to cooperation, we find that a vendor must not only put effort in a “primary” task it is responsible for but also cooperate through “helping” effort in enabling other vendors perform their primary tasks. In the context of coordination, we find that task redesign for modularity, OLAs, and governance structures such as the guardian vendor model represent important avenues for further research. Based on the analysis of actual multisourcing contract details over the last decade, interviews with leading practitioners, and a review of the single-sourcing literature, we lay a foundation for normative theories of multisourcing and present a research agenda in this domain.

T he emergence of information-intensive business process outsourcing (BPO) relationships calls for the study of exchange performance beyond traditional considerations of the contractual structure that facilitates cooperative intent to include the information structure that facilitates the mutual exchange of information to enact cooperative intent and coordinate actions between the user firm and the service provider. Yet, there has been little analysis of the drivers and performance effects of the information structure of BPO relationships, including its linkages to the underlying contractual structure. This study integrates perspectives in neo-institutional economics and information processing to develop and test the theoretical argument that the extent of use and performance effects of the information structure of the BPO relationship are greater in time and materials BPO contracts than in fixed-price BPO contracts. Survey data on 134 BPO relationships provide empirical support for our hypotheses. The synergistic impact of incentives and information on BPO performance emphasizes that their joint assessment is necessary to enhance the explanatory power of extant theories of organization. This result also has implications for achieving maximum benefits from complex BPO arrangements that are more likely to be characterized by time and material contracts.

No abstract

T his paper presents new evidence on the role of embeddedness in predicting contract duration in the context of information technology outsourcing. Contract duration is a strategic decision that aligns interests of clients and vendors, providing the benefits of business continuity to clients and incentives to undertake relationship specific investments for vendors. Considering the salience of this phenomenon, there has been limited empirical scrutiny of how contract duration is awarded. We posit that clients and vendors obtain two benefits from being embedded in an interorganizational network. First, the learning and experience accumulated from being embedded in a client-vendor network could mitigate the challenges in managing longer term contracts. Second, the network serves as a reputation system that can stratify vendors according to their trustworthiness and reliability, which is important in longer term arrangements. In particular, we attempt to make a substantive contribution to the literature by theorizing about embeddedness at four distinct levels: structural embeddedness at the node level, relational embeddedness at the dyad level, contractual embeddedness at the level of a neighborhood of contracts, and finally, positional embeddedness at the level of the entire network. We analyze a data set of 22,039 outsourcing contracts implemented between 1989 and 2008. We find that contract duration is indeed associated with structural and positional embeddedness of participant firms, with the relational embeddedness of the buyer-seller dyad, and with the duration of other contracts to which it is connected through common firms. Given the nature of our data, identification using traditional ordinary least squares based approaches is difficult given the unobserved errors clustered along two nonnested dimensions and the autocorrelation in a firm's decision (here the contract) with those of contracts in its reference group. We use a multiway cluster robust estimation and a network auto-regressive estimation to address these issues. Implications for literature and practice are discussed.