Contractual Provisions to Mitigate Holdup: Evidence from Information Technology Outsourcing

Susarla, Anjana; Subramanyam, Ramanath; Karhade, Prasanna P.

doi:10.1287/isre.1080.0204

Cited by 93 publications

(61 citation statements)

References 53 publications

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“…For clients, too, the implications of the two-echelon agency problem are relevant. Clients often attempt to write elaborate penalty clauses for different kinds of errors committed by the client's employees-which are very difficult to enforce because of their complexity, as Susarla et al (2010) point out. Instead, it would be preferable for clients to insist that providers share some of the rewards that they receive for higher quality with their employees through quality-linked bonuses.…”

Section: Conclusion and Limitationsmentioning

confidence: 99%

Organizational Control, Incentive Contracts, and Knowledge Transfer in Offshore Business Process Outsourcing

Liu

Aron

2015

Information Systems Research

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W e study the determinants of output quality in offshore business process outsourcing (BPO). Firms can exert control over output quality through incentives formally written into contracts and allow both clients and providers to manage the offshore agents creating a dual governance mechanism. We use a combination of two data sets, a cross sectional data set of 139 processes and a balanced panel data set comprising 21 processes with 36 observations per process, to investigate the impact of different factors on the quality of output of offshore BPO providers. Our findings point to the strong moderating effect of process codifiability on the dual governance mechanism. Process codifiability is not only associated with higher output quality, it also moderates the functioning of the dual governance mechanism and determines when the managerial efforts of the client and provider are substitutes and when they are complementary. We show that contractual incentives tied to quality are generally associated with a higher quality of output. Finally, we show that the use of processlevel inter-organizational information systems also has a positive impact on the output quality of offshore BPO providers.

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Section: Conclusion and Limitationsmentioning

confidence: 99%

Organizational Control, Incentive Contracts, and Knowledge Transfer in Offshore Business Process Outsourcing

Liu

Aron

2015

Information Systems Research

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“…It should be noted in the context of new system development that project duration is not related to relational duration and contract extendibility (Susarla et al, 2010). While project duration pertains to the delivery of the developed system, other contractual aspects may be related to relational contracting (Joskow, 1987) and to the timeframe for future similar projects (Susarla et al, 2010).…”

Section: Project Size and Contract Choicementioning

confidence: 99%

Why project size matters for contract choice in software development outsourcing

Fink

Lichtenstein

2014

SIGMIS Database

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Abstract:The contractual mechanism of software development outsourcing, typically either fixedprice (FP) or time-and-materials (T&M), determines the nature of incentives, risk sharing, and coordination between client and vendor. While software engineering considers project size as crucial for project planning and success, neither economic nor organizational theory considers size per se among the determinants of contract choice. In this paper, we address the gap between the centrality of project size in the software engineering literature and the attention it receives in software contracting research by modeling and testing the association between project size and contract choice. Existing empirical evidence indicates that FP contracts are appropriate for small development efforts whereas T&M contracts are suitable for larger projects, based on the reasoning that cost and schedule are difficult to estimate in larger projects. This prediction that size is directly associated with contract choice is the basis upon which two models are developed. The first model draws on the contracting efficiency approach to hypothesize that the effect of project size on contract choice is mediated by project detail. The second model draws on the contingency approach to software development risk management to hypothesize that the effect of project size on contract choice is moderated by project detail and vendor familiarity. We test these models using a large portfolio of software development contracts entered into by a leading European bank, and the results confirm that both mediation and moderation are at play. Powered by Editorial Manager® and ProduXion Manager® from Aries Systems Corporation Powered by Editorial Manager® and ProduXion Manager® from Aries Systems Corporation 1 Why Project Size Matters for Contract Choice in Software Development Outsourcing AbstractThe contractual mechanism of software development outsourcing, typically either fixed-price (FP) or time-and-materials (T&M), determines the nature of incentives, risk sharing, and coordination between client and vendor. While software engineering considers project size as crucial for project planning and success, neither economic nor organizational theory considers size per se among the determinants of contract choice. In this paper, we address the gap between the centrality of project size in the software engineering literature and the attention it receives in software contracting research by modeling and testing the association between project size and contract choice. Existing empirical evidence indicates that FP contracts are appropriate for small development efforts whereas T&M contracts are suitable for larger projects, based on the reasoning that cost and schedule are difficult to estimate in larger projects. This prediction that size is directly associated with contract choice is the basis upon which two models are developed. The first model draws on the contracting efficiency approach to hypothesize that the effect of project size on contract choice is mediat...

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“…Particularly, papers on service contracts appear to focus more on projectbased services-e.g. IT software development (Banerjee and Duflo 2000, Gopal et al 2003, Kalnins and Mayer 2004, Susarla et al 2010, Susarla 2012, and offshore drilling (Corts and Singh 2004). The one-off relationship framed around a project that characterizes projectbased services differs significantly from the dynamics of repeated interactions found in the maintenance industry.…”

Section: Literature Reviewmentioning

confidence: 99%

Contracting in Medical Equipment Maintenance Services: An Empirical Investigation

Chan

deVericourt

Besbes³

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. impact service performance and the service chain value. We answer empirically this question. Our study is based on a unique panel data covering the sales and service records of over 700 diagnostic medical body scanners. By exploiting the presence of a standard warranty period, we overcome the key challenge of isolating the incentive effects of MSPs on service performance from the confounding effects of adverse selection. We found that moving an operator from a basic pay-per-service plan to a fixed-fee full-protection plan leads to both a reduction in reliability and an increase in service costs. We further show that the increase in cost is driven by both the operator and the service provider. Our results point to the presence of losses in service chain value in the maintenance of medical equipment, and provide the first evidence that a basic pay-per-service plan, where the risk of equipment failure is borne by the operator, can actually improve performance and costs. Terms of use: Documents in

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Contractual Provisions to Mitigate Holdup: Evidence from Information Technology Outsourcing

Cited by 93 publications

References 53 publications

Organizational Control, Incentive Contracts, and Knowledge Transfer in Offshore Business Process Outsourcing

Organizational Control, Incentive Contracts, and Knowledge Transfer in Offshore Business Process Outsourcing

Why project size matters for contract choice in software development outsourcing

Contracting in Medical Equipment Maintenance Services: An Empirical Investigation

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