Outsourcing of front‐end business processes: Quality, information, and customer contact

An individual's temptation to violate regulations for personal gain increases with the economic payoff to do so. Firms, however, adopt strategies to reduce undesirable behavior from their employees. This article examines how individuals change their propensity to violate regulations as the price for their services varies. We posit that individuals will commit more intentional, but not unintentional, violations as the payoff to do so increases, and that this effect will be moderated by the size of the firm for whom he or she works and whether the firm or the individual owns the assets used for production. To test our hypotheses, we link data from millions of inspections of truck driver logbooks with spot market prices observed over the same 4‐year period. We find that drivers who operate independently intentionally violate restrictions on their work hours more frequently when prices increase—violating 34% more frequently when prices are at their highest versus lowest—but larger firms and the firm's ownership of the assets reduce a driver's responsiveness to price changes. At the extreme, drivers for large asset‐owning firms are completely unresponsive to prices. Asset‐owning drivers are responsive to market prices, even for the largest firms.

Section: Effects Of Firm Size and Asset Ownershipmentioning

confidence: 99%

The effect of firm size, asset ownership, and market prices on regulatory violations

Scott

Nyaga

2019

“…It thus becomes pertinent for the buyer firms to set up new governance structures to guarantee the provider's overall service quality in the future. However, following prescriptions from transaction cost economics (Williamson, 1996), the transactional costs in establishing new governance structures with front-end service providers are often significant and can add to the overall costs of the firms (Balakrishnan et al, 2008).…”

Section: Shareholder Costs For Customer Information Security Breachesmentioning

confidence: 99%

“…Thus, in recent years a growing body of research has focused on understanding supply chain triads (e.g., Niranjan and Metri, 2008;Wu and Choi, 2005). Although these efforts have revealed some important insights, as Li and Choi (2009) note in their seminal work, the primary focus has been on questions such as "when should firms outsource" (e.g., Balakrishnan et al, 2008;Sridhar and Balachandran, 1997) and "what activities should firms outsource" (e.g., van der Valk et al, 2009;Wu and Choi, 2005). Yet, there remains a limited understanding of the financial consequences to buyer firms -i.e., service risks -after the outsourcing decision for front-end services has been made.…”

Section: Introductionmentioning

confidence: 99%

Shareholder value implications of service failures in triads: The case of customer information security breaches

Modi

Wiles

Mishra

2014

The rise in front‐end service outsourcing in recent years, despite its advantages, has also exposed buyer firms to unique challenges. One of the most salient risks for buyer firms in service triads is service failure due to the service provider. Indeed such service failures may be more costly for firms due to the greater relational and operational costs that may arise from the presence of the third‐party provider. Yet, neither the services literature nor extant operations literature on service triads has paid much attention to the financial consequences to the buyer firm – i.e., service risks – of such service failures in triads. To fill this gap, we investigate the financial penalty of service failures due to the service provider using the event study methodology and a sample of 146 customer information security breaches as our empirical context. Analysis of the abnormal returns reveals that service failures due to the front‐end service provider lead to greater shareholder losses than such failures due to the buyer firm. This provides important new insight into the financial risks arising from outsourcing front‐end services. Further, we investigate the ability of the buyer firm's employee and financial resources to temper these shareholder losses. We find that buyer firm employee productivity can moderate the greater financial penalty associated with such triadic service failures but that buyer firm leverage tends to not have such a mitigating effect. This provides new guidance for theory and practice regarding how buyer firms can position themselves to buffer the financial risks arising from service failures due to front‐end service providers.

“…Research examining interorganizational relationships (Balakrishnan, Mohan, & Seshadri, 2008;Zhang et al, 2015) has used agency theory to explore the incentive structures driving the behavior of principal and agent. Agency theory assumes that each relationship partner works in their own self-interest and bounded rationality leads to an inability to monitor each party's behavior.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Supersize me? Franchisee size and voluntary compliance with corporate brand‐building initiatives

Massimino

Lawrence

2019

We examine the effects of a franchisee's size, distance from headquarters, and local competition on voluntary compliance with corporate brand‐building initiatives at the outlet level. Specifically, we consider compliance with a corporate social responsibility effort to solicit charitable donations at the time of retail checkout, measuring compliance performance as the amount of donations received at each outlet. Our analysis utilizes an objective, longitudinal sample of 777 franchised outlets in a national quick‐service restaurant chain. Surprisingly, we find that distance from headquarters is positively related to compliance; we relate this finding to recent, extant research on geographic distances and franchisee behaviors. We find the beneficial effects of larger, multiunit franchisees are mitigated as franchisees' geographic distances from headquarters increase; we relate these findings to horizontal agency within franchising systems. We further find that franchised outlets in more competitive markets comply less with brand‐building initiatives, even less so when part of a larger franchisee network. Our results underscore the important moderating role franchisee size plays in outlets' compliance, which we link back to extant perspectives on agency theory. Supplemental analyses consider tensions between compliance and operational efficiency, as well as effects of hypothesized factors on another mandatory form of compliance.