Impact of pricing and outsourcing models on Indian information technology service outsourcing

Abstract

Purpose – The information technology (IT) industry has grown owing to the increase in IT outsourcing prompted by the need for cost reductions in organizations. The IT industry contracts are based on pricing models, which establish the terms and conditions of payment to be made to vendors by clients. The pricing models followed in the industry are mainly Fixed Time Fixed Price (FTFP) and Time and Material (TnM) and the remaining are mostly variations of these. Using the information collected from vendors, the purpose of this paper is to draw a comparison between these pricing models to see which one is more acceptable to vendors along with researching on the reasons behind that. The outsourcing engagement is also based on a set of processes to be used during the contract time and that is known as the Outsourcing Model (OM) being used. This research also derives how pricing models, OMs and Client Vendor Relationship (CVR) being developed are related. Design/methodology/approach – Hypothesis have been formulated on the basis of the literature survey conducted by the authors, subsequently questionnaire was formulated and data were collected from – a total of 500 people were targeted, out of which 70 people responded. Out of these 70 only 50 were usable responses. The respondents were at the manager and above level in different organizations classified on the basis of number of employees. Statistical tests were conducted on these data to check the reliability, prove the hypothesis and establish the mediation and moderation relationships between the pricing model, OM and CVR. Findings – The following paper has established through statistical analysis which pricing model is more befitting to the IT service outsourcing industry and has also demonstrated the moderation and mediation relationship between pricing model, OM and CVR variables. Research limitations/implications – The major reserach limitation is that it is for only IT vendors in Indian geography. The research can be extended to different businesses and geographies. Practical implications – The paper has practical implications for the IT service outsourcing industry in India and for their clients to understand the comparison between the pricing models and to study the impact of pricing and OMs on the CVRs. Originality/value – The research presented is original as no similar work has been found to be published in the journals so far specifically in the Indian context.