IT Outsourcing Contracts Research Articles

Economic and legal regulation of resident activities of Diya City

The article is devoted to the study of the peculiarities of economic and legal support for the activity of an enterprise that is a resident of Diya City. Based on the analysis, it was concluded that in the conditions of the digital economy there can be economic systems in which there are intra-system organizational economic legal relations and intra-economic legal relations. In intra-system organizational economic relations, their participants are legally equal, therefore management in the form of coordination within the system will be implemented on the basis of economic dominance, which ensures mutually beneficial interaction between the participants of this system. A resident of Diya City, created in the form of a company with limited or additional liability on the basis of an economic contract, can transfer the powers of the executive body to another legal entity. It is expedient to define the requirements for such a legal entity as fully as possible in the Diya City resident statute. The contract for the performance of the powers of the executive body of the resident of Diya City must contain the following essential conditions: subject, price, term of the contract, financial and economic indicators that must be achieved by the resident of Diya City as a result of management, deadlines for their achievement, conditions for control and reporting, grounds for early termination of the contract. Before concluding an agreement on the transfer of powers to the executive body of the resident of Diya City to comply with the legal economic order on the basis of the previous agreement, it is advisable for the parties to organize mutual checks: audit, compliance, due diligence, etc. On the basis of an economic outsourcing contract, including an IT outsourcing contract, a resident of Diya City can involve professional, highly specialized companies in his own economic system. Such a feature of outsourcing as the duration of the relationship between the parties in this relationship will be optional, as it may arise for the implementation of a certain project. Digitization allows the enterprise to move from such organizational forms as management, regulation, control mainly to coordination, because with digitalization, the enterprise creates digital structural units and digital management bodies, and digital (virtual) workplaces become the basis.

Auctioning IT Contracts with Renegotiable Scope

Motivated by challenges facing IT procurement, this paper studies a hybrid procurement model in which a reverse auction of a fixed-price IT outsourcing contract may be followed by renegotiation to extend the contract’s scope. In this model, the buyer balances the needs to incentivize noncontractible vendor investment and to curb the winning vendor’s information rent by choosing the initial project scope and the buyer’s investment in the quality of the project. We find that a buyer may benefit from inducing ex post renegotiation to motivate vendor investment, especially when the winning vendor has high bargaining power and the quality uncertainty is low. Broadening the initial scope reduces information rent but leaves little room for ex post renegotiation and, hence, discourages vendor investment, whereas increasing the buyer’s investment has opposite effects. Interestingly, the two measures can be strategic substitutes or complements depending on the likelihood of the renegotiation and the two parties’ bargaining powers. The buyer may strategically set a low initial project scope and high investment to incentivize renegotiation and vendor investment, which may explain why many IT outsourcing projects start small and allow expansions. Our findings also generate several testable predictions for IT outsourcing. This paper was accepted by Kartik Hosanagar, information systems.

Optimal Asset Transfer in IT Outsourcing Contracts

Many IT outsourcing arrangements include the purchase of the client’s IT assets by the vendor. Asset transfer benefits the client who can recapture some value through the sale and may even negotiate a lower price because the vendor may be more efficient

The dual role of penalty: The effects of IT outsourcing contract framing on knowledge-sharing willingness and commitment

Adding to the collective knowledge on how to craft effective IT outsourcing contracts, this study examines the effects of service level agreement (SLA) framing in terms of bonus versus penalty clauses on two important factors of outsourcing success: service providers' knowledge-sharing willingness and commitment (effort-related vs. affective). Results from an experiment with 198 IT professionals and novices show that penalty framing decreases knowledge-sharing willingness and affective commitment, while increasing effort-related commitment. Our experiment also controls for interaction effects between SLA framing and professional work experience. While we do not find disordinal interaction effects, we find some evidence that novices are affected more strongly by penalty contexts than more experienced IT professionals. Our results imply that the (bonus versus penalty) framing of SLAs can affect the success of IT outsourcing arrangements and that such framing decisions require careful consideration of the specific outsourcing goals.

Measuring creolization in IT outsourcing: Instrument development and validation

This research describes the development and validation of an instrument of creolization. Creolization, which reflects how partnering firms manage a variety of cross-cultural processes, is particularly important for both clients and vendors to successfully engage in IT outsourcing contracts. Unfortunately, empirical research on this cross-cultural issue is currently under-developed because there are no adequate measures for the construct. We developed and validated a 13-item instrument via a sample of 317 knowledge workers working for 23 IT-enabled service-provisioning companies in Beijing, Shanghai, and Xi’an, China. Results from the present research reveal that the instrument has acceptable psychometric properties. The instrument should contribute to advancing quantitative research on creolization and for operationalizing the conceptualization of creolization in practice. Suggestions for adopting and improving the instrument are discussed and implications for practitioners are provided.

Determinants of contract completeness for information technology outsourcing

This study developed and tested a model of the determinants of completeness of IT outsourcing contracts. The model is based on the assumption that the level of contract completeness results from a trade-off between the cost of developing a complete contract and the protection it offers. In contrast with outsourcing in many other sectors, IT outsourcing can be a temporary measure, with the anticipation that activities can be reintegrated in-house. This means that managers have to take into account the time horizon when deciding on the level of completeness of the contract. Results show that firms rely on more complete contracts when outsourcing is seen as a permanent approach. Also, transaction cost theory variables play multiple roles. Uncertainty reduces the level of completeness, while idiosyncrasy reduces partly the use of permanent outsourcing. Demand predictability, representing frequency, plays a dual role, increasing completeness but reducing the likelihood that outsourcing is used as a permanent solution.

Price management in IT outsourcing contracts. The path to flexibility

IT outsourcing contracts are known for their use of a fixed price. This happens mainly due to the need of the customer to accurately budget its IT operation costs. However, nowadays, the use of fixed price is regarded as an unfair approach for customers, consequently, private and public organizations demand flexible prices. As a result, IT providers are asked to abandon the fixed price and find new service delivery models suitable with a flexible price. This research seeks to develop a pricing model capable to help on service delivery whilst adds price flexibility on IT outsourcing contracts. The major contribution of this research is based on service unit identification, demand estimation, price setting and cost calculation, which are essential steps for a good contract execution. To develop our research, design science research methodology was applied. The desired flexibility is added through the balance between fixed and variable demand resulting in a mixed approach that satisfies customers and allow profit optimization. The proposed model is adaptable to each business deal.

Mapping Critical Success Factors for IT Outsourcing

During the last decades, IT Outsourcing gained considerable management attention and is considered a strategic decision used to promote success on its variable dimensions, like: cost reduction, quality improvement, access to new technologies, among others. The existing literature presents many studies on IT Outsourcing. However, there are few studies from the provider's perspective. Therefore, the objective is to focus on providers' critical success factors and their relationships in IT Outsourcing contracts. To analyse this subject a qualitative approach based on cognitive mapping process was applied. Cognitive or causal maps are widely employed in problem-structuring, since they permit a rich representation of ideas, through the modelling of a complex network of actions. This approach is innovative compared to the traditional quantitative methods used. As a result, they were able to map a network of means and ends and in parallel were found new success factors like service standardization, price flexibility, cost management and service catalogue, which allowed obtaining new insights into the structure of today's IT Outsourcing contracts.

An Intentional Approach to the Engineering of Knowledge-intensive Service Systems

This paper presents an Intentional Architectural Framework for developing Knowledge-Intensive Service System Architectures (IAF-KISSA). This framework enables the specification and evaluation of knowledge-intensive service systems (KISS) architectures at the levels of network, performance, engagement, and activities. A chosen architecture then allows designing, developing, and adapting a KISS throughout its lifecycle. This research is motivated by the lack of service systems engineering (SSE) methods specifically created for KISS, despite their economic importance in industrialized economies. Examples of KISS include joint innovation initiatives and IT outsourcing contracts. KISS possess a number of distinctive characteristics, including: the knowledge-intensity of their processes and outputs; the inter-organizational coproduction of outputs, and the multi-stakeholder perspective that drives the evaluation of these systems’ performance. SSE aims to define and discover dynamic relationships among entities in order to plan, design, and adapt services systems to cocreate value [1,2]. SSE calls for a change in perspective in service engineering, from services as products to services as socio-technical systems where actors and resources are configured to collaboratively create value. An important challenge for the field of SSE is the creation of advanced models, methods, and tools for developing service system architectures. However, current service system architectures typically retain a functional and provider perspective on service systems operations without accounting for KISS characteristics. Using an intentional approach leads to modeling a service system in terms of agents, goals, strategies, and dependencies, thus addressing these concerns by moving from a functional to a strategic level of analysis [4]. Using an intentional approach to architecting KISS is thus ideally suited to their social and behavioral complexity. IAF-KISSA contributes a novel approach for architecting KISS, a type of service system that has hitherto been beyond the scope of SSE. Moreover, given the importance of knowledge for all types of service systems [2], IAF-KISSA could provide an innovative manner in which to architect service systems in general.

Outsourcing Decision-making: A Multiple Case Study

This paper investigates outsourcing decisions with a focus on what impact the decision-making process has on the outcome of the outsourcing decision. The paper briefly reviews the IT outsourcing literature to find that there is a lack of empirical research on IT outsourcing decision processes and the effect they have on outsourcing outcomes. The paper reviews the strategic decision-making literature, which provides useful constructs for describing and assessing decision-making processes and their effect on outcomes. This paper applies these constructs to IT outsourcing decisions at four large Australian based companies. Of the four organisations reviewed, two organisations decided to offshore outsource application development services. These two organisations were outsourcing for the first time and the decision was triggered by a powerful stakeholder that pushed the idea from inception through to implementation. The other two organisations studied had renewed their existing IT outsourcing contracts. In both of these cases, a rigorous and highly formalised decision process was followed. The paper finds that the adoption of different process types leads to different results. We conclude that decision makers should adhere to more rational and formalized discovery process resulting in better decision outcomes.

Cost Management in IT Outsourcing Contracts: The Path to Standardization

IT Outsourcing contracts are a specific and complex set of IT services that require providers to give special attention to manage a long relationship at optimal cost. The challenge is to identify the best cost structure, cost methodology and IT services variance, in order to manage a service with the highest level of standardization. Due to the specificity of this work, the research methodology chosen is case study research applied to seven contracts. This research shows that IT Outsourcing providers suffer from several sources of variance in services and increasing contract costs. However, due to economic downturn and competition, organizations are pursuing cost reductions, and providers should take this opportunity to trade-off customization (a characteristic of IT Outsourcing contracts) for standardization (a quality of cloud offering). The conclusions of the research show that providers need to have a well developed cost management system and mechanisms to control services variance in order to gain useful information about how their performance in a contract might affect a different one, because some contracts are silos, but others can use a common structure.

About Our Authors

About Our Authors

The strategic choice to continue outsourcing, switch vendors, or backsource: Do switching costs matter?

IT outsourcing contracts are often discontinued in favor of other alternatives (returning to in-house development, or switching to another vendor). Switching costs are experienced when terminating a business relationship and securing an alternative. We tried to answer the question: do switching costs matter significantly in the strategic choice to continue outsourcing, switch vendors, or backsource? Switching costs were considered, such as those due to IT operations (sunk investment, lost performance, system upgrades, uncertainty, and induction–retraining–performance), personnel-replacement costs (candidate search, and IT/setup), and in-house learning (cognitive/behavioral learning). A field survey was conducted, and, for each of these cost types, the differences between group means across the three groups (outsourcing continuation, vendor switching, and backsourcing) were determined. The findings suggested that customer organizations preferred outsourcing continuation most and backsourcing least when their switching costs were high. However, the relative preference for vendor switching depended on the switching cost type.

Service multinationals and forward linkages with client firms: The case of IT outsourcing in Argentina and Brazil

This paper draws on exploratory data to investigate the conditions that shape the nature of forward linkages between multinational services firms and their client firms in (middle income) less developed countries. Drawing on detailed case studies of three IT services multinationals and 10 IT outsourcing contracts in Argentina and Brazil, the paper argues that forward linkages depend on both a particular feature of client firm absorptive capacity—namely the expertise of client firm managers in designing and operating IT outsourcing contracts—and the type of global strategy of IT services suppliers and their client firms. The effect of both these factors, however, is in turn influenced by institutional and economic features of the host economy. The evidence suggests that IT services firms move between countries not only their own operations, but also the execution of contracts with client firms. These practices relocate client firms’ outsourcing from subsidiaries of IT firms within the same national economy to subsidiaries located outside it, in turn facilitating consolidation and regionalisation of business segments of (multinational) client firms and thereby potentially reducing the economic contribution of client firms to the host economy.

Institutional Effects on the IT Outsourcing Market: Analysing Clients, Suppliers and Staff Transfer in Germany and the UK

Drawing on empirical evidence in Germany and the UK, this article examines the institutional effects on a fast-growing area of knowledge-intensive business services — IT outsourcing. This is an important area for research since the IT outsourcing market provides many organizations with an important specialized production input and is characterized by complex inter-organizational relations. By exploring institutional influences in the context of IT outsourcing, the research extends earlier studies on how client–supplier relations shape markets for business services. It also contributes to varieties of capitalism debates by highlighting heterogeneous institutional effects within countries and common systemic trends (involving powerful multinational IT firms) in the development of the market for IT outsourcing. Comparative analysis of 13 IT outsourcing contracts in Germany and the UK, focusing on the organizational practices of client organizations and IT firms, illuminated institutional effects within the organizational setting. Analysis of industrylevel data shows that the diverse institutional contexts of Germany and the UK provided an equally favourable basis for growth in the IT outsourcing market, despite its apparent deregulatory bias. But significant institutional effects were observed, specifically related to: the role of deliberative institutions (especially works councils); and institutions governing technical standards and contracting rules. Strong deliberative institutions in Germany facilitated market growth since transactions involved distributive dilemmas, particularly related to staff transfer. Also, while institutions shaped technical and contractual expertise of client managers, they were not deterministic. Instead, they interacted with characteristics of the IT outsourcing market, namely: heterogeneous client practices to improve absorptive capacity; public vs. private contracting experience; and power relations between client and IT firm in their use of market discipline.

Avoiding contract quarrels

When disputes occur between parties in IT outsourcing contracts, they can cause major problems for all concerned. The author reports on a new body that aims to smooth the path to peace.

An Interview with Brian Smith Senior Advisor, TPI, Inc

Prior to joining TPI, Brian Smith was the Director of Global Technology at The Citigroup Private Bank, where he was responsible for the management of an organization based in Singapore, India, Japan, Switzerland, the UK and the USA. He was responsible for creating an offshore development organization that serviced the business on a Global basis, including systems development, maintenance and distributed computing server management. Before Citigroup, Brian was with American Express Bank (AEB) in the role of Executive Director, Operations and Technology, a role that included responsibility for establishing and managing a $350 million 10-year IT outsourcing contract with EDS that encompassed global data center operations, system maintenance and new development planning. Before this position, he was Chief Administrative Officer for AEB in Switzerland, where he established a branch of AEB in Geneva from scratch.

Contracts to make a killing? IT outsourcing contracts

Contracts to make a killing? IT outsourcing contracts