IT outsourcing and the impact of advisors on clients and vendors

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

There is significant information asymmetry in the information technology (IT) outsourcing market. Clients are uncertain about vendors' capabilities and vendors are uncertain about clients' requirements. Prior literature has examined many devices to reduce such information asymmetry, e.g., vendor reputation, client-vendor prior relationship, vendors' Capability Maturity Model (CMM) rating, vendor location, and technological diversity of the vendor. We examine the impact of (to our knowledge) a hitherto unconsidered device, i.e., the use of an advisor. In the context of global sourcing, third-party advisors, with their accumulated knowledge of client requirements and the vendor landscape, can mitigate the information asymmetry between clients and vendors. However, in an extensive data set of IT outsourcing contracts going back two decades we found use of advisors to be rare (less than 5% of contracts go through an advisor). This motivates us to rigorously analyze their impact on clients and vendors as an open empirical question. Using a data set of 753 large IT outsourcing contracts, and through a series of econometric specifications and robustness tests, we establish that the presence of an advisor is associated with higher revenue for vendors and more positive contract outcomes. This analysis presents what is to our knowledge the first concrete evidence that third-party advisors can mitigate the information asymmetry in the IT outsourcing market and lead to better matching that benefits clients as well as vendors.

Original languageEnglish (US)
Pages (from-to)636-647
Number of pages12
JournalInformation Systems Research
Volume27
Issue number3
DOIs
StatePublished - Jan 1 2016

Fingerprint

Outsourcing
outsourcing
Information technology
information technology
asymmetry
Personnel rating
Specifications
market
Information technology outsourcing
Advisors
Vendors
maturity
econometrics
reputation
revenue
rating
evidence

Keywords

  • Advisor
  • Coarsened exact matching
  • IT outsourcing
  • Information asymmetry
  • Propensity score matching

Cite this

IT outsourcing and the impact of advisors on clients and vendors. / Bapna, Ravi; Gupta, Alok; Ray, Gautam; Singh, Shweta.

In: Information Systems Research, Vol. 27, No. 3, 01.01.2016, p. 636-647.

Research output: Contribution to journalArticle

@article{bdc1965f823847ba9b5c58d8b5dbdb3e,
title = "IT outsourcing and the impact of advisors on clients and vendors",
abstract = "There is significant information asymmetry in the information technology (IT) outsourcing market. Clients are uncertain about vendors' capabilities and vendors are uncertain about clients' requirements. Prior literature has examined many devices to reduce such information asymmetry, e.g., vendor reputation, client-vendor prior relationship, vendors' Capability Maturity Model (CMM) rating, vendor location, and technological diversity of the vendor. We examine the impact of (to our knowledge) a hitherto unconsidered device, i.e., the use of an advisor. In the context of global sourcing, third-party advisors, with their accumulated knowledge of client requirements and the vendor landscape, can mitigate the information asymmetry between clients and vendors. However, in an extensive data set of IT outsourcing contracts going back two decades we found use of advisors to be rare (less than 5{\%} of contracts go through an advisor). This motivates us to rigorously analyze their impact on clients and vendors as an open empirical question. Using a data set of 753 large IT outsourcing contracts, and through a series of econometric specifications and robustness tests, we establish that the presence of an advisor is associated with higher revenue for vendors and more positive contract outcomes. This analysis presents what is to our knowledge the first concrete evidence that third-party advisors can mitigate the information asymmetry in the IT outsourcing market and lead to better matching that benefits clients as well as vendors.",
keywords = "Advisor, Coarsened exact matching, IT outsourcing, Information asymmetry, Propensity score matching",
author = "Ravi Bapna and Alok Gupta and Gautam Ray and Shweta Singh",
year = "2016",
month = "1",
day = "1",
doi = "10.1287/isre.2016.0645",
language = "English (US)",
volume = "27",
pages = "636--647",
journal = "Information Systems Research",
issn = "1047-7047",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "3",

}

TY - JOUR

T1 - IT outsourcing and the impact of advisors on clients and vendors

AU - Bapna, Ravi

AU - Gupta, Alok

AU - Ray, Gautam

AU - Singh, Shweta

PY - 2016/1/1

Y1 - 2016/1/1

N2 - There is significant information asymmetry in the information technology (IT) outsourcing market. Clients are uncertain about vendors' capabilities and vendors are uncertain about clients' requirements. Prior literature has examined many devices to reduce such information asymmetry, e.g., vendor reputation, client-vendor prior relationship, vendors' Capability Maturity Model (CMM) rating, vendor location, and technological diversity of the vendor. We examine the impact of (to our knowledge) a hitherto unconsidered device, i.e., the use of an advisor. In the context of global sourcing, third-party advisors, with their accumulated knowledge of client requirements and the vendor landscape, can mitigate the information asymmetry between clients and vendors. However, in an extensive data set of IT outsourcing contracts going back two decades we found use of advisors to be rare (less than 5% of contracts go through an advisor). This motivates us to rigorously analyze their impact on clients and vendors as an open empirical question. Using a data set of 753 large IT outsourcing contracts, and through a series of econometric specifications and robustness tests, we establish that the presence of an advisor is associated with higher revenue for vendors and more positive contract outcomes. This analysis presents what is to our knowledge the first concrete evidence that third-party advisors can mitigate the information asymmetry in the IT outsourcing market and lead to better matching that benefits clients as well as vendors.

AB - There is significant information asymmetry in the information technology (IT) outsourcing market. Clients are uncertain about vendors' capabilities and vendors are uncertain about clients' requirements. Prior literature has examined many devices to reduce such information asymmetry, e.g., vendor reputation, client-vendor prior relationship, vendors' Capability Maturity Model (CMM) rating, vendor location, and technological diversity of the vendor. We examine the impact of (to our knowledge) a hitherto unconsidered device, i.e., the use of an advisor. In the context of global sourcing, third-party advisors, with their accumulated knowledge of client requirements and the vendor landscape, can mitigate the information asymmetry between clients and vendors. However, in an extensive data set of IT outsourcing contracts going back two decades we found use of advisors to be rare (less than 5% of contracts go through an advisor). This motivates us to rigorously analyze their impact on clients and vendors as an open empirical question. Using a data set of 753 large IT outsourcing contracts, and through a series of econometric specifications and robustness tests, we establish that the presence of an advisor is associated with higher revenue for vendors and more positive contract outcomes. This analysis presents what is to our knowledge the first concrete evidence that third-party advisors can mitigate the information asymmetry in the IT outsourcing market and lead to better matching that benefits clients as well as vendors.

KW - Advisor

KW - Coarsened exact matching

KW - IT outsourcing

KW - Information asymmetry

KW - Propensity score matching

UR - http://www.scopus.com/inward/record.url?scp=84999218041&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84999218041&partnerID=8YFLogxK

U2 - 10.1287/isre.2016.0645

DO - 10.1287/isre.2016.0645

M3 - Article

VL - 27

SP - 636

EP - 647

JO - Information Systems Research

JF - Information Systems Research

SN - 1047-7047

IS - 3

ER -