Advertisement

Client Satisfaction Versus Profitability: An Empirical Analysis of the Impact of Formal Controls in Strategic Outsourcing Contracts

  • Nishtha Langer
  • Deepa ManiEmail author
  • Kannan Srikanth
Chapter
Part of the Progress in IS book series (PROIS)

Abstract

The reach and impact of outsourcing is growing fast to include a variety of strategic objectives. Unlike in transactional outsourcing, where the vendor leverages scale economies to provide standardized services at reduced costs of ownership, client satisfaction in strategic outsourcing is contingent on the extent to which the vendor’s service offering is customized to meet heterogeneous, unique client needs. However, project management practices that lead to high levels of client satisfaction may be incompatible with the project’s financial performance. In this study, we investigate how managerial actions differentially impact project profitability and client satisfaction. Using rich field data on 390 strategic outsourcing contracts, we examine the differential impact of output controls, activity controls and capability controls on client satisfaction and contract profitability. We find that activity controls are positively associated with client satisfaction and profitability; in contrast, our results present mixed evidence for capability controls, and negative impact for output controls. In addition to contributing to research in control theory, our results provide actionable insights for vendors into appropriate strategies and tactics for competing efficiently and effectively in services markets.

Keywords

Outsourcing Client satisfaction Profitability Control theory Business value of IS Empirical research/study 

References

  1. Agarwal, V., & Farrell, D. (2003). Who wins in offshoring. McKinsey Quarterly.Google Scholar
  2. Argyres, N., & Mayer, K. J. (2007). Contract design as a firm capability: An integration of learning and transaction cost perspectives. Academy of Management Review, 32, 1060–1077.Google Scholar
  3. Bernheim, B. D., & Whinston, M. (1998). Incomplete contracts and strategic ambiguity. American Economic Review, 88(4), 908–932.Google Scholar
  4. Couto, V., Lewin, A. Y., Mani, M., Manning, S., Russell, J. W., & Sehgal, V. (2007). Offshoring 2.0: Contracting knowledge and innovation to expand global capabilities. Companies seek intellectual talent beyond their borders. Durham: Duke University, CIBER/Booz Allen Hamilton Report.Google Scholar
  5. Davidson, R., & MacKinnon, J. (1993). Estimation and inference in econometrics. New York: Oxford University Press.Google Scholar
  6. Dyer, J. H., & Nobeoka, K. (2000). Creating and managing a high performance knowledge-sharing network: The Toyota case. Strategic Management Journal, 21(Special Issue), 345–367.Google Scholar
  7. Dyer, J. H., & Singh, H. (1998). The relational view: Cooperative strategy and inter-organizational competitive advantage. Academy of Management Review, 23, 660–679.Google Scholar
  8. Dyer, J. H. (2000). Collaborative advantage: Winning through extended enterprise supplier networks. New York: Oxford University Press.Google Scholar
  9. Farrell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3), 675–683.CrossRefGoogle Scholar
  10. Gottfredson, M., Puryear, R., & Phillips, S. (2005). Strategic sourcing from periphery to the core. Harvard Business Review, 8(2), 2–9.Google Scholar
  11. Greene, W. H. (2000). Econometric analysis (International edition). Prentice Hall, Upper Saddle River.Google Scholar
  12. Harter, D. E., Krishnan, M. S., & Slaughter, S. A. (2000). Effects of process maturity on quality, cycle time, and effort in software product development. Management Science, 46, 451–466.CrossRefGoogle Scholar
  13. Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the Econometric Society, 46, 1251–1271.Google Scholar
  14. Lee, J. N., & Kim, Y. G. (1999). Effect of partnership quality on IS outsourcing success: Conceptual framework and empirical validation. Journal of Management information systems, 15, 29–61.Google Scholar
  15. Lewin, A. Y., Massini, S., & Peeters, C. (2009). Why are companies offshoring innovation? The emerging global race for talent. Journal of International Business Studies, 40, 901–925.CrossRefGoogle Scholar
  16. Mani, D., Barua, A., & Whinston, A. (2011). An empirical analysis of the contractual and information structures in business process outsourcing. Information Systems Research, 34(1), 39–62.Google Scholar
  17. Myers, R. H. (1990). Classical and modern regression with applications. Boston: PWS-Kent Publishing Company.Google Scholar
  18. Neter, J., Kutner, M. H., Nachtsheim, C. J., & Wasserman, W. (1996). Applied linear regression models. Chicago: Irwin.Google Scholar
  19. Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1988). Servqual: A multiple-item scale for measuring customer perceptions of service quality. Journal of retailing, 64(1), 12–40.Google Scholar
  20. Podsakoff, P. M., & Organ, D. W. (1986). Self-reports in organizational research: Problems and prospects. Journal of Management, 12(4), 531–544.CrossRefGoogle Scholar
  21. Poppo, L., & Zenger, T. (2002). Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal, 23, 707–725.CrossRefGoogle Scholar
  22. Porter, M. E. (1980). Competitive strategy. New York: Free Press.Google Scholar
  23. Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York: Free Press.Google Scholar
  24. Porter, M. E. (1996). What is strategy? Harvard Business Review, 74, 61–78. Google Scholar
  25. PriceWaterhouseCoopers. (2005). The evolution of BPO in India.Google Scholar
  26. Puranam, P., & Srikanth, K. (2007, June 16). Seven myths about outsourcing. The Wall Street Journal.Google Scholar
  27. Ring, P. S., & Van de Ven, A. H. (1994). Developmental processes of cooperative inter-organizational relationships. Academy of Management Review, 19, 90–118.Google Scholar
  28. Srikanth, K., & Puranam, P. (2011). Integrating distributed work: Comparing task design, communication and tacit coordination mechanisms. Strategic Management Journal, 32, 849–875.CrossRefGoogle Scholar
  29. Susarla, A. (2012). Contractual flexibility, rent seeking, and renegotiation design: An empirical analysis of information technology outsourcing contracts. Management Science, 58(7), 1388–1407.CrossRefGoogle Scholar
  30. Wu, D. M. (1973). Alternative tests of independence between stochastic regressors and disturbances. Econometrica, 41, 733–750.Google Scholar
  31. Zollo, M., & Winter, S. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13, 339–351.CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Indian School of BusinessHyderabadIndia

Personalised recommendations