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Explaining variations in client extra costs between software projects offshored to india

Published on Jun 1, 2008in Management Information Systems Quarterly 4.37
· DOI :10.7892/boris.51792
Jens Dibbern17
Estimated H-index: 17
(UMA: University of Mannheim),
Jessica K. Winkler5
Estimated H-index: 5
(UMA: University of Mannheim),
Armin Heinzl21
Estimated H-index: 21
(UMA: University of Mannheim)
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Abstract
Gaining economic benefits from substantially lower labor costs has been reported as a major reason for offshoring labor-intensive information systems services to low-wage countries. However, if wage differences are so high, why is there such a high level of variation in the economic success between offshored IS projects? This study argues that offshore outsourcing involves a number of extra costs for the client organization that account for the economic failure of offshore projects. The objective is to disaggregate these extra costs into their constituent parts and to explain why they differ between offshored software projects. The focus is on software development and maintenance projects that are offshored to Indian vendors. A theoretical framework is developed a priori based on transaction cost economics (TCE) and the knowledge-based view of the firm, complemented by factors that acknowledge the specific offshore context. The framework is empirically explored using a multiple case study design including six offshored software projects in a large German financial service institution. The results of our analysis indicate that the client incurs post- contractual extra costs for four types of activities: (1) requirements specification and design, (2) knowledge transfer, (3) control, and (4) coordination. In projects that require a high level of client-specific knowledge about idiosyncratic business processes and software systems, these extra costs were found to be substantially higher than in projects where more general knowledge was needed. Notably, these costs most often arose independently from the threat of opportunistic behavior, challenging the predominant TCE logic of market failure. Rather, the client extra costs were particularly high in client-specific projects because the effort for managing the consequences of the knowledge asymmetries between client and vendor was particularly high in these projects. Prior experiences of the vendor with related client projects were found to reduce the level of extra costs but could not fully offset the increase in extra costs in highly client-specific projects. Moreover, cultural and geographic distance between client and vendor as well as personnel turnover were found to increase client extra costs. Slight evidence was found, however, that the cost-increasing impact of these factors was also leveraged in projects with a high level of required client-specific knowledge (moderator effect).
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  • Citations (403)
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References120
Newest
Published on Mar 1, 2007in Information & Management 4.12
Rajesh Mirani10
Estimated H-index: 10
(UB: University of Baltimore)
This paper presents two case studies of offshored software tasks. The success of such tasks is critically dependent on managing an inherent interdependence between onshore and offshore teams. In one case study, both teams belong to the vendor organization, while in the other they are affiliated respectively with client and vendor. It is shown that that interdependence is best addressed through procedural coordination, which entails two complementary strategies. The first consists of carefully sp...
Published on Oct 1, 2006in Academy of Management Review 10.63
Peter J. Lane15
Estimated H-index: 15
(UNH: University of New Hampshire),
Balaji R. Koka10
Estimated H-index: 10
(ASU: Arizona State University),
Seemantini Pathak5
Estimated H-index: 5
(ASU: Arizona State University)
We conduct a detailed analysis of 289 absorptive capacity papers from 14 journals to assess how the construct has been utilized, examine the key papers in the field, and identify the substantive contributions to the broader literature using a thematic analysis. We argue that research in this area is fundamentally driven by five critical assumptions that we conclude have led to its reification and that this reification has led to stifling of research in this area. To address this, we propose a mo...
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Rajiv D. Banker66
Estimated H-index: 66
(TU: Temple University),
Joakim Kalvenes8
Estimated H-index: 8
(SMU: Southern Methodist University),
Raymond A. Patterson11
Estimated H-index: 11
(U of A: University of Alberta)
The theory of incomplete contracts has been used to study the relationship between buyers and suppliers following the deployment of modern information technology to facilitate coordination between them. Previous research has sought to explain anecdotal evidence from some industries on the recent reduction in the number of suppliers selected to do business with buyers by appealing to relationship-specific costs that suppliers may incur. In contrast, this paper emphasizes that information technolo...
Published on Jun 1, 2006in Management Information Systems Quarterly 4.37
Karma Sherif10
Estimated H-index: 10
(TTU: Texas Tech University),
Robert W. Zmud10
Estimated H-index: 10
(OU: University of Oklahoma),
Glenn J. Browne17
Estimated H-index: 17
(TTU: Texas Tech University)
We examine the case of software reuse as a disruptive information technology innovation (i.e., one that requires changes in the architecture of work processes) in software development organizations. Using theories of conflict, coordination, and learning, we develop a model to explain peer-to-peer conflicts that are likely to accompany the introduction of disruptive technologies and how appropriately devised managerial interventions (e.g., coordination mechanisms and organizational learning pract...
Published on Jan 1, 2006
Natalia Levina22
Estimated H-index: 22
As firms spend a growing part of their budgets on offshore activities, they experience pressure to source increasingly more complex, less codified, and more strategic IT projects abroad. Successfully completing such projects requires close collaboration among all participants. It has been argued that firms are better off keeping such projects within their organizational boundaries by setting up captive offshore development centers, especially if these firms have sufficient scale. This paper pres...
Published on Jan 1, 2006
Rajiv Sabherwal3
Estimated H-index: 3
(MU: University of Missouri),
Vivek Choudhury11
Estimated H-index: 11
(UC: University of Cincinnati)
Published on Jan 1, 2006in Mis Quarterly Executive 2.21
Erran Carmel28
Estimated H-index: 28
(AU: American University),
Ritu Agarwal47
Estimated H-index: 47
(UMD: University of Maryland, College Park)
Published on Jan 1, 2006
James M. Erickson3
Estimated H-index: 3
(UIC: University of Illinois at Chicago),
C. Ranganathan17
Estimated H-index: 17
(UIC: University of Illinois at Chicago)
This paper examines the impact of project management capabilities on the effectiveness of offshore outsourcing of application development activities. Offshore outsourcing is an important trend in today’s business environment and it is important for us to better understand what capabilities are required for a company to execute an offshore outsourcing arrangement. Using the lens of Dynamic Capabilities and the Resource Based View, this paper identifies key project management sub-capabilities that...
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Robert E. Stake20
Estimated H-index: 20
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Published on Oct 1, 2005in Strategic Management Journal 5.57
Steven White15
Estimated H-index: 15
(Ad: INSEAD),
Steven S. Lui18
Estimated H-index: 18
(CityU: City University of Hong Kong)
Firms simultaneously face the need to cooperate with and control an alliance partner. To complement the transaction cost perspective's emphasis on the need to control and limit opportunistic behavior, we examine the sources and impact of the cooperation costs incurred in order to work with a partner. We propose that these costs increase with greater joint task complexity and interpartner diversity, and perceptions of equitable behavior affect the perceptions of these costs. Hypotheses derived fr...
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Published on May 1, 2019in Journal of Business Research 4.03
Eleni Lioliou5
Estimated H-index: 5
,
Leslie P. Willcocks63
Estimated H-index: 63
+ 0 AuthorsXiaohui Liu (University of Birmingham)
Abstract Multi-sourcing arrangements are a major trend in the contemporary outsourcing landscape, but our understanding of what makes these complex ventures effective remains relatively fragmented. Our study focuses on the multi-sourcing and opportunistic behavior of service providers, and in particular a relatively neglected but major driver of opportunistic behavior, namely the uncertainty surrounding the transaction. Developing an extended transaction cost economics perspective, our investiga...
Published on Mar 1, 2018in Journal of Business Research 4.03
Stephen Chen22
Estimated H-index: 22
(Northumbria University),
Nidthida Lin3
Estimated H-index: 3
(Northumbria University)
Abstract This study investigates the role of different dimensions of distance (interorganizational versus intraorganizational, physical versus psychic) on the success of offshore outsourcing of innovation projects. Using fuzzy set qualitative comparative analysis, we identify organizational configurations of spatial, temporal, cultural and linguistic distances that are more likely to lead to successful collaborative outcomes from offshore outsourcing of innovation projects. The findings show tha...
Quang “Neo” Bui (RIT: Rochester Institute of Technology), Ezekiel Masao Leo (RIT: Rochester Institute of Technology), Olayele Adelakun4
Estimated H-index: 4
(DePaul University)
Abstract Effectively managing Information Technology outsourcing (ITO) requires integration of conceptually distinct and sometimes contradicting factors. For instance, ITO “best practices” for cost reduction can inhibit a firm’s innovativeness. To address these challenges, we build on governance and capability perspectives and employ a set-theoretic approach to examine ITO practices in 27 firms. Our exploratory study reveals four distinct ITO configurations, of which three lead to positive outco...
Cynthia K. Riemenschneider17
Estimated H-index: 17
(Baylor University),
Mari W. Buche7
Estimated H-index: 7
(MTU: Michigan Technological University),
Deborah J. Armstrong16
Estimated H-index: 16
(FSU: Florida State University)
The preponderance of the academic research focused on diversity in the IS field has emphasized the perspectives of women and racioethnic minorities. Recent research has found that following the appointment of a female CEO, white male top managers provided less help to colleagues, particularly those identified as minority-status (McDonald, Keeves, & Westphal, 2018). Additionally, Collison and Hearn (1994) assert that white men's universal status and their occupancy of the normative standard state...
Published on May 25, 2019
Darja Šmite13
Estimated H-index: 13
(BTH: Blekinge Institute of Technology),
Nils Brede Moe21
Estimated H-index: 21
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+ 1 AuthorsViktoria Stray6
Estimated H-index: 6
(University of Oslo)
Offshore outsourcing of software development has been both famous for the promises of great cost reductions, and infamous for the hidden costs associated with the challenges of organizing software work over distance. Experience shows that many of these costs do not receive the deserved attention and are often excluded when making offshoring decisions. As a result, there is often a significant deviation between the expected and the realized costs of offshoring. In this paper, we investigate the a...
Published on May 3, 2019in Operations Management Research 4.73
Vaidyanathan Jayaraman (Great Lakes Institute of Management), Zuoming Liu (University of North Georgia)
As emerging markets increasingly play important roles in outsourcing, we focus on the complex relationships in the professional service outsourcing environment. Building on information processing and contingency theories, this paper contributes to the much-needed efforts in the study of professional service outsourcing, a new and fast-growing cross-border professional service activity. This study examines the impact of task characteristics and their alignment with inter-firm governance mechanism...
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Pankaj Gupta15
Estimated H-index: 15
(DU: University of Delhi),
Mukesh Kumar Mehlawat15
Estimated H-index: 15
(DU: University of Delhi),
Divya Mahajan1
Estimated H-index: 1
(DU: University of Delhi)
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Florence Duvivier (NEOMA Business School), Carine Peeters12
Estimated H-index: 12
(Katholieke Universiteit Leuven),
Anne-Wil Harzing45
Estimated H-index: 45
(Middlesex University)
Drawing on 50 semi-structured interviews in a case study of a Belgian multinational and its foreign subsidiary in Poland, we develop new insights into how using different types of international assignments (long-term expatriation, short-term expatriation, short-term inpatriation) allows a HQ-subsidiary dyad to transfer different types of knowledge (declarative, procedural, axiomatic, relational), both from and to HQ, during and after the assignment. We show how each type of assignment acts as a ...
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Steven L. Johnson7
Estimated H-index: 7
(UVA: University of Virginia),
Steven Lawrence Johnson (UVA: University of Virginia)+ 0 AuthorsSuprateek Sarker29
Estimated H-index: 29
(UVA: University of Virginia)
Abstract Through building and testing theory, the practice of research animates data for human sense-making about the world. The IS field began in an era when research data was scarce; in today's age of big data, it is now abundant. Yet, IS researchers often enact methodological assumptions developed in a time of data scarcity, and many remain uncertain how to systematically take advantage of new opportunities afforded by big data. How should we adapt our research norms, traditions, and practice...
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Naveen Kumar Jain6
Estimated H-index: 6
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Naveen Kumar Jain (Sultan Qaboos University)+ 0 AuthorsVikas Kumar29
Estimated H-index: 29
(USYD: University of Sydney)
Abstract Rapid internationalization provides firms with quick access to global markets, but also constrains their capacity to absorb the expansion. Identifying the resources and capabilities that are most likely to moderate the relationship between rapid internationalization and performance is, therefore, of great interest. We focus on the software service industry in the specific context of the Indian emerging economy and investigate the role of linkage, leverage and learning capabilities. We u...