Beyond Transaction Cost Economics: Towards an endogenous theory of Information Technology Outsourcing

Institutional Arrangements for Providing HIV and AIDS Services in Uganda: A Transaction Cost Economics Analysis

Transaction cost economics (TCE) theory predicts that features of institutional arrangements determine the intensity of their governance instruments. Consequently, institutional features link to transaction costs, but the linkages have received little attention in the public health literature. This study sought to address this gap. It examined the governance features of institutional arrangements and their transaction cost implications for providing HIV prevention and social support services in Uganda. The analysis was based on 4 proposed TCE governance instruments: administrative controls, adaptation, incentives and contract laws. These governance instruments were assessed in 3 modes of delivery( institutional arrangments) for HIV and AIDS Services in Uganda: Contracting-Out – the case of DREAMS (Determined, Resilient, Empowered, AIDS-free, Mentored and Safe); a Public-Non-Governmental Organisation (NGO) partnership – the case of the CHAI (Community-led HIV/AIDS Initiative); and direct Public Sector Delivery. These assessed delivery modes follow Williamson’s TCE framework of 3 institutional arrangements to deliver goods and services, notably market, hybrid (partnership) and internal (hierarchy) delivery, with related governance features. Within this framework, the discriminating alignment hypothesis guided the analysis. According to the hypothesis, the delivery modes of goods and services result in smaller transaction costs when their governance features are as predicted by TCE. The hypothesis was assessed by analysing, with qualitative methods, the differences in HIV and AIDS services characteristics across the 3 arrangements and their differences with theory prediction, and hence the difference in transaction cost implications. The study found that the delivery arrangements that minimised cost are those whose HIV and AIDS services were aligned with the TCE theory prediction. The aligned ‘public-NGO partnership’ arrangement (CHAI) had fewer sources of transactional costs than the misaligned arrangements – ‘contracting-out’ (DREAMS) and ‘public sector’. The analysis revealed that the DREAMS and public sector delivery models suffered some flaws in efficiencies. DREAMS had high administrative controls, high-powered tangible incentive intensity and intensive monitoring mechanisms for performance adaptation due to the lack of ‘trust’ on the part of the financing agency, contrary to the TCE prediction. In contrast with the TCE prediction, low administrative controls in the public sector arose from the failure to invest in performance monitoring systems. The high-powered incentive intensity and low administrative controls observed in the CHAI arrangement primarily stemmed from the reliance on informal institutions (trust, social expectations and reputation) rather than principal-agent arms-length sanctions. These results suggest that the level of transaction costs is associated with features of institutional arrangements. The valuable insights from TCE could contribute to policymaking during the design of institutional arrangements to efficiently deliver HIV and AIDS services.

Outsourcing for Sustainable Performance: Insights from Two Studies on Achieving Innovation through Information Technology and Business Process Outsourcing

(1) Background: To obtain sustainable performance through outsourcing, organizations must balance the inherent tension between pursuing cost-saving initiatives (i.e., efficiency) and pursuing innovative initiatives (e.g., developing new products). This study aims to explore this tension by exploring different ways that organizations can pursue both efficiency and innovativeness, through their IT outsourcing (ITO) and business process outsourcing (BPO). (2) Methods: This study utilizes a configurational approach in two inductive studies, both using qualitative comparative analysis (QCA). The first study qualitatively compares 27 firms currently doing ITO, while the second study compares 60 firms doing either ITO or BPO. (3) Results: Our findings suggest three configurations, or combination of conditions, that enable efficiency and innovation through ITO and BPO. For ITO, firms can use a best-of-breed or a mediated multi-outsourcing configuration to enable innovation; however, firms can only use a direct multi-outsourcing configuration to enable innovation through BPO. (4) Conclusions: The study is among the first to explore both ITO and BPO practices that enable innovation and efficiency simultaneously (sustainable performance). In contrast with prior studies, all three aforementioned configurations suggest that having detailed outsourcing contracts is a necessary but not sufficient condition for innovation through outsourcing.

Influencing information systems practice: The action principles approach applied to robotic process and cognitive automation

The article formalizes an action principles approach for investigating and influencing the adoption of emerging information systems phenomena, particularly for new technologies. It draws upon recent research into robotic process and cognitive automation to demonstrate the concepts and methodology for a further mode of research into practice that is distinguishable from action research and design science. The authors present definitions, research assumptions, and evaluation criteria and provide a six-step process for generating a set of action principles, updatable by new empirical evidence. The process is illustrated by research into 22 automation cases that eventually arrived at 39 action principles for effective deployment of the automation technologies under review. The major objective is to provide guidelines to prospective researchers. A secondary objective is to provide major insights into the management of robotic process and cognitive automation. This provides opportunities for further theorization and research by academics, and more considered action by practitioners. The authors also discuss the value and limitations of the action principles approach, and how the knowledge generated can be disseminated. The article offers a way of doing research on the applied side of information systems that is timely, does justice to the phenomena under investigation, and provides insights for multiple parties.

The contract-type choice for short-term software development outsourcing: The role of behaviour-based formal control

With this article, we contribute to the recent debate regarding the role of transaction cost economics in IT outsourcing and software development outsourcing research. Our focus is on the contract-type choice for short-term software development outsourcing. For this purpose, we critically examine transaction cost economics and the extant IT outsourcing/software development outsourcing literature and propose a framework which classifies software development outsourcing transactions according to transaction frequency and transaction investment characteristics. The framework identifies short-term software development outsourcing as an occasional, idiosyncratic transaction. Based on this groundwork, we clarify the concept of short-term contract and put forward that such a transaction is governed by a short-term contract. Following transaction cost economics and control theory, our resulting theoretical considerations infer that for short-term software development outsourcing, the vendor’s high human asset specificity and the resulting behaviour-based outcome control, the monitoring of the developer staff, are the triggers for contract-type decisions. Accordingly, staff monitoring by the client should result in Time & Material contracts, whereas staff monitoring by the vendor should result in Fixed Price contracts. We develop corresponding hypotheses which we test with 468 specific contract records for short-term software development outsourcing. The results confirm the transaction cost economics–based recommendations for contract-type choice. We therefore conclude that the advice of the transaction cost economics to use certain governance structures according to transaction attributes is also applicable to IT outsourcing/software development outsourcing transactions. We suggest further exploration of specific contract records to substantiate our results.

A Systematic Literature Review on IT Outsourcing Decision and Future Research Directions

During the recent decades, some academic research on the subject of information technology outsourcing (ITO) decision has appeared in different outlets, which may impede the use of such resources and as a result, repetition of research by various researchers is very likely. The purpose of this paper is then to conduct a systematic literature review (SLR) pertaining to research on ITO decision. Then, this review intends to 1) classify ITO decision literature, 2) provide a list of factors affecting ITO decision, and 3) identify ITO strategies. To this end, 91 ITO articles published between 2000 and 2018 in 51 unique journals were reviewed. The results yielded three kinds of descriptive, relational, and comparative ITO decision studies. The determinants of ITO decisions are classified into technological, organizational, environmental and user adoption factors. Furthermore, the trend of studied ITO strategies in the reviewed literature is analyzed, and future sourcing varietals are proposed. Finally, some insights and future research directions are proposed based on the review results.

IT outsourcing, knowledge transfer and project transition phases

Purpose

The purpose of this research was to uncover perceptions of information technology outsourcing (ITO) project leaders and project teams regarding knowledge transfer between client and vendor partners during opening and closing transition phases of ITO projects.

Design/methodology/approach

Qualitative methods and exploratory case study design were used. Purposeful sampling was used to identify ITO knowledge assets including project team members and organizational documents and artifacts that may provide information regarding the knowledge transfer processes during the transition phases of the ITO project. Sample criteria were ITO project team members from one US-based client organization and the company’s international vendor partners. The study population included project managers, analyst, developers, subject matter experts (SMEs) and other ITO knowledge workers involved in the ITO project from one US-based organization. Interview and document analysis were done using of NVivo Pro 11®research software.

Findings

Four themes emerged from participant responses relative to the opening and closing phases of ITO projects including KT approaches to plans and processes; KT dependencies relative to IT project team member’s reliance on project tools, processes and artifacts; determinants of KT success or failure relative to project team members’ perceptions; and role of documentation relative to communication and distribution of KT outcomes.

Originality/value

This research may provide insights into additional aspects of knowledge transfer during ITO transition phases, which may be used by IT leaders and project teams to plan for successful knowledge transfer during the transition phases of ITO projects.

The impact of contracts on outsourcing computed tomography examinations from a Swedish public university hospital to a private radiology unit

INTRODUCTION

After years of outsourcing without detailed contracts from one of Sweden's largest university hospitals to external radiology units, the hospital started to use a specific contract for outsourcing computed tomography (CT) examinations. The purpose of this study was to compare the cost-effectiveness of two outsourcing approaches, where examinations were performed either with a detailed, specific contract (with-contract) or without (no-contract), between a hospital radiology department and private external units.

METHODS

This retrospective study included a group of electively outsourced CT-examinations (n = 132) and a control group of in-house CT-examinations (n = 132), selected from the three different types of CT-examinations referred from the Departments of Oncology and Hematology. These examinations were randomly selected from four different groups over two time periods of one year each, one being outsourcing without a contract (no-contract, during 2013), one time period with a specific contract (with-contract, during 2014) and two control groups of examinations performed in-house within both these time periods. We compared outsourced examinations (both no-contract and with-contract groups) and in-house examinations. The comparison of these groups include five parameters; management-time, patient waiting-time, the quality of the examinations, - image interpretations and costs.

RESULTS

During 2013, management-time for CT-examinations was longer in the outsourced group (no-contract) than in the in-house group, with a statistical significance (P = 0.002). Fewer examinations performed in-house and in the with-contract group needed re-interpretation than in the no-contract group. CT-examinations in the with-contract group were associated with shorter overall management-time, patient waiting time and lower costs compared to the no-contract group.

CONCLUSION

Using a contract with detailed specifications for outsourcing CT-examinations may be an effective way of reducing patient waiting time. Outsourcing based on a well-founded contract can be cost-effective, compared with outsourcing without a detailed plan for the services required.

Perspective-varying effects of peripheral knowledge in IT outsourcing: when vendor and client are collated

Purpose

This study aims to examine how the role of peripheral knowledge changes along with the perspectives of vendor and client in inter-organizational IT outsourcing. To this end, this study tests the effects of the peripheral knowledge of vendors and clients on IT outsourcing performance under three different combinations of performance-assessing views from both parties.

Design/methodology/approach

To contrast the effects of the peripheral knowledge of vendors and clients based on their views, this study collects matching data on 107 projects from both parties. The survey method is adopted to measure the peripheral knowledge levels of vendors and clients and IT outsourcing success. The associations between peripheral knowledge and IT outsourcing performance are then assessed when the views match, cross and agree to a certain level.

Findings

The peripheral knowledge of vendors plays a more significant role than that of clients in most IT outsourcing cases. Moreover, the agreement between the peripheral knowledge of vendors and clients shows a moderating effect only when the performance is assessed by clients than by vendors.

Originality/value

This study contrasts the peripheral knowledge of vendors and clients by altering performance-assessing views in IT outsourcing. This study also rationalizes why the peripheral knowledge of vendors is more important than that of clients, as well as explains whose perspective is more significant when the performance is assessed.

What Are the Effects of Participation in Production Outsourcing? Evidence from Chinese Apple Farmers

Outsourcing, as a productive service, has been widely adopted in industrial production and international trade but less applied in agricultural management. With the advancement of agricultural labor division and specialization, outsourcing is becoming one of the most sustained trends in concurrent business. This study used a multiple linear regression and a propensity score matching model to quantify the different effects of participation in production outsourcing on farmers’ apple production efficiency and apple income based on field survey data from 960 apple farmers in the Shandong, Shaanxi, and Gansu Provinces. The results showed that, on average, the outsourcing of apple production increased farmers’ apple production technology efficiency by 5.60%, their labor productivity by 2121.48 kg/person, land productivity by 334.50 kg/mu, capital productivity by 0.05 kg/Yuan, and apple sales revenue by 13,300 Yuan. However, farmers’ net income from apples decreased by an average of 5000 Yuan. The outsourcing of apple production, which is labor-intensive, is constrained by the increase in labor costs, which, in turn, affect the transformation of the apple industry into a service-scale operation driven by the economy of division.

Macro-environment’s effects on onshore outsourcing: the transition costs approach

Purpose

Through the literature, the effect of macro-environment on onshore outsourcing decisions appears rather unexplored, despite empirical evidence. The purpose of this paper is to address this gap through an extension of Transaction Cost Economics (TCE) (the main theory of domestic outsourcing).

Design/methodology/approach

This paper develops a framework based on a literature review. It applies this body of knowledge on a new question and provides detailed illustrations (with primary and secondary data).

Findings

This paper builds a theoretical framework, based on the concept of transition costs. This concept, created as a way to make the economizing approach more dynamic, highlights the influences of the macro-environment. This paper presents a clarification of transition costs. It formulates a theoretical proposition: the environment has an effect on outsourcing through the transition costs.

Research limitations/implications

This framework deserves to be tested through an empirical study.

Practical implications

This framework enables domestic providers to take the environment and transition costs into account for the design and timing of outsourced service.

Social implications

This framework enables to consider the importance of social conflicts and political measures on the domestic outsourcing decisions.

Originality/value

First, this paper addresses an unexplored question (the effect of macro-environment on onshore outsourcing decisions). Second, it refines an undertheorized TCE concept: the transition costs. Third, it proposes a new direction in the current debate of the evanishing explanatory power of the TCE on outsourcing (by extending this theory).

An empirical analysis on outsourcing decision: the case of e-banking services

Purpose

A multitude of factors influence the information technology outsourcing (ITO) decision. Organizations must systematically evaluate these factors prior to making the ITO decision. The purpose of this paper is to provide an in-depth analysis toward understanding the critical factors in affecting ITO decision in the context of e-banking services.

Design/methodology/approach

The effect of technological, organizational, and environmental attributes on e-banking services outsourcing decision were investigated in this paper. The study was carried out using the quantitative research methodology based on a survey of 23 banks. The partial least squares technique was utilized as the method of data analysis.

Findings

The results of the data analysis illustrated that nine out of 11 assumed factors (i.e. perceived complexity, perceived cost, service observability to the client, cultural fit between client and supplier, perceived loss of organizational knowledge, prior outsourcing experience, external pressure, market volatility, and suppliers’ power) influence the outsourcing decision of e-banking services. The findings also confirmed that the nature of the service and client IT capabilities did not exert any influence on the outsourcing decision.

Originality/value

The study is among the first kind of ITO decision research which empirically investigates the effect of service observability, cultural fit, perceived loss of organizational knowledge, external pressure, market volatility, and suppliers’ power amongst other factors on the ITO decision. The findings from this study provide insights for the banks and service providers to better understand the factors affecting the outsourcing decisions of e-banking services in contexts of less developed countries. Implications based on a specific situation of the Iranian banking sector is also proposed.

Understanding Intentions to Switch Toward Cloud Computing at Firms' Level

This research aims to study intentions to switch toward cloud computing at firms' level. As a new way to deploy information technologies (IT) within firms, switching toward cloud computing remains a hard decision that depends on several contextual factors. While several studies have focused mainly on technological aspects, this research adopts a multidimensional perspective by combining the Technology-Organization-Environment (TOE) framework with a two-factor theory perspective. Doing so, the authors attempt to propose a research model that can be useful to deeply understand how firms perform when thinking about switching toward cloud-based solutions. A multiple-case study within five Tunisian firms has been conducted to contextualize the research model and give it more explanation power. The Tunisian context should be interesting, as cloud computing adoption is a new topic that is not sufficiently studied in developing countries, particularly in those characterized by an economy in transition. Data have been collected by semi-structured interviews and coded using the Nvivo software. The analysis of interviews content shows that the expected switching benefits and risks play a mediating role between TOE factors and intentions to switch toward cloud computing. Indeed, the authors found some different results within cases revealing the dual effects of technology, organization, and environment factors on intentions by generating different expected switching benefits and risks. In light of these results, some recommendations are proposed to decision makers in this area.

An investigation into the factors influencing the outsourcing decision of e-banking services

Purpose

This paper aims to provide an in-depth analysis toward understanding the critical factors in affecting information technology outsourcing (ITO) decision in the context of e-banking services in Iran. Within the recent decades, outsourcing IT processes and services as a strategic decision has been widely adopted throughout industries. In this regard, scholars have investigated a wide range of factors influencing ITO decision in various contexts.

Design/methodology/approach

This research examines a conceptual model that shows impacts of different attributes including technological, organizational and environmental on the Iranian banks’ ITO decision. To validate the research hypotheses, the partial least squares (PLS) technique for data analysis, is utilized.

Findings

The results of this study derived from the theoretical discussion of hypotheses illustrated that 9 of 11 assumed factors (i.e. perceived tangible benefits, perceived intangible benefits, perceived risks, perceived information security/privacy, complete contract establishment capability, making strong trustworthy relationship capability, uncertainty in business requirements, external pressure and market maturity) influence ITO decision in the target industry. The findings also confirmed that the size of the bank and competitors’ absorptive capacity did not exert any influence on their service outsourcing decision.

Research limitations/implications

The sampling was confined to experts in the banking industry. Also, the results of this study reflect Iranian perspective. Consequently, generalization based on this sample would be interpreted cautiously and a limitation of the context should be kept in mind.

Originality/value

Insights into policymaking for suitable drivers to outsource e-banking services in the context of a less developed country are the main outcomes of the current research.

The Sourcing of Software Services

Transaction cost economics (TCE) is the most prominent theory for studying questions surrounding information systems (IS) outsourcing. Its most widely tested argument is that client-specific services are rather kept in-house due to the high transaction costs which arise for safeguarding against opportunistic behavior. However, empirical support for this argument has so far been inconclusive. We seek to resolve this inconsistency by following two recommendations in prior literature. First, we extend TCE by considering trust differences between internal employees and vendor staff as a context factor. Second, we explicitly account for TCE's economic rationale by acknowledging that client-specific knowledge influences both transaction cost and production cost differences between in-house and outsourced IS services. Using data from 139 organizations on the sourcing of software development and maintenance services, we found support for our theoretical extension. For IS services requiring client-specific knowledge, in-house transaction cost advantages were particularly high if more trust was put in in-house personnel compared to vendor staff. Production costs were generally lower in-house when knowledge specificity was high. Both in-house transaction and production cost advantages were associated with lower degrees of outsourcing. The results explicate an important boundary condition of TCE and help shed light on the so far inconclusive empirical results regarding the role of asset specificity in explaining IS outsourcing decisions. The insights help decision makers by providing a better understanding of the economics of IS sourcing and the important role of trust.

IT outsourcing intent in academic institutions in GCC countries

Purpose

– The purpose of this paper is to understand the reasons behind the intent for information technology (IT) outsourcing in academic institutions in GCC countries. It also aims to develop a multi-criteria decision model (MCDM) to aid the critical decision of IT outsourcing vendor selection.

Design/methodology/approach

– The research utilizes a questionnaire-based survey to investigate reasons of IT outsourcing intent and the factors considered important for IT outsourcing vendor selection in academic institutions. The results of questionnaire-based study were utilized to develop a grey theory-based MCDM for vendor selection.

Findings

– The results show that facilitating access to new technology, focus on core-competence, saving staff costs, and improved customer service are the most important factors for IT outsourcing intent while reputation of vendor, access to the state of art technology, quality of service, and knowledge of industry were considered as the most important factors for IT outsourcing vendor selection. Grey theory-based decision model was applied to a real case to facilitate the decision of selection of an IT outsourcing vendor.

Practical implications

– Academic institutions that plan to outsource IT in future would be the major beneficiaries of this study. They can utilize the multi-criteria model to select the best vendor. The model facilitates a more rational decision making as it incorporates several criteria considered important for IT outsourcing vendor selection.

Originality/value

– This study contributes to the body of research on IT outsourcing. It is first of its kind with its focus on academic institutions in GCC countries where currently education is a priority and IT is a backbone for its delivery. Another novelty of this research is that it propose a MCDM for IT outsourcing vendor selection. The findings of this study would serve as a guide to those institutions that intend to outsource IT functions to meet the ever growing needs of managing IT effectively.

Determinant Factors of Cloud-Sourcing Decisions: Reflecting on the IT Outsourcing Literature in the Era of Cloud Computing

Cloud computing (CC) is an emerging form of IT outsourcing (ITO) that requires organizations to adjust their sourcing processes. Although ITO researchers have established an extensive knowledge base on the determinant factors that drive sourcing decisions from various theoretical perspectives, the majority of research on cloud-sourcing decisions focuses on technological aspects. We reviewed the CC and ITO literature and systematically coded the determinant factors that influence sourcing decisions. We show that most determinant factors of sourcing decisions in the ITO context remain valid for the CC context. However, the findings for some factors (i.e., asset specificity, client firm IT capabilities, client firm size, institutional influences, and uncertainty) are inconclusive for the CC and ITO contexts. We discuss how the peculiarities of CC can explain these inconclusive findings. Our results indicate that CC researchers should draw from research on ITO decision making but re-examine ITO concepts in the light of the peculiarities of CC, such as the differences between software and infrastructure services, the self-service procurement of cloud services, or the evolving role of IT departments. By summarizing determinant factors of cloud-sourcing decisions for consideration in future research, we contribute to the development of endogenous theories in the IS domain.

Netsourcing Strategies for Vendors: A Resource-based and Transaction Cost Economics Perspective

This paper discusses Netsourcing strategies for vendors, a little explored area of outsourcing research, using both a resource-based (RBV) perspective and a transaction cost economics (TCE) perspective. Using both theories and an infrastructural view of Information Technology service, we present a conceptual model of vendor sourcing decisions. We then present a number of propositions based on case studies of vendor decisions. Finally we conclude by discussing the theoretical contribution of RBV and TCE and, crucially, the value of combining both theories for the study of Netsourcing, and for other areas of IS research.

Vendor Opportunism in it Outsourcing: A TCE and Social Capital Perspective

Academic researchers have paid significant attention to the drivers of opportunistic behavior, yet our understanding of how opportunistic behavior can be mitigated remains relatively fragmented. Our investigation will focus on the social context and more specifically on the role of social capital in the deterrence of opportunistic behavior. On the basis of two qualitative case studies in the financial sector, we will illustrate how the structural, cognitive and relational dimensions of social capital can reduce internal and behavioral uncertainty between the outsourcing partners, thereby facilitating the mitigation of opportunistic behavior. In our study we combine the theory of transaction costs with social capital theory and demonstrate how they can usefully complement each other to enhance our understanding of mechanisms that can deter opportunistic behavior.

The role of institutional pressures and top management support in the intention to adopt cloud computing solutions

Purpose

– While many studies have predominantly looked at the benefits and risks of cloud computing, little is known whether and to what extent institutional forces play a role in cloud computing adoption. The purpose of this paper is to explore the role of institutional factors in top management team’s (TMT’s) decision to adopt cloud computing services.

Design/methodology/approach

– A model is developed and tested with data from an Australian survey using the partial least squares modeling technique.

Findings

– The results suggest that mimetic and coercive pressures influence TMT’s beliefs in the benefits of cloud computing. The results also show that TMT’s beliefs drive TMT’s participation, which in turn affects the intention to increase the adoption of cloud computing solutions.

Research limitations/implications

– Future studies could incorporate the influences of local actors who might also press for innovation.

Practical implications

– Given the influence of institutional forces and the plethora of cloud-based solutions on the market, it is recommended that TMTs exercise a high degree of caution when deciding for the types of applications to be outsourced as organizational requirements in terms of performance and security will differ.

Originality/value

– The paper contributes to the growing empirical literature on cloud computing adoption and offers the institutional framework as an alternative lens with which to interpret cloud-based information technology outsourcing.

Is Theory King?: Questioning the Theory Fetish in Information Systems

This paper suggests that there is too much emphasis on the requirement for theory use and theory building in qualitative research published in our leading journals. We discuss six concerns that we have that relate to this high status of theory in such papers. We argue for what we refer to as ‘theory light’ papers where theory plays no significant part in the paper and the contribution lies elsewhere, for example, new arguments, facts, patterns or relationships. Some examples of theory light papers (and research) are provided from other disciplines and one exemplar information systems paper is studied in depth. We see these papers as equally worthy as those which demonstrate the applicability and predictive qualities of theory use as well as the potential of theory building. We propose a list of 10 questions that authors and reviewers might ask themselves when writing or reviewing such theory light papers. The more demanding role of the reader is also discussed along with the requirement for editorial teams to adapt. We suggest that the requirement for a contribution to theory would be replaced with the requirement that any journal paper has a high potential for stimulating research that will impact on information systems theory and/or practice.

Business process outsourcing and dynamic innovation

Purpose

– This paper aims to answer the question: how do clients and BPO service providers work together to foster dynamic innovation? Dynamic innovation is a process by which clients incent providers to deliver many innovations each year that improve the client's performance in terms of operational efficiency, process effectiveness and/or strategic impact.

Design/methodology/approach

– The paper is based on research conducted in 2011 and 2012 and includes 202 survey responses and 48 in-depth interviews in 24 client organizations.

Findings

– The most effective innovation incentives are mandatory productivity targets, innovation days, and gain-sharing at the project level. Threat of competition and special governance arrangements for innovation also positively influence innovation. The least successful incentives for innovations were found to be innovation funds, gainsharing at the relationship level, what has been called “pain-sharing”, and benchmarking.

Research limitations/implications

– The 24 BPO relationships do not represent a random sample, but rather a convenience sample. The authors aimed to understand emerging best practices from high-performing BPO relationships, thus the paired interview samples are purposefully biased towards higher-performing relationships.

Practical implications

– Delivering innovations requires a process the authors call AIFI – acculturating, inspiring, funding, and injecting. The research finds that leadership pairs are key drivers of the dynamic innovation process. Leadership pairs jumpstart the dynamic innovation process by starting with innovation incentives. Even so, just having one right leader makes a positive difference. The positive difference is stronger if that leader is on the client side rather than the provider side. With no right leaders, the practices that the authors describe are less efficacious but still have positive impacts on the levels of innovation experienced.

Originality/value

– In the ITO and BPO literatures, researchers have under-examined the more strategic drivers of outsourcing, including innovation. This research examines the process and practices that deliver dynamic innovation in client organizations.

Business Process Outsourcing Studies: A Critical Review and Research Directions

Organizations are increasingly sourcing their business processes through external service providers, a practice known as Business Process Outsourcing (BPO). Worldwide, the current BPO market could be as much as $279 billion and is predicted to continue growing at 25% annually. Academic researchers have been studying this market for about 15 years and have produced findings relevant to practice. The entire body of BPO research has never been reviewed, and this paper fills that gap. We filtered the total studies and reviewed 87 empirically robust BPO articles published between 1996 and 2011 in 67 journals to answer three research questions: What has the empirical academic literature found about BPO decisions and outcomes? How do BPO findings compare with Information Technology Outsourcing (ITO) empirical research? What are the gaps in knowledge to consider in future BPO research? Employing a proven method that Lacity et al. (2010) used to review the empirical ITO literature, we encapsulated this empirical literature on BPO in a way that is concise, meaningful, and helpful to researchers. We coded 43 dependent variables, 152 independent variables, and 615 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of BPO: one model addresses BPO decisions and one model addresses BPO outcomes. The model of BPO decisions includes independent variables associated with motives to outsource, transaction attributes, and client firm characteristics. The model of BPO outcomes includes independent variables associated with contractual and relational governance, country characteristics, and client and supplier capabilities. Overall, BPO researchers have a broad and deep understanding of BPO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We propose nine future paths of research pertaining to innovation effects, retained capabilities, environmental influences, global destinations, supplier capabilities, pricing models, business analytics, emerging models, and grounded theory development.