The Information Technology Outsourcing Risk: A Transaction Cost and Agency Theory-Based Perspective

Total interpretive structural modelling (TISM) and MICMAC approach in analysing knowledge risks in ICT-supported collaborative project

Purpose

As emphasised by the theory of knowledge-based view, knowledge constitutes the basic element for a firm’s competitive advantage. Consequently, a firm’s knowledge at risk could have an adverse effect on its performance. In this regard, this paper aims to investigate potential knowledge risks present in an (ICT)-supported collaborative project and establishes inter- and multi-relationships among these risks.

Design/methodology/approach

In this paper, an integrated approach using the total interpretive structural modelling (TISM) technique and MICMAC analysis is implemented to determine the hierarchical inter-relationships among knowledge risks and classify them according to their driving and dependence power.

Findings

The result reveals seven knowledge risks. The analysis establishes cybercrime and espionage as high drivers of knowledge risks in an ICT-supported collaborative project. Further, a comprehensive model is developed showing the hierarchical structure and multi- and inter-relationships among the analysed risks.

Practical implications

From a practical viewpoint, the proposed model in this study will be of great importance to practitioners because it highlights the most prominent knowledge risks in an ICT-supported collaborative project. Additionally, it will provide a clue for effective knowledge risk management in a systematic approach.

Originality/value

To the best of the author’s knowledge, this is one of the first studies to use both the TISM technique and MICMAC analysis to identify and classify knowledge risks in an ICT-supported collaborative project.

The Role of Vendor Legitimacy in IT Outsourcing Performance: Theory and Evidence

Information technology outsourcing (ITO) relationships today are facing increasingly turbulent environments. This research examines ITO performance by focusing on client firms’ perceived legitimacy of vendors, termed “vendor legitimacy,” consisting of pragmatic, cognitive, and moral dimensions. Based on our surveys with executives and managers at 200 ITO client firms, the study’s findings present the imperative to actively manage vendor legitimacy for achieving and sustaining ITO performance. Specifically, at the strategic level, clients’ perception of vendors as mutually aligned, long-term-oriented, tightly integrated partners is critical. At the operational level, clients should collaborate with vendors to design and establish interorganizational routines that undergird vendor legitimacy. At the managerial level, clients’ relational governance plays a pivotal role in attaining procedural justice, ethical standards, and fairness in the interorganizational collaboration. In sum, our study suggests that creating a dedicated corporate function or unit for continually overseeing and assessing a portfolio of vendors and swiftly identifying and responding to potential issues and crises related to vendor legitimacy would be a worthwhile investment.

Categorizing transaction costs outcomes under uncertainty: a blockchain perspective for government organizations

Purpose

In response, the purpose of this paper is to provide theoretical frameworks about the organizational uncertainty behind what and when to adopt blockchain technology and their implications on transaction costs. The immature nature and the absence of standards in blockchain technology lead to uncertainty in government organizations concerning the adoption (“what to adopt”) and the identification of the right time (“when to start”).

Design/methodology/approach

Using transaction cost theory and path dependency theory, this paper proposes two frameworks: to assess transaction cost risks and opportunities costs; and to depict four different types of transaction costs outcomes regarding blockchain adoption.

Findings

This paper identifies various theoretical concepts that influence blockchain adoption and combine the two critical constructs of “bounded rationality” and the “lock-in effect” to categorize the multiple transaction costs outcomes for blockchain adoption.

Research limitations/implications

Although existing research in blockchain highlights mainly the potential benefits of blockchain applications, only a little attention has been given to frameworks that categorize potential transaction costs outcomes under uncertainty, in particular from organizational theorists.

Originality/value

Both frameworks advance the understanding of the decision-making behind blockchain adoption and synthesize the current literature to offer conceptual clarity regarding the varied implications and outcomes linked to the uncertainty regarding transactions costs stemming from blockchain technology.

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.

Organizational Information Security Management for Sustainable Information Systems: An Unethical Employee Information Security Behavior Perspective

This article examines the occurrences of four types of unethical employee information security behavior—misbehavior in networks/applications, dangerous Web use, omissive security behavior, and poor access control—and their relationships with employees’ information security management efforts to maintain sustainable information systems in the workplace. In terms of theoretical contributions, this article identifies and develops reliable and valid instruments to measure different types of unethical employee information security behavior. In addition, it investigates factors affecting different types of such behavior and how such behavior can be used to predict employees’ willingness to report information security incidents. In terms of managerial contributions, the article suggests that information security awareness programs and perceived punishment have differential effects on the four types of unethical behavior and that certain types of unethical information security behavior exert negative effects on employees’ willingness to report information security incidents. The findings will help managers to derive better security rules and policies, which are important for business continuity.

A Principal-Agent Theory Perspective on PPP Risk Allocation

This study proposes a framework for the allocation of risk in public private partnerships (PPP) projects. Its contribution lies in the recognition and incorporation of risks introduced by project stakeholders, and as articulated by the principal-agent theory (PAT). The framework assesses risks and routes these risks to those parties best equipped to mitigate their impact on the project. This allocation of risk is facilitated by a thirteen-step process. The practical benefit of this study lies in outlining a clear, systematic method for allocating risk efficiently to both the government and private enterprise parties of the project. In so doing, risk mitigation can be expected to improve project performance, optimize stakeholder goals, and enhance sustainability objectives, including improved operational life-cycle efficiency and elevated social and community benefits.

Internal mechanism of brand app recommendation from the integrated cross-channel perspective

Purpose

Many service organizations use brand apps as an important mobile-end service channel and expect to increase brand app use through customer recommendations. The purpose of this paper is to explore the internal mechanism of brand app recommendation from the cross-channel perspective.

Design/methodology/approach

Based on value–satisfaction–loyalty (VSL) framework, this study examines how brand app’s unique cross-channel features influence customer recommendations, and the effect of involvement in the framework. The authors conduct a research survey in airline industry and questionnaires are developed and distributed to respondents who have experiences with air travel and have used the corresponding airlines’ brand apps. Finally, the authors collect 399 valid questionnaires to test the research model.

Findings

The results show that brand app usability mediates the relationship between offline service satisfaction and brand app satisfaction, which finally leads to brand app recommendation. Brand app usability and satisfaction significantly affect involvement, which also lead to brand app recommendation.

Originality/value

This study distinguishes the features of brand apps from those of ordinary apps and fills the research gap in the internal mechanism of app recommendation from the integrated cross-channel perspective. Besides, this study extends the VSL value in the context of brand app use. Based on the results, this study also provides the practical suggestions of enhancing offline service quality and brand app usability to increase brand app recommendation.

Rethinking Media Synchronicity Theory

Information systems (IS) research often assumes team members have aligned goals. In practice, people interpret and pursue goals to suit personal agendas, even when they are collaborating. This motivates our examination of the cooperative assumption in Media Synchronicity Theory (MST)--a leading IS theory of communication performance. We assess the boundaries of MST by relaxing the assumption of cooperation. Our results support MST for explaining communication and task performance in a cooperative context. However, MST was insufficient to capture how media capabilities influence performance in a non-cooperative context. Our study shows that relaxing the assumption of cooperation changes MST in profound ways--altering which media capabilities are central to the model and the very processes that underlie communication.

Contractual Complexity in Construction Projects

Building on the multifunctional perspective from current contract theory, we conceptualize contractual complexity as a three-dimensional construct to depict the explicitness and elaborateness of control, coordination, and adaptation provisions in a construction project contract. A 13-item scale with construction project features is developed for measuring the different aspects of contractual complexity following rigorous scale development procedures. Using the structural equation modeling technique, empirical testing results demonstrate that all of the three components contribute significantly to contractual complexity. Further analysis indicated that treating contractual complexity in the three-functional way outperforms the unidimensional one regarding power to explain satisfaction and strong-form opportunism.

The role of the chief information security officer in the management of IT security

Purpose

The aim of this study is to advance research on the position of the CISO by investigating the role that CISOs play before and after an IT security breach. There is a dearth of academic research literature on the role of a chief information security officer (CISO) in the management of Information Technology (IT) security. The limited research literature exists despite the increasing number and complexity of IT security breaches that lead to significant erosions in business value.

Design/methodology/approach

The study makes use of content analysis and agency theory to explore a sample of US firms that experienced IT security breaches between 2009 and 2015 and how these firms reacted to the IT security breaches.

Findings

The results indicate that following the IT security breaches, a number of the impacted firms adopted a reactive plan that entailed a re-organization of the existing IT security strategy and the hiring of a CISO. Also, there is no consensus on the CISO reporting structure since most of the firms that hired a CISO for the first time had the CISO report either to the Chief Executive Officer or Chief Information Officer.

Research limitations/implications

The findings will inform researchers, IT educators and industry practitioners on the roles of CISOs as well as advance research on how to mitigate IT security vulnerabilities.

Originality/value

The need for research that advances an understanding of how to effectively manage the security of IT resources is timely and is driven by the growing frequency and sophistication of the IT security breaches as well as the significant direct and indirect costs incurred by both the affected firms and their stakeholders.

Agency theory: background and epistemology

Purpose

By revisiting the agency theory literature, this paper aims to both incrementally advance historical viewpoints and reveal four prominent influences on agency theory: Weber and Simon, The Great Depression, Cooperation and the Chicago School. This is critical given that understanding the history behind the authors’ major theoretical lenses is fundamental to using these theories to explain various phenomena.

Design/methodology/approach

Drawing on a plethora of archival sources and following the influence-mapping approach used by other management history scholars, this manuscript synthesizes historical accounts and archival information to provide a clearer picture of the major historical influences in the formation of agency theory.

Findings

We shed light on four areas related to management history that helped propel agency theory. Whereas past scholarship has not recognised them as influencers, we find and show how the industrial revolution, unionization, the stock exchange and other management approaches all played a role in the development of agency theory’s core tenants.

Originality/value

We extend upon the influential people and events that shaped agency theory, thus providing a fuller understanding of the theory’s usefulness. Moreover, we fill in gaps enabling scholars to better understand the context in which the core tenants of agency theory were developed.

How Do IT Outsourcing Vendors Respond to Shocks in Client Demand? A Resource Dependence Perspective

IT outsourcing vendors depend on projects from their clients to reap gains and develop capabilities. Because of this dependence, vendors are vulnerable to shocks in client demand. However, the extant literature on how vendors mitigate the damage from demand shocks is very limited. This multiple case study examined five pairs of relationships between Chinese vendors and their Japanese clients, drawing on resource dependence theory, which considers two response strategies: bridging and buffering. Our findings suggest that both bridging and buffering should be specified further on the basis of their explorative and exploitative dimensions, and that the choice of a particular strategy depended on the power relation between the vendor and client. Results show that when the client was in a highpower advantage, the vendor chose bridging. More specifically, if the vendor also had high power, it adopted explorative bridging; otherwise, it adopted exploitative bridging. When the client was in a low-power position, the vendor would pursue explorative buffering. Exploitative buffering was a common response to demand shocks, independent of the dyadic power relation.

Factors Influencing Performance of ITES Firms in India

Firms from developed countries are increasingly offshore outsourcing services to developing countries to have cost as well competitive advantages. Although this is a growing practice, there has been limited empirical attention in understanding the outsourcing phenomenon, particularly from the perspective of service provider firms that execute important business processes for their overseas clients. Despite growing trends to outsource, only a few service provider firms report success. This puts the service provider firms under increasing pressure to add value and improve quality of relationship. They have to depend not only on tangible factors but some intangible factors also play an important role in their performance. In this paper, the authors try to find out factors that influence performance of service provider firms. Multiple regressions using four indicators of firm performance are carried out to see the influence of certain factors on information technology enabled service (ITES) firms’ performance.

Impact of Vendor Selection on Firms’ IT Outsourcing

Information technology (IT) outsourcing is often used as a cost-saving strategy for firms. In IT outsourcing, the choice of vendor is a key factor determining success. This study examines the impact that the choice of IT vendor has on firms’ IT outsourcing in Korea. The authors empirically analyzed the impact of certain characteristics of IT vendors on the market value of client firms in Korea using the event study methodology. First, the authors found that IT outsourcing announcements significantly increased the market value of firms. The authors also found that the market response to high asset-specific services of the IT vendor was significantly greater than the response to low asset-specific services. The authors’ results also showed that the effect of Korean vendors was greater than that of foreign vendors. However, the difference between IT outsourcing to large vendors and small vendors in Korea was not significant, in contrast to the US. The information provided in this study can be used by client firms to select better IT vendors and by IT vendors to develop strategies to survive the rapidly changing IT outsourcing market in Korea.

Managing Erp System Risk in SMEs: A Multiple Case Study

ERP systems are increasingly accessible to small and medium-sized enterprises (SMEs). If the potential benefits of these systems are significant, the same applies to the risk associated with their implementation. A number of authors emphasize that IS risk management is most effective when it is initiated at the earliest possible moment in the system's lifecycle, that is, at the adoption phase. But how do SMEs actually manage the risk of ERP implementation during the ERP adoption process? The research objectives are (1) to identify and describe the influence of the SMEs’ context on their implementation risk exposure, and (2) to understand whether and how, within the adoption process, SMEs actually manage the risk of implementing an ERP system supplied by an ERP vendor, with open source software, or through in-house development. In order to do so, four case studies of SMEs having implemented an ERP system were undertaken. The study shows that to manage risk at the adoption stage, SMEs can proceed in a rather intuitive, informal and unstructured manner, that is explicitly based however upon an architecture of basic principles, policies and practices.

Country Environments and the Adoption of IT Outsourcing

Research on information technology (IT) outsourcing adoption has been confined to a single-country perspective. The understanding of how country-specific variables influence the adoption of IT outsourcing is limited. This study uses new institutional economics to build a framework that links country-level factors to the adoption of IT domestic outsourcing. The authors suggest that country-level factors, such as the maturity of the IT-related legal system, social trust, uncertainty avoidance, Internet penetration, and the maturity of the IT outsourcing market, affect the opportunism costs and coordination costs involved in domestic IT outsourcing and influence its adoption among firms. The results show that the maturity of the IT-related legal system, social trust, and the maturity of the IT outsourcing market are positively associated with IT outsourcing adoption. The authors conclude the paper with a discussion of the study’s implications for practice and future research.

Conceptual Issues in Services Offshoring Research: A Multidisciplinary Review

Offshoring has emerged as an important economic and social phenomenon that has generated intense interest from practitioners, the popular media, and policy makers. In addition, there is a nascent but rich research literature on offshoring developing in management, international business (IB), and related fields. In this review, we survey and integrate offshoring literature from several disciplines and draw implications of this review for management and IB research. We conclude that offshoring may challenge some aspects of established management and IB theory or require revision and/ or modification of those theories. We adopt a multilevel coevolutionary perspective as one potential integrative approach to offshoring research and identify important future areas for further enrichment of this emerging area.