TRANSACTION COST ECONOMICS AND INDUSTRY MATURITY IN IT OUTSOURCING: A META-ANALYSIS OF CONTRACT TYPE CHOICE

Recent reviews of the information technology outsourcing (ITO) literature report high variance in research results when Transaction Cost Economics (TCE) is used as the analytical framework. Informed by ITO market developments, including increasing commoditisation, market consolidation, and market transparency, we develop an explanation for these mixed results contingent on ITO industry maturity. We adopt meta-analysis to show that ITO industry maturity significantly explains variance in the choice of contract type (time and materials vs. fixed price) in ITO projects. Our results suggest that TCE is relevant to explain the choice of contract type in the emerging phase of the ITO industry, but not in its current mature phase. We conclude that a TCE-based analytical framework is not well suited for the study of ITO in the current mature industry phase. Instead, we propose that an ITO theory should be developed that focuses on differences in client behaviour rather than vendor behaviour

The Role of Transaction Cost Economics in Information Technology Outsourcing Research: A Meta-Analysis of the Choice of Contract Type

Two recent reviews report that the empirical findings in information technology outsourcing (ITO) research are frequently inconsistent with the prevailing dominant analytical framework of transaction cost economics (TCE). While employing similar methodologies, the two reviews propose different strategies to resolve the inconsistencies. One is to improve the methodological rigor, specifically, the operationalization of TCE constructs. The other is to abandon TCE in favor of a new analytical framework. This paper presents a meta-analysis of the empirical findings on the choice of contract type as a function of task uncertainty. The results support both strategies. Refining the operationalization of TCE constructs, specifically of task uncertainty, would have improved the reliability of findings on TCE-based relationships between task uncertainty and the choice of contract type. However, independent of such methodological improvements, TCE is of limited relevance in recent ITO research for predicting the choice of contract type. Generalizing these findings, we conclude that ITO research requires a new analytical framework to further develop the theory of ITO and to provide sound guidance to the ITO industry

Do Vendors Include Transaction Characteristics in Their Risk Estimation? An Empirical Analysis of Erp Projects

Using unique archival data on 81 projects from a major ERP vendor, we study whether transaction characteristics are included in the vendor’s estimation of risk to project profitability. We hypothesize that project size, contract type, strategic importance, and client familiarity are included in the risk estimations. Regression analysis suggests that, surprisingly, vendors do not include all transaction characteristics in their risk estimation: While we found that larger projects and fixed price (FP) contracts are significantly associated with the vendor’s risk estimation, strategic importance and client familiarity are not. Our data set also incorporates data on project profitability that presents us with the opportunity to test the efficiency of the risk estimation. We found that the vendor’s risk estimation is efficient with regard to project size and contract type. Finally, the efficiency analysis also suggests that vendors deliberately accept profitability losses when conducting strategic projects

Do Vendors Include Transaction Characteristics in Their Risk Estimation? An Empirical Analysis of ERP Projects

Using unique archival data on 81 projects from a major ERP vendor, we study whether transaction characteristics are included in the vendor’s estimation of risk to project profitability. We hypothesize that project size, contract type, strategic importance, and client familiarity are included in the risk estimations. Regression analysis suggests that, surprisingly, vendors do not include all transaction characteristics in their risk estimation: While we found that larger projects and fixed price (FP) contracts are significantly associated with the vendor’s risk estimation, strategic importance and client familiarity are not. Our data set also incorporates data on project profitability that presents us with the opportunity to test the efficiency of the risk estimation. We found that the vendor’s risk estimation is efficient with regard to project size and contract type. Finally, the efficiency analysis also suggests that vendors deliberately accept profitability losses when conducting strategic projects