Governance Methods Used in Externalizing Information Technology

Information technology (IT) is the largest capital expenditure in many firms and is an integral part of many organizations\u27 strategies. However, the benefits that each company receives from its IT investments vary. One study by Weill (2004) found that the top performer in the sample was estimated to have as high as a 40 greater return on its IT investment than its competitors. To expedite the progress toward getting better value from IT investments, along with the need to deal with the increasing complexity and expense of IT, a growing number of companies are turning to outside service providers to develop and/or manage various aspects of their information systems. The governance methods used by firms to maintain control over the quality, services, and cost of IT outsourcing are the focus of this dissertation.Previously in the literature, researchers have looked into the phenomenon of outsourcing from various perspectives. However, existing literature has not constructed or proposed an outsourcing model that examines the important moderating impact of internal technical capabilities to governance mechanisms. Building on existing literature related to IT outsourcing, this dissertation examines governance mechanisms that were used by firms to maintain control over the quality, services, and the cost of outsourcing of IT in order to identify their contribution to the success of IT outsourcing initiatives from the perspective of managers whose companies have engaged in IT outsourcing. In this dissertation, a research model was developed, and through an on-line survey instrument, data were collected from the members of the Information Systems Community of Practice in the Project Management Institute. The findings showed that the following governance mechanisms had positive impact on managerial perceptions of IT outsourcing success: (1) Financial commitment in the form of dedicated asset-specific investments and (2) attitudinal commitment. This study also confirms the moderation effect that firm technological capab

Essays into Firms, Innovation and Productivity

This empirical research aims to understand firm-level innovation and productivity in the context of firm’s innovative activities or international activities such as offshoring and exporting. The PhD dissertation consists of three chapters that use the Survey of Business Activities annually provided by the Statistics Korea to gain insights into the link between such activities and firm performances such as markup or productivity. Chapter 1 investigates the link between R&D and firm-level markups. A detailed data on R&D expenditures is used to examine whether a firm’s innovation activities have any impact on its markups rather than productivity, whose relationship is already well-established in the literature. R&D is likely to help to differentiate a firm’s products from those of other competitors, thus boosting its demand. However, this demand-enhancing aspect of R&D has not been thoroughly examined in the literature. With the consistent estimation of firm-level markups using a dataset of the Korean manufacturing firms, it is found that R&D increases firm-level markups, despite its size being small. To account for the fact that R&D is simply a measure of the innovation input, patent counts have been used as an alternative measure of innovation, but no evidence of positive effect was found. This may indicate that demand-enhancing innovations are not necessarily all patented, which may be due to various reasons. Chapter 2 investigates the learning-by-exporting hypothesis. This has been widely researched in the current literature. However, this chapter places more focus on the estimation of productivity, which has been given little attention. In the learning-by-exporting hypothesis, it is theoretically suggested that productivity increases as a result of increase in efficiency. However, the conventional total factor productivity (TFP) measure contains information not only on efficiency but also on measurement errors and temporary shocks, the latter of which is hardly related to the theoretical link between exports and productivity. In this chapter, a real total factor productivity that is derived as part of the semi-parametric estimation (denoted RTFP) is suggested as an alternative measure in which the latter elements above can be minimised. The findings show that, when RTFP is employed, the-learning-by-exporting effect is not only positive but also significant and long-lasting. However, this effect becomes short-lived and insignificant when the TFP is used. This does not necessarily suggest that the learning-by-exporting effect is better captured with the RTFP, but a certain measure, despite being not so relevant for productivity, can end up providing a misleading result. Moreover, the markups measure obtained from the first chapter are used to reconcile the fact that the productivity measure is measured by revenue data rather than quantity. Chapter 3 examines the firm-level productivity, with much focus on offshoring. This chapter suggests modification to the Levinsohn-Petrin (LP) method to ensure alignment with the context of offshoring. This chapter suggests that value-added be used in place of gross sales when estimating a production function using the LP method to avoid inconsistent estimation in the second stage. The results show that offshoring has a positive impact on productivity, but the effect is not long-lasting. This suggests that offshoring can enhance productivity in the short-term by a composition effect in which resources are reallocated towards more productive activities or departments, whilst offshoring less productive ones to foreign vendors. The results also show that the modifications generate a significant difference in the estimators, suggesting the possibility of misleading results if no modification is made. RTFP, introduced in the second chapter, is also employed as a dependent variable and the results again display a highly significant effect of offshoring on productivity. As will be explained in the second chapter, RTFP is more fitting in measuring the trend of productivity, as it is designed to be less influenced by transitory shocks or measurement errors. Thus, the change in results indicates that the productivity-enhancing effect is clearer when using RTFP, however becomes less so when the conventional measure is employed. Moreover, the same estimates of markups from the first chapter are employed again to mitigate any bias arising from the demand-side

what do we know and need to know?

This paper presents a review of existing theoretical perspectives and empirical work on strategic IT outsourcing. By presenting the main findings of various recent studies and elaborating on current research gaps it conveys a picture of the past research, the present findings and the future applications of IT outsourcing. Prior research has generated theoretical insights and largely qualitative evidence on IT outsourcing. While quantitative studies remain sparse, limited to decisionmaking and performance, there is a lack of quantitative empirical research examining outsourcing processes more comprehensively. This paper outlines a simple, yet integrative process model and develops propositions, which serve to integrate and compare theoretical strands, to evaluate existing empirical research and to stimulate new avenues of empirical research

Outsourcing and structural change: shifting firm and sectoral boundaries

The paper aims at investigating the structural change implications of outsourcing. In trying to bridge the organizational/industrial and the sectoral/structural analysis of outsourcing, it discusses the rational and the methodological pros and cons of a “battery” of outsourcing measurements for structural change analysis. Their functioning is then illustrated through a concise application of them to the OECD area over the ’80s and the early ’90s. A combined used of them emerges as recommendable in checking for the role of outsourcing with respect to that of other structural change determinants

Strategic IT Partnerships in Transformational Outsourcing as a Distinctive Source of IT Value: A Social Capital Perspective

Firms increasingly acquire needed information technology (IT) products and services from external sources through the formation of partnerships. In spite of the ubiquity of IT outsourcing practice in today's organizations however, theoretical understanding of IT partnerships in outsourcing is limited. Extant research has largely focused on the economic or strategic aspects of IT outsourcing, using transaction cost economics (TCE) and the resource-based view (RBV) as dominant theoretical frameworks. This dissertation adopts a social perspective to examine the IT outsourcing phenomenon. It focuses on IT partnerships in transformational outsourcing relationships that are interorganizational engagements formed to rapidly and substantially improve performance at the organizational level. By synthesizing the knowledge based view of the firm with the concept of social capital, I attempt to explain how IT outsourcing relationships generate value for organizations. I argue that IT outsourcing partnerships constitute a form of social capital for the firm that chooses to outsource, that facilitates knowledge exchange and transfer. The increased knowledge stock as a result of knowledge exchange and transfer, in turn, forms the foundation for IT value, which is manifested as success in business operations and IT-enabled innovation. To empirically test the theoretical model, I surveyed 151 client firms and 79 outsourcing service providers in China. Results suggest that both social capital and knowledge acquisition are crucial to the success of IT outsourcing. Evidence from the survey responses also indicates that different aspects of social capital play different roles in the process of IT value creation. Specifically, the structural dimension (partner resource endowment) and the cognitive dimension of social capital (shared vision and shared cognition) have a strong impact on knowledge acquisition; whereas the relational dimensions of social capital (social interaction and trust) has strong direct effects on successful outcomes of IT outsourcing. This study presented evidence that helps further our understanding of the IT outsourcing phenomenon through an alternative theoretical lens, and emphasizes the value other than immediate cost-related benefits that organizations may garner through IT outsourcing partnerships

Gains and pains from the open innovation framework

While firms increasingly adopt open innovation, little is known about whether firms gain or lose from this innovation approach. Motivated by this research gap in the literature, the thesis explores the antecedents and performance implications of open innovation strategies, particularly collaboration and contractual forms of relationships for innovation (i.e. innovation cooperation and R&D outsourcing/external R&D). The thesis is empirical and relates the various results to the data used. The first one with German Community Innovation Survey (CIS), the second one with Danish CIS and the third one with the patent enhanced German CIS. The empirical analyses suggest that a value-enhancing objective rather than a cost-minimization purpose is the main factor that stimulates companies to engage in open innovation strategies. The research also reveals that firms engage in various innovation strategies simultaneously (i.e. international external R&D, innovation cooperation partnerships and internal R&D), but they fail to combine these instruments successfully for product innovation, implying that the single innovation strategy is performing better than combining different knowledge sourcing strategies in open innovation. Furthermore, the thesis provides evidence that sourcing R&D inputs from a domestic R&D provider can be a risky strategy when a firm aims to generate breakthrough product innovations. Instead, the firm should seek to acquire knowledge inputs from international marketplaces. The research also indicates that those firms outsourcing R&D activities are more likely to generate inventions than their counterparts that do not invest in this R&D strategy. However, this positive performance implication of R&D outsourcing does not appear to hold for invention quality

Essays on offshoring, innovation and foreign ownership

This thesis consists of three empirical studies that examine the implications of globalization on both firms and workers. Using data from Peru and Spain, it evaluates the effect of offshoring on labour market outcomes, along with the impact of R&D outsourcing and foreign ownership on innovation. Chapter Two evaluates how South-South offshoring, at the occupational level, affects the labour market outcomes in Peru based on the tasks performed by workers. This effect is assessed by building a continuous measure of routine, manual, and abstract intensive tasks, alongside an indicator of occupational exposure using data from the US O*Net and the Eora Global Supply Chain database, respectively. This chapter finds that Peru offshores routine-manual intensive tasks to other southern countries and specialises in routine-cognitive tasks, increasing the wages of formal and informal workers who perform routine intensive tasks. However, this increase is associated with different transitions across occupations and sectors for the formal and informal workers, providing evidence that these two groups of workers respond differently to offshoring. In addition, the results suggest that there is no relationship between South-South offshoring and the transition from formal to informal markets. However, they confirm that informality prevents displaced informal workers from becoming unemployed. Chapter Three examines the causal relationship between R&D outsourcing and the intensive and extensive margin of R&D based on a theoretical model that explains the firm's decision to outsource as well as the interplay between internal and external R&D. To assess the causal impact of R&D outsourcing on the internal and total R&D investment, this chapter employs a combination of matching methods and difference-in-difference (DID) approach with multiple time periods, using data from Spanish firms. Results suggest that R&D outsourcing positively affects the internal and total R&D investment, indicating a lower elasticity of substitution between both inputs of knowledge. However, the findings differ according to the firm's export status and type of outsourcing (Domestic or international). For the extensive margin, this study employs an empirical analysis at the industry level, finding that in industries where R&D outsourcing is more profitable, fewer firms invest in total R&D. Chapter Four assesses the causal effect of foreign ownership on the probability of innovation cooperation using the same data from Spanish firms as Chapter Three. Furthermore, this chapter differentiates the effect of foreign ownership, both in the context of the global financial crisis (GFC) and in regular economic times. This analysis relies on a matching method technique combined with a triple difference-in-difference (DiDiD) approach. The findings indicate that, on average, foreign-acquired firms are less likely to cooperate in innovation with domestic firms compared to non-acquired firms. However, they exhibit a higher propensity to collaborate on innovation with local partners during periods of crisis

The effects of outsourcing practices conducted by organisations in Nairobi

The purpose of this study is to investigate the relationship between outsourcing and development in Nairobi. The key research question for this study is what are the impacts of outsourcing practices conducted by organisations in Nairobi? Data were obtained from questionnaires distributed in December 2010. A total of 85 profit-making firms in Nairobi with a sample of 165 management employees were selected for this study. The empirical findings obtained relate to four outsourcing theories. Transaction Cost Analysis (TCA) Theory focuses on the cost savings that result from outsourcing. Agency Outsourcing Theory centres on outsourcing firms hiring agents to achieve productivity. Hiring agents may result in permanent staff being retrenched and additional outsourcing personnel being contracted and job creation and/or job loss results. Expectation Confirmation Theory (ECT) emphasises the importance of an outsourcing provider conforming to quality management principles. Resource Based Theory (RBT) proposes that organisations need a collection of resources and capabilities to execute outsourcing successfully. Findings further suggested that outsourcing can yield positive and/or negative outcomes depending on risks encountered, the business environment, company policies, function/s to be outsourced, and the competence and commitment of an outsourcing vendor. To further enhance the positive impact of outsourcing three improvements need to be executed: formulation of standard policies, price regulations, and commitment of outsourcing firms in adhering to set contract deadlines. It is suggested that the following would allow organisations to gain more from outsourcing in the future: the adoption of international/offshore outsourcing practices, more commitment by outsourcing consultants, the standardisation of charges for outsourcing contracts, and the use of new technology that would improve how outsourcing is conducted. It is concluded that the positive impacts of outsourcing would foster development to some extent while the possible negative impact of outsourcing would impede development