Sourcing, Risk and the Financial Market

Outsourcing has become a commonly accepted alternative of strategic management. But how do stockholders rate the corporate decision to divest parts of the former business? We study the stock market reaction of outsourcing announcements of the global financial services industry, using event study methodology and multivariate cross-sectional regression analysis. We analyze a sample of 162 outsourcing transactions between 1997 and 2004 in order to investigate the drivers of excess returns to shareholders of outsourcers and insourcers in the global financial services industry. The analysis studies the impact of independent variables, the driving factors. Our findings indicate that many of these factors have significant explanatory power, indicating that capital market’s reaction to an outsourcing announcement might at least partly be forecasted. Partnering with experienced service providers significantly benefits the outsourcer. Evidence indicates that insourcers significantly benefit from large deals and transactions relating to traditional IT processes

The Risks of Sourcing Software as a Service – An Empirical Analysis of Adopters and Non-Adopters

Software-as-a-Service (SaaS) is said to become an important cornerstone of the Internet of Services. However, while some market research and IT provider firms fervently support this point-of-view, others already conjure up the failure of this on-demand sourcing option due to considerable risks associated with SaaS. Although there is a substantial body of research at the intersection of traditional and on-demand IT outsourcing and risk management, existing research is virtually silent on analyzing the risks of SaaS. This study thus seeks to deepen the understanding of a comprehensive set of risk factors affecting the adoption of SaaS and discriminates between SaaS adopters and non-adopters. Grounded in perceived risk theory, we developed a research model that was analyzed with survey data of 379 firms in Germany. Our analysis revealed that security risk was the dominant factor influencing companies’ overall risk perceptions on SaaS-based sourcing. Moreover, we found significant differences between adopters’ and non-adopters’ perceptions of performance and financial risks. Overall, this study provides relevant findings that potential and actual SaaS clients may use to better assess SaaS-based offerings. For SaaS providers, our study gives important factors to emphasize when offering SaaS services to companies in different stages of the technology adoption lifecycle

Outsourcing information systems: Drawing lessons from a banking case study

Financial and costs benefits are often put forward as the reasons why organisations decide to outsource. Emerging patterns and trends indicate that today’s outsourcing decisions are often motivated by factors other than cost. Thus, the decision-making process is more complex than it may at first appear. This paper presents findings from a case study from an organisation in the UK banking sector that was motivated to outsource aspects of its information technology/information system (IT/IS). The underlying motives and decision-making process that influenced the bank outsource its IT/IS are presented and discussed. Findings from the case study suggest political perspectives, as well as human and organisational issues influenced the bank’s strategic decision-making to outsource certain aspects of its business. An examination of the case study findings suggests that cost alone is not always responsible for decisions to outsource, as it was found the bank’s outsourcing decision was driven by a series of complex, interrelated motives in a bid to reduce the risks and uncertainties of managing its own technology. Considering the complex nature of the outsourcing process a frame of reference that can be used to assist managers with their decision to outsource IT/IS is propagated. The case study is used to present an organisation’s experiences as to how and why it decided to outsource its IS and thus offers a learning opportunity for other organisations facing similar difficulties. In addition, the case study findings highlight the need to focus greater attention on discriminating between the short and long-term consequences of IT/IS decision-makin

The offshoring of financial services : a reassessment

Operating in increasingly competitive market environment, financial services companies are engaged in international re-engineering of business processes mirroring developments in manufacturing over the past four decades. Drawing upon interviews conducted with senior managers and partners from two leading international banks, a multinational 'consumables' provider and a leading finance consultancy, as well as extensive published surveys, we examine the distinctive 'anatomy' of offshoring in financial services, and industry which also manifests a high degree of geographical concentration for 'higher order' functions. We conclude that the reality of process re-engineering in the sector has frequently failed to meet business objectives, and has run the risk of creating 'backlash' from employees in both home and host environments

Feeding Ourselves Thirsty: How the Food Sector is Managing Global Water Risks

The global food sector faces extraordinary risks from the twin challenges of water scarcity and water pollution. Growing competition for water, combined with weak regulations, failing infrastructure, pollution and climate change impacts threaten the sector's water security and contribute to a water availability emergency that was recently ranked the world's "top global risk" by the World Economic Forum.This report examines how water risks affect the profitability and competitive positioning of 37 major food sector companies in four industries: packaged food, beverage, meat and agricultural products. It evaluates and ranks these companies -- the majority of which are U.S. domiciled and publicly-traded -- on how well they are positioned to anticipate and mitigate these risks, as well as contribute to improved water resource management.The report provides recommendations for how analysts and investors can effectively evaluate food sector companies on their water risk exposure and management practices. It also provides recommendations for how food companies can improve water efficiency and water quality across their operations and supply chains to reduce risks and protect water resources

Procurement and Predation: Dynamic Sourcing from Financially Constrained Suppliers

This paper studies the interaction between financially constrained and financially strong firms on a procurement market. It characterizes and discusses a procurement agency’s optimal response when faced with financially asymmetric firms. By considering a dynamic setting, both present and future consequences and incentives are taken into account

Socio-Economic Sourcing: Benefits of Small Business Set-Asides in Public Procurement

Purpose Small businesses are critical to economic health and encouraged in government spending by set-asides – annual small business sourcing goals that often are not attained. Little research has explored the negative and risky stigmas associated with small business sourcing. Design/methodology/approach This research explores reduced transaction costs of small business sourcing to government buyers. A survey of 350 government source selections reveals lower transaction costs derived from lower perceived risk of receiving a bid protest and via more efficient source selection processes. Findings Contrary to common bias, the performance level of small businesses is no less than that of large business. Thus, small businesses engender lower transaction costs for correcting supplier’s performance. On the basis of these findings, managerial and theoretical implications are discussed

Supply chain risks: an automotive case study

The supply chain is a complex system exchanging information, goods, material and money within enterprises, as well as between enterprises within the value chain. An effective supply chain management contributes to large corporate profits and it is therefore a valid path to reinforce the enterprises' competitiveness. However, supply chain is exposed to influences from undesirable factors both from the outside environment and the entities in the chain. Moreover, industrial trends towards lean production, increasing outsourcing, globalisation and reliance on supply networks capabilities and innovations, increase the complexity of the supply chain . Therefore, managers need to identify, and manage risks, as well as opportunities, from a more diverse range of sources and contexts. This paper contributes to identify and categorise supply chain risks based on a literature study and an automotive manufacturer’s viewpoint. The empirical results indicate suppliers and raw material prices as the major internal and external potential risks

Is venture capital a local business? : A test of the proximity and local network hypotheses

Venture capital (VC) investment has long been conceptualized as a local business , in which the VC’s ability to source, syndicate, fund, monitor, and add value to portfolio firms critically depends on their access to knowledge obtained through their ties to the local (i.e., geographically proximate) network. Consistent with the view that local networks matter, existing research confirms that local and geographically distant portfolio firms are sourced, syndicated, funded, and monitored differently. Curiously, emerging research on VC investment practice within the United States finds that distant investments, as measured by “exits” (either initial public offering or merger & acquisition) out-perform local investments. These findings raise important questions about the assumed benefits of local network membership and proximity. To more deeply probe these questions, we contrast the deal structure of cross-border VC investment with domestic VC investment, and contrast the deal structure of cross-border VC investments that include a local partner with those that do not. Evidence from 139,892 rounds of venture capital financing in the period 1980-2009 suggests that cross-border investment practice, in terms of deal sourcing, syndication, and performance indeed change with proximity, but that monitoring practices do not. Further, we find that the inclusion of a local partner in the investment syndicate yields surprisingly few benefits. This evidence, we argue, raises important questions about VC investment practice as well as the ability of firms to capture and lever the presumed benefits of network membership

A model for assessing the impact of electronic procurement forms

This paper aims to contribute to the development of a model for assessing the direct and indirect impact of various forms of electronic procurement (EP) on a firm¿s integral purchasing (-related) costs. The model builds on existing classifications of purchasing costs and benefits and is illustrated by means of a number of empirical cases