IT Outsourcing: Growth, Choice, And Information Asymmetry

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IT Outsourcing: Growth, Choice, And Information Asymmetry

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Worldwide IT outsourcing is currently valued at 991 billion dollars per annum (Gartner 2012). The significant growth in the outsourcing business is attributed to its role in cost savings and strategic risk reduction allowing enterprises to focus on their core competencies. In spite of the volume of IT outsourcing, industry reports suggest that over fifty percent of the IT outsourcing contracts are renegotiated or cancelled. According to these reports while vendor's lack flexibly and provide poor customer service, client's hidden costs in outsourcing contracts lead to contract failure. Further, there exists natural tension in an outsourcing relationship as clients seek a service at lower than the in-house cost and the vendors wants to maximize their profits. Given this natural tension between the client and the vendor, the IT outsourcing vendor must be selected carefully and the outsourcing contract must be designed assiduously. Chapter two of the thesis acknowledges the presence of information asymmetry in IT outsourcing markets and posits insight on the question: "How to choose IT outsourcing vendor in presence of information asymmetry between clients and vendors?" Clients have uncertainty about vendors' capabilities and vendors' have uncertainty about client's requirements. This makes the selection of vendors and contracting for IT outsourcing projects especially challenging. In this chapter we answer this question and present evidence that third party advisors, with their knowledge of client requirements and the vendor capabilities, mitigate the information asymmetry in the IT outsourcing market and improve contract outcomes. Chapter three of the thesis acknowledges that as the size of outsourced IT projects increases, it is likely that one IT vendor does not possess the economy of scale and specialization in all components of the outsourced project. Thus, as outsourced IT projects become larger, clients may involve multiple vendors in a project. This chapter posits insight on the question: "How many vendors should be involved in an IT outsourcing contract?" In other words, which form of outsourcing clients should choose: (i) Single-Sourcing, where the client outsources to one primary vendor, (ii) Single-Sourcing with subcontracting, where the primary vendor involves other/secondary vendors in the project, or (iii) Multi-Sourcing, where the client outsources to multiple primary vendors. While chapters two and three focuses on studying IT outsourcing from the point of view of clients, Chapter four aims at understanding outsourcing from vendor's point of view. This chapter posits insight on the question "What capabilities should vendor develop in order to get selected for IT outsourcing contracts?" It examines how the diversity in the type of projects executed by vendors helps them to develop their capabilities and grow their business.



University of Minnesota Ph.D. dissertation. August 2014. Major: Business Administration. Advisor: Alok Gupta. 1 computer file (PDF); vi, 95 pages.

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Singh, Shweta. (2014). IT Outsourcing: Growth, Choice, And Information Asymmetry. Retrieved from the University Digital Conservancy,

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