Abstract
The reach and impact of outsourcing is growing fast to include a variety of strategic objectives. Unlike in transactional outsourcing, where the vendor leverages scale economies to provide standardized services at reduced costs of ownership, client satisfaction in strategic outsourcing is contingent on the extent to which the vendor’s service offering is customized to meet heterogeneous, unique client needs. However, project management practices that lead to high levels of client satisfaction may be incompatible with the project’s financial performance. In this study, we investigate how managerial actions differentially impact project profitability and client satisfaction. Using rich field data on 390 strategic outsourcing contracts, we examine the differential impact of output controls, activity controls and capability controls on client satisfaction and contract profitability. We find that activity controls are positively associated with client satisfaction and profitability; in contrast, our results present mixed evidence for capability controls, and negative impact for output controls. In addition to contributing to research in control theory, our results provide actionable insights for vendors into appropriate strategies and tactics for competing efficiently and effectively in services markets.
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Notes
- 1.
We also checked for the presence of common-method bias through Harman’s single-factor test (Podsakoff and Organ 1986). All of the variables in our study were simultaneously subject to an exploratory factor analysis, and the results of the unrotated factor solution were examined. The absence of a single factor that explained a significant amount of variance in the data suggested that common method bias did not likely impact survey responses. We also used Cronbach’s alpha to check the reliability of constructs.
- 2.
Model 1–4 shows a negative but insignificant effect of use emerging market centers for delivery of strategic sourcing projects, and model 5 shows a negative and significant effect.
- 3.
We find that neither the number of service level agreements nor the number of service level objectives has any significant effect on service satisfaction or on financial performance in Models 1–4.
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Langer, N., Mani, D., Srikanth, K. (2014). Client Satisfaction Versus Profitability: An Empirical Analysis of the Impact of Formal Controls in Strategic Outsourcing Contracts. In: Hirschheim, R., Heinzl, A., Dibbern, J. (eds) Information Systems Outsourcing. Progress in IS. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-43820-6_4
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