The Impact of Firm Learning on Value Creation in Strategic Outsourcing Relationships

Mani, D and Barua, A (2015) The Impact of Firm Learning on Value Creation in Strategic Outsourcing Relationships. Journal of Management Information Systems, 32 (1). pp. 9-38.

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Abstract

AbstractInformation technology (IT) is central to the process execution and management of an ongoing relationship in outsourcing, both of which are fraught with challenges, and often lead to poor business outcomes. Thus, it is important for IT groups in organizations to understand how to deal with such difficulties for improved outsourcing performance. We study whether firms learn over time to deal with these two related but distinct issues in IT and business process outsourcing. Does such learning affect financial value appropriation through outsourcing? We build on the literature in information systems and strategy to investigate whether value creation in outsourcing depends on relational learning that results from prior association with the vendor, and procedural learning that results from prior experience in managing interfirm relationships. We estimate value in terms of long-term abnormal stock returns to the client relative to an industry, size, and book-to-market matched sample of control firms following the implementation of the outsourcing contract. We also analyze announcement period returns and allied wealth effects. Using data from the hundred largest outsourcing deals between 1996 and 2005, we find that whereas relational learning influences value creation in both simple and complex outsourcing engagements, procedural learning impacts value only in complex initiatives. Financial markets are slow to price the value of learning. The results suggest that caution should be exercised when firms without the experience of managing interfirm relationships externalize complex tasks to vendors they have not worked with in the past. Furthermore, IT groups can help improve learning-based outcomes by developing processes and systems that enable a firm to improve outsourcing procedures in a cumulative manner and also to coordinate and collaborate with the vendor.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Mani, Dhttp://orcid.org/0000-0002-2458-6961
Item Type: Article
Uncontrolled Keywords: abnormal returns, business process outsourcing, contracts, financial value, market efficiency, organizational learning, outsourcing
Subjects: Information Systems
Depositing User: Veeramani R
Date Deposited: 11 Oct 2018 15:03
Last Modified: 11 Oct 2018 15:03
URI: http://eprints.exchange.isb.edu/id/eprint/627
Publisher URL: https://doi.org/10.1080/07421222.2015.1029379
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0742-1222/
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