Chapter 8 Discussion, conclusion and future research
8.3. Future Research
Our research has its limitations and future research needs to address them. First, the study focused on the choice of sourcing mechanism and the choice of contract types and assumed firms’ rationality that analyzes benefits/costs based on process characteristics and makes optimal choices. Reported high failure rates of domestic and offshore outsourcing projects indicate that firms may not make completely rational decisions predicted by theories. If we have performance data, we could validate the choice function by looking at the performance implications of choice. If a decision is made on the rational choice of a sourcing mechanism that best fits characteristics of a given business process, it would minimize overall costs, and hence, positively influence the performance of the process. Evidence of positive performance implications of correct choice in turn strengthens our theory of choice. Thus there is a need to extend this study to include a second-stage performance analysis of sourcing choices.
Second, we made an assumption that firms would like to modularize the process if the process is low in modularity. That is, firms always want to have modularization tasks done when they identify that the process is not modular. Though our analysis and results show consistency with the assumption, it would be ideal that we can have measurements to verify this assumption.
Third, when characterizing sourcing mechanisms, we equal domestic outsourcing to large mature US vendors and offshore outsourcing to relatively small immature vendors in developing countries. Although our data validates such simplification, the generalization should be interpreted carefully. Our value proposition analysis of domestic and offshore vendors is based on this simplification. We made some assumptions for
vendors’ value proposition. Though our argument that domestic vendors exploit value from standardization and scale and offshore vendors are willing to adapt to firms requirements and offer modularization services are based on theoretical analysis and observed facts, it might be ideal that we can validate this assumption with empirical data.
This requires a vendor side survey in addition to client perception.
Fourth, our sample size (N=93) for the choice of sourcing mechanisms need to be improved to consistently estimate an MNL model with four-category dependent variable and a dozen of independent variables. Although we are confident in the validity of our results after a thorough list of robustness checks, it will never be more cautious to consider the limitation of sample size when generalizing the findings of a study. Also since this study is the first one to look at the impact of business process characteristics on the choice of sourcing mechanisms, our exploratory results need to be supported with rigorous future research with. In addition, the imbalance of offshore insourcing cases in our sample refrain us from developing and testing hypotheses related to this choice. We expect future research with larger sample sizes to address these limitations.
Fifth, the sample for the choice of contract types raises some concerns as well.
We combined the sample from two stages. Although test results showed no significant difference between the two stage samples, it would still be ideal that we achieved the sample at the same stage because BPO phenomenon keeps evolving over time. Also the percentage of missing data is not small because of variables coordination and negotiation costs have more missing values than other variables. The design the survey may account for the significant missing of the two variables. Thus there will still be much need for a more refined dataset to address these limitations.
Sixth, the measurement model of ITD needs improvement. We accepted the two-item model based on less restrict criteria for new construct. Nevertheless, we recognize our limitation on the factor. Moreover, the rich theoretical implications of process modularity and ITD calls for conceptualization and validation of more comprehensive dimensionality of the two constructs. For instance, process modularity can have dimensions in information, people and resources. ITD can describe the detachability from hardware, software and communications perspectives. Future research can enrich the dimensions of the constructs and/or apply the constructs to broader questions of digitally enabled enterprises.
Seventh, due to the limitations of MNL model itself, we cannot make any conclusive suggestions about absolute changes of probability to choose each sourcing mechanisms when business process characteristics change. The hypotheses have to be made about the impact of modular characteristics on the likelihoods of selecting one sourcing mechanism relative to another one. Although this does not affect the theoretical significance of modular characteristics, it may be difficult for firms to make direct inference to our research for decision among four sourcing mechanisms. Future research may explore
Finally, the contract types have been simplified into three types in this study because the fundamental structures of most contracts are variants of the three types.
However, contracts in real world are more complicated than this simple categorization.
We derived the differences between the contracts mainly from the literature. Since BPO is a relatively new phenomenon, there might be new features have been introduced into
contracting. If possible, future research should study the micro features of a contract and analyze how these features address firms’ concerns of outsourcing.
Table 1: TCE-based papers and measurements
Monteverde, K. and D. J. Teece (1982). "Supplier switching costs and vertical integration in automobile industry." Bell Journal of Economics 13(1): 206-213.
make or buy of automotive
component Not measured
Engineering effort specific to the assembler
Walker, G. and D. Weber (1984). "A transaction cost approach to make-or-buy decisions." Administrative Science Quarterly 29: 373-391.
Pisano, G. P. (1990). "The R&D boundaries of the firm: an empirical
analysis." Administrative Science Quarterly 35: 153-176. make or buy of R&D Not measured
number of suppliers, number of rivals
Anderson, E. (1985). "The salesperson as outside agent or employees: a transaction cost analysis." Marketing Science 4: 234-254.
Anderson, E. and A. T. Coughlan (1987). "International market entry and expansion via independent or integrated channels of
distribution." Journal of Marketing 51(1): 71-82.
make or buy of international
distribution channels Not measured
Specificity of assets, Specificity of service requirements
Erramilli, M. K., and Rao, C. P. (1993). "Service Firm's Entry-Mode Choice: A Modified Transaction Cost Analysis Approach." Journal of Marketing 57: 19-38.
choice of entry mode of service firms: full control vs.
shared control Not measured Asset specificity
Gulati, R. and H. Singh (1998). "The architecture of cooperation:
managing coordination costs and appropriation concerns in strategic alliances." Administrative Science Quarterly 43: 781-814.
Gatignon, H., and Anderson, E. (1988). "The Multinational Corporation's Degree of Control Over Foreign Subsidaries: An Empirical Test of a Transaction Cost Explanation." Journal of Law, Economics, and Organization 4: 305-306.
Kishore, R., M. Agrawal, et al. (2004). "Determinants of Sourcing During Technology Growth and Maturity: An Empirical Study of e-Commerce Sourcing." Journal of Management Information Systems 21(3): 47-82.
e-Commerce sourcing modes: hierarchical, hybrid,
market Not measured Project complexity
Table 1 TCE-based papers and measurements
Table 2: Profiles of responding firms
Table 3: Constructs, measurement items and supporting literature for the choice of sourcing mechanisms
Table 4: Measurement Properties of constructs for the choice of sourcing mechanisms
Table 5: Descriptive statistics and correlation for the choice of sourcing mechanisms
Table 6: MNL results for the choice of sourcing mehanisms
Table 7: Comparing different contract types
Table 8: Construct definitions, measurement items and supporting literature for the choice of contract types
Table 9: Measurement properties of constructs for the choice of contract types
Table 10: Descriptive statistics and correlations for the choice of contract types
Table 11: Results from first stage OLS regression for the choice of contract types
Table 12: Results from the ordered probit model for the choice of contract types
Table 13: Results from the selection function – MNL model of the choice of sourcing mechanisms
Figure 1: Process Maturity
Figure 2: Modular proceses coupled with IT infrastructure
Figure 3: Non-idiosyncractic IT infrastructure – processes transferrable among IT platforms
Figure 4: Portable IT infrastructure: Service-Oriented Achitechture
Figure 5: Impact of business process characteristics on the probability of selection of
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Vita
Ling Ge was born in China on Jan1976, the daughter of Zhenfang Qin and Guoqi Ge. She received a master’s degree in Computer Science in 2001 from National University of Singapore, Singapore and a bachelor’s degree in Business Administration in 1997 from Renmin University of China, Beijing, China. She joined the Ph.D.in Management Information Systems at the University of Texas at Austin in August 2001.
Ling Ge was born in China on Jan1976, the daughter of Zhenfang Qin and Guoqi Ge. She received a master’s degree in Computer Science in 2001 from National University of Singapore, Singapore and a bachelor’s degree in Business Administration in 1997 from Renmin University of China, Beijing, China. She joined the Ph.D.in Management Information Systems at the University of Texas at Austin in August 2001.