Start Date

12-16-2013

Description

The impact of outsourcing has expanded to include a variety of strategic objectives. Unlike 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’ service offering is customized to meet heterogeneous client needs. However, project management practices that lead to high levels of client satisfaction may be incompatible with the project’s financial performance. Using rich field data on 390 outsourcing contracts, we examine the differential impact of managerial actions - specifically, output controls, activity controls and capability controls - on client satisfaction and profitability. We find that activity controls positively impact client satisfaction and profitability while output controls have a negative impact. We find mixed evidence for capability controls. Our results contribute to control theory and provide actionable insights for vendors to compete efficiently and effectively in services markets.

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Dec 16th, 12:00 AM

Client Satisfaction versus Profitability: An Empirical Analysis of the Impact of Formal Controls in Strategic Outsourcing Contracts

The impact of outsourcing has expanded to include a variety of strategic objectives. Unlike 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’ service offering is customized to meet heterogeneous client needs. However, project management practices that lead to high levels of client satisfaction may be incompatible with the project’s financial performance. Using rich field data on 390 outsourcing contracts, we examine the differential impact of managerial actions - specifically, output controls, activity controls and capability controls - on client satisfaction and profitability. We find that activity controls positively impact client satisfaction and profitability while output controls have a negative impact. We find mixed evidence for capability controls. Our results contribute to control theory and provide actionable insights for vendors to compete efficiently and effectively in services markets.