Vendor vs. Client Risks in Outsourced IT Projects: An Agency Theory Perspective

Vendor vs. Client Risks in Outsourced IT Projects: An Agency Theory Perspective

Hazel Taylor (University of Washington Seattle, USA)
DOI: 10.4018/978-1-60566-138-4.ch017
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As outsourced and multinational IT projects become more common, managing risks for these projects is increasingly important. The research reported here examined key risks identified by Hong Kong vendor project managers working on both local and international package implementation projects. In addition to the typical risks that threaten project outcome success, respondents noted additional client- side and vendor-side risks, as well as location-specific risks on their multinational projects. They also distinguished threats to the satisfactory process of the project, and threats to their own firms from competitors and from potential damage to their reputation arising from customer dissatisfaction with either the outcomes or the process of the project. This broader risk focus of vendor project managers is contrasted with the client perspective through the lens of agency theory. Traditionally, agency theory has been used to predict risks to the client-principal related to vendors’ profit goals in the outsourcing relationship. However, the findings of this study suggest that vendors’ higher-level concerns for their future business and reputation mitigate the risk to the client of vendor opportunistic behavior.
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For over 30 years, reports about problems with IT projects have appeared regularly in the popular and academic literature including several well-publicized major failures (Drummond, 1996; Lyytinen, Mathiassen, & Ropponen, 1998). During this period there has also been a steady flow of advice in both the academic and practitioner literature on IT project management, development methodologies, and risk management techniques. Risk management practice has been identified as one critical factor of the success of IT development projects (Barki, Rivard, & Talbot, 2001; Boehm, 1991; Charette, 1996; Fairley, 1994; Heemstra & Kusters, 1996; Schmidt, Lyytinen, Keil, & Cule, 2001). A significant stream of research has focused on identifying risk factors for IT projects in order to aid managers in making decisions about risk mitigation in their software development projects (see, for example: Alter, 1996; Baccarini, Salm, & Love, 2004; Barki, Rivard, & Talbot, 1993; Barki et al., 2001; Boehm, 1991; Cooke-Davies, 2002; Keil, Cule, Lyytinen, & Schmidt, 1998; Moynihan, 1996; Schmidt et al., 2001). These studies have included surveys of managers from a variety of cultures, including Australia (Baccarini et al., 2004), Canada (Barki et al., 1993), Europe (Cooke-Davies, 2002), Ireland (Moynihan, 1996), and the US, Finland, and Hong Kong (Schmidt et al., 2001), and show substantial commonality of risk perspective across cultures.

While the body of work on risks in IT projects is extensive, the success rate for these projects continues to be poor (Standish Group, 2003). One increasingly popular risk mitigation option for organizations is the outsourcing of development and implementation of IT projects (Lacity & Willcocks, 1998; Levina & Ross, 2003; Willcocks, Lacity, & Kern, 1999), either by contracting specialist software development firms to build custom information systems, or by purchasing off-the-shelf software packages, typically with some customization to fit the client’s needs (Lacity & Willcocks, 1998; McFarlan & Nolan, 1995; Natovich, 2003; Rao, 2004; Russo, 2000). Software package projects are especially interesting in the context of IT risk management practice, in that their use is claimed to ameliorate or avoid many of the risks to client organizations associated with custom developments (Lassila & Brancheau, 1999; Martin & McClure, 1983). Such outsourced projects, which can be within country or offshore (Rao, 2004), offer the benefits of risk transference, cost reduction and improved performance (Clark Jr., Zmud, & McCray, 1995; Lacity & Willcocks, 1998; Loh & Venkatraman, 1995; Natovich, 2003).

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Associate Editors
Table of Contents
M. Gordon Hunter, Felix B. Tan
M. Gordon Hunter, Felix B. Tan
Chapter 1
Alexander Y. Yap
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A Composite Model for E-Commerce Diffusion: Revisited
Chapter 2
Robert M. Davison, Yuan Li, Carol S.P. Kam
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Web-Based Data Collection in China
Chapter 3
Jaymeen R. Shah
Privacy laws for the Internet are difficult to develop and implement domestically and internationally. A clear problem is how such laws are limited... Sample PDF
Privacy Protection Overseas as Perceived by USA-Based IT Professionals
Chapter 4
Hongxin Zhao, Seung Kim, Taewon Suh, Jianjun Du
This study attempts to examine empirically how social institutional factors relate to Internet diffusion in 39 countries. Based on nine-year... Sample PDF
Social Institutional Explanations of Global Internet Diffusion: A Cross-Country Analysis
Chapter 5
Somya Joshi, Michael Barrett, Geoff Walsham, Sam Cappleman
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Balancing Local Knowledge Within Global Organisations Through Computer-Based Systems: An Activity Theory Approach
Chapter 6
Kevin K.W. Ho, Byungjoon Yoo, Seunghee Yu, Kar Yan Tam
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The Effect of Culture and Product Categories on the Level of Use of Buy-It-Now (BIN) Auctions by Sellers
Chapter 7
Shirish C. Srivastava, Thompson S.H. Teo
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A Framework for Understanding Returns from E-Government
Chapter 8
Juan Juan Zhang, Sang-Yong Tom Lee
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A Time Series Analysis of International ICT Spillover
Chapter 9
William Wresch, Simon Fraser
Studies summarized by the United Nations Commission on Trade and Development continue to show that Small and Medium Enterprises (SMEs) in developing... Sample PDF
Technological Hurdles to Caribbean E-Commerce: Responses by Innovative Managers
Chapter 10
Robert M. Davidson, Carol S.P. Kim, Maggie Y. Li, Yuan Li, Carol X.J. Ou
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Web-Based Surveys in China
Chapter 11
David Gefen, Tsipi Heart
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On the Need to Include National Culture as a Central Issue in E-Commerce Trust Beliefs
Chapter 12
Steven Hornik
The horizontal and vertical dimensions of individualism and collectivism are an important characteristic of cultures. These dimensions have many... Sample PDF
Culture's Impact on Technology Mediated Learning: The Role of Horizontal and Vertical Individualism and Collectivism
Chapter 13
Tamara Dinev, Massimo Bellotto, Paul Hart, Vincenzo Russo, Ilaria Serra, Christian Colautti
The study examines differences in individual’s privacy concerns and beliefs about government surveillance in Italy and the United States. By... Sample PDF
Internet Users' Privacy Concerns and Beliefs About Government Surveillance: An Exploratory Study of Differences Between Italy and the United States
Chapter 14
Shaobo Ji, Qingfei Min, Weihe Han
The purpose of this study is to review current research activities concerning information systems (IS) in mainland China. We thus examined Chinese... Sample PDF
Information Systems Research in China: An Empirical Study
Chapter 15
John Lim
Two seemingly disparate phenomena, advancement in computing technologies and rise in complexity of business negotiations owing to globalization... Sample PDF
A Study in the East Asian Context on Computer Support of Pre-Negotiation and Negotiation Stages
Chapter 16
Sang-Woo Lee, Myeong-Cheol Park, Dan J. Kim
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Mobile Number Portability in an Asymmetric Telecommunications Market: Korea Case
Chapter 17
Hazel Taylor
As outsourced and multinational IT projects become more common, managing risks for these projects is increasingly important. The research reported... Sample PDF
Vendor vs. Client Risks in Outsourced IT Projects: An Agency Theory Perspective
Chapter 18
Susan K. Lippert, John A. Volkmar
Research to date on information technology (IT) adoption has focused primarily on homogeneous single country samples. This study integrates the... Sample PDF
Cultural Effects on Technology Performance and Utilization: A Comparison of U.S. and Canadian Users
Chapter 19
Thompson S.H. Teo
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Basic vs. Advanced Modes of Internet Adoption: A Singapore Perspective
Chapter 20
Clive Sanford, Anol Bhattacherjee
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IT Implementation in a Developing Country Municipality: A Sociocognitive Analysis
Chapter 21
Susan A. Sherer
This article investigates IT investment management processes in the U.S. and Portugal. In Portugal compared to the United States, we find less... Sample PDF
Comparative Study of IT Investment Management Processes in U.S. and Portugal
Chapter 22
Ruey-Lin Hsiao
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Chapter 23
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Chapter 24
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