research@hec - Issue #33 - (Page 6)

information systems research hec How to improve performance when managing offshore contracts IT firms increasingly rely on outsourcing the development of information systems overseas, yet an astounding 50 percent of such projects fail to meet client requirements. A study focusing on contract specification and different modes of contract implementation has found ways to improve cost and quality performance. Shirish Srivastava B iography Shirish Srivastava joined HEC Paris in 2008, where he currently teaches courses related to managing information systems. He obtained his PhD from the School of Business at the National University of Singapore in 2008 and, in 2011, attended the International Teachers’ Programme at Northwestern University in the U.S. Outsourcing to distant countries used to be about tapping into the lower costs and specialized skills of foreign labor markets, such as by making textiles in Bangladesh and electronic parts in Taiwan or Singapore. Now, with new information technologies and the digitization of the economy, it has become increasingly common to outsource services as well, including the development of information systems. India in particular, with Bangalore as its Silicon Valley, has become the leading destination for such projects, catering to nearly 60 percent of global requirements for offshore information systems development. And yet, an astounding 50 percent of such projects fail outright or do not meet client requirements. However, HEC researcher Shirish Srivastava noticed that the rate of failure was going down in the U.S., which is a more mature market than France for offshore development, and turned to control theory to analyze this improvement in performance. DISTINGUISHING CONTROL MECHANISMS It is through the exercise of control that companies can motivate vendors to deliver applications that meet the needs of their clients. HEC’s Shirish Srivastava worked alongside the National University of Singapore’s Thompson Teo to fill in what they 6 • May-June 2013 saw as gaps in existing control theory. While the academic literature had already examined formal and informal modes of control (such as contracts, shared norms, and so on), the two co-authors sought a more nuanced understanding of control. They described the process mechanisms at work within different modes of control; i.e., how the control is enacted as opposed to what control is used. Almost all outsourced client-vendor relationships function under the broad framework of a formal contract (the structural control mechanism), which defines the type of work expected, the delivery date, and so on. The contract may go into great detail or not, but the involved parties choose how closely they will follow its specifics. If it is implemented to a tee, then the contract governance is mechanistic. If the parties instead rely on mutual trust to deal with operational situations as they emerge, then the mechanism is one of relational governance. In that case, if for example the project is delayed, says Shirish Srivastava, then client and vendor negotiate to potentially charge less or extend the deadline. In other terms, the contract may go into great detail, but the parties can choose to implement it selectively. “It’s a very simple idea, but it had not yet been conceptualized and examined in the academic literature,” adds the researcher.

Table of Contents for the Digital Edition of research@hec - Issue #33

Cover & Contents
Trust and financial markets: Lessons from the Madoff fraud
How employees use performance-based incentives for personal gain
How to improve performance: when managing offshore contracts

research@hec - Issue #33