Extra subject: IT Outsourcing (ITO) - The ITO theories (TCE/ TCT)
3 important questions on Extra subject: IT Outsourcing (ITO) - The ITO theories (TCE/ TCT)
Describe the most widely- used outsourcing theory "Transaction Cost Economics/ Theory" (TCE/ TCT)
- It provides the best decision-making tools in order to assist organizations in deciding which of their operations should be outsourced.
- Helps to prepare for decisions on implementing the necessary organizational changes arising from outsourcing
- It can be used for the analsysis and selection of outsourcing contracts, which are often of great complexity.
TCT posits that there are several characteristics (3) of a given transaction - or activity - that determine the appropriate type of governance structure (insourcing VS outsourcing) for the transaction. What are these 3 characteristics?
1. Asset specificity: second- best use of a transaction. Degree to which the assets used to conduct an activity can be redeployed to alternative uses and by alternative users without sacrifice of productive value.
2. Frequency: repetitiveness of a transaction. The level of recurrence of the activities needed by the firm for the transaction.
3. Uncertainty surrounding the transaction. Environmental uncertainty: uncertainty with respect to technology, demand, local factor supply conditions, inflation, and the like behavorial uncertainty.
2. Frequency: repetitiveness of a transaction. The level of recurrence of the activities needed by the firm for the transaction.
3. Uncertainty surrounding the transaction. Environmental uncertainty: uncertainty with respect to technology, demand, local factor supply conditions, inflation, and the like behavorial uncertainty.
In the ITO lectures, we studied Delen et al's paper". Based on this paper, identify three factors with positive effects and another two factors with negative effects on ITO success (previous exam question).
* Delen, G.P.A.J. Peeters, R.J. Verhoef, C, & van Vlijmen, S.F.M. (2016). Lessons from Dutch IT- outsourcing success and failre. science of Computer Programming, 130, 37 - 68.
Positive factors (any three in the following list):
- Working according to the transition plan
- Demand management
- Communication inside supplier organization
- Long- term motives of the service provider to put himself in the position of his client (vendor's empathy capability)
Negative factors:
- Short- term motives of the service provider to engage in an ITO deal
- Hiring consultancy support
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