The Effect of Bargaining Power on Fixed Price IT Outsourcing Decisions

Titelangaben

Fridgen, Gilbert ; Krapp, Michael ; Müller, Hanna-Vera:
The Effect of Bargaining Power on Fixed Price IT Outsourcing Decisions.
2010
Veranstaltung: CIST 2010 : Conference on Information Systems and Technology , 06.11.-07.11.2010 , Austin, TX, USA.
(Veranstaltungsbeitrag: Kongress/Konferenz/Symposium/Tagung , Vortrag )

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Abstract

Successful IT outsourcing is usually for the benefit of both parties: the outsourcing client and the service provider. With a fixed price contract, the client tries to lower project risks and costs by transferring parts of a project to the service provider at a previously negotiated price. In this paper, we elaborate a model from the client’s perspective to identify a project’s optimal degree of outsourcing, considering both, costs and risks of software development. We then study the effect of bargaining power on this decision. Against the expectation that a powerful service provider demanding a higher price will cause a lower degree of outsourcing, the model shows that bargaining power has no effect on the decision. Instead, the client will choose the outsourcing degree at the maximum price spread between the service provider’s cost and the development cost of the client, no matter how the benefit will be shared among the two parties.