Management of Information Systems Outsourcing: A Bidding Perspective.

Author List: Chaudhury, Abhijit; Nam, Kichan; Rao, H. Raghav;
Journal of Management Information Systems, 1995, Volume 12, Issue 2, Page 131-159.
Outsourcing is the contracting of various information systems' sub- functions by user firms to outside information systems vendors. A critical factor in the outsourcing process is the bidding and vendor selection mechanism. This paper describes the process of outsourcing and identifies the various stages involved. Subsequently, considering that cost reduction is a driving force of outsourcing for user-firms, this paper proposes a bidding mechanism to reduce expected outsourcing costs in the final bidding and vendor selection process. The paper studies outsourcing contracts of routine and repetitive activities such as maintenance and operation of telecommunication networks. A realistic scenario is studied, wherein multiple vendors bid for such contracts and where one vendor has cost and expertise advantages over other vendors and as a result tends to inflate bids. A mixed integer programming model is formulated for a multiple vendor scenario. In general, the results suggest a prescription that calls for the use of "carrot and stick" policies by the user firm. Subsidies (the carrot) need to be used as incentives for bidders to announce their most competitive bids. In addition, penalties (the stick) have to be levied in order to pressure bidders not to bid high.
Keywords: bidding mechanisms; information systems management; mixed integer programming; outsourcing of information systems.
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List of Topics

#47 0.205 outsourcing vendor client sourcing vendors clients relationship firms production mechanisms duration mode outsourced vendor's effort activities in-house managing technology domestic
#91 0.125 auctions auction bidding bidders bid combinatorial bids online bidder strategies sequential prices design price using outcomes behavior theoretical computational efficiency
#240 0.119 systems information management development presented function article discussed model personnel general organization described presents finally computer-based role examined functional components
#241 0.095 information stage stages venture policies ewom paper crowdfunding second influence revelation funding cost important investigation ventures session studied electronic multiple
#191 0.067 model models process analysis paper management support used environment decision provides based develop use using help literature mathematical presented formulation
#70 0.057 contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#253 0.051 user involvement development users satisfaction systems relationship specific results successful process attitude participative implementation effective application authors suggested user's contingency
#92 0.050 equity conventional punishment justice wisdom focus behavior fairness compliance suggest theory significant certainty misuse reward settings behavioral mandatory drawing widely