Financial Performance, CEO Compensation, and Large-Scale Information Technology Outsourcing Decisions.

Author List: Hall, James A.; Liedtka, Stephen L.;
Journal of Management Information Systems, 2005, Volume 22, Issue 1, Page 193-221.
The inherent riskiness of large-scale information technology (IT) outsourcing led us to investigate what motivates large-scale IT outsourcing decisions. We employed fixed-effects logistical regressions to examine publicly available data for 51 firms that announced their decisions to outsource all or a large portion of their IT function during the 1993-2001 period. Results suggest that incentives created by CEO stock options and overall compensation mix significantly influence decisions to outsource. We thus provide the first evidence of a relationship between managerial self-interest and IT outsourcing. Additional results suggest that poor overall firm performance, poor cost control, and short-term cash needs also drive large-scale IT outsourcing, but provide no evidence that firms outsource IT to reduce leverage. Overall, we conclude that CEOs consider several personal and firm-level financial factors, including factors unrelated to IT cost and performance, when making large-scale IT outsourcing decisions. Our conclusion has numerous implications regarding long-term IT performance, long-term firm performance. CEO contracting and financial reporting.
Keywords: CEO compensation; incentive compensation; information systems outsourcing; information technology outsourcing; stock options
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#274 0.269 outsourcing transaction cost partnership information economics relationships outsource large-scale contracts specificity perspective decisions long-term develop requirements economic association factors hypotheses
#225 0.170 information environment provide analysis paper overall better relationships outcomes increasingly useful valuable available increasing greater regarding levels decisions viewed relative
#114 0.112 performance firm measures metrics value relationship firms results objective relationships firm's organizational traffic measure market study improve accounting measuring aggregate
#271 0.108 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#123 0.089 information strategy strategic technology management systems competitive executives role cio chief senior executive cios sis support organization officer position ceos
#243 0.085 states united employment compensation labor workers paper work extent findings increasing implications concerns relationship managerial wage options offer salary entry
#50 0.053 financial crisis reporting report crises turnaround intelligence reports cash forecasting situations time status adequately weaknesses selective impact systemic power described