IT Implementation Contract Design: Analytical and Experimental Investigation of IT Value, Learning, and Contract Structure.

Author List: Wu, D. J.; Ding, Min; Hitt, Lorin M.;
Information Systems Research, 2013, Volume 24, Issue 3, Page 787-801.
This article analytically and experimentally investigates how firms can best capture the business value of information technology (IT) investments through IT contract design. Using a small sample of outsourcing contracts for enterprise information technology (EIT) projects in several industries-coupled with reviews of contracts used by a major enterprise software maker-the authors determine the common provisions and structural characteristics of EIT contracts. The authors use these characteristics to develop an analytical model of optimal contract design with principal-agent techniques. The model captures a set of key characteristics of EIT contracts, including a staged, multiperiod project structure; learning; probabilistic binary outcomes; variable fee structures; possibly risk-averse agents; and implementation risks. The model characterizes conditions under which multistage contracts enable clients to create and capture greater project value than single-stage projects, and how project staging enables firms to reduce project risks, capture learning benefits, and increase development effort. Finally, the authors use controlled laboratory experiments to complement their analytical approaches and demonstrate robustness of their key findings.
Keywords: analytical modeling; business value of IT; economics of IS; enterprise systems; laboratory experiments; management of IS projects
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#97 0.156 set approach algorithm optimal used develop results use simulation experiments algorithms demonstrate proposed optimization present analytical distribution selection number existing
#70 0.150 contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#240 0.111 systems information management development presented function article discussed model personnel general organization described presents finally computer-based role examined functional components
#143 0.084 value business benefits technology based economic creation related intangible cocreation assessing financial improved key economics assess question created create understanding
#95 0.078 learning mental conceptual new learn situated development working assumptions improve ess existing investigates capture advanced proposes types context building acquisition
#11 0.073 structural pls measurement modeling equation research formative squares partial using indicators constructs construct statistical models researchers latent analysis results sem
#135 0.073 project projects development management isd results process team developed managers teams software stakeholders successful complex develop contingencies problems greater planning
#51 0.070 results study research experiment experiments influence implications conducted laboratory field different indicate impact effectiveness future participants evidence test controlled involving
#251 0.067 implementation erp enterprise systems resource planning outcomes support business associated understanding benefits implemented advice key implementing scope functional post-implementation implementations