Thesis (M.S.)--Naval Postgraduate School, 2003. / Title from title screen (viewed Oct. 10, 2003). "June 2003." Includes bibliographical references (p. 101-106). Also issued in paper format.

This thesis investigates success factors, risks and trade offs in Information Technology (IT) outsourcing arrangements, and also examines the impact of certain recommended practices on outsourcing success. / Four research components contribute to the investigation: 1) a critical review of ten years' literature on IT outsourcing, paying particular attention to the evidence for success rates and the impact of practices on IT outsourcing success; 2) statistical analysis of a survey of government and non-government organisations (n = 240) taken from the largest 1000 organisations in Australia; 3) a detailed case study into the Australian Federal Government's "Whole of Government IT Infrastructure Outsourcing Initiative" and 4) qualitative analysis of 16 focus groups involving vendor and purchaser informants. / Using confirmatory factor analysis on the survey data, the study validated seven dimensions of IT outsourcing success proposed in the literature. Only two of these factors had been rated positively by most survey respondents, and only a minority of respondents had rated the other five success dimensions positively. Further statistical investigations looked at the relationship between various recommended practices in IT outsourcing and certain success measures, and at relationships between success measures. Particular attention was paid to the notion of selective outsourcing, a notion that has received much attention in the literature and that is explored further in the case study of the Federal Government initiative. The focus group analysis enabled the teasing out of other factors, not easily identified in the other research. / Drawing on all four research components, the thesis proposes that "information impactedness" associated with post-Internet technologies and skills shortages, and unacknowledged inherent trade-offs, contribute to generally poor risks and returns for IT outsourcing. The thesis concludes with recommendations for decision-makers.

Since the late 1970s, the world has experienced a wave of microeconomic reform that has resulted in the privatisation of many previously State-owned assets, as well as other reforms directed at improving the efficiency of government business enterprises. This dissertation focuses on one important instrument of reform: outsourcing of public-sector service provision. Despite the prevalence of outsourcing, there has been relatively little empirical work analysing the effects of outsourcing at the contract level. This dissertation addresses three important empirical issues related to outsourcing. First, analysis of the magnitude and sources of cost savings associated with outsourcing was undertaken using a present value costing framework. Unlike other studies, this study includes transaction costs and considers how costs change over the life of the contract. The results indicate that savings of 37 per cent were achieved in the first year of contract operation ?savings that were achieved through a combination of reductions in pay and conditions, labour-saving technological change and reductions in inefficiency. Secondly, the dissertation considered why the level of savings achieved fell to 24 per cent following contract variations at the end of year 1. Some evidence indicated that this may have been due to opportunistic behaviour or hold-up: that the contract service provider may have taken advantage of contractual incompleteness and increased its price during the course of contract renegotiations. Although hold-up is an important theme in the literature on contracts, little empirical work has been undertaken in verifying its existence. Thirdly, the impact of contract design on the efficiency of outsourcing arrangements was analysed. It is well known that contract theory predicts a trade-off between incentives and risk. Using the standard principal-agent framework, a simple model is developed to analyse the effects of demand uncertainty on the risk-incentive trade-off. This model is then tested using data from maintenance services contracts at two corporatised water retailers in Melbourne: an environment that is characterised by high levels of both cost and demand uncertainty. Using a general linear regression model, the results obtained indicate that the moral hazard effect dominated the risk premium effect.

Since the late 1970s, the world has experienced a wave of microeconomic reform that has resulted in the privatisation of many previously State-owned assets, as well as other reforms directed at improving the efficiency of government business enterprises. This dissertation focuses on one important instrument of reform: outsourcing of public-sector service provision. Despite the prevalence of outsourcing, there has been relatively little empirical work analysing the effects of outsourcing at the contract level. This dissertation addresses three important empirical issues related to outsourcing. First, analysis of the magnitude and sources of cost savings associated with outsourcing was undertaken using a present value costing framework. Unlike other studies, this study includes transaction costs and considers how costs change over the life of the contract. The results indicate that savings of 37 per cent were achieved in the first year of contract operation ?savings that were achieved through a combination of reductions in pay and conditions, labour-saving technological change and reductions in inefficiency. Secondly, the dissertation considered why the level of savings achieved fell to 24 per cent following contract variations at the end of year 1. Some evidence indicated that this may have been due to opportunistic behaviour or hold-up: that the contract service provider may have taken advantage of contractual incompleteness and increased its price during the course of contract renegotiations. Although hold-up is an important theme in the literature on contracts, little empirical work has been undertaken in verifying its existence. Thirdly, the impact of contract design on the efficiency of outsourcing arrangements was analysed. It is well known that contract theory predicts a trade-off between incentives and risk. Using the standard principal-agent framework, a simple model is developed to analyse the effects of demand uncertainty on the risk-incentive trade-off. This model is then tested using data from maintenance services contracts at two corporatised water retailers in Melbourne: an environment that is characterised by high levels of both cost and demand uncertainty. Using a general linear regression model, the results obtained indicate that the moral hazard effect dominated the risk premium effect.

Since the late 1970s, the world has experienced a wave of microeconomic reform that has resulted in the privatisation of many previously State-owned assets, as well as other reforms directed at improving the efficiency of government business enterprises. This dissertation focuses on one important instrument of reform: outsourcing of public-sector service provision. Despite the prevalence of outsourcing, there has been relatively little empirical work analysing the effects of outsourcing at the contract level. This dissertation addresses three important empirical issues related to outsourcing. First, analysis of the magnitude and sources of cost savings associated with outsourcing was undertaken using a present value costing framework. Unlike other studies, this study includes transaction costs and considers how costs change over the life of the contract. The results indicate that savings of 37 per cent were achieved in the first year of contract operation ?savings that were achieved through a combination of reductions in pay and conditions, labour-saving technological change and reductions in inefficiency. Secondly, the dissertation considered why the level of savings achieved fell to 24 per cent following contract variations at the end of year 1. Some evidence indicated that this may have been due to opportunistic behaviour or hold-up: that the contract service provider may have taken advantage of contractual incompleteness and increased its price during the course of contract renegotiations. Although hold-up is an important theme in the literature on contracts, little empirical work has been undertaken in verifying its existence. Thirdly, the impact of contract design on the efficiency of outsourcing arrangements was analysed. It is well known that contract theory predicts a trade-off between incentives and risk. Using the standard principal-agent framework, a simple model is developed to analyse the effects of demand uncertainty on the risk-incentive trade-off. This model is then tested using data from maintenance services contracts at two corporatised water retailers in Melbourne: an environment that is characterised by high levels of both cost and demand uncertainty. Using a general linear regression model, the results obtained indicate that the moral hazard effect dominated the risk premium effect.

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Business management / M. Com. (Business management)

Business management / M. Com. (Business management)