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Firm-level outsourcing decision making: A balanced scorecard-based analytic network process model

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  • Tjader, Youxu
  • May, Jerrold H.
  • Shang, Jennifer
  • Vargas, Luis G.
  • Gao, Ning
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    Abstract

    We combine the Analytic Network Process (ANP) and the Balanced Scorecard (BSC) to build a cohesive decision model for determining firm level IT outsourcing strategy. Although prior research has confirmed the existence of interactions among BSC indicators and the potential impact of those interactions on firm level performance, interactions have hitherto not been fully understood and implemented, due to lack of adequate tools. In this paper, we take advantage of the strength of the ANP technique to address the interaction issues between indicators when applying the BSC. The ANP establishes the interactions among the indicators, prioritizes the indicators under the four BSC perspectives, and then identifies the best outsourcing strategy through synthesis. A case company is used to study the feasibility of our approach at firm level outsourcing decision making. Finally, we examine the robustness of the model through sensitivity analysis, and demonstrate the importance of incorporating indicator interactions when operationalizing BSC. Managerial insights and implications derived through model analysis are discussed.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 147 (2014)
    Issue (Month): PC ()
    Pages: 614-623

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    Handle: RePEc:eee:proeco:v:147:y:2014:i:pc:p:614-623

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Outsourcing; Balanced scorecard; ANP; Decision support; Robustness and sensitivity analysis;

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    1. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Raghuram G. Rajan & Luigi Zingales, 1997. "Power in a Theory of the Firm," NBER Working Papers 6274, National Bureau of Economic Research, Inc.
    3. Osei-Bryson, Kweku-Muata & Ngwenyama, Ojelanki K., 2006. "Managing risks in information systems outsourcing: An approach to analyzing outsourcing risks and structuring incentive contracts," European Journal of Operational Research, Elsevier, vol. 174(1), pages 245-264, October.
    4. Alchian, Armen A. & Demsetz, Harold, 1973. "The Property Right Paradigm," The Journal of Economic History, Cambridge University Press, vol. 33(01), pages 16-27, March.
    5. Tjader, Youxu Cai & Shang, Jennifer S. & Vargas, Luis G., 2010. "Offshore outsourcing decision making: A policy-maker's perspective," European Journal of Operational Research, Elsevier, vol. 207(1), pages 434-444, November.
    6. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
    7. Loebbecke, Claudia & Huyskens, Claudio, 2009. "Development of a model-based netsourcing decision support system using a five-stage methodology," European Journal of Operational Research, Elsevier, vol. 195(3), pages 653-661, June.
    8. Meade, Laura & Sarkis, Joseph, 1998. "Strategic analysis of logistics and supply chain management systems using the analytical network process," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 34(3), pages 201-215, September.
    9. Bahli, Bouchaib & Rivard, Suzanne, 2005. "Validating measures of information technology outsourcing risk factors," Omega, Elsevier, vol. 33(2), pages 175-187, April.
    10. Lyons, Bruce R., 1995. "Specific investment, economies of scale, and the make-or-buy decision: A test of transaction cost theory," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 431-443, May.
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