Single Sourcing Versus Multisourcing: The Role of Effort Interdependence, Metric-Outcome Misalignment, and Incentive Design

34 Pages Posted: 6 Mar 2012

See all articles by Shantanu Bhattacharya

Shantanu Bhattacharya

Independent

Alok Gupta

affiliation not provided to SSRN

Sameer Hasija

INSEAD - Technology and Operations Management

Date Written: March 5, 2012

Abstract

We compare two strategies for outsourcing the development of information services projects: multisourcing and single-sourcing. We model these sourcing strategies when incentive contracts are based on a verifiable project metric that may or may not be aligned with the project outcome. We also model the interdependence of client and vendor efforts so that the verifiable metric may or may not be separable in these efforts. When the verifiable metric and the project outcome are aligned, single-sourcing performs better than multisourcing if the client and vendor efforts are interdependent, and as well as multisourcing if the efforts are independent. When the metric and outcome are misaligned: (i) multisourcing performs better than single-sourcing if the client effort is independent of the vendor efforts; (ii) the choice of sourcing strategy is nuanced based on the trade-off between the degree of misalignment and moral hazard if the client and vendor efforts are interdependent.

Keywords: IT Outsourcing, Single Sourcing, Multisourcing, Effort Interdependence, Incentive Alignment

Suggested Citation

Bhattacharya, Shantanu and Gupta, Alok and Hasija, Sameer, Single Sourcing Versus Multisourcing: The Role of Effort Interdependence, Metric-Outcome Misalignment, and Incentive Design (March 5, 2012). INSEAD Working Paper No. 2012/26/TOM. Available at SSRN: https://ssrn.com/abstract=2016119 or http://dx.doi.org/10.2139/ssrn.2016119

Shantanu Bhattacharya

Independent

No Address Available

Alok Gupta

affiliation not provided to SSRN ( email )

Sameer Hasija (Contact Author)

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

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