Effects of Providing Total Cost of Ownership Information on Attribute Weights in Purchasing Decisions
KUL Working Paper No. MO 0601
41 Pages Posted: 14 Nov 2006
Date Written: 2006
In this paper we investigate how the provision of total cost of ownership (TCO) information affects attribute weights in sourcing decisions, and how this effect is moderated by decision complexity. TCO quantifies the costs of each decision alternative for purchasing decisions, from the perspective of the buying organization. We consider incomplete TCO information, in that some non-financial attributes are not included in the TCO calculation, and we investigate unintended (and potentially disadvantageous) effects of providing decision makers with such information. Experiments with 817 participants were conducted, both students and managers. We found moderate support for the hypothesis, that when complexity was low, participants gave a higher weight to the attribute that was excluded from the TCO information. We found support for the hypothesis that when complexity was high, decision makers gave less weight to this attribute, but this result was only found for the most experienced subgroup of managers. Experience did, however, not necessarily have a positive effect. Results suggest that, due to the provision of TCO information, experienced decision makers were more likely to follow an evaluation process in which less attention was paid to attributes that were not part of the TCO calculation. This suggests that experienced decision makers could be less mindful of the incompleteness of TCO information.
Keywords: Complexity, Cost, Costs, Decision, Decisions, Effects, Evaluation, Experience, Information, Managers, Ownership, Processes, Purchasing, Research, Sourcing, Total cost of ownership
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