Dr. Barua is the William F. Wright Centennial Professor of Information Technology, Stevens Piper Foundation Professor, Distinguished Teaching Professor, Director of the MBA Information Management program, and Associate Director of the Center for Research in Electronic Commerce at the McCombs School of Business at UTA. He has received many awards for his research and teaching, and about 75 of his research articles has appeared in prestigious academic journals, refereed conference proceedings and edited book chapters.
Dr. Barua kindly agreed to take some time out between his meetings with the SPJIMR management and faculty, and made a presentation to the participants on a very contemporary topic, which also happens to be his current area of research: “Deconstructing or Destroying Your Value Chain through Outsourcing”.
In a jam-packed auditorium, Dr. Barua explained how the focus of Information Technology outsourcing (ITO) and business process outsourcing (BPO) has evolved from pure cost savings to diverse strategic objectives. He discussed the impact of externalizing these activities on the long-term value of the firm, which surfaces as a key issue for senior management. He opined that strategic outsourcing, which is characterized by higher levels of business uncertainty and complex coordination requirements, involves greater contractual risks, when compared to the transaction outsourcing. The major reasons for the failure of such outsourcing deals include the unclear expectations of the clients and the misaligned interests of the stakeholders involved.
Dr. Barua also talked about how the capital markets may not be privy to such information when an outsourcing decision is announced, and hence respond with a delay, after the consequences of the initial choices become public knowledge. Thus, there may be long-term abnormal returns from such outsourcing decisions. Dr. Barua and his associates have compiled the data on the 100 largest outsourcing deals between 1996 and 2006, and their research shows that while transactional deals experienced positive long-term abnormal returns, complex arrangements witnessed significant long-term value destruction. The results suggest that client firms are generally unprepared for the management challenges of strategic outsourcing.
Dr. Barua concluded that the one-size-fits-all type of outsourcing deals don’t work, and to make an outsourcing relationship successful, the firms need to understand the governance choices available to them, and customize them keeping in mind the complexity, independence and the strategic importance of the tasks to be outsourced.
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