Using Accounting Metrics As Performance Measures To Assess The Impact Of Information Technology Outsourcing On Manufacturing And Service Firms

Abstract

This study focuses on the information technology (IT) outsourcing decision and asks whether reported financial statement data can measure short-term financial effects of the IT outsourcing decision and thus add to the literature on the benefits of outsourcing. In this study we used accounting metrics derived from archival financial data to assess the impact of IT outsourcing on firms performance measures. In the sample of 79 firms from 1986 to 2009, there were 45 firms in the manufacturing sector and 34 firms in the service sector. The comparative study between manufacturing and service sectors will help identify where the higher potential of outsourcing impact lies. Firms performance is measured over a two-year period, one year before and one year after outsourcing decisions were made. For performance measures, we used cost efficiency, productivity, profitability, growth, cash management, and market ratio metrics. Using accounting metrics we show that IT outsourcing has a favorable short-term impact on manufacturing firms cost efficiency, productivity, and cash management. At the same time outsourcing the IT function has little favorable impact on service firms short-term performance measures.

The structure of water vending markets in Kathmandu, Nepal

“…Profitability metrics, which measure the return that the firm's owners receive from their investments, have been widely used in research on information systems, strategic management, and finance (Smith et al, 1998). There are four key metrics: return on assets (EBITDA/average assets), gross margin (direct product costs/revenue), operating margins (EBITDA/ revenue and EBIT/revenue), and net profit margin (net income/revenue) (Smith et al, 1998;Agrawal & Hall, 2014). Return on assets (ROA) is a commonly used metric for overall company performance (see Hunton et al, 2003;Andres, 2008;Adams et al, 2009).…”

The Impact of Labour Force Reduction on the Financial Performance of Manufacturing Companies

“…Outsourcing: Antonioli et al (2015), Agrawal and Hall (2014) and Agrawal and Haleem (2013) concur that outsourcing is a labour force reduction strategy that assists an organisation to reduce costs and improve production efficiency in production and the quality of products. There is a significant positive relationship between outsourcing and industrial productivity and innovation process performance.…”

Does Outsourcing Really Improve Firm Performance? Empirical Evidence and Research Agenda

“…; Meixell et al . 2013; Oke and Kach ), services sector (Weigelt and Sarkar ) or both the sectors (Agrawal and Hall ; Grimpe and Kaiser ; Massini et al . ).…”

“…As in the previous categories, these studies involved firms from the manufacturing sector (Bardhan et al 2007;Gilley et al 2004;Meixell et al 2013;Oke and Kach 2012), services sector (Weigelt and Sarkar 2012) or both the sectors (Agrawal and Hall 2014;Grimpe and Kaiser 2010;Massini et al 2010). The national contexts of the studies varied widely: Italy (Calabrese and Erbetta 2005), Ireland (Görg and Hanley 2004;Görg et al 2008), the USA and Canada (Bardhan et al 2007;Peslak 2012), Sweden ), Germany (Grimpe and Kaiser 2010), Netherlands and Taiwan (Hsiao et al 2010) and Japan (Hijzen et al 2010).…”

“…The authors measured offshoring of intangibles as a dummy variable (whether the firm offshored intangibles in 2004–2006 period or not). Agrawal and Hall () examined the effect of IT outsourcing on the performance of both manufacturing and service firms. They measured performance using accounting metrics and a two‐year period: one year before and one year after the outsourcing decision.…”