Motivation

1. Learning while Sourcing: Evidence of Productivity Gains in Coordinating Software DevelopmentPaulo J. Gomes (a)  Nitin R. Joglekar (b)  Stephen R. Rosenthal (b)(a) Universidade Nova de Lisboa(b) Boston UniversityINFORMS 2006 Conference Pittsburg, PANovember 6, 2006

2. Motivation • Emerging relevance of inter-organizational networks in software development, either through collaborative or outsourcing arrangements • Coordination is one of the central problems of organizational research (March and Simon, 1958; Thompson, 1967) and in extended settings coordination is expected to drive a larger fraction of overall costs (Malone et al. 1987). • Interest in systematic studies of learning by doing during the creation, retention, and transfer of knowledge (Argote, McEvily and Reagans, 2003). • Can we actually observe improvements in coordination of development partners through experience? Learning while Sourcing

3. Research Objective • How does one measure organizational learning in terms of coordinating outsourced software development? • Which task characteristics facilitate or deter ‘learning by doing’ during the sourcing process? Learning while Sourcing

4. Literature on Strategic Sourcing Corbett, Blackburn and van Wassenhove 1999, Quélin and Duhamel 2003, Ratten 2004 • contract crafting and management • negotiation • decision coordination • measuring relationship performance • information exchange • learn and innovate Learning while Sourcing

5. Related Learning Literature It is often assumed that cultivating reciprocity and trust are competences that firms “learn by doing” Organizations build partnering skills and negotiating skills that can be tapped in crafting better collaborative arrangements There is some empirical evidence supporting this argument: • Experience in network formation drives success in the launch of new network arrangements (Gulati and Gargiulo 1999). • Learning in production tasks (Sobrero and Roberts, 2001; Uzzi and Lancaster, 2003, Macher and Mowery 2003) • Learning to contract with external partners (Mayer and Argyres, 2004). Learning while Sourcing

6. Measuring Organizational Learning • Coordination productivity – units of technical problem solving per unit of coordination required Learning while Sourcing

7. Learning Hypothesis H1: Coordination productivity is positively associated with accumulated experience, holding all else constant. Learning while Sourcing

8. Task-level Determinants H2A: Coordination productivity is positively associated with task scale. H2B: Coordination productivity is negatively associated with task duration. H2C: Coordination productivity is negatively associated with fraction of task outsourced. Learning while Sourcing

9. Moderator Hypothesis H3A: Task scale moderates the association of experience and coordination productivity; larger tasks are associated with less learning. H3B: Task duration moderates the association of experience and coordination productivity; tasks with greater duration are associated with less learning. Learning while Sourcing

10. Empirical Model Fraction Outsource Task Characteristics Duration H2C H2B Scale Scale H2A H3 Cumulative Task Inverse Coordination Experience (Time) Productivity H1 PM Experience Fixed Factors Project Complexity Learning while Sourcing

11. Internal versus External Coordination • Internal coordination is defined as management of dependencies with related project teams and functional areas within the organization (communication with other software projects, hardware development, test stands, marketing, and customer care) • Internal Coordination Productivity • External coordination is defined as management of dependencies with the technology suppliers across the boundary of the focal firm (time spent managing partners under contract and establishing rules for addressing software bugs or reviewing engineering releases). • External Coordination Productivity Learning while Sourcing

12. Data and Methods • Software for Data Management • Largely Outsourced Work • 7 projects, 37 tasks over 2 years • structured interviews with key managers • review of documents reporting the product development effort • field observations Learning while Sourcing

13. Description of Project Sequence Learning while Sourcing

14. Descriptives Learning while Sourcing

15. Results - Learning Model ** Significant at .01 level, * significant at .05 level, † significant at .10 level Learning while Sourcing

16. Results - Learning Model with Interaction ** Significant at .01 level, * significant at .05 level, † significant at .10 level Learning while Sourcing

17. Key Findings The economics of coordinating outsourced software development is marked by scale effects, learning by doing, and differential learning rates: • we find significant evidence of learning in terms of coordination productivity, in particular external coordination productivity • the extent of learning does depend on the characteristics of the development task, namely its duration – there is some support for less learning in tasks with greater duration – schedule compression effect Learning while Sourcing

18. Managerial Implications • By inducing administrative competence learning, organizations may improve the governance of outsourcing arrangements. However, the sizing of tasks (e.g. the manner in which they are modularized) can moderate this effect. • Future Work: Mechanisms behind the learning effects observed in terms of coordination (Adler and Clark 1992). The development of routines that decrease perceived transactional risk, hence coordination needs could be such a learning mechanism. Learning while Sourcing

19. Q&AYour feedback will be welcomed.Paulo Gomespgomes@fe.unl.ptNitin Joglekarjoglekar@bu.eduStephen Rosenthalsrrosent@acs.bu.edu

20. Correlation Matrix for Independent Variables ** significant at the 0.01 level * significant at the 0.05 level Learning while Sourcing