【Topic】IT Implementation Contract Design: Analytical and Experimental Investigation of IT Value, Learning, and Contract Structure

【Speaker】D.J. Wu

【Time】2008-6-16 10:30-12:00

【Venue】Room 453, Weilun Building

【Language】English/Chinese

【Organizer】Department of Management Science and Engineering

【Background Information】

Abstract:

We analytically and experimentally investigate how firms can best

capture the business value of information technology (IT) investments

through IT contract design. Using a small sample of outsourcing

contracts for enterprise information technology (EIT) projects in

several industries, coupled with reviews of contracts used by a major

enterprise software maker, we determine the common provisions and

structural characteristics of EIT contracts, which we use to develop an

analytical model of optimal contract design with principal–agent

techniques. The model captures key characteristics of EIT contracts,

including a staged, multiperiod project structure, learning,

probabilistic binary outcomes, variable fee structures, possibly

risk-averse agents, and implementation risks. The model shows that

incentive contracts with a multiperiod structure, combined with the

appropriate project scope, create greater overall value, because they

prompt the implementation team to exert greater effort while also

capturing learning benefits and reducing risk. The results are

consistent with prior empirical findings that payoffs from enterprise

resource planning implementation are concave with the scope of the

project. To test and validate the model predictions and key assumptions,

we use controlled laboratory experiments.

Key words: enterprise information technology; enterprise systems; IT

contracting; principal-agent; multi-period

This is joint work with Min Ding, Smeal College of Business,

Pennsylvania State University, University Park and Lorin M. Hitt, The

Wharton School, University of Pennsylvania

Speaker Bio:

Dr. Dongjun (D.J.) Wu is Thomas R. Williams Wachovia Associate Professor

in Information Technology Management, College of Management, Georgia

Institute of Technology, USA. Dr. Wu's research interests focus on

electronic markets and procurement auctions, economics of enterprise

software investment and enterprise IT, and formal modeling of electronic

commerce. Dr. Wu has published numerous articles in academic journals

such as Management Science, Journal of Management Information Systems,

European Journal of Operational Research, Decision Support Systems,

among others. Dr. Wu won the “Best Paper in Valuing IT Opportunities”

award and the “Best Paper in Web-based Information Systems and

Applications” award, at the 27th International Conference on Information

Systems, Milwaukee, Wisconsin, USA, 2006.

Dr. Wu serves on the editorial board of Management Science as an

Associate Editor, and Production and Operations Management Journal as a

Senior Editor.

Dr. Wu obtained his MA and Ph.D. from the Wharton School, University of

Pennsylvania, USA; his B.E. in Computer Science and B.E. in Management

Engineering, both from Tsinghua University, Beijing, China.