The Effect of CRM Outsourcing on Shareholder Value: A Contingency Perspective

One central business activity that companies increasingly outsource is the information systems (IS) function. Previous research has shown that outsourcing of back-office IS generally has a positive effect on shareholder value of the outsourcing firm. Much less is known about the performance implications of outsourcing of another important IS function, namely, front-office customer relationship management (CRM) systems, where the vendor uses its own personnel and software to perform several CRM tasks. Previous, largely anecdotal evidence shows that the performance implications of outsourcing CRM range from very negative to very positive. To address this unsatisfactory state of knowledge, we provide and empirically test a contingency perspective on the performance implications of outsourcing CRM processes. We do so using the event-study methodology. The results are largely consistent with our contingency model. CRM outsourcing is more beneficial to firms that are high on information technology capabilities and low on marketing capabilities, and less beneficial when it concerns presales CRM. Similarly, although vendor economic distance has a positive influence on the outsourcing firm's shareholder value, vendor cultural distance has a negative influence. These effects are in turn significantly moderated by the type of CRM process outsourced. <i>This paper was accepted by Sandra Slaughter, information systems.</i>