Decision-making under incomplete information: A B2B marketing perspective

This paper describes an empirical study concerning outsourcing of professional business services by organisations. Examples of such services include auditing, legal, management consulting, advertising, and IT services. They are indispensable to businesses, and virtually all companies outsource them at least once in a while, whereas many use them on a continuous basis. Professional business services are costly, and often directly impact the performance of the client’s core business. If executed well the service can add great value to the client’s operations. However, poor service quality could result in substantial financial losses for the service recipient. Hence choosing the right service provider is essential. However, at the time the outsourcing decision is being made, it is not clear, what the future service quality will be, because of the intangible and credence character of professional business services. Given also the high cost that such services typically involve, it is understandable that clients experience uncertainty and purchase risk when outsourcing them. Obviously this creates challenges for the buying organisation’s decision makers, since they need to make the important outsourcing decision under incomplete information about service quality.

This research examines how organisational buyers manage the risk inherent in outsourcing professional business services. This is done by means of identifying a set of factors that reduce this risk and predict the future value of the service. Prior research have shown that seller’s characteristics, purchase-related factors and relational variables are highly important in the outsourcing decision making process. The present study employed variables from these classes of factors to construct a conceptual model, and to test it, using mailing survey data and structural equation modelling. The results provide empirical support for the hypothesised linkages among the research constructs. The findings of this test are discussed and implications for management practice are outlined.