Asia pacific journal of information systems

The Korea Society of Management Information Systems (한국경영정보학회)
권호 표지

An Empirical Investigation into the Role of Core-Competency Orientation and IT Outsourcing Process Management Capability

핵심역량 지향성과 프로세스 관리역량이 IT 아웃소싱 성과에 미치는 연구

  • Published : 2007.09.30
Download PDF
⟨ Previous Next ⟩

Abstract

Recently, the role of IT service providers has been enlarged from managing a single function or system to reconstructing entire information management processes in new ways to contribute to shareholder value across the enterprise. This movement toward extensive and complex outsourcing agreements has been driven by the assumption that outsourcing information technology functions is a reliable approach to maximizing resource productivity. Hiring external IT service providers to manage part or all of its information-related services helps a firm focus on its core business and provides better services to its clients, thus obtaining sustainable competitive advantage. This practice of focusing on the strategic aspect of outsourcing is referred to as strategic sourcing where the focus is capability sourcing, not procurement. Given the importance of the strategic outsourcing, however, to our knowledge, there is little empirical research on the relationship between the strategic outsourcing orientation and outsourcing performance. Moreover, there is little research on the factor that makes the strategic outsourcing effective. This study is designed to investigate the relationship between strategic IT outsourcing orientation and IT outsourcing performance and the process through which strategic IT outsourcing orientation influences outsourcing performance, Based on the framework of strategic orientation-performance and core competence based management, this study first identifies core competency orientation as a proper strategic orientation pertinent to IT outsourcing and IT outsourcing process management capability as the mediator to affect IT outsourcing performance. The proposed research model is then tested with a sample of 200 firms. The findings of this study may contribute to the literature in two ways. First, it draws on the strategic orientation - performance framework in developing its research model so that it can provide a new perspective to the well studied phenomena. This perspective allows practitioners and researchers to look at outsourcing from an angle that emphasizes the strategic decision making to outsource its IT functions. Second, by separating the concept of strategic orientation and outsourcing process management capability, this study provides practices with insight into how the strategic orientation can work effectively to achieve an expected result. In addition, the current study provides a basis for future studies that examine the factors affecting IT outsourcing performance with more controllable factors such as IT outsourcing process management capability rather than external hard-to-control factors including trust and relationship management. This study investigates the major factors that determine IT outsourcing success. Based on strategic orientation and core competency theories, we develop the proposed research model to investigate the relationship between core competency orientation and IT outsourcing performance and the mediating role of IT outsourcing process management capability on IT outsourcing performance. The model consists of two independent variables (core-competency-orientation and IT outsourcing process management capability), and two dependent variables (outsourced task complexity and IT outsourcing performance). Comprehensive data collection was conducted through an outsourcing association. The survey data were analyzed using a structural analysis method. IT outsourcing process management capability was found to mediate the effect of core competency orientation on both outsourced task complexity and IT outsourcing performance. Further analysis and findings are discussed.

Keywords

References

  1. Ang, S. and Cummings, L.L., "Strategic Response to Institutional Influences on Information Systems Outsourcing," Organization Science, Vol. 8, No.3, 1997, pp. 235-256 https://doi.org/10.1287/orsc.8.3.235
  2. Ang, S. and Straub, D.W., "Production and Transaction Economies and IS Outsourcing: A Study of the U.S. Banking Industry," MIS Quarterly, Vol. 22, No.4, 1998, pp. 535-552 https://doi.org/10.2307/249554
  3. Bakos, Y. and Brynjolfsson, E., "Organizational Partnerships and the Virtual Corporation, in Information Technology and Industrial Competitiveness: How Information Technology Shapes Competition," C.F. Kemerer (ed.), Kluwer Academic Publishers, Boston, MA, 1997, pp. 1-16
  4. Berger, P.L. and Luckmann, T. The Social Construction of Reality: A Treatise In the Sociology of Knowledge Anchor Books, New York, NY, 1989
  5. Bhattacherjee, A., "Individual Trust in Online Firms: Scale Development and Initial Test," Journal of Management Information Systems, Vol. 19, No.1, 2002, pp. 211-241
  6. Brown, J.S. and Duguid, P., "Knowledge and Organization: A Social-Practice Perspective," Organization Science, Vol. 12, No. 2, 2001, pp. 198-213 https://doi.org/10.1287/orsc.12.2.198.10116
  7. Burgelman, R.A., "Fading Memories: A Process Theory of Strategic Business Exit in Dynamic Environments," Administrative Science Quarterly, Vol. 39, No.1, 1994, pp. 24-56 https://doi.org/10.2307/2393493
  8. Byrne, B.M. Structural Equation Modeling with LISREL, PRELIS, and SIMPLIS, Lawrence Erlbaum Associated Publisher, Mahwah, NJ, 1998
  9. Chalos, P. and Sung, J., "Outsourcing Decisions and Managerial Incentives," Decision Sciences, Vol. 29, No.4, 1998, pp. 901-919 https://doi.org/10.1111/j.1540-5915.1998.tb00881.x
  10. Chaudhury, A., Nam, K., and Rao, H.R. "Management of Information Systems Outsourcing: A Bidding Perspective," Journal of Management Information Systems, Vol. 2, No. 2, 1995, pp. 131-159
  11. Chesbrough, H.W. and Teece, D.J., "When is Virtual Virtuous? Organizing for Innovation," Harvard Business Review, Vol. 74, No.1, 1996, pp. 65-71
  12. Cross, J., "IT Outsourcing: British Petroleum's Competitive Approach," Harvard Business Review, Vol. 73, No.3, 1995, pp. 94-102
  13. Dierickx, I., Cool, K, and Barney, J.B., "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, Vol. 35, No. 12, 1989, pp. 1504-1513 https://doi.org/10.1287/mnsc.35.12.1504
  14. Earl, M.J., "The Risks of Outsourcing IT," Sloan Management Review, Vol. 37, No.3, 1996, pp. 26-32
  15. Ettlie, J.E. and Reza, E.M., "Organizational Integration and Process Innovation," Academy of Management Journal, Vol. 35, No.4, 1992, pp. 795-826 https://doi.org/10.2307/256316
  16. Feeny, D.F. and Willcocks, L.P., "Core IS Capabilities for Exploiting Information Technology," Sloan Management Review, Vol. 39, No.3, 1998, pp. 9-21
  17. Fornell, C. and Larcker, D., "Evaluating Structural Equation Models with Unobservable Variables and Measurement Error," Journal of Marketing Research, Vol. 18, 1981, pp. 39-50 https://doi.org/10.2307/3151312
  18. Gefen, D., Straub, D., and Boudreau, M., "Structural Equation Modeling and Regression: Guidelines for Research Practice," Communications of the Association for Information Systems, Vol. 4, No.7, 2000, pp. 1-79
  19. Gottfredson, M., Puryear, R., and Phillips, S., "Strategic Sourcing From Periphery to the Core," Harvard Business Review, Vol. 83, No.2, 2005, pp. 132-139
  20. Grover, V., Cheon, M.J., and Teng, J.T.C., "The Effect of Service Quality and Partnership on the Outsourcing of Information Systems Functions," Journal of Management Information Systems, Vol. 12, No.4, 1996, pp. 89-116
  21. Hamel, G. and Prahalad, C.K, "Competing for the future," Harvard Business Review Vol.72, No.4, 1994b, pp. 122-128
  22. Hamel, G. and Prahalad, C.K, "Competing for the Future," Harvard Business School Press, Boston, Mass, 1994a
  23. Hemphill, T.A, "Global Outsourcing: Effective Functional Strategy or Deficient Corporate Governance?," Corporate Governance, Vol. 4, No.4, 2004, pp. 62-68
  24. Ho, V.T., Ang, S., and Straub, D., "When Subordinates Become IT Contractors: Persistent Managerial Expectations in IT Outsourcing," Information Systems Research, Vol. 14, No.1, 2003, pp. 66-88 https://doi.org/10.1287/isre.14.1.66.14764
  25. Hu,L. and Bentler, P.M., "Cut-off Criteria for Fit Indexes in Covariance Matrix Analysis: Conventional Criteria versus New Alternatives," Structural Equation Modeling, Vol. 6, No. 1, 1999, pp. 1-55
  26. Hu, Q. Saunders, C., and GebeIt, M. "Research Report: Diffusion of Information Systems Outsourcing: A Reevaluation of Influence Sources," Information Systems Research, Vol. 8, No.3, 1997, pp. 288-301 https://doi.org/10.1287/isre.8.3.288
  27. Kanter, R.M. The Change Masters: Innovation and Entrepreneurship in the American Corporation Simon & Schuster, New York, NY, 1983
  28. Kern, T. and Willcocks, L., "Exploring Relationships in Information Technology Outsourcing: The Interaction Approach," European Journal of Information Systems, Vol. 11, No.1, 2002, pp. 3-19 https://doi.org/10.1057/palgrave/ejis/3000415
  29. Krause, D.R. Scannell, T.V. and Calantone, R.J., "A Structural Analysis of the Effectiveness of Buying Firms' Strategies to Improve Supplier Performance," Decision Sciences, Vol. 30, No.1, 2000, pp. 33-55
  30. Lacity, M.C. and Hirschheim, R., "The Information Systems Outsourcing Bandwagon," Sloan Management Review, Vol. 35, No.1, 1993, pp. 73-86
  31. Lacity, M.C., Willcocks, L.P., and Feeny, D.P., "IT Outsourcing: Maximize Flexibility and Control," Harvard Business Review, Vol. 73, No.3, 1995, pp. 84-93
  32. Lacity, M.C. Willcocks, L.P., and Feeny, D.F., "The Value of Selective IT Sourcing," Sloan Management Review, Vol. 37, No.3, 1996, pp. 13-25
  33. Lee, J.N. and Kim, Y.G. "Effect of Partnership Quality on IS Outsourcing: Conceptual Framework and Empirical Validation," Journal of Management Information Systems, Vol. 15, No.4, 1999, pp. 29-61 https://doi.org/10.1080/07421222.1999.11518221
  34. Loh, L. and Venkatraman, N., "Diffusion of Information Technology Outsourcing: Influence Source and the Kodak Effect," Information Systems Research, Vol. 3, No.4, 1992, pp. 334-358 https://doi.org/10.1287/isre.3.4.334
  35. Lumpkin, G.T. and Dess, G.G., "Clarifying the Entrepreneurial Orientation Construct and Linking it to Performance," The Academy of Management Review, Vol. 21, No.1, 1996, pp. 135-172 https://doi.org/10.2307/258632
  36. McFarlan, F.W. and Nolan, R.L., "How to Manage an IT Outsourcing Alliance," Sloan Management Review, Vol. 36, No.2, 1995, pp. 9-23
  37. McKnight, D.H. Choudhury, V., and Kacmar, C., "Developing and Validating Trust Measures for e-Commerce: An Integrative Typology," Information Systems Research, Vol. 13, No.3, 2002, pp. 334-359 https://doi.org/10.1287/isre.13.3.334.81
  38. Miles, R.E., Snow, C.C., Meyer, A.D., and Cloleman, H.J., JR, "Organizational Strategy, Structure, and Process," Academy of Management Review, Vol. 3, No.3, 1978, pp. 546-562 https://doi.org/10.2307/257544
  39. Muthen, B. and Muthen, O.L., The Comprehensive Modeling Program for Applied Researchers User Guide, Muthen & Muthen, LosAngeles, CA, 2003
  40. Nam, K., Rajagopalan, S., Rao, H.R, and Chaudhury, A., "A Two-Level Investigation of Information Systems Outsourcing," Communications of the ACM, Vol. 39, No.7, 1996, pp. 36-44
  41. Nelson, R.R., and Winter, S.G., An Evolutionary Theory of Economic Change, Harvard University Press, Cambridge, MA, 1982
  42. Nunnally, J.C., Psychometric theory. 2nd edn. New York: McGraw-Hill; 1978
  43. Porter, M., Competitive Strategy, Free Press, New York, NY, 1980
  44. Quinn, J.B., "Strategic Outsourcing: Leveraging Knowledge Capabilities," Sloan Management Review, Vol. 40, No.4, 1999, pp.9-21
  45. Quinn, J.B. and Hilmer, F.G., "Strategic Outsourcing," Sloan Management Review, Vol.35, No.4, 1994, pp. 43-55
  46. Quinn, J.B., Doorley, T.L., and Paquette, P.C., "Technology in Services: Rethinking Strategic Focus," Sloan Management Review, Vol. 31, No.2, 1990, pp. 79-87
  47. Sabherwal, R., "The Role of Trust in Out- sourced IS Development Projects," Communications of the ACM, Vol. 42, No.2, 1999, pp. 80-86
  48. Sabherwal, R. and Chan, Y.E., "Alignment between Business and IS Strategies: A Study of Prospectors, Analyzers, and Defenders," Infonnation Systems Research, Vol. 12, No. I, 2001, pp. 11-33 https://doi.org/10.1287/isre.12.1.11.9714
  49. Saunders, C, Gebelt, M., and Hu, Q., "Achieving Success in Information Systems Outsourcing," California Management Review, Vol. 39, No.2, 1997, pp. 63-79
  50. Segars, A.H., "Assessing the Unidimensionality of Measurement: A Paradigm and Illustration within the Context of Information Systems Research," Omega, Vol. 25, No. 1, 1997, pp. 107-121 https://doi.org/10.1016/S0305-0483(96)00051-5
  51. Smith, M.A., Mitra, S., and Narasimhan, S., "Information Systems Outsourcing: A Study of Pre-Event Firm Characteristics," Journal of Management Infonnation Systems, Vol. 15, No.2, 1998, pp. 61-93
  52. Spender, J.C., "Competitive Advantage from Tacit Knowledge? Unpacking the Concept and its Strategic Implications," in: Organizational Learning and Competitive Advantage, B. Moingeon and A Edmondson (eds.), Sage, Newbury Park, CA, 1996
  53. Teece, D.J., "Capturing Value from Technological Innovation: Integration, Strategic Partnering, and Licensing Decisions," Interfaces, Vol. 18, No.3, 1988, pp. 46-61 https://doi.org/10.1287/inte.18.3.46
  54. Teng, J.T.C., Cheon, M.J., and Grover, V., "Decisions to Outsource Information Systems Functions: Testing a Strategy-Theoretic Discrepancy Model," Decision Sciences, Vol. 26, No 1, 1995, pp. 75-103 https://doi.org/10.1111/j.1540-5915.1995.tb00838.x
  55. Tiwana, A, "Beyond the Black Box: Knowledge Overlaps in Software Outsourcing," IEEE Software, Vol. 21, No.5, 2004, pp. 51-58 https://doi.org/10.1109/MS.2004.1331302
  56. Venkatraman, N., "Strategic Orientation of Business Enterprises: The Construct, Dimensionality, and Measurement," Management Science, Vol. 35, No.8, 1989, pp. 942-962 https://doi.org/10.1287/mnsc.35.8.942
  57. Venkatraman, N., Loh, L., and Koh, J., "The Adoption of Corporate Governance Mechanisms: A Test of Competing Diffusion Models," Management Science, Vol. 40, No. 4, 1994, pp. 496-507 https://doi.org/10.1287/mnsc.40.4.496
  58. Wang, E.T., Barron, T., and Seidmann, A., "Contracting Structures for Custom Software Development: The Impacts of Informational Rents and Uncertainty on Internal Development and Outsourcing," Management Science, Vol. 43, No. 12, 1997, pp. 1726-1744 https://doi.org/10.1287/mnsc.43.12.1726
  59. Willcocks, L., Hindle, J., Feeny, D., and Lacity, M., "IT and Business Process Outsourcing: The Knowledge Potential," Information Systems Management, Vol. 21, No.3, 2004, pp. 7-15