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Strategic Control of IT Resources: A Test of Resource-Based Theory in the Context of Selective IT Outsourcing

Title Author(s) Type Topic(s) Comments Date
Strategic Control of IT Resources: A Test of Resource-Based Theory in the Context of Selective IT OutsourcingStewart, Kathy
Straub, Detmar
Weill, Peter
Working PaperSourcing02002-04-01
Abstract: Achieving dramatic cost savings through IT outsourcing is one avenue managers choose for value creation. Another is controlling and nurturing the resources most likely to provide a competitive advantage due to their uniqueness. According to resource-based theory, organizations where managers have identified the core or distinctive competence of their business, including IT core processes, are theoretically better able to concentrate on competitive strengths. By divesting themselves of activities unrelated or marginally related to their core functions, they can benefit from superior marketing, production, inbound logistics, or distribution. The current study proposes and tests a Strategic control Model positing that, in their decision-making, managers seek to control resources that enable the firm to earn above average rents and that cannot be easily duplicated by others. Thus, organizations with a strategic perspective on IT are more likely to selectively outsource IT resources, retaining control of those that enable above average rents and competitive advantage and outsourcing the remainder. Utilizing a research design that captured extensive quantitative and qualitative data on the sourcing of IT functions and services, the research team studied 54 business units of 27 companies in seven countries over a five-year period. For data analysis purposes, the managers in these firms reported on several hundred different IT outsourcing decisions. Strategic control proves to be a good explanation for how effective managers make decisions regarding outsourcing the firms IT resource. Firms with more strategic investments in IT outsourced fewer assets. The selective outsourcing approach also demonstrated a complex statistical relationship with business unit performance, i.e., firms selectively outsourcing IT having higher profits per employee and greater returns on assets. For these reasons, it is critical that a clear firm-wide process for management decision making on IT sourcing is in place to capture business value.

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