The Choice of Sourcing Mechanisms for Business Processes

Hüseyin Tanriverdi (), Prabhudev Konana () and Ling Ge ()
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Hüseyin Tanriverdi: Department of Information, Risk, and Operations Management, Red McCombs School of Business, The University of Texas at Austin, CBA 5.202 B6500, Austin, Texas 78712
Prabhudev Konana: Department of Information, Risk, and Operations Management, Red McCombs School of Business, The University of Texas at Austin, CBA 5.202 B6500, Austin, Texas 78712
Ling Ge: Computer Information Systems Department, Appalachian State University, Boone, North Carolina 28608

Information Systems Research, 2007, vol. 18, issue 3, 280-299

Abstract: There is unprecedented interest in digitally enabled extended enterprises that enable firms to gain access to specialized skills and capabilities globally. Given this motivation, firms are unbundling their value chain processes and exploring new sourcing mechanisms. With the emergence of world-class skills and capabilities in offshore locations, new sourcing mechanisms have become available beyond traditional domestic insourcing and outsourcing. However, there is little systematic research examining how firms choose sourcing mechanisms for their business processes. This study views the digitally enabled extended enterprise as a complex system of business processes and examines how sourcing choices are made in such enterprises. It builds on the modular systems theory to posit that modularization of business processes and their underlying information technology (IT) support infrastructures are associated with the choice of sourcing mechanisms for the processes. The study tests this proposition in a sample of business process sourcing choices made by 93 medium and large U.S. firms. The results show that firms tend to choose domestic outsourcing for processes that are high in modularity and offshore outsourcing for processes that are low in modularity. Further, when processes can be detached from a firm's IT infrastructure, firms tend to use offshore outsourcing. However, when processes are tightly coupled with underlying IT infrastructure, it may be infeasible to detach processes and execute them in remote locations. Implications for theory and practice are also discussed.

Keywords: digitally enabled extended enterprise; outsourcing; offshoring; insourcing; new organizational forms; modular systems theory; process modularity; information technology detachability; transaction cost economics (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (19)

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