Strategic Dependence on the IT Resource and Outsourcing: A Test of the Strategic Control Model

Detmar Straub (), Peter Weill () and Kathy S. Schwaig ()
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Detmar Straub: Georgia State University
Peter Weill: MIT, Sloan School of Management
Kathy S. Schwaig: Kennesaw State University

A chapter in Information Systems Outsourcing, 2009, pp 175-199 from Springer

Abstract: When managers outsource all or part of IT, the motivation is to create business value for the firm. One means of creating business value is by achieving dramatic cost savings through outsourcing; another is through decisions that lead to strategic control of IT resources. In the former, IT outsourcing returns profits to the firm by taking advantage of economies in the marketplace. Theoretically, IT vendors/ outsourcers drive down the costs of production and technical expertise by spreading these expenses over a large client base; accordingly, their customers are able to benefit indirectly from these economies of scale through attractive pricing of IT products and services by vendors (Dibbern, Goles, Hirschheim, & Jayatilaka 2004). Strategic control is the second avenue for value creation. Managers who identify IT resources that are critical to their firm's operations and to its strategic direction are theoretically better able to manage those resources if the firm maintains control over them. By divesting themselves of activities that are not strategic, they can capitalize on superior design, marketing, production, inbound logistics, or distribution capabilities. Thus, organizations that outsource IT activities that are not strategic can concentrate energies on distinctive resources that are directly related to value creation for the firm. The notion of strategic control of the IT resource has strong theoretical underpinnings in resource dependency theory (Pfeffer & Salancik 2003). Strategic control is the second avenue for value creation. Managers who identify IT resources that are critical to their firm's operations and to its strategic direction are theoretically better able to manage those resources if the firm maintains control over them. By divesting themselves of activities that are not strategic, they can capitalize on superior design, marketing, production, inbound logistics, or distribution capabilities. Thus, organizations that outsource IT activities that are not strategic can concentrate energies on distinctive resources that are directly related to value creation for the firm. The notion of strategic control of the IT resource has strong theoretical underpinnings in resource dependency theory (Pfeffer & Salancik 2003).

Keywords: Partial Little Square; Firm Performance; Business Unit; Resource Dependency; Partial Little Square Analysis (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/978-3-540-88851-2_8

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