Centralizing Data Management with Considerations of Uncertainty and Information-Based Flexibility

This paper applies the theory of real options to analyze how the value of information-based flexibility should affect the decision to centralize or decentralize data management under low and high uncertainty. This study makes two main contributions. First, we show that in the presence of low uncertainty, centralization of data management decisions creates more total surplus for the firm as the similarity of business units increases. In contrast, in the presence of high uncertainty, centralization creates more total surplus as the dissimilarity of business units increases. The pivoting distinction trades the benefit of reduction of uncertainty from dissimilar businesses for centralization (with cost saving) against the benefit of flexibility from decentralization. Second, the framework helps senior management evaluate the trade-offs in data centralization that drive different business models of the firm. We illustrate the application of these propositions formally using an analytical model and informally using case vignettes and simulation

To Standardize Enterprise Data or Not? An Economic Analysis of Flexibility versus Control

This paper addresses the tension between benefits of centralized data control against the benefits of decentralized control at the level of the business unit. Centralized data control provides the benefit of uniform standards whereas business unit data control grants flexibility to react to rapidly changing environments. Many data standardization efforts fail because they do not fully take into account the value of flexibility and ownership incentives. We use a real options based framework and the theory of incomplete contracts to derive propositions about the optimal level of data standardization across the enterprise. Applications of the propositions are illustrated with case vignettes. The paper makes two main contributions. First, the approach defines formally how incentive structures influence ownership of the option value or value of flexibility, which is an intangible information asset. Second the derived propositions would help senior management to more precisely consider aligning incentives in data standardization exercises

Business model innovation in network markets

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To Standardize Enterprise Data or Not? An Economic Analysis of Flexibility versus Control

This paper addresses the tension between benefits of centralized data control against the benefits of decentralized control at the level of the business unit. Centralized data control provides the benefit of uniform standards whereas business unit data control grants flexibility to react to rapidly changing environments. Many data standardization efforts fail because they do not fully take into account the value of flexibility and ownership incentives. We use a real options based framework and the theory of incomplete contracts to derive propositions about the optimal level of data standardization across the enterprise. Applications of the propositions are illustrated with case vignettes. The paper makes two main contributions. First, the approach defines formally how incentive structures influence ownership of the option value or value of flexibility, which is an intangible information asset. Second the derived propositions would help senior management to more precisely consider aligning incentives in data standardization exercises.economics of IS, outsourcing, enterprise systems, real options, incomplete contracts, standardization, information asset, flexibility, information systems decentralization,