Economic, systemic, and environmental influences on the sourcing of application services : a comparative study of German and US companies

Abstract

This study examines the question on why firms outsource particular information systems (IS) functions to varying degrees. It is the first to simultaneously examine three theoretical perspectives that represent different rationales for and against IS outsourcing. The first of these perspectives is new to the IS outsourcing literature. It acknowledges the systemic character of the IS function, i.e. that IS performance critically depends on various sub-functions working together effectively. Such systemic influences may be affected through outsourcing particular IS functions. Accordingly, they are considered as determinants that reflect the extent to which systemic influences are better recognized through in-house as opposed to external service provisioning. In order to examine the relative importance of systemic influences in the outsourcing decision they are contrasted against two more established ones; the one holds that the outsourcing decision is based on a cost comparison including production and transaction costs (efficiency); the other recognizes the fact that outsourcing decisions are often influenced by environmental forces as reflected by the opinion of influential stakeholders and the level of control (i.e. power) that an organization has over the decision. Additionally, this study is the first to formulate hypotheses ex ante on the moderating influence of cross-cultural differences on IS outsourcing determination. A questionnaire survey was conducted including 180 companies in the United States and Germany. The results revealed that efficiency considerations and the opinions of external stakeholders were significant determinants of IS outsourcing in both countries, though productions costs were more strongly considered than transaction costs. As hypothesized, no statistically significant differences between countries could be detected regarding the impact of these three factors. In contrast, the consideration of two types of systemic influences varied significantly between countries confirming our hypotheses that systemic influences are cross-culturally sensitive. In addition, the impact of outsourcing control was statistically significant between countries confirming cross-cultural influences. The results reveal a number of theoretical and practical implications