IS Sourcing
/Released: July 2018
Updated: August 2020
IS Sourcing Research Curation Team:
Julia Kotlarsky (University of Auckland)
Ilan Oshri (University of Auckland)
Jens Dibbern (University of Bern)
Deepa Mani (Indian School of Business)
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Information Systems (IS) Sourcing is a broad umbrella term that refers to the contracting or delegating of IS- or IT-related work (e.g., an ongoing service or one-off project) to an internal or external entity (a supplier). It encompasses various sourcing models that are typically based on the distinction between ownership (in-house or third party) and location (domestic, nearshore or offshore), as well as online sourcing models. The significance of this topic for the IS discipline is evident in the number of publications that have addressed different aspects of IS sourcing since 1998 when the first two MISQ articles on this topic were published. We have identified 38 MISQ publications on the topic up to Spring 2020. A Special Issue of MISQ on IS offshoring published in 2008 was an important step in advancing research on the subject.
1. Focus of the Research Curation
Papers included in this curation address issues directly relating to sourcing decisions, organizing and governing sourcing relationships, and sourcing performance for various sourcing models (i.e., these issues represent core elements of research settings and/or questions), viewed from different perspectives (the client and/or supplier ), and studied at different levels of analysis (see column five in Table 1).
2. Progression of Research in MIS Quarterly
Early studies: 1998–2007
The topic of IS sourcing in MISQ started to emerge in 1998 with the publication of papers showing interest in two key issues that have become major research streams in the IS sourcing literature. One is the examination of the determinants of outsourcing decisions (Ang and Straub 1998), and the other is the exploration of factors leading to outsourcing success (Lacity and Willcocks 1998). Several papers that broadened the treatment of the IS sourcing phenomenon were published in the following eight years. One of these articles offered a comparative study of the job design and outcomes between vendor personnel and in-house staff (Ang and Slaughter 2001), while a later article examined the service component in application service provision (ASP) (Susarla et al. 2003). The other studies examined the challenges for intellectual property rights in outsourcing relationships (Walden 2005), the supplier’s capabilities and the value proposition (Levina and Ross 2003), and the determinants of outsourcing decisions (Miranda and Kim 2006).
Recent studies: 2008 onwards
2008–2013
The MISQ Special Issue on IS offshoring in 2008 was instrumental in expanding the boundaries of IS sourcing research.
Articles published in this Special Issue examined issues such as knowledge processes, learning, production, boundary spanning and sensemaking in onshore-offshore interactions and settings. Other studies in the Special Issue examined the sources of variation among offshore outsourced IS projects in economic performance, determinants of supplier selection on an electronic marketplace platform, and psychological contracting in outsourcing. Another paper published in 2008 examined relationships between business familiarity and trust, contract type and project price (Gefen et al. 2008). Interestingly, as described in “MISQ Curation on Trust” (Söllner et al. 2016), trust has been flagged as an important construct in explaining outsourcing relationships (Ågerfalk and Fitzgerald 2008; Gefen et al. 2008; Goo et al. 2009; Rai et al. 2009).
Interest in IS sourcing has grown ever since the Special Issue. In the following five years (2009–2013) we observe the expansion of research to examine topics such as the contribution of IS outsourcing to project performance and the examination of interactions between contractual and relational governance. Other papers have examined the determinants of risks in an offshoring decision, internationalization of Chinese suppliers, and the role of an organizational control balancing act in offshoring.
2014 onwards
The topic has maintained a high level of interest. Papers published since 2014 have extended the treatment of IS outsourcing to include knowledge and coordination for onsite-offshore collaboration (Kotlarsky et al. 2014) and the interactions of relational and contractual governance (Benaroch et al. 2016). Other articles have examined IS outsourcing with a focus on cultural sensemaking (Su 2015), values of crowd-workers (Deng et al. 2016), conditions to share intellectual property rights (Chen et al. 2017), asset transfer, and the implications for contract design (Chang et al. 2017; Susarla & Mukhopadhyay 2019), and work design (Oshri et al. 2018).
Research methods
The MISQ papers on IS sourcing published between 1998 and early 2020 demonstrate a rich diversity of research methods, including surveys (e.g., Ang and Straub 1998; Ang and Slaughter 2001); case studies in different offshore contexts, including Mexico (Leonardi and Bailey 2008), Russia (Levina and Vaast 2008), Ireland (Holmstrom-Olsson et al. 2008), China (Su 2013; Su 2015; Oshri et al. 2018), and India (Dibbern et al. 2008; Vlaar et al. 2008; Gregory et al. 2013; Kotlarsky et al. 2014); and econometric methods (e.g., Walden 2005; Cha et al. 2008; Hahn et al. 2009; Han and Mithas 2013; Susarla et al 2019), as well as mathematical modeling (e.g., Bhattacharya et al 2018).
Theoretical perspectives
A range of theories have been used in IS sourcing studies. From an economics perspective, transaction cost economics (TCE) is the most commonly used lens (e.g., Ang and Straub 1998; Walden 2005; Dibbern et al. 2008; Hahn et al. 2009; Han and Mithas 2013; Su 2013; Benaroch et al. 2016; Chang et al. 2017). From a social and relational perspective, theories used include: social exchange (Ang and Slaughter 2001), psychological contract (Ågerfalk and Fitzgerald 2008), social embeddedness (Rai et al. 2009), relational exchange theory (Holmstrom-Olsson et al. 2008; Goo et al. 2009; Gopal and Koka 2012), and trust (Gefen et al. 2008). Other theoretical perspectives that have been used include: agency theory (e.g., Gefen and Carmel 2008; Shivendu et al. 2020), information processing theory (Mani et al. 2010), organizational controls (Gregory et al. 2013), coordination theory (Kotlarsky et al. 2014), resource dependency (Lee et al. 2019), knowledge-based theory (e.g., Chang and Gurbaxani 2012), and practice theory (Levina and Vaast 2008).
While the use of economic theories dominates in the earlier work, recent studies employ a wide range of theories, including organizational, social and cognitive. In the way theoretical perspectives have been applied to study IS sourcing, some papers have used single theories, others have used a combination of theories in a complementary way (e.g., TCE is used as the dominant theory and is complemented by another theoretical perspective), and a few studies have used multiple theories from a competing/rival perspectives (e.g., Dibbern et al. 2008; Oshri et al. 2018).
3. Thematic Advances in Knowledge
Our analysis of the MISQ papers on IS sourcing, listed in Table 1, suggests that the papers can be grouped into three thematic clusters that reflect consecutive phases in the IS sourcing lifecycle: (1) Making the sourcing decision; (2) Designing contractual structures; and (3) Managing the sourcing relationship.
Making the sourcing decision
Sourcing decisions have been studied from either the client or the supplier perspective. Most studies have taken the client perspective and have focused on the following aspects of sourcing choices:
Whether, and to what degree, to outsource an organization’s IS (functions, tasks, projects, professionals) (Ang and Straub 1998; Lacity and Willcocks 1998; Ang and Slaughter 2001; Miranda and Kim 2006; Chang and Gurbaxani 2012; Han and Mithas 2013; Angst et al. 2017);
Whether to adopt a specific IT-enabled service provision model, such as Application Service Provision (ASP) (Susarla et al. 2003);
Whether to retain property rights (Chang et al. 2017);
Whether to choose a domestic or offshore provider (Gefen and Carmel 2008);
Which project and supplier to choose to limit the client’s extra costs (Dibbern et al. 2008);
Where to offshore-outsource (i.e., which host country) and the accompanying destination risks (Hahn et al. 2009).
Whether to use a single supplier or multiple suppliers for a set of IS tasks (Angst et al. 2017; Bhattacharya et al. 2018).
Which archetype of IT outsourcing derives economic and strategic benefits (Lee et al. 2019).
Studies taking a supplier perspective have informed the following sourcing choices:
The supplier’s strategy and value proposition based on understanding the supplier’s core capabilities and complementary assets (Levina and Ross 2003);
The supplier’s internationalization strategy from the perspective of an emerging economy (Su 2013).
The majority of papers in this first cluster used the TCE theory, either as a single theory or in combination with other theories, such as the resource- or knowledge-based view, coordination theory, production economies, and institutional theory. Most studies on the IS sourcing decision have used cross-sectional research designs, and have integrated time-dependent contextual aspects, such as the supplier’s absorptive capacity, the client’s complementary investments in sourcing skills, and learning from experiences to understand sourcing decisions.
Regarding the studies that examined the outcome of the sourcing decision, most focused on the outsourcing contract as the unit of analysis and examined different facets of outsourcing success, including achievement of expected cost savings (Lacity and Willcocks 1998), satisfaction with outsourcing (Susarla et al. 2003), or incurrence of extra costs (Dibbern et al. 2008). One study, adopting an individual level perspective, examined differences in the performance of in-house versus contracted IS professionals (Ang and Slaughter 2001). Several studies investigated the implications of the sourcing decision on success at the firm level; i.e., whether and under which circumstances IS outsourcing reduces non-IT operating costs (Han and Mithas 2013) and leads to productivity gains (Chang and Gurbaxani 2012).
Designing contractual structures
The contract structure, which refers to the formalization of hierarchical control and the division of risks and incentives thereof in the outsourcing relationship, has been studied in a large part from the client’s perspective. A notable exception is Gopal and Koka (2012), who focused on the supplier’s perspective. Papers included in this cluster distinguished between contractual structures in two ways:
The degree of hierarchical elements in different contractual structures: e.g., equity arrangements such as joint ventures and arm’s length contracts vary in terms of the extent to which they replicate the control and coordination features of vertically integrated organizations Mani et al. (2010);
The division of risks and incentives between the client and supplier in arm’s length contracts: fixed-price (FP), cost-plus (CP) or time-and-materials (T&M) compensations are considered as the dominant classifications (Gefen et al. 2008; Gopal and Koka 2012; Benaroch et al. 2016).
Notwithstanding the conceptualization of contractual structures, the papers in this second cluster studied incentive alignments that engender cooperation between the client and supplier. Specifically, these studies focused on the following issues:
(i) Interaction between contract type and other mechanisms of control and coordination (Gefen et al. 2008; Mani et al. 2010; Gopal and Koka 2012; Benaroch et al. 2016): these studies largely drew on TCE and agency theory, with the exception of Mani et al. (2010) who took an information processing view of outsourcing relationships;
(ii) Ex ante incentives for cooperative efforts in the presence of incomplete contracts (Walden 2005; Chang et al. 2017; Shivendu et al. 2020), leveraging the property rights view, agency theory and self-enforcing contracts, and efficient contracting in the presence of non-verifiability of quality.
The studies highlighted that the contract, while instrumental in aligning incentives between the client and supplier and achieving cooperation, is limited in its ability to actually coordinate actions between the client and supplier. Therefore, once the contract is in place, the focus shifts to managing the sourcing relationship to integrate efforts for task execution.
All the papers in this cluster are quantitative papers; half of them used econometric modeling.
Managing the sourcing relationship
The third cluster encompasses papers that focused on managing ongoing sourcing relationships. These papers highlighted various boundaries between clients and suppliers (Rai et al. 2009; Oshri et al. 2018) and/or between onsite and offshore teams (Leonardi and Bailey 2008; Levina and Vaast 2008; Vlaar et al. 2008; Kotlarsky et al. 2014), and offered theoretical contributions to expand the knowledge of how sourcing engagements could be managed successfully.
The first papers on managing sourcing processes were published in the Special Issue on IS offshoring in 2008. Since then, there has been increasing interest in understanding various aspects of ongoing sourcing relationships.
The two main issues that are brought to the fore by these papers are:
Knowledge boundaries (e.g., Cha et al. 2008; Leonardi and Bailey 2008; Levina and Vaast 2008; Ramasubbu et al. 2008; Vlaar et al. 2008; Kotlarsky et al. 2014; Oshri et al. 2018);
The dynamics of ongoing sourcing relationships that are addressed through relational aspects, such as cultural adjustments (Rai et al. 2009; Su 2015), and contractual (i.e., formal) mechanisms (Goo et al. 2009), such as control (Gregory et al. 2013).
These papers offered practices or strategies rooted in relational and contractual governance that facilitate knowledge processes between client and supplier firms and/or onsite-offshore teams aiming to accommodate the dynamic nature of sourcing relationships. Furthermore, in studies that focused on crowdsourcing (Ågerfalk and Fitzgerald 2008; Gefen and Carmel 2008) – a model that is suitable for the sourcing of small IT projects via electronic marketplaces – the motivation for the engagement has been investigated from the client (Ågerfalk and Fitzgerald 2008) and crowd-worker (Deng et al. 2016) or crowd-community (Ågerfalk and Fitzgerald 2008) perspectives.
The majority of papers included in this cluster are qualitative papers, some using revelatory case studies (e.g., Holmstrom-Olsson et al. 2008; Oshri et al. 2018), that enrich our understanding of dynamic processes in managing IS outsourcing relationships.
The papers adopted a variety of theories from other disciplines. For example, organizational and cognitive theories adopted include: organizational learning theory (Cha et al. 2008; Ramasubbu et al. 2008), coordination theory (Ramasubbu et al. 2008; Kotlarsky et al. 2014), organizational control theory (Goo et al. 2009; Gregory et al. 2013), relational theories (Holmstrom-Olsson et al. 2008; Goo et al. 2009; Rai et al. 2009), sensemaking (Vlaar et al. 2008; Su 2015), and a semiotic view borrowed from linguistics (Oshri et al. 2018).
4. Conclusion
IS sourcing has gained significant attention from the IS community, demonstrating the centrality of IS sourcing for organizations, technology and the IS function. Papers on IS sourcing published in MISQ reflect the pace in which technologies change their business environment and affect society, leading to the emergence of new sourcing models, new ways of managing sourcing relationships, and a greater understanding of the factors imperative to making sourcing decisions – all in the pursuit of improving sourcing performance. This curation contributes to the further development of the IS sourcing field by reviewing the various themes, theories and methods covered in MISQ publications. It should help future research to position itself in this growing field of research.
Please cite this curation as follows: Kotlarsky, J., Oshri, I., Dibbern, J., Mani, D., “IS Sourcing,” in MIS Quarterly Research Curations, Ashley Bush and Arun Rai, Eds., http://misq.org/research-curations, released: July 1, 2018; updated: August 25, 2020. doi: 10.25300/07012018
Please feel free to contact Julia Kotlarsky (j.kotlarsky@auckland.ac.nz) if you have any comments or questions regarding this curation.
References
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Ang, S., and Straub, D. 1998. “Production and Transaction Economies and IS Outsourcing: A Study of the U.S. Banking Industry,” MIS Quarterly (22:4), pp. 535–552. Also available at https://aisel.aisnet.org/misq/vol22/iss4/5/.
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Chang, Y. B., Gurbaxani, V., and Ravindran, K. 2017. “Information Technology Outsourcing: Asset Transfer and the Role of Contract,” MIS Quarterly (41:3), pp. 959–973. Also available at https://aisel.aisnet.org/misq/vol41/iss3/15/.
Chen, Y., Bharadwaj, A., and Goh, K.-Y. 2017. “An Empirical Analysis of Intellectual Property Rights Sharing in Software Development Outsourcing,” MIS Quarterly (41:1), pp. 131–161. Also available at https://aisel.aisnet.org/misq/vol41/iss1/9/.
Deng, X., Joshi, K. D., and Galliers, R. D. 2016. “The Duality of Empowerment and Marginalization in Microtask Crowdsourcing: Giving Voice to the Less Powerful Through Value Sensitive Design,” MIS Quarterly (40:2), pp. 279–302. Also available at https://aisel.aisnet.org/misq/vol40/iss2/4/.
Dibbern, J., Winkler, J., and Heinzl, A. 2008. “Explaining Variations in Client Extra Costs Between Software Projects Offshored to India,” MIS Quarterly (32:2), pp. 333–366. Also available at https://aisel.aisnet.org/misq/vol32/iss2/9/.
Gefen, D., and Carmel, E. 2008. “Is the World Really Flat? A Look at Offshoring at an Online Programming Marketplace,” MIS Quarterly (32:2), pp. 367–384. Also available at https://aisel.aisnet.org/misq/vol32/iss2/10/.
Gefen, D., Wyss, S., and Lichtenstein, Y. 2008. “Business Familiarity as Risk Mitigation in Software Development Outsourcing Contracts,” MIS Quarterly (32:3), pp. 531–551. Also available at https://aisel.aisnet.org/misq/vol32/iss3/6/.
Goo, J., Kishore, R., Rao, H. R., and Nam, K. 2009. “The Role of Service Level Agreements in Relational Management of Information Technology Outsourcing: An Empirical Study,” MIS Quarterly (33:1), pp. 119–145. Also available at https://aisel.aisnet.org/misq/vol33/iss1/8/.
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Hahn, E. D., Doh, J. P., and Bunyaratavej, K. 2009. “The Evolution of Risk in Information Systems Offshoring: The Impact of Home Country Risk, Firm Learning, and Competitive Dynamics,” MIS Quarterly (33:3), pp. 597–616. Also available at https://aisel.aisnet.org/misq/vol33/iss3/12/.
Han, K., and Mithas, S. 2013. “Information Technology Outsourcing and Non-IT Operating Costs: An Empirical Investigation,” MIS Quarterly (37:1), pp. 315–331. Also available at https://aisel.aisnet.org/misq/vol37/iss1/15/.
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Leonardi, P. M., and Bailey, D. E. 2008. “Transformational Technologies and the Creation of New Work Practices: Making Implicit Knowledge Explicit in Task-Based Offshoring,” MIS Quarterly (32:2), pp. 411–436. Also available at https://aisel.aisnet.org/misq/vol32/iss2/12/.
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Mani, D., Barua, A., and Whinston, A. 2010. “An Empirical Analysis of the of Information Capabilities Design on Business Process Outsourcing Performance,” MIS Quarterly (34:1), pp. 39–62. Also available at https://aisel.aisnet.org/misq/vol34/iss1/5/.
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Shivendu, S., Zeng, D., and Gurbaxani, V. 2020. “Optimal Asset Transfer in IT Outsourcing Contracts,” MIS Quarterly (44:2), pp. 857–905. Also available at https://aisel.aisnet.org/misq/vol44/iss2/14/.
Su, N. 2013. “Internationalization Strategies of Chinese IT Service Suppliers,” MIS Quarterly (37:1), pp. 175–200. Also available at https://aisel.aisnet.org/misq/vol37/iss1/9/.
Su, N. 2015. “Cultural Sensemaking in Offshore Information Technology Service Suppliers: A Cultural Frame Perspective,” MIS Quarterly (39:4), pp. 959–983. Also available at https://aisel.aisnet.org/misq/vol39/iss4/11/.
Susarla, A., Barua, A., and Whinston, A. B. 2003. “Understanding the Service Component of Application Service Provision: An EmpiricalAnalysis of Satisfaction with ASP Services,” MIS Quarterly (27:1), pp. 91–123. Also available at https://aisel.aisnet.org/misq/vol27/iss1/5/.
Susarla, A., and Mukhopadhyay, T. 2019. “Can Outsourcing of Information Technology Foster Innovations in Client Organizations? An Empirical Analysis,” MIS Quarterly (43:3), pp. 929–949. Also available at https://aisel.aisnet.org/misq/vol43/iss3/13/.
Vlaar, P. W. L., van Fenema, P. C., and Tiwari, V. 2008. “Cocreating Understanding and Value in Distributed Work: How Members of Onsite and Offshore Vendor Teams Give, Make, Demand, and Break Sense,” MIS Quarterly (32:2), pp. 227–255. Also available at https://aisel.aisnet.org/misq/vol32/iss2/5/.
Walden, E. A. 2005. “Intellectual Property Rights and Cannibalization in Information Technology Outsourcing Contracts,” MIS Quarterly (29:4), pp. 699–720. Also available at https://aisel.aisnet.org/misq/vol32/iss2/5/.
Table 1. MIS Quarterly Papers on IS Sourcing: Focus, Approach and Insights
Figure 1. IS Sourcing Infographic
