Academic journal article Journal of Management Information and Decision Sciences

Understanding the Relationship between Uncertainty and International Information Technology Sourcing Strategy: A Conceptual Framework

Academic journal article Journal of Management Information and Decision Sciences

Understanding the Relationship between Uncertainty and International Information Technology Sourcing Strategy: A Conceptual Framework

Article excerpt

INTRODUCTION

The inherent economic advantages of international offshore sourcing (offshoring) work to cheaper offshore locations have made offshoring a business necessity for many enterprises. More and more organizations are relying on offshoring to provide critical information technology (IT) products and services and this phenomenon is likely to continue into the future (Davis, Ein-Dor, King & Torkzadeh, 2006). Significant cost savings are not the only or major objective for IT offshoring. Many companies are forced to offshore due to the lack of available technical talent in their home country (Ernst, 2006). However, the decision to offshore involves a certain degree of uncertainty for the firm (client) entering the offshoring arena. The question is not always about whether it is better for a company to insource or outsource. Rather, the question is increasingly becoming--how can companies reduce the uncertainties associated with IT offshoring and fit their IT offshoring strategies to the uncertainties encountered? To date, there has been little research investigating how IT managers address and match uncertainty with their IT offshoring strategy.

Much has been written about the management of and the decision to adopt IT outsourcing and offshoring (i.e., Lacity & Willcocks, 1996; Wang, 2002). Generally, when examining the IT outsourcing decision, the literature has focused on costs and control structures (Kern & Willcocks, 2000; Kim & Kim, 2008). Relatively few studies have investigated the uncertainties that surround the IT offshoring decision (i.e., Saunders, Gebelt & Hu, 1997). This is somewhat surprising given that nearly all international investments, including IT offshoring, are impacted by uncertainty and dealing with this uncertainty is crucial for success. Recent research by Hahn, Doh and Bunyaratevej (2009) suggests a significant need to examine the determinants of firm IT offshoring behavior with respect to offshoring location risk.

Given the predicted growth of the offshoring phenomenon, and the significant role of risk with a firm's performance, there is ample opportunity and an essential need for academics and practitioners to understand the impact of uncertainties in regards to the IT offshoring decision. Previous research has failed to fully capture and explain the role of uncertainties involved in IT offshoring. A framework that would synthesize the role of uncertainty in the context of the IT offshoring decision has yet to fully emerge. Moreover, much of the existing research on offshoring has assumed that the different forms of uncertainties (i.e., political uncertainty, cultural uncertainty, macroeconomic uncertainty, etc.) have the same (or similar) effect on a client firm's offshoring decision (i.e., Aspray, Mayadas & Vardi, 2006; Hahn et al., 2009; Kleim, 2004). We argue that this not true as some uncertainties can only be resolved through learning (i.e., a client firm's activities) and other uncertainties evolve independent of a client firm's activities. Drawing on the real options and organization learning theories we develop a framework that incorporates uncertainty in explaining the IT offshoring model decision. To parsimoniously assess the uncertainty inherent to IT offshoring our proposed framework distinguishes between endogenous and exogenous uncertainties in relation to the IT offshoring decision. Specifically, we argue the level of endogenous and exogenous uncertainty surrounding IT offshoring determines whether a client firm adopts a captive offshoring, joint-venture, third-party or onsite IT offshoring model. In doing so, we seek to fill an important gap in the IT offshoring literature.

The remainder of the paper is organized as follows. The next section reviews the extant IT offshoring literature in regards to uncertainty. Next, we develop a theoretical framework used to examine uncertainty in the IT offshoring environment. …

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