Strategic dependence on the IT resource and outsourcing: A test of the strategic control model

Using resource dependency theory (RDT), this research analyzes how organizations control their information technology resources to improve organizational performance. According to RDT, organizations must manage their dependency on external organizations and limit external dependencies when resources are considered critical. The current study proposes and tests a Strategic Control Model positing that managers seek to control important, strategic resources in order to create value for the firm and to avoid dependency on external entities. Utilizing a research design that captured extensive quantitative data on the control of IT functions and services, the research team gathered five years of data on 54 business units(BUs) in 27 global companies located in seven countries. Study 1 examined the linkagesof these 54 BUs to firm performance. In study 2, managers in these firms reported on 378 different outsourcing decisions each of 7 core and 7 noncore IT activities. Findings show that firms with strategic investments in IT tend to locate control of their IT resources inside the firm. Locating the Extent of Control within the firm in cases where the firm depends on IT as a strategic resource proves to be a good explanation for effective decisions leading to higher performance. Viewing IT as a strategic resource alone does not lead to positive business unit outcomes, but the moderating influence of Extent of Control is found to establish the complex statistical relationship with business unit performance. For these reasons, it is critical that a theoretically-grounded firm-wide process for decisions on locating IT control is in place to capture business value. Strategic control proves to be a good explanation for how the most effective managers outsource IT. Firms with a more strategic view of IT outsourced fewer core assets. The selective outsourcing approach also has a complex statistical relationship with business unit performance, i.e., firms with selectively outsourcing IT having higher revenues per employee and faster completion times for new IT products. For these reasons, it is critical that a clear firm-wide process for management decision making on IT sourcing is in place to capture business value.