Use of TCE Framework to study IT Sourcing: Over-application or Under-theorizing?

IS discipline has seen a large and growing body of research on IT sourcing, with economic theories informing a large portion of this work. The paper examines use of Transaction Cost Economics (TCE) as a theoretical lens to study IT sourcing decision (internal vs. external). It reviews TCE’s major assumptions, and assesses key constructs of frequency, asset specificity, opportunism, and uncertainty, as to their operationalization and results through a meta-analytic review of selected papers. The clearest evidence is seen in case of production costs, while findings on transaction costs are somewhat inconclusive. Moving the research agenda to co-evolutionary drivers of sourcing as buyers and vendors co-evolve, instead of cost-led determinants, holds potential for future research. Taking a longitudinal process approach to improve understanding of complex phenomena is suggested, given limited understanding from using a ‘reference discipline’ theory.