IS 490D: Special Topics in Information Systems:

Economic, Strategic, and Social Theories Used in I.S. Sourcing Research

Winter 2004

Dr. Mary C. Lacity

233 Computer Center Building

(314) 516-6127 (work)

(314) 516-6827 (fax)

Email: Mary.Lacity@umsl.edu

Homepage: http:/www.umsl.edu/~lacity

Wednesday 10:00 to 12:35 2nd floor CCB Conference Room (unless otherwise noted)

COURSE DESCRIPTION:

This course explores the theoretical and empirical foundations of IS research in the IS Sourcing Context. The primary objective is to prepare students to be IS researchers by demonstrating the variety of theories and methodological approaches used to study IS. Students will learn major reference theories adopted from other disciplines and applied to IS research, including transaction cost economics, resource based view, resource dependency theory, agency theory, social exchange theory, institutionalism, social cognitive theory, auction theory, control theory, game theory, and others. These theories are applied to the IS sourcing context to identify the determinants of IS sourcing, critical success factors, ideal contracts, and governance forms. Students will gain an in-depth knowledge of the theories and empirical results of many IS sourcing options including total outsourcing, selective outsourcing, total insourcing, application service provision, offshore outsourcing, and business process outsourcing.

GRADING:

20% Class participation

20% Weekly paper critiques & presentation (1-2 papers per student per week)

30% Weekly Quizzes

30% Summary of Lessons Learned Paper & Presentation

WEEKLY QUIZZES:

At the start of class each week, I will administer a brief quiz on the assigned readings. The purpose of the quiz is to give you that extra incentive to read all assignments prior to class. The quizzes will assess basic understanding of the material, while the subsequent class discussion will provide more erudite analysis. The lowest quiz grade will be dropped.

WEEKLY PAPER SUMMARY/ CRITIQUES:

One of our goals is to also prepare you for your comprehensive exams. One of the best ways to do this is to summarize each book/article you read and file it into meaningful categories so that you only have to study your summaries rather than revisiting the 1,000 plus articles/books you will read during your doctoral studies. For class, I am only asking that you each prepare one or two summaries each week, then share your summaries with your classmates. Each student will also be asked to present/lead the class discussion for the article/book. For students new to this process, see the following website as an example of a summary: http://www.umsl.edu/~lacity/readsum.html

WEEKLY CLASS PARTICIPATION:

It is vital that students attend all sessions. Please make attendance your number one priority. This class will only be valuable if each and every one of us makes a commitment to be prepared. That means that each student must have carefully read all the reading assignments prior to class. I will assess the class participation grade based on my impression of your weekly preparation, meaningful insights, plentiful comments, intellectual curiosity, and enthusiasm.

In a rare circumstance that a student has to miss class (such as the birth of a child or severe illness), please contact me immediately so I may organize an audio recording of class.

SUMMARY OF LESSONS LEARNED:

On the last day of class, each student will be asked to present the major theoretical constructs and empirical tests of one theory studied during the course. The purpose is to synthesize all the material associated with one theory, provide a critical commentary on the theory’s assumptions and operationalization, and to summarize the major findings. Students are expected to significantly read material beyond the reading list. The summary is to be documented in a 10-20 page single-spaced paper. Topics are:

Transaction cost theory, agency theory, resource based view, social/relational exchange theories, power theories, and institutionalism. Each student will do a 25 minute power point presentation on their paper. The grade will be based on an assessment of the written and oral components of this assignment. ALL PAPERS MUST BE TURNED IN ON THE LAST DAY OF CLASS, NO EXCEPTIONS. My goal is to not give any students an incomplete for this course. Therefore, if you know that the paper and presentation must be ready by the last day of class, you must manage your 14 weeks prior to the last day to ensure completion. Project will be scored using the following:

Oral and written grade form.

WINTER 2004 CLASS:

Michael Griggs mailto:griggs@umsl.edu 516-4882 Summary Topic: Power

Chris Kang mailto:sbk8qf@studentmail.umsl.edu 516-6291 Summary Topic: Social/Relational Exchange

Dennis Shi mailto:hsy7d@studentmail.umsl.edu 516-4881 Summary Topic: RBV

Jian Wang jwh29@studentmail.umsl.edu 516-6563 Summary Topic: TCT

Hui Zhou huizhou_1980@263.net 516-6291 Summary Topic: Agency Theory

Srikanth Mudigonda: mudigons@pluto.dsu.edu 516-6563 Summary Topic: Institutionalism

READING MATERIALS:

Packet of Readings will contain all of the Journal Articles.

The following books are required:

Ekeh, Peter, Social Exchange Theory: The Two Traditions, Harvard University Press, Cambridge, 1974.

Fiske, S., and Taylor, S., Social Cognition, McGraw Hill, New York, 1991.

Lacity, M., and Willcocks, Global Information Technology Outsourcing: Search for Business Advantage, Wiley, Chichester, 2001.

Lacity, M., and Hirschheim, R., Information Systems Outsourcing: Myths Metaphors and Reality, Wiley, Chichester, 1993.

Pfeffer, J., Managing With Power: Politics and Influence in Organizations, Harvard Business School Press, Boston, 1994.

Tentative Course Schedule

January 14: COURSE OVERVIEW

Perspective	Theory	Main Constructs	Brief Summary
Economic	Transaction Cost Theory	Production costs Transaction Costs Asset specificity Frequency of Transaction Uncertainty Opportunism Contracts	TCT generally addresses the question: why do firms exist? And TCT specifically addresses the question: should companies make or buy resources? Make-or-buy decisions are presumed to be made on an economic basis, considering production & transaction costs.
	Agency Theory	Contracts; Monitoring, bonding, and Residual loss costs	AT purports that principal-agent relationships--characterized by different goals and risk preferences--should be efficiently managed, particularly with appropriate contracts.
Strategic	Resource-Based View	Resource value Resource rareness Resource Mutability Non-substitutability	RBV purports that competitive advantage of a firm arises from developing & deploying unique, valuable, and costly-to-copy capabilities. Implies that companies should retain core capabilities, but that non-core capabilities do not have to be owned or controlled.
	Resource Dependency Theory	External Environment; Concentration; Munificence; Interconnectedness	RDT The organization’s dependence on outsourcing is determined by the importance of the resource to the organization, the number of potential suppliers, and the cost of switching suppliers, etc.
	Game Theory/ Auction Theory	Payoff Calculation Opponent Assessment Information Asymmetry	These theories are applied to customer-supplier bidding & negotiations.
Social	Social/Relational Exchange Theory	Trust Culture Personal Satisfaction & Gain	Relationships between customers and suppliers are based on trust developed over time (partnership advantage)
	Institutionalism	Mechanisms of Isomorphic Change: Coercive, Mimetic, Normative	The subset of this theory, institutional isomorphism studies how organizations eventually adopt similar practices through three mechanisms of change: force, copy-catting, and norms. In sourcing, many contracts and practices are essentially standardized.
	Power Theories	Sources of Power Political Tactics	Organizational decision-making processes are characterized by the power and political tactics of stakeholders involved.
	Social Cognition: Attribution Theory	Persistent Expectations; Schemas, Scripts, & Frames; Decision-making & Causal Analysis	Social cognition theory studies how ordinary people think about other people (phenomenology) and how people think they think about people (naïve scientists)

January 21: OVERVIEW OF I.S. SOURCING CONTEXT PART I (Core Competencies, IT Outsourcing)

Lacity, M., and Willcocks, Global Information Technology Outsourcing: Search for Business Advantage, Wiley, Chichester, 2001. Read Chapters 1,2,7, and 8.

January 28: OVERVIEW OF I.S. SOURCING CONTEXT PART II (Strategic Intent, Actual Outcomes, Proven Practices)

(Michael) DiRomualdo, A., and Gurbaxzni, V., “Strategic Intent for IT Outsourcing,” Sloan Management Review, Summer, 1998, Vol. 39, 4, p. 67-1998.

(Dennis) Quinn, James Brian, "Outsourcing innovation: The new engine of growth," Sloan Management Review, Summer 2000; Vol. 41, Iss. 4; pg. 13-29

(Hui) Barthelemy;, J. "The hidden costs of IT outsourcing" Sloan Management Review, Spring 2001; Vol. 42, Iss. 3; pg. 60-70.

(Chris) Lacity, M., and Willcocks, L., "Practices in Information Technology Outsourcing: Lessons From Experience," MIS Quarterly, September, Vol. 22, 3, 1998, pp. 363-408.

(Jian) Hirschheim, R., and Lacity, M. "Information Technology Insourcing: Myths and Realities", Communications of the ACM, February, 2000.

February 4: OVERVIEW OF I.S. SOURCING CONTEXT PART III (ASP, Offshore Outsourcing, BPO, Vendor Perspective,)

(Dennis) Susarla, A., Barua, A., and Whinston, A., “Understanding the Service Component of Application Service Provision, An Empirical Analysis of Satisfaction with ASP Services, MIS Quarterly, Vol. 27, 1, March 2003, pp. 91-124.

(Chris) Kern, T., Willcocks, L., and Lacity, M., "Application Service Provision: Risk Assessment and Risk Mitigation," MIS Quarterly Executive, Vol. 1, 2, 2002, pp.113-126.

(Srikanth) Carmel, E., and Agarwal, R., “The Maturation of Offshore Sourcing of Information Technology Work,” MIS Quarterly Executive, Vol. 1, 2, June, 2002, pp. 65-78.

(Michael) Lacity, M., Feeny, D., and Willcocks, L., "Transforming a back-office function: Lessons from BAE Systems' Experience With an Enterprise Partnership," MIS Quarterly Executive, 2003.

(Hui) Levina, N., and Ross, J., “From the Vendor’s Perspective: Exploring the Value Proposition in Information Technology Outsourcing,” MIS Quarterly, Vol. 27, 3, September 2003, pp. 331-364.

(Jian) Kern, T., and Willcocks, L., “Exploring Relationships in IT Outsourcing: The Interaction Approach,” European Journal of Information Systems, 2002, Vol. 11, pp. 3-19.

February 11: TRANSACTION COST ECONOMICS

(Jian) Williamson, Oliver. 1991a. “Strategizing, economizing, and economic organization,” Strategic Management Journal, 12: 75-94.

(Michael) Williamson, O. 1991b. “Comparative economic organization: The analysis of discrete structural alternatives,”. Administrative Science Quarterly, 36: 269-296.

(Dennis) Ghoshal, S. and P. Moran. 1996. "Bad for practice: A critique of the transaction cost theory," Academy of Management Review, 21: 13-47.

(Hui) Barney, J., “How a Firm’s Capabilities Affect Boundary Decisions,” Sloan Management Review, Spring 1999, Vol. 40, 3., pp. 137-145.

Some Recommended Additional Reading if this is your summary topic:

Macneil, I. R. 1978. Contracts: Adjustment of Long-term Economic Relations Under Classical, Neoclassical and Relational Contract Law. Northwestern University Law Review, 72:854-905.

MacNeil, I, "Contract Remedies: A Need for Better Efficiency Analysis," Journal of Institutional Economics, Vol. 144, 1988, pp. 6-30.

MacNeil, I., "Economic Analysis on Contractual Relations: ITs Shortfalls and the Need for a Rich Classification Apparatus," Northwestern University Law Review, Vol. 75:1018, 1981, pp. 1028-1063.

Williamson, O. 1985. The Economic Institutions of Capitalism. New York: The Free Press.

Williamson, Oliver. 1979. "Transaction Cost Economics: The Governance of Contractual Relationships," Journal of Law and Economics, Vol. 22, 2, October, pp. 233-261.

Williamson, Oliver, Mechanisms of Governance, Oxford University Press, Oxford, 1996.

February 18: TRANSACTION COST ECONOMICS APPLIED TO I.S. SOURCING

(Michael) Lacity, M. and Willcocks, L. (1996). Interpreting Information Technology Sourcing Decisions From A Transaction Cost Perspective: Findings and Critique. Accounting, Management and Information Technology, 5, 3/4, 203-244.

(Srikanth) Ang, S. and Straub, D. ‘Production and Transaction Economies and Information Systems Outsourcing – A Study Of The US Banking Industry’, MIS Quarterly, Vol. 22, 4, 535-552, 1998.

(Jian) Nam, K., Rajagopalan, S., Rao, H., and Chaudhury, "A Two-level investigation of Information Systems Outsourcing," Communications of the ACM, Vol. 39, 7, July 1996, pp. 36-44.

(Chris) Aubert, B., Rivard, S., and Patry, M., “A transaction Cost Approach to Outsourcing Behavior: Some Empirical Evidence,” Information & Management, Vol. 30, 2., 1996, pp. 51-64.

(Dennis) Afuah, Allan, “Redefining Firm Boundaries in the Face of the Internet: Are firms really shrinking?,” Academy of Management Review, Vol. 28, 1, 2003, pp. 34-53.

February 25: No Class (Lacity will be at Outsourcing World Summit)

March 3: TRANSACTION COST ECONOMICS APPLIED TO I.S. SOURCING &

AGENCY THEORY AND AGENCY THEORY APPLIED TO I.S. SOURCING

(Jian) Qu, Z., and Brocklehurst, M., “What Will it Take for China to become a Competitive Force in Offshore Outsourcing? An Analysis of the Role of Transaction Costs in Supplier Selection, “ Journal of Information Technology, Vol. 18, 2003, pp. 53-67.

(Chris) Smith, A., and Rupp, W., “Application Service Providers: An Application of the Transaction Cost Model,” Information Management & Computer Security, Vol. 11, 1, 2003,

(Hui) Grover, V., and Ramanlal, P., “Six Myths of Information and Markets: Information Technology Networks, Electronic Commerce, and the Battle for Consumer Surplus,” MIS Quarterly, Vol. 23, 4., December 1999, pp. 465-495.

Agency Theory:

(Michael) Eisenhardt, Kathleen M, "Agency Theory: An Assessment And Review," The Academy Of Management Review, Jan 1989; Vol. 14, 1; pg. 57-76.

(Srikanth) Logan, Mary, “Using Agency Theory to Design Successful Outsourcing Relationships,” International Journal of Logistics Management, Vol. 11, 2, 2000, pp. 21-32.

March 10: RESOURCE BASED VIEW & RBV APPLIED TO I.S. SOURCING

(Srikanth) Michalisin, Michael, "In search of strategic assets", International Journal of Organizational Analysis, Bowling Green; Oct 1997; Vol. 5, Iss. 4; pg. 360, 28 pgs

(Michael) Barney, Jay, "Strategic Factor Markets: Expectations, Luck, and Business Strategy," Management Science, October 1986, pp. 1231-1241.

(Hui) Barney, Jay, "Firm Resources and Sustained Competitive Advantage," Journal of Management, Vol. 17, 1, pp. 99-120.

(Chris) Hoopes, D., Madsen, T., and Walker, G., “Why is there a resource-based view? Toward a theory of Competitive Heterogeneity,” Strategic Management Journal, October 2003, Vol. 24, 10, pp. 889-902.

Wade, Michael, and Hulland, J., "The Resource Based View and IS Systems Research: Review, Extension, and Suggestions", MIS Quarterly, Vol, 28, 1, March 2004.

(Dennis) Straub, D., Weill, P., and Stewart, K., "Strategic Control of IT Resources: A Test of Resource-Based Theory in the Context of Selective IT Outsourcing," Working paper, Georgia State University and MIT Sloan School of Management, 2002.

(Jian) Teng, J., Cheon, M., and Grover, V., "Decisions to Outsource IS Functions: Testing a Strategy-Theorectic Discrepancy Model," Decision Sciences, Vol. 26, 1, pp. 75-103.

March 17: SOCIAL/RELATIONAL EXCHANGE THEORY AND SOCIAL/RELATIONAL EXCHANGE THOERY APPLIED TO I.S. SOURCING

Social Exchange Theory:

(Dennis) Ekeh, Peter, Social Exchange Theory: The Two Traditions, Harvard University Press, 1974. pp. 1-186; particular attention to chapter 7.

Recommended reading if this is your summary topic: Blau, P. Exchange and Power in Social Life, John Wiley, New York, 1964.

Relational Exchange Theory:

(Chris) Dwyer, R., Schurr, P., and Oh, Sejo, “Developing Buyer-Seller Relationships,” Journal of Marketing, Vol. 51, April 1987, pp. 11-27.

Social/Relational Exchange Theory Applied to IS Sourcing:

(Michael) Ang, Soon, and Slaughter, S., “Work Outcomes and Job Design For Contract Verses Permanent Information Systems Professionals on Software Development Teams,” MIS Quarterly, Vol. 25, 3, pp. 321-350.

(Jian) Klepper, R., “The Management of Partnering Development in IS Outsourcing,” Journal of Information Technology, Vol. 10, 1995, pp. 249-258.

(Hui) Lee, Jae-Nam and Kim, Young-Gul, "Effect of partnership quality on IS outsourcing: Conceptual framework and empirical validation," Journal of Management Information Systems, Spring 1999; Vol. 15, 4; pg. 29-52.

(Srikanth) Grover, Varun, "The effect of service quality and partnership on the outsourcing of information systems functions," Journal of Management Information Systems, Spring 1996; Vol. 12, Iss. 4; pg. 89-119.

Some Recommended Additional Reading if this is your summary topic:

Ring, Peter Smith, and Van de Ven, A.,"Developmental processes of cooperative interorganizational relationships"; Academy of Management. The Academy of Management Review, Briarcliff Manor; Jan 1994; Vol. 19, 1; pp. 90-119.

Goles, T., and Chin, W., "Relational Exchange Theory and IS Outsourcing: Developing a Scale to Measure Relationship Factors," in Information Systems Outsourcing in the New Economy, R. Hirschheim, A. Heinzl and J. Dibbern (eds.), Springer-Verlag, Berlin, Heidelberg, New York, 2002. (Seek dissertation findings article).

Knemeyer, M., Corsi, T., and Murphy, P., “Logistics Outsourcing Relationships: Customer Perspectives,” Journal of Business Logistics, Vol. 24, 1, 2003, pp. 77-109.

March 24: No Class (Spring Break)

March 31: POWER THEORIES AND POWER THEORIES APPLIED TO I.S. SOURCING

Power Theories:

(Hui) Lacity, M., and Hirschheim, R., "Theoretical Foundations of Outsourcing Decisions: The Political Model", from Information Systems Outsourcing: Myths, Metaphors, and Realities, Wiley, Chichester, 1993, pp. 37-47.

(Michael) Pfeffer, J., Managing With Power: Politics and Influence in Organizations, Harvard Business School Press, Boston, 1994.

Two other great readings for the student doing Power as for the summary paper and presentation include:

Pfeffer, J., Power in Organizations, Pitman Publishing, Marshfield, Massachusetts, 1981.

Pfeffer, J., The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Classics, Stanford California, 2003.

Power Theory applied to IS sourcing:

(Dennis) Peled, A., “Outsourcing and Political Power: Buraucrats, Consultants, Vendors, and Public Information Technology,” Public Personnel Management, Winter 2001, Vol. 30, 4, pp. 495- 514.

(Jian) Lacity, M., and Hirschheim, R., "Participant's Reasons for Initiating Outsourcing Evaluations", from Information Systems Outsourcing: Myths, Metaphors, and Realities, Wiley, Chichester, 1993, Read Firm5, Firm6, Firm7, and FIRM8 on pages 92-142; Read pp. 197-229;

Some Recommended Additional Reading if this is your summary topic:

Pfeffer, J., Power in Organizations, Ballinger, Cambridge, 1981.

Pfeffer, J., and Salancik, G., The External Control of Organizations, Stanford Business Classics, Stanford, 2003.

April 7: INSTITUTIONAL THEORIES AND INSTITUTIONAL THEORIES APPLIED TO I.S. SOURCING

Institutionalism Theory:

(Dennis) DiMaggio, P., and Powell, W., "The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields," in The New Institutionalism in Organizational Analysis, (Powell & DiMaggio eds), The University of Chicago Press, 1991, pp. 63-82.

(Michael) Mizruchi, M., and Fein, L., “The Social Construction of Organizational Knowledge: A Study of Coercive, Mimetic, and Normative Isomorphism,” Administrative Science Quarterly, December 1999, Vol. 44, 4, pp. 653-683.

Institutionalism applied to IS Sourcing:

(Chris) Ang, Soon, and Cummings, Larry, "Strategic Response to Institutional Influences on IS Outsourcing," Organization Science, Vol. 8, 3., May-June 1997, pp. 235-256.

(Hui) Jayatilaka, Bandula, "IT Sourcing: A Dynamic Phenomenon: Forming an Institutional Theory Perspective, in Information Systems Outsourcing in the New Economy,  R. Hirschheim, A. Heinzl and J. Dibbern (eds.), Springer-Verlag, Berlin, Heidelberg, New York, 2002. (seek output article from dissertation).

April 14: OTHER THEORIES AND THEORIES APPLIED TO I.S. SOURCING

Social Cognition:

(Srikanth) Fiske, S., and Taylor, S., Social Cognition, McGraw Hill, New York, 1991.

Social Cognition applied to IS sourcing:

(Jian) Ho, V., Ang, S., and Straub, D., “When Subordinates become IT Contractors: Persistent Managerial Expectations in IT Outsourcing,” Information Systems Research, Vol. 14, 1, pp. 66-86.

Game Theory as applied to IS Sourcing:

(Chris) Elitzur, Ramy, and Wensley, A., "Can Game Theory Help us to Understand Information Service Outsourcing Contracts?", in Strategic Sourcing of Information Systems, (Willcocks, L., and Lacity, M., eds) , Wiley, Chicester, 1998, pp. 103-136.

Auction Theory Applied to IS Sourcing:

(Dennis) Kern, Thomas, and Willcocks, L., "The Winner's Course in IT Outsourcing: To Avoid Extreme Relational Trauma," California Management Review, 2002.

Control Theories Applied to IS Sourcing:

(Hui) Choudhury, V., and Sabherwal, R., “Portfolios of Control in Outsourced Software Development Projects,” Information Systems Research, Vol. 14, No3, September 2003, pp. 291-314.

April 21: TESTING MULTIPLE THEORIES:

(Michael) Poppo, Laura and Todd Zenger, 1998. Testing alternative theories of the firm: Transaction cost, knowledge-based, and measurement explanations for make-or-buy decisions in information services. Strategic Management Journal, 19, 853-877.

(Dennis) Leiblein, M., and Miller, Douglas,”An empirical examination of transaction and firm level influences on the vertical boundaries of the firm,” Strategic Management Journal, September 2003, Vol. 24, Issue 9, pp. 839-859.

(Chris) Gainey, T., and Klaas, B., “The Outsourcing of Training and Development: Factors Impacting Client Satisfaction,” Journal of Management, 2003, Vol. 29, 2, pp. 207-229.

(Hui) Tsang, Eric, "Transaction cost and resource-bases explanations of joint ventures: A comparison and synthesis," Organization Studies, Vol. 21, 1, 2000, pp. 215-242

(Jian) Dibbern, J., and Heinzl, A., "Outsourcing of Information Systems in Small and Medium Sized Enterprises: A Test of a Multi-Theorectical Causal Model," in Information Systems Outsourcing in the New Economy,  R. Hirschheim, A. Heinzl and J. Dibbern (eds.), Springer-Verlag, Berlin, Heidelberg, New York, 2002.

(Srikanth) Jayatilaka, B., Schwarz, A., and Hirschheim, R., “Determinants of ASP Choice: An Integrated Perspective,” European Journal of Information Systems, Sep 2003, Vol. 12, 3., pp. 210-.

April 28: SUMMARY OF LESSONS LEARNED

Michael Griggs 10:00 to 10:25

Chris Kang 10:30 to 10:55

Dennis Shi 11:00 to 11:25

Jian Wang 11:30 to 11:55

Hui Zhou 12:00 to 12:25

Srikanth Mudigonda: 12:30 to 12:55