Systemic, economic, and environmental influences on the sourcing of application services : a comparison of companies in Germany and the United States

Abstract

This paper examines three different rationales that might influence a company’s decision of whether to outsource particular information systems (IS) functions within a cross-cultural context. The first of these rationales acknowledges the systemic nature of the IS function i.e. that it is critical for various IS sub-functions and components to work together effectively for the overall IS performance. This perspective is new to IS outsourcing literature. We consider whether and how such systemic effects are factored into a decision to outsource IS sub-functions such as applications development and maintenance. In order to examine the importance of this new perspective, we contrast it with two established ones. The first of these assumes the outsourcing decision is based on a rational cost comparison, including production and transaction costs. The second assumes environmental forces frequently influence outsourcing decisions, as reflected in the opinion of influential stakeholders and the level of discretion in decision-making. This study also explores whether the relevance of determinants in IS outsourcing is influenced by cross-cultural dimensions. This is empirically examined using data from companies based in the United States and companies based in Germany. While cost factors and the opinion of external stakeholders are significant determinants of IS outsourcing for both countries, the countries differ significantly in how the systemic impact of an IS function and the systemic views of IS professionals are factored into the sourcing decision. In addition, the impact of outsourcing decision-making discretion was found to differ significantly between countries. These differences support our perspective that cultural dimensions, such as differences between the United States and Germany in the individualism-collectivism rating as well as in the legitimized bargaining power of labor interest groups, exert a moderating impact on a company’s decision to outsource.