MIS 9003 – Prof. Min-Seok Pang

Week 3 – Rai et al. 2015 – Joe

Rai, A., Arikan, I., Pye, J., & Tiwana, A. (2015). Fit and Misfit of Plural Sourcing Strategies and IT-Enabled Process Integration Capabilities: Consequences of Firm Performance in the US Electric Utility Industry. MIS Quarterly39(4), 865-885.

Plural sourcing refers to a company’s simultaneously use and allocation of external procurement and internal production to source its good/service. It remains obscure that how a firm’s use of plural sourcing can change the value of developing interfirm and intrafirm IT capabilities after a survey of the past literature. This study addresses this gap by focusing on the following research question: How does the (mis)fit between a firm’s plural sourcing strategies and the development of IT-enabled interfirm and intrafirm process integration capabilities influence firm performance?

The authors wisely choose power-generation segment of the U.S. electric utility industry (EUI) to explore the moderating effects of plural sourcing, measured by a proposed concept called “Market Sourcing Intensity(MSI)”, on the relationship between firm performance (assessed by ROA) and two IT-enabled process integration capabilities, IT-enabled interfirm process integration capability and IT-enabled intrafirm process integration capability. With data from archival sources for 342 utility firms in the power-generation segment to construct a panel dataset for the period 1994–2004, the authors use pooled OLS to the following results: 1) fit between MSI and the development of IT-enabled interfirm process integration capability improves firm profitability and 2) misfit between MSI and the development of IT-enabled intrafirm process integration capability extracts penalties in firm profitability. The result from one of the robustness check also offer evidence that fit between MSI and the development of IT-enabled interfirm process integration capability improves market valuation (assessed by Tobin’s Q) and asset turnover (assessed by operating revenue/total assets).

This study extends past by revealing how explanations of firm capabilities for IT-enabled process integration and transaction costs economics(TCE) for plural sourcing interact to explain firm performance. The authors nicely collect viewpoints that internal costs of organizing production and transaction costs need to be considered in making governance choices and apparently show the empirical limitations.

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