Week 3 – Reading Summary – Leting Zhang
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 Quarterly, 39(4), 865-885.
Plural sourcing is a strategy used commonly in industry. It involves a firm’s simultaneous use of multiple modes of governance to source a good or service. This paper investigates an interesting question in terms of the interactions between IT capabilities and plural strategies, and how the interaction influence a firm’s performance.
The research model is built on transaction cost economics, coordination costs, and IT capabilities. It also introduces a new concept – Market Sourcing Intensity, which indicates the extent of a firm source from the market. The higher the market sourcing intensity is, the more necessary for a firm to coordinate with other firms, otherwise, a firm should pay more attention to its vertical organizations. The core idea behind the research model is that of discriminating alignment between the development of IT capabilities and changes in adopted plural sourcing strategies. Specifically, there is a fit between IT-enabled interfirm process integration capability and high MSI, IT-enabled intrafirm process integration capability and low MSI. The fit could improve the firm performance, but misfit could cause penalty.
The paper is situated in the U.S. electric utility industry. It collects data from several sources, including industry files from authority, financial and accounting information from WRDS. What’s more, it classifies IT investment into five types firstly and then aggregates them into three types: inter, intra and infra. Also, it uses return on assets (ROA) as a measure of firm performance. Then pooled OLS equations are established and the results support hypotheses. This study has implications for the understanding of business value from IT-enabled process integration capabilities and the management of plural sourcing, and put importance on the alignment between these two important factors.