Week3_Rai et al. (2015)_Vicky Xu

Fit and Misfit of Plural Sourcing Strategies and IT-enabled Process Integration Capabilities: Consequences of Firm Performance in the U.S. Electric Utility Industry

Rai et al. (2015) introduce the concept of market sourcing intensity (MSI), and propose that fit between MSI and the development of IT-enabled interfirm process integration capability improves firm profitability, assessed by return on assets, and misfit between MSI and the development of IT-enabled intrafirm process integration capability extracts penalties in firm profitability.

Rai et al. (2015) address the research question as: 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? Then Rai et al. (2015) present a theoretical framework as the following (Figure 1., p868):

Where:

• H1: The marginal returns to firm performance from developing IT-enabled interfirm process integration capability increase with an increase in market sourcing intensity.
• H2: The marginal returns to firm performance from developing IT-enabled intrafirm process integration capability decrease with an increase in market sourcing intensity.

Rai et al. (2015) collected a panel dataset using multiple archival sources of firm-year (from 1994 to 2004) that included 6,685 observations for 342 major power-generation utility firms in the United States. After using the OLS estimation method, all the hypothesized relationships were validated.

The significant contributions of this paper include: (1). Elaborating the theoretical explanations on business value created by IT from a capabilities perspective, with a focus on how IT resources and capabilities, to an integrated capabilities-governance perspective, with a focus on the discriminating alignment between capabilities and governance of transactions. (2). Providing suggestions for IT executives and sourcing managers that they can collaborate to create synergies between investments in IT-enabled process integration capabilities and plural sourcing choices.