Week 6 Reading Summary – Xue et al. (2011) – Xi Wu

Xue, L., Ray, G., & Gu, B. (2011). Environmental Uncertainty and IT Infrastructure Governance: A Curvilinear Relationship. Information Systems Research, 22(2), 389–399.

Extant research predicts that firms tend to decentralize IT governance in more uncertain environments. But empirical work in this area presents mixed result. To develop a deeper understanding of the relationship, this paper investigates the issue by studying the relationship between environmental uncertainty and IT infrastructure governance in a sample of business units from Fortune 1000 companies.

Centralization of IT infrastructure provides the benefits of economies of scale as the same IT platform can be leveraged across different business units, thereby reducing the unit cost of IT infrastructure for each business unit. But when uncertainty increases, the benefits of responsiveness provided by more decentralized IT infrastructure governance are likely to outweigh the benefits of centralization. However, decentralization of IT infrastructure governance raises issues of control. When uncertainty increases from the intermediate to high level, firms may switch from decentralization to recentralizing IT infrastructure governance.

The key proposition is that the relationship between environmental uncertainty and decentralization in IT infrastructure governance is best characterized as a curvilinear relationship. Moreover, the study proposes that business unrelatedness between business units and their headquarters moderates. The dataset is obtained from the CI, Compustat database, SDC Platinum Mergers and Acquisitions databases. Binary logistic regression model is applied to test the hypotheses. The result support all the hypotheses.

The key theoretical implication of this study is that the relationship between environmental uncertainty and IT infrastructure governance is likely to be more complex than that suggested by the prior literature. This paper also provides practical implications to managers when they make IT infrastructure governance decisions.