An empirical analysis of the value of IT investment, outsourcing, and strategy: An agile transaction cost perspective

In a series of three studies, this thesis empirically examines the relationships among determinants of information systems technology (IT) business value.

The first study uses the theoretical foundation of production economics to analyze changes in efficiency due to the level of investment in IT, the level of IT outsourcing, and the level of investment in IT personnel. An analysis of 914 Integrated Healthcare Delivery Systems (IHDS) reveals both IT budgetary expenditures and the number of IT services outsourced are associated with increases in IHDS profitability, while increases in IT personnel are not significantly associated with increased profitability.

The second study uses the theoretical foundation of transaction cost economics (TCE) to explain the effect of the level of low asset specificity, commodity IT outsourcing on firm-level financial performance. An analysis of 825 Integrated Healthcare Delivery Systems (IHDS) reveals higher levels of commodity IT outsourcing are associated with superior financial performance resulting in an average $3,120,000 in savings, a 25% average increase in profit. The implications are significant in that organizations should use asset specificity to guide outsourcing decisions.

The third study uses the General Theory of Competition (GTC) and the theory of competitive agility as theoretical foundations to posit that a firm’s IT agility affects its ability to adapt to environmental change, achieve competitive advantage, and realize superior financial performance. In addition, the effects of commodity IT outsourcing and strategic IT outsourcing on IT agility are examined. An analysis of 822 Integrated Healthcare Delivery Systems (IHDS) reveals increased IT agility is associated with superior financial performance, while commodity and strategic outsourcing are associated with increased IT agility. These findings demonstrate the importance of organizational IT agility in achieving superior financial performance, the positive effect of outsourcing on IT agility, and the relevance of process oriented theories of competitive advantage to the field of management information systems and the study of IT business value.