Information Technology Sourcing: Short and Long Term Strategies
A comparison of journal article studies of IT sourcing strategies from the 21st century illustrates how uses, goals, as well as applications of sourcing and out-sourcing, has transformed in the last two decades. As per Karlsson and Weimarck (2001), sourcing controls occurred as a critical factor in implementing production strategies like JIT (Just in Time) and zero-defect manufacturing after a long period. As a result, it persisted apparently to many engineers and theorists that information technology and the data it creates (more than logistics or inventory costs) significantly drive the move to greater efficiency and lower costs in operations. According to Henningson, Yetton, and Wynne (2018), sourcing approaches experience rapid development in the new century, leading to a reduction in data processing as well as the costs for IT equipment like computers and RAM. Equally, in this same evolution, short-terms strategies have advanced to the long-range plans hence increasingly challenging to develop and predict.
In this article, I will compare two articles from the opposite ends of the period 2000-2020 to show the change in sourcing strategies as part of sea-change in IT costs that occur alongside the transformation. As per Henningson, Yetton and Wynne (2018), the transition originates from the brick-and-mortar manufacturing and transport industrial technology of the preceding century to a service and information economy built on big data. Moreover, the change started decades back. For instance, manufacturing efficiency studies and theories showed that large industrial firms could cut costs substantially by out-sourcing computer technology and other high-tech tools (Henningson, Yetton & Wynne, 2018). Such devices include specialized machines from independent suppliers, who, in turn, depended heavily on the giant buyers for the narrow-niche products. By 2001, according to one industry journal review of the “sourcing strategy literature,”
The leading strategy of the scholars in the world, not as clear as the practitioners indicate that maximum out-sourcing exists as the best strategy (Karlsson & Weimarck, 2001). The authors contrasted the automobile industry strategy of maximum out-sourcing. The aspect had honed parts supplier performance to JIT standards and commodified the interchange of many parts across complex product lines, with a new approach that was more concerned with protecting proprietary technology and data from competitors.
In this model of sourcing strategy, a traditional mode of industrial technology analysis was applied. As per Karlsson and Weimarck (2001), the process involved interviewing of auto industry executives and IT officers, as well as “strategy scholars” from academia, and focusing on “supplier strategy” as the analysis. Karlsson and Weimarck developed a model of a four-fold strategy in which all sides concentrated on parts of suppliers, not data design and the integration or other long-term concerns (Karlsson & Weimarck, 2001). The sourcing paths comprised of component supply strategy, supplier collaboration strategy, supplier network strategy, the system as well as mega suppliers strategy (Henningson, Yetton & Wynne, 2018). Assumptions made stated that all carmakers owned corporate objectives, which undefined beyond the exceptions. According to Karlsson and Weimarck (2001), typical organizational goals in the automotive industry focus on overseas expansion in international markets. As a result, they involve strategic mergers as a means of entering new markets, improving sourcing strategy and tactics along the lines of JIT supply networks, and developing the car company as a “leaner, meaner “operation. In 2001, most of the companies possessed less concern about IT development, protection of proprietary marketing, and customer data (Karlsson &Weimarck, 2001). Based on this, possibilities of the international “trade wars” emerged even though Japan had a mostly closed market for American imports, and China had not yet emerged as the global giant it is today. Nonetheless, the period already experienced sharp differences between corporate and academic opinions on strategic consistency and corporate objectives (Karlsson & Weimarck, 2001). As s result, the disagreements led to moving beyond parts supplies into concerns over proprietary data and intellectual property.
Moving forward to compare this state of affairs with the more recent situation, we see that in contrast with the sourcing strategy of two decades earlier, corporate and state objectives have indeed changed. Karlsson and Weimarck (2001) posit that recent integrative review of current IT sourcing strategies concluded that necessary information system integration was increasingly paramount in a world of rapid-fire mergers and acquisitions between giant corporations. According to a study by Henningson, Yetton and Wynne (2018), IT sourcing for large, complex systems needs to integrate large corporate and bureaucratic entities. The authors reviewed some 70 articles from 1989 to 2016 in terms of IT integration. They described their methodology as follows:
The team coded 53 dependent variables and 195 independent variables to identify the robust relationships among them and to model ISI decisions, including choice of IS integration methods, partially mediate the effects of the independent variables on ISI outcomes (Henninson, Yetton & Wynne, 2018). The researcher found that IT sourcing and integration occur as a significant concern in nearly all such mergers and acquisitions. Furthermore, firms never merged or acquired other companies to “source” an IT system that would continue to get administered and operated as a completely separate system (Henningson, Yetton & Wynne, 2018). Moreover, the concept of sourcing that prevailed in the world of out-sourcing for parts and subsystems no longer dominated thinking by the end of the period under study.
The most vital factor in the new IT world order persisted as the “technology acquisition integration paradox,” or more succinctly, “integration chaos.” Today, IT sourcing involves a highly differentiated process. As a result, concerns about intellectual property rights, industrial espionage, and client security, as witnessed in the banking and finance industry, as well as new concepts like cultural and social constraints, emerged. Karlsson and Weimarck (2001) explain that one key concern persists as the retention and loyalty of crucial IT staff after a merger of equals. Similarly, other issues originate from the kind of conflict that develops when technology companies combine to establish a new system like the percentage of cell networks (Karlsson & Weimarck, 2001). For instance, the United States fears an aggressive Chinese takeover of US cell networks hence blocking or slowing the development of the system (Henningson, Yetton & Wynne, 2018). Accusations of embedded “seed” chips for espionage have been made. However, the new world of globally integrated information and communication systems raises long-term concerns that obviate the short-term profits from sourcing key IT components from a rival entity, much less from a competing and potentially hostile foreign power.
References
Henningson, S., Yetton, P., and Wynne, P.J. (2018) A review of information system integration in mergers and acquisitions. Journal of Information Technology, 33 (4), 255-303.
Karlsson, C., and Weimarck, M. (2001). Do the sourcing strategies of automotive firms support corporate objectives? International Journal of Automotive Technology and Management 1, (1), 35-52.