Sourcing structures and the execution efficiency of information technology projects: A comparative evaluation using stochastic frontier analysis

• Date: 01 April 2020
• Author: Andrew Van de Ven,Anant Mishra,Kingshuk K. Sinha,Sriram Thirumalai
• Published date: 01 April 2020
• DOI: http://doi.org/10.1002/joom.1064

RESEARCH ARTICLE

Sourcing structures and the execution efficiency of information

technology projects: A comparative evaluation using stochastic

frontier analysis

Anant Mishra

1

| Kingshuk K. Sinha

1

| Sriram Thirumalai

2

| Andrew Van de Ven

3

1

Department of Supply Chain and

Operations, Carlson School of Management,

University of Minnesota, Minneapolis,

Minnesota

2

Department of Information Systems and

Supply Chain, Neeley School of Business,

Texas Christian University, Fort Worth,

Texas

3

Strategic Management and

Entrepreneurship, Carlson School of

Management, University of Minnesota,

Minneapolis, Minnesota

Correspondence

Sriram Thirumalai, Department of

Information Systems and Supply Chain,

Neeley School of Business, Texas Christian

University, Fort Worth, TX.

Email: s.thirumalai@tcu.edu

Handling Editor: Gregory Heim

Abstract

In the pursuit of low-wage labor and access to technical talent, information technol-

ogy (IT) projects today are often executed with sourcing structures that span the

boundaries of a firm, a country, or both. Although the strategic implications of

sourcing structures have received considerable attention in theory and practice, their

implications from a project execution standpoint—specifically, in terms of execution

efficiency—remain under-researched. Based on a large primary dataset on IT pro-

jects with distributed sourcing structures, this paper documents the findings of a the-

oretically grounded, empirical investigation using stochastic frontier analysis that

evaluates whether and to what extent does the execution efficiency of projects vary

across various types of sourcing structures (namely, Domestic-Insourcing,Domes-

tic-Outsourcing,Offshore-Insourcing, and Offshore-Outsourcing). The results pro-

vide support for differential effects of crossing a firm or country boundary, or both

boundaries, on the execution efficiency of IT projects. Specifically, we find that the

execution efficiency of IT projects is significantly lower when their sourcing struc-

tures cross a country boundary (Offshore-Insourcing and Offshore-Outsourcing)

relative to when their sourcing structures do not cross a country boundary (Domes-

tic-Insourcing and Domestic-Outsourcing). Notwithstanding these trends across

sourcing structures, a split-sample analysis of executionefficiency levels reveals that

each structure presents a viable alternative for managers to realize high levels of exe-

cution efficiency. Finally, additional analysis highlights the benefits of sourcing

structure capabilities—as represented by the extent of risk management planning

and agile project management—in improving execution efficiency in IT projects

that cross a country boundary.

KEYWORDS

agile project management, execution efficiency, offshoring, outsourcing, sourcing structure, risk management

“To get the best of an offshoring engagement,

the vendor must be measured on areas

like customer satisfaction, operational effi-

ciency etc.”

1

1|INTRODUCTION

With the increasing globalization of firm operations and supply

chains, firms often execute their information technology

Received: 12 September 2016 Revised: 27 August 2019 Accepted: 1 September 2019

DOI: 10.1002/joom.1064

J Oper Manag. 2020;66:281–309. wileyonlinelibrary.com/journal/joom © 2019 Association for Supply Chain Management, Inc. 281

(IT) projects in sourcing structures that transcend the boundaries

of a firm, a country, or both (Anderson & Parker, 2013; Nar-

ayanan, Balasubramanian, & Swaminathan, 2011). Although

the allure of low-wage labor and access to specialized technical

skills is a strong motivation for IT projects to be executed

in distributed sourcing structures (Lewin, Massini, Perm-

Ajchariyawong, Sappenfield, & Walker, 2009), evidence

regarding the performance of IT projects in these sourcing struc-

tures continues to remain mixed (Dibbern, Winkler, & Heinzl,

2008; Mihalache & Mihalache, 2016). Instances of both suc-

cessful and failed IT projects abound, challenging the raison

d'etre of sourcing structure decisions (De Treville & Trigeorgis,

2010; Handley & Benton Jr, 2013).

In particular, the inability of firms to consistently achieve

their expected performance outcomes in IT projects through

sourcing structure decisions has been attributed to “blind spots”

in project execution that often follow such decisions (Larsen,

Manning, & Pedersen, 2013; Sosa, Eppinger, & Rowles,

2004). These blind spots arise because sourcing structure deci-

sions are often made by senior management personnel based

primarily on strategic considerations that include labor cost

savings, access to specialized skills, tax benefits, and regulatory

advantages, with limited attention paid to the operational reali-

ties of project execution (Dibbern, Winkler, & Heinzl, 2008).

Furthermore, the resulting inefficiencies in resource utilization

that may occur during project execution are often subsumed

and overshadowed by other aggregate outcomes, such as labor

cost advantages, rendering the benefits associated with a sourc-

ing structure misleading and uninformative of “ground reali-

ties”(Fuchs & Kirchain, 2010; Tambe & Hitt, 2010). Although

prior empirical research has examined the strategic implications

of sourcing structures (e.g., Mayer & Nickerson, 2005;

Weigelt & Sarkar, 2012), the implications for execution effi-

ciency of projects—defined as the extent to which input

resources are successfully transformed during project execution

to achieve a set of outcome objectives—continues to remain

understudied in the operations management (OM) literature.

The focus on execution efficiency as a metric for assessing

project performance across different sourcing structure types is

consequential for two reasons: First, it enables a comparison of

sourcing structures that is “deeper than a mere comparison

of profitability and financial returns”(Chen, Delmas, &

Lieberman, 2014, p. 2) and is not exclusively driven by exoge-

nous macro-economic differences across structures. Such a

metric provides a holistic assessment of a project in terms of

its outcome objectives related to schedule, budget, quality, and

technical performance, given its input resource constraints.

Second, it brings attention to the notion that heterogeneity in

performance outcomes across sourcing structures and within a

particular sourcing structure may be driven by the heterogene-

ity in input resources during project execution—afactorthatis

under the control of project managers. We therefore examine

the following research question:

How do sourcing structures of IT projects that

cross a firm boundary, a country boundary, or

both boundaries affect the execution efficiency

of such projects?

In addition to better understanding the implications for exe-

cution efficiency of IT projects, the focus on both firm and

country boundaries allows us to undertake a more nuanced

empirical examination of sourcing structure decisions. Over

the last decade, these decisions have evolved from a dichoto-

mous choice of insourcing (make) versus outsourcing (buy)toa

more nuanced portfolio of choices, including Domestic-

Insourcing (make-domestically), Domestic-Outsourcing (buy-

domestically), Offshore-Insourcing (make-offshore),and

Offshore-Outsourcing (buy-offshore; Tanriverdi, Konana, & Ge,

2007). Using the information processing theory (IPT) lens

(e.g., Galbraith, 1977; Tushman & Nadler, 1978) and drawing

upon arguments from the sourcing literature on IT projects

(e.g., Larsen, Manning, & Pedersen, 2013; Narayanan, Bal-

asubramanian, & Swaminathan, 2011), we examine the specific

nature of the coordination challenges associated with each of the

four sourcing structures and understand how such challenges

have differing implications for execution efficiency of projects.

The use of such a sourcing structure framework to carry out

large-scale data collection and empirical estimation is a notewor-

thy aspect of our research design that distinguishes our study

from much of the published empirical studies to date, which have

selectively examined specific sourcing structures, and therefore,

sacrificed the ability to carry out a comparative evaluation across

multiple sourcing structures.

In our comparative evaluation of execution efficiency, we

draw upon prior studies using frontier analysis approaches

(e.g., Chen, Delmas, & Lieberman, 2014; Lieberman &

Dhawan, 2005) to conceptualize: (a) the input–output transfor-

mation process during the execution of an IT project as a pro-

duction function and (b) the execution efficiency of a project as

a nonrandom component in this production function that would

account for systematic differences in the transformation of input

resources to project output. Empirically, we evaluate execution

efficiency by applying a stochastic frontier analysis on a large

sample of IT projects involving each of the four sourcing struc-

tures. The empirical analysis highlights the following results.

First, we find strong evidence of differential effects of cross-

ing firm and country boundaries on the execution efficiency of

IT projects. Specifically, our results indicate that the execution

efficiency of projects with a sourcing structure that crosses a

country boundary (Offshore-Insourcing) is 9.8% lower than that

of projects with a sourcing structure that does not cross a firm

and a country boundary (Domestic-Insourcing). Furthermore, we

282 MISHRA ET AL.