Procurement Strategies for Information Systems

Abstract:

A general framework of different procurement strategies is introduced to help managers review their project portfolio to find more effective ways of using both internal and market resources in information systems development. Major decision criteria—the specificity of system design and the uncertainty involved in requirements specification—are adopted from transaction cost economics to determine what procurement strategies should be used in different situations. According to our Procurement Principle, systems that are company-specific and involve high uncertainty have to be internally developed because they require both the specific knowledge and intensive interaction between developers and users. More standard requirements indicate the use of outside consultants or software contractors who have experience and knowledge about a similar type of systems. For routine systems common in many organizations, acquisition and tailoring of a software package provides the most efficient procurement strategy. The Procurement Principle is also empirically tested with data from recent system development projects in major Finnish companies. Partial support was gained for the framework, but some interesting deviations were also detected, such as a tendency to rely on in-house development of even routine systems.

Key Words and Phrases::

• contingency approach
• information systems procurement
• outsourcing

Additional information

Notes on contributors

Timo Saarinen

Timo Saarinen is Acting Associate Professor of Business Information Systems at the Helsinki School of Economies. His research interests include the economies and management of information systems with an emphasis on organization, competitive evaluation and risk management of systems development. He received his Ph.D. in economies (information systems) from the Helsinki School of Economies. He has published articles in Information & Management, European Journal of Information Systems, Behaviour and Information Technology, Journal of Strategic Information Systems, Journal of Systems Management, and Scandinavian Journal of Information Systems.

Ari P.J. Vepsäläinen

Ari P.J. VEPSäLäINEN is currently Professor of Logistics at the Helsinki School of Economics and principal of HM& V Research Oy, a consulting company specializing in information technology for the service sector. His research interests include operations management, logistics, and information systems development He received M.Sc. and Tech.Lie. degrees in operations research from Helsinki University of Technology, and a Ph.D. in systems sciences from Carnegie-Mellon University. Previously, Dr. VepsÄalÄainen has been Assistant Professor at Carnegie-Mellon University and at The Wharton School, University of Pennsylvania. He has published several books as well as articles in Management Science, Strategic Management Journal, Journal of Manufacturing and Operations Management, Decision Support Systems, IEEE Transactions on Engineering Management, and other journals.