Alignment Between Internal and External IT Governance and Its Effects on Distinctive Firm Performance: An Extended Resource-Based View

Abstract

Only a few firms possess all of the information technology (IT) resources required to compete effectively in today's dynamic business environment. Consequently, firms face critical challenges in developing their IT governance by integrating, building, and reconfiguring IT resources available internally and externally to achieve a competitive advantage. However, prior studies have mostly examined IT governance only from an internal (e.g., IT organization design) or external (e.g., IT outsourcing) perspective. Therefore, how the internal and external IT governance of firms simultaneously lead to firm performance remains unclear. To address this research gap, we conceptualize internal and external IT governance from the extended resource-based view, propose three alignments between both types of governance, and hypothesize their effects on distinctive firm performance. We then empirically test these hypotheses using 213 Korean firms that have implemented IT outsourcing. Results show that a hierarchy-based alignment (i.e., between internal and external hierarchy governance) optimizes the operational efficiency of firms, a market-based alignment (i.e., between internal and external market governance) offers the greatest advantage in terms of market growth, and a network-based alignment (i.e., between internal and external network governance) leads to the best innovation performance. Furthermore, our post hoc test also reveals some unexpected alignments (e.g., between internal market and external hierarchy governance) that positively influence firm performance, which call for new areas of discussion with alternative theoretical perspectives. This study guides practitioners in choosing outsourcing alignments by comprehensively analyzing the effects of various alignments on distinctive outcomes.