The impacts of industry environment on software insourcing, outsourcing, and buying

Abstract

PurposeNowadays, an increasing number of firms choose to develop proprietary software, instead of buying packaged software. What factors will affect different types of software investments? According to the environment-strategy alignment research, environment should be an influential factor. However, environment's role has received scarce attention in the literature. The authors' study addresses this research gap by investigating how industry environment affects different types of software investments. The study identifies three types of software investments (software insourcing, outsourcing, and buying) and examines how the characteristics of the industry environment (including industry munificence, dynamism, and concentration) influence each software investment.Design/methodology/approachThe generalized least squares (GLS) model and the ordinary least squares with panel-corrected standard errors (OLS-PCSE) model are applied to test the hypotheses, based on industry-level panel data from the US Bureau of Economic Analysis (BEA).FindingsThe analysis shows that industry munificence, dynamism, and concentration have different impacts on software insourcing, outsourcing, and buying, respectively.Originality/valueThis study classifies software investment into three types – software insourcing, outsourcing, and buying and investigates how the industry environment affects them. The findings suggest that research should distinguish among software insourcing, outsourcing, and buying due to their different characteristics.