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IT Governance in SMEs : a theoretical framework based on the outsourced information systems failure

Jan Devos (UGent) , Hendrik Van Landeghem (UGent) and Dirk Deschoolmeester (UGent)
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Abstract
IT Governance in Small and Medium-sized Enterprises (SME) is both controversial and paradoxal. When it comes to IT, SMEs tend to have an idiographic profile with characteristics that differs strongly from larger companies. Although the majorities of organisations comply with the sizing standard of an SME (less than 250 employees) we focus here on family-owned SMEs. In these companies the concept of IT Governance is very elusive if present at all. SMEs tend to be slow adopters of IT but they do invest in strategic IS and face the challenges of adopting IT. However, SMEs depend strongly on external IT expertise for implementing an IS. On the other hand one can observe the vast amount of failed outsourced IS projects in SMEs. In this work we design a theoretical framework to explain the setting of an SME conducting an outsourced IS project that leads to an outsourced IS failure (OISF). A multiple case study methodology is used to build up the framework. The scene is dominated by two actors: a relatively well informed agent and a less informed SME-principal meeting each other on a typical market. This situation of information asymmetry gives rise to well known problems already predicted by agency theory: moral hazard and adverse selection. However other observable phenomenon's like trust deterioration, misunderstood scope and underfunding of budget can be better explained and/or predicted by other theories. To enlarge the explanatory and predicting power of our framework we draw from four additional theories: Lemon Market Theory (LMT), Prospect Theory (PT), Incomplete Contract Theory (ICT), and Organisational Trust Theory (OTT). The use of different theoretical constructs matches better with the different ways actors deal with the circumstantial settings found in the empirical cases. We conclude that the framework yields a strong internal validity and enlarges our insight to the level of IT Governance in SMEs based on the sole but rich observation of OISFs. We suggest further empirical research based on the framework to extend the external validity of our framework.
Keywords
IMPLEMENTATION, SUCCESS, SMALL BUSINESS, TRUST, DEVELOPMENT-PROJECTS, SMEs, CONTRACTS, MODEL, RISKS, PROSPECT, IS failures, Case Study, IS Theories, IT Governance

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Citation

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Chicago
Devos, Jan, Hendrik Van Landeghem, and Dirk Deschoolmeester. 2009. “IT Governance in SMEs : a Theoretical Framework Based on the Outsourced Information Systems Failure.” In PROCEEDINGS OF THE 3RD EUROPEAN CONFERENCE ON INFORMATION MANAGEMENT AND EVALUATION, ed. D Remenyi, J Ljungberg, and K Grunden, 132–142. Reading, UK: Academic Conferences ltd.
APA
Devos, J., Van Landeghem, H., & Deschoolmeester, D. (2009). IT Governance in SMEs : a theoretical framework based on the outsourced information systems failure. In D. Remenyi, J. Ljungberg, & K. Grunden (Eds.), PROCEEDINGS OF THE 3RD EUROPEAN CONFERENCE ON INFORMATION MANAGEMENT AND EVALUATION (pp. 132–142). Presented at the 3rd European Conference on Information Management and Evaluation, Reading, UK: Academic Conferences ltd.
Vancouver
1.
Devos J, Van Landeghem H, Deschoolmeester D. IT Governance in SMEs : a theoretical framework based on the outsourced information systems failure. In: Remenyi D, Ljungberg J, Grunden K, editors. PROCEEDINGS OF THE 3RD EUROPEAN CONFERENCE ON INFORMATION MANAGEMENT AND EVALUATION. Reading, UK: Academic Conferences ltd; 2009. p. 132–42.
MLA
Devos, Jan, Hendrik Van Landeghem, and Dirk Deschoolmeester. “IT Governance in SMEs : a Theoretical Framework Based on the Outsourced Information Systems Failure.” PROCEEDINGS OF THE 3RD EUROPEAN CONFERENCE ON INFORMATION MANAGEMENT AND EVALUATION. Ed. D Remenyi, J Ljungberg, & K Grunden. Reading, UK: Academic Conferences ltd, 2009. 132–142. Print.
@inproceedings{752136,
  abstract     = {IT Governance in Small and Medium-sized Enterprises (SME) is both controversial and paradoxal. When it comes to IT, SMEs tend to have an idiographic profile with characteristics that differs strongly from larger companies. Although the majorities of organisations comply with the sizing standard of an SME (less than 250 employees) we focus here on family-owned SMEs. In these companies the concept of IT Governance is very elusive if present at all. SMEs tend to be slow adopters of IT but they do invest in strategic IS and face the challenges of adopting IT. However, SMEs depend strongly on external IT expertise for implementing an IS. On the other hand one can observe the vast amount of failed outsourced IS projects in SMEs.
In this work we design a theoretical framework to explain the setting of an SME conducting an outsourced IS project that leads to an outsourced IS failure (OISF). A multiple case study methodology is used to build up the framework. The scene is dominated by two actors: a relatively well informed agent and a less informed SME-principal meeting each other on a typical market. This situation of information asymmetry gives rise to well known problems already predicted by agency theory: moral hazard and adverse selection. However other observable phenomenon's like trust deterioration, misunderstood scope and underfunding of budget can be better explained and/or predicted by other theories. To enlarge the explanatory and predicting power of our framework we draw from four additional theories: Lemon Market Theory (LMT), Prospect Theory (PT), Incomplete Contract Theory (ICT), and Organisational Trust Theory (OTT). The use of different theoretical constructs matches better with the different ways actors deal with the circumstantial settings found in the empirical cases.
We conclude that the framework yields a strong internal validity and enlarges our insight to the level of IT Governance in SMEs based on the sole but rich observation of OISFs. We suggest further empirical research based on the framework to extend the external validity of our framework.},
  author       = {Devos, Jan and Van Landeghem, Hendrik and Deschoolmeester, Dirk},
  booktitle    = {PROCEEDINGS OF THE 3RD EUROPEAN CONFERENCE ON INFORMATION MANAGEMENT AND EVALUATION},
  editor       = {Remenyi, D and Ljungberg, J and Grunden, K},
  issn         = {978-1-906638-43-6},
  keywords     = {IMPLEMENTATION,SUCCESS,SMALL BUSINESS,TRUST,DEVELOPMENT-PROJECTS,SMEs,CONTRACTS,MODEL,RISKS,PROSPECT,IS failures,Case Study,IS Theories,IT Governance},
  language     = {eng},
  location     = {Gothenburg, Sweden},
  pages        = {132--142},
  publisher    = {Academic Conferences ltd},
  title        = {IT Governance in SMEs : a theoretical framework based on the outsourced information systems failure},
  year         = {2009},
}

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