A Conceptual Model for Enterprise Adoption of Open Source Software

While IT researchers have long focused on achieving strategic benefits provided by IT investments, recently some have claimed “IT doesn’t matter.” We believe that most large organizations have both highly strategic and highly commoditized IT investments, and that differences in the strategic importance of information systems help explain where firms will adopt new technologies. We develop a framework that considers the tradeoffs between features, risk, and cost in IT adoption, and show how it can be applied to explain the adoption of open source software in large firms. We discuss a planned survey to provide empirical support linking the framework to enterprise deployment of open source software. The two decades from 1980-2000 marked tremendous growth in the organizational adoption of information technologies, through new users, new uses, and new technologies. Some (mainly smaller) firms adopted their first computers with the availability of desktop computing, while at larger enterprises, computing shifted from being a back office data processing system to become an integral part of daily operations and even used as a competitive weapon. Much of the growth came from innovations leading to new technologies such as RDBMS,1 RISC-based computing, local area networks, and web-based intranets. However, this huge growth in technology adoption masked a contrary trend in the declining real cost of computing, by more than 50% per annum during the post World War II era (Nordhaus 2001). The end of the technology bubble in 2000 accelerated the cost reductions sought by IT management, which in turn fueled increasing commoditization of the IT industry. This commoditization of IT — along with the widespread adoption of IT by most sizable firms — prompted Carr (2003) to assert “IT doesn’t matter” in terms of providing competitive advantage. Even those that disagree with Carr concede that many previously “strategic” information systems are no longer a source of differentiation. Based on interviews, industry accounts, and prior IT research, we offer a framework to explain how enterprises make IT investments of varying strategic importance within the firm, each with a corresponding value for features, risk, and cost. We show how differences in the relative importance of these broad categories explain how, when, and where firms adopt new technologies. We use this to consider the initial adoption of open source software in large organizations — customarily referred to as the “enterprise.” We predict that such adoption will tend towards replacing systems of the lowest strategic importance and highest cost sensitivity, and offer a causal model explaining this adoption. Finally, we show how the model has implications for buyers and sellers of information technologies and the likely impact open source software will have on existing vendor-client relationships. Strategic Value of IT Investments Research on information systems over the past 20 years has sought to identify how a firm’s IT spending provides it with strategic advantage. Among the earliest such work was that of McFarlan (1981, 1984; McFarlan et al, 1983), who provided managerial tools to help firms identify and Forthcoming in Sherrie Bolin, ed., The Standards Edge: Open Season, Ann Arbor, Mich.: Sheridan Books. Kwan & West / Enterprise Adoption 2 maximize the strategic value of IT investments. More recently, researchers have sought to provide empirical evidence of how IT spending provides business value (for a summary, see Melville et al, 2004). Varying Degrees of IT Importance While firms differ in the level of strategic benefit they achieve from IT investments, usually such variation has been ascribed to differences between industries and a firm’s position within an industry. McFarlan et al (1983) developed a “strategic grid” model that classifies firms (or divisions) into four categories — strategic, factory, support or turnaround — based on how strategically valuable IT is to the firm’s (division’s) performance. In their “strategic alignment” model, Henderson and Venkatraman (1983) contend that strategic benefit is contingent upon the alignment of IT function to the business strategy, and also the alignment of internal systems and processes to the external context. Such research describes the variability of IT strategic importance on a firm-by-firm basis: some firms create advantage over competitors through their IT spending, while others have more routine IT needs in which IT plays an important but supporting role. However, most large firms today have a range of information systems, and this earlier research assumes that all systems within a given firm (or division) have similar strategic importance. If all systems are of equal strategic importance, how would a firm ever adopt a new, highly strategic technology? Does this mean that any new technology must be adopted firm wide — an approach that reduces some management difficulties, but makes the initial deployment more risky (and thus requires more complex steps to mitigate risk)? These same questions also apply to costreducing innovations. For example, in their interviews with firms adopting open source software, Dedrick and West (2004) found that many firms adopting Linux viewed it as riskier (although cheaper) than other alternatives, and thus tended to initially deploy Linux systems for uses that were of lower strategic importance — such as displaying web pages or providing file and printer services. Strategic Differences within a Firm To explain technology adoption, we focus on the differences of strategic importance between systems. Our unit of analysis is the information system: we consider differences in importance of systems between firms, within firms, and how the importance of a given system changes over time. To help explain how such importance explains IS department decisions to buy and operate systems, we classify production systems into three broad categories of strategic importance: strategic, mission critical, and support. We also posit a fourth type of system (laboratory) that is used for experimental evaluation and deployment. We call these categories “stages”;2 the characteristics of each are as follows: • strategic. These are systems that provide actual (not imagined) competitive advantage over rivals. To achieve such advantage, they tend to require the greatest resources and top management “mindshare” (McFarlan et al, 1983; Venkatraman, 1994). • mission critical. The smooth and reliable operations of the systems in this stage are critical to the fulfillment of the mission of the enterprise, and their failure (however temporary) can subject the enterprise to loss of sales, profits, and customer loyalty. Thus, reliability is paramount for such systems, and they also require significant resources. Forthcoming in Sherrie Bolin, ed., The Standards Edge: Open Season, Ann Arbor, Mich.: Sheridan Books. Kwan & West / Enterprise Adoption 3 • support. These “routine systems” (to use the phrase of Saarinen & Vepsäläinen 1994) provide business value by improving the enterprise’s internal efficiency; as such, decisions about these systems are usually driven by cost-efficiency. For a typical enterprise, these might included desktop, productivity, communications, and much of the IT infrastructure; however, the classification of a system by any given firm is based on the business value to that firm, not the technology employed. • laboratory. These non-production systems are developed in response to demands for pilot studies and experimentation with new technology.3 This stage is a temporary stop for systems that are being evaluated for a permanent operational role, although not all systems will “graduate.” As Dedrick and West (2004) found, the evaluation of new technologies often depends on the availability of “slack” human capital within the organization. The differences among stages are summarized in Table 1. Table 1. Hypothesized Tradeoffs between Stages Stage Goal Driver Contemporary Example Strategic Competitive Advantage Differentiation Customer Relationship