Software Acquisition: The Custom/Package and Insource/Outsource Dimensions

Working Paper No. CIS 96-02

Posted: 3 Jul 1998

See all articles by Paul Nelson

Paul Nelson

Simon School, University of Rochester

William Richmond

affiliation not provided to SSRN

Abraham Seidmann

Boston University - Questrom School of Business; University of Rochester - Simon Business School

Date Written: January 15, 1996

Abstract

This paper presents a decision framework that captures the major tradeoffs a firm faces when a software acquisition decision is made. This framework and the method of empirical analysis differ significantly from previous work on software acquisition. The software acquisition problem is depicted as two-dimensional, with the firm deciding whether to custom develop the software or base it on a package and whether to insource acquisition tasks or outsource them. Multinomial logit analysis of extensive field data on actual business decisions (not stated rationales) identifies and measures the key factors affecting these two decisions. We present evidence that: A significant interaction exists between decisions on the two dimensions of the software acquisition problem. This "confounding effect" leads firms to make the custom/package and insource/outsource decisions simultaneously. Software acquisition decisions are strongly affected by application properties, technological characteristics and organizational considerations. Suprisingly, we find the software acquisition decision to be largely unaffected by whether or not the system is strategic. Finally, while there is support for the popular belief that software development outsourcing has increased over time, we do not find evidence of such a trend for packages. The framework and empirical results in this paper offer managers a basis for structuring and benchmarking their software acquisition decisions. The paper also characterizes the types of software projects that will be most beneficial for vendors to target.

JEL Classification: C88, L86

Suggested Citation

Nelson, Paul E. and Richmond, William and Seidmann, Abraham Avi, Software Acquisition: The Custom/Package and Insource/Outsource Dimensions (January 15, 1996). Working Paper No. CIS 96-02, Available at SSRN: https://ssrn.com/abstract=7251

Paul E. Nelson

Simon School, University of Rochester ( email )

Carol Simon Hall 3-204
Rochester, NY 14627
United States
585-275-2550 (Phone)

William Richmond

affiliation not provided to SSRN

Abraham Avi Seidmann (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-333C
Rochester, NY 14627
United States
585-275-5694 (Phone)
585-275-9331 (Fax)

HOME PAGE: http://www.ssb.rochester.edu/fac/Seidmannav/

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