Centralizing Data Management with Considerations of Uncertainty and Information-Based Flexibility.

Author List: Velu, Chander K.; Madnick, Stuart E.; Alstyne, Marshall W. Van;
Journal of Management Information Systems, 2013, Volume 30, Issue 3, Page 179-212.
This paper applies the theory of real options to analyze how the value of information-based flexibility should affect the decision to centralize or decentralize data management under low and high uncertainty. This study makes two main contributions. First, we show that in the presence of low uncertainty, centralization of data management decisions creates more total surplus for the firm as the similarity of business units increases. In contrast, in the presence of high uncertainty, centralization creates more total surplus as the dissimilarity of business units increases. The pivoting distinction trades the benefit of reduction of uncertainty from dissimilar businesses for centralization (with cost saving) against the benefit of flexibility from decentralization. Second, the framework helps senior management evaluate the trade-offs in data centralization that drive different business models of the firm. We illustrate the application of these propositions formally using an analytical model and informally using case vignettes and simulation.
Keywords: economics of IS; flexibility and information systems decentralization; real options; uncertainty
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#165 0.323 uncertainty contingency integration environmental theory data fit key using model flexibility perspective environment perspectives high conditions processing examine issue uncertain
#267 0.133 options real investment option investments model valuation technology value analysis uncertainty portfolio models using context intuitive managerial regret uncertain case
#5 0.105 consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper
#231 0.074 information management data processing systems corporate article communications organization control distributed department capacity departments major user hardware cost applications expansion
#212 0.073 business digital strategy value transformation economy technologies paper creation digitization strategies environment focus net-enabled services processes insights challenges key response
#193 0.058 time use size second appears form larger benefits combined studies reasons selected underlying appear various significantly result include make attention
#151 0.053 costs cost switching reduce transaction increase benefits time economic production transactions savings reduction impact services reduced affect expected optimal associated