Strategic Information System Sourcing in the Presence of Regulatory Pressures: the Case of Electronic Health Record Systems

With rapid technological advancements and turbulent market dynamics, companies constantly experience external pressures on information technology (IT) sourcing. However, little is known about how companies make IT sourcing decisions, especially in terms of dealing with the complexity stemming from the interdependence among different IT subcomponents, to adapt to such pressures. This study provides insights by exploring hospitals’ sourcing strategies for Electronic Health Record Systems (EHRS), a typical multicomponent system, in the presence of regulatory pressures. A theoretical framework is developed to examine how hospitals change the number of EHRS subcomponents (EHRS scope) and the diversity of their vendors (EHRS diversity) after they perceive strong regulatory pressures on EHRS sourcing. Evidence from a large sample of US hospitals through a difference-in-differences estimation shows that hospitals widen EHRS scope and diversity in the face of regulatory pressures. The impacts of regulatory pressures on EHRS scope and diversity vary depending on hospital size and case complexity. We also find evidence that EHRS scope and diversity differentially mediate the impact of regulatory pressures on patient outcomes. This study contributes to recent literature on IT sourcing strategies by shedding light on how organizations strategically orchestrate IT portfolios to adapt to external pressures. It also provides insights into the potential unexpected implications of these strategic moves.