Environmental Uncertainty and IT Infrastructure Governance: A Curvilinear Relationship

Extant research considers the IT governance choice to be a trade-off between the cost-efficiency of centralization and the responsiveness provided by local information processing. This view predicts that firms tend to decentralize IT governance in more uncertain environments. We investigate this issue by studying the relationship between environmental uncertainty and IT infrastructure governance in a sample of business units from Fortune 1000 companies. The key proposition in this paper is that the relationship between environmental uncertainty and decentralization in IT infrastructure governance is best characterized as a curvilinear relationship. That is, when environmental uncertainty increases from low to high, firms tend to first decentralize their IT infrastructure decisions to the business units to enhance their responsiveness; and then centralize their IT infrastructure decisions to the headquarters as uncertainty increases further, to achieve the benefits of coordination and to mitigate the potential agency problem in uncertain environments. Moreover, the study proposes that business unrelatedness between business units and their headquarters moderates the curvilinear relationship between environmental uncertainty and IT infrastructure governance. We find that both the propositions are supported by the data.