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ERIC Number: ED554203
Record Type: Non-Journal
Publication Date: 2013
Pages: 222
Abstractor: As Provided
Reference Count: N/A
ISBN: 978-1-3031-6171-1
Essays on Information Technology (IT), Governance and Clouds
Vithayathil, Joseph
ProQuest LLC, Ph.D. Dissertation, University of California, Irvine
Why do some firms organize their IT departments as profit centers whereas other firms organize IT as a cost center? Due to information asymmetry regarding the cost and demand for IT, the firm is unable to achieve the first best outcome in terms of optimizing the value from IT services. Two commonly used organizational models for the IT department that have been studied are the cost center and the profit center. Under a cost center organizational structure, the firm sets the quality and number of IT services offered by the IT department, whereas under a profit-center structure, the IT department determines the quality, number of services, and the price for such services. A novel feature of this research is that IT services quality is included as one of the variables impacted by organizational structure. Whereas prior literature has discussed higher consumption under a cost center model the profit-center can generate higher consumption than the cost-center. Similarly, the profit center is generally expected to deliver higher quality IT services. While this is often true, the results show that the quality of IT services can be greater under a cost-center structure. The preferred organizational structure may not always offer the widest variety of IT services. The cost-center structure for the IT department maximizes the firm's benefit when the fixed cost of quality is sufficiently high or the marginal cost of IT is sufficiently low. These results have several managerial implications. How does the adoption of cloud computing by a firm impact the organizational structure of its IT department? The research shows that when the cloud vendor faces intense competition, the cost-center model is preferred over the profit-center model. When the cloud vendor has pricing power, a profit-center organizational structure is likely to be preferred. Additionally, the profit-center structure provides greater internal quality enhancement to cloud-based IT services than the cost-center structure. IT may enable improved corporate governance, and a concept of IT-enabled owner-governance is proposed and analyzed in the context of corporate takeovers. The research question is: whether board entrenchment is beneficial to shareholders and whether owner-governance, can improve on current practice of delegated-governance? The results show that modest entrenchment is beneficial to shareholders and they prefer owner-governance under low entrenchment and poor outside options. Delegated-governance is preferred when their firm has attractive outside options. Under modest board entrenchment shareholders prefer delegated-governance, and under high board entrenchment, they prefer owner-governance. The social planner prefers owner-governance when board entrenchment is modest or high. Interestingly, there are regions where the target shareholders, social planner and acquirer prefer the same governance structure. [The dissertation citations contained here are published with the permission of ProQuest LLC. Further reproduction is prohibited without permission. Copies of dissertations may be obtained by Telephone (800) 1-800-521-0600. Web page:]
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Publication Type: Dissertations/Theses - Doctoral Dissertations
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A