Journal of Management Information Systems

Volume 40 Number 2 2023 pp. 338-365

Software-Vendor Diversification: A Source of Organizational Rigidity in Adversity?

Gong, Jing, Liang, Yi, and Ramasubbu, Narayan


Firms often assemble digital infrastructures using continuously evolving software applications sourced from a multitude of vendors. Using the theoretical lens of the threat-rigidity thesis, we raise the possibility that during adverse environmental conditions, software-vendor diversification can be a source of organizational rigidity that may dampen firm performance. Empirical analysis using data on 918 large public U.S. firms operating during two severe environmental shocks, the global financial crisis and the burst of the dot-com bubble, lends strong support to our thesis. Results indicate that a variety of firm performance indicators (e.g., stock return and operating income measures) are negatively associated with software-vendor diversification during crisis periods. Mediation analysis highlights the role of IT-related material weakness in firms’ internal controls in transmitting threat-rigidity effects that decrease performance. These results underscore the importance of software portfolio optimization for countering the dysfunctional effects of software-vendor diversification during adverse environmental shocks.

Key words and phrases: Software-vendor diversification, IT-related control weakness, internal controls, digital infrastructures, software portfolio, economic shocks, firm performance, organizational rigidity