The Aftermath of Information Technology Outsourcing: An Empirical Study of Firm Performance Following Outsourcing Decisions

Abstract

Increasingly, organizations are jumping onto the information technology (IT) outsourcing bandwagon in an effort to create value. However, evidence indicating the positive economic consequences of such initiatives has been limited. This study attempts to fill this void by synthesizing the process-oriented research in IT business value literature and the resource-based theory to develop an integrative research framework for assessing the value proposition of IT outsourcing. With a process-oriented lens, the framework suggests that the effects of IT outsourcing are best documented at the process level and hence, it is imperative that one takes into consideration the impact of IT outsourcing on performance at both the process level as well as the firm level. Grounded in the resource-based view, the framework also accounts for the complementary role of firms' core IT capability as a critical condition for the value creation of IT outsourcing. Consistent with the process-oriented prediction, the findings suggest that the positive effects of IT outsourcing appear mostly at the process level, but not at the firm level. Moreover, it is found that the level of business value created by IT outsourcing is contingent on firms' core IT capability. Firms with superior core IT capability are found to enjoy an advantage in leveraging their outsourcing initiatives to enhance firm value.