Why Do Some Firms Outsource IT More Aggressively Than Others? The Effects of Organizational Characteristics on IT Outsourcing Decisions

Abstract

The conventional benefits (i.e., cost reduction, the ability to focus on core competence, technological leadership, etc) and risks (i.e., vendor opportunism, lock-ins, contractual difficulties, etc) of IT outsourcing are extensively documented in the literature. Nevertheless, as IT outsourcing has become a pervasive organizational phenomenon, the greater part of its driving and constraining forces should be understood in a larger organizational context. This study provides new insight into the broader organizational factors, namely firm uncertainty, agency risk, firm innovativeness and IT intensity, that may influence a firm's propensity to outsource IT. The results suggest that firm uncertainty and agency risks negatively affect a firm's outsourcing decisions, while a positive association is observed between a firm's innovativeness (measured by R&D intensity) and IT outsourcing propensity. Our study serves as a fresh vantage point from which to explore new opportunities and challenges of IT outsourcing, going beyond the traditional studies that use financial characteristics as its primary determinants.

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