Conceptualizing strategic issues in information technology outsourcing

Abstract

PurposeIt is posited that information technology (IT) outsourcing unfolds a complex relationship that has the propensity to start with a bang and end in a whimper unless the strategic parameters are identified at the outset. The paper is intended to beacon flash areas open to scholarly research in this relatively nascent area.Design/methodology/approachThe key to long‐term success is the mutually beneficial partnership of the client and the provider. This paper identifies such relationships based on a framework that can lead to strategic success of the outsourcing engagements. The paper develops a set of propositions to build a deeper understanding of the processes that underlie IT outsourcing as a strategic and sustainable enterprise‐wide initiative to further an organization's performance in the competitive market place.FindingsOutsourcing of IT is emerging as a potent business strategy. The statistics compiled by the IT industry watch‐dogs point only to one direction – outsourcing will grow unabated in the foreseeable future. However, their data also reveal a staggering failure rate of outsourcing engagements. The failure may be partly attributed to a lack of formal research available to decision makers contemplating the possibility of outsourcing. The literature review corroborates that there is very little scholarly research available to guide decisions in the pre‐outsourcing phase. This paper suggests a research framework that would fill a void in understanding the relationships among the firm's internal capabilities, the type of engagement, and strategic business values. Understanding of these strategic relationships is vital before an organization decides to outsource, as the decision domain has shifted primarily from cost cutting to engagement of a strategic nature. The outsourcing decision of IT should be considered strategic as the relationship and the knowledge gained during the engagement can be translated into tangible and intangible business values for the organization. An interesting extension of the proposed research would be to investigate the conditions that underlie acceptance of an engagement by the vendor. The proposed research also has the potential to extend to the post‐engagement phase of the outsourcing in terms of identifying the conditions for strategically focused relationship management.Originality/valueThe paper provides a framework and identifies propositions to delve deeper into the understanding and underpinnings of IT outsourcing as a strategic process by studying a majority of research available on the topic.