Exploring complexity and contradiction in information technology outsourcing: A set-theoretical approach

Abstract

Effectively managing Information Technology outsourcing (ITO) requires integration of conceptually distinct and sometimes contradicting factors. For instance, ITO “best practices” for cost reduction can inhibit a firm’s innovativeness. To address these challenges, we build on governance and capability perspectives and employ a set-theoretic approach to examine ITO practices in 27 firms. Our exploratory study reveals four distinct ITO configurations, of which three lead to positive outcomes and one leads to negated-outcomes. Detailed contracts appear to be a necessary condition for cost reduction but can also be an impediment to strategic innovation; and firms can consider a “best-of-breed” strategy to overcome this tension. Our findings call for more attention to both transaction-based and portfolio-based governance to enable flexibility for innovation while retaining rigor and risk mitigation for cost reduction.