Why does the outsourcing of IT frequently fail to produce the expected cost savings or other benefits? Perhaps because managers don’t carefully select which IT activities to outsource. The authors examined sixty-two sourcing decisions at forty organizations through interviews with senior business executives, CIOs, consultants, and vendor account managers. From their data, they developed a set of frameworks to clarify sourcing options and aid managers in deciding which IT functions to contract out and which to retain in-house.
1. L. Applegate and R. Montealegre, “Eastman Kodak Co.: Managing Information Systems through Strategic Alliances” (Boston: Harvard Business School, Case 9-192-030, 1991);
L. Loh and N. Venkatraman, “Diffusion of Information Technology Outsourcing: Influence Sources and the Kodak Effect,” Information Systems Research, volume 3, December 1992, pp. 334–358; and
L. Willcocks and G. Fitzgerald, A Business Guide to IT Outsourcing: A Study of European Best Practice in the Selection, Management, and Use of External IT Services (London: Business Intelligence, 1994).
2. J. Ambrosio, “Outsourcing at Southland: Best of Times, Worst of Times,” Computerworld, volume 25, 25 March 1991, p. 83;
G. Anthes, “Perot Wins 10-year Outsourcing Deal,” Computerworld, volume 25, 8 April 1991, p. 96;
R. Hamilton, “Kendall Outsources IS Chief,” Computerworld, volume 23, 13 November 1989, pp. 1, 4; and
M. Hopper, “Rattling SABRE — New Ways to Compete on Information,” Harvard Business Review, volume 68, May–June 1990, pp. 118–125.
3. M. Lacity, R. Hirschheim, and L. Willcocks, “Realizing Outsourcing Expectations: Incredible Expectations, Credible Outcomes,” Journal of Information Systems Management, volume 11, Fall 1994, pp. 7–18.
4. C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, volume 63, May–June 1990, pp. 79–91.
5. M. Lacity and R. Hirschheim, Information Systems Outsourcing: Myths, Metaphors, and Realities (Chichester, England: Wiley, 1993); and
M. Lacity and R. Hirschheim, Beyond the Information Systems Out-sourcing Bandwagon (Chichester: England: Wiley, 1995).
6. D. Feeny and B. Ives, “In Search of Sustainability: Reaping Long-term Advantage from Investments in Information Technology,” Journal of Management Information Systems, volume 7, Summer 1990, pp. 27–46; and
W. Kettinger, V. Grover, S. Guha, and A. Segars, “Strategic Information Systems Revisited: A Study in Sustainability and Performance,” MIS Quarterly, volume 18, March 1994, pp. 31–58.
7. M. Mehler, “The Age of the Megacontract,” InformationWeek, 13 July 1992, pp. 42–45.
8. P. Krass, “The Dollars and Sense of Outsourcing,” Information Week, 26 February 1990, pp. 26–31;
J. Rochester and D. Douglas, eds., “Taking an Objective Look at Out-sourcing,” I/S Analyzer, volume 28, September 1990, pp. 1–18; and Hamilton (1989).
9. Willcocks and Fitzgerald (1994).
10. These numbers reduce to 13 percent of current IT budgets and 25 percent of predicted 1998 budgets when total outsourcing deals are excluded from the analysis.
11. R. Yin, Case Study Research, Design, and Methods (Beverly Hills, California: Sage Publications, 1984).
12. L. Applegate, “Managing in an Information Age: Transforming the Organization for the 1990s” (North Holland, Amsterdam: Transforming Organizations with Information Technology, Proceedings of the IFIP Conference on Information Technology and New Emergent Forms of Organizations, 1994), pp. 15–93; and
A. Pettigrew, ed., The Management of Strategic Change (Oxford: Blackwell, 1987).
13. It was too soon to definitively determine the financial outcome of seven of the total outsourcing decisions, although participants reported unexpected excess fees and hidden costs; only two total outsourcing decisions were reported as successes.
14. R. Benjamin and J. Blunt, “Critical IT Issues: The Next Ten Years,” Sloan Management Review, volume 33, Summer 1992, pp. 7–19.
15. T. Barron, “Some New Results in Testing for Economies of Scale in Computing,” Decision Support Systems, volume 8, issue 4 1992, pp. 405–429.
16. F.W. McFarlan and R.L. Nolan, “How to Manage an IT Outsourcing Alliance,” Sloan Management Review, volume 36, Winter 1995, pp. 9–23.
17. E. Clemons and M. Row, “McKesson Drug Company,” Journal of Management Information Systems, volume 5, Summer 1988, pp. 36–50;
D. Copeland and J. McKenney, “Airline Reservation Systems: Lessons from History,” MIS Quarterly, volume 12, September, 1988, pp. 353–370; and
N. Venkatraman and J. Short, “Strategies for Electronic Integration: From Order-Entry to Value-Added Partnerships at Baxter” (Cambridge: MIT Sloan School of Management, working paper, 1990).
18. D. Feeny, M. Earl, and B. Edwards, “Organizational Arrangements for IS: Roles of Users and IS Specialists,” in M. Earl, ed., Information Management: The Organizational Dimension (Oxford: Oxford University Press, forthcoming).
19. J.C. Henderson, “Plugging into Strategic Partnerships: The Critical IS Connection,” Sloan Management Review, volume 31, Spring 1990, pp. 7–18; and
McFarlan and Nolan (1995).
20. For a more detailed discussion, with examples, see:
M. Lacity, L. Willcocks, and D. Feeny, “IT Outsourcing — Maximize Flexibility and Control,” Harvard Business Review, volume 73, May–June 1995, pp. 84–93.