Outsourcing of services is usually viewed as a way to increase or decrease capacity at the
margin. By outsourcing a firm can vary its ability to provide goods or services such as
information technology (IT) processing capacity or applications development, without
taking on the long term commitment of permanent staff or equipment
Today, outsourcing provides new options for managers to provide information technology
infrastructures and services to a firm. In this paper we identify ways in which outsourcing
may be used tactically to better align business and information technology strategies.
Specifically, we consider how selective outsourcing enables alignment of incentives,
business revenues and IT infrastructure costs, and how organizational intent can be made
more consistent with a firm' s capabilities. We propose that outsourcing as an information
systems management strategy can enable better control and lower agency costs as managers
benefit from better information through external benchmarking. We also consider the role
of outsourcing as a vehicle to support major organizational transformation, and as a device
for enabling new models of organization. Based on our analysis we propose a series of
testable propositions about outsourcing.
The contributions of this paper include extension of business strategy and information
technology alignment concepts to incorporate the interdependence between projects,
product life cycles, and technology transfer. Most importantly, the paper highlights new
directions for outsourcing research, focusing on the effects of outsourcing on the IT
organization, the processes of internal technology development and the transfer of
technologies between organizations.Information Systems Working Papers Serie