Achieving Success Through the Fit Among Strategies of IT Outsourcing: An Empirical Investigation

Outsourcing has emerged as a major strategic alternative in information systems management. However, the decision to outsource IT functions is not an easy task since outsourcing not only has a profound and far-reaching impact on an organization’s market share and its technical leadership, but it also helps the organization to be either agile and proactive or sluggish and reactive in responding to customer needs and market opportunities. Therefore, outsourcing is not just an operational decision but a strategic one with far-reaching consequences. The success of outsourcing requires a set of processes for effectively formulating outsourcing strategies in the early stage of outsourcing decision-making. Deciding the degree of outsourcing, seeking a contractual or partnership relationship, entering into long-term or short-term outsourcing, or selecting a single or many vendors are not simplistic strategic options. This is because these factors must be considered in conjunction with one another and other organizational factors. Although a few researchers have begun to examine effective outsourcing strategies, most of their studies have focused mainly on each dimension of outsourcing strategies without consideration of their combined effects. Furthermore, there has been little development in the appropriate theoretical models to aid in understanding the combined effects among outsourcing strategies. In short, adequate guidelines for organizing effective outsourcing strategies do not exist. The objective of this study is to examine how the concept of fit can be applied to complex outsourcing strategies. More specifically, this study focuses on the nature of interrelationships among four outsourcing strategies and their impact on outsourcing success. These four outsourcing strategies are; degree of outsourcing - total insourcing, selective outsourcing or total outsourcing; relationship type - buy-in contract, fee-for-service contract or partnership; period of outsourcing - short-, mid-, or long-term outsourcing; and the number of vendors - single or multiple. This study proposes five congruent combinations of these four outsourcing strategies based on three typical theoretical perspectives that have been applied to outsourcing research: (1) a congruent pattern from a strategic management perspective (a total insourcing, buy-in-contract, short-term, and single vendor strategy) (2) two congruent patterns (a selective outsourcing, fee-for-service, mid-term, and single vendor strategy; a selective outsourcing, fee-for-service, mid-term, and multiple vendors strategy) from an economic perspective; and (3) two congruent patterns (a total outsourcing, partnership, long-term, and single vendor strategy; a total outsourcing, partnership, long-term, and multiple vendors strategy) from a social perspective. Finally, this study investigates if these internally congruent patterns of outsourcing strategies could be found in practice to enable organizations to reap greater outsourcing benefits and which pattern of outsourcing strategies allows organizations to achieve the greatest outsourcing success using a sample of 311 organizations in Korea that have outsourced their IT functions. The results show that five congruent patterns were found to be popular among the companies studied. Organizations with congruent strategic patterns appeared to realize greater outsourcing success than those with non-congruent patterns. A total outsourcing, partnership, long-term, and multi-vendor strategy with social exchange theory displayed the highest outsourcing achievement among the five congruent patterns studied.