Is There an “Information Technology Outsourcing Paradox”?

This paper examines an apparent paradox: given the increasing adoption of outsourced IT service delivery, why has the academic literature been unable to confirm widespread satisfaction with the strategy? Instead it has come to be seen as almost axiomatic that outsourcing IT must be perceived as beneficial by purchaser firms — after all, why would organizations engage in this practice if it did not produce corporate benefits? Yet there is a growing body of evidence collected by both consultants and researchers that significant numbers of outsourcing arrangements are quite unsatisfactory (e.g., Aubert, Patry, & Rivard 1999; Bernard 2005; Gartner 2002; Ozanne 2000; Rouse & Corbitt 2003b).

Trade and academic claims of a range of benefits have fuelled the worldwide adoption of IT outsourcing. Certainly, outsourcing has the potential for a number of benefits in addition to, and sometimes instead of, cost savings. These include enhanced business flexibility: access to skills; or to new or better technologies; increased capacity to concentrate on core business; enhanced managerial control; and financial restructuring benefits (such as converting capital to operating expenses (Lacity & Willcocks 2001). But in this chapter the evidence on which such claims are based is unpacked, and it will be shown that while in some cases substantial benefits accrue from IT outsourcing, the strategy can also lead to a number of negative outcomes. The most common of these is a failure to deliver the benefits that were the primary reason for engaging in the activity in the first place. Because of the significant disruption and expense caused when outsourcing is entered into, this fundamental failure means that funds and management attention are diverted from other more fruitful business strategies, often for considerable periods.