Outsourcing of Information Systems as a Strategy for Organizational Alignment and Transformation

Outsourcing of services is usually viewed as a way to increase or decrease capacity at themargin. By outsourcing a firm can vary its ability to provide goods or services such asinformation technology (IT) processing capacity or applications development, withouttaking on the long term commitment of permanent staff or equipmentToday, outsourcing provides new options for managers to provide information technologyinfrastructures and services to a firm. In this paper we identify ways in which outsourcingmay 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 mademore consistent with a firm' s capabilities. We propose that outsourcing as an informationsystems management strategy can enable better control and lower agency costs as managersbenefit from better information through external benchmarking. We also consider the roleof outsourcing as a vehicle to support major organizational transformation, and as a devicefor enabling new models of organization. Based on our analysis we propose a series oftestable propositions about outsourcing.The contributions of this paper include extension of business strategy and informationtechnology alignment concepts to incorporate the interdependence between projects,product life cycles, and technology transfer. Most importantly, the paper highlights newdirections for outsourcing research, focusing on the effects of outsourcing on the ITorganization, the processes of internal technology development and the transfer oftechnologies between organizations