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Research Note ---Returns to Information Technology Outsourcing

Author

Listed:
  • Kunsoo Han

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada)

  • Robert J. Kauffman

    (W. P. Carey School of Business, Arizona State University, Tempe, Arizona 85287)

  • Barrie R. Nault

    (Haskayne School of Business, University of Calgary, Calgary, Alberta T2N 1N4, Canada)

Abstract

This study extends existing information technology (IT) productivity research by evaluating the contributions of spending in IT outsourcing using a production function framework and an economywide panel data set from 60 industries in the United States over the period from 1998 to 2006. Our results demonstrate that IT outsourcing has made a positive and economically meaningful contribution to industry output and labor productivity. It has not only helped industries produce more output, but it has also made their labor more productive. Moreover, our analysis of split data samples reveals systematic differences between high and low IT intensity industries in terms of the degree and impact of IT outsourcing. Our results indicate that high IT intensity industries use more IT outsourcing as a percentage of their output, but less as a percentage of their own IT capital, and they achieve higher returns from IT outsourcing. This finding suggests that to gain greater value from IT outsourcing, firms need to develop IT capabilities by intensively investing in IT themselves. By comparing the results from subperiods and analyzing a separate data set for the earlier period of 1987--1999, we conclude that the value of IT outsourcing has been stable from 1998 to 2006 and consistent over the past two decades. The high returns we find for IT outsourcing also suggest that firms may be underinvesting in IT outsourcing.

Suggested Citation

  • Kunsoo Han & Robert J. Kauffman & Barrie R. Nault, 2011. "Research Note ---Returns to Information Technology Outsourcing," Information Systems Research, INFORMS, vol. 22(4), pages 824-840, December.
    • Handle: RePEc:inm:orisre:v:22:y:2011:i:4:p:824-840
    DOI: 10.1287/isre.1100.0290
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    2. Ravi Bapna & Alok Gupta & Gautam Ray & Shweta Singh, 2023. "Single-Sourcing vs. Multisourcing: An Empirical Analysis of Large Information Technology Outsourcing Arrangements," Information Systems Research, INFORMS, vol. 34(3), pages 1109-1130, September.
    3. Frank Nagle, 2019. "Open Source Software and Firm Productivity," Management Science, INFORMS, vol. 65(3), pages 1191-1215, March.
    4. Robert J. Kauffman & Dan Ma & Martin Yu, 2018. "A metrics suite of cloud computing adoption readiness," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(1), pages 11-37, February.
    5. Sulin Ba & Barrie R. Nault, 2017. "Emergent Themes in the Interface Between Economics of Information Systems and Management of Technology," Production and Operations Management, Production and Operations Management Society, vol. 26(4), pages 652-666, April.
    6. Indranil Bardhan & Viswanathan Krishnan & Shu Lin, 2013. "Research Note ---Business Value of Information Technology: Testing the Interaction Effect of IT and R&D on Tobin's Q," Information Systems Research, INFORMS, vol. 24(4), pages 1147-1161, December.
    7. Fengmei Gong & Barrie R. Nault & Mohammad S. Rahman, 2016. "Research Note—An Internet-Enabled Move to the Market in Logistics," Information Systems Research, INFORMS, vol. 27(2), pages 440-452, June.
    8. Jiyong Park & Kunsoo Han & Byungtae Lee, 2023. "Green Cloud? An Empirical Analysis of Cloud Computing and Energy Efficiency," Management Science, INFORMS, vol. 69(3), pages 1639-1664, March.

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