From the Vendor's Perspective: Exploring the Value Proposition in IT Outsourcing

MIS Quarterly, Vol. 27, No. 3, pp. 331-364, September 2003

49 Pages Posted: 18 Sep 2008  

Natalia Levina

New York University

Jeanne W. Ross

Massachusetts Institute of Technology (MIT) - Center for Information Systems Research (CISR)

Date Written: September 25, 2003

Abstract

To date, most research on IT outsourcing concludes that firms decide to outsource IT services because they believe that outside vendors possess production cost advantages. Yet, it is not clear whether vendors can provide production cost advantages, particularly to large firms who may be able to replicate vendors' production cost advantages in house. Mixed outsourcing success in the past decade calls for a closer examination of the IT outsourcing vendor's value proposition. While the client's sourcing decisions and the client-vendor relationship have been examined in IT outsourcing literature, the vendor's perspective has hardly been explored. In this paper we conduct a close examination of vendor strategy and practices in one long-term successful applications management outsourcing engagement. Our analysis indicates that the vendor's efficiency was based on the economic benefits derived from the ability to develop a complementary set of core competencies. This ability, in turn, was based on the centralization of decision rights from a variety and multitude of IT projects controlled by the vendor. The vendor was enticed to share the value with the client through formal and informal relationship management structures. We use the economic concept of complementarity in organizational design, along with prior findings from studies of client-vendor relationships, to explain the IT vendors' value proposition. We further explain how vendors can offer benefits that cannot be readily replicated internally by client firms.

Keywords: Outsourcing of IS, Case Study, Complementarity in Organizational Design, IS Core Competencies, Management of Computing and IS, Systems Maintenance, IS Staffing Issues, IS Project Management, Core Competency Theory, Resource-Based View of the Firm

JEL Classification: D20, D23, L86, M12, M54

Suggested Citation

Levina, Natalia and Ross, Jeanne W., From the Vendor's Perspective: Exploring the Value Proposition in IT Outsourcing (September 25, 2003). MIS Quarterly, Vol. 27, No. 3, pp. 331-364, September 2003. Available at SSRN: https://ssrn.com/abstract=1269025

Natalia Levina (Contact Author)

New York University ( email )

44 West Fourth Street
New York, NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~nlevina

Jeanne W. Ross

Massachusetts Institute of Technology (MIT) - Center for Information Systems Research (CISR) ( email )

Sloan School of Management
5 Cambridge Center, NE25-777
Cambridge, MA 02142
United States
617-253-9461 (Phone)
617-253-4424 (Fax)

HOME PAGE: http://cisr.mit.edu

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