The Strategic Choice to Continue Outsourcing, Switch Vendors, or Backsource: Do Switching Costs Matter?

Information & Management, Vol. 47, No. 3, pp. 167-175, 2010

10 Pages Posted: 25 Apr 2010 Last revised: 8 Jun 2012

See all articles by Dwayne Whitten

Dwayne Whitten

Texas A&M University - Department of Information & Operations Management

Subrata Chakrabarty

University of Texas at El Paso (UTEP)

Robin Wakefield

Baylor University - Department of Information Systems

Date Written: April 25, 2010

Abstract

IT outsourcing contracts are often discontinued in favor of other alternatives (returning to in-house development, or switching to another vendor). Switching costs are experienced when terminating a business relationship and securing an alternative. We tried to answer the question: do switching costs matter significantly in the strategic choice to continue outsourcing, switch vendors, or backsource? Switching costs were considered, such as those due to IT operations (sunk investment, lost performance, system upgrades, uncertainty, and induction-retraining-performance), personnel-replacement costs (candidate search, and IT/setup), and in-house learning (cognitive/behavioral learning). A field survey was conducted, and, for each of these cost types, the differences between group means across the three groups (outsourcing continuation, vendor switching, and backsourcing) were determined. The findings suggested that customer organizations preferred outsourcing continuation most and backsourcing least when their switching costs were high. However, the relative preference for vendor switching depended on the switching cost type.

Keywords: Outsourcing, Switching, Costs, Backsourcing, Customer, Vendor, Supplier, Strategy

JEL Classification: F2, L1, L2, L8, M1, M3, M5

Suggested Citation

Whitten, Dwayne and Chakrabarty, Subrata and Wakefield, Robin, The Strategic Choice to Continue Outsourcing, Switch Vendors, or Backsource: Do Switching Costs Matter? (April 25, 2010). Information & Management, Vol. 47, No. 3, pp. 167-175, 2010. Available at SSRN: https://ssrn.com/abstract=1595514

Dwayne Whitten

Texas A&M University - Department of Information & Operations Management ( email )

430 Wehner
College Station, TX 77843-4218
United States

Subrata Chakrabarty (Contact Author)

University of Texas at El Paso (UTEP) ( email )

El Paso, TX 79968-0539
United States

HOME PAGE: http://chakrabarty.com

Robin Wakefield

Baylor University - Department of Information Systems ( email )

TX
United States

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