Returns to Information Technology Outsourcing

Information Systems Research, 22, 4 (December 2011), 824-840

17 Pages Posted: 17 Sep 2010 Last revised: 29 May 2015

See all articles by Kunsoo Han

Kunsoo Han

McGill University

Robert J. Kauffman

Singapore Management University; Singapore Management University - School of Information Systems

Barrie R. Nault

University of Calgary - Haskayne School of Business

Date Written: December 1, 2011

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.

Keywords: economic analysis; industry analysis; information technology; IT impacts; IT intensity; IT outsourcing; output elasticity; production function; production theory; productivity

Suggested Citation

Han, Kunsoo and Kauffman, Robert J. and Nault, Barrie R., Returns to Information Technology Outsourcing (December 1, 2011). Information Systems Research, 22, 4 (December 2011), 824-840, Available at SSRN: https://ssrn.com/abstract=1677560 or http://dx.doi.org/10.2139/ssrn.1677560

Kunsoo Han

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Robert J. Kauffman

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore
65-6828-929 (Phone)

Singapore Management University - School of Information Systems ( email )

80 Stamford Road
Singapore, 178902
Singapore

Barrie R. Nault (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://ucalgary.ca/bnault

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