Does IT outsourcing deliver economic value to firms?

The question of whether or not IT outsourcing initiatives deliver economic value to firms is an important yet under examined one. This study extends extant outsourcing literature by evaluating how firm value is created through IT outsourcing. Using Porter’s Value Chain Model as the theoretical framework, the study systematically traces and measures the value added through IT outsourcing for firms in the manufacturing and retail industries. The results indicate that the effect of IT outsourcing is better detected at the intermediate process level rather than at the firm-level. Firms are able to realize economic benefits of cost savings, but less so in efficiency. Improved cost is observed in inbound logistics and supporting activities. With the exception of inbound logistics, no efficiency improvements are observed in operating activities and outbound logistics, suggesting that the positive impact of IT outsourcing is limited.