A multi-level investigation of information technology outsourcing

This study proposes and tests a model of the information technology (IT) outsourcing decision that includes antecedents of both transaction costs and production costs. Production costs show the most robust influence on governance. Skills required to execute the activities, interdependence between the activities, and firm-level characteristics – uncertainty and knowledge intensity – are the main explanatory variables of the decision. Transaction-level uncertainty is the only transaction cost variable found to influence the decision.

► Information system outsourcing decision is explained by a multi-level model. ► Activities closer to the firm’s core are driven by production costs considerations. ► Activities remote from the firm’s core are influenced by transaction costs. ► Firm-level uncertainty favors outsourcing while transaction uncertainty decreases it. ► Activities are not managed independently within a firm.