Outsourcing for Sustainable Competitive Advantage: Information Systems1

ABSTRACT

Though outsourcing has the potential to strengthen a company's competitive position, because it also tends to make the business process easy to emulate and diminishes the company's ability to differentiate itself from its rivals, outsourcing also carries the risk of eventually limiting, or even lowering, a company's competitive position. The purpose of this report is to investigate, through survey-based analysis, how information system (IS) outsourcing can lead to sustainable competitive advantage by identifying the conditions by which its benefits extend beyond IS related operations to the management of the company as a whole.

A survey conducted in September of 2003 showed that the following three factors have a significant and direct influence on the extent to which outsourcing contributes to company management: 1) the level of alignment between strategy and IT within the company, 2) the degree of business portfolio re-evaluation and business process reconfiguration that takes place in the company prior to outsourcing, and 3) the degree of selectiveness with which the company chooses the contractor. Furthermore, these factors are in turn influenced by three more general factors: 1) the level of the management's interest in IT, 2) whether or not the company owns equity in the contractor, and 3) the ability of the company to plan and control IS projects.

Thus, in order to derive not just short-term but sustainable competitive advantage from outsourcing, it is necessary for companies to heighten the priority of IT within their business, re-evaluate and reconfigure their business portfolios and processes, and select their contractors scrupulously. An effective way for companies to prepare for such outsourcing is to reform themselves on the level of resources and abilities, i.e. strengthen their ability to plan and control IS projects while also heightening the commitment of their management toward such projects.