Dynamics of Outsourcing Relationships

Given the potential headaches of managing IT, it is tempting to hand the job over to someone else. Indeed, outsourcing once appeared to be a simple solution to management frustrations, and senior management teams at many companies negotiated contracts with large service providers to run their entire IT functions (Gottschalk & Solli-Sæther, 2006). At a minimum, these providers were often able to provide IT capabilities for a lower cost and with fewer hassles than the companies had been able to themselves. But many of these outsourcing arrangements resulted in dissatisfaction, particularly as a company’s business needs changed. Service providers, with their standard offerings and detailed contracts, provided IT capabilities that were not flexible enough to meet changing requirements, and they often seemed slow to respond to problems. Furthermore, a relationship with a supplier often required substantial investments of money and time, which entrenched that supplier in the company’s strategic planning and business processes. The company then became particularly vulnerable if the supplier failed to meet its contractual obligations (Ross & Weill, 2002). In our dynamic perspective of knowledge resources, outsourcing relationships are not just about transactions between a vendor and a supplier. The resource-based theory argues that the firm’s ability to mobilize and utilize both internal and externally available resources determines its ability to succeed in the market place. If the firm is short of important resources such as IT resources, an outsourcing arrangement might help overcome the problem as the vendor makes IT resources available to the firm for a price.