Strategy and Vendor Selection in IT Outsourcing: Is there a Method in the Madness?

Both outsourcing strategy and choice of vendors have the potential to influence the success of information technology outsourcing (ITO) initiatives. However, the ways in which these factors combine leading to success in outsourcing has not received much attention in prior research. Accordingly, this study explores the patterns of ITO strategy and vendor selection adopted by outsourcing firms having high internal IT capabilities versus those with low internal IT capabilities. Our exploratory analysis on a sample of over 200 firms reveals that maintaining strong internal IT capabilities is a defining factor for outsourcing firms when selecting an appropriate mix of ITO strategies and vendors. These findings have important implications for firms new to ITO and also those that have not realized the full benefits of ITO.