Outsourcing Innovation: Factors influencing firms’ decision to outsource IT development to consulting organizations

Abstract: THESIS PURPOSE: The present thesis aims to describe and generate new insights about the factors that foster or inhibit the decision to outsource IT development services in addition to the factors considered to decide the extent and form of an outsourcing initiative in Sweden. Furthermore, this study aims to determine the differences in outsourcing practices across various proposed company categories. METHODOLOGY: A qualitative small-n case study framework is used in addition to a quantitative analysis performed from historical purchase records from an IT consultancy case company including records from 307 companies over one year. THEORETICAL PERSPECTIVES: Available theory in the topic of the outsourcing phenomenon is presented starting with an account of the changes in use and development of outsourcing activity from the conventional wisdom to transformational outsourcing, followed by different perspectives regarding the outsourcing decision and assessing theories such as value and transaction cost economics; finally it is included a collection of different authors’ accounts of outsourcing drivers, pros and cons. CONCLUSIONS: Several factors have been identified during this study, for example Lack of Resources, Project Scoping and Planning Requirements, Access to New Competencies, Special Regulations etc. In addition, research yielded two main types of outsourcing; development projects and specialist consulting —which appears to be most widespread. This distinction resulted essential as the study established a difference in the effect of the identified “drivers” depending on the outsourcing offer type. In addition, Special Swedish Regulations appear to have an effect on the propensity to outsource in terms of resources, however the effect on development projects or entire activities was impossible to infer with the available information, leaving it as a candidate for future research. Finally, quantitative analysis demonstrated that small and young companies have different proportion of outsourcing types, which in addition suggests these are affected differently by the outsourcing drivers.