IT outsourcing and firm-level performance: A transaction cost perspective

Authors:
Mark F. Thouin;James J. Hoffman;Eric W. Ford
Affiliations:
School of Management, The University of Texas at Dallas, United States;Rawls College of Business, Texas Tech University, United States;Bryan School of Business and Economics, College of Business, University of North Carolina-Greensboro, United States
Venue:
Information and Management
Year:
2009

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Abstract

We analyzed the effect of the level of low asset specificity IT outsourcing on firm-level financial performance. We used transaction cost economics (TCE) as the theoretical basis to explain the effect of the level of network and telecommunication services outsourced on financial performance. An analysis of 1444 Integrated Healthcare Delivery Systems revealed that higher levels of network and telecommunication services outsourced were associated with superior financial performance. Specifically, each additional network and telecommunication service outsourced resulted in an average $3,120,000 in savings, a 25% increase in profit. In addition, increases in IT budgetary expenditures were found to be associated with increased financial performance. Our study provided preliminary support for the use of asset specificity to guide outsourcing decisions. In particular, IT activities that have become commodities (having 'low specificity') should be outsourced to improve the firm's financial performance.