Why do firms outsource: A tool for contextual ambidexterity

Shivom Aggarwal, Kiron Ravindran, Gautam Ray

Research output: Chapter in Book/Report/Conference proceedingConference contribution

1 Scopus citations

Abstract

Why do firms outsource information technology (it)? The literature is divided on whether it outsourcing is a cost-reduction strategy or a growth strategy. We argue that organizations can do both, i.e., they can make choices between exploitative and explorative aspects of it outsourcing, depending on the firm’s objective, i.e., to increase revenues and/or decrease costs. Our empirical findings show that it outsourcing has a positive direct effect on revenues and no impact on costs. We also find that the firms with low internal innovation capability use it outsourcing as a substitute for internal research and development (R&D) expenditure to increase revenues while firms with high internal R&D capability use it outsourcing as a complement for internal R&D expenditure to decrease costs. Moreover, in case of less concentrated i.e., more competitive industries firms tend to outsource more in order to increase revenues, while in highly concentrated i.e., less competitive industries firms tend to outsource in order to reduce cost. We reconcile our findings which are partially consistent with disparate perspectives from the literature, using the contextual ambidexterity framework. Our findings suggest that contextual ambidexterity also occurs at organizational level and is embedded in organizational level contexts. We provide important implications for is scholars working on it outsourcing and practitioners from outsourcing firms as well as it vendors.

Original languageEnglish (US)
Title of host publicationShared Services and Outsourcing
Subtitle of host publicationA Contemporary Outlook - 10th Global Sourcing Workshop 2016, Revised Selected Papers
EditorsJulia Kotlarsky, Leslie P. Willcocks, Ilan Oshri
PublisherSpringer Verlag
Pages1-18
Number of pages18
ISBN (Print)9783319470085
DOIs
StatePublished - Jan 1 2016
Event10th Global Sourcing Workshop on Shared Services and Outsourcing: A Contemporary Outlook, 2016 - Val d’Isere, France
Duration: Feb 16 2016Feb 19 2016

Publication series

NameLecture Notes in Business Information Processing
Volume266
ISSN (Print)1865-1348

Other

Other10th Global Sourcing Workshop on Shared Services and Outsourcing: A Contemporary Outlook, 2016
CountryFrance
CityVal d’Isere
Period2/16/162/19/16

    Fingerprint

Keywords

  • Contextual ambidexterity
  • IT outsourcing
  • Seemingly unrelated regression

Cite this

Aggarwal, S., Ravindran, K., & Ray, G. (2016). Why do firms outsource: A tool for contextual ambidexterity. In J. Kotlarsky, L. P. Willcocks, & I. Oshri (Eds.), Shared Services and Outsourcing: A Contemporary Outlook - 10th Global Sourcing Workshop 2016, Revised Selected Papers (pp. 1-18). (Lecture Notes in Business Information Processing; Vol. 266). Springer Verlag. https://doi.org/10.1007/978-3-319-47009-2_1