The Effect of Service Quality and Partnership on the Outsourcing of Information Systems Functions

Numerous corporations today are outsourcing specific information systems (IS) functions. The diversity of these outsourcing arrangements goes well beyond that associated with the more traditional facilities management. This paper examines outsourcing trends and reports the results of an empirical study on IS outsourcing. Overall IS outsourcing and its five component functions-namely, applications development, systems operations, telecommunications, end-user support, and systems planning and management-are examined for their relationships with outsourcing success. The effect of service quality of the provider and the ability of companies to build a partnership on these relationships are hypothesized and studied. Data from senior executives in 188 companies are gathered. Outsourcing success is found to be highly related to the degree of outsourcing of two functions, systems operations and telecommunications. The results indicate that transaction cost theory provides a good framework for IS outsourcing and that asset specificity of outsourcing transactions needs to be considered in any decision to outsource. Also, both service quality of the vendor and elements of partnership such as trust, cooperation, and communication are important for outsourcing success. Implications of the study for research and practice are discussed.