Specialization, Integration and Multi-sourcing: A Study of Large IT Outsourcing Projects

IT outsourcing has three broad forms: (i) Single-Sourcing, where the client outsources to one primary vendor, (ii) Single-Sourcing with subcontracting , where the primary vendor involves other/secondary vendors in the project, and (iii) Multi-Sourcing, where the client outsources to multiple primary vendors.  Using a dataset of large IT outsourcing contracts from the SCD database with 22,031 large IT outsourcing contracts from 1989-2009 we examine the antecedents of choice with respect to the form of outsourcing arrangements that firms have.  Our results indicate that higher value projects are more likely to be single-sourced with subcontracting; however, a highly modularized project is more likely to be multi-sourced.  Further, client and vendor experience dictate whether multi-sourcing or single-sourcing is chosen due to tradeoffs involved in benefits from specialization in one case versus the cost of coordination in the other.  Finally, as the IT outsourcing industry matures,  single-sourcing with subcontracting and multi-sourcing increase.