IT Outsourcing: Economic Performance
and its Determinants
Researchers have investigated the relationship between IT
outsourcing and resulting economic performance. Case study
evidence (Lacity et al. 1996; Saunders et al. 1997) has documented
cost savings of up to 40 percent. Other studies have
examined its value using financial and accounting measures.
For instance, Loh and Venkatraman (1995) show that
increased levels of IT outsourcing lead to higher financial
performance as captured in Tobin’s q and return on equity
(ROE). Some studies have found a positive, but weak, impact
of IT outsourcing arrangements on stock market returns
(Farag and Krishnan 2003; Gurbaxani and Jorion 2005; Hayes
et al. 2000), implying that investors expect IT service providers
to improve client firm performance through a variety
of means, including economies of specialization and scale.