Given the prevalence of IT outsourcing, it is important to examine the degree to which IT outsourcing pays off and what factors drive the benefits. Yet, while IT outsourcing is the subject of numerous studies in academia and in practice, there is surprisingly limited systematic empirical research on analyzing its payoffs (for a comprehensive review, see Dibbern et al. 2004). Of the small number of studies that have attempted to measure the economic impacts of IT outsourcing, only a few have examined its productivity impacts. At the firm level, Knittel and Stango (2007) examine the productivity impact of IT outsourcing in one specialized industry sector, credit unions. At the industry level, Han et al. (2011) focus on purchased IT services. These studies have found that purchased IT services contribute to productivity improvement while generally assuming that outsourcing firms or industries benefit equally. While these studies recognize the importance of disentangling the effects of individual sources of value, their focus is on demonstrating aggregate returns. None of the studies identify the mechanisms by which IT outsourcing confers productivity benefits on client firms or industries. As a result, we have a limited understanding of the sources and magnitude of the tangible economic benefits, such as productivity improvements, that client firms derive from outsourcing IT services.