Next, we consider variation in the demand for a firm’s output,
measured as fluctuation in sales. Outsourcing is seen as a
way to achieve flexibility in the level of input resources to
allow a firm to match the demand for its output without a
fixed investment in resources that are needed only for periods
of high demand (Abraham and Taylor 1996). A related
measure of fluctuation in capacity is the variance of the labor–
IT capital ratio. We conjecture that firms respond to external
shocks by changing their labor pool, while fixed investments