The myths and realities of information technology insourcing

Reviewer: Stephen R. Ruth

This article is valuable to researchers and managers from three perspectives. First, it describes a useful methodology for examining the payoff of outsourcing part or all of the IT function. Through carefully researched case studies of 14 decisions at large companies (with annual revenues from $250 million to $35 billion), half insourced and half outsourced, the authors are able to classify actors and outcomes. Second, the cases make it abundantly clear that an analysis of the return on investment of this type of decision is not nearly as much an economic analysis as a clash of management styles and cultures. As they conclude, “success is related to who is doing the evaluating” (p. 107). Third, they establish a classification scheme that makes it possible to examine the outsourcing/insourcing decision more rationally. The matrix includes four examples, or “archetypes,” that classify financial outcomes (significant reduction in IT costs, or no change in IT costs) and sponsorship of the insourcing decision (senior managers, or IT managers). The non-IT manager's objective is primarily reducing costs, while the user wants good service. The authors see the IT manager as being caught in the middle. They believe that the outsourcing decision can be an opportunity for a firm to reduce IT costs without reorganizing or firing the in-house staff: “ since it is known that most of the cost savings come from the implementation of key cost reduction strategies such as data center consolidation, unit-cost chargeback systems, and standardized software, rather than economies of scale, internal IT departments should be able to reduce costs on their own” (p. 107).