Reaching Across Organizational Boundaries for New Ideas: Innovation from IT Outsourcing Vendors

Companies outsource IT either to obtain resources they lack or to obtain IT resources more effectively and efficiently. Vendors are not limited to only providing common solutions. Innovative use of IT resources is critical to the success of organizations, and innovativeness also contributes to competitiveness. However, in outsourcing, more emphasis on cost savings, the need to focus on core competencies and the need to focus on strategic activities overshadows the need for innovativeness. The prescriptions of treating IT outsourcing as a strategic decision (Quinn 1999), outsourcing nonstrategic IT while focusing on internal strategic activities and outsourcing IT for cost savings are sound advice. Vendor innovativeness must complement client activities that are directed towards these more obvious objectives. Although IT outsourcing is often regarded as outsourcing of a nonstrategic resource for cost savings, both vendors and clients gain from vendors' innovations (Quinn 1999, 2000). There are risks such as opportunism involved and it is necessary to have proper contracts and relationship management for obtaining benefits. Despite rapid changes in technologies, focus in academic IT research has been more on cost savings and nonstrategic outsourcing (Dibbern, Goles, Hirschheim, & Jayatilaka 2004). This paper attempts to make a contribution by exploring the organizational and IT factors enabling innovation in outsourced IT.

IT research on innovativeness in outsourcing is scanty. During the early days of IT outsourcing, researchers treated it as an administrative or an organizational innovation where companies rearranged the organizational arrangements for producing IT in a profitable manner (Loh & Venkatraman 1992; Hu, Saunders, & Gebelt 1997). Most of the focus had been on viewing IT outsourcing as a market transaction, which matched the early types of IT outsourcing. IT outsourcing has evolved from facilities management to obtaining IT services (e.g., systems development, data centers) and IT supported services (e.g., Business Process Outsourcing (BPO ) ). Vendor—customer relationships evolved from managing contracts (Currie & Seltsikas 2001) to more involved relationships where both the vendors and the customers participate in the outsourced activities (Kaiser & Hawk 2004), sometimes referred to as ‘co sourcing’. These changes allowed for the discovery of the need for more involvement of the vendors in providing customer specific solutions.