How Many Vendors Does it Take to Change a Light Bulb? Mitigating the Risks of Resource Dependence in Information Technology Outsourcing

As the scope and complexity of information technology outsourcing expand, the importance of the number of vendors adopted by a client is rising. What are the reasons why some companies contract with a single vendor while others contract with several? While there has been considerable research on this issue, we still lack a systematic understanding of why firms utilize different numbers of vendors. With the premise that clients’ contracts with their dominant outsourcing vendor create varying levels of resource dependence and therefore client risk, this study seeks to answer the following questions: First, to what extent do contractual conditions prompt clients to seek risk mitigation via an increased number of outsourcing vendors? Second, how do the respective resource levels of the client and vendor impinge on this relationship? From a resource-dependency perspective, we hypothesize a relationship between contract conditions (i.e., contract duration and type) and the number of vendors used by a client. We then explore client resource and resource-access conditions (i.e., MIS budget and vendor performance) that moderate this relationship between contract conditions and the number of vendors engaged by a client. The proposed model and hypotheses are tested using a sample of 311 organizations in Korea that had outsourced their IT functions to external service vendors. The empirical evidence sheds light on the role of resource conditions in the relationship between contract conditions and the number of vendors. The findings have significant implications for further research and practice.