IT Outsourcing Adoption by Small and Medium Enterprises: A Diffusion of Innovation Approach

The study investigates factors contributing to the adoption of IT services outsourcing (ITO) by small and medium enterprises (SMEs) in western countries. The focus is on the process of diffusion and adoption of ITO as a management innovation. The paper is written from the perspective of ITO vendors from developing countries and seeks to identify steps that will help these vendors sell ITO services to SMEs in first world countries. The model is motivated by two research streams: diffusion of innovation theory and institutional theory. The model posits that vendors should exploit the fit among three factors (as it is this fit that determines the adoption rate of ITO services): (1) innovation profile, including features such as relative advantage and complexity of service offered; (2) innovator profile, including features such as prestige level of the firm, educational level, and firm size; and (3) field-level characteristics such as intensity of competition, density of inter-firm connections, service professionalization, knowledge codification in the field, and effort level by intermediaries in promoting legitimacy of ITO.