Adaptability in IT Sourcing: The Impact of Switching Costs

Firms have an increasing need today to develop a sourcing strategy that is more strategic than in years past. Firms need to maintain a strategy of adaptability in order to mitigate the risks associated with outsourcing. A major influence on the adaptability of a firm in the shortand long-term is the switching costs associated with bring an outsourced activity back inhouse (backsource) or switching to another vendor. As switching costs increase, firms are increasingly “locked in” to a vendor. Firms should therefore work to decrease the switching costs so that they are more able to switch to another vendor or backsource if the market changes or an outsourcing relationship sours. Three strategies are presented for lowering switching costs.