Outsourcing Alliances: A Strategic Alternative for IT Capable Companies

While previous research has focused on choosing between insourcing or outsourcing, no systematic attempt has been made to find a viable alternative for IT capable companies, which need to realize optimum value from their IT capabilities. This study reviews the IT outsourcing and strategic management literature and identifies outsourcing alliances as a strategic alternative to the traditional arms-length outsourcing for IT capable companies. By building an outsourcing alliance with complementary partners, an IT capable company can go beyond its internal market for IT services to provide similar and, even new, IT services to third parties. Grounded in transaction cost economics, relational theory, and the theory on reciprocal learning alliances, this study develops a model in which the IT capable company can earn collaboration-, transaction-, and firm-specific quasi rents through outsourcing alliance.