Core Competencies and IT Outsourcing: A Test of the Strategic Asset Focus Model

Achieving dramatic cost savings through outsourcing is one avenue managers can choose for value creation. Another is capitalizing on a strategic focus. Organizations that have identified the core or distinctive competence of their business, including IT core processes, are theoretically better able to concentrate on competitive strengths. By divesting themselves of activities unrelated or marginally related to their core functions, they can benefit from superior marketing, production, inbound logistics, or distribution. The current study proposes and tests a Strategic Asset Focus model. This model posits that, organizations that treat IT as a strategic asset will be less likely to outsource and this strategic focus will allow them to sustain higher levels of performance. Utilizing a research design that captured extensive quantitative and qualitative data on the sourcing of IT functions and services, the research team studied 54 business units of 27 companies in seven countries over a five-year period. Using quantitative (i.e., PLS) and qualitative analytical tools, the results of this study offer insights for researchers and managerial guidelines regarding how organizations can selectively outsource. Strategic focus proves to be a good explanation for how the most effective managers outsource IT and how they reap downstream benefits from their sourcing decisions. Because corporate level decisions about outsourcing have a noticeable empirical influence on business unit level decisions, it is critical that a clear firm-wide process for management decision making is in place to capture business value.