Single-Sourcing vs. Multisourcing: : An Empirical Analysis of Large Information Technology Outsourcing Arrangements

Single-Sourcing Versus Multisourcing: An Empirical Analysis of Large Information Technology Outsourcing Arrangements

Policy Abstract

As the information technology (IT) services landscape matures, clients are increasingly adopting multisourcing arrangements that involve multiple vendors. Although a large body of IS literature addresses issues of whether to outsource (to a single vendor), what types of contracts to use, and how to achieve optimal relational governance, little is known about the antecedents and consequents of the single versus multisourcing decision. Moreover, although conceptual and analytical models of single-sourcing versus multisourcing have been developed, there is no empirical IS research using a large-scale data set with rigorous econometric analysis that examines the antecedents and consequents of multisourcing in the IT context. This paper fills this void, using the transaction cost economic lens and a data set of 49,057 large IT outsourcing arrangements that spans multiple industries and dates back 25 years. For managers who plan to multisource IT outsourcing arrangements, this research provides guidance to minimize exchange hazards through a better understanding of the relationship between sourcing choice, client IT outsourcing capabilities, the competitiveness of the vendor landscape, and the number of IT services in an IT outsourcing arrangement. We provide empirical evidence that the choice between single-sourcing and multisourcing is material to the performance of outsourcing contracts, as an incorrect sourcing choice is likely to result in negative contract outcomes.

As the information technology (IT) services landscape matures, clients are increasingly adopting multisourcing arrangements that involve multiple vendors. Although a large body of information systems (IS) literature addresses issues of whether to outsource (to a single vendor), what types of contracts to use, and how to achieve optimal relational governance, little is known about the antecedents and consequents of the single versus multisourcing decision. Moreover, while conceptual and analytical models of single-sourcing versus multisourcing have been developed, there is no empirical IS research using a large-scale data set with rigorous econometric analysis that examines the antecedents and consequents of multisourcing in the IT context. This paper fills this void, using the transaction cost economic lens and a data set of 49,057 large IT outsourcing arrangements that spans multiple industries and dates back 25 years. We find that there is a curvilinear relationship between number of IT services in an IT outsourcing arrangement and the likelihood of multisourcing. This relationship increases as the number of IT services increases to up to five services and then decreases. For managers who plan to multisource IT outsourcing arrangements, this research provides guidance to minimize exchange hazards through a better understanding of the relationship between sourcing choice, client IT outsourcing capabilities, the competitiveness of the vendor landscape, and the number of IT services in an IT outsourcing arrangement. We provide empirical evidence that the choice between single-sourcing and multisourcing is material to the performance of outsourcing contracts as an incorrect sourcing choice is likely to result in negative contract outcomes.

History: Paul A. Pavlou, Senior Editor; Ning Su, Associate Editor.