IT outsourcing and firm-level performance: A transaction cost perspective

Mark F. Thouin, James J. Hoffman, Eric W. Ford

Research output: Contribution to journalArticlepeer-review

Abstract

We analyzed the effect of the level of low asset specificity IT outsourcing on firm-level financial performance. We used transaction cost economics (TCE) as the theoretical basis to explain the effect of the level of network and telecommunication services outsourced on financial performance. An analysis of 1444 Integrated Healthcare Delivery Systems revealed that higher levels of network and telecommunication services outsourced were associated with superior financial performance. Specifically, each additional network and telecommunication service outsourced resulted in an average $3,120,000 in savings, a 25% increase in profit. In addition, increases in IT budgetary expenditures were found to be associated with increased financial performance. Our study provided preliminary support for the use of asset specificity to guide outsourcing decisions. In particular, IT activities that have become commodities (having 'low specificity') should be outsourced to improve the firm's financial performance.

Original languageEnglish (US)
Pages (from-to)463-469
Number of pages7
JournalInformation and Management
Volume46
Issue number8
DOIs
StatePublished - Dec 2009
Externally publishedYes

Keywords

  • Healthcare
  • IT governance
  • IT outsourcing
  • Services oriented architecture
  • Transaction cost economics

ASJC Scopus subject areas

  • Management Information Systems
  • Information Systems
  • Information Systems and Management

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