Information Technology outsourcing: A study of its role in strategic alignment and the mitigating effect of virtual organization

The lure of cost savings is a strong incentive leading many organizations to seek Information Technology (IT) outsourcing. Such a move is expected to result in cost advantages that can be realized in a relatively short period for the outsourcing organization. However, it is prudent to pause and consider the longer-term effect that IT outsourcing has on the organization. This study begins to fill the gap in the literature by examining the relationship between IT outsourcing and strategic alignment. In particular this study examined the impact IT outsourcing has on an organizations ability to maintain alignment between IT and business strategy. Given the fact that alignment between IT capabilities and organizational strategy is essential to creating or maintaining competitive advantage from IT investments an erosion of alignment will result in a loss of competitive capability. This research also explores factors such as the degree of virtual organization, industry segment, or organization size and the impact they have on the relationship. The research was conducted by administering a survey to 910 IT executives from medium to large organizations. The findings indicate a relationship between the level of strategic alignment and the competitive contribution of outsourced IT capabilities. The research further found that effective virtual organization tended to mitigate this relationship.