Source of vendor production cost advantages in IT outsourcing

To date, most research on IT outsourcing concludes that firms decide to outsource IT services because they believe that outside vendors possess production cost advantages when facing environmental and technological change. Yet it is not clear what enables vendors to provide production cost advantages and how. The paper elaborates on these two questions by combining existing research literature with findings from a case study of one successful application maintenance outsourcing engagement. It then analyzes how answering these questions can help firms decide whether to outsource IT application maintenance and how to evaluate outsourcing vendors. It also suggests how vendors can become successful in today’s environment.