Using system dynamics to anticipate the organizational impacts of outsourcing

The outsourcing of information systems functions is a phenomenon that is now considered an essentially permanent addition to the cache of options available to the modern manager. Yet, while the potential costs and benefits of outsourcing are widely debated, a thorough understanding of the phenomenon remains elusive. The outsourcing decision is highly situational and generalizations regarding its relative merits are difficult to construct. Because of its unique ability to capture the inherent complexity of the outsourcing decision, system dynamics is used to construct a computer-based model of that decision process in a typical information systems organization. The effect of two management policies and two exogenous variables is explored over 80 quarters (20 years). Findings indicate that while outsourcing offers potential cost savings, it is accompanied by a decreased ability to respond to unexpected changes in the competitive market place. Copyright © 1999 John Wiley & Sons, Ltd.