Does Domberger's theory of ‘The Contracting Organization’ explain why organizations outsource IT and the levels of satisfaction achieved?

Abstract

This paper contributes an interpretation of Domberger's theory of The Contracting Organization for use in an IT outsourcing context, then presents a preliminary test of the validity of that theory using data from an Australian survey of 235 senior IT managers. Our conclusion is that Domberger's theory appears to be a useful lens for understanding IT outsourcing, and that further research using purpose-collected data is therefore warranted. Phrased differently, Domberger's four types of benefit of contracting – namely Specialization, Market Discipline, Flexibility, and Cost Savings – appear to be a good way of summarizing senior IT managers’ explanations of why their organizations chose to outsource IT. The paper also conducts a preliminary test of the extent to which these four factors explain the purchasing organization's satisfaction with IT outsourcing.

Keywords:

• outsourcing
• specialization
• market discipline
• flexibility; cost

Acknowledgements

We thank Deloitte Consulting, Australia, Simsion Bowles, and the ARC (Grant #C49930404) for their assistance with funding for this study, and Anne Rouse and Colin Reilly for their assistance with data collection for this study.

Additional information

Notes on contributors

Peter B Seddon

About the authors

Peter Seddon is Associate Professor of Information Systems at the University of Melbourne from where he obtained his doctorate. He is the coauthor of one book, Second Wave ERP (Cambridge University Press, 2002), and has published widely in journals such as Information Systems Research, Journal of Strategic Information Systems, and MISQ Executive. His research interests include enterprise systems, outsourcing and evaluation and alignment issues. He is currently a Senior Editor for MIS Quarterly.

Sara Cullen

Sara Cullen holds a doctorate from University of Melbourne and is the coauthor of one book and 26 reports and refereed papers on IT outsourcing including in Journal of Strategic Information Systems, MISQ Executive, and Journal of Information Technology. She is a former national partner at Deloitte Touche Tohmatsu and has consulted to 85 private and public sector clients in over 120 projects. She has conducted seven reviews for national governments in the field of outsourcing. She reviews regularly for major IS journals.

Leslie P Willcocks

Leslie Willcocks is Professor at London School of Economics and has published 25 books and over 150 refereed journal papers in the IS field. His research interests include outsourcing, organizational change, evaluation, strategy, e-business, and social theory in IS. He holds visiting chairs at Melbourne and Erasmus universities and is Associate Fellow at Templeton College, Oxford. He is Coeditor of the Journal of Information Technology.