The Perceived Risks of IT Outsourcing: An Exploratory Comparison of Large MNC & SME’s

Abstract

This paper examines the perceived risk of outsourcing from the perspective of a large, multi-national, multi-business unit corporation
(Group I) compared to small businesses within Central Virginia (Group II). In general, the perceived impact of the risk factors was mixed.
Group I outsourced operations that had a greater impact on other areas of the corporation. It also was moderately concerned about the issues
relating to the specificity of the outsourced assets. Group II was concerned about the lack of expertise within their company for the
outsourced operation. It also was moderately concerned about the small number of suppliers available to perform the outsourced operation.
Group I was more likely to utilize procedures that should mitigate the risks associated with outsourcing. The anticipated negative impact from
outsourcing the IT operations was minimal. Overall, the results showed that Group I perceived a slightly higher chance that a negative
outcome would result from outsourcing.
The combined results of the survey showed that Asset Specificity and Degree of Expertise of the client with outsourcing had the greatest
significance on the outcome of cost escalation. The outcome of debasement was impacted by the risk factors of Asset Specificity, Degree of
Expertise of client with operation as well as the Degree of Expertise of the supplier with outsourcing, and Measurement Problems. Of the Risk
Mitigators, Clan Mechanisms showed the strongest correlation with both outcomes, while Mutual Hostaging also was significant to service
debasement.
Information Technology (IT) outsourcing has become a popular business trend within companies. Outsourcing will generate an
estimated US$151 billion in revenues for this year, according to research from IDC. Spending in the US will exceed $81 billion (Fraser, 2003).
The Gartner Group estimates global revenues of $178 billion in 2006 (Aron, 2003). Despite the magnitude of these revenue levels, minimal
statistical research on companies’ perceived risks of IT outsourcing is available. This paper examines the perceived risk of outsourcing from
the perspective of a large, multi-national, multi-business unit corporation (Group I) compared to small businesses within Central Virginia
(Group II). The data for this analysis was accumulated using a survey (Bahli, 2002).