Abstract:

This paper examines the decision to backsource IT functions. Even though outsourcing is a popular means of meeting internal IT needs, press reports and statistics suggest that backsourcing is becoming increasingly common. When organizations implement a backsourcing strategy, they incur high rebuilding fees and expensive contract termination fees. Not only that, reverting back to the once
abandoned strategy of having internal provisioning of IT services reflects negatively on the organizations’ previous strategic decision and judgment. Still, many organizations choose to undertake the challenge of internalizing the once-outsourced functions. An interesting question, therefore, is what factors drive organizations towards backsourcing. Based on press reports of actual backsourcing cases, factors that lead to backsourcing decision were identified. Just as outsourcing decision, organizations choose backsourcing to capitalize on strategic opportunities. Organizations also backsource due to internal power and politics interplay and the failure of outsourcing contract in meeting expectation. Changes in vendor organization and vendor strategy may also trigger backsourcing decision.