Configuration: An Important Concept for Understanding IT Outsourcing Sara Cullen University of Melbourne scullen@saracullenassociates.com.au Peter Seddon University of Melbourne p.seddon@unimelb.edu.au Abstract All IT outsourcing (ITO) deals are different. If researchers are to produce meaningful advice on how to manage outsourcing, we need better to ways to describe and classify ITO arrangements. In this paper, we introduce a new concept “configuration”, defined as a high- level description of the set of choices the organization has made in crafting its ITO portfolio and deals therein. Further, we tentatively identify seven attributes—Scope Grouping, Supplier Grouping, Financial Scale, Duration, Pricing Framework, Resource Ownership, and Commercial Relationship—as key descriptors of an organization’s outsourcing configuration. The contribution of this paper is its articulation of the concept of an organization’s ITO configuration, the identification of the seven key attributes, and demonstration that configuration is an important concept for understanding, comparing and distinguishing ITO arrangements. Keywords: IT outsourcing, ITO, configuration, key attributes 1. Introduction In Australia in the year 2000, 97% of organizations were outsourcing some aspect of their IT activity (Cullen et al., 2001). Such pervasive adoption has made information technology outsourcing (ITO) a growing multi-billion dollar industry (Lacity and Willcocks 2001) and a much-studied phenomenon (Loh and Venkatraman, 1992; Klepper and Jones, 1998; Hui and Beath 2001). However, research has yielded conflicting advice on the effective application of ITO. For example, Lacity and Willcocks (1998; 2001) and Sambamurthy et al. (2001) suggest that “selective” outsourcing is more likely to be successful than “total” outsourcing, the latter being where 80% or more of the annual IT budget is outsourced to a single supplier. The underlying argument appears to be that suppliers have different core competencies (e.g., some are better than others at managing networks, data centers, software development, desktops, and so on), so that despite the additional management overhead for the client having to manage multiple contracts and relationships, it is better to source from multiple suppliers. Yet, based on data from an Australian survey with 232 respondents (Cullen et al. 2001, Seddon et al. 2001), Rouse and Corbitt (2003) report that “the probabilities for those engaged in selective outsourcing were statistically no different—for cost savings or for business flexibility”. How is one to interpret such contradictory findings? One possibility is that there are methodological issues in the studies. Perhaps, for instance, perceptual measures from questionnaires sent to IT managers are not appropriate for understanding such complex phenomena as ITO. Another possibility is that it is a mistake to treat all ITO arrangements as instances of the same phenomenon. Under this argument, the conflicting results reported above are due to attempts to compare different things as if they are the same, when they are not. It is this latter explanation that we explore in this paper. 2129