InformationWeek 500: Academic Research Yields Actionable Advice
What does the IW 500 data reveal about IT spending's connection to stock prices, outsourcing, and risk? Baylor business professor Kevin Kobelsky's research offers answers.
In a unique research partnership over the past three years, InformationWeek has granted Baylor University business professor Kevin Kobelsky, along with his colleagues, access to the IW 500 data, under a strict nondisclosure agreement. Like InformationWeek, he agreed not to disclose any individual company data and only to reveal aggregate data. Kobelsky's research has led to three research papers published in academic journals, with a fourth accepted for this fall. Far from ivory tower theory, each of the papers has practical insights and actionable advice that business technology leaders can tap into about how IT delivers business value. What follows are highlights of the authors' findings.
Outsourcing Doesn't Cut Total Spending
Companies that outsource tend to increase their total IT spending, not lower it. It's true that companies likely are getting more IT for that money, whether it's spent on one-time application development projects or for ongoing services such as help desk or application support. Still, the fact that total IT spending doesn't decrease backs up the idea that outsourcing is more about increasing the total capability of an IT organization, not just shipping chunks out to a lower-cost provider for a one-time IT spending cut. The lesson: If you plan to cut total IT spending by outsourcing, you're bucking the trend.
Your outsourcing isn't really about cost cutting, right? You want to reinvest savings and move people to focus on higher-value work. CIOs apply some variation of this old saw to offshore outsourcing all the time. But it's a half truth--offshoring is without question about cutting costs of some work by shipping it to lower-cost locales. What this research suggests, however, is that the second part, that the cost savings are reinvested, really is often true.
"The impact of IT outsourcing is immediate and symmetric. New outsourcers see immediate IT spending increases, while firms stopping [IT outsourcing] see immediate decreases. The analysis indicates that IT spending increases by more than the proportion outsourced, suggesting that firms use [IT outsourcing] as a component of a larger capability-enhancing initiative."