Financial And Strategic Determinants Of IT Outsourcing Success: An Empirical Analysis

Abstract

The dynamic landscape of the IT and IT-enabled services (ITES) sector has positioned outsourcing as a pivotal strategic tool for organisations seeking operational efficiency, scalability, and global competitiveness. Traditionally, financial imperatives—such as cost reduction, profit maximisation, and compliance—have been the dominant motivations behind outsourcing decisions. However, with increasing complexities in global service delivery, strategic factors—such as governance mechanisms, risk mitigation strategies, location planning, and alignment with long-term business objectives—have emerged as equally, if not more, influential in determining the overall success of outsourcing engagements.

This research aims to empirically examine the relative impact of financial and strategic determinants on the successful adoption of outsourcing in the IT/ITES industry. Employing a structured, quantitative methodology, data were collected through a self-administered survey targeting experienced professionals in the field. A total of 160 valid responses were analysed using Structural Equation Modeling (SEM), providing robust insights into the interactions between key variables.

The findings reveal that while financial considerations serve as a crucial foundation for initiating outsourcing arrangements, it is the strategic dimension that significantly drives sustainability and long-term value. Moreover, strategic factors were found to mediate the influence of financial drivers, highlighting the necessity for integrated decision-making frameworks. These results suggest that organisations need to shift from a purely cost-centric view of outsourcing to a more holistic model that embeds strategic alignment at its core.

This study offers meaningful contributions to both academic literature and industry practice. Theoretically, it bridges gaps in outsourcing research by integrating the Resource-Based View (RBV) and Technology–Organization–Environment (TOE) frameworks to explain outsourcing success. Practically, it equips decision-makers with actionable insights to craft outsourcing strategies that are financially viable, strategically sound, and operationally effective. As outsourcing continues to evolve in response to technological and market shifts, these findings underscore the importance of aligning financial rationale with strategic foresight.