Validating measures of information technology outsourcing risk factors

Outsourcing information technology (IT) operations has been recognized to have important potential benefits. including cost reduction, improved quality of service, and access to technological expertise. Researchers and practitioners also recognize that, in some circumstances, IT outsourcing entails risk, and that it sometimes leads to undesirable consequences that are the opposite of the expected benefits. The main purpose of this study was to validate measures of the risk factors associated with outsourcing IT operations. Insights from transaction costs theory suggest that there exist three major sources of risk factors for IT outsourcing: the transaction, the client and the supplier. From these insights, preliminary measures of IT outsourcing risk factors were developed and data from a survey of 132 IT executives were analyzed with partial least squares to assess their reliability and validity. The results confirm that these factors are useful indicators for assessing IT outsourcing risks. (C) 2004 Elsevier Ltd. All rights reserved.