The Productivity Benefits of IT Outsourcing
Source: University of California
This paper examines the productivity benefits of IT outsourcing in the credit union industry, using data on the population of U.S. credit unions from 1992-2005. Within-credit union switching from internal IT to outsourced IT reduces operating costs by roughly 30%, once they control for the endogeneity of switches. Less productive firms are more likely to outsource in the cross-section, and more likely to exit. The reorganization from internal to external IT production is responsible for as much as $6 billion in annual cost savings for the industry.