Are There Contagion Effects in the Diffusion of IT Outsourcing?

Growth in the IT outsourcing industry during the past ten years has been exceptional. In this study, we theorize about and analyze the growth patterns of IT outsourcing at the level of the industry and at the firm level. We analyze a data set of firms using a lognormal model as a means to gauge the presence of over-dispersed diffusion and contagion effects that seem to drive outsourcing. A critical aspect of our research methodology is to study instances of outsourcing events - especially mega-deals - that are likely to have affected decision making by other firms in an industry. Our results suggest that during the periods where a rapid increase in the number of announcements following mega-deal announcements occurred, there is a hierarchical contagion effect. The diffusion of IT outsourcing is not distributed lognormally, which suggests the presence of other underlying dynamics. Our analysis shows the presence of other underlying drivers that do not permit the diffusion pattern to be lognormal. The diffusion pattern for smaller firms appears to depend on the extent of outsourcing diffusion among the larger firms.