IT Outsourcing Increases Efficiency of Production Processes in Firms

Firms outsourcing services for information technologies (IT) to external providers produce more efficiently than firms which render IT services themselves. Moreover, employees who predominantly work at a computer are more productive in firms outsourcing IT services. These are the findings of a study conducted by the Centre for European Economic Research (ZEW) in Mannheim.

By now, a considerable amount of German firms outsources IT services to external providers. Against this background the ZEW study assessed in what way IT outsourcing influenced the labour productivity of firms. The study evaluated a survey of over 2,000 German firms in the manufacturing industry and the service sector employing at least five persons in 2004. The firms participating in the survey were divided into two groups: the first group provided the IT services themselves and the second one outsourced the IT services. To compare both groups, the study only included basic IT services relevant to almost all firms, for example hardware and software installation, system maintenance, etc. More specialized IT services were not considered because they are not relevant to most firms. Subsequently the different effects of input factors on labour productivity (measured by the added value per employee) were assessed separately for each firm group.

The comparison shows that firms outsourcing those basic IT services like installation of software, computer system maintenance, etc. to external vendors, have more efficient production processes than firms of the comparison group. Moreover, the study finds that employees predominantly working at a computer are more productive in firms outsourcing IT services than in firms which do not outsource. “Contrary to popular belief that IT outsourcing has negative effects or does not have any effects at all, the study makes clear that IT outsourcing does in fact have positive effect on productivity”, ZEW expert Jörg Ohnemus says.

Contact

Dr. Jörg Ohnemus, Telefon: 0621/1235-354, E-mail: ohnemus@zew.de