R&D Outsourcing in Information Technology Organisations: Effects on Costs, Profits, and Technological Capability

Abstract

Because of the budgetary constraints, an increasing number of organizations have taken the decision to outsource their R&D activities to external outsourcing contractors. However, relevant literature continues to debate on whether or not R&D outsourcing can improve organizations’ financial performance. Therefore, this study aims to study how different sourcing strategies during new product development process influence development cost, financial profit and technological capability. The results from 121 Taiwanese IT firms indicate that R&D outsourcing is more effective in terms of both financial benefits and technological capabilities gained when products are developed under radical product innovation. The results also indicate that R&D outsourcing should be treated as complementary to in-house R&D. Research and managerial implications are also discussed.