Capability Building as a Reason of the Internalization

Case Study Research on the Internalization of IT Software Development Functions

Abstract

Outsourcing having been in the main stream for a few decades, some firms started to re-acquire IT software development functions with the aim to develop their own services. What are the reasons of the internalization of IT functions and insourcing? Building on the extant literature on knowledge based view of the firm, transaction cost economies and resource based view, we specifically analyzed a case of the internalization of IT functions and the sourcing decisions in an office brokering firm. The dynamic process of the capability building was shown in the case through the learning and its utilization evoked intentionally. We found that the internalized IT functions combined with the accumulated learnings facilitated as its sourcing management capability including the external management, and made proper sourcing decisions continuously to respond to the changes. We also found that the accumulation of the learning combined with the internalized resources were constantly utilized for the next activities and built the firm’s own strategic capabilities, therefore the result of the learning had to be prevented from any hazardous actions or transaction costs in the future utilization. It should be necessary that the conventional view of boundary choice imply a dynamic aspect of learning as capability building.