This paper examines the likely impact of utility computing on IT outsourcing. Drawing on a set of 11 outsourcing cases, as well as the literature on IT outsourcing, we identify four risks that mitigate the potential benefits of IT outsourcing. We then describe two approaches to outsourcing: managing a network of selective outsourcing partners and managing large-scale exclusive partnerships. The firms in our sample introduced a number of popular relationship management practices in order to counter the risks of outsourcing. We describe their practices but then observe that, in addition to the vendor relationship capability, firms' ability to generate value from outsourcing depends on the maturity of their IT architectures. We discuss the implications of both vendor management and architecture design capabilities as firms seek the benefits of utility computing, and conclude that both continue to play key roles. We close with some recommendations as to how firms can use relationships to build effective architectures and how an effective architecture built around well-defined technology and business process components can enable a firm to capitalize on the strategic agility that utility computing offers.
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