This research in progress addresses the issue of how IT capabilities of firms can influence their IT sourcing decisions. Drawing from strategic theoretic views, the research model is developed to argue that firms engage in outsourcing of their strategic IS activities based partly on the relative efficiency (with respect to their competitors) of their key IT input resources and factors, in addition to other drivers including their imitative response following industry trends in this regard. The paper develops hypotheses with respect to the impact of the relative efficiencies of three key input factors – business-aligned IS planning, IS knowledge acquisition, and top management’s proactive use of IS – on the significant outsourced IS activities that contribute to competitive action potential of a firm. Data is collected using the survey method and a two-stage DEA-partial least squares (PLS) approach is employed to validate the framework. An “efficiency score” using DEA for capturing a relative level of IT competence of firms will be generated, which will further guide a firm as to whether or not it needs to fill the gap through outsourcing arrangements.