This paper advances the comparative capability view of boundary choice by proposing that firms engage in strategic IS outsourcing based on the relative position of their key IS capabilities compared to industry peers. We identify two distinct sets of IS capabilities: productive IS capabilities, defined as a firm’s efficiency in deploying IS resources for operational performance, and retained IS capabilities, defined as a firm’s ability to govern external IS resources and adapt to change. We argue that a deficiency in productive capabilities and a sufficiency in retained capabilities—relative to an industry benchmark—are critical drivers of strategic IT outsourcing decisions. To explore this relationship, we develop an integrative framework that incorporates both comparative IS capabilities and relationship-specific assets, the latter serving as moderating factors in determining the degree of outsourcing. This paper contributes to the existing literature on IT outsourcing by identifying two distinct IS capability sets and their influence on outsourcing decisions. In addition, it integrates resource-based view (RBV) and transaction cost economics (TCE) perspectives to offer a prescriptive framework for IT outsourcing decision.