Knowledge transfer and utilization in IT outsourcing partnerships: A preliminary model of antecedents and outcomes
Introduction
Increasingly, firms are using IT outsourcing to external vendors to obtain returns far beyond cost savings and operating efficiencies. As Hanif Lalani, British Telecom's Group Finance Director commented, “People have realized that … outsourcing vendor staff are very clever.” … They have many “ideas about how they could work with you and improve things”. By outsourcing to India, Singapore, and China, the Bank of America is using its IT outsourcing to acquire valuable knowledge from its vendors, in addition to cost savings, time savings, and better quality programming. Barbara Dosoer, Chief Technology, Service and Fulfillment Executive commented, “There's a lot that we’ve learned from our vendors that we’ve been able to bring back to the U.S.”.
The above examples suggest that IT outsourcing partnerships are gradually evolving from simple cost reduction initiatives to knowledge management initiatives, and that some firms are using IT outsourcing as a strategic partnership to learn from their vendors. However, the process by which outsourcing clients acquire knowledge from vendors, as well as the key drivers and outcomes of learning, remain unclear. Although there is an extensive body of research on the predictors and outcomes of IT outsourcing [16], such work has focused on operational roles of outsourcing such as improving cost efficiencies or scale; relatively less attention has been devoted to understanding their potential ramifications for knowledge flows between vendor and client firms. Our research addressed this gap.
While some outsourcing research has emphasized the need for knowledge transfer from client to vendor (e.g., [7]), little research has examined knowledge transfer from vendor to client. Using an economic learning model, Cha et al. [5] found that the optimal outsourcing rate depended on the client's ability to acquire production knowledge from the vendor. In cases where such knowledge transfer was inadequate, the client tended to adopt either total insourcing or total outsourcing. In contrast, if the transfer of such knowledge was substantial, the client tended to engage in selective outsourcing. The growing preference for selective outsourcing over total insourcing or outsourcing suggests that clients do see outsourcing vendors as a valuable source of external knowledge.
A useful lens to conceptualize knowledge flows is the notion of knowledge transfer and its utilization. While there is significant research on knowledge transfer, its subsequent utilization in IT outsourcing partnerships remains underdeveloped. Though recent IS work has explored knowledge transfer between clients and vendors [17] as well as knowledge transfer portfolios within the firm [30] during the systems development process, nomological network spanning knowledge transfer and knowledge utilization remains unclear. Even less work has examined whether knowledge transferred across firm boundaries can be effectively utilized in the internal activities of client firms. Furthermore, the literature that examined interorganizational knowledge transfer has identified a variety of antecedents in the broader context of international strategic alliances, rather than in the IT outsourcing context. The objective of our study was therefore to address the gaps in the literature, focusing specifically on the following research questions:
- 1.
What are the key antecedents of knowledge transfer and utilization in IT outsourcing partnerships?
- 2.
What contingent factors, if any, mediate the relationship between knowledge transfer and knowledge utilization in IT outsourcing partnerships?
- 3.
What are the operational and strategic consequences of knowledge utilization for client firms with IT outsourcing partnerships?
To address these questions, we built on past research to identify key antecedents (client's motivation, vendor's willingness, knowledge codifiability, client's prior experience with vendor) presumed to influence knowledge transfer. We also examine the role of knowledge integration mechanisms in facilitating the client's utilization of such transferred knowledge to postulate the operational and strategic outcomes of the client's IT function. The proposed model is tested using data on IT outsourcing partnerships from 146 organizations in Singapore.
Section snippets
Theoretical development
Previous research on knowledge management has examined its frameworks [2], [4], factors affecting it [34], [40], knowledge flows [35], and its value [33]. A different stream of research on IT outsourcing has examined factors affecting it [31], [37], its benefits and risks [13], [22], its relationships and value and success of outsourcing [12]. Detailed reviews of IT outsourcing research are available from, Gonzalez et al. [11] and King and Torkzadeh [15]. However, beyond a few case studies
Method
We tested our hypotheses using a field survey of senior IT managers in the largest firms of Singapore.
Sample characteristics
The demographics of firms in our sample are shown in Table 2. The sample consisted of a mix of small and medium enterprises (SMEs) and large firms, as evident from employee count and annual revenue. Though 66% of these firms had less than 20 IT staff, this was not surprising since many of these firms had outsourced some or most of their IT operations. Respondents worked an average of 7.6 years in their firm and 11.9 years in the industry, providing some assurance that respondents were indeed
Implications for research
We developed a theoretical model of knowledge transfer and utilization in outsourcing relationships by drawing on prior expectations and findings and from the IT outsourcing and knowledge management literatures. Empirical analysis of our model, using survey data from 146 client firms in Singapore validated most of our hypothesized relationships.
The findings of our study have at least three important implications. First, prior research has viewed IT outsourcing as transactional relationships,
Acknowledgments
The authors would like to thank G. Premkumar and Amrit Tiwana for their assistance in this project.
Thompson S.H. Teo is an Associate Professor in the Department of Decision Sciences at the School of Business and in the Department of Information Systems at the School of Computing (by courtesy), National University of Singapore. His research interests include the strategic use of IT, e-commerce, adoption of IT, strategic IT planning, offshoring and sustainability. He has published more than 100 papers in international refereed journals. He has formerly served as Senior Associate Editor for the
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Cited by (0)
Thompson S.H. Teo is an Associate Professor in the Department of Decision Sciences at the School of Business and in the Department of Information Systems at the School of Computing (by courtesy), National University of Singapore. His research interests include the strategic use of IT, e-commerce, adoption of IT, strategic IT planning, offshoring and sustainability. He has published more than 100 papers in international refereed journals. He has formerly served as Senior Associate Editor for the European Journal of Information Systems and is currently serving as the Regional Editor (Asia and Pacific) for the International Journal of Information Management. Thompson is also on the editorial boards of Communications of the AIS, IEEE Transactions on Engineering Management, Information & Management, MIS Quarterly Executive and Omega. He has co-edited four books on IT and e-commerce, and is also a four-time winner of the SIM Paper Awards Competition.
Anol Bhattacherjee is a Professor of Information Systems at the University of South Florida. In a research career spanning over 16 years, Dr. Bhattacherjee has published over 75 publications, including 54 refereed journal papers and two books, that have received over 6000 citations on Google Scholar. His research focuses on management and diffusion of technological innovations, healthcare informatics, and social enterprises. He holds PhD and MBA degrees from the University of Houston, and MS and BS degrees from Indian Institute of Technology, and had prior faculty appointments at Arizona State University and the University of Colorado at Denver.