Knowledge transfer and utilization in IT outsourcing partnerships: A preliminary model of antecedents and outcomes

Highlights

• We examine the antecedents and outcomes of knowledge transfer and utilization.

• Client motivation, vendor willingness and codifiability affect knowledge transfer.

• Transferred knowledge and integration mechanisms shape knowledge utilization.

• Knowledge utilization is positively related to operational and strategic gains.

Abstract

We developed a nomological network of antecedents and outcomes of knowledge transfer and utilization in IT outsourcing relationships, and tested it using a survey of 146 IT outsourcing partnerships in Singapore.

Our findings showed that the characteristics of outsourcing clients, vendors, and knowledge transferred played important roles in facilitating knowledge transfer; the transferred knowledge in conjunction with the knowledge integration mechanisms affected knowledge utilization in client-firms, and that this generated significant operational and strategic performance gains in IT operations. Our findings can aid practitioners determine how to use outsourcing to improve knowledge management in their organization.

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:

• What are the key antecedents of knowledge transfer and utilization in IT outsourcing partnerships?

• What contingent factors, if any, mediate the relationship between knowledge transfer and knowledge utilization in IT outsourcing partnerships?

• 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.