In an IT outsourcing relationship, the requirements on a KMS to support creation, storage and retrieval and application of knowledge will not change dramatically.
However, the requirements concerning support for knowledge transfer will change significantly.
P1:. Knowledge transfer is the most important knowledge process in an IT out- sourcing relationship.
The problem of knowledge transfer is often faced by individuals or groups once an appropriate source of knowledge is located (Sambamurthy & Subramani, 2005).
The new challenge lies mostly in how to transfer knowledge between the vendor and the client. The environment for communication in certain areas of a company will be drastically altered as a consequence of an outsourcing decision. Knowledge, which earlier could be transferred between people in the same organization, now has to be transferred across two different organizations. Consequently, the chan- nels for transferring knowledge will be more formal and impersonal. A KMS has to find a way to transfer all relevant information through more formal and impersonal channels or to find a new creative way of making the communication channel less formal and/or impersonal.
According to Ko et al. (2005), some researchers have defined knowledge transfer as dyadic exchanges of organizational knowledge between a source and a recipient unit in which the identity of the recipient matters. Others also focus on the result- ing changes to the recipient. For example, knowledge transfer can be seen as the process through which one unit (e.g., group, department or division) is affected by
the experience of another. Other researchers go further by arguing that knowledge transfer occurs when a contributor shares knowledge that is used by an adopter.
Knowledge is in the heads of individuals. Therefore, we have to understand knowledge transfer in terms of individual behavior. Wasko and Faraj (2005) examined social capital and knowledge contribution in electronic networks of practice. They found that reputation, centrality and tenure were significant factors influencing the extent to which individuals are motivated to make knowledge contributions. Reputation is an important asset that an individual can leverage to achieve and maintain status within a collective. Centrality is the extent to which the individual is in regular contact with others; the more individuals are in regular contact with one another, the more likely they are to develop a habit of cooperation and act collectively. Individuals with longer tenure in the shared practice are likely to better understand how their expertise is relevant, and are thus better able to share knowledge with others.
Given the multiple objectives of knowledge transfer in IT outsourcing relationships, only a sophisticated operationalization of the concept will suffice here. Since the literature suggests that key aspects of knowledge transfer are knowledge movement and the application of knowledge, Ko et al. (2005) captured both of these ideas by defining knowledge transfer as the communication of knowledge from a source so that it is learned and applied by a recipient. Knowledge is taken to be transferred when learning takes place and when the recipient understands the intricacies and implications associated with that knowledge so that he or she can apply it. For ex- ample, the vendor may transfer knowledge about testing procedures to the client, who learns and applies this knowledge, as evidenced by clients developing test scripts, conducting tests of individual modules and running integration tests to ascertain whether data are correctly passed between two or more modules.
Similarly, Inkpen and Tsang (2005) define knowledge transfer as a process through which one relationship partner is affected by the experience of another. Knowledge transfer manifests itself through changes in knowledge or performance of the recipient unit. Partnerships can create a competitive advantage through the strategic sharing of organizations’ key information and knowledge. Close relationships result from more frequent and more relevant information and knowledge transferred between high performance partners. By transferring knowledge between the client and vendor, organizations are able to sustain a more effective outsourcing relationship over time.
Lee (2001) found that the association between the degree of knowledge sharing and outsourcing success is mediated by the quality of the partnership. Therefore, we suggest the following proposition:
P2:. Increase in knowledge transfer between vendor and client will improve part- nership quality in IT outsourcing relationships.
According to Lee and Kim (1999), there is a significant positive relationship between partnership quality and outsourcing success. In their research, they identified five factors that make up partnership quality: trust, business understanding, benefit- risk share, conflict avoidance and commitment. A successful partnership enables Figure 6.1. Knowledge transfer influencing outsourcing success
Use of Knowledge Management Systems to Support Knowledge Transfer in IT Outsourcing Relationships Participation Communication Information Sharing Mutual Dependency Top Management SupportTrust Business Understanding Benefit and Risk Share Conflict Avoidance Commitment
Business Perspective (strategic, economic and technological benefits) User Perspective (quality of services)
Knowledge TransferEffects as Determinants Partnership QualityOutsourcing Success
participants to achieve organizational objectives and build a competitive advantage that each organization could not easily attain by itself.
The links and causalities are presented in Figure 6.1. First, the use of knowledge management systems to support knowledge transfer in IT outsourcing relationships has effects on the relationships. Next, these effects are determinants of partnership quality. Finally, partnership quality influences outsourcing effects.
For example, participation is important in a partnership. From a social perspec- tive, participation is prescribed as a remedy when there is conflict, frustration and vacillation in the group. Active participation of the partnership members plays a major part in enhancing the sustainability of their partnership over time (Lee &
Kim, 1999). Knowledge transfer using knowledge management systems can be an enabler of easier and more comprehensive participation. Hence, participation is influenced by knowledge transfer, and participation influences partnership quality, as illustrated in Figure 6.1.
The shift to more distributed forms of organizations and the growth of interorganiza- tional relationships, such as outsourcing relationships, have led to an increase in the transfer of knowledge between parties with asymmetric and incomplete information about each other. Because of this asymmetry and incompleteness, parties seeking knowledge may not be able to identify qualified knowledge providers, and the ap- propriate experts may fail to be motivated to engage in knowledge transfer.
Therefore, Lin et al. (2005) proposed a sender-receiver framework for studying knowledge transfer under asymmetric and/or incomplete information. In developing the sender-receiver framework, they first introduced the market view of knowledge transfer, where knowledge is treated as a good that moves in a knowledge market where parties may have incomplete and asymmetric information about other par- ticipants and the knowledge itself.
A knowledge market exists within organizations when knowledge buyers and sellers within a firm expect to gain from a knowledge transaction (Davenport & Prusak, 1998). This market view is consistent with empirical studies, which show that an effective internal knowledge sharing and transfer system provides motivations to both the provider and the seeker. Knowledge markets also exist across organizations.
Consulting firms are hired to provide strategic advice; companies sign licensing agreements and technology development contracts; services and business processes are outsourced to vendors (Lin et al., 2005).
There are two groups of participants in a knowledge transfer: senders who are knowl- edge sellers, and receivers who are knowledge buyers. The knowledge sender as well as the knowledge receiver can be an individual, a team, a firm or a unit (subsidiary) within a firm. It can be assumed that each participant focuses on maximizing his or her own benefits, and their interests are generally not aligned. This applies to both the external knowledge market where the sender and receiver belong to two
different organizations and the internal knowledge market where they belong to the same organization but care primarily about their own interests.
Each sender is endowed with a piece of knowledge in which a receiver is interested.
Specifically, the receiver hopes to derive benefits in terms of value from utilizing the knowledge. The value of knowledge is realized when the receiver has assimilated and put the knowledge in use, which has brought about outcomes attributable to the knowledge use. Because knowledge transfer precedes knowledge utilization, the sender and the receiver cannot measure the realized value of knowledge when deciding on the transfer. Instead, the sender and the receiver form expectations of the value of knowledge based on their information.
The expected value of knowledge for the client in an outsourcing relationship is based on the client’s information about available knowledge from the vendor. Ultimately, the value of knowledge can be realized when the client has assimilated and put in use the knowledge by achieving more efficient, more effective and more competitive use of information technology in the organization. Such improved application of information technology based on knowledge transfer from vendor to client creates added value that the client might be willing to share with the vendor.
All of the information available to the sender and used by him to evaluate the knowledge is called the sender’s information set. The receiver’s information set is defined similarly. To derive the expected value of the knowledge transfer, the sender’s and the receiver’s information sets should contain at least the following five components (Lin et al., 2005, p. 200):
1. The nature of the knowledge, such as the knowledge being tacit or explicit, proven or unproven;
2. The sender’s knowledge capability, such as his/her area and level of exper- tise;
3. The context in which the knowledge is put to use (whether the context has idiosyncratic features);
4. The fit between the knowledge and the receiver based on the receiver’s declared usage of the knowledge; and
5. The ties between the sender and receiver, such as their frequency of interac- tions and trust.
Since we are interested in whether the vendor (sender) and the receiver (client) have sufficient information to estimate the value of the knowledge to be transferred, instead of studying the individual elements of a sender or a receiver’s information set, Lin et al. (2005) introduce the notion of completeness of an information set. One party’s information set is considered complete if it contains sufficient information for its
owner to reach the correct expected value of the knowledge transferred; otherwise, it is incomplete. The completeness or incompleteness of the sender and the receiver’s information sets is called the information structure of knowledge transfer.
Lin et al. (2005) identified four different information structures. Depending on the completeness or incompleteness of the sender and the receiver’s information sets, there are four possible combinations: (1) symmetric complete information; (2) sender-advantage asymmetric information; (3) symmetric incomplete information;
and (4) receiver-advantage asymmetric information.
An outsourcing relationship typically starts with the third structure of symmetric incomplete information. Neither the potential knowledge sender (vendor) nor the knowledge receiver has complete information about the knowledge transfer. One challenge in this structure is for the sender and the receiver to find mechanisms to alleviate information incompleteness for both before knowledge transfer. One surprising aspect of this structure is that, although no party holds information ad- vantage over the other, strategic distortion in communication still happens (Lin et al., 2005).