AN EXPLORATION OF CONTEMPORARY KNOWLEDGE TRANSFER ISSUES IN HIGH-TECH OUTSOURCING USING SOCIAL EXCHANGE THEORY

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AN EXPLORATION OF CONTEMPORARY KNOWLEDGE TRANSFER ISSUES IN HIGH-TECH OUTSOURCING USING SOCIAL EXCHANGE THEORY

ABSTRACT

Contemporary IS research in offshoring/outsourcing has shown contradictory outcomes in reporting outsourcing success, especially in IT work. While many trusted practitioner sources confirm that outsourcing is gaining popularity, many efforts to pursue outsourcing are reported to be problematic or, even, a failure. Among such failures and successes, most of the thriving firms have undergone a second attempt by paying intensive attention to the knowledge transfer process, which is at the heart of the knowledge management problem. Knowledge is recognized by firms as a critical source of power that is derived from its scarcity in its environment. Hence, as a critical determinant of its value and to maximize the productivity of the firm itself, knowledge could be completely kept confidential from certain entities such as employees, a firm’s subsidiaries, and business partners, especially in knowledge intensive businesses. This leads to a dilemma in pursuing optimality in knowledge transfer in an outsourcing relationship: the competing goals of preventing the most critical business knowledge components from becoming visible to the partners while facilitating all subunits being able to successfully carry out a project. Since high-tech work is regarded as knowledge intensive activities, it is critical that a firm balance, cooperation and competition in terms of its knowledge assets.

 

Much attention has been paid to knowledge transfer among subunits in outsourcing schemes and has sought a method of minimizing the conflicting interests among subunits. However, the findings seem to be limited due to the theories traditionally adopted (i.e. knowledge-based theory, transaction-cost theory, agent-cost theory, game theory). Furthermore, many issues remain to be addressed, especially the dynamic interactions and exchange processes that facilitate knowledge transfer. This thesis explored the knowledge transfer issues with respect to facilitators and barriers among outsourcing subunits, the vender’s and the client’s, by adopting social exchange theory (SET). Although relatively new to IST literature, SET proved potentially useful for studying knowledge transfer. Moreover, the concept of reciprocity, balance, cohesion,

 

power, trust, and cultural sensitivity of SET have proven to be promising for theoretical applications in a very large array of knowledge management settings, especially in knowledge sharing and knowledge transfer because SET is applicable to any level of analysis (individual, group, organizational or societal).

 

TABLE OF CONTENTS

List of Tables ……………………………………………………………………………………………………………..vi List of Figures……………………………………………………………………………………………………………vii Acknowledgements ……………………………………………………………………………………………………viii

Chapter 1. INTRODUCTION…………………………………………………………………………………………1

Chapter 2. LITERATURE REVIEW………………………………………………………………………………..5

2.1 Knowledge-based theory of the firm……………………………………………………………………….6

2.2 Transaction cost theory ………………………………………………………………………………………..7

2.3 Agent-Cost Theory………………………………………………………………………………………………9

2.4 Game Theory……………………………………………………………………………………………………11

2.5 Introducing Social Exchange Theory…………………………………………………………………….12 Chapter 3.  RESEARCH METHODOLOGY……………………………………………………………………14

3.1 Research Objective ……………………………………………………………………………………………15

3.2 Interpretive Epistemology …………………………………………………………………………………..16

3.3 Content Analysis……………………………………………………………………………………………….16      3.4 Sampling………………………………………………………………………………………………………….17

Chapter 4. FINDING: EVOLUTION OF SOCIAL EXCHANGE THEORY………………………….22

4.1 The Genesis of Social Exchange Theory………………………………………………………………..25

4.2 Contemporary Social Exchange Theory…………………………………………………………………28

4.3 Social Exchange Theory in Information Literature…………………………………………………..33      4.4 Literature Analysis…………………………………………………………………………………………….38 Chapter 5. DISCUSSION …………………………………………………………………………………………….59

5.1 Summary of the Social Exchange Theory’s Construct………………………………………………59

5.2 Assessment of Social Exchange Theory in Information Literature………………………………61

5.3 Critiques over SET…………………………………………………………………………………………….63

5.4 Future Research ………………………………………………………………………………………………..64 Chapter 6. CONCLUSION …………………………………………………………………………………………..67 References…………………………………………………………………………………………………………………70

Appendix: Operationalization of SET Constructs in the Selected Articles ……………………………108

 

 

LIST OF TABLES

Table 2: Theories Involved in Knowledge Studies………………………………………………………………5

Table 3.4: The Summary of 16 Literatures Selected for Analysis…………………………………………19 Table 4.1.1: Analytical Concepts and Assumptions of Exchange Theories…………………………….26

Table 4.1.2: Development of Social Exchange Theory: Timelines across Disciplines………………28

 

Table 4.3: Development of Social Exchange Theory: Timelines across Disciplines…………………32

Table 4.4: Summary of 16 Studies Analyzed According to Contemporary SET Constructs……….55

 

LIST OF FIGURES

Figure 3.1: Research Methodology Overview Diagram………………………………………………………15

 

 

CHAPTER 1

INTRODUCTION

 

Contemporary literature in outsourcing has shown contradictory outcomes in reporting the success of outsourcing. In IT studies especially, while many trusted practitioner sources confirm that outsourcing is gaining in popularity (Beal, 2004; DiamondCluster, 2005), many efforts to pursue outsourcing have reported difficulties associated with outsourcing—even failures (Aaron and Singh, 2005; Cater, 2006; Hatch, 2005). Among the complaints are that product quality and service were initially poor, delivery was slow, and personnel issues, such as high supplier turnover, interfered with success. Among the failures and successes, however, researchers discovered that of the firms that had tried outsourcing a second time those that were thriving in this regard had focused their attention on knowledge transfer processes (Lacity and Rottman, 2008).

 

Knowledge transfer is at the heart of the knowledge management problem (Lacity and Rottman, 2008), as knowledge is recognized by firms as a critical source of power, the relative value of which is determined according to its scarcity in the environment (Hackney et al., 2005). Desouza and Vanapalli (2005) suggested that knowledge should be privately classified and used only to commercialize products and services available to and consumed by other entities. Potentially, in order to maximize the productivity of the firm itself, knowledge could be kept completely confidential, withheld from certain entities, such as employees, subsidiaries, and business partners, especially in knowledge-intensive businesses. Such an approach would mean attempting to pursue an optimum level of knowledge transfer while trying to meet the conflicting goals of preventing most critical business knowledge components from being visible to partners and facilitating all subunits to successfully carry out a project involving knowledge transfer. As high-tech work is knowledge-intensive, it is critical that a firm maintain a balance between cooperating and competing in terms of its knowledge assets. Thus, the most vexing questions in regard to outsourcing may inhere in determining which contexts warrant competition and which warrant cooperation—and to what extent.

 

The phenomenon of cooperation in a competitive context is generally described in terms of coopetition, a mindset, a process, or as a phenomenon that combines cooperation and competition. It means cooperating to create a bigger business pie, while competing to divide it up (Brandenburger and Nalebuff, 1996). To a certain extent, coopetition responds to Lou’s (2005) fundamental duality: whereas creating value is an inherently cooperative process, capturing value is inherently competitive. According to Lue (2005), to create value, parties or units cannot act in isolation; they have to recognize their interdependence (Lado et al., 1997). Within a multinational enterprise, inter-unit coopetition is concerned with cooperation and competition that simultaneously occur between two or more geographically dispersed units.

 

Under the cooperative–competitive condition in the outsourcing scheme, the vendor and client[1] cooperate in four areas: technological, operational, organizational, and financial. Technologically, they share knowledge regarding process innovation and product innovation in order to improve each other’s competitive advantages in respective markets and to exploit economies of scope for their respective operations (Ghoshal and Bartlett, 1988; Zander and Kogut, 1995). Such knowledge can be manifested in numerous forms, including new inventions, secret know-how, research facilities, product development guidelines, complex machinery and equipment, production process blueprints, technology information systems, and program codes (Kogut and Zander, 1992; Tsai, 2001). When technological knowledge sharing or collaborative development is planned, arranged, and monitored by parent headquarters, cooperation can proceed through R&D consortia, technology transfer, equipment relocation, resource redeployment, and rotation of expatriates (engineers and scientists), all under the centralized coordination of headquarters Ghoshal and Nohria, 1989; Wolf and Egelhoff, 2002). When such activities are not planned and arranged by the head office, voluntary cooperation is often undertaken as if each involved subunit[2] were independent. This means that technology transfer, equipment relocation, or resource redeployment between subunits is conducted on a compensated basis as specified by contracts agreed upon on an inter-unit basis.

 

Many information sciences researchers have explored knowledge transfer among subunits in outsourcing schemes and sought a method to establish harmonious relationships among the subunits, such that the focus would no longer be on conflicting interests. However, the findings have been limited by reliance on traditional theories, i.e., knowledge-based, transaction-cost, agent-cost, and game theories. Furthermore, many areas remain to be addressed, especially the dynamic interactions and exchange processes that facilitate knowledge transfer (Doz, 1996; Nooteboom, 2000; Steensma and Lyles, 2000). This thesis explores knowledge transfer issues with respect to facilitators and barriers among outsourcing subunits, the vendor’s and the client’s, by adopting social exchange theory (SET).

 

By conducting research in the College of Information Sciences and Technology under the I-School paradigm, the author makes a contribution to the I-school discipline in regard to all three perspectives: information, technology, and people. First, knowledge transfer is primarily concerned with information and its mobility. Ideologically, knowledge is considered a well-constructed, meaningful form of information. Knowledge has political and economic qualities that are socially connected to people who simultaneously create, augment, and consume it. In turn, knowledge also has an economic and social impact on people. In a software-outsourcing context, information specifically refers to all kinds of knowledge and (human) skills. Skills and knowledge here refer to technologies that range from technical knowledge and processes and procedures to management strategies. Taken altogether, knowledge transfer in a software-outsourcing context manifestly connects all three components inasmuch as they are embedded in the phenomenon, IT outsourcing, studied herein.

[1] In offshore outsourcing contexts, partners are client and vendor firms. The client is a firm that outsources its jobs to an overseas firm; the vendor is a firm that provides service to the client firm.

[2] Subunit operationally refers to vendor’s and client’s units that are functionally drawn together to achieve certain tasks.

This thesis contributes to information sciences theory and practice in two respects. First, it offers a review of a large collection of contemporary literature comprising studies that take information sciences theories as a theoretical framework for investigating outsourcing in high-tech industries. And, though these theories have proven useful for studying knowledge transfer, their scope is limited in that they tend to lack a knowledge transfer mechanism and the cultural perspective related to it. This leads to the second contribution: the author tests the robustness and viability of social exchange theory (SET) as applied in information sciences studies. Although relatively new to information sciences literature, SET is potentially useful for studying “resource” exchange, a culturally embedded feature of groups and individuals. Moreover, the inter-related concepts of trust, reciprocity, rewards and punishments, and cultural sensitivity inhering in SET are important considerations in a wide array of knowledge management applications at a variety of scales, especially in knowledge sharing and knowledge transfer.

AN EXPLORATION OF CONTEMPORARY KNOWLEDGE TRANSFER ISSUES IN HIGH-TECH OUTSOURCING USING SOCIAL EXCHANGE THEORY

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