KM and Outsourcing Possibilities

Knowledge Management and Outsourcing Possibilities: Conflicting Strategies?

Knowledge management (KM) refers to the process of exploring all the capabilities of knowledge resources (Sabherwal & Sabherwal, 2005) or as a combination of knowledge and processes (Regan & O’Connor, 2002). These processes can help a firm improve its performance and effectiveness by employing purposefully designed strategies for creating, identifying, collecting, organizing, and sharing knowledge. KM processes can also be used to facilitate the integration of IT and business knowledge. Feng, Chen, and Liou (2005) identified knowledge generation, knowledge capture, knowledge codification, and knowledge transfer as the four main KM processes.

There are advantages and disadvantages of outsourcing the integration of new technologies into the organization (Haag, Cummings & McCubbrey, 2005). Outsourcing issues are usually handled by 1) identifying which services needed to be outsourced, 2) assessing the internal capacity in the company for these services, and 3) analyzing the potential strategic business values that can be obtained from the services.

Pati and Desai (2005) have identified five forms of sourcing: (1) insourcing, (2) selective sourcing, (3) strategic alliance sourcing, (4) outsourcing, and (5) off-shore outsourcing. While the insourcing relies on in-house resources, the authors argued that outsourcing use resources external to the organization. Whereas selective and strategic alliance types of sourcing are established on multiple suppliers and on joint venture partners respectively, outsourcing predominantly uses resources external to the organization at a local or regional level. Offshore outsourcing implies delegation of the selected business operations to an offshore location outside the country.

From IT perspective, the three variables that influence strategic outsourcing decisions are:  (1) Internal IT capacity, (2) IT services opportunity being contemplated, and (3) Potential strategic business values that can be obtained from IT service. The internal IT capacity comprises commitment of top leadership, provision and deployment of infrastructure, pervasiveness and sophistication of use, technological and managerial skills. Discrete IT functions and end-to-end IT enterprise wide solutions are the IT services opportunity being contemplated. Potential strategic business values that can be obtained from IT service are the following: service level, core competencies, alignment of goals, time to market, world class processes, industry on process knowledge, new business opportunities and overall competitiveness.

Pati and Desai’s (2005) decision cube for IT sourcing engagements is used to determine whether or not an IT service should be outsourced. This model defines eight scenarios which guide strategic outsourcing decisions. Whereas the first two leads for in-sourcing, the other favors outsourcing. Forbath and Brooks (2007) noted that most companies have outsourced some portion of their business to lower costs and over time, have achieved cost savings in the outsourced portion of the business.

IT outsourcing (especially its off-shoring aspect) as a special type of outsourcing, began early in 1990s as a way to supplement in-house IT development activities. IT outsourcing became a growing economic phenomenon worldwide because of 1) the development of IT-related infrastructures in developing countries, 2) a surging demand for IT specialists in developed world, and 3) availability of a highly skilled pool of personnel in the developing world at a reasonable cost. Organizations that outsource their activities are expecting the followings benefits: 1) cost savings; 2) increased rate of returns on investments, and, 3) improved access to best practices in IT design, implementation and operations.

The IT offshore outsourcing has some pitfalls if not well plan and implement in both sides: client-side, vendor-side and client-vendor relationship problems (Shi, 2007). In addition to the problems mentioned, the three potential concerns related to privacy in information security raised by off-shoring data processing are related to:

          Legal aspects: legal perceptions may differ from one nation to the other and ambiguity could arise during a dispute

          Information security: employee credibility information security largely depends on the people who handle the information. Practice of the ethical rules and privacy policies of the organization like non-disclosure of trade secrets, secrecy and non-disclosure contracts with staff, third party service providers or visitors are difficult to enforce with the vendor

          Vendor reliability and dependability.


Therefore, my question is: what are the advantages and disadvantages for a knowledge organization to outsource its information system?


Please share your thoughts. Thanks.

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