Managing the Risk of Knowledge Transfer in Outsourcing Organizations

The rhetoric of outsourcing as well as the importance of organizational knowledge have both been popular issues thoroughly examined in contemporary business literature. Still, combinatory studies on the effects of outsourcing, positive or negative, on the creation and maintenance of organizational knowledge and the related risks and consequences of outsourcing, remain scarce. Given the popularity of both fields of organizational analysis we consider the lacking of combinatory studies as striking. In this paper, we present the findings drawn on a multiple case study analysis of four medium size pharmaceutical companies, all of them having implemented outsourcing strategies. The chapter attempts a categorization of risk sources during the outsourcing initiative, proposes mitigating actions and organizes the findings of the research on the case companies by proposing a model of ‘vicious cycle’ suggesting that outsourcing, if not managed successfully, eventually leads to the addiction of the organization to ‘buy’ expertise and knowledge in spite of knowledge acquisition. While we identify the conflicting strategies and rhetoric, we also attempt to come up with a set of guidelines, which could help organizations avoid the knowledge negative side effects of outsourcing.