Abstract
This study adds to our understanding of outsourcing decision-making by examining the differential effect of potential cost and non-cost innovation benefits on outsourcing choices made by top managers. In addition, we show that value appropriation - which we define in this context as a firm’s ability to capture(appropriate) value created by effectively combining and leveraging the capabilities it sources through outsourcing partners - plays a moderating role on the decision to outsource, particularly when the expected benefits involve value realized from complementary internal and external capabilities. Our results reveal that although cost efficiency incentives remain an important motivation behind outsourcing, managers recognize and strongly value non-cost innovation benefits and the role of contractual efficiency when making outsourcing decisions.
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