Knowledge Asset Outsourcing Decision

Abstract

When making decisions on whether to outsource managers are expected to consider theoretical variables like asset specificity from transaction cost economics (TCE) and core-competence from resource based theory (RBT). While these expectation have been found consistently valid for physical assets, they have been inconsistent for knowledge assets. We use a vignette based experiment to test if the lack of consistency is due to the limitation in the theoretical prescriptions or a result of peculiarities of knowledge assets. We use rigorous implementation of weighted least square estimator with mean and variance (WLSMV) based structural equation modeling to arrive at the results. We show that, for knowledge assets, while the TCE and RBT are valid, the operationalization of the idea of asset specificity and core-competence is heterogeneous. For RBT, the heterogeneity is caused by the involvement of decision maker with the knowledge asset. We resolve the lack of clarity of TCE and RBT in knowledge asset outsourcing decisions by showing that, possibly because of intangibility and peculiarities of knowledge assets, the operationalization of theoretical variables is systematically biased. Additionally, we show that decision makers can intentionally subvert knowledge asset outsourcing decisions towards self-interest. This finding questions the implicit assumption of TCE and RBT that decision makers are altruistic stewards and not self-interested agents. Our findings suggest a detailed analysis of individual decision making for knowledge asset outsourcing and more interestingly create an intrigue about how the biased and self-interested decision makers would interact to arrive at a firm level knowledge outsourcing decision.