Abstract
This study extends the view that transaction cost and dynamic capability theory function as complements rather than substitutes. As IT innovations have been growing over the last few years, more organizations are considering innovation in their IT outsourcing decision making process. Guided by transaction cost theory (TCT) and dynamic capability theory (DCT), an exploratory model was developed and tested. We integrate a central construct in the dynamic capability theory â" absorptive capacity as a moderator variable of the relationship between transaction attributes (asset specificity and uncertainty) and innovation generation and performance. Data collected through a case study method. Results from three case studies support the fundamental propositions of the model. The implications of these findings for both researchers and practitioners are discussed.
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