Managing knowledge in outsourcing: Cases in financial services

While outsourcing is currently one of the biggest business trends (and highest growth sectors),1 it is surprising that its knowledge management implications have received so little attention. What actually happens to knowledge when clients outsource? Our research shows that most clients lack the means and experience to assign value to the knowledge they are transferring and receiving. Furthermore, most clients have no real understanding of how new knowledge can be created in outsourcing situations, let alone exploited. Nor are they inclined to assign that much importance to knowledge management because the outsourced activities are considered “non-core.” But whatever the cause, managing knowledge when an organization outsources is a serious gap in practice. We address this gap by describing intellectual capital, and how it can be developed by harnessing social capital. We then apply these ideas to three outsourcing arrangements to show how intellectual, or knowledge, capital can either be a missed opportunity, or can be developed and leveraged to organizational advantage.