The myths and realities of information technology insourcing
Communications of the ACM
A transaction cost model of IT outsourcing
Information and Management
Turnover intentions of Indian IS professionals
Information Systems Frontiers
Journal of Management Information Systems
A review of the IT outsourcing literature: Insights for practice
The Journal of Strategic Information Systems
A Transaction Cost Perspective of the "Software as a Service" Business Model
Journal of Management Information Systems
Contractual Provisions to Mitigate Holdup: Evidence from Information Technology Outsourcing
Information Systems Research
A multi-level investigation of information technology outsourcing
The Journal of Strategic Information Systems
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Knowledge based transaction costs (KTC) are knowledge related costs associated with the transfer of an information technology (IT) firm process outside its boundaries to a contractual partner. In this paper, we show that these knowledge based transaction costs are omitted variables in studies of firm boundaries that may reduce the likelihood of outsourcing. KTC arise from the risk of expropriation of firm knowledge by their contractual partners. In addition, KTC arise from the stickiness of knowledge, as transfer tacit and complex knowledge is both difficult to transfer and difficult to assimilate. Finally, KTC decrease with the knowledge and capabilities that contractual partners have, as this increases the partner firm's ability to assimilate knowledge transferred. While all three sources of KTC lower the likelihood of outsourcing, the way managers frame the outsourcing decision is also important. As a result, managers may engage in outsourcing of IT processes even though they risk greater expropriation hazards in order not to lose out on higher expected outsourced performance. We validate these arguments based on a study of 180 IT processes from firms listed on the French (CAC40) and British (FTSE100) stock exchanges.