Outsourced knowledge: knowledge transfer and strategic implications from design outsourcing

Abstract

Design is an especially effective means to transfer organizational product knowledge; yet, design outsourcing, or the contracting of a supplier to perform the design of a product or product component, has grown in acceptance and practice. Empirical evidence suggests that there are strategic risks for the contracting company, such as forward integration by the design supplier. There are also visible benefits, such as improving product innovation and overcoming resource limitations. To investigate the strategic implications of design outsourcing in conjunction with the knowledge transfer that takes place between the contractor and the supplier, six product development firms located in New England were interviewed. Their design practices and experiences in working with clients on many different design projects provided corroboration of and new insights into the risks and benefits from design outsourcing. Additional research into design practices, design technology, the unique qualities of design knowledge, and the contributors to the transfer of knowledge during design support the argument t.hat knowledge is transferred during design. The author proposes that a product is an embodiment of the tacit and explicit knowledge that is traded-off and integrated during design in a process that naturally employs collaboration. A relative qualitative measure of the amount of knowledge embodied by the product is called its knowledge intensity. Along with an alternative to the concept of a core product called the knowledge kernel, these concepts facilitate the important linking of knowledge and products during strategic outsourcing decisions. To investigate the strategic implications of design outsourcing in conjunction with the knowledge transfer that takes place between the contracting company and the supplier, a systems dynamics model was developed. The model shows that the interactions of the many different causal-loops in design outsourcing results in an eight-to-three ratio of reinforcing feedback loops to balancing feedback loops. This result suggests that design outsourcing is a self-promoting practice that is difficult to balance and can lead to significant product knowledge transferred to the supplier. Knowledge-based recommendations are offered for companies faced with design outsourcing decisions that include offensive and defensive tactics.