The role of social capital in determining BPO outcomes

Organizations are pursuing the outsourcing of business processes (BPO) to offshore locations. However, current research has shown that knowledge management issues between the client and vendor organizations leads to less than expected benefits in many BPO arrangements. This research applies the Resource Based View (RBV) framework to study the impact of Social Capital resources on building Knowledge Management Capabilities in the BPO as well as the ultimate BPO outcome. The essence of RBV theory is that when investments are made into building IS resources, the impact of those investments on the firm's performance manifest through the firm's capabilities. Complementarity theory also suggests that a resource produces greater returns in the presence of another resource or capability than it can produce by itself. Firms pursuing BPO may be at different stages of the deployment of knowledge management capabilities and the IS resources of infrastructure and social capital and therefore the capabilities of the engagement may not be being fully exploited. Hence the impact of social capital and infrastructure resources on knowledge management capabilities and/or their combined impact on BPO outcome could explain the variability seen in BPO outcomes. A measure of BPO outcome based on the three information flow costs from coordination theory---vulnerability, production and coordination is also developed. A field study of a knowledge management system (KMS) in a BPO is used to test the hypotheses. Results indicate that increasing social capital resources alone and as well as in combination with increasing infrastructure resources in the client-vendor BPO arrangement leads to an increase in knowledge management capabilities. However, increasing infrastructure resources alone has no significant effect on building knowledge management capabilities. Moreover, the increase in the knowledge management capabilities also significantly increased BPO outcome. Finally, this study also confirmed that IS resources can intervene to strengthen the relationship between building knowledge management capabilities and business process outsourcing outcomes as a small complementarity effect was supported. This has an important implication for practitioners, who seek to improve BPO outcomes---that capabilities in the BPO arrangement must be developed in conjunction with the deployment of IS resources.