**3. Types of knowledge important in strategic outsourcing**

Knowledge is a living asset; dynamic and volatile, it is often difficult to observe and understand. Unlike information, it is not final and stored, but emerging and being constantly recreated and socially reconstructed in particular work contexts. Knowledge may be tangible or intangible by its nature. Know-how, when articulated into the organization's database and operating technologies, is tangible. Similarly, explicit knowledge is tangible because it has been encoded into documents, databases, or some other permanent medium (Meso & Smith, 2000, p. 232).

All kinds of knowledge together, as an emerging synergy, make knowledge a system that, in combination with values, needs, and possibilities, is the starting point of any human action (Mulej et al., 2000). Thus, knowledge is an important part of a more complex system. On the other hand, organizations' knowledge resources have pertinently been described as an iceberg (Svelby, 1997; Haldin-Herrgard, 2000). Structured, explicit knowledge is the visible top of the iceberg; this part of the knowledge resource is easy to find and recognize, and therefore also rather easy to share. Beneath the surface of conscious thought lies a vast sea of tacit knowledge, derived from a lifetime of experience, practice, perception, and learning. This concept is captured in Polanyi's (1958, 1966) often-quoted statement, "We know a lot more than we can express"; therefore, this part of the intangible knowledge resource can be more difficult to share (Haldin-Herrgard, 2000, p. 358).

Tacit knowledge often enables us to perform at a higher level than our explicit knowledge does. For example, novices cannot become experts simply by being exposed to explicit information; they need to experience the activity itself and the cooperation relating to it. For these reasons, the success of a manager is heavily dependent on tacit knowledge. Therefore, supporting the sharing of tacit knowledge throughout the company will be possible with methods like apprenticeship, direct interaction, networking, and action learning that includes face-to-face social interaction and practical experiences. Four categories of tacit knowledge exist (Lubit, 2001, p. 166):


Managing Tacit Knowledge in Strategic Outsourcing 117

In the strategic outsourcing relationship, the outsourcer and outsourcing provider should get closer and closer in terms of common knowledge base, which requires sharing existing knowledge on individual, organizational, and environmental levels together with learning and unlearning obsolete knowledge. However, a particular problem always occurs when the

At the individual level, researchers and writers have identified the difference between explicit and tacit knowledge. Explicit knowledge is widely accepted as knowledge that is recognized by the individual and therefore easily expressed or articulated (Nonaka & Takeuchi, 1995; Durrance, 1998; Newell et al., 2002; Roy & Roy, 2002). Explicit knowledge is sometimes referred to as codified knowledge. Tacit (or implicit) knowledge entails information that is difficult to express, formalize, and share. It stands in contrast to explicit knowledge, which is conscious and can be put into words. People experience tacit knowledge mostly as intuition rather than as a body of facts or instruction sets they are conscious of having and can explain to others. Tacit knowledge is obtained by internal individual processes, such as experience, reflection, internalization, or individual talent. Therefore, it cannot be given in lectures and found in databases, textbooks, manuals, or internal newsletters for diffusion. It has to be internalized in the human body and soul

The third level considered within the model focuses on the individual level's mental models (Kim, 1993) and the organizational level's culture. In addition to mental models, many other terms can be found in the literature, such as frames of reference (Mezirow, 2000, as cited in Becker, 2006), cognitive maps (Huber, 1991), schemas (Barrett et al., 1995), theories of action (Hedberg, 1981), and paradigms (Markoczy, 1994 as cited in Becker, 2006). We follow the definition of Mezirow, who describes mental models as those deep-seated underlying values and belief systems that guide, shape, and dictate the individual's everyday attitudes and behaviors. Culture has long been seen as the shared or commonly held beliefs, assumptions, values, and taken-for-granted norms and behavior that govern organizations (Becker, 2006). At the organizational level, explicit knowledge is generally captured in a static form. This knowledge, which is easily articulated and documented, can be found in organizational policies, procedures, and processes as well as in documentation such as performance management systems and position descriptions (Becker, 2006). At the organizational level organizational memory in many ways reflects tacit knowledge, although more has been written about organizational memory in the field of information technology than in the general management literature. Many authors propose different definitions and explanations for organizational memory (Argyris & Schon, 1978; Levit & March, 1988; Stein, 1995; Paoli & Principe, 2003), and they all recognize that organizational memory is not just

explicit knowledge that is captured, but more importantly also has a tacit dimension.

(Rebernik, 1997; Tominc & Rebernik, 2007) and is very often of limited usefulness.

**4. Learning and unlearning explicit and tacit knowledge** 

At the business environment level, companies face the challenge of exchanging knowledge among different agents. Social, cultural, economic, and political contexts in which companies operate and undertake outsourcing activities differ from country to country. The knowledge gained in one business environment context is therefore not easily transferred

An abundance of literature has examined organizational learning (see, e.g., Hedberg, 1981; Cummings, 2003; Argyris, 2004; Esterby-Smith & Lyles, 2005), and many concepts

knowledge must become visible to the other company.

(Haldin-Herrgard, 2000, p. 358).

The difficulty of expressing, codifying, and transmitting tacit knowledge makes it easier for a company to protect it than explicit knowledge. Moreover, tacit knowledge may only be effective when embedded in a particular organizational culture, structure, and set of processes and routines. The difficulty of copying tacit knowledge enables tacit knowledge to be the basis of an inimitable competitive advantage (Rebernik & Širec, 2007).

In many industries, success in today's markets depends on the ability to learn about emerging market opportunities and rapidly develop and spread the knowledge necessary to exploit them, rather than the ability to engage in careful long-term planning. The key driver of superior performance today is the ability to change when the business environment calls for it and to find the shifting sources of advantage. As a result of these changes, the ability to acquire, develop, and spread new knowledge has become an indispensable core competence. When considering strategic outsourcing, such abilities are of special importance.

The ability to create new and valuable breakthroughs offers companies an unambiguous competitive advantage. Therefore, it is vital for a company to enable an organizational environment that will encourage unique, original, and unexpected innovations that are far more valuable from a competitive standpoint than innovations that are predictable, incremental, or mundane (Lynn et al., 1996).

Such an imperative requires a shift in the role of management in the strategic outsourcing relationship. Managers have to manage the organizational environment or context in which the relationship is performed rather than control the workers themselves (Stewart, 1997; Svelby, 1997). The management of the outsourcing relationship has to serve as a coach and facilitator, a boundary-buster, and head cheerleader. His or her role will be to eliminate the barriers that prevent individuals from performing at their optimum levels. Success in the strategic outsourcing relationship requires a new form of vision-based leadership (Davenport, 1993, pp. 117-37). This problem is multidimensional in its nature. Outsourcer and outsourcing provider have to consider a number of factors simultaneously. These factors, which exist at different levels, are presented in Figure 2.

Fig. 2. Knowledge management attributes in the strategic outsourcing relationship

The difficulty of expressing, codifying, and transmitting tacit knowledge makes it easier for a company to protect it than explicit knowledge. Moreover, tacit knowledge may only be effective when embedded in a particular organizational culture, structure, and set of processes and routines. The difficulty of copying tacit knowledge enables tacit knowledge to

In many industries, success in today's markets depends on the ability to learn about emerging market opportunities and rapidly develop and spread the knowledge necessary to exploit them, rather than the ability to engage in careful long-term planning. The key driver of superior performance today is the ability to change when the business environment calls for it and to find the shifting sources of advantage. As a result of these changes, the ability to acquire, develop, and spread new knowledge has become an indispensable core competence.

The ability to create new and valuable breakthroughs offers companies an unambiguous competitive advantage. Therefore, it is vital for a company to enable an organizational environment that will encourage unique, original, and unexpected innovations that are far more valuable from a competitive standpoint than innovations that are predictable,

Such an imperative requires a shift in the role of management in the strategic outsourcing relationship. Managers have to manage the organizational environment or context in which the relationship is performed rather than control the workers themselves (Stewart, 1997; Svelby, 1997). The management of the outsourcing relationship has to serve as a coach and facilitator, a boundary-buster, and head cheerleader. His or her role will be to eliminate the barriers that prevent individuals from performing at their optimum levels. Success in the strategic outsourcing relationship requires a new form of vision-based leadership (Davenport, 1993, pp. 117-37). This problem is multidimensional in its nature. Outsourcer and outsourcing provider have to consider a number of factors simultaneously. These

be the basis of an inimitable competitive advantage (Rebernik & Širec, 2007).

When considering strategic outsourcing, such abilities are of special importance.

incremental, or mundane (Lynn et al., 1996).

factors, which exist at different levels, are presented in Figure 2.

Fig. 2. Knowledge management attributes in the strategic outsourcing relationship

In the strategic outsourcing relationship, the outsourcer and outsourcing provider should get closer and closer in terms of common knowledge base, which requires sharing existing knowledge on individual, organizational, and environmental levels together with learning and unlearning obsolete knowledge. However, a particular problem always occurs when the knowledge must become visible to the other company.

At the individual level, researchers and writers have identified the difference between explicit and tacit knowledge. Explicit knowledge is widely accepted as knowledge that is recognized by the individual and therefore easily expressed or articulated (Nonaka & Takeuchi, 1995; Durrance, 1998; Newell et al., 2002; Roy & Roy, 2002). Explicit knowledge is sometimes referred to as codified knowledge. Tacit (or implicit) knowledge entails information that is difficult to express, formalize, and share. It stands in contrast to explicit knowledge, which is conscious and can be put into words. People experience tacit knowledge mostly as intuition rather than as a body of facts or instruction sets they are conscious of having and can explain to others. Tacit knowledge is obtained by internal individual processes, such as experience, reflection, internalization, or individual talent. Therefore, it cannot be given in lectures and found in databases, textbooks, manuals, or internal newsletters for diffusion. It has to be internalized in the human body and soul (Haldin-Herrgard, 2000, p. 358).

The third level considered within the model focuses on the individual level's mental models (Kim, 1993) and the organizational level's culture. In addition to mental models, many other terms can be found in the literature, such as frames of reference (Mezirow, 2000, as cited in Becker, 2006), cognitive maps (Huber, 1991), schemas (Barrett et al., 1995), theories of action (Hedberg, 1981), and paradigms (Markoczy, 1994 as cited in Becker, 2006). We follow the definition of Mezirow, who describes mental models as those deep-seated underlying values and belief systems that guide, shape, and dictate the individual's everyday attitudes and behaviors. Culture has long been seen as the shared or commonly held beliefs, assumptions, values, and taken-for-granted norms and behavior that govern organizations (Becker, 2006).

At the organizational level, explicit knowledge is generally captured in a static form. This knowledge, which is easily articulated and documented, can be found in organizational policies, procedures, and processes as well as in documentation such as performance management systems and position descriptions (Becker, 2006). At the organizational level organizational memory in many ways reflects tacit knowledge, although more has been written about organizational memory in the field of information technology than in the general management literature. Many authors propose different definitions and explanations for organizational memory (Argyris & Schon, 1978; Levit & March, 1988; Stein, 1995; Paoli & Principe, 2003), and they all recognize that organizational memory is not just explicit knowledge that is captured, but more importantly also has a tacit dimension.

At the business environment level, companies face the challenge of exchanging knowledge among different agents. Social, cultural, economic, and political contexts in which companies operate and undertake outsourcing activities differ from country to country. The knowledge gained in one business environment context is therefore not easily transferred (Rebernik, 1997; Tominc & Rebernik, 2007) and is very often of limited usefulness.
