**5. Problems with opportunistic behavior**

In the outsourcing partnership, both parties have to work together, but they can either cooperate or participate. The distinction between cooperation and participation is described

Managing Tacit Knowledge in Strategic Outsourcing 121

in outsourcing have completely different goals, but rather that their interests in some circumstances may be contradictory. Because of information asymmetry and the possible worst-case scenario of the outsourcing contract being a failure, one must admit not only the possible opportunistic behavior of participants, but also any unintentional harmful actions arising from bounded rationality. Therefore, some safeguards to prevent the outsourcing partner from acting opportunistically have to be established in advance

The sub-consciousness of tacit knowledge and the difficulty of expressing it are commonly found as the main problems in tacit knowledge diffusion. It is not only that we have difficulty expressing and articulating what we know; we may not even be conscious of what we know or how tacit knowledge connects to our explicit knowledge. In this section we present some of the most influential elements that effective management of tacit knowledge

The most important elements of managing tacit knowledge in strategic outsourcing

By successfully managing these elements, partners in a strategic outsourcing relationship create the platform for the disclosure of tacit knowledge and can jointly create a common knowledge thesaurus that can be shared. A conceptual framework of managing tacit knowledge in strategic outsourcing relationships to create and share the thesaurus and

The consumption of time that the internalization of tacit knowledge requires is the first element to be considered in the sharing process. In today's business world, time is a scarce resource, and the internalization of new experiences or knowledge is a process over time (Halding-Herrgard, 2000, p. 361). The dimension of time is attributed to personal tacit knowledge as well as to more organizational forms. In the strategic outsourcing relationship parties face time-consuming constraints regarding the reflection of gained experiences. For both parties, the time allotted for the introduction of such experiences is often insufficient. The rapid rate of change in today's business environment calls for continual learning as well as unlearning. However, few organizations reserve sufficient time for these processes to

We should also point out the problem of powerlessness. Knowledge is a basis for power and respect, and people are often hesitant to share knowledge lest their power decreases. Moreover, sharing knowledge requires that time be taken away from other responsibilities that have a higher priority. People are hesitant not only to share what they have, but also to use the knowledge of others. This has been referred to as the "not invented here" syndrome. Perhaps, the most important step toward harnessing the tacit knowledge of individuals and teams is to allow it to flow from the pull of emotional commitment and deep personal

**6. Managing tacit knowledge in strategic outsourcing relationships** 

in strategic outsourcing relationship has to overcome.

3. emotional commitment and deep personal involvement;

5. effective communication and common culture development;

achieve sustainable outsourcing partnership is provided in Figure 3.

1. time for internalization of tacit knowledge;

4. procedural justice in decision making;

6. distance vs. personal contacts; and 7. an appropriate rewards system.

jointly create a common knowledge.

(Rebernik & Bradač, 2006).

relationship are:

2. powerlessness;

by Webster's Dictionary (1999), where *cooperate* is described as "to act, work or associate with others especially for mutual benefit" and *participate* is described as "to engage or have a share in something in common with others". Indeed, a difference exists between participative and cooperative relationships; a relationship could be participative but noncooperative or both participative and cooperative at the same time. Cooperative participation occurs if all participants have a common benefit. In non-cooperative participation, individuals do not cooperate to achieve a mutual benefit, but rather an individual one—even at the loss of other participants (Rebernik & Mulej, 1999).

A successful strategic outsourcing relationship requires both parties (client and the service provider) "to be on the same page" (Karen & Black, 2004). The most significant obstacles that could prevent an efficient (principal-agent) outsourcing arrangement are:


Cooperative participation presumes information exchange. Cooperation is impossible if participants do not share their internal information (Rebernik & Mulej, 1999). According to this process, bounded rationality, information asymmetry, and opportunistic behavior (Williamson, 1983; Barney & Ouchi, 1986) become influential. The concept of bounded rationality indicates that the human mental capabilities are limited and humans cannot rationally define and solve complex problems. For this reason, we have to cooperate because individually we are not capable of solving complex problems on our own. Information asymmetry means that two parties involved in a transaction do not have equal information about things that are important for the transaction. Between the two contracting parties, information asymmetry means that one party has private information, which brings about the so-called information rent.

Information asymmetry can cause pre- and post-contractual opportunistic behavior. Precontractual or ex-ante opportunistic behavior is also known as adverse selection (Akerlof, 1970). It shows up when one party in a potential transaction owns private information about something that can cause damage to the other party in the course of contract implementation. Post-contractual or ex-post opportunistic behavior is known as the moral hazard. It shows up when one of the contractual parties, because of its own benefit, does not undertake the agreed activities and the other party in the transaction cannot control the contract implementation in its entirety. If we observe participation in strategic outsourcing as an information sharing or exchange, it can imply the chance of both the moral hazard and adverse selection.

Cooperation needs to include sufficiently shared, common (public) information, making the platform for cooperation able to be initiated in the first place. In the case of cooperative participation, every participant will make available all required private information. Some participants may behave in an opportunistic way and disclose less private information than the others do; they may not own the information, or they may be only fictitious team members. They may also tend to hide their private information because they expect to attain some information rent.

An important learning objective is to prevent the outsourcing partner from possible opportunistic behavior. In business relationships, it is impossible to foresee every relevant possibility or incident that could happen during a relationship. It is reasonable to be prepared for possible opportunistic behavior. This does not mean that participants in outsourcing have completely different goals, but rather that their interests in some circumstances may be contradictory. Because of information asymmetry and the possible worst-case scenario of the outsourcing contract being a failure, one must admit not only the possible opportunistic behavior of participants, but also any unintentional harmful actions arising from bounded rationality. Therefore, some safeguards to prevent the outsourcing partner from acting opportunistically have to be established in advance (Rebernik & Bradač, 2006).
