Changing IT Providers in Public Sector Outsourcing: Managing the Loss of Experiential Knowledge

Although outsourcing of IT services has become a standard business practice in both the private and public sector, little is known how clients manage the change over from an incumbent, or prior vendor, to a new vendor. The current literature touts how the risks of knowledge loss and disruption in operations prevent many client firms from switching to a new vendor even in the case of less than satisfactory performance. We report on a longitudinal, descriptive case with a public organization in Finland that involves the process of switching a long-term IT vendor to a new IT vendor. The switching was motivated not by unsatisfactory performance but by the public procurement process that requires public tendering of outsourced services every four to six years. The case is significant as it allows us to advance insight how in fact the client and the new vendor manage the loss of learning by doing-knowledge (experiential knowledge) that the client no longer has. The case suggests that several elements were especially critical in facilitating the transfer or learning including the lost experiential knowledge: modularization of work, use of external sources, joint client-vendor collaboration, and personal identities at work. These elements allowed the inter-organizational project teams to minimize the disruptions in IT services to the client's user communities. The case findings provide insight to managing transfer of learning in inter-organizational groups in ad hoc dynamic relationships.