AN EXPLORATORY ASSESSMENT OF THE LINKAGES BETWEEN HRM PRACTICES, ABSORPTIVE CAPACITY, AND INNOVATION IN OUTSOURCING RELATIONSHIPS

This paper explores the relationship between innovation outcomes, absorptive capacity and human resource management practices in information technology outsourcing relationships. Previous research has highlighted the need for absorptive capacity to achieve innovation in organizations. Since this absorptive capacity is likely to be embodied within the relationship management teams of both the supplier and client in outsourcing dyads, the human resource practices of the participating firms should have a direct bearing on levels of absorptive capacity and innovation outcomes for the relationships. This research examined four large IT relationships as case studies and presents a model of inter-organizational innovation that shows the necessity of developing the appropriate absorptive capacity to achieve innovation in outsourcing environments. From this model, the research presents three HRM practices that can help develop absorptive capacity to support innovation activities: retention of client employees with firm-specific business process knowledge rather than technical knowledge; minimization of legacy hiring practices for suppliers; and maintaining and optimal work group size for relationship management teams on both the client and supplier sides of the relationship.