You Can't So Easily Outsource Creativity - Distributed Knowledge and Creativity in the International Software Industry

Software design and development industry might seem like a naturally "borderless" industry, with few incentives for bigger players not to outsource to developing countries. Professors Bruce Kogut and Anca Metiu analyse the often overlooked, but critical dimension of "shared context" in both software design and appreciation of customer needs. The authors wish to broaden the parameters of much recent scholarly debate involving distribution of knowledge systems, which they feel generally ignores the vital influence of "saliency of creativity" in designing the most marketable software.

by Anca Metiu,Bruce Kogut
Last Updated: 23 Jul 2013

Software design and development industry might seem like a naturally "borderless" industry. Multinational developers now increasingly outsource development and maintenance to overseas contractors, and many have also offshored a substantial portion of their more secondary R&D operations. INSEAD [HAYHURST David] professor[HAYHURST David] s Bruce Kogut and Anca Metiu have attempted to study the limitations of the outsourcing of such intellectual work -- an issue that is provoking increasingly intense debate in wealthier countries concerned with jobs in yet another major industry disappearing, probably permanently, overseas.

The authors propose that "the software industry's digital, and at the same time modular and systemic character, makes it a perfect setting for the study of the international division of intellectual labour". After interviewing several leading software and client companies, and conducting extensive field research, Kogut and Metiu conclude that there is now little doubt that increasingly sophisticated IT technology, together with long-term pricing and other considerations, are fuelling the desire for many software multinationals to intensify outsourcing. The authors argue, however, that the most important factor that differentiates onshore from offshore work in much software development is what they term the "saliency of creativity."

This critical dimension is, in the authors' view, too frequently overlooked by both software developers and scholars concerned with the distribution of intelligence environments. Instead, their emphasis tends to centre too narrowly on the sharing and transfer of knowledge, often ignoring the fact that "transfer occurs subsequent to, or concomitant with, innovation and creativity". Metiu and Kogut indicate many less orthodox concepts of innovation espoused by other academics that highlight the importance of interactivity in the generation of new knowledge, and provide an extensive list of recent empirical research relating to the types of labour for which co-location and face-to-face interactions are often essential.

The authors point out that this literature has tended to produce "interesting, yet contradictory findings". Some studies, for example, show face-to-face communications generate a higher number of unique ideas. Others conclude that computer-mediated communications tend to produce less non-redundant ideas. Still others find little meaningful difference in terms of the numbers and quality of ideas generated.

Kogut and Metiu feel that such glaring inconsistencies in these findings are largely attributable to a lack of attention being paid to the impact that a shared context tends to have on people's professional interactions, especially concerning the types of creative and highly tacit tasks that more innovative - and marketable - software generation requires. They consider recent comparisons between firms based in California's Silicon Valley with some in India when dealing with customers whose requirements are unclear, or may change over the course of a project. The Americans' clear advantage is seen as due to their physical closeness to their clients. But other advantages - such as the development of a culture of free and open communication between engineers - can also be largely attributed to the spatial proximity of Californian designers.

The authors conclude that in the software industry, creativity is a very hard commodity to outsource over great distances, despite whatever cost advantages may appear obvious. While technical knowledge may be quite readily transferable, domain knowledge demands a clear and dynamic understanding of a given product, as well as its requirements and applications.

Management International Review, Vol. 44, No. 3, 2004

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