  Competition in the Information Technology Outsourcing (ITO) and Business
Process Outsourcing (BPO) industry is increasingly moving from being motivated
by cost savings towards strategic benefits that service providers can offer to
their clients. Innovation is one such benefit that is expected nowadays in
outsourcing engagements. The rising importance of innovation has been noticed
and acknowledged not only in the Information Systems (IS) literature, but also
in other management streams such as innovation and strategy. However, to date,
these individual strands of research remain largely isolated from each other.
Our theoretical review addresses this gap by consolidating and analyzing
research on strategic innovation in the ITO and BPO context. The article set
includes 95 papers published between 1998 to 2020 in outlets from the IS and
related management fields. We craft a four-phase framework that integrates
prior insights about (1) the antecedents of the decision to pursue strategic
innovation in outsourcing settings; (2) arrangement options that facilitate
strategic innovation in outsourcing relationships; (3) the generation of
strategic innovations; and (4) realized strategic innovation outcomes, as
assessed in the literature. We find that the research landscape to date is
skewed, with many studies focusing on the first two phases. The last two phases
remain relatively uncharted. We also discuss how innovation-oriented
outsourcing insights compare with established research on cost-oriented
outsourcing engagements. Finally, we offer directions for future research.
