Leveraging Dynamic Sourcing in Digital Innovation: Collaborative Innovation and Efficient Scaling

Digital innovation work is typically driven by short, rapid, and iterative development cycles involving flexible recombination of digital assets. While digital innovation often involves drawing on external assets, the literature is surprisingly silent on the role of sourcing relationships in this context. Interestingly, the IT outsourcing (ITO) literature, including recent work on strategic innovation and sourcing, predominantly understands sourcing relationships as evolving from transaction-based towards collaborative and innovation-oriented, with long-term relationship development a prerequisite for collaborative innovation between providers and their customers. This apparent temporality mismatch leads to the question of whether and how firms pursuing digital innovation through flexibility, speed, and scaling can innovatively leverage more dynamic sourcing relationships. We pursue this topic through an in-depth case study of an incumbent firm integrating dynamic and flexible sourcing practices into its digital innovation work. We identify a set of dynamic sourcing activities that allow onboarding sourcing partners directly into collaborative innovation work and then transitioning the collaboration to efficiency-focused deployment and contract-based scaling. Our study thus articulates the role of dynamic sourcing in digital innovation and disconfirms core assumptions about ITO relationship evolution.