Outsourcing knowledge and innovation activities offer cost savings and superior performance, but can also put a firm's unique resources and capabilities at risk. Characterizations of outsourcing as a make-or-buy decision do not fit well with decisions on knowledge process outsourcing (KPO). KPO is a make-or-ally decision, as firms seek a governance structure that will both protect and leverage their strategic knowledge assets, with the final decision often coming down to a choice between different alliance forms. Our new conceptualization provides an integrated perspective on resource integration and transaction specificity in the knowledge governance decision. The model illustrates the dynamics and learning involved in knowledge outsourcing by identifying two distinct paths to KPO alliances.