Expectation shortfall is a common occurrence in outsourcing. Prior literature suggests that strategies such as strict contract terms and proper evaluation of the vendor capabilities are adopted to avoid expectation shortfall. However, in the case of highly specialised technical products custom made to vendor requirements (i.e., B2B IT innovation), traditional strategies in managing outsourcing projects may not work as expected. This is mainly due to the complexity of the product requirements and the inability to assess the scope of the project in depth at the beginning. In this research, we adopt the vendor’s perspective to better understand how organizations in the highly specialized B2B IT innovation handle outsourced projects to avoid expectation shortfall. We uncover a dynamic innovation process which the client and the vendor go through. In addition, we suggest strategies to achieve B2B IT innovation in a win-win scenario while elucidating reasons of failure.