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Week 5 framework
5. Managing outsourcing
Well organized and executed outsourcing arrangements are known to have substantial impact through lower costs ( Chalos and Sung, 1998 ), higher rates of innovation ( Quinn, 1999 ) and enhanced customer service ( Narasimhan and Talluri, 2009 ), ultimately leading to improved and sustained profitability ( Broedner et al., 2009 ). At the same time, the perils of outsourcing are varied and numerous ( Gandhi et al., 2012 ; Quinn, 1999 ). Narasimhan and Narayanan (2009) proffer that the high rate of outsourcing failure is on account of inadequate capabilities of vendor management amongst focal firms. Also, as firms contend with global forces of competition, rapidly increasing number of stakeholders involved in outsourcing arrangements is making their management increasingly complex ( Jackson, 2007 ). In this light, it would be pertinent to consider the performance of outsourcing as an ongoing “activity” like various other organizational functions, to be honed and managed as opposed to treating it as a one time opportunistic “act”. 5.1 Outsourcing – a competence in itself Even as Hendry (1995) calls for critically examining the wedge that outsourcing drives between its purported benefits on one side and the potential damage to the “core” on the other, the feverish call for outsourcing seems to have already transgressed such concerns. Gottfredson et al. (2005) advise managers to focus on nothing but the “core of the core” and to outsource every other capability where vendors in the market have superior expertise. The new age debate is thus not about whether an activity should be outsourced but how should it be managed ( Gottfredson et al., 2005 ). Kakabadse and Kakabadse (2000) advise managers to circumvent the “academic” debate of whether an activity is core or non-core; instead, it is suggested that organizations should now elevate the management of outsourcing as a must-have competence ( Gottfredson et al., 2005 ; Kakabadse and Kakabadse, 2005 ). The outsourcing organization’s dilemmas, spanning the multiple objectives of lower costs, wider access to best practices, cutting edge innovations and the increase in focus on the core competence, are twofold. The first dilemma revolves around the need to access the market for external, specialized and responsive sources of cutting-edge knowledge, and at the same time, ensure that this diverse knowledge base works intimately and passionately for the focal firm. This tension is aptly captured in the following two quotes: Vice President of research and development at Sun Microsystems: “Not all the smart people [in the workstation industry] work for Sun”( Chesbrough and Teece, 2002 ). A Silicon Valley manager: a “mercenary may shoot a gun the same as a soldier, but he will not create a revolution, build a new society, or die for the homeland” ( Bryce and Useem, 1998 ). The second dilemma concerns the problem of losing a part of the organizations informal knowledge sharing mechanism, its wide perceptive ability, its idiosyncratic communication codes and coordination mechanisms, every time a process is outsourced 233 Framework for performing outsourcing capability ( Hendry, 1995 ). This concern is not a sentimental outpouring but an appreciation of the risk which comes with the understanding that core competence of an organization is the collective ability, deep involvement and shared passion of its members across the board ( Prahalad and Hamel, 1990 ). The matter is further complicated with the risk of falling in the Competence Trap by focussing hard on current competencies and not building new ones ( O Driscoll et al., 2001 ). Would the proposed strategy of concentration on only the “core of the core” and outsourcing everything else ( Gottfredson et al., 2005 ) serve the focal firm’s objective of sustained competitive advantages when the challenge is no more to refine the core but to develop new competencies? Organizations develop their core competence by emphasizing a certain activity and building upon it after initial success, setting off a positive re-inforcing cycle of experience, success and competence. This process of emphasizing a certain activity and de-emphasizing other activities results in the organization developing areas of strength and rendering it relatively weak in many others ( Levinthal and March, 1993 ), successively isolating it from other bases of knowledge. Searching for new capabilities to develop a fresh set of core competencies at a time when the changes in environment render the firms original core competencies relatively unattractive could be problematic because of time decompression diseconomies ( Dierickx and Cool, 1989 ) and because it is difficult to absorb new knowledge when past experience with the particular knowledge base has been limited or superficial ( Cohen and Levinthal, 1990 ). Organizations thus invest in knowing more than they need immediately and attempt to be fit for the future by investing in building up an inventory of competencies, some of which reside within the organization, and many outside the boundaries ( Levinthal and March, 1993 ). While multiple theoretical traditions guide outsourcing research ( Busi and McIvor, 2008 ), a significant proportion draws upon two theoretical traditions, namely, transaction cost economics (TCE) ( Williamson, 1985 ) and the resource-based view (RBV) ( Barney, 1991 ). The RBV perspective looks at outsourcing as an endeavour to gain performance advantage with the client getting access to niche capabilities of vendors ( Tokman et al., 2012 ). TCE on the other hand considers asset specificity and associated threat of opportunism by vendors to determine what can be outsourced without compromising the client’s interests ( Large et al., 2011 ). Recent studies have combined RBV and TCE to provide guidance on outsourcing arrangements ( Holcomb and Hitt, 2007 ; Ellram et al., 2008 ). McIvor (2009) combined the resource position of the client and the potential of opportunism by the vendor to develop a framework to guide outsourcing decisions. In a study of outsourcing of procurement activities by US-based electronics manufacturing firms, Brewer et al. (2014) use McIvor’s(2009) framework and find that TCE and RBV have complimentary effects on outsourcing decisions; while TCE explained the extent of outsourcing, RBV predicted outsourcing performance. While investigations have enhanced our understanding of outsourcing considerations, there is a need to understand the “how” of outsourcing ( Yang et al., 2012 ) and answer the question which Hatonen and Errikson (2009) posed: “why do some succeed and other fail in their outsourcing endeavors?” Effective management of outsourcing arrangement requires the knowhow on part of the client to seamlessly fuse its own resources and knowledge base with that of the vendor. It should at the same time, be able to guard against vendor’s carelessness, failure to improve in line with market needs or plain opportunistic behaviour. It is the combination of these two abilities, guarding against risks of outsourcing and facilitating SO 7,3 234 coordination between internal and external knowledge bases, which constitutes what I call the Outsourcing Capability. This capability, as I explain next, has multiple dimensions which characterize its performance. Download 329.89 Kb. Do'stlaringiz bilan baham: |
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