Industry insight
The outsourcing capability framework
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Week 5 framework
6. The outsourcing capability framework
Studies have established the increasing trend of outsourcing and its ubiquity in modern times. Yet, along with success stories and benefits, outsourcing failures as also serious risks in form of loss of present and future capabilities of firms outsourcing their processes abound. The management of outsourced processes in itself has become a competence worthy of development and refinement by modern-day firms. I develop a 2 ⫻ 2 matrix which, taking into account the potential gains and perils of outsourcing, and depending on the particular context which the focal firm finds itself in, informs about the specific facet of the outsourcing capability to be deployed to reap the benefits of outsourcing and mitigate associated risks. It is the dilemma of not knowing which process, which knowledge and capability would provide the clue for future competencies of value ( Levinthal and March, 1993 ) which is captured in the matrix (refer Figure 1 ) as one of the dimensions to be considered and deliberated on when considering outsourcing a particular process. I have distinguished processes as being intensely connected with other processes within the organization at one end of the scale (marked “High”) to the other end of the continuum for those processes, which have low connectivity to other organizational processes (marked “Low”). The intensity of a process’ connectivity with other processes can be conceptualized as the product of the breadth of connectivity (the number of processes it is connected to) and the depth of the connectivity (the intimacy and the idiosyncrasy of its linkage to other processes). The conceptualization of processes in terms of their interactions with other processes also answers the call of Hendry (1995) , who exhorts us to manage the balance between the formal (described by value chain and business processes) and the informal (described by the cultural web) in outsourcing arrangements. The processes which are deeply enmeshed in the organization would have greater bearing on both the existing and possible future core competencies by their numerous and more nuanced contribution to the shared understanding in the organization ( Prahalad and Hamel, 1990 ). The other dimension of the matrix (refer Figure 1 ) is the “Differential in capability improvement rate”. With organizations attempting to manage the current (lower costs and focusing on the current core competencies) and the future (creating and participating in innovations for future advantages) through investing in an inventory of competencies ( Levinthal and March, 1993 ), the key lies in outsourcing the firm’s needs and processes to those suppliers who are better placed to perform and improve in the particular area of activity. Having better access to best-in-class talent and cutting-edge technology in their domain of expertise and relative unencumbered by bureaucratic forces, these vendors provide access to their superior capabilities as also the gains from future innovations to the client firms ( Quinn and Hilmer, 1994 ). The capabilities of potential partners might differ and it is relevant not to look at only the current advantages that are on offer but also the trajectory at which the partner firm is improving and innovating ( Kim, 2003 ). There is also a possibility of the focal firm being currently weaker in the measured metric but having potential to improve at a much faster rate making the value of outsourcing decision a suspect ( Berggren and Bengtsson, 2004 ). It is for this reason that I highlight the “differential in the capability improvement rate”, between the potential vendor and the focal firm, as the other important dimension which should be factored in the outsourcing decision. The scale capturing the continuum of “Low” differential wherein the potential suppliers are only marginally SO 7,3 Download 329.89 Kb. Do'stlaringiz bilan baham: |
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