The Outsourcing PRocess - Strategic and operational realities

• The combination of shorter product life cycles, increased product complexity, and resource !imitations in conjunction with the globalization of the economy puts immense pressure on corporations to become more efficient, or leaner, in their operations (Alexander 1985, Sanchez 1997, Harryson 1998). One way of managing such competitive pressures has been tooutsource certain acrivities and focus internally on what has popularly been termed core competenciq thus enabling expansion and growth without having to carry the entire financial burden This is especially true for the increasing number of firms that have assumed (whether by choice or as an imperative) the systems integrator role, which implies migrating upwards in the value chain. Examples include the electronics, aerospace and automotive industries GJimonian 1990, Mclvor, Humphreys & McAleer 1997, Prudente 1999). Numerous inclustry surveys; e.g. Andersen Consulting Vinkleman 1997), KPMG (Ailott & Law 1997; and PA Consulting Lonsdale & Cox 1997), testify to the frequent occurrence of outsourcing and Drucker (1994) also recognizes the advent ofoursourcing:Not in a very long time .. have there been as many new major management techniques as there are today: downsizing, outsourcing, total quality management, economic \0alue analysis, bcnchmarking, reengineering. Each is a powerful tool. But with the cxceptions of outsourcing and reengincering, these t0ols are designed primarily to do differcntly what is already bcing donc. Drucker (1994) p. 95In defining thc boundarics of thc f irm, make-buy decisions help shape the very identity of firms by determining the fundament from which ro creare competitive advantage. Make-buy decisions represent a complex set of considerations, facrors, and tradeoffs; and once made will have long-term consequences, changes becoming problematic because of the high switching costs typically involved. Conceptually, make-buy decisions reflect a firm's overarching straregic directions and are grounded in definitions of core competence. Fine & Whitney (1996) suggest that core competence areas are becoming less stable as the business environment is changing at an ever-faster pace and propose that the process of conceiving make-buy decisions should be considered a core competence in its own right. Under such conditions, the challenge for corporations then becomes how ro continuously adjust to and effectuate new outsourcing strategies depending on prevalent core competence considerationsPrevious research on the phenomenon of outsourcing has mainly focused on strategic. considerations, (i.e. what? and why?). Nevertheless, the process of carrying out the transfer of an activity from being internally controlled ro becoming externally managed (i.e. how?), may prove ro be equally difficult because of interdependencies at the operational level.Probert, Jones & Gregory (1993) point ro the failure of many companies ro integrate the make-buy decision inro the overall manufacturing strategy and the findings of Brown & Eisenhardt (1997) in their study of companies competing in highly dynamic and unpredictable markers, i.e. requiring frequent changes, show that managers devote a vast majority of their time analyzing a transition (e.g. a shift from one product development project, advertising campaign, or season of merchandise to the next; or entering and Jeaving markers, absorbing new acquisitions, launching new alliances, and bringing volume production on line), and only very limited time on planning the actual transition, integration or implementation The effects of outsourcing are far reaching, both in terms of physical, temporal, and organizational reach. Physically because there is an inherent complication of losing control as an activity is turned over to an external vendor. Temporally because it is difficult to judge how conditions will change over time and organizationally because outsourcing involves transferring a make-buy decision from the strategic to the operational leve! and transferring an activityfrom one organization to another. It is to this relatively neglected domain ofoutsourcing that the focus of this work tums.The purpose of this licentiate thesis is to contribute to an increased understanding of the phenomenon of outsourcing and its effects on the transfer of activities From my general purpose three main research questions can be formulated:What is outsourcing in a manufacturing industry context,How can the outsourcing process be charactcrizecPWhat are the critical factors that affect and are affected by the outsourcing process?

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