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Home arrow Business & Finance arrow Human Capital and Innovation: Examining the Role of Globalization
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Barriers to Flexibility

As well as the assessable costs of instituting flexibility, there are a number of barriers likely to impede the adoption of flexible strategies. The first of these is administrative heritage (Bartlett & Ghoshal, 1990; Collis, 1991). Administrative heritage is part of the accumulated assets of a firm and captures the ways in which an organisation’s history determines its current strategy and structure. It influences a firm’s strategy, generally constraining strategic choices. Administrative heritage is typically a source of organisational inertia reinforcing existing strategic and structural patterns and adversely impacting both the pace and direction of change. In the present context, we might expect traditional MNEs characterised by hierarchical internal exchange and coordination to be less inclined to adopt strategies of externalisation because of an entrenched organisational resistance (Liesch et al., 2012). Externalisation within a global factory network allows the lead firm to access a range of administrative heritages, some of which, such as new start-ups, can avoid historical inertia.

A second constraint is the existing level of external transactions that the global factory undertakes. Positive experience of outsourcing should encourage greater utilisation of this strategy, hence the higher the current level, the more likely is further externalisation (Liesch et al., 2012).

Product- and industry-specific characteristics are a third constraint on flexibility strategies based on externalisation. Where there are unique product characteristics such as the need for a high level of customisation, challenging logistics requirements, critical intellectual property protection needs or onerous quality standards, a strategy of internalisation offering enhanced control, may be preferred.

 
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