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STRATEGIES FOR SUCCESSFUL OUTSOURCING

The decision to outsource requires decision makers to carefully weigh the benefits against the potentially higher level of risk. An important question to ask in making the decision is whether there are specific strategies that can improve the likelihood that an outsourcing project will be successful and add value. We propose that the alignment of corporate goals and the goals of an outsourcing decision are a major factor in determining the success of outsourcing decisions. This belief comes from extending previous research on the relationship between strategic alignment and performance. The strategy literature has generally shown that a fit between strategy and structure has a positive impact on firm perfor-mance.33 However, the fit between operations strategy and drivers of outsourcing decisions has not been widely studied. Although a large body of anecdotal and case-based literature is available to help guide decision makers on outsourcing decisions, few empirically based studies have explored the alignment between what drives a firm's outsourcing decisions, its competitive priorities, and key indicators of firm performance. Given the increasingly important strategic nature of the outsourcing of supply chain activities, we examine the alignment of outsourcing decisions with broader strategic objectives.

The Benefits of Alignment

In a seminal paper, Skinner asserted that operational decisions should be made in alignment with a firm's business strategy.34 The alignment between a firm's operations strategy and its operational activities has since been examined extensively in the operations literature. Boyer and McDermott stated that an operations strategy should guide an organization's activities.35 Similarly, Hayes and Wheelwright, in developing the product-process matrix that dictates that a firm's manufacturing processes need to be aligned with the types and volumes of products they are producing, argue that manufacturing processes should be developed in alignment with the competitive priorities of a firm.36

The role that a firm's business or competitive strategy plays in determining the firm's functional manufacturing and supply chain management strategies has been the subject of a considerable body of previous research. Competitive strategies usually drive a firm to compete as a cost leader, differentiator, or focused provider.37 In manufacturing firms, the competitive business strategy is translated into competitive priorities and executed via operational action plans.3 8 Competitive priorities are the strategic business objectives and goals of the manufacturing organiza-tion.39 In the manufacturing domain, there are five traditionally accepted competitive priorities: cost, time, innovativeness, quality, and flexibility.40 The determination of the competitive priorities of a firm can be related to a firm's core competencies in two ways. First, a firm's competitive priorities may lead to the development of a supporting set of competencies and capabilities. Second, a firm may possess core competencies and capabilities that play a role in determining the priorities on which a firm chooses to focus.41

In the context of outsourcing, we believe that alignment between the competitive priorities at the product level and the drivers of outsourcing decisions for that product will lead to improved performance for a firm. Figure 6.1 presents a graphical depiction of our proposition.

We suggest that that when making an outsourcing decision, all five competitive priorities should be considered and each should be weighed based on its relative importance to the firm. For example, a firm positioning a low-cost product should weigh cost higher than the other competitive priorities, whereas a firm marketing a high-quality product should not focus on cost.

Figure 6.1. Outsourcing Alignment and Business Performance

Outsourcing Alignment and Business Performance

 
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