Do make or buy decisions matter? The influence of organizational governance on technological performance

Abstract

International audienceThis paper investigates how firms' decisions to outsource or internalize production affect their technological performance. While several popular arguments and some anecdotal evidence suggest a direct association between outsourcing and technological performance, the effects of firms' governance decisions are likely to be contingent upon several specific attributes underlying a given exchange. This paper first demonstrates how standard performance models can improperly suggest a positive relationship between firms' outsourcing decisions and their technological performance. Models that account for firm- and transaction-specific features are then presented, which indicate that neither outsourcing nor internalization per se result in superior performance; rather, a firm's technological performance is contingent upon the alignment between firms' governance decisions and the degree of contractual hazards. Copyright © 2002 John Wiley & Sons, Ltd

Outsourcing and financial performance: A negative curvilinear effect

“…Because there are substantial differences among the various activities that form part of a value chain, most analyses of make-or-buy decisions have concentrated on a limited set of activities, for instance, manufacturing (Leiblein et al, 2002), services (Murray and Kotabe, 1999), information technology (Poppo and Zenger, 1998) or retail activities (Kaipia and Tanskanen, 2003). Extant literature has provided much insight into what determines whether firms integrate (make) or outsource (buy) a particular activity.…”

“…For those firms that are less well prepared internally, outsourcing is more viable. Thus having many useful capabilities for an activity reduces the likelihood the activity will be outsourced (Barney, 1999;Leiblein et al, 2002). The most relevant comparison to determine the strength of firm capabilities is with potential suppliers, not with competing firms.…”

“…The outsourcing literature has started to integrate RBV, knowledge, and competence considerations in outsourcing decisions (Barney, 1999;Leiblein et al, 2002;Poppo and Zenger, 1998) in addition to transaction cost reasoning. From an industry structure and positioning perspective (Porter, 1985), outsourcing is an approach particularly suitable for cost minimisation strategies given its ability to reduce production and procurement costs.…”

“…In the transaction costs line of research, Williamson (1975Williamson ( , 1981) made important theoretical contributions, which have been empirically justified by various others (e.g., Hennart, 1988;Walker and Weber, 1984). In recent years resource-based arguments have been added to the explanation of outsourcing (Barney 1999;Leiblein, Reuer, and Dalsace, 2002;Marshall, McIvor, and Lamming, 2007) as have real options (Leiblein, 2003), agency (Holmström and Roberts, 1998) and industrial organisation arguments (Shy and Stenbacka, 2005). Thus a fairly good understanding has emerged as to what drives the decision to outsource, or integrate, a specific activity.…”

Vertikale Integration und Unternehmenserfolg: eine empirische Untersuchung in der Formel 1

“…Der zweiten zentralen Frage, welche Auswirkungen die vertikale Integration von Transaktionen auf Marktergebnisse wie Preise, Investitionen oder Gewinne hat, wurde in der empirischen Forschung dagegen weit weniger Aufmerksamkeit zuteil (Leiblein et al, 2002). Insbesondere über die unmittelbare Erfolgswirkung der vertikalen Integration auf Unternehmensebene lassen die wenigen empirischen Befunde nur bedingt Rückschlüsse zu (Spiller, 1985;Harrigan, 1986;Kerkvliet, 1991;D'Aveni und Ravenscraft, 1994;Poppo und Zenger, 1998;Leiblein et al, 2002 (Jenkins, 2004). …”