What is the potential for obtaining competitive

Info icon This preview shows pages 3–5. Sign up to view the full content.

what is the potential for obtaining competitive advantage in this activity, taking account of transaction costs? Second, what is the potential vulnerability that could be arisen from market failure if the activity is outsourced? Third, what can we do to alleviate our vulnerability by structuring arrangements with suppliers to provide appropriate control yet provide for necessary flexibilities in demand?” Thus, outsourcing decision is strongly related to the identification of company’s core 3
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

competencies, that is “the collective learning in the organisation, especially how to coordinate diverse production skills and integrate multiple streams of technology” (Prahalad and Hammel 1990). Core competencies approach seeks to answer three questions (Arnold 2000). First “Is the activity highly specific?” This is because specificity is closely related to strategic importance of a transaction, which means that activities with high specificity are unprofitable to outsource. Second, “Is the activity strategically important?” There are activities that are vital for a company’s survival, for that reason should not be outsourced. Third, “Is the activity a core competence, a central part of competitive advantage?” There are activities that cannot provide any competitiveness. A competitive advantage must be unique over time and imitable, viz sustainable. In order to outsource intelligently a firm must assess the benefits and risks of outsourcing. Quelin and Duhamel (2003) examine the main motives and risks of outsourcing, which scholars and practitioners have identified. The motives/ benefits are to reduce operational costs, to focus on core competencies, to reduce capital invested, to improve measurability of costs, to gain access to external competencies and to improve quality, to transform fixed costs into variable costs and to regain control over internal departments. On the other hand, the main negative outcomes include dependence on the supplier, hidden costs, loss of know-how, service provider’s lack of necessary capabilities and social risk. Even though outsourcing should be a result of a strategic analysis, very often companies focus on the cost savings without gaining the expected results. This is because several issues that are involved in the decision to outsource an organisation’s resource are not considered. Lankford and Parsa (1999) mention that companies should consider outsourcing when it is believed that certain support functions can be completed faster, cheaper or better by an outside supplier. Tasks that are not core competencies of the organisation are candidates for being contracted out. They also identify as key items to analyse in the decision to outsource the scale economy, the outsourcer expertise, the short and long term financial advantage from the sale of resources, the inability to manage the function, the strategic realignment and the need to focus on the core business.
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.
  • Fall '16
  • carol
  • Management, Subsidiary, Manning

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern