"Evolving Reasons High Technology Firms Outsource: From Cost Saving to Competitive Advantage"

Ly-Huong Thi Pham, Fielding's School of Human & Organizational Development

Abstract:

Outsourcing is a common management practice in the high technology industry. However, there is no clear consensus about the reasons why firms outsource beyond the generally understood reason of cost saving. There are fewer studies to understand the long-term benefits of this management practice.

This research study offers new insights about the long-term effects of an outsourcing decision by high technology firms. Of particular interest is how this decision influences a high tech firm’s ability to innovate in order to sustain or develop its competitive advantages.

This research is a qualitative study conducted using a hybrid longitudinal panel case studies strategy to analyze the annual reports of seven US high technology firms for a 14-year period from 1997 to 2010. These seven firms are within the top 25 largest public companies, ranked by their market capitalization, listed in the NASDAQ-100. The study proposes a conceptual model, the co-creator index (CCI) to answer the research question: Can outsourced operations that were initially outsourced for cost saving, eventually become competitive advantages themselves? It identifies the underlying factors that may contribute to the evolution of outsourcing decisions within firms and how these factors may link to firms’ competitive advantages. To understand the effects of outsourced activities on firms, the CCI offers a model to explain the evolving reasons from cost saving to competitive advantage by categorizing the four stages of firms’ outsourced activities: sole-creators, subcontractors, collaborators and co-creators. The model also suggests three characteristics that influence the speed in which firms expand outsourcing activities: accelerator, beliefs, and context. The four stages help management to be more aware of the implications of having appropriate internal processes to maximize the benefits of the outsourced activities and the use of internal resources, manage the relationships with outsourced partners, and preserve the value of firms’ know-how as they trade off between the level of control of and reliance on their outsourced partners to deliver firms’ goals.

Keywords: Outsource, offshore, strategy, subcontractor, collaborator, cost saving, innovation, resource allocation, competitive advantage, co-creator index.