How Much Do Managers Look beyond Cost When Making Outsourcing Decisions? A Best-Worst Scaling Examination of Outsourcing Decision-Making
43 Pages Posted: 19 Sep 2008
Date Written: September 19, 2008
The question of whether outsourcing is a good or bad organizational practice has traditionally come down to whether the positive financial impact of outsourcing overcomes the potential organizational liabilities. We argue such thinking underestimates the positive organizational benefits that arise from outsourcing by giving inadequate consideration to impact that outsourcing has on the innovation cycle of outsource providers. This research adds to our understanding of outsourcing decision making in three important ways. First, we outline how innovation benefits can arise from outsourcing. Second, we extend our understanding of outsourcing by examining the effect of value appropriation and contractual efficiency on the decision to outsource. Third, we provide a rigorous empirical utility theoretical approach to understanding the components of outsourcing decision making. Our results reveal that a significant segment of managers do indeed look beyond cost in choosing to outsource, focusing instead to concentrate broadly on value creation and capture.
Keywords: Managerial Decision-making, Strategic Outsourcing, Experimental Methods, Innovation, Value Appropriation
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