Why Should Managers Look beyond Cost When Making Outsourcing Decisions? Outsourcing Driven Innovation as a Form of Open Innovation

33 Pages Posted: 22 Sep 2008

See all articles by Timothy M. Devinney

Timothy M. Devinney

University of Manchester - Alliance Manchester Business School

Nidthida Lin

School of Business, University of Western Sydney

Date Written: September, 19 2008

Abstract

Outsourcing scholars have used transaction cost economics to explain outsourcing decisions predominantly as a means of reducing costs and increasing profits. However, mounting empirical observation reveals that outsourcing to suppliers with the ability to assemble diverse expertise can provide critical strategic benefits to outsourcing firms in terms of the timing and cost efficiency of innovation. This study extends the traditional outsourcing paradigm to incorporate potential innovation benefits from outsourcing and proposes strategic outsourcing as an additional aspect of open innovation. Our perspective differs from traditional outsourcing and open innovation studies in two important ways. First, we outline how firms can gain the benefits from the potential innovation from outsourcing and argue that managers should take these benefits into account in their strategic outsourcing decisionmaking. Second, we show that by allowing some degree of spillover to other firms such benefits are a type of open innovation. Our theoretical framework provides new insights into organizational outsourcing decision-making and presents an extension of outsourcing as a strategic mechanism driving innovation beyond firm's boundary.

Keywords: strategic outsourcing, innovation, value appropriation, decision-making, open sourcing

Suggested Citation

Devinney, Timothy M. and Lin, Nidthida, Why Should Managers Look beyond Cost When Making Outsourcing Decisions? Outsourcing Driven Innovation as a Form of Open Innovation (September, 19 2008). Available at SSRN: https://ssrn.com/abstract=1270890 or http://dx.doi.org/10.2139/ssrn.1270890

Timothy M. Devinney (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Nidthida Lin

School of Business, University of Western Sydney ( email )

Locked Bag 1797
Penrith, NSW 2751
Australia

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