Uncovering the Hidden Costs of Offshoring: The Interplay of Complexity, Organizational Design, and Experience

Strategic Management Journal, Forthcoming

39 Pages Posted: 5 Sep 2012  

Marcus M. Larsen

Copenhagen Business School - Department of Strategic Management and Globalization

Stephan Manning

University of Massachusetts at Boston - College of Management

Torben Pedersen

Copenhagen Business School - Department of Strategic Management and Globalization

Date Written: September 1, 2012

Abstract

This study investigates estimation errors due to hidden costs — the costs of implementation that are neglected in strategic decision-making processes — in the context of services offshoring. Based on data from the Offshoring Research Network, we find that decision makers are more likely to make cost-estimation errors given increasing configuration and task complexity in captive offshoring and offshore outsourcing, respectively. Moreover, we show that experience and a strong orientation towards organizational design in the offshoring strategy reduce the cost-estimation errors that follow from complexity. Our findings contribute to research on the effectiveness of sourcing and global strategies by stressing the importance of organizational design and experience in dealing with increasing complexity.

Keywords: Hidden costs, offshoring, complexity, organizational design, estimation errors

JEL Classification: J23, J24, J44, J31, M51, M53, M54, L14, L21, L22, L24, L84, O14, R11, P45, P48, F59, F21, F22, F23

Suggested Citation

Larsen, Marcus M. and Manning, Stephan and Pedersen, Torben, Uncovering the Hidden Costs of Offshoring: The Interplay of Complexity, Organizational Design, and Experience (September 1, 2012). Strategic Management Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2141777

Marcus M. Larsen

Copenhagen Business School - Department of Strategic Management and Globalization ( email )

Porcelænshaven 24
Frederiksberg, 2000
Denmark

Stephan Manning (Contact Author)

University of Massachusetts at Boston - College of Management ( email )

100 Morrissey Blvd
Boston, MA 02125
United States

Torben Pedersen

Copenhagen Business School - Department of Strategic Management and Globalization ( email )

Porcelænshaven 24
Frederiksberg, 2000
Denmark
+45 3815 3030 (Phone)
+45 3815 3035 (Fax)

HOME PAGE: http://www.cbs.dk/staff/tp

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