Partial Outsourcing and Linked Learning Processes

45 Pages Posted: 4 Feb 2002 Last revised: 28 Feb 2015

See all articles by Edward G. Anderson

Edward G. Anderson

University of Texas at Austin - Department of Information, Risk and Operations Management

Qi Feng

Purdue University - Krannert School of Management

Geoffrey Parker

Dartmouth College

Date Written: June 26, 2011

Abstract

Firms in advanced economies are increasingly outsourcing software and technology development as well as other knowledge work to a worldwide supply base. Standard economic and learning models predict that focal firms should outsource either all or none of a particular activity unless extra resources are required during cyclical demand peaks or access is needed to some tightly appropriable intellectual property. However, recent evidence shows that, even when these exceptions do not apply, many firms pursue a partial-outsourcing strategy. We develop a general model to provide a rational explanation for this evidence. In our model, learning from prior projects occurs at both the subsystem level and the overall systems level (e.g. systems integration and architecture). In our model, learning at the two levels interacts such that integration capabilities can build and decay dynamically. The model generates conditions where partial outsourcing is rational and dominates the extreme conditions of complete insourcing or complete outsourcing. Our model also specifies the conditions for regime change (between in- and outsourcing), oscillation between in- and outsourcing, and over- or undershooting the outsourcing target. Finally, guidance is provided for why firms can overestimate the gains from outsourcing because of the dynamic nature of integration capabilities.

Keywords: Engineering Design, Knowledge Work, Learning, Organization Design, Outsourcing, Software Development, Information Technology

JEL Classification: L0, L1, M0, M2, O3

Suggested Citation

Anderson, Edward G. and Feng, Qi and Parker, Geoffrey, Partial Outsourcing and Linked Learning Processes (June 26, 2011). Available at SSRN: https://ssrn.com/abstract=298624 or http://dx.doi.org/10.2139/ssrn.298624

Edward G. Anderson (Contact Author)

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-6394 (Phone)
512-471-3937 (Fax)

HOME PAGE: http://ed@edanderson.org

Qi Feng

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Geoffrey Parker

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States
603-646-9075 (Phone)

HOME PAGE: http://engineering.dartmouth.edu/people/faculty/geoffrey-parker

Register to save articles to
your library

Register

Paper statistics

Downloads
504
Abstract Views
3,440
rank
54,081
PlumX Metrics