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Ndubisi, Nelson Oly; Nygaard, Arne
2018 Journal of Business Strategy
PurposeThe purpose of this paper is to demonstrate that costs reduction is no longer a complete indication of performance and should not be attained at the expense of the firm’s sustainable social responsibility and environmental aspects. The question of whether outsourcing is a “blessing” or a “lesson” remains unresolved in the minds of practitioners and researchers alike. The literature is replete with the up- and down-sides of outsourcing, all going in different directions, making it very cumbersome particularly for practitioners to articulate when and what to outsource (if at all) and how to contain or mitigate outsourcing downsides.Design/methodology/approachOutsourcing as a two-edged sword can be value creating strategy or a firm’s soft spot. This paper focusses on the latter through a review of sourcing in two leading multinational companies: Benetton, in the fast fashion industry, and Nestlé, in the food industry.FindingsBenetton experienced the biggest catastrophe in the garment industry, the Rana Plaza collapse. Nestlé went through the horse meat scandal, perhaps one of the most complex food crime cases in history. Both cases illustrated the strategic vulnerability that arises from the international outsourcing of production.Research limitations/implicationsClearly, production costs are no longer a complete indication of performance as the two cases unveil. Management control systems should be especially vigilant when outsourcing transfers social and environmental responsibility from one contract to another in a global business context. Monitoring costs cannot be outsourced when it comes to sustainable social responsibility and environmental aspects.Practical implicationsFirms can leverage relationships with stakeholder groups, activists and NGOs to help them to monitor their international operations. Institution-based trust to protect brands, increased integration and control are necessary mechanisms.Originality/valueIndeed, global outsourcing in any industry should transfer not only industrial operations but also credible and responsible social and environmental benchmarks.
Malhotra, Naresh K.; Uslay, Can
2018 Journal of Business Strategy
The purpose of this paper is to provide a conceptual and historical overview of the evolution of outsourcing. The authors then focus and prognosticate on the future of outsourcing and develop several compelling ideas based on extant insights and the rule of three axioms.Design/methodology/approachThe insights are developed based on a review of the extant literature and evolution of trends.FindingsThe paper generates several insights. First, there is a need to carefully differentiate between core and non-core functions when deciding on whether/what to outsource. Some outsourcing options may boost financial performance in the short run but undermine the long-term viability of the firm. Public firms outsource more than private firms after controlling for size. In many cases, the optimal number of primary suppliers for a critical function/process/stock keeping unit (SKU) is three (while also allowing for a number of secondary suppliers). The optimal share distribution between the suppliers for the same SKU is rank ordinal (i.e. not equal). The complexity and the maturity of the supply chain as well as industry life cycle, regulation and technology influence the optimal number of primary suppliers.Research limitations/implicationsThe insights have significant implications for outsourcing decisions and for improving their impact on firm performance. The emergence of the shared economy, subscription-based business models and crowdsourcing will lead to consumers, business and society that increasingly borrows rather than one that makes or buys.Originality/valueThe paper represents the first attempt to integrate the axioms of the rule of three with the outsourcing literature and the theory of the firm. It emphasizes the need to align (long-term) performance objectives with managerial incentives as businesses manage their outsourcing efforts.
Gazley, Aaron; Simmonds, Hamish
2018 Journal of Business Strategy
The purpose of this paper is to investigate the effect of outsourcing and offshoring on brand loyalty in a service recovery context. In addition, the effect that consumer ethnocentrism has on these relationships is examined.Design/methodology/approachAn experiment was designed using a series of service recovery scenarios that manipulated whether the recovery effort was conducted by an in-house/outsourced or local/offshored party.FindingsThe study shows that while outsourcing service recovery within the home country has no effect on loyalty, outsourcing to an offshore location does. In addition, the effect of offshoring of loyalty is greater for consumers who hold ethnocentric tendencies.Practical implicationsThis research suggests the need to consider the delivery channel of service recovery to recover a service failure and retain customer loyalty. The results show that outsourcing within a local country may be effective, but the risks associated with offshoring are much greater.Originality/valueDespite previous attempts to understand outsourcing and offshoring in a range of service scenarios, their role in service recovery is not well understood. Similarly, the impact that ethnocentrism might have on this process is overlooked. This paper therefore responds to calls within business theory, practice and consults for further study in this under-researched area.
2018 Journal of Business Strategy
This paper aims to investigate the unconscious aspects of information technology (IT) outsourcing decisions.Design/methodology/approachThe researchers extend the current literature and existing knowledge on the economic aspects of outsourcing decisions in a study on human behaviour and decision-making. Some vulnerabilities related to decision-making on outsourcing have been identified and mechanisms to address these vulnerabilities have been proposed.FindingsAlthough IT outsourcing is a widely accepted practice, the vulnerabilities that result from unconscious bias can outweigh the supposed economic gains. However, with support from research in psychology, it is possible to minimize bias and ensure positive value creation when engaging in outsourcing.Originality/valueThe authors argue for a multi-disciplinary approach, for decision-making on outsourcing, that integrates the psychological elements of decision-making with economic value-creation logic. The proposed practitioner-oriented approach is used in conjunction with traditional approaches to decision-making. Specifically, it addresses the uncertainties that may occur when interpreting and inferring information that influences outsourcing decisions.
2018 Journal of Business Strategy
The paper aims to examine the role of management accounting and accounting information in decisions to outsource and manage outsourcing relationships.Design/methodology/approachThe paper uses a case study method. Data are collected through semi-structured interviews and informal discussions with executives of the participating companies. Official documents and secondary materials were analysed.FindingsThe findings of these cases present evidence of some roles given to accounting information and varying tasks assumed by accountants and finance staff in the outsourcing projects undertaken. These roles and tasks range from financial evaluation of new outsourcing proposals and alternatives, consultation and price negotiations in the planning and feasibility stages to the management of outsourcing relationships including monitoring, cost analysis, performance measurement, internal audit, design and implementation of risk-reward payment schemes. Managing the outsourced functions in one case involved in the use of informal control mechanisms such as trust, knowledge sharing, mutual understanding and cooperation between partners.Practical implicationsThe paper highlights the role of management accounting and information in outsourcing relationship management and evaluation. The case findings provide the opportunity for management practitioners to understand the strategic role of management accountants in the management of inter-firm relationships.Originality/valueThe case study presents new empirical evidence of the role of management accounting and accounting information in the management control of outsourcing relationships.
Ndubisi, Nelson Oly; Umar, Setiadi
2018 Journal of Business Strategy
The purpose of this study is to show how outsourcing partners can maximise the benefits of outsourcing while containing the negative effect of destructive conflict (the “bad apple”) on trust and commitment.Design/methodology/approachThe study reviewed existing literature on the benefits and limitations of outsourcing from the principal’s (outsourcer) and the agent’s (service provider) perspectives. The study further draws on empirical evidence from studies conducted across ten industries in three countries within the Asia–Pacific Rim and the Middle-East, namely, Australia, Malaysia and Saudi Arabia.FindingsLong-term orientation and ethical norms are robust ex-ante (i.e. before the destructive conflict) handling strategies, whereas integrative conflict handling style and (to a lesser degree) accommodating and compromising conflict handling styles are effective ex-post (i.e. after the destructive conflict) handling strategies. Forcing and avoidance conflict handling styles can escalate destructive conflict and should be completely avoided by outsourcing partners at all times.Practical implicationsThe benefits of outsourcing outweigh its challenges. Trust and commitment are positively affected by ex-ante and ex-post (destructive conflict) strategies. Destructive conflicts (or the bad apple effect) can be contained through these strategies. Firms should leverage the upsides of outsourcing relationships and contain the downsides by integrating long-term orientation and ethical norms that can help to pre-empt and forestall destructive conflict. They should adopt an integrative conflict handling strategy in the event of a manifest conflict. Other strategies that can be applied to manifest conflict (albeit more sparingly) are accommodating and compromising strategies. Each has the potential to increase trust and commitment in the relationship.Originality/valueThe authors unveil before and after (the destructive conflict) handling strategies that do not depend on contextual factors or industry/sectoral differences.