Managing Interdependence: The Effects of Outsourcing Structure on the Performance of Complex Projects*

Managing Interdependence: The Effects of Outsourcing Structure on the Performance of Complex... The outsourcing of complex activities has become a common organizational practice. Yet very little research has focused on the implications of how these activities are divided up among outsourcing partners. Drawing on structural contingency theory, we argue that: (1) because activities within stages of complex projects are highly interdependent, outsourcing structures where owner firms do not maintain high levels of dominance over the activities that are performed will pose control and coordination challenges, leading to poor project performance; (2) the adverse effects of poorly structured outsourcing arrangements will spill over to subsequent project stages when activities are interdependent across project stages; and (3) dividing activities among large numbers of contractors or distributing work evenly among contractors exacerbates coordination and control problems further contributing to poor project performance. Our empirical analysis of 323 capital facility construction projects supports our predictions. Overall, these results provide strong evidence that some outsourcing structures are more costly than others and that because of the nature of complex projects the detrimental effects of poorly structured outsourcing are often not completely observable at the time activities are completed. We discuss the implications of our findings for capital construction and for outsourcing more generally. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Decision Sciences Wiley

Managing Interdependence: The Effects of Outsourcing Structure on the Performance of Complex Projects*

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Publisher
Wiley
Copyright
Copyright © 2008 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0011-7315
eISSN
1540-5915
DOI
10.1111/j.1540-5915.2008.00180.x
Publisher site
See Article on Publisher Site

Abstract

The outsourcing of complex activities has become a common organizational practice. Yet very little research has focused on the implications of how these activities are divided up among outsourcing partners. Drawing on structural contingency theory, we argue that: (1) because activities within stages of complex projects are highly interdependent, outsourcing structures where owner firms do not maintain high levels of dominance over the activities that are performed will pose control and coordination challenges, leading to poor project performance; (2) the adverse effects of poorly structured outsourcing arrangements will spill over to subsequent project stages when activities are interdependent across project stages; and (3) dividing activities among large numbers of contractors or distributing work evenly among contractors exacerbates coordination and control problems further contributing to poor project performance. Our empirical analysis of 323 capital facility construction projects supports our predictions. Overall, these results provide strong evidence that some outsourcing structures are more costly than others and that because of the nature of complex projects the detrimental effects of poorly structured outsourcing are often not completely observable at the time activities are completed. We discuss the implications of our findings for capital construction and for outsourcing more generally.

Journal

Decision SciencesWiley

Published: Feb 1, 2008

Keywords: ; ; ;

References

  • Blueprint for change
    Bransten, L.
  • Another lure of outsourcing: Job expertise
    Clark, D.
  • A hierarchical approach to project planning: The case of a pipeline project in India
    Dey, P.; Tabucanon, M. T.; Ogunlana, S. O.
  • Agency problems and the theory of the firm
    Fama, E. F.
  • Supplier switching costs and vertical integration in the automobile industry
    Monteverde, K.; Teece, D. J.
  • Interorganizational collaboration and the locus of innovation: Networks of learning in biotechnology
    Powell, W. W.; Koput, K. W.; Smith‐Doerr, L.
  • Two reports assail state department role in Iraq security
    Schmitt, E.; Rohde, D.
  • Institutionalizing flexibility in a service firm: Multiple contingencies and hidden hierarchies
    Smith, V.

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