An outsourcing decision model for sustaining long-term performance

Abstract

Outsourcing is a strategically important activity that enables an enterprise to achieve both short and long term benefits. An important but less well researched issue concerns outsourcing in relation to the long-term performance of an enterprise. This paper addresses this issue from the point of view of the protection of core competencies during outsourcing and by considering the trade-off necessary when certain amounts of knowledge transfer/sharing is inevitable. Two major outsourcing decision variables have been identified and quantified—the significance of the component/process technology involved and the risk of disclosing this technology to suppliers. Nine scenarios are generated by considering each of the two variables at three levels of severity: high, medium and low. Each scenario is explored in terms of the appropriate outsourcing approach, the appropriate management of the core competencies/knowledge, and the selection of suppliers. The validity of the outsourcing decision model is established using four products with 861 components from four manufacturing companies based in China.