Do make or buy decisions matter? The influence of organizational governance on technological performance

TLDR

While several arguments and anecdotal evidence suggest a direct link between outsourcing and technological performance, the effect of governance decisions depends on specific attributes of the exchange. This paper investigates how firms’ decisions to outsource or internalize production affect their technological performance. Models that incorporate firm- and transaction-specific features show that neither outsourcing nor internalization alone yields superior performance, and that performance depends on alignment between governance choices and contractual hazards. Standard performance models can incorrectly imply a positive relationship between outsourcing and technological performance. © 2002 John Wiley & Sons, Ltd.

Abstract

Abstract This paper investigates how firms' decisions to outsource or internalize production affect their technological performance. While several popular arguments and some anecdotal evidence suggest a direct association between outsourcing and technological performance, the effects of firms' governance decisions are likely to be contingent upon several specific attributes underlying a given exchange. This paper first demonstrates how standard performance models can improperly suggest a positive relationship between firms' outsourcing decisions and their technological performance. Models that account for firm‐ and transaction‐specific features are then presented, which indicate that neither outsourcing nor internalization per se result in superior performance; rather, a firm's technological performance is contingent upon the alignment between firms' governance decisions and the degree of contractual hazards. Copyright © 2002 John Wiley & Sons, Ltd.