Theoretical Background on Outsourcing

Abstract

The generic notion of outsourcing refers to a decision of an organization whether to make or buycertain products, services or parts thereof (Loh/Venkatraman 1992a, 9, 1992b, 336). The business practice of making arrangements with an external entity for the provision of goods or services to supplement or replace internal efforts has been around for centuries (Dibbern et al. 2004). In the course of establishing a trend towards “lean production” (Womack/Jones/Roos 1991), organizations more and more focused on their core competencies in order to leverage the organization's unique potential and comparative advantages over their competitors (Wintergerst/Welker 2007). Consequently, companies assigned commodity or non-specific assets (i.e., processes, products, or services) to external entities. By reducing the level of inhouse production and the degree of the company's vertical integration, companies also shifted those components away from a “hierarchical” mode toward a “market” mode of governance (Loh/Venkatraman 1992a, 8; Malone/Yates/Benjamin 1987; Wintergerst/Welker 2007, 938pp.).