Integration in the Global Sourcing Organization_an Information Processing Perspective
Transcript of Integration in the Global Sourcing Organization_an Information Processing Perspective
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INTEGRATION IN THE GLOBAL SOURCINGORGANIZATION AN INFORMATION PROCESSING
PERSPECTIVE
GERHARD TRAUTMANNSiemens AG
VIRPI TURKULAINENHelsinki University of Technology
EVI HARTMANNEuropean Business School
LYDIA BALSCopenhagen Business School
Global sourcing refers to the integration of decision making across worldwidepurchasing units within a multinational corporation (MNC). In order tomanage the integration challenge, firms have a number of tools, varyingfrom centralization and formalization to cross-locational teams. In this paper,
we focus on explaining how and why to integrate in different circumstances.The aim of this paper is to complement prior research on global sourcingorganizations, which is still rather scarce and more exploratory in nature.By extending the arguments of the information processing perspective of or-
ganizations to the global sourcing context, we seek to propel a theoreticaldiscussion on integration in the global sourcing organization. Based onthe results of 12 case studies in three MNCs, we propose that integrationapproaches in global sourcing organizations vary depending on the threecontingencies of category characteristics, supply environment characteristicsand interdependence of the purchasing units.
Keywords: international/global purchasing; organization; case studies
INTRODUCTIONGlobal sourcing refers to the integration of purchasing
units across a firms worldwide locations, looking for
common items, processes, design, technologies, knowl-
edge and suppliers (Faes, Matthyssens and Vandenbempt
2000; Rozemeijer 2000; Monczka and Trent 2003).
Rather than merely searching for cost savings by cen-
tralization and harmonization of activities (e.g., Arnold
1997; Faes et al. 2000; Rozemeijer 2000; Rozemeijer, Van
Weele and Weggeman 2003), integration (or coordina-
tion) means the extent to which the purchasing activities
of the worldwide units are mutually supportive, and
unity of effort is achieved, to accomplish the firms
overall goal (March and Simon 1958; Lawrence and
Lorsch 1967).
Management research covers a wide variety of mana-
gerial tools to integration, called integration mecha-
nisms. These include centralization, formalization and
information systems, as well as the creation of lateral
relations (e.g., by cross-locational purchasing teams).
Although the terms global sourcing and international
sourcing are sometimes used interchangeably, this paper
makes a clear distinction between them, as the latter
implies that the local purchasing units act independently
(Trent and Monczka 2003). The key distinctive charac-
teristic of global sourcing, and a central focus of this
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paper, is the integration of managerial decision making
among geographically dispersed purchasing units.
While most multinational corporations (MNCs) per-
ceive global sourcing as a strategic necessity (Trent and
Monczka 2003), the implementation of global sourcing
has posed severe challenges (Kaufmann and Hedderich
2004; Kotabe and Murray 2004). The design of globalorganizations has turned out to be particularly chal-
lenging, yet critical for the success of global sourcing
strategy (Trent and Monczka 2003; Trent 2004; Quintens,
Pauwels and Matthyssens 2006a). On the academic side,
the majority of prior research has taken a strategic per-
spective on global sourcing, assessing, for example the
pros and cons of a global sourcing strategy (e.g., Alguire,
Frear and Metcalf 1994; Bozarth, Handfield and Das
1998; Cho and Kang 2000). Significantly less attention
has been paid to organizational issues like the integration
of purchasing units (Trent and Monczka 2003; Quintens
et al. 2006a). In particular, Gelderman and Semeijn(2006) have pointed out that despite an increased focus
on global sourcing, little is known about the actual
integration of purchasing across worldwide business
units. In this paper, we address this gap by focusing on
the following question: How do MNCs effectively inte-
grate global sourcing activities across their geographically
dispersed purchasing units?
Prior research differentiates among three major global
sourcing organizations types (Fearon 1988; Narasimhan
and Carter 1989; Arnold 1999): (1) centralized struc-
tures; (2) decentralized structures and (3) hybrid struc-
tures. Centralized structures are preferable when several
geographical units buy similar categories (products),while a decentralized structure becomes attractive when
each unit produces unique or markedly different prod-
ucts. Hence, organizational design of global sourcing
organizations is dependent on the category-related1
synergies across geographical units.
Most companies have adopted a hybrid structure
(Johnson and Leenders 2004), intending to manage the
centralizationdecentralization tradeoff most effectively
(Kaufmann and Hedderich 2004; Kotabe and Murray
2004; Hartmann, Trautmann and Jahns 2008), but still
struggle to fully exploit the benefits of global sourcing.
The key challenge in hybrid structures is to distinguish
between different types of categories, identifying the ones
with synergy potential and determining their appropriate
form of integration across geographical units (Arnold
1989; Matthyssens and Faes 1997; Faes et al. 2000).
However, currently there exists little empirical evidence
or theoretical explanation for how integration is attained
across different types of categories. Therefore, the focus of
this paper is on integration of global sourcing activities at
the category level rather than at the organizational level.
From a methodological viewpoint, this paper follows
a theory elaboration research design. We present the in-
formation processing framework (IPF) on integration
(Galbraith 1973; Tushman and Nadler 1978), a major
framework for understanding organizational integration,
and extend it to the global sourcing context. Thereby,
in addition to addressing the gap in the existing literatureon integration in global sourcing organizations, we
simultaneously address the plea for cross-disciplinary
research on global sourcing (e.g., Quintens, Pauwels and
Matthyssens 2006b; Wynstra 2006). In order to elaborate
the IPF, we analyze data collected by a multiple case study
design (12 cases in three MNCs).
LITERATURE REVIEW AND THEORETICALBASIS
IPF
This paper focuses on integration of geographicallydispersed purchasing units. As integration is inherently
an organization design phenomenon, we build on the
theoretical arguments of organization scholars, especially
those of the information processing view (Galbraith 1970,
1973, 1977; Tushman and Nadler 1978; Nadler and
Tushman 1997). The focal idea of the IPF is that organi-
zations differ in their requirements for information pro-
cessing and subsequently use different mechanisms for
integration. The general IPF is presented in Figure 1 below.
In effective organizations, there is a fit between the
information processing requirements and the informa-
tion processing capacity. When the requirements for in-
formation processing are high, numerous complex lateralmechanisms are needed, but when the information
processing requirements are low, the organization can do
well with vertical mechanisms like centralization. Fur-
thermore, due to the costs of integration mechanisms,
increasing the information processing capacity excessively
would not be rational. Instead, the goal is to achieve the
mentioned fit of information processing capacity to the
extent required.
Integration mechanisms (right side of Figure 1) can be
divided into vertical and lateral ones (Galbraith 1973,
1977, 2000). Vertical mechanisms include centralization,
formalization, standardization and vertical information
systems. Lateral mechanisms include, for example, job
rotation, cross-unit teams and integrators. The integration
mechanisms are suggested to vary both in their capacity to
facilitate information processing in an organization and
in their costs of use (both managerial time and financial
costs). Vertical mechanisms like centralization require less
investments but their capacity to facilitate information
processing is lower than that of lateral mechanisms.
Tushman and Nadler (1978) further suggest that or-
ganizations face different requirements for information
processing (left side of Figure 1), arising from uncertainty
imposed by the characteristics of its environment. These
1A category encompasses a group of similar items that are required
for specific business activities of the firm.
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contingencies are classified as task characteristics, task
environment characteristics and interunit task interde-
pendence. The first and last are internal to the organi-
zation, whereas the second one is a characteristic of its
external environment. The uncertainty they impose is
problematic because it interferes with the attainment of
organizational goals (Thompson 1967). When uncer-
tainty is high, the organization does not have all the
relevant information to achieve its predetermined goals
and it needs to process information to complete its task.
The information processing arguments have been
widely applied by scholars in different fields (e.g., Egel-
hoff 1991; Jarvenpaa and Ives 1993; Nobel and Birkin-shaw 1998; Kaipia 2007), but not extensively in the global
sourcing context. We suggest that the IPF has significant
implications for increasing the understanding of integra-
tion in the global sourcing context for the following rea-
sons. First, although prior research (e.g., Rozemeijer 2000;
Trent and Monczka 2003; Trent 2004) has identified
a number of different mechanisms for integration in
the global sourcing organization, the benefits have been
emphasized and costs have been ignored. Second,
although it has been suggested that the design of global
sourcing organizations is affected by factors such as the
level of corporate internationalization, purchasing matu-
rity and international purchasing strategy (Arnold 1999;
Rozemeijer et al. 2003; Trent and Monczka 2003), the
extant studies are highly descriptive and rather explor-
atory in nature. Therefore, prior research provides little
theoretical explanation for either when integration is par-
ticularly important orhowandwhyvarious contingencies
affect integration in the global sourcing organization.
In this paper, the IPF serves as a theoretical basis for
analyzing the use of various integration mechanisms
under different circumstances in purchasing organiza-
tions. In this process, we theoretically elaborate on the
IPF for the global sourcing context. In the following
sections, we discuss prior research on (1) integration
mechanisms (right side of the IPF in Figure 1) and (2)
uncertainty in the sourcing context (left side of the IPF)
in the sourcing context.
Studies on Global Sourcing OrganizationsThe majority of research on global sourcing organiza-
tions has focused on the issue of centralization versus
decentralization (e.g., Corey 1978; Guinipero and Mon-
czka 1990; Arnold 1999; Quintens, Matthyssens and Faes
2005). These studies tend to perceive integrated organi-
zations as centralized hierarchies. Some authors have
extended the discussion and included additional ways ofintegration. For example, it was shown that global
sourcing firms use a variety of mechanisms, such as
harmonized IT infrastructures, strategy review meetings
and cross-unit teams to manage integration (Trent and
Monczka 2003). Also, the use of different organizational
design mechanisms, networks of people, and informa-
tion and communication infrastructure was assessed
(Rozemeijer 2000) and the importance of socialization
mechanisms for integrating activities across purchasing
locations was highlighted (Faes et al. 2000). Finally, re-
porting the results of an exploratory study on how vari-
ous organization design features such as cross-unit teams
and colocation vary across different organizational size, it
was suggested that larger firms rely more on both vertical
and lateral mechanisms, simultaneously (Trent 2004).
Moreover, prior research on global sourcing organiza-
tions has taken an organization level of analysis, sug-
gesting that the global sourcing organization is the same
across purchased categories. However, it has long been
recognized that category characteristics significantly affect
organization design (Davis, Epen and Mattson 1974;
Smith 1999; Daft 2004; Englyst, Jorgensen, Johansen and
Mikkelsen 2008) and that effective purchasing organi-
zations are designed differently across categories within
Task Characteristics
Task Environment
Inter-unit TaskInterdependence
UncertaintyFacing theSubunits
InformationProcessing
Requirements
InformationProcessingCapacity
VerticalIntegration
Mechanisms
LateralIntegration
Mechanisms
Effectiveness
FIT
FIGURE1The General Information Processing Framework (adapted from Tushman and Nadler 1978)
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one firm. Although this approach has not yet been taken
very often, a noteworthy exception to this is a study on
integration analyzing 15 large MNCs, suggesting that
integration of purchasing units indeed varies across cat-
egories (Matthyssens and Faes 1997).
Studies on Uncertainty in the Sourcing ContextUncertainty in the sourcing context has been addressed
mainly in the literature on organizational buying be-
havior (OBB) (e.g., Robinson, Farris and Wind 1967;
Webster and Wind 1972; McQuiston 1989; Laios and
Moschuris 2001; Lewin and Donthy 2005). Summarizing
the main ideas of OBB, five contingencies can be iden-
tified as having an impact on uncertainty in the sourcing
context (shown in Table I): (1) purchase novelty; (2)
category complexity; (3) purchase importance; (4) de-
mand volatility and (5) supply market characteristics.
The five characteristics presented in Table I can be
clustered into two groups that closely echo the contin-gencies presented in the IPF of Tushman and Nadler
(1978). The first four contingencies relate directly to task
characteristics and are internal to the organization. The
fifth characteristic, supply environment, relates to the
task environment of the IPF and is external to the orga-
nization. The final contingency of interunit task inter-
dependence of the IPF has not been addressed in the
sourcing context. This, however, is not surprising because
purchasing literature has mostly focused on uncertainty
from the perspective of a single purchasing unit.
RESEARCH METHODOLOGY
Research DesignOwing to the lack of theory on global sourcing orga-
nizations (Quintens et al. 2005) especially in terms of
providing theoretical explanations for relationships
among concepts (the questions of How and Why in
the definition of good theory [Bacharach 1989; Wacker
2008]), this research started without precise hypotheses
or propositions. Our research design can best be de-
scribed as theory elaboration (Vaughan 1992; Lee 1999;
Gilbert 2005). In comparison with testing an existing
theory (Popper 1959) or developing a new theory (Gla-ser and Strauss 1967; Eisenhardt 1989), the key idea of
theory elaboration as applied in this paper is to extend
the IPF to the global sourcing context, thereby providing
theoretical explanations for the use of different inte-
gration mechanisms across different categories. The
TABLE I
Factors Affecting Uncertainty in the Purchasing Context
Contingency Definition How and Why It Affects Uncertainty ExampleReferences
(1) Purchasenovelty
Experience the firm has onpurchasing the item: new task,straight rebuy or modified rebuy
New tasks are more uncertainbecause the firm does not have theexperience and knowledge of thepurchase
Cardozo (1980),Hill (1972),McQuiston(1989)
(2) Productcomplexity
Degree to which the product is acommodity or highly customized
Customization increases theunderstanding of productcharacteristics and purchasingprocess, making the situation moreuncertain
Hill (1972),McQuiston(1989), Xideasand Moschuris(1997)
(3) Purchase
importance
Degree and type of risk
perceived in the purchasingsituation and purchase volume
High volume and risk increase the
exposure to loss, making thepurchase more uncertain
Cardozo (1980),
Hill (1972),Bunn (1993)
(4) Demandvolatility
Degree to which the demand ofthe purchased item changesacross periods
Strong demand fluctuations makethe planning of purchase difficult,increasing uncertainty of thesituation
Walker andWeber (1984)
(5) Supplymarketcharacteristics
Degree of global availability ofthe item, uncertainty inproduction and supply, stabilityof supply
A turbulent environmentcharacterized by a rapid rate ofchange and lacking transparency ofsupply markets, making the situationmore uncertain
Cardozo (1980),Bunn (1993),Xideas andMoschuris(1997)
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outcome of the paper can therefore be classified as mid-
dle-range theory (Merton 1968; Bourgeois 1985; Layder
1993) which is defined as theory that generalizes beyond
a particular case but within a particular context or setting
(Woodside, Liukko and Vuori 1999; Ketokivi 2006).
In order to elaborate the IPF in the global sourcing
context, we collected empirical data following a multiple
case study design with a replication logic (Yin 2003). We
selected this case study research design for three reasons.
First, our research aim is to understand how and why
contingencies lead to differences in integration mecha-
nisms at the category level (Meredith 1998; Yin 2003).
Second, research on global sourcing organizations is in
itsexploratory stageand existing knowledge on the factors
affecting organization design at the category level is
scarce (Yin 2003; Voss, Tsikriktsis and Frohlich 2002;
Quintens et al. 2005). And finally, there has been a call for
more case studieson global sourcing (Trent 2004; Dubois
and Araujo 2007). The ways by which validity criteria
(Miles and Huberman 1994; Yin, 2003) in qualitative
research were addressed are shown in Table II.
In the case selection, we focused on MNCs because they
are more likely to be engaged in global sourcing (Bozarth
et al. 1998). Details about the case firms are presented in
Table III.
In our pursuit to achieve a theoretical sample, three
MNCs were studied from different industries (gas, phar-
maceutical, automotive), thus varying the following at-
tributes: Company sizes, degrees of multinationality and
global sourcing ratios. All three case firms have extensive
global sourcing experience with hybrid purchasing
structures in place. The primary structural dimension
TABLE II
Addressing Validity Criteria, Based on Miles and Huberman (1984) and Yin (2003)
Validity Criterion Means by Which This Was Addressed in the Case Study
Objectivity/Confirmability:
relative neutralityand reasonablefreedom from unacknowledgedresearcher biases
Clear research design
Detailed and explicit data collection processResult: Methodology transparent and repeatable
Reliability/Dependability/Auditability:whether the process of the study isconsistent, reasonably stable over timeand across researchers and methods
Data were collected across a full range of carefully selectedrespondents and settings as suggested by the research questionsShared questionnaire for all interviewers/field-workersDevelopment of case study databaseCoding checks to ensure agreement of coders
Result: Stability and consistency of study process ensured
Internal and Construct Validity:establishing causal relationships
whereby certain conditions are shownto lead to other conditions,as distinguished from spuriousrelationships
Use of theoretical frameworkTriangulation of interview data and documents studied
Context-rich data collectionResult: Transfer Participants agreed to the interpretations; ofinformation processing framework to global sourcing contextperformed and substantiated
External Validity:establishing a domain in which thestudys findings can be generalized
Clear description of case company context and situationDetailed descriptions of specific category considerations for thecompanies studiedReplication in further research is suggested and facilitated by clearparameter specification (e.g., industry, size, hybrid sourcingorganization)
Result: Robust findings applicable to specific domain
Utilization/Application/Action
Orientation:what the study does for its participants,both researchers and researched, aswell as for the consumers
Research setting of hybrid sourcing organizations poses a
practically challenging fieldCategory-level analysis provides in-depth and practical informationto practitioners and researchers alike
Result: Practical value of research findings for organizationsengaging in global sourcing, as well as providing stimulus for theresearch field of coordination mechanisms in MNCs and specificallyregarding hybrid sourcing organizations
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along which the purchasing organization of the casecompanies is organized is the category. Categories with
large purchasing volumes that show cross-locational
synergy potential are led by category managers situated at
headquarters. In addition, Gas and Auto have a regional
structure with regional managers, as a second dimension,
to ensure the implementation of global strategies in their
particular regions. Also, this is meant to improve coher-
ence between globally developed strategies and regional
requirements. Category and regional managers have a
direct reporting line to the Chief Purchasing Officer.
Local purchasing sites have a dotted reporting line to
corporate purchasing, showing their formal participation
in the global purchasing community. As a result, thecorporate purchasing department has a direct reach on
the activities of the local supply managers and their ap-
praisal system.
Most purchasing scholars agree that organizational
buying activities vary among specific products purchased
(Cardozo 1980; Xideas and Moschuris 1997; Monczka,
Trent and Petersen 2006). Thus, in our pursuit to maxi-
mize heterogeneity of results, four product types were
defined within each MNC: (1) raw materials; (2) capital
expenditures (CAPEX); (3) services; and (4) mainte-
nance, repair & operations (MRO). Then, for each of the
three firms one globally sourced category for each of
these types was analyzed. This design yielded 12 cases
giving us a chance to study the research problem across a
high diversity of case contexts (Miles and Huberman
1984; Yin 2003). Table IV provides a detailed description
of each individual case.
Data CollectionAs the aim of the paper is to develop middle-range
theory, the theoretical framework (IPF) dictates the form
of the required data (Layder 1993). The primary data
were collected between July 2006 and June 2007 using
semistructured interviews. A total of 15 interviews (five in
each company, a total of approximately 25 hours) wereconducted in two phases.
First, 12-hour interviews were conducted at head-
quarters with each of the senior supply managers being
responsible for a particular product type (e.g., raw
materials or services). Owing to their perspective on the
purchasing organization as a whole, these managers at
headquarters were the primary source of information.
Topics covered include, for example, the role of purchas-
ing, global sourcing strategy, motivation for global
sourcing, purchasing organization, category characteristics
and integration of purchasing units within the company.
Second, one and a half hour group meetings were
organized; supply managers interviewed in the firstround were gathered together in each firm to discuss
differences in global sourcing across product types. The
goal was to improve the understanding of drivers that
determine the particular form of integration but also to
ensure reliability of the data from prior interviews
by repeatedly discussing some of the first round issues
(Eisenhardt and Graebner 2007). After each interview,
detailed interview transcripts were prepared and circu-
lated among all the participants for potential clarification
(Eisenhardt 1989; Yin 2003). All interviews were con-
ducted by two researchers, with one responsible for the
interview and the other one for taking notes.
In addition, archival documents, such as various in-
ternal reports, process documentations and presenta-
tions, were analyzed and used mainly for preparation of
interviews. For example, process charts enhanced the
understanding of how different purchasing units interact
on a global scale. Archival documents, however, were
used only as secondary source of information for cross-
checking the interview findings.
DATA ANALYSISData analysis was carried out in two major phases. First,
within-case analysis focused on each case separately and,
TABLE III
Case Firm Characteristics
Firm FirmSizea
Size ofPurchasing
Departmenta
PurchasingStructure
Extent ofMultinationalityb
Global SourcingExperience
(Years)
GlobalSourcing
Ratio (%)c
Gas 25,000 300 Matrix: region/category
70% foreignspend
7 80
Pharma 41,000 370 Category 75% foreignspend
6 4050
Auto 300,000 720 Matrix: region/category
20% foreignspend
6 70
aSize measured as the number of employees.bPurchased volume of subsidiaries compared with headquarters.cRatio of globally sourced volume to total volume.
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second, cross-case analysis looked for common patterns
between the use of integration mechanisms and category
characteristics (Eisenhardt 1989; Yin 2003). In a first
step, individual profiles of the cases have been developed
to become more familiar with each single entity. As wehad prespecified many constructs a priori based on the
literature review, data from different sources could be
clearly converged to the respective constructs in each case.
In a second step, we followed techniques for cross-case
analysis and tabular displays to note similarities and
differences across the cases studied (Miles and Huber-
man 1984; Eisenhardt and Graebner 2007). Finally, re-
lationships between constructs were analyzed and
findings were derived based on the relevant literature
explanations, resulting in the three aggregate research
propositions presented in the next section.
The 12 cases were divided into three groups based on
the primary underlying motive for implementing global
sourcing identified in prior research: Economies of scale,
economies of information and economies of process
(Arnold 1997; Faes et al. 2000; Trautmann, Bals and
Hartmann, 2009). An overview of the findings is pre-
sented in Tables V and VI below. Our findings indicate
that the specific economies of a product affect how in-
tegration is managed.
To elucidate this finding, the following sections focus
on explaining (1) how uncertainty is induced along the
three groups and (2) how integration is managed.
By this, we analyze the components uncertainty and
integration mechanisms of the IPF (as shown in
Figure 1, from left to right). First the uncertainty and its
contingency factors are treated, then the corresponding
integration mechanisms are treated. For each group, we
conclude with propositions concerning why and howintegration approaches differ across cases based on the
arguments of information processing theory.
Group 1: Economies of Scale
Uncertainty Faced by the Organization. The findingsindicate that for five cases (liquid crystals, gas, steel,market research and IT-hardware) the primary motivefor global sourcing is economies of scale, namely thebundling of volumes across sites. The use of severalintegration mechanisms, particularly more elaboratelateral ones like global teams, indicates that uncertainty
and subsequent information processing requirements arehigh. The category characteristics indicate low uncertaintyas nearly all cases are characterized as straight rebuy(Robinson et al. 1967) with stable demand patterns(Walker and Weber 1984) and high degree ofstandardization (Hill 1972; Cardozo 1980; McQuiston1989). Thus, the purchasing task is largely planable withlittle need to gather additional information during taskexecution. This can be exemplified by the case of IThardware, where once specifications have been set for alaptop, they will not alter during its lifecycle. Thedemand pattern is predictable, as these products arerenewed after 34 years for all employees within a firm.
TABLE IV
Case Firm Characteristics
Firm Product Type Category Description
Gas Raw materials Gas Gases required for production and also for trading purposes
Gas CAPEX IT hardware Mainly PCs and laptopsGas Services Management
consultingConsulting services for strategic management projects
Gas MRO Office supplies All materials required for daily use in the offices (pens, paper,coffee, etc.)
Pharma Raw materials Liquid crystals Substances with characteristics of liquids and crystals andessential component of product with highest growth rates infirm
Pharma CAPEX Innovative analyticalinstruments
Special instruments that are necessary for daily use inlaboratories
Pharma Services Market researchservices
Market data (market share of competitors, market volume,growth rates, etc.)
Pharma MRO Wear parts Components that need to be replaced regularly duringproductionAuto Raw materials Steel Critical component required for many parts of carsAuto CAPEX Robots Industrial robots required in many production steps such as
weldingAuto Services Agency services Creative services for marketing and branding purposesAuto MRO IT consumables All supplementary material for IT (mice, batteries, discs, etc.)
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TABLEV
Overview
onIntegrationMechanisms
Motive
Case
Centralization
Formalization
InformationSystems
LateralMechanisms
Economiesof
scale
Liquidcrystals,
gas,steel,market
research,
IT-
hardware
Strategicpurchasing
centralizedatcategory
manager(specification
setting,marketanalysis,
sourcingstrategy,
contractplacement)
Operationalpurchasing
ateachsite(ordering,
expediting)
Standardized
purchasingprocesswith
cleardefinitionofroles
andresponsibilities
ITsystemtoleverage
inform
ationonlocal
needs
,prices,
contractstructures
andsuppliersacross
allsites
Categorymana
gerandlocal
managerswork
inteamsto
developglobal
strategiesfor
acategory.
Localknowledg
eand
requirementsareconsidered
inglobalstrategy
developmentandacceptance
acrosssitesise
nsured
Economiesof
information/
learning
Innovativeanalytical
instruments,robots,
consulting,agency
services
Categorymanagermust
approveRFQlistand
sourcingdecision
Purchasingprocesses
differacrosssites,but
comparableoutputs
foreachmajoractivity
defined
Decisiongatesfor
importantactivities
(supplierselection,
categorystrategy)
defineda
prioriby
categorymanager
ITsystemtoleverage
inform
ationonbest
price,
suppliersand
contractsacrosssites
Knowledgedatabase
withd
etailed
inform
ation,
templates,etc.about
project,
bestpractices
Categorymana
gertotransfer
categoryandm
arket
knowledgebybeinginvolved
inthepurchasin
gtransaction
andworkingtogetherwiththe
respectivelocalsites
Economiesof
process
Wearparts,IT
consumables,office
supplies
Fullpurchasingauthority
isdecentralizedtosites
Manuals,guidelines
andinstructionswith
best-practice
purchasingprocess
andrelatedtools
Globa
ldatabase
withm
anualsand
instructions
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TABLEVI
CategoryCharacteristicsforEachCase
Motive
Case
Purchase
Novelty
Purchase
Importance
Category
Complexity
Demand
Volatility
SupplyEnvironment
Typeof
In
terdependence
Economies
ofscale
Liquid
crystals,
gas,steel
Straight
rebuy
Highvolume,
highcriticality
Standardized
item
Regular
andrecurring
demand
C
ompetitivesupplierbase,
stablemarket,high
transparency,
lowdeliveryrisk
Reciprocal
IT-Hardware
Straight
rebuy
Medium
volume,
high
criticality
Standardized
item
Regular
andrecurring
demand
C
ompetitivesupplierbase,
d
ynamicmarket,high
transparency,
lowdeliveryrisk
Reciprocal
Market
research
services
Straight
rebuy
Medium
volume,
high
criticality
Specifications
setbysupplier
Regular
andrecurring
demand
C
ompetitivesupplierbase,
stablemarket,high
transparency,
lowdeliveryrisk
Reciprocal
Economiesof
information/
learning
Innovative
analytical
instruments
Newbuy
Highvolume,
lowcriticality
Highly
customized
Irregularand
infrequent
demand
Fewglobalsuppliers,stable
m
arket,lowtransparency,
high
d
eliveryrisk
Reciprocal
Consulting,
agency
services
Newbuy
Highvolume,
highcriticality
Highly
customized
Irregular
demand
Fewglobalsuppliers,
dynamic
m
arket,lowtransparency,
high
d
eliveryrisk
Reciprocal
Robots
Modified
rebuy
Highvolume,
highcriticality
Specifications
setbysupplier
Irregularand
infrequent
demand
Fewglobalsuppliers,stable
m
arket,limitedtransparency,
m
ediumdeliveryrisk
Reciprocal
Economies
ofprocess
Wearparts,
Working
clothes,office
suppliers
Straight
rebuy
Lowvolume,
lowcriticality
Standardized
item
Irregular
demand,
high
quantityof
orders
C
ompetitivesupplierbase,
stablemarket,high
transparency,
lowdeliveryrisk
Pooled
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Finally, specifications are highly standardized for theseitems with low pressures for regional adaptation, leadingthe company Gas to label IT-hardware as commoditypurchasing.
Also, the supplier environment poses low uncertaintysince most cases have high global supply availability
with a competitive supplier base, low delivery risk andtransparent markets (Cardozo 1980; Noordewier, Johnand Nevin 1990). Again using the case of IT-hardware,there exist global suppliers (e.g., HP, Dell, etc.), compe-tition is high, the market is transparent and products canbe delivered cost effectively across more than one site. Asmost products are purchased on a regular basis and arehighly standardized, the purchasing department is familiarwith the relevant suppliers (enabling also a dual sourcestrategy) and therefore the risk that products are notdelivered on time, on cost and/or in the desired quality,is rather low. Owing to the presented characteristics of theitems in this group, the pooling of demand across sites on
a regional basis is feasible, leading to lower prices for allsites involved in the group contract.
Finally, the results indicate that high uncertaintyarises mainly from interdependence; the analyzed casesare characterized by reciprocal interdependence, whichaccording to Thompson (1967) poses higher uncertaintythan pooled or sequential interdependence. Reciprocalinterdependence among organizational units is a resultof the concentration of strategic purchasing activities atone location to take advantage of scale effects, whileretaining sourcing flexibility and responsiveness to localinterests. To exploit economies of scale, activities such asthe initiation of common bundling projects increase
dependency of the purchasing units. Therefore the infor-mation processing requirement and thus the requiredvariety of integration mechanisms to successfullyaccomplish the purchasing task increase.
Integration Mechanisms. To achieve economies ofscale, a variety of different integration mechanisms havebeen implemented. First, decision-making authority forthe complete strategic purchasing process is centralizedto a category manager, being responsible for the cross-border integration of purchasing activities for a particularcategory. Hence, category managers drive sourcing con-solidation of group-wide requirements and explorationof global supply markets, while local sites remain
responsible for operational activities and maintainproximity to internal clients. A standardized purchasingprocesswith clear definition of roles and responsibilitiesfor each purchasing step (e.g., need definition, marketanalysis, strategy development) reduces misunder-standings between the category manager and the localsupply managers at each site. In addition, a global infor-mation system allows for efficient exchange and analysis ofglobal spend data, providing category managers withinformation about local contracts, suppliers, specifi-cations and maverick spend. Finally, global strategiesare developed through global category management teams,
embracing senior supply managers from key sites(regional managers in the case of Auto and Gas) andthe respective category manager. By working togetherwith the affected local supply managers, the acceptanceand compliance of global strategies is ensured. Inaddition, it facilitates that knowledge of local supply
managers is feeding into global purchasing strategies.For example, in the case of IT-hardware, the categorymanager and his team of Gas established a Europeancontract with one supplier for the delivery of laptops tobundle volumes across sites. To achieve harmonizationof specifications, local supply managers first had to beconvinced of the benefits of a joint approach. The specificrequirements of local users (e.g., service conditions,repair, replacement) were communicated within thestrategy development process, thereby ensuring thatinternal customers satisfaction would not suffer due tothe new approach. As a result, the application of thepresented integration mechanisms enables the firms to
exploit economies of scale for these categories.Theoretical Interpretation of Uncertainty Situation and
Integration Mechanisms. Based on information processingtheory, the following propositions are formulated:
Proposition 1: For global sourcing categories with higheconomies of scale potential, the main contingency factoraffecting uncertainty is reciprocal interdependence amongpurchasing units.
Proposition 2a:For global sourcing categories with higheconomies of scale potential, companies use verticalintegration mechanisms for uncertainty reduction in
interdependent units as reflected in formal purchasingprocesses and global systems.
Proposition 2b:For global sourcing categories with higheconomies of scale potential, companies use lateralintegration mechanisms for uncertainty reduction asreflected in the use of cross-locational teams, categorymanagers and integrators.
Reciprocal interdependence induces high uncertainty inthe organization and in the case of high uncertainty,decentralization of decisions is required. Under uncer-tainty, the information processing requirements are so
significant that centralization would lead to overloadingthe top management (Galbraith 1973; Tushman andNadler 1978). In such cases, a specialized liaison rolecan be assigned to manage information processingbetween the reciprocally interdependent units (Galbraith1973, 1977) and in cases of highly differentiated units(such as sites in different locations) the liaison role needsto have formal power. This gives an explanation forthe assignment of the category manager, who has theliaison role. The findings concerning the formalizationof the purchasing process can be explained as follows.A formalized purchasing process across locations reduces
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the role ambiguity and increases the predictability ofoutcomes of reciprocally interdependent units (Galbraith1973; Roth, Schweiger and Morrison 1991). As such, muchof the uncertainty related to unpredictable tasks is reduced(e.g., when to send spend requirements from each site tothe category manager and according to which template).
The need to constantly exchange routine informationamong interdependent purchasing units, such as spendrequirements, specifications or prices, explains the imple-mentation of global information systems (Jarvenpaa andIves 1993), as a vertical mechanism. And finally, the use oflateral mechanisms, such as cross-locational teams orintegrators with formal authority, can be explained bythe fact that not only routine information about localvolumes and suppliers is required for planning bundlinginitiatives, but also a common understanding for the jointproject has to be established. For example, local know-how needs to be integrated into a global sourcing strategyand opinions about the most feasible strategy for all units
need to be exchanged in order to reduce equivocality (Daftand Lengel 1986). This requires lateral integration mech-anisms which facilitate the processing of large amounts ofnonroutine and rich information, thereby explaining theuse of cross-locational teams and category managers.
Group 2: Economies of Information and Learning
Uncertainty Faced by the Organization. The findingsindicate that for four cases (analytical instruments, robots,consulting and agency services) the primary motive forglobal sourcing is economies of information and learning.For example, in the case of analytical instruments the
different research facilities of Pharma purchased theseitems rather infrequently, so that category specific knowl-edge could not be developed at each site.
Implementation of complex integration mechanismsindicates a high level of uncertainty in completing thepurchasing task. In contrast to the first group with thefocus on economies of scale, here uncertainty induced bycategory characteristics is significant; cases are characterizedby either a new buy or modified rebuy (Robinson et al.1967; Cardozo 1980), high category importance (Bunn1993; Lewin and Donthy 2005), high level of technicalcomplexity (Hill 1972) and volatile demand pattern(Walker and Weber 1984; Woodside et al. 1999). For
example, consulting and agency services are tailored tocustomer needs and therefore represent mostly new buy,are of high relevance for the business, and thespecification of service needs is challenging and requiresexpertise. In addition, demand from an individual siteperspective is volatile, as it always represents projectbusiness and therefore local sites can hardly developknowledge concerning the purchase of these services.
Uncertainty induced by the supply environment is alsosignificant; due to the limited number of capablesuppliers and the heterogeneity in offers being high,the need to obtain more detailed supply marketinformation is high in order to identify feasible
suppliers and to enable an objective comparison of theiroffers. Because of purchase novelty, supply managers haveto deal with unfamiliar suppliers, increasing theuncertainty in the purchasing process, as suppliers mightnot perform as expected in terms of quality and delivery(Cardozo 1980). This can be exemplified by analyzing the
case of agency and consulting services, where it becomesvery difficult to evaluate and choose the best supplier forthe required service.
Owing to the presented characteristics of the items inthis group, the exchange of category and market know-ledge across sites is the dominant motive for globalintegration of purchasing activities. The systematic andworldwide exploitation of strategic knowledge andinformation between units carrying out similaractivities is emphasized as a unique advantage of globalMNCs (Bartlett and Ghoshal 1989; Hedlund andRolander 1990). This creates reciprocal interdependencein global sourcing organizations; each units ability to
achieve its own goals is to some extent dependent on itswillingness to mutually support other units in achievingtheir goals (Bartlett and Ghoshal 1989). The pool ofknowledge dispersed worldwide thereby increases theinterdependence (Bhagat, Harveston and Triandis2002) and also increases the uncertainty faced bypurchasing units.
Integration Mechanisms. Considering the high tech-nical complexity involved when purchasing these items,the lack of know-how precluded local supply managersfrom early involvement into the purchasing process. Theintegration challenge was described by the senior supplymanager of Pharma as follows:
We have developed purchasing specialists for these
categories here at headquarters. Our key idea was to
use their expertise for the benefit of all sites, making
their category and market knowledge accessible to
the whole group.
To attain economies of information and learning,decision making is centralized to a global categorymanager. The extent of centralization varies across caseswith the category manager determining for each indi-vidual transaction, approval and decision gates with
comparable outputs for major activities along the pur-chasing process (e.g., market analysis, strategic actionplan, supplier short list), thereby ensuring involvementin key decisions at local sites. On the one extreme, thecategory manager at least confirms request for quotationlists and makes final sourcing decisions, but on the otherextreme can also assume responsibility for the wholepurchasing process. For example in the case of agencyservices, the responsible category manger at the head-quarters of Pharma accompanies the whole purchasingtransaction when a major site launches a new marketingcampaign for a new product. This is because marketingmanagers rather often dislike the fact that purchasing is
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involved in the creative part of the purchasing transactionas they consider the selection of an agency as a funda-mental part of their own work. Thus, the idea is to estab-lish a category manager situated at headquarters with therespective knowledge in order to convince managers thatpurchasing can make a contribution by providing
expertise, thereby facilitating early process involvement.Information systems are implemented to maintain trans-parency over contracts, suppliers and prices includingbest-price comparisons across sites. Category managersensure that dispersed knowledge that is shared acrosssites is aggregated, acting as aliaison between the differentpurchasing locations. For example, in the case of analyt-ical instruments the high level of technical complexity,high variety in specifications and low supply markettransparency forces the category manager to be in-volved in the whole purchasing process for every trans-action. As there are very few suppliers that can providethis technically complex item, the category manager
works closely with local buyers from other sites to gainaccess to their market knowledge. In contrast, the marketfor robots is more transparent and specifications aregiven by suppliers, so that the value added provided bya category manager is considered to be lower, resulting ininvolvement only during the most important stages ofthe purchasing process.
Theoretical Interpretation of Uncertainty Situation and
Integration Mechanisms. Based on information process-ing theory, the following propositions are formulated:
Proposition 3: For global sourcing categories with higheconomies of information and learning potential,the main contingency factors affecting uncertaintyare category characteristics, supply environment andreciprocal interdependence among purchasing units.
Proposition 4: For global sourcing categories with higheconomies of information and learning potential,companies use mainly lateral integration mechanisms,reflected in the paramount role of the category manager.
Our empirical findings suggest that decision-makingauthority remains with the units faced by uncertainty andis not transferred upward in the hierarchy, but rather
aggregated at the level of one category manager. Thesheer volume and the complexity of information flowslimit the ability to integrate through centralization(Galbraith 1973; Bartlett and Ghoshal 1989).Following the line of argument presented for group 1,comprising cases characterized by economies of scale,decision-making authority is allocated to one local unit,being responsible for managing knowledge and infor-mation transfer across sites. Owing to the high volumeand complexity, information processing needs are sosignificant that centralization to headquarters wouldimmediately overload the top management. This givesan explanation for the assignment of the category
manager; he has the liaison role as in cases charac-terized by economies of scale.
Second, the high diversity related to the purchase ofeach of these unique and novel categories makesintegration through a completely standardized purchas-ing process less feasible (Woodside et al. 1999). Formal-
ization does not facilitate information processing asrequired in this situation. Routine information, such asprices, information on suppliers, or project descriptions,on the other hand, can most effectively be transferredthrough global information systems. However, a lot ofthe required information for these categories is veryknowledge intensive (e.g., setting up complex contractstructures, defining service level agreements or con-ducting detailed supplier evaluations). Therefore, themost effective way to transfer the nonroutine andhighly knowledge-related information is through lateralmechanisms that enable local supply managers to learnand make use of the information (Nonaka 1990).
Building on the arguments of Daft and Lengel (1986)and Galbraith (1973), the need to process varyinginformation explains the use of a category manager; hehas the capability to process more and richer informationamong organizational units, hence, acting as an integrator.
Group 3: Economies of Process
Uncertainty Faced by the Organization. For the finalthree cases (wear parts, IT consumables and officesupplies), the primary motive for global sourcingis economies of process. Although bundling of thesecategories at one regional supplier is possible, the
benefits related to it are limited as the value of theseitems is rather low. As these categories are highlystandardized and the supply availability is high, categoryand market knowledge exchange is not as critical as for theprior groups 1 and 2 of categories. However, demandplanning for these items is very difficult, leading to a highorder frequency and as a consequence to the problem thatlocal supply managers often spend 80 percent of theirtime on purchases that represent
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sometimes be volatile; however, uncertainty duringpurchasing remains low. Also, uncertainty induced bythe supply environment is low. There is a stable andtransparent supply market with a large, competitivesupplier base and high supply availability (Xideas andMoschuris 1997).
In terms ofinterdependence, uncertainty is also low; thepurchasing units are characterized by pooled rather thanreciprocal interdependence as in other cases (Thompson1967). The interdependence characterizing these relation-ships is pooled because once new purchasing processes ormethods have been implemented and established acrosslocations, each purchasing site is capable of executing thepurchasing task independently.
Integration Mechanisms. Within these cases the deci-sion-making authority is decentralized and remains ateach site, but standardized purchasing processes aredefined. One senior supply manager for MRO pointedout the importance of formalization:
It is simply impossible and not value adding that we
are involved in every purchasing transaction from
our local sites. We rather need to ensure that they
adhere to our prescribed purchasing standards.
Formalized processes are critical since they
accelerate learning as best practices can be
incorporated into process descriptions. Since
electronic procurement solutions often play a major
role in re-engineering purchasing processes, we
often first need to train local site supply managers
and acquaint them with the new methods. Then, it
is all about ensuring that everybody adheres to the
prescribed standards to achieve a significant
bottom-line effect for the whole company.
Finally, global databases serve as a platform for makingdocuments, templates, manuals and best-practice de-scriptions available for all sites. For example, in the caseof wear parts, the establishment of catalog agreementswith the respective suppliers is considered an efficientsolution to cut down process costs. Global integrationinvolves the recommendation of corporate headquartersto install these catalog agreements across sites, the provi-sion of the software and training, as well as manuals that
include the most important aspects concerning theinstallation and implementation. Once the catalogs areinstalled, each purchasing site conducts the purchasingtask independently.
Theoretical Interpretation of Uncertainty Situation andIntegration Mechanisms. Based on information process-ing theory, the following propositions are formulated:
Proposition 5: For global sourcing categories with higheconomies of process potential, the main contingencyfactors affecting uncertainty are category characteristics,supply environment and pooled interdependence amongpurchasing units.
Proposition 6:For global sourcing categories with higheconomies of process potential, companies use mainlyvertical integration mechanisms, reflected in purchasingprocess formalization.
The high reliance on formalization of activities in this
case can be explained as follows: due to pooledinterdependence, the uncertainty is low and the taskcan be preplanned. Hence, a standardized cost-effectivepurchasing process can be developed to ensureintegration (Galbraith 1977; Tushman and Nadler1978); that is, all units follow the same best-practicepurchasing process. Finally, as there is a need fordocuments, templates and best-practice processdescriptions across sites, impersonal mechanisms, suchas global databases are able to convey this routineinformation cost-effectively across sites (Egelhoff 1991).
SUMMARY AND CONCLUSIONIn this paper, we have addressed the organizational de-sign aspects of global sourcing, in particular integration in
global sourcing organizations. The contribution of the
paper is threefold and tackles the identified research gaps
pointed out in the Introduction. First, we have comple-
mented the mainly strategy-focused research on global
sourcing by assessing global sourcing from an organization
design perspective. We have sought to enrich the dominant
centralizationdecentralization debate by providing in-
sights on how companies apply a number of different
integration mechanisms to manage their geographically
dispersed purchasing units. Second, by emphasizing the
need for more research in purchasing organization designwith a category-level of observation, we have sought to
improve the understanding of hybrid purchasing organi-
zations, finding that effective hybrid organizational struc-
tures differ across categories. And finally, we have sought to
complement the highly exploratory and data-driven em-
pirical work on global sourcing organizations by providing
theoretical explanations for global sourcing units through
elaborating the information processing perspective in the
global sourcing context.
Based on the model developed by Tushman and Nadler
(1978) and the case studies above, we can summarize by
stating that three key contingencies affect integration in
the global sourcing organization: (1) category character-
istics, (2) supply environment and (3) interdependence
of the purchasing units. These three contingencies echo
those identified by Tushman and Nadler (1978) but are
adapted to the global sourcing context.
Category characteristics relate to what Tushman and
Nadler (1978) call task characteristics: in the global
sourcing context the task is the purchase of the category.
Category characteristics are internal to the organization
and include purchase novelty, purchase importance,
category complexity and demand volatility. Along the
three groups of cases studied, task characteristics explain
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uncertainty faced by the organization while in cases
characterized by economies of scale and economies of
process, uncertainty related to the task is rather low. The
high complexity involved in purchasing capital expendi-
tures and services in the group characterized by economies
of information, explains the need to process more infor-
mation during task execution. Therefore, we conclude:
Conclusion 1: The higher the uncertainty induced by
category characteristics, the higher the need for integra-
tion mechanisms with high information processing
capacity.
In further research, these integration mechanisms could
be studied in more detail, analyzing how the varying
category characteristics affect the detailed design and im-
plementation of vertical and lateral integration mecha-
nisms. As was discussed in the previous section, those
categories with the highest uncertainty posed by categorycharacteristics (i.e., such as with high potential for
economies of information and learning), were managed
by predominantly lateral integration mechanisms. An
overview study of the kinds of lateral mechanisms as well
as their distribution among different industries could be
particularly valuable for practice.
The second contingency of Tushman and Nadlers
(1978) work is task environment, which in the global
sourcing context is the supply subenvironment (Duncan
1972) including the aspects of availability of global
suppliers, transparency of supply market and familiarity
with the suppliers (Cardozo 1980; Noordewier et al.
1990; Xideas and Moschuris 1997). The environmentaffects the organization because according to the open
system perspective to organizations (Scott 1998), orga-
nizations continuously adapt to their environments
(Joyce, McGee and Slocum 1997; Baum and Rowley
2002). This adaptation creates uncertainty because the
environment is mainly outside the control of the orga-
nization (Thompson 1967). Our observations point out
that for cases characterized by economies of scale and
process, supply market uncertainty is rather low, whereas
for cases of economies of information the constant
search for alternative suppliers, the lack of supply market
transparency and the low familiarity with suppliers
makes preplanning difficult and requires extensive in-
formation-processing among purchasing units.
Conclusion 2. The higher the uncertainty induced by
supply environment characteristics, the higher the need
for integration mechanisms with high information pro-
cessing capacity.
Further research could examine how companies design
and implement dedicated systems and structures within
their global sourcing organizations to scan and monitor
their supply environments, addressing the varying levels
of uncertainty discussed in this paper. Herein, interesting
aspects lie also in the questions of whether these systems
depend on the size of the company, as well as the variety
of supply markets the company has to consider.
Finally, interdependence among organizational units is
highly significant in creating integration needs. For
Tushman and Nadler (1978), interdependence refers tointerdependence of the functions, but in the global
sourcing context it refers to the interdependence of the
purchasing units distributed across locations. While cases
characterized by economies of scale and information
have reciprocal interdependence among purchasing
units, the cases characterized by economies of process
are characterized by pooled interdependence. As elabo-
rated, reciprocal interdependence is a more complex type
of interdependence, creating higher task uncertainty
(Thompson 1967).
Conclusion 3.The higher the reciprocal interdependenceof purchasing units, the higher the need for inte-
gration mechanisms with higher information processing
capacity.
In further research, it could be studied in more detail how
reciprocal interdependence affects global sourcing decision
making. Questions arise as to whether there is some kind
of optimal degree of reciprocal interdependence, and how
such a state could be determined. Also, how the transition
process from a central or decentral organization to a hybrid
one can be managed, taking into account reciprocal inter-
dependence, is an interesting question.
Based on the discussion above, it can be summarizedthat three contingencies (1) category characteristics,
(2) supply environment characteristics and (3) reciprocal
interdependence of purchasing units influence the
level of uncertainty faced by global sourcing organiza-
tions, and in turn affect the level of information pro-
cessing requirements. Effective management of the global
sourcing organization requires the implementation of
different types of integration mechanisms to respond to
these information-processing needs. When information-
processing needs are high, complex lateral mechanisms
are required. In the case of low information processing
requirements, the organization can do well with simple
vertical mechanisms.
A particular contribution of this paper to information
processing theory lies in elaborating on its understanding
of interdependence. By transferring this contingency to
the context of global sourcing, the understanding has
been extended beyond the interdependence of functions,
to the current reality of geographically dispersed func-
tional units in a globalized business environment. We
expect that this interpretation could be taken on in a
variety of future research approaches, studying diverse
realms of application (e.g., globally dispersed production
sites or sales).
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More theoretical and empirical research on integration
in the global sourcing context is needed. The theoretical
propositions developed in this paper require empirical
testing. Future research on these propositions could ad-
dress the viability of various configurations of integration
mechanisms, complementing the mostly descriptive re-
search in the area. Also, the headquarters-perspectivetaken in this paper when collecting empirical data could
be complemented with data collection at the subsidiary
level, in order to point out potential differences in cross-
subsidiary integration patterns. Finally, it would be in-
teresting to analyze organizational design phenomena in
the global sourcing context from different theoretical
perspectives. In particular, the resource dependence per-
spective offered by Salancik and Pfeffer (1978) is a com-
peting viewpoint in the organization design field and
could provide alternative explanations for our findings.
The presented findings have important practical impli-
cations for companies and supply managers dealing withglobal sourcing. First, the results suggest that as compa-
nies design their global sourcing organization they need
to follow a category-based approach: Different categories
require different ways of integration even within the same
firm. Second, depending on the peculiarities of a category
and the particular synergy potential to be exploited, a
template for structuring the global sourcing organization
has been brought forward. Third, the results emphasize
that global sourcing is not only about pooling volumes by
centralization to attain high cost savings. An effective
implementation of global sourcing also generates high
value by exploiting economies of information and
learning, and economies of process. Fourth, our findingsillustrate that for effective global sourcing, companies
need to gain access and commitment of local sites. By
providing these insights as well as a concrete template we
hope to enable managers to take these considerations
into account deliberately when designing and managing
global sourcing organizations.
In an increasingly globalized environment, achieving
global integration of dispersed functional units becomes a
rewarding, albeit challenging task. As was highlighted
throughout this paper, understanding the influences be-
hind varying requirements for information processing
capacity is essential. By matching these requirements with
suitable vertical and lateral mechanisms, the MNC can
become more than the sum of its organizational units.
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Gerhard Trautmann (Dr., European Business School,
Germany) is a consultant at Siemens AG in Munchen,
Germany. Dr. Trautmanns research interests include
global sourcing, organizational design, offshoring and
performance measurement.
Virpi Turkulainen (D.Sc.,Tech., Helsinki University ofTechnology) is a senior researcher in the department of
industrial management at Helsinki University of Tech-
nology. Her interests include organization design and
theories as well as global operations. More specific re-
search topics have covered organizational integration in
the cross-functional, global sourcing and global opera-
tions contexts, as well as plant location decisions and
global operations strategies. Dr. Turkulainens current
projects include various topics related to organization
design, management of global operations and emerging
business models as well as High Performance Manufac-
turing research. She will be a visiting researcher at Stan-
ford University in 2009.
Evi Hartmann(Dr. Ing., Technical University Berlin) is
an assistant professor for purchasing and supply man-
agement at European Business School in Wiesbaden,
Germany. Her research on purchasing strategy and or-
ganizational design, offshoring, global sourcing and
service procurement has been published in Journal of
Purchasing and Supply Management,Journal of International
Management,International Journal of Production Economics,
Journal of Customer Behavior, Journal of Business Economicsand other managerial and academic outlets.
Lydia Bals(Dr., European Business School, Germany)
is senior consultant at Bayer Business Consulting, Ger-
many. Simultaneously, Dr. Bals is a visiting scholar at
Copenhagen Business School, Center for Strategic Man-
agement and Globalization (SMG) in Denmark. She has
made research visits to the Wharton School at the Uni-
versity of Pennsylvania and Columbia Business School at
Columbia University. Her research interests include glo-
bal sourcing, offshoring, sourcing of services and early
internationalization. She has published in Journal of
Purchasing and Supply Management, Swiss Journal of Busi-ness Research and Practice, Journal of Business Economics,
Journal of International Management and International
Journal of Production Economics.
Journal of Supply Chain Management