SOURCING STRATEGY · SOURCING STRATEGY ‘Factors that play a role in defining the sourcing...

‘Defining sourcing strategy for ‘operations’’

SOURCING STRATEGY

‘Factors that play a role in defining the sourcing strategy from an operations management view’

Master thesis Business Administration, Change Management

University of Groningen Faculty of Management and Organization

Master Change Management

In association with

G.M. Brink Student number: 1503952

Rhonestraat 45 8226 MJ Lelystad

06-52652816; 0320-844663 [email protected]; [email protected]

Internal supevisor: B. Emans

KPMG P. Damen ; M. Kooper

Burgemeester Rijnderslaan 10-20 1185 MC Amstelveen

020-656 7890

G.M. Brink, August, 2006

mailto:[email protected]

mailto:[email protected]


DEFINING SOURCING STRATEGY: ABSTRACT

Sourcing, which is one of the latest trends in organizational strategy, can generate lower costs and higher quality.

However, realizing that, good configuration and coordination too choose between the different sourcing options;

offshoring, outsourcing and shared service centers (SSC), is necessary. Next to that, sourcing of ‘operations’ plays

a much larger role in sourcing issues than in previous years. It will therefore be investigated; ‘how a sourcing

strategy for ‘operations’ is defined and which factors play a role when formulating this strategy’. According to the

three interviews and respondents of two questionnaires, it can be determined that internal process characteristics,

external factors and change management implications, which all three are used for the research-concept, indeed

play a role in the sourcing strategy for ‘operations’. The process characteristic ‘volume’ is the largest internal role-

playing factor and determines the reasons for a choice between a SSC and outsourcing. Next to that, the external

factors, ‘legislation’ and ‘technology’ determine the reasons for the same choice. Offshoring is conversely a

sourcing option that is not well known yet. Therefore more research is still necessary. Furthermore it showed that

resistance, competencies necessary and needed expertise, are not decisive, comparing these factors to the process

characteristic and external factors. However, the choice between the three sourcing options does have influence on

‘consultant’s role’, ‘planning’, ‘leadership’ and ‘focus’ of the change resulting from the choice. Defining sourcing

strategy for ‘operations’, which includes all above mentioned factors, is mainly done by higher- and middle-

management.

Key words: Sourcing, operations management and change management.

Research theme: Defining sourcing strategy for ‘operations’

1st and 2nd evaluators: B. Emans and M. Bergervoet

Word count abstract: 246

G.M. Brink, August, 2006 2


TABLE OF CONTENT CHAPTER 1: INTRODUCTION 6

1.1 SOURCING 6 1.1.2 Other empirical research 6 1.1.3 Sourcing cycle 7

1.2 STEP ONE OF THE SOURCING CYCLE: DEFINING SOURCING STRATEGY 8 1.3 SOURCING AND OPERATIONS MANAGEMENT 8

1.3.1 SSC 9 1.3.2 Offshoring 9 1.3.3 Outsourcing 9 1.3.4 Operations management 10

CHAPTER 2: OPERATIONS AND DEFINING SOURCING STRATEGY 11 2.1 FACTORS RELATED TO SOURCING STRATEGY FORMULATION FOR ‘OPERATIONS’ 11 2.2 INTERNAL PROCESS CHARACTERISTICS 12

2.2.1 Volume 13 2.2.2 Variety 13 2.2.3 Variation 13 2.2.4 Visibility 13

2.3 EXTERNAL FACTORS 14 2.3.1 Competitors 15 2.3.2 Technology 15 2.3.3 Legislation 15

2.4 CHANGE MANAGEMENT IMPLICATIONS 16 2.4.1 Leadership 17 2.4.2 Consultant’s role 18 2.4.3 Focus of change 18 2.4.4 Planning 18

2.5 CHANGE MANAGEMENT AND SOURCING 19 CHAPTER 3: RESEARCH METHODS 20

3.1 QUESTIONNAIRE A 20 3.2 QUESTIONNAIRE B 20 3.3 PERSONAL INTERVIEWS 21

CHAPTER 4: RESULTS 22 4.1 RESEARCH 22 4.2 INTERNAL PROCESS CHARACTERISTICS 23 4.2 EXTERNAL FACTORS 24 4.3 DECISIVE FACTORS 25 4.4 CHANGE MANAGEMENT IMPLICATIONS 26 4.5 PLANNING, LEADING AND IMPLEMENTATION OF SOURCING OPTIONS 27

CHAPTER 5: CONCLUSIONS 29 5.1 RESEARCH 29 5.2 INTERNAL PROCESS CHARACTERISTIC 29 5.3 EXTERNAL FACTORS 30 5.4 DECISIVE FACTORS 31 5.5 RESISTANCE, EXPERTISE AND LEADERSHIP 31 5.6 FOCUS, LEADING AND PLANNING 31

5.6.1 Outsourcing 31 5.6.2 SSC 32 5.6.2 Offshoring 32

5.7 SOURCING STRATEGY 32



CHAPTER 6: RECOMMENDATIONS AND LIMITATIONS 34 6.1 LIMITATIONS 34 6.2 FURTHER RESEARCH 34

LIST OF DEFINITIONS 35 REFERENCE LIST 36



LIST OF TABLES AND FIGURES

Figure 1.1 Sourcing life cycle, adjusted KPMG 1, 2005 7

Figure 1.3 Overview of sourcing options - Adjusted KPMG 1, 2005 10

Figure 2.1 Framework of operations and role-playing factors. 12

Figure 2.2 Dimensions of operations management 14

Figure 4.1 Contribution of ‘operations’-sourcing to organizational objectives 22

Figure 4.2 Criteria for ‘operations’ 22

Figure 4.3 Specific sourcing strategy 23

Figure 4.4 Role of the four V’s on the sourcing strategy 23

Figure 4.5 Internal process characteristics and the three sourcing options 24

Figure 4.6 External factors and the choice for the three sourcing options 25

Figure 4.8Relation between decisive factors and sourcing option chosen 26

Figure 4.9 role-playing factors 26

Figure 4.10 Role of change management elements 27

Figure 4.11 What kind of role play change management implications 27

Figure 4.12 Interview quotes concerning planning,focus and leadership of the sourcing options 28

Figure 5.1 internal profile outsourcing 30

Figure 5.2 internal profile SSC 30

Figure 5.3 external profile outsourcing 30

Figure 5.4 external profile SSC 30



CHAPTER 1: INTRODUCTION

In today’s competitive world, organizations are seeking for methods to stay ahead of their competitors and to

reduce their costs to stay in business (Kotabe and Murray, 2004 ; Trent and Monczka, 2002). When ‘firms want to

outstand they must implement strategies to achieve cost reduction, quality and delivery improvement’ (Trent and

Monczka 2002). Barney (1991) partly agrees on this by saying that a firm possesses sustained competitive

advantage when it adopts a strategy that is not simultaneously being implemented by any current or potential

competitors and when these other firms are unable to duplicate the benefits of this strategy. This can imply that a

strategy is necessary to gain competitive advantage and to reduce costs. Next to that in today's competitive

environment, more than at any other time in history, continuous improvement is necessary (Trent and Monczka,

2002). As organizations search for new ways to gain competitive advantage and are trying to continuously

improve themselves, the development of new strategies and approaches becomes an increasingly attractive option

(Kotabe and Murray, 2004). In other words, organizations want to enhance their performance and gain

competitive advantage by using new ways. Sourcing is seen by many organizations as a solution to improve this

competitive advantage by enhancing organizations’ financial and operational performance and in that way staying

ahead of their competitors (Huibers and Schut, 2006). This because with effective sourcing, organizations can

generate lower costs and higher quality products or services (Roe, 2005). Sourcing is therefore one of the most

popular trends in organizational strategy of the last decade (Roe, 2005; Strikwerda, 2005).

1.1 Sourcing

Sourcing generally refers to those decisions determining how components will be supplied for production and

which production units will serve which particular markets. Multinational firms have been pursuing integrated

sourcing to a greater extent than before because such an operation allows them to exploit their competitive

advantages (Kotabe and Murray, 1990). Sourcing can, next to the above, be defined as ‘the reorganization of

tasks, functions and services of an organization, whereby the more effective managing of organizational and

operational processes is the main issue (Huibers and Schut, 2006).

Huibers and Schut (2006) also state that ‘with sourcing, organizations can manage their operational and

organizational processes more effectively’. This can be done internally, externally, national or international.

Sourcing can be done by concentration of activities, by transferring the execution of services or processes to an

external party or by the transferring business activities abroad. In other words sourcing can have many forms

depending on the organization it is applied to. Three of the main sourcing options that can be applicable for

organizations to enhance their competitive advantage are: shared service centers (SSC), outsourcing and

offshoring.

1.1.2 Other empirical research

Because sourcing becomes more and more a trend in the last decade, the configuration and coordination necessary

for a successful choice between the different sourcing options and strategies have received an increasing amount

of research attention (Kotabe and Murray, 2004). Most of the recent research on ‘sourcing strategy’ has dealt with



various managerial issues, ranging from structural complexity to operational complexity of international sourcing

(Kotabe and Murray, 2004). Next to that the different sourcing options are discussed and investigated only from

the perspective of that sourcing option, such as SSC (Strikwerda, 2005) and outsourcing (Hoogenveen, 1994;

corporate finance). However, there is no empirical study that shows how sourcing options are selected from the

viewpoint of operations management. Next to that, no empirical research is done to investigate which factors play

a role between the choice of the different sourcing options of the viewpoint of operations management.

1.1.3 Sourcing cycle

As seen in the explanation of sourcing and the many investigations that are done on sourcing, which by far not

cover all issues related, sourcing can be classified as complex. To keep some overview in this complex process,

sourcing can be approached as a structured process; from formulating the sourcing strategy to evaluating the daily

processes that are connected. Clearly explaining sourcing, six steps can be identified, which together are the

‘sourcing life cycle’ (KPMG 1, 2005). See figure 1.1.

In the first step, sourcing approach, the possible sourcing project needs to be clearly aligned with the business

strategy to aid effective decision-making throughout the project lifecycle. This strategic alignment should assist in

ensuring that the required sourcing benefits are achieved and that any risks to realizing outsourcing benefits are

effectively managed. The main aspects that need to be done at this stage are, the development of a sourcing

strategy that considers the various sourcing options; the development of a business case examining the reasons for

and benefits for sourcing; the consideration of other factors, such as proposed staffing models and outsourcing

locations; and identification of critical success factors for the project.

In step two of the life cycle model, the sourcing

preparation phase, the detailed planning occurs.

During this stage, the objectives of the sourcing

project are identified; the risks and constraints

are identified and plans put in place to mitigate

these risks; and the business processes that are to

be affected by the sourcing project are

documented. In short this means that during the

second step, the future operating model is

defined and a project plan is developed.

1

2

3 4

5

6

Figure 1.1 Sourcing life cycle, adjusted KPMG 1, 2005

Sourcing selection, which is the third step, involves detailed processes surrounding analysis, selecting the most

suitable supplier. In this step also the structure-selection process is performed. This step is followed by step four,



transition management, which is the process of moving from the current state to the complete implementation of

the outsourcing solution. It involves transition of people, process and technology. This step includes risk, change

management and implementation plans of the project.

During the delivery management phase, step five, ongoing delivery of the sourced service occurs. The tasks

performed in this step depend upon the services that have been outsourced. However, a number of key processes,

like service level- , financial- , capacity-management and service continuity are generally performed.

The last step of the sourcing life cycle, the service evolution phase, refers to those tasks that are intended to

improve or evolve the level of service that is provided, including the exit process. In short this step involves

process performance improvement.

1.2 Step One Of The Sourcing Cycle: Defining Sourcing Strategy

Looking at step one of the sourcing cycle (figure 1.1), it can be seen that defining the sourcing strategy is part of

this step. Sourcing strategy, in this case, can be defined as the direction, scope and timeframe an organization

gives to the arrangement and grouping of tasks. This definition will be used in relation to the three main sourcing

options; outsourcing, offshoring and SSC. The strategy gives insight in, the backgrounds, objectives, what needs

to be achieved and gives insight in a thorough assessment of the sourcing options.

In all sectors, organizations are, discussing new initiatives to concentrate activities or contracting out activities to

other organizations national or international (Huibers, et al, 2005) and thus discussing the sourcing strategy. These

initiatives involve not only supporting processes (as finance or IT), but also ‘value adding’ processes, because

sourcing issues are coming closer to the heart of the organization in the last years. This means that ‘operations’, in

which value adding processes take place, plays an increasingly important role in sourcing issues. However, as said

before, little attention is paid on specific sourcing issues from the viewpoint of operations management. Therefore

a closer look will be paid to this specific part of sourcing, which is part of step one of the sourcing cycle (figure

1.1). Investigating this area, also a link can be made to step two of the sourcing cycle, while in this step the

business processes that are to be affected by the sourcing project are documented. Taking this altogether it will be

investigated ‘how from the viewpoint of operations management a sourcing strategy is defined and which factors

play a role when formulating this strategy’. In figure 2 this question is presented graphically.

1.3 Sourcing And Operations Management

Before the above mentioned question can be investigated more in detail, the main sourcing options, offshoring,

outsourcing and SSC, will be explained first. Although there are many forms and combinations of these sourcing

options, only the main three will be used in this research. Next to that the basics of operations management, which

is necessary to deal with the research question, is explained as well.



1.3.1 SSC

Operations mangement

Sourcing strategy: • Outsourcing • Offshoring • Shared service

center

A shared service center is a result responsible unit within the

internal organization, which has as task to deliver services, based

on a specialization, to the operational units of that organization,

based on a standard price (Strikwerda, 2005). Organizations can

also jointly lead a SSC (ex. a joint venture). Another definition of a

SSC given by KPMG (2, 2005) is ‘the consolidation of common

functions, systems, processes and personnel across several

business units into an internal service bureau, managed as an

independent organization. As Strikwerda (2005) says ‘the interest

of the SSC is the interest of the group of organizations the SSC is

in’.

Figure 1.2 Operations level and sourcing strategy.

In short it is believed that organizations make use of SSC to reduce costs and to enhance quality of internal and

external services. Next to that KPMG (2, 2005) identified that organizations choose for an SSC when, complete

control of processes is desired, relevant competencies (like staff and technology) are owned and when

organizations want to generate long term benefits. A risk however, is the one-sided view on cost reduction

(KPMG 1, 2005).

1.3.2 Offshoring

Offshoring can have two forms. First of all, outsourcing business activities to another country, but keeping

control, is called ‘captive offshoring’. Next to that, outsourcing business activities to a third party in another

country is called ‘offshore outsourcing’. Although there are two types, it can be identified as one single group:

offshoring. (International financial services, 2005 London). Offshoring can be defined as the allocation of (IT

enabled) processes to be managed by an internal/external service provider at a remote location, i.e. at centers in

countries outside the originating location (KPMG 2, 2005).

Cost reductions together with reason such as increasing flexibility, following customers/suppliers and entering

new markets are the most important motive for organizations to offshore activities (Van Gorp, 2005).

1.3.3 Outsourcing

Outsourcing can be defined as a ‘long-term, results-oriented relationship with an external service provider for

activities traditionally performed within the company’ (KPMG 2, 2005). Not being interested in operational

control and the desire to generate short-term benefit are two reasons why organizations outsource (KPMG 2,

2005). Next to that outsourcing is used to simplify processes and to lower, share or transfer the risk where it can

best be managed.



In short an overview of the reason to outsource, offshore or to make a SSC can be found in figure 1.3.

Organization wants to complete control of process Cost reduction Enhance quality of internal and external services Generation of long term benefits Organization owns relevant competencies

SSC

Reduce unit costs Focus not on core competence processes Focus management time on core business Simplify processes Lower or share risk or transfer it where it can be best

managed

Outsourcing services

Retain or enlarge market position Focus on core competencies Cost reduction

Off-shore services

Figure 1.3 Overview of sourcing options - Adjusted KPMG 1, 2005

1.3.4 Operations management

All types of organization must ‘do’ operations management because all organizations produce some mixture of

products and services (Slack, 2001). Next to that ‘operations’ is an important part of the organization; the

decisions made in operations have a major impact on both the cost of production and delivery, which has in turn a

major impact on the revenue coming into the organization. Furthermore operations management has strategic

importance; an organization can have strategically success because of the way it manages its operations (Slack,

2001). The definition used in this research for ‘operations’ is; ‘the part (or activities) of the organization that

deliver products and services. This part executes the added value activities (Huibers, 2005). Operational level is in

this case the organizational layer in which operations is placed.

Note that the term ‘operations’, will be used in the following part of this research to cover that part of the

organization where added value activities take place and where the operation’s strategy is defined.



CHAPTER 2: OPERATIONS AND DEFINING SOURCING STRATEGY

Defining strategy and strategic decisions depend on a large number of factors. First of all, the vision and mission

of the organization plays a role, as well as the resources and stakeholders (Johnson and Scholes, 1999). Defining a

sourcing strategy also involves these factors (Huibers, 2005), but is then connected to the choice between SSC,

offshoring and outsourcing. Formulating a strategy from the viewpoint of operations management depends not

only on external factors but also on stakeholders, resources and processes (Johnson and Scholes, 1999). In other

words, the following three factors play a role in the strategy formulation for ‘operations’:

• Factors related to the internal process,

• Factors related to external events and,

• Humans’, participating in the process the strategy involves.

That the first two are role-playing factors is also stated by Slack and Lewis (2002); they say that ‘the objective of

an operations strategy is to reconcile market requirements with operational resources’. Next to that the operations-

strategy formulation process can be market-led (Platts and Gregory, 1990) or resource-based (Barnes and

Rowbotham, 2003). In other words both internal and external factors are important. The term internal or external

factors can be used for many different issues; therefore in the coming part of chapter two, these factors are

specified and linked to sourcing strategy.

The third factor; stakeholders, involves, according to Roe et al. (2005), the human resource aspect, impact on

employees, unwillingness to change and how this change, that follows from the (new) strategy, is led. Changes

within the organization that occur because of the operational strategy are often related to resources, culture and

expertise (Johnston and Scholes, 1999). In other words, many of these factors are related to human resource

aspect, culture, which are according to Burnes (2004), part of change management. Also in the book written by

Beer and Nohria (2000) many of these issues are described and argued as ‘change’ implications. Therefore this

last factor, that plays a role in formulating an ‘operations’ strategy, will be called ‘change management

implications’. In the coming part of chapter two, also these change implications are further specified and linked to

sourcing strategy.

2.1 Factors Related To Sourcing Strategy Formulation For ‘Operations’

In the previous paragraph the factors that play a role in ‘operations’ strategy formulation can be found. Looking at

the research question, a nuance must be made, because it is about the factors that play a role in the sourcing

strategy for ‘operations’ that will be investigated. It is known that the definitions of ‘sourcing strategy’

formulation and ‘overall-strategy’ formulation both include ‘the direction, scope and timeframe of an

organization’ and both ‘give insight in the backgrounds and objectives’. However, ‘sourcing strategy’ is only

related to the three main sourcing options, outsourcing, offshoring and SSC. Conversely, both definitions can be

linked to the same ‘operations’ definition. Therefore, the factors that relate to, internal processes, change

management implications and external events, may also play a role in the sourcing strategy formulation for

‘operations’. To investigate more thoroughly if this is indeed the case, all role-playing factors, given in the



previous paragraph, are explained more extensively and linked to sourcing, in the following paragraphs. An

overview of the mentioned role-playing factors is given in figure 2.1.

‘Operations’

Internal proces characteristics

External factors

Change management implications

Sourcing strategy: • Outsourcing • Offshoring • Shared service

centers

Figure 2.1 Framework of operations and role-playing factors.

2.2 Internal process Characteristics

In the beginning of this chapter it is argued that internal factors related to the process, play a role in strategy

formulation for ‘operations’. As explained in paragraph 2.1 there might be a relation between these factors and

sourcing strategy formulation for ‘operations’. To investigate this, internal factors for ‘operations’, or in other

words process characteristics, are explained more extensively.

Operations in different organizations differ on four main points; volume, variety, variation in demand and

customer contact (Slack, 2001). These four main points are called the process characteristics of organizations’

processes. Only a well understanding of these processes makes an effective operations strategy possible (Barnes

and Rowbotham, 2003).

With volume it is meant how many products or services are made by the organization. Variety means how many

different types of products or services are made. With variation the change in the level of demand over time is

meant. The last point customer contact or ‘visibility’ means how much of the ‘operations’ processes are ‘exposed’

to its customers, or in other words, how many contact with the customer is necessary.



2.2.1 Volume

Looking at the definitions of the sourcing options, given in the introduction, it can be seen that concentration of

product or services is one of the characteristics of a SSC (KPMG 1, 2005). Concentration has in its turn to do with

the volume of produced products or services. This can be one reason that volume is a factor that influences the

choice between the sourcing options. Next to that, looking more closely to offshoring, which means in short

‘taking the process(es) abroad’, volume might play a role in actually remove or keep processes. However not

much is written about this and therefore more investigation is needed.

2.2.2 Variety

An organization can differ in variety which has to do with the flexibility (Slack, 2001) of the organization. Many

different products can mean a different schedule of production and more complicated sub-processes than when

fewer products are produced. This can than have an effect on the choice between the sourcing options. Next to that

variety can be an important factor because this determines whether a process can be easily standardized or not.

Standardization can be linked to the choice for outsourcing or SSC (figure 1.3).

2.2.3 Variation

Variation in demand can be linked to personnel and purchase planning. According to Slack (2001), a high

variation in demand can bring difficulties with both personnel and purchase planning. This has to do with the

predictability of the production. Predictability can in its turn be linked to standardization and cost reduction. These

two objectives can again be found in figure 1.3 which shows the reasons for the three sourcing options.

2.2.4 Visibility

The degree of customer contact, another word for visibility, can first of all be linked to offshoring. When no

customer contact is involved it may be easier to bring the processes abroad then when your customers need to visit

the production site. Next to that, visibility can also be related to cost reduction; when more sub-processes with

high customer contact are performed by the same department (SSC) costs can be reduced. This can also increase

the quality, which is again one of the reasons to choose between three sourcing options (figure 1.3). This can

therefore imply that visibility also plays a role in the choice between the sourcing options.

In the above paragraphs it is implied that volume, variety, variation and visibility are role-playing factors when

formulating a sourcing strategy for ‘operations’. To know if these process characteristics indeed play a role, and to

know what kind of role they play, the following question is stated.

Question (1): How do the characteristics; volume, variety, variations in demand, and visibility play a

role in the choice between offshoring, outsourcing and SSC on operations level?



In other words, it will be investigated how the process characteristics play a role in defining the sourcing strategy.

This includes which factors are more important for offshoring, outsourcing or SSC. This can then be linked to an

operations profile that can be made according the four main dimensions (see figure 2.2).

2.3 External Factors

When formulating operations strategy, not only the

internal proces characteristics are important. Slack

(2001) states that ‘Operations managers have some

responsibilities in the organization which contribute

to effective production and one of these

responsibilities is to respond to the emerging

challenges for the future’. This may imply that also

for ‘operations’ an outside-in perspective needs to be

used, which means an analysis of the external factors.

Next to that some authors state that it is dangerous

when only one view, external or internal, is applied.

Figure 2.2 Dimensions of operations management From an internal perspective it is difficult to see the

external opportunities and correct market positioning. Therefore the danger is that ‘too much time, effort and

money is wasted in the wrong areas of little importance’ (Russell, 1999). Market positioning must take place

within the context of the broader resource based strategy and not contradict the main thrust of the firm. This

means that the selected market positions must leverage the existing resource base and not ignore it (Wit and

Meyer, 2004). Shortly stated; ‘formulating a funded strategy involves reconciling the often conflicting pressures

of market requirements (external analysis) and operations resource capabilities (internal analysis)’ (Slack, 2001).

This means that besides the internal process characteristics also external factors are important when defining a

sourcing strategy for ‘operations’.

As Burnes (2004) says ‘one of the approaches to strategy is to align the organization to the environment’, which

means that the environment can have influence on strategy formulation. Next to that, Burnes (2004) says that

industry structure strongly influences the competitive rules of the game as well as the range of strategies open to

the organization. Linking this back to sourcing strategy, the strategies that are open to the organization are already

limited to the three souring options; offshoring, outsourcing and SSC. This may imply that only a few external

factors are important to when formulation sourcing strategy. Next to that not much is written about the influence

of external factors on sourcing-strategy formulation or, in particular, sourcing strategy formulation for

‘operations’. Therefore the most important external factors that might be important in sourcing-strategy

formulation will be explained more extensively.



2.3.1 Competitors

‘Operations’ is defined as the activities of the organization that deliver products and services and executes the

added value. The mix of resources that organizations use to produce this added value is never the same as their

competitors (Burnes, 2004), because organizations consequently want to be heterogeneous of their competitors to

distinguish themselves. The core competence, which is called the process that makes the organization unique, or

in other words ‘added value’, makes that real competitive advantage comes from the ability to produce at lower

cost and speedily competitors (Prahalad and Hamel, 1990). This means that what competitors do, plays a role in

‘operations’. Next to that, because sourcing is one of the latest trends (Roe, 2005), it can also be important for an

organization to get involved with sourcing before competitors.

2.3.2 Technology

Technology as an external factor includes Internet, transportation, speed of technology transfer and new

developments (Johnson and Scholes, 2001). Linking this to the sourcing options, it can be seen that, when

activities that require regular contact are offshored, Internet and fast technology transfer need to be present. Next

to that, high technology means a high level of computerization, which means that people might be replaced for

machines and that centralization of systems is necessary. Looking at the sourcing options, centralization can be of

influence for the choice process. Next to that linking technology to ‘operations’, whole processes might change

because of technological or transportation developments. This implies that technology might be an important

factor for defining sourcing strategy for ‘operations’.

2.3.3 Legislation

Employment law, environmental rules and national legislation can all have their impact on an organization

(Burnes, 2004). Organizations might be especially concerned with (inter)national legislation, when there are plans

for (re)place organizations activities outside the country (Johnson and Scholes, 2001). Replacing activities inside

or outside organizations is one of the essentials of sourcing (Huibers, 2005). Next to that national legislation may

differ from place to place, which can have impact in employee or environmental regulation. Therefore

‘legislation’, which covers employee law, environmental and national rules, may play an important role in the

sourcing strategy formulation for ‘operations’.

The above mentioned external factors are expounded and linked to a role-playing factor in the sourcing strategy

formulation process. However no empirical research has been done to verify if these factors actually play a role in

real practice. Therefore the following question is stated:

Question (2): How do the external factors; technology, rules and regulations and competitors play a role

in the choice between offshoring, outsourcing and SSC for ‘operations’?

Both external factors and internal process characteristics are explained and may play a role in the sourcing

strategy formulation process. Next to that it is exactly the mix of both factors, which is important in strategy



formulation (Russel, 1999 ; Slack, 2001 ; Wit and Meyer, 2004). Although it can be grounded that as well internal

factors as external factors are important it is not clear which are more important and which are decisive. Therefore

question three is asked. Note that with internal factors, mentioned in question three, the internal process

characteristics are mend

Question (3) Which factors, external or internal, are decisive for the choice between a SSC, offshoring or

outsourcing?

2.4 Change Management Implications

As explained in the beginning of this chapter, also change management implications may play a role in the

strategy formulation for ‘operations’. Strikwerda (2005) agrees and states that the ‘process of sourcing involves a

process of change management’ (Strikwerda, 2005). Next to that, comparing the following statement of

Strikwerda (2000), who states that ‘implementing a sourcing option means a change in habits, relations and

political relationships’ to the statement of Burnes (2004), who states that ‘politics, power, norms, values and

habits are very important elements in change management’, it can be said that elements from change management

are present in the sourcing process. In other words, when an organization is planning to source the organization is

making plans for change, which includes different change management implications.

Many change implications are described by different writers. Beer and Nohria (2000) combined the views of

different writers and identified leadership, focus, planning, consultant’s role, purpose and motivation as the main

change management implications. Beer and Nohria made a thorough assessment of organizational change

dimensions and combined different views (Strikwerda, 2002). Therefore the change management implications

they discuss are used in this research as a guideline to investigate which change management implications may

play a role in the sourcing strategy formulation.

Next to the role these change management implications play in the sourcing strategy formulation for ‘operations’,

Beer and Nohria also describe some dichotomy’s between these implications. They divide these implications

within two different approaches that exists within theories about organizational change; ‘Theory O’ and ‘Theory

E’ (see figure 2.3). The former focuses on organizational capability driven change. Hereby development of high-

commitment culture is emphasized and change initiatives are driven from bottom up, by means of high

involvement. The latter approach, focuses on economic value driven change and shareholder value, whereby

focusing on formal structures and systems is important. Change initiatives are driven from the top with help of

consultants and financial incentives.

Looking more closely to the dichotomy’s (figure 2.3), it can be seen that, different changes may be implemented,

leaded, and planned via the different theories. Although much is written about these theories and the different

changes, no empirical research has been done between these theories and the different sourcing options.



Objective Theory E Theory O Leadership Top-down Participation Consultant’s role Knowledge driven Process driven Focus Structure Culture Planning Planned Emergent

Therefore, both the change management

implications that may influence the sourcing

strategy formulation for ‘operations’ are

explained more extensively and the different

dichotomy’s (figure 2.3) are explained to be

able to link there to the different sourcing

options. Figure 2.3 Dichotomy’s in change management

2.4.1 Leadership

Change management traditionally focuses on identifying sources of resistance to change and offered ways to

overcome them (Cummings and Worley, 2001). Resistance occurs because changing the formal organization will

be painful. It changes, or the people involved will think it changes, the status and power-position of managers, the

old and engraved routines. Next to that it exposes inefficiencies and there will always be the contingency of the

new situation (Strikwerda, 2005). One of the aspects that deals with reducing resistance is participation (Beer and

Nohria, 2000). Employee participation is a generic approach to reduce resistance (Kreitner et al, 2002). Most of

the time employees are less likely to resist when they perceive that the benefits of change overshadow the

personal costs. However, in spite these positive statements about participation and the reduction of resistance,

others criticize the tendency to treat participation as a cure-all for resistance to change. ‘A contingency approach

is preferred because resistance can have many forms and because situational factors vary’ (Kreitner et al, 2002).

This dilemma of participation or no participation, can be called the dichotomy of top-down and bottom-up

leadership, also indicated by Beer and Nohria (2000).

Implementing one of the sourcing options can include a change in personnel that includes job losses (Huibers,

KPMG1, 2005). Next to that, outsourcing can include more than only economic impacts; it can include

unwillingness to change, lack of commitment and impact on employees (Roe, 2005). Because involving

employees and increasing the lack of commitment can be done by participation, e.g. leading the change bottom-

up, the above can imply the leadership of change can have influence on sourcing strategy formulation.

Next to that, it is not researched yet how to lead the change when it involves a particular sourcing option. Change

can be led top-down or bottom-up (Beer and Nohria, 2000). Conger (2000) argues that, because of the nature of

today‘s organizational change, effective change begins at the top. No other approach can make the change process

succeed successfully, this because small departments who want to lead the change (from bottom up) cannot see

the consequences for the total company. Another explanation is that reinvention of this kind can involve a change

in company strategies and organizational architectures which can only be adapted by senior leaders while they

have the ‘overview of the organization’. On the other side Bennis (2000) argues that top-down leadership is

unrealistic and dangerous, because there are too many problems that need to be solved and identified. Next to that

he states that changes cannot be done without willingness and commitment of lower employees. This is what

Burnes (2004) refers to as ‘successful change is a bottom-up, emergent, response to change.



2.4.2 Consultant’s role

Carefully analyzing the strategic possibilities and making the choice between the sourcing options, makes that a

thorough assessment of the organization and related business know-how are necessary (KPMG 2, 2005).

Consultants that give advice about strategic options and change are most likely to have that business know-how

and expertise to make a thorough analysis. Miles (2000) states that, next to the role described above, consultants

are concerned about the assessment and development of employee competencies to achieve the desired level of

performance. Looking at the definitions of the sourcing options, it can be seen that competencies of employees

change when sourcing options are implemented. However the magnitude of change can differ. With a SSC (figure

1.3), the competencies needed for the new situation are most of the time already in-house, employees only need to

expand their special competencies. Next to that, offshoring may imply that jobs in the organization will disappear,

because business processes are moved abroad. This will then imply that employees will loose their job or need to

learn new competencies for other jobs. In other words different sourcing options need different changes in

competencies. Linking this to the above explained consultant role, the different sourcing options may need a

different role of expertise. Although some situations may require an expert, some organizations may not always

like the presence of a consultant because this can also result in a failure of the project (Schaffer, 2000) or because

it is too expensive. Therefore the consultant’s role, might play a role in the choice between the three main

sourcing options.

Next to that, for the ‘consultant’s role’ it is not researched what kind of expertise-role, consultants need to play

when it involves one of the sourcing options. Beer and Nohria (2000) made the distinction between an expert role

for a consultant or a process driven change. Besides the expert role, explained in the paragraph above, an

alternative, is a model based on a continuous series of rapid-cycle projects (Schaffer, 2000). This rapid cycle

model means that no matter how high and good the expertise of a consultant is, the real success can be found in

the organization’s implementation capability.

2.4.3 Focus of change

The focus of change can be twofold; it can be a structure approach or it can be a culture approach (Galbraith, 2000

; Leavitt, 1965). Galbraith (2000) argues that changing formal structures is central to the success of the overall

organizational process. Leavitt (1965) supports this view by saying that under some circumstances both a hard or

soft approach may be more central to the success of change. This means that structure can be the driver for change

when it is a key element for the organization. Hirschhorn (2000) does not agree with these statements, and

believes that organizational structure is abstract and does not exist. He argues that structure is a set of interlocking

relationships that people believe they have with one other; it is socially constructed. To attain increase in

performance, managers have to attend the organization’s culture.

2.4.4 Planning

The last dichotomy, used in this research, is planning of change. According to Choshal and Bartlett (2000) change

need to be carefully phased planned. In that way, changes in organizational hardware can be matched to the



behavioral software that has to change also. Opponents of the planned change say that in this way the change

cannot be aliened to the fast changing environment and propose the emergent approach (Weick, 2000 ; Lewin,

1999).

2.5 Change management and sourcing

Although much is written about the above mentioned dimensions, also discussed by Beer and Nohria, there is not

much literature on how to manage change processes that include sourcing. Next to that also no empirical research

has been done to the role ‘leadership’ and ‘consultant’s role’ actually play in the choice between the sourcing

options.

To research how the different change management implications influence the choice between the sourcing options

for ‘operations’, the following question is stated:

Question (4): How do the change management elements, leadership and consultants role, play a role in

the choice between offshoring, outsourcing and SSC for ‘operations’?

Next to this, the different dichotomies described (figure 2.3) imply that different changes need to be implemented,

leaded and planned in a different way. Because sourcing is also a form of change (Strikwerda, 2004 ; Burnes,

2004) this may imply that the different sourcing options need to be planned, leaded and implemented differently.

However, as said before, there is no empirical research that describes how different sourcing options need to be

planned, leaded and implemented. Therefore the following question is asked:

Question (5): How do offshoring, outsourcing and SSC need to be planned, leaded and implemented in

order to do this successfully?

Furthermore, managing change on operations level is one of the important factors in the total change process.

Johnson and Scholes (1999) support this view by saying ‘if change is to be successful it also has to link the

strategic, operational and everyday aspect of the organization. This emphasizes not only the importance of

translating strategic change into detailed resource plans, critical success factors and key tasks, but also ‘how

change is communicated through everyday aspects of the organization’ (Johnson and Scholes, 1999) or in other

words ‘operations’. Next to that the Chief Operating Officer, the highest person on operations level can influence

change in the entire organization (Parsons, 2004), which means that change is a valuable issue for ‘operations’

and that change implications need to be considered. Linking this back to the two research question 5 and 6, the

research will focus primarily on the change management implications that are of importance for ‘operations’.



CHAPTER 3: RESEARCH METHODS

To answer the questions stated in chapter two, data needs to be gathered. Two approaches can be used to gather

primary data; communication and observation (Cooper and Schindler, 2001). Communication, in the form of

personal interviews and self-administrated surveys (questionnaires), are used as methods for research.

3.1 Questionnaire A

To generate an answer on the first two research questions, that deal with the internal process characteristics and

external factors that can play a role in the strategy formulation for ‘operations’, knowledge and experiences of

people that deal with sourcing, or will be dealing with sourcing on the short term, need to be revealed. As said

before, Cooper and Schindler (2001) state that this can be done with questionnaires. With a questionnaire more

persons can be questioned than with interviews and the answers are, depending on the questions, more easily

standardized and categorized. The questionnaire that deals with research questions one and two is called

questionnaire A.

Questionnaire A is send to individuals that have a managerial function and knowledge about ‘operations’ in their

organization. Next to that the organizations need to be dealing with sourcing issues (in the near future). To be able

to send the questionnaire to this target group the database of KPMG business advisory services (BAS) is used. In

this database 550 organizations are listed that deal with sourcing issues (in the near future). The organizations are

mid-size to large-size organizations operating in the Netherlands and participate already in a monthly send

questionnaire of KPMG. Questionnaire A is part of this monthly send questionnaire. Before questionnaire A can

deal with research question 1-3, introductionary questions about sourcing will be asked, which may also justify

the total research about sourcing strategy.

First of all, from 51 employees of different organizations dealing with sourcing of ‘operations’, the contribution of

‘operations’-sourcing to organizational objectives, is measured. Next to that, criteria on which sourcing of

‘operations’ is determined, are measured with an open question. The last variable measured by questionnaire A is

the role of the internal process characteristics. The questions measuring this are build up from answers from ‘no

role’ to ‘decisive role’ in four steps.

3.2 Questionnaire B

Guidelines of the monthly send questionnaire of KPMG BAS make questionnaire A a more general questionnaire.

Therefore a more detailed and extensive questionnaire, called questionnaire B, is created. In this way research

questions 1-4, which deal with external, internal and change management factors that play a role in the sourcing

strategy formulation for ‘operations’, can be investigated more thoroughly. These questions also need to be

answered with knowledge and experiences of people that dealt with sourcing and therefore questionnaire B is send

to a select group of the target group of questionnaire A. Because this questionnaire is more extensive, it was asked

in a previous ‘monthly send questionnaire’ if these individuals wanted to participate in a more detailed research.



From 11 employees that have knowledge about sourcing of ‘operations’, the role of the internal process

characteristics in relation to the choice between a SSC, offshoring and outsourcing is measured. This is done with

statements about the reasons for outsourcing, offshoring and SSC. For example, there is stated ‘how larger the

volume, the more reasons there are for outsourcing’. This statement can then be answered with ‘totally disagree’

to ‘totally agree’ with four steps. Also the option ‘no opinion can be chosen’. The statement mentioned in the

above example is converted to every sourcing option and every internal process characteristic. Next to that, all

statements are also asked in the opposite form: ‘how smaller the volume, the more reasons there are for

outsourcing’, etc.

The same is also done to link the three external factors to the different sourcing options. In this case the variables

‘larger’ and ‘smaller’ are linked to the role ‘competitors’, ‘technology’ and ‘legislation’ play. Furthermore, to

know which factors are decisive, external or internal process characteristics, the answer of 11 employees that have

knowledge about sourcing of ‘operations’, is measured according to a closed ‘yes or no’ question. The question

about the decisive factors is extended with a question about the sourcing option chosen, to see if there is a relation

between the decisive factors and the sourcing option chosen.

Also the role of the change management implications (research question four) is measured with questions that are

build up from answers from ‘no role’ to ‘decisive role’ in four steps. Next to that, it is measured if organizations

have a specific sourcing strategy for activities for ‘operations’, with a closed ‘multi option’ question. Note that

questionnaire A and B are send in Dutch and simultaneously.

3.3 Personal interviews

With this face to face communication tool research question four and five are revealed and an assessment of the

answers of questionnaire A and B is discussed with the interviewee’s. In this way the indistinctness’s that

appeared after questionnaire A and B can be smoothed out. The individuals that conducted both questionnaire A

and B and that have extensive knowledge about all sourcing options are selected for the interviews. Next to that,

all interviewee’s have an ‘operations management’ function. In total three interviews are conducted and in all

cases the interview situation is anonymous. Information about the role that change management implications play

in the sourcing strategy formulation process is gained with open questions without fieldcoding. Also, information

about planning, leading and implementation is gained with open questions without fieldcoding. The respondents

knew by forehand what the purpose of the interview was.



CHAPTER 4: RESULTS

Results will be presented in line with the research questions. Although this is the case, before the answering of the

four research questions, results are presented that can justify the total research.

4.1 Research

All research questions relate to the sourcing strategy for ‘operations’. Before knowing what factors play a role in

sourcing strategy formulation, it is important to know if organizations are willing to source ‘operations’ and if it is

seen as an important issue. Figure 4.1 shows that 82% of the respondents believe that sourcing of ‘operations’

contributes to the organizational objectives.

Can sourcing of 'operations' contributes to the organization's objectives?

82%

18%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

No

Yes

Figure 4.1 Contribution of ‘operations’-sourcing to organizational objectives

Research questions 1,2 and 4 deal with the question: ‘what role do the internal processes characteristics, external

factors and change management implications play in the sourcing strategy formulation?’. In the literature part it is

founded that these three criteria groups have influence on the sourcing strategy. To know if organizations are

really considering these factors when sourcing is wanted, criteria on which sourcing for ‘operations’ is

determined, can be found in figure 4.2.

Criteria on which the sourcing of ‘operations’ is determined.

Criteria Percentage Contribution to objective 18% External factors 22% Internal factors 31% Strategic concerns 10% Continuity 8% Other 10%

Figure 4.2 Criteria for ‘operations’

The external factors are specific factors relating to

‘competitors’ or ‘legislation, etc. The internal

factors include both process characteristics and in-

house competencies or expertise. ‘Contribution to

objective’ includes the specific criteria that

contribute to the organizational objectives, like cost

saving or quality enhancement. Strategic concerns

may be linked to either internal or external factors,

however in this case the scope and direction of higher management is meant. Continuity means to ensure an

organization’s continuation.



The research deals with ‘sourcing strategy’, which makes it useful to know if organizations actually have a

specified sourcing strategy that incorporates all preferences and role-playing factors. Figure 4.15, based on

questionnaire A, shows how many organizations have a specified sourcing strategy for ‘operations’.

Figure 4.3 Specific sourcing strategy

Strategy for the different sourcing activities of 'operations'.

3 7%

9 %

2 7%

2 7% Yes, part of total sourcingstrategyYes, explicit for'operations'No

Other

4.2 Internal Process Characteristics

The first research question deals with the role the process characteristics; volume, variety, variations in demand,

and visibility play, in the choice between offshoring, outsourcing and SSC for ‘operations’. In figure 4.4, based on

the answers of questionnaire A, it can be found how large the role of these internal process characteristics is.

Role of internal process characteristics on the sourcing strategy

No role Small role

Large role Decisive role

Volume 22% 14% 52% 12%Variety 22% 30% 46% 2%Variation 40% 36% 22% 2%Visibility 18% 32% 34% 16%

Figure 4.4 Role of the four V’s on the sourcing strategy

Questionnaire B also reveals

information about research

question one. Figure 4.5 shows

what kind of role the four

internal process characteristics

have on the choice between the

three main sourcing options.

The figure shows specific when organizations are willing to choose for outsourcing, offshoring or SSC. Looking

at the top row of figure 4.5 it can be seen that 82% disagrees on the statement ‘how larger the volume, the more

reasons there are for outsourcing. All other rows can be interpreted the same, considering the sourcing option

mend, indicated in the blue rows. It can also be seen that all statements about offshoring score >73% on the option

‘no opinion’.



Internal process characteristics and the choice for outsourcing, offshoring and SSC

Outsourcing Totally disagree Disagree Agree Totally agreeNo opinion

How larger volume… 0% 82% 9% 9% 0%How smaller volume… 9% 9% 64% 18% 0%How larger variety… 10% 20% 60% 10% 0%How smaller variety… 10% 60% 0% 20% 10%How larger the variation… 0% 20% 30% 40% 10%How smaller the variation… 0% 50% 30% 10% 10%How larger visibility… 70% 30% 0% 0% 0%How smaller visibility… 10% 10% 50% 30% 0,00%SSC How larger volume… 10% 0% 20% 60% 10%How smaller volume… 20% 30% 30% 10% 10%How larger variety… 10% 20% 30% 20% 20%How smaller variety… 10% 30% 40% 0% 20%How larger the variation… 10% 0% 40% 20% 30%How smaller the variation… 0% 20% 30% 10% 40%How larger visibility… 20% 30% 20% 10% 20%How smaller visibility… 10% 10% 40% 20% 20%Offshoring How larger volume… 9% 0% 9% 9% 73%How smaller volume… 9% 0% 9% 9% 73%How larger variety… 0% 9% 0% 0% 91%How smaller variety… 0% 0% 0% 9% 91%How larger the variation… 0% 0% 0% 0% 100%How smaller the variation… 0% 0% 0% 0% 100%How larger visibility… 27% 0% 0% 0% 73%How smaller visibility… 0% 0% 9% 9% 82%

Figure 4.5 Internal process characteristics and the three sourcing options 4.2 External Factors

Questionnaire B also reveals information about research question 2; ‘how do the external factors, technology,

rules and regulations and competitors play a role in the choice between offshoring, outsourcing and SSC for

‘operations’. Figure 4.6 shows what kind of role these three external factors play in the choice between the three

sourcing options. The figure can be interpreted as follows; looking at outsourcing and legislation, it can be seen

that 56% agrees or totally agrees on the statement ‘how smaller the role of legislation the more reasons there are

to choose for outsourcing’. For offshoring it can be seen that all statements score >82% on the option ‘no

opinion’.



External factors and the choice for outsourcing, offshoring and SSC

Outsourcing Totally disagree Disagree Agree Totally agree No opinion How larger the role of technology… 11% 22% 45% 11% 11%How smaller the role of technology… 11% 45% 33% 0% 11%How larger the role of legislation… 22% 22% 22% 22% 12%How smaller the role of legislation… 11% 22% 45% 11% 11%How larger the role of competitors… 11% 45% 0% 11% 33%How smaller the role of competitors… 11% 22% 22% 0% 45%SSC How larger the role of technology… 0% 11% 11% 67% 11%How smaller the role of technology… 11% 22% 56% 0% 11%How larger the role of legislation… 0% 11% 22% 56% 11%How smaller the role of legislation… 11% 45% 22% 0% 22%How larger the role of competitors… 0% 22% 22% 45% 11%How smaller the role of competitors… 11% 45% 11% 22% 11%Offshoring How larger the role of technology… 9% 0% 0% 9% 82%How smaller the role of technology… 9% 9% 0% 0% 82%How larger the role of legislation… 18% 0% 0% 0% 82%How smaller the role of legislation… 0% 0% 9% 9% 82%How larger the role of competitors… 0% 0% 9% 9% 82%How smaller the role of competitors… 9% 9% 0% 0% 82%

Figure 4.6 External factors and the choice for the three sourcing options

4.3 Decisive factors

Research question three; ‘which factors, external or internal, are decisive for the choice between SSC, offshoring

or outsourcing’, can also be revealed with questionnaire B. In figure 4.7 it can be found how many respondents (in

percentage) think that internal process characteristics or external factors are decisive.

Which factors are decisive

11%

33%

56%

0% 10% 20% 30% 40% 50% 60%

Not applicable to our organization

Extrnal opportunities and threats

Internal strenghts and weaknesses

Figure 4.7 Decisive factors



The relation between the factors that are decisive, in the choice process, and the actual chosen sourcing option,

can be found in figure 4.8. It can be seen that the correlation is < 0,500.

Correlations

Chosen Decisive Pearson

Correlation -,447

Sig. (1-tailed) ,133

Figure 4.8Relation between decisive factors and sourcing option chosen

In research question 2-3 it is asked what the role of the process characteristics and external factors is. Figure 4.9,

stating interview quotes, shows if these factors are the only factors important or if other factors are also important

for defining the sourcing strategy for ‘operations’. Next to that figure 4.9 shows the relevance of these factors.

Factors important for the choice between the three main sourcing options Factors Interview quotes

Internal (four V’s) and

external factors used in the

questionnaires.

‘The factors mentioned are the most valid and acceptable’ (2x), ‘these factors are

definitely used, only in some cases more factors are needed’, ‘not everything can

only be based on these factors, however it gives a robust fundament to base the

choice on (2x)’.

Quality level ‘Outsourcing and offshoring can only be done when the quality level of the third

party is high or sufficient enough’, ‘you have to fully rely on the party you

outsource to, this can only be the case if they have enough knowledge and a high

quality level’.

Risk ‘Sometimes it is more risky to offshore’, ‘sometimes our organization is not

willing to take the highest risk which can mean that another sourcing option will

be chosen’, ‘risk, can as I see it be related to financial risk’.

Figure 4.9 role-playing factors

4.4 Change management implications

Research question four; ‘how do the change management elements, needed expertise, change in competencies

resistance, play a role in the choice between offshoring, outsourcing and SSC’, can partly be revealed with figure

4.10, which shows how large the role is. The figure can be interpreted as follows; 56% thinks that expected

resistance of employees plays a large role in the choice between the three sourcing options.




Role of change management elements

Very large role Large role Mediocre Small role Very small role Role of expected resistance 0% 56% 11% 21% 11% Role of needed expertise 0% 34% 33% 11% 22% Role of new competencies needed 22% 56% 11% 11% 0%

Figure 4.10 Role of change management elements

For answering research question four, it is also important to know what kind of role these change elements play in

relation to the sourcing options. Figure 4.11 states interview quotes about resistance, change in competencies and

needed expertise in relation to the role they play in the choice between a SSC, offshoring and outsourcing.

Role of resistance, competencies and expertise in the choice between the sourcing options

Interview quotes

Expected

resistance

‘With all sourcing options you can experience resistance, it is the way how you deal with it’,

‘offshoring generates most of the times more resistance, however that does not mean it will

not be implemented’, ‘resistance or not, when it is better for the organization, it is eventually

also better for the employees’.

Expected

change in

competencies

‘When employees already have the acquired skills, it is easier to create a shared service center

than to outsource because you will loose these employees’, ‘when competencies need to

change drastically, it is save and secure to outsource or offshore your business activity’.

Needed

expertise

‘Sometimes it is too expensive to get the acquired knowledge’, ‘for offshoring more expertise

is necessary, however I think this issue is more related to costs than to expertise’, ‘it is easier

and cheaper to choose a sourcing option that the organization is already acquainted with,

because the organization has to buy-in less knowledge’.

Figure 4.11 What kind of role play change management implications

4.5 Planning, leading and implementation of sourcing options

The last results are connected to the last research question; ‘how do offshoring, outsourcing and SSC need to be

planned, leaded and implemented in order to do this successfully’. Figure 4.12 shows quotes of the interviews that

relate to the concerned sourcing option and change management implication.



Planning, leading and focus of the different sourcing options

Outsourcing SSC Offshoring

Leader-

ship

‘When communicated well outsourcing does not

experience much resistance’ (2x), ‘implementing

outsourcing plans must be done not only by top

management but also middle management’,

‘opinions of lower level employees are important

and must be taken into considerations (2x),

however this can only be done till a certain

degree’.

‘Because activities/ processes stay within the

organization, less communication to lower level

employees is necessary because less resistant will occur’,

‘not only higher management should be involved, but

also lower management dealing with the future shared

service center needs to be involved’, ‘although lower

level employees are not always conferred, open

communication is necessary’ (2x).

‘Offshoring is most of the time a real strategic

consideration, which is decided by top

management’, ‘because offshoring is often

accompanied by job loses (3x), informing lower

level employees is good, but considering all

their opinions is too much work and will bring

too much resistance’, ‘with offshoring you need

to see the overall-picture of the organization’.

Focus ‘Structure will most of the time not change

drastically’, ‘not the structure, but the role of the

process will change (3x)’, ‘only the employees that

join the ‘third party’ will experience culture

change’ (2x).

‘Creating a shared service center includes most of the

time a change in structure’ (3x), ‘like with outsourcing,

cultural changes are not really an issue’.

‘Many offshoring projects involve a change in

culture’, ‘the organizational-culture needs to be

adapted to the culture of the country whereto the

processes are offshored’, ‘with only a structural

change, it will not succeed because of cultural

differences’.

Consul-

tant’s

role

‘Consultant expertise can be necessary for market

research, however the change inside the organi-

zation still depends on the organization capabilities

to change’, ‘creating the agreements, between the

party that outsources and the party that insources,

can best be done by consultant’s’ (2x).

‘The success of a shared service project is often related to

the organization itself’ (2x).

‘Offshoring is a difficult process that acquires

expertise (2x)’, ‘a thorough market analysis is

necessary’, ‘expertise is necessary to analyze all

rules and legislation of the country whereto the

processes are offshored’ (3x).

Plan-

ning

‘Planning a sourcing option always needs to be done step by step and by forehand. It does not matter if it involves, a shared service center, offshoring or

outsourcing’ (3x), ‘contingency plans are necessary, when something (un)expected happens’, ‘although plans need to be made by forehand, still some (very little)

room needs to be present to adapt these to the circumstances’, ‘good planning is the keyword in successful sourcing ’ (2x).

Figure 4.12 Interview quotes concerning the planning,focus and leadership of the main sourcing options


CHAPTER 5: CONCLUSIONS

5.1 Research

Before answering the research questions separately, some conclusions can be drawn that justify the total research.

First of all, looking at figure 4.1 it can be seen that the main majority thinks that sourcing of ‘operations’

contributes to the organizational objectives. This may then imply that sourcing of ‘operations’ is at least one of the

sourcing possibilities that can be attractive to organizations. Therefore it can be said that this research can have a

contribution to knowledge about sourcing strategy for ‘operations’, while sourcing of ‘operations’ can be

attractive to the main majority of the organizations that (are willing to) deal with sourcing. Furthermore in the

literature part it is assumed that internal process characteristics, external factors and change management

implications all play a role in the sourcing strategy formulation for ‘operations’. From figure 4.2 it can be

concluded that these factors indeed play a role in sourcing topics for ‘operations’. Moreover, from the interviews

(figure 4.9) it can also be concluded that these factors play a role and that it is also a relatively large role in

relation to the other factors mentioned; risk and quality level.

Next to the above conclusions about sourcing strategy for ‘operations, it can also be concluded (figure 4.3) that

more that the majority of the organizations has a (specific) sourcing strategy for ‘operations’. This may imply that

organizations are dealing with specific issues about sourcing strategy for ‘operations’, whereas, before this

research, no other empirical research has been done in this specific area.

5.2 Internal Process Characteristic

One of the conclusions for question one, that deals with the role the four internal process characteristics play, can

be drawn from figure 4.4. From the four characteristics, ‘variation in demand’ plays the smallest role, whereas

‘volume’ plays the largest role. Linking figure 4.5 to the dimension of ‘operations’ (figure 2.2) as explained in the

literature part, a profile of the process characteristics for each of the different sourcing options can be made. For

outsourcing (figure 5.1) it can be seen that when volume is low, variety is high, variation is also high and visibility

is low organizations see more reasons to outsource. In other words when, the quantity of production is low, the

different types of products/services are high, the variation in demand is also high and customer contact is low,

organizations see more reasons for outsourcing. In figure 5.2 this profile can be found for SSC. It can be

concluded that when, the quantity of production is high, the different types of products/services are high, the

variation in demand is also high and customer contact is low, organizations see more reasons for SSC. This means

that for outsourcing and SSC the difference can be found in the characteristic ‘volume’. Looking to the literature

part it was said that ‘concentration of products is one of the characteristics of a SSC’ (KPMG 1, 2005), which can

be the reason why volume is indeed a factor that influences the choice between the sourcing options, and in this

case the choice in favor for a SSC. Next to that it was concluded earlier that volume plays the largest role of the

process characteristics and can therefore be a real distinctive and important factor in the choice between SSC and

outsourcing.



L H

H L

H L

H L Figure 5.1 internal profile outsourcing

L H

H L

H L

H L Figure 5.2 internal profile SSC

Looking at the choice for offshoring in combination with the process characteristics (figure 4.5), it can be

concluded that too many respondents had no opinion about this matter. As a result the process characteristics

profile for offshoring cannot be well-founded enough. What this may imply is that organizations’ knowledge

about offshoring can be improved, because the respondents actually indicated that the process characteristics are

important for the choice between outsourcing, SSC and also offshoring.

5.3 External Factors

For question two, that deals with the role the external factors play in the sourcing strategy formulation process,

also a profile, just like with the process characteristics, can be concluded based upon the results (figure 4.6). It can

be concluded that organization see more reasons for outsourcing when the role of technology is large, when the

role of legislation is small and when the role competitors is either large or small (figure 5.3). This means that

nothing specific can be concluded for the role ‘competitors’ play. For SSC, organizations see more reasons doing

that when, the role of technology is large, the role of legislation is large and when the role of competitors is also

large (figure 5.4). The role of technology can in this case either be small or large, however slightly more

respondents see more reasons for outsourcing when the role of technology is large. Comparing these two profiles,

it can be concluded that there is a difference in the role of legislation and competitors; in an environment where

the role of technology is large and legislation is small, organization see more reasons for outsourcing than for

SSC.

S L

S L

S L Figure 5.3 external profile outsourcing

S L

S L

S L Figure 5.4 external profile SSC

Volume

Variety

Variation

Visibility

Volume

Variety

Variation

Visibility

Technology

Legislation

Competitors

Technology

Legislation

Competitors



Again, the main majority of the respondents gave no opinion about offshoring. Therefore no real conclusions can

be founded for offshoring in relation to the external processes.

5.4 Decisive Factors

It can be concluded that internal process characteristics are decisive for the choice between SSC, offshoring and

outsourcing (figure 4.7), which answers research question 3; ‘which factors, external or internal, are decisive for

the choice between SCC, offshoring or outsourcing’. Linking this question to the sourcing options, no clear

relation was visible between the option chosen and the factors that are decisive (figure 4.8). Furthermore, based on

the interviews (figure 4.9) it can be concluded that next to the process characteristics and external factors, two

other factors are important for sourcing strategy formulation for ‘operations’; risk and quality level. Although risk

and quality level are also important, process characteristics and external factors are predominant. Next to that, the

interviewees classified quality level and risk, mainly as important factors to choose for offshoring.

5.5 Resistance, expertise and leadership

First of all it can be said that resistance play a large role in the choice between SSC, offshoring and outsourcing

(figure 4.10). Furthermore, based on the interviews (figure 4.11), it can be concluded that offshoring generates

most resistance. Although resistance occurs in different magnitudes in the different sourcing options, it will never

be a decisive factor because the need to implement the sourcing option, from management point of view, is greater

than the resistance of lower level employees.

Second, it can be concluded that more than the majority thinks that needed expertise plays a mediocre or large role

(figure 4.10). Furthermore, it is not really an expertise issue, but more a cost issue (figure 4.11). It is easier and

cheaper to choose a sourcing option the organization is already acquainted with, because the organization has to

buy-in less knowledge.

Third, more than the majority thinks that the change needed in competencies plays a large or very large role.

Based on the interviews it can be seen that when an organization already has the acquired competencies it is easier

to create SSC. In contradiction to this, when competencies need to change drastically, organization see more

reasons for outsourcing or offshoring.

5.6 Focus, leading and planning

Question five deals with the planning, leading and implementation of the main sourcing options. From figure 4.12

it can be concluded that the different sourcing options can have different implications. This may imply that these

different sourcing options actually need to be planned, leaded and implemented differently.

5.6.1 Outsourcing

Outsourcing, according to the interviews, can best be led from the top. This because then the overview of the total

situation will be kept, which is in line with Conger’s (2000) view. Another conclusion that can be drawn is that

besides the top-down leadership, enough communication and a slight consultation to the lower level employees is

necessary to avoid resistance. Next to that, the focus of the change may best be a focus on structural change. This



because outsourcing can be a key element for the organization, which can then, according to Leavitt (1965) be

classified under a structural focus. However, looking at the interview quotes (figure 4.12), the change for the

individuals that will join the party where the activities are outsourced to, can best be realized by a cultural focus.

This is than a cultural focus from the viewpoint of the organization that takes over the employees of the

organization that outsources. For outsourcing, the consultant’s role needs to be an expert-role, only when the

arrangements between the two parties need to be settled (figure 4.12). The change itself still depends on the

organizational capabilities to change.

5.6.2 SSC

Leadership for SSC can be compared to outsourcing (figure 4.12); leadership can best be top-down with a little

room for open communication to reduce resistance. The focus of the change for SSC can also be compared to the

focus of the change for outsourcing. However, with SSC the focus of the change can best only be based on a

structural change, while there is no third party to outsource to. According to the interviews (figure 4.12), the

success of SSC is often related to the organization itself, which can be linked to the view of Schaffer (2000). This

means that the change ensuing from creating SSC can best be linked to a model based on a continuous series of

rapid-cycle projects. This rapid-cycle model means that no matter how good the expertise of consultants is, real

success must be found in the organization’s implementation capability.

5.6.2 Offshoring

According to the interviews, offshoring can best be led top-down, while only with top-down leadership strategic

consequences for the entire organization can be overseen. Next to that, generally for offshoring, resistance will

occur because of job loses. Therefore early communication is wanted, however consulting lower level employees

can best remain undone. Furthermore, it can be concluded (figure 4.12) that with only a structural focus

implementation of offshoring will not succeed. Next to that, offshoring, in contrast with outsourcing and SSC,

needs an expert role during the whole process.

The conclusion that can be drawn for the change factor ‘planning’ is for all three sourcing options the same;

planning needs to be done step by step (figure 4.12). Although planning needs to be done by forehand, some

contingency possibilities within this planning need to be considered.

5.7 Sourcing strategy

The main research question; ‘how is a sourcing strategy for ‘operations’ defined and which factors play a role

when formulating this strategy’ can be answered based on the answered research questions. First of all, the main

majority of the organizations have a specified sourcing strategy for the different activities for operations.

This sourcing strategy is firstly based on the internal process characteristics of which ‘volume’ plays the largest

role and ‘variation in demand’ plays the smallest role. Looking at the internal process characteristics profile

(figure 5.1 ; 5.2) it can be seen that the choice between outsourcing and SSC is mainly based on ‘volume’; when

quantity of produced products is high, organizations see more reasons to create SSC.



Secondly, a sourcing strategy is based on the external factors ‘legislation’, ‘competitors’ and ‘technology’.

Looking at the external factors profile (figure 5.3 ; 5.4), it can be concluded that in an environment where the role

of technology is large and legislation is small, organization see more reasons for outsourcing than for SSC.

Comparing internal process characteristics with external factors, process characteristics are decisive in the choice

process.

Thirdly, sourcing strategy for ‘operations’, is based on change management implications. First of all when an

organization already has the acquired competencies, it is easier to create SSC. Contrary, when competencies need

to change drastically, organizations sooner choose for outsourcing or offshoring. Next to that, sourcing strategy is

sometimes based on sourcing options organizations are already acquainted with, because in that way organizations

have to buy-in less knowledge. Furthermore resistance will never be a decisive factor.

Two other (less important) factors where sourcing strategy for ‘operations’ is based on are risk and quality level.

Both are factors mainly to choose for offshoring.

Defining sourcing strategy involves also decision making. Based on the interviews, it can be concluded that top

and middle management are generally involved in defining the sourcing strategy for ‘operations’. Middle

managers can in this case be defined as employees responsible for units or activities being sourced.



CHAPTER 6: RECOMMENDATIONS AND LIMITATIONS

6.1 Limitations

For answering the research questions, two questionnaires and three interviews were conducted. Although the

respondents were selected based on strict criteria, a higher quantity of respondents create a higher certainty degree

for the conclusions drawn. Next to that, because many respondents did not answer the questions about offshoring,

conclusions regarding the comparison between offshoring and the other sourcing options could have been more

optimal.

6.2 Further Research

Looking at the limitations, it can be seen that more research about offshoring is necessary to compare the three

main sourcing options more optimal. Furthermore, this research was not conducted with a restriction of any

industry-sector. Although the organizations that co-operated represent a well-outmoded mix of all industry

sectors, it can also be interesting to see the differences between industry sectors.

Word count: 11.409



LIST OF DEFINITIONS

Offshoring The allocation of (IT enabled) processes to be managed by an internal/external

service provider at a remote location, i.e. at centers in countries outside the

originating location.

Operations The part (or activities) of the organization that deliver products and services. This

part executes the added value activities or services. Used in this research to cover

that part of the organization where the added value activities take place and where

the operation’s strategy is defined.

Outsourcing A ‘long-term, results-oriented relationship with an external service provider for

activities traditionally performed within the company.

Shared service center (SSC) A result responsible unit within the internal organization, which has as task to

deliver services, based on a specialization, to the operational units of that

organization, based on a standard price.

Sourcing The reorganization of tasks, functions and services of an organization, whereby the

more effective managing of organizational and operational processes is the main

issue

Sourcing strategy The direction, scope and timeframe an organization gives to the arrangement and

grouping of tasks. In this research this definition will be used in relation to the

three main sourcing options; outsourcing, offshoring and SSC. This gives insight

in the backgrounds, objectives, what need to be achieved and gives insight in a

thorough assessment of the sourcing options.



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