Outsourcing the procurement function: Do actions and results align with theory?

Are common theories of outsourcing useful in predicting the extent of and performance gains from the outsourcing of procurement activities? Or does procurement׳s broad scope and boundary-spanning role confound successful analysis? This study applies a theoretical framework combining concepts from transaction-cost economics (TCE) and the resource-based view (RBV) to study the procurement outsourcing decisions of two hundred and eighty US-based electronics manufacturing firms. Findings suggest that TCE and RBV act in complementary ways on the procurement outsourcing decision. TCE, through fear of supplier opportunism, appears to be the primary driver of the extent to which procurement activities are outsourced. The RBV, through which the OEM׳s resource position in procurement vis-à-vis its outsourcing partner is determined, appears to be the primary determinant of the performance results of the outsourcing decision. Procurement activities are outsourced to a greater extent when fear of supplier opportunism is low, but such outsourcing is only “justified” (expected to yield performance benefits) when the OEM has a weak resource position vis-à-vis the outsourcing partner. An “enriched” TCE–RBV framework is presented and discussed as part of study results.     

Demand chain management theory: constraints and development from global aerospace supply webs

This paper develops an empirical and theoretical approach to where strategic capabilities should lie within global aerospace supply chains. Theory from transaction cost economics (TCE) and the resource-based view (RBV) of the firm are applied to the aerospace sector and used to underpin a theory of demand chain management (DCM). A two-stage research process was used to generate and validate data from aerospace supply chain case studies. Demand chain driver and resource-based response categories were identified from these data and are presented. Concluding comments concern current limits of a demand chain theory and implications for practitioners.     

Trade-offs in make-buy decisions

While the previous literature uses transaction cost economics and the resource-based view to theoretically derive the benefits of outsourcing, it has so far overlooked how these theoretical underpinnings must be used to assess trade-offs involved in make-buy decisions as well. This study investigates trade-offs in make-buy decisions for the buying firm. It takes an operations strategy perspective and links manufacturing firms’ competitive priorities to outsourcing motives and resulting capabilities. Survey data from a representative sample of 136 manufacturing plants in Sweden is subjected to regressions analysis. In contrast to earlier empirical research, this study shows that resulting capabilities of strategic outsourcing initiatives are distinct, and, furthermore, do not emerge cumulatively. This has important implications for the ongoing debate over trade-offs in the operations strategy literature. Findings are clearly in support of the trade-off model and extend current research into the theoretical domain of make-buy decisions.     

Outsourcing and the HR function: an examination of trends and developments within North American firms

As increased use of outsourcing by a number of firms within North American has produced significant changes over the last decade in how the human resource function delivers services. In this article, we draw on transaction cost economics, the resource-based view, the HR architecture literature, and institutional theory to examine why these changes have been observed. Following this, we use these same theoretical perspectives to examine how different types of firms are likely to make use of outsourcing in the future to provide human resource services and programmes.     

Antecedents of vertical integration: Transaction cost economics and resource-based explanations

This article focuses on antecedents of vertical integration. A model of vertical integration derived from transaction cost economics and the resource-based view is tested empirically with data from the mechanical maintenance services market in the hydroelectricity industry. The results show that asset specificity and closeness to present competence are positively related to vertical integration, while tacit knowledge is negatively related to vertical integration. The positive interaction effect between asset specificity and closeness to present competence on vertical integration is also supported, indicating that the decisions on insourcing and outsourcing can benefit from using transaction cost economics and the resource-based view in tandem.     

The long shadow of public policy; Barriers to a value-based approach in healthcare procurement

Procurement in the UKs National Health Service (NHS) is facing its most significant financial challenge. Despite the sheer scale and complexities of the public healthcare sector, the Government's solutions are all too often packaged as "collaborate more", "standardise products" and "leverage spend". Unfortunately, these over simplistic solutions take a myopic view of market drivers, conflate spend with potential savings and fail to deliver value. Many contracts have already been commercially optimised yet the funding crisis continues to deepen. New value-based procurement approaches are needed to drive longer-term innovation and cost reduction and to move debates from efficiencies to embrace effectiveness in integrated supply chains. In this research, we adopt the resource-based view (RBV) as a lens to explore the extent to which NHS resources support the strategic adoption of value-based approaches. An empirical case study on a regional cluster of six NHS Trusts in England, confirms the dominance of narrow price-based approaches that create barriers to moving towards longer-term, valuebased procurement. The antecedent roots of price-based approaches are unpicked through a hermeneutic analysis of recent Government commissioned reports to show how these have set the tone, culture and priorities for healthcare procurement in the UK. The analysis provides explanatory power to the case study by illustrating how Government reports have led to, and legitimised the dominance of price-based approaches and caused relational and resource-based barriers to adopting value-based procurement, despite stakeholder enthusiasm. The findings provide unique insights into why public procurement has struggled to reach beyond its traditional cost orientated scope. We contribute to an extended consideration of the RBV in public organisations through identifying the role of the policy environment in determining and legitimatising an organisation's strategic direction.     

Offshore outsourcing of professional services: A transaction cost economics perspective

This research utilizes the framework of transaction cost economics (TCE) to develop an understanding of how firms manage the costs and risks of offshore outsourcing of professional services. This research examines the perspectives of eight organizations through interviews with 10 high-ranking supply management executives. The paper first explores the rationale for offshore outsourcing among the organizations studied. Using the tenants of TCE, this paper postulates that fixed costs of establishing the relationship dominate the variable costs of day-to-day transactions, and that organizations will not offshore outsource areas where there is high perceived degree of unmanageable risk. The paper expands on themes provided by TCE and offers some lessons learned, and guidelines for managing and controlling offshore outsourced services relationships.     

Recruitment and selection services: Efficiency and competitive reasons in the outsourcing of HR practices

While human resource (HR) activities have traditionally been performed internally, the outsourcing of HR practices is a rapidly increasing phenomenon. The accelerated rate of HR outsourcing also corresponds to a sweeping change in which non-transactional activities, such as recruitment, selection and training, are among the most outsourced HR practices. This article investigates the outsourcing decisions of recruiting and selection (R&S). It develops a predictive model based on efficiency drivers, rooted in transaction cost economy (TCE), and competitive motivations, derived from the resource-based view. The model has been tested in a sample of 276 medium and large enterprises in two specific contexts: the outsourcing of administrative R&S practices (job advertisement and pre-screening) and that of the more strategic R&S practices (colloquia and selection). Findings confirm the relevance of both categories of predictors, but they reveal how efficiency motivations are more important for the decisions to outsource administrative R&S practices while competitive issues matter more for the strategic side of R&S activity. Theoretical and managerial implications are offered on the basis of such evidence.     

Purchasing's strategic relevance

Recently Ramsay (Eur. J. Purchasing Supply Manage. 7 (4) (2001) 257) applied the resource-based view of the firm (RBV) to argue that purchasing is a largely irrelevant activity from a strategic management point of view. In this paper it is argued to the contrary since there is a wider theoretical base underlying strategic management, more recent developments in the RBV suggest that purchasing is indeed a strategic activity, and much empirical evidence demonstrates that purchasing and supply management contribute to sustainable competitive advantage. A systematic set of criteria is then put forward, which helps purchasing management researchers to assess whether studied phenomena have strategic impact.     

Complexity of Outsourcing Contracts and Ex Post Transaction Costs: An Empirical Investigation*

abstract In this article, we use Transaction Cost Economics (TCE) and the Resource‐Based View (RBV) of the firm to study outsourcing agreements. We develop an original approach of contract complexity and analyse the links among exchange hazards (i.e. specificity and environmental uncertainty), the contractual aspects of outsourcing (control, incentives, penalties, price and flexibility clauses) and the level of ex post transaction costs. Both contract complexity and ex post transaction costs are operationalized and measured. Our empirical research analyses 82 outsourcing contracts. This article uses three different dimensions (proximity to the core business, switching costs and adaptation costs) to assess the strategic importance of an outsourced activity. Our findings extend TCE's validity for the outsourcing of activities with a strategic value. Finally, this study offers an indirect measurement of ex post transaction costs. In short, to restrict vendor opportunism, contracts must contain incentives and penalties, as well as pricing and monitoring clauses.     

A Resource-Centred Interpretation of Export Performance

Consistent with Mahoney and Pandian's (1992) vision of the resource-based view as the emergent language for conversations within strategic management, this paper has employed a resource-based framework in integrating and interpreting identified influences on export performance. Aggregate evidence suggests the critical importance of several resource-related factors, including having top management staff with relevant experiential, orientational and attitudinal resources; ‘co-locating’ within resource-supporting clusters; possessing organisational-wide capabilities in export-related knowledge development and planning, product innovation, and quality service delivery; and leveraging strategically-relevant resources embodied in external partners. The theoretical, managerial, policy, and future research implications of these findings are discussed.     

Reverse logistics capabilities and firm performance: the mediating role of business strategy

This study aims to examine the impact of reverse logistics capabilities on firm performance and mediating role of logistics strategies. We reviewed three theories of reverse logistics capabilities: (a) resource-based view of the firm, (b) transaction cost economics, and (c) institutional theory. We examined six reverse logistics capabilities: logistics information management, close-loop capability, supply chain integration, supply chain coordination, conformity capability, and institutional incentives. We examined three reverse logistics strategies: joint reverse logistics, manufacturer reverse logistics, and third-party reverse logistics. We conducted a survey of Chinese mobile phone companies out of which we received 125 usable questionnaires with a response rate of 80%. The results of mediated hierarchical regression support the hypothesis that reverse logistics capabilities influence firm performance. Institutional factors were more significant than supply chain factors. Close-loop capability was the most significant factor. We provide managerial implications and suggestions for future research.     

The gender diversity–performance relationship in services and manufacturing organizations

Empirical findings on the link between gender diversity and performance have been inconsistent. This paper presents three competing predictions of the organizational gender diversity–performance relationship: a positive linear prediction derived from the resource-based view of the firm, a negative linear prediction derived from self-categorization and social identity theories, and an inverted U-shaped curvilinear prediction derived from the integration of the resource-based view of the firm with self-categorization and social identity theories. This paper also proposes a moderating effect of industry type (services vs. manufacturing) on the gender diversity–performance relationship. The predictions were tested in publicly listed Australian organizations using archival quantitative data with a longitudinal research design. The results show partial support for the positive linear and inverted U-shaped curvilinear predictions as well as for the proposed moderating effect of industry type. The curvilinear relationship indicates that different proportions of organizational gender diversity have different effects on organizational performance, which may be attributed to different dynamics as suggested by the resource-based view and self-categorization and social identity theories. The results help reconcile the inconsistent findings of past research that focused on the linear gender diversity–performance relationship. The findings also show that industry context can strengthen or weaken the effects of organizational gender diversity on performance.     

The effects of slack resource of R&D professionals on firm performance: evidence from traditional manufacturing firms in an emerging economy

Abstract

As an important component of organizational human resource slack (HR slack), the slack of research-and-development (R&D) professionals has been studied by several authors. However, it remains unclear whether and how this small component of general HR slack, i.e. the slack of research-and-development professionals (RHR slack), may affect overall firm performance in an emerging economy without much R&D tradition or pro-R&D institutions. Based on two organizational theories, i.e. institutional theory and the resource-based view of the firm (RBV), we propose competing hypotheses on the relationship between RHR slack and firms’ accounting performance. We also examine whether the relationship between RHR slack and firm performance should be linear or curvilinear. Finally, we also test the relationship between RHR slack and other dimensions of firm performance. Several interesting findings have been obtained. For instance, neither the perspective based on institutional theory nor that based on RBV can fully predict all types of RHR slack-performance relationships, be these relationships linear or curvilinear.     

Unlocking the value of artificial intelligence in human resource management through AI capability framework

Artificial Intelligence (AI) is increasingly adopted within Human Resource management (HRM) due to its potential to create value for consumers, employees, and organisations. However, recent studies have found that organisations are yet to experience the anticipated benefits from AI adoption, despite investing time, effort, and resources. The existing studies in HRM have examined the applications of AI, anticipated benefits, and its impact on human workforce and organisations. The aim of this paper is to systematically review the multi-disciplinary literature stemming from International Business, Information Management, Operations Management, General Management and HRM to provide a comprehensive and objective understanding of the organisational resources required to develop AI capability in HRM. Our findings show that organisations need to look beyond technical resources, and put their emphasis on developing non-technical ones such as human skills and competencies, leadership, team co-ordination, organisational culture and innovation mindset, governance strategy, and AI-employee integration strategies, to benefit from AI adoption. Based on these findings, we contribute five research propositions to advance AI scholarship in HRM. Theoretically, we identify the organisational resources necessary to achieve business benefits by proposing the AI capability framework, integrating resource-based view and knowledge-based view theories. From a practitioner’s standpoint, our framework offers a systematic way for the managers to objectively self-assess organisational readiness and develop strategies to adopt and implement AI-enabled practices and processes in HRM.     

Are firms ready to use big data analytics to create value? The role of structural and psychological readiness

In this study, we leverage Information Technology (IT) readiness literature and resource-based view (RBV) to investigate the impact of firm structural and psychological readiness on firm value creation, as mediated by big data analytics usage. The proposed research model is empirically validated using survey data from 179 senior IT managers. The findings demonstrate the importance of both structural (i.e. IT infrastructure capability, tools functionality, employee analytical capability, and bigness of data) and psychological readiness (i.e. IT proactive climate) in enhancing firm value creation through big data analytics usage. These results provide interesting theoretical and practical insights.     

Changing Vertical Integration Strategies under Pressure from Foreign Competition: The Case of US and German Multinationals

This study contributes to the emerging body of research into the influence of foreign competition on firm scope. Industrial organization economics, the resource-based view of the firm, and transaction cost economics consistently predict vertical de-integration in the face of intensifying pressure from imports and foreign direct investment. We show this was the case for 407 US firms between 1987 and 2003. Results for a panel of 95 German firms reveal a similar reaction to pressure from an increase in imports, but show no reaction to increased exposure to incoming foreign direct investment during the same time frame.     

Does organisational capital influence environmental strategies? Evidence from environmental innovation

As a result of increasing consumer awareness and stakeholder demands about environmental management, firms face stricter challenges surrounding the impact of business operations on the environment. In this regards, environmental innovation is one of the important ways of acting in harmony with the environment. Thus, the purpose of this study is to examine the impact of organisational capital on environmental innovation measured as the process innovation and product innovation. Using environmental innovation data from ASSET4 for the US listed firms between 2002 and 2018, our empirical results reveal a significant positive association between organisational capital and both the process innovation and product innovation. Furthermore, the relationship is stronger in high-profitability and sensitive industries subsamples. These results are robust to additional control variables and endogeneity tests. This study, while endorsing the resource-based view (RBV), provides important implications for the top management teams that organisational capital could be an important channel through which managers can boost environmental innovation.     

Human resources and sustained competitive advantage: a resource-based perspective

This paper integrates the theories and findings of micro-level organizational behaviour/human resource management research with the macrolevel resource-based view of the firm, specifically presenting a firm's human resources as an important potential source of sustained competitive advantage. Unlike practice-oriented discussions that assume the role of human resources as a source of sustained competitive advantage, we use the theoretical concepts from the resource-based view of the firm (Wernerfelt, 1984; Barney, 1991) to discuss how human resources meet the criteria for sustained competitive advantage in that they are valuable, rare, inimitable and non-substitutable. The implications for developing human resources as a source of sustained competitive advantage are discussed, particularly examining the role of HR practices and managers in this process.