Information and fit key to understanding outsourcing opportunities: Beedie research

Beedie School of Business Professor Ian McCarthy

While politicians and economic leaders continue to speak to the virtues or pitfalls of outsourcing by companies and countries, the resulting benefit or lack thereof, accrue to organizations on a case by case basis – hinging on information, resources and skills – according to new SFU research.

Entitled “Understanding outsourcing contexts through information asymmetry and capability fit”, the research article was authored by Beedie professors Ian McCarthy and Jan Kietzmann, and University of Winnipeg professor Bruno Silvestre.

The article – published as the lead paper in a special issue on outsourcing in the journal Production Planning and Control – comes at a time when outsourcing has emerged as a global economic and political issue. US President Barack Obama spoke to it recently in his second inauguration address, while the Financial Times in a recent headline maintained that the “outsourcing tide is not likely to turn.”

Outsourcing, defined as “an agreement in which one company contracts out a part of their existing internal activity to another company”, has become a growing business practice over the past two decades, and a growing theme for business research.

“No longer do business leaders obsess with creating large organizations that try to undertake all value adding activities and own as much of the supply chain as possible,” said McCarthy.

McCarthy and his colleagues explain how two outsourcing challenges impact the design, control and measurement of outsourcing practices: (I) information symmetry, which is defined as the lack of perfect information about others’ needs and offerings; and (II) capability fit, which is the extent to which suppliers can satisfy buyers needs in terms of resources and skills.

In order to clarify the interplay between these two outsourcing challenges and the resulting implications for firms, the researchers proposed the concept of “outsourcing context” – a way to describe how variations in information asymmetry and capability fit combine to affect outsourcing.

Of four outcomes described in their framework, an optimal scenario for firms who outsource is having high capability fit and low information asymmetry – a combination where “outsourcing will be operationally fit with good performance that is enhanced by enlightening and developing behaviours due to high levels of trust, transparency and collaboration between both parties.”

All of the articles in the recent special issue of the journal Production Planning and Control break new ground in that they further advance understanding of the challenges and responses needed for attaining improved outcomes for outsourcing.

“As outsourcing will continue to be important to both managers and researchers, it is our hope that the research in this special issue and the identified research avenues inform teaching and practice and help guide and motivate future research on the challenges of designing, controlling and measuring outsourcing practices,” said McCarthy.

The article can be viewed in its entirety here.