Outsource Magazine Issue 27 - (Page 78)

OutsOurcing is nOt Make Versus Buy: it is a cOntinuuM Too many companies view outsourcing as a binary choice between “make” and “buy” – these might well be good options, but they’re not the only ones… Kate Vitasek, University of Tennessee Kate Vitasek is a faculty member at the University of Tennessee’s Centre for Executive Education, and an internationally recognised innovator in the practice of supply chain management and outsourcing. Bonnie Keith, University of Tennessee Bonnie Keith is an adjunct faculty in the University of Tennessee’s Centre for Executive Education and is the President of The Forefront Group, LLC, an international leader in strategic sourcing transformation concepts. D 78 ● ●●● eciding to outsource demands a thorough make/buy analysis. However, far too many companies take the concept of make-or-buy as black and white. Dr. Oliver E. Williamson challenged the traditional make/buy decision process with his Nobel Prize-winning work in the area of transaction cost economics. Williamson received the Nobel Prize in 2009. One of Williamson’s key lessons is that companies should view outsourcing as a continuum rather than a simple marketbased make-versus-buy decision. Perhaps the best way to think of Williamson’s work is to consider free market forces on one side and what Williamson refers to as “corporate FIGURE 1 hierarchies” – an insourced decision – on the other. Using the market may not be the right approach Companies that choose to outsource typically use what Williamson describes as “the market” for buying goods and services. The market uses the conventional free market economy for determining how companies will do business, including establishing a price. The market assumes that free market forces incentivise suppliers to compete on low cost and high service. The market approach assumes an absence of dependency; if buyers or suppliers are not happy, they can switch at any time Oliver Eaton Williamson was awarded the 2009 Nobel Memorial Prize in Economics (shared with Elinor Ostrom) for “his analysis of economic governance, especially the boundaries of the firm”. www.outsourcemagazine.co.uk http://www.outsourcemagazine.co.uk

Table of Contents for the Digital Edition of Outsource Magazine Issue 27

NEWS
PLANET ITO
NORM JUDAH MICROSOFT’S
IN THE KNOW
CALL BRITANNIA
DAVID EVELEIGH
CHAIN GAIN
CAN EVERYTHING BE OUTSOURCED?
NOA ROUND-UP
QUICK CHANGE?
TRANSFORMING FINANCE
CAROLINE STOCKMANN
GOOD REVIEWS
OUTSOURCING IS NOT MAKE VERSUS BUY: IT IS A CONTINUUM
PAYING ATTENTION
POWERING UP YOUR CUSTOMER SATISFACTION ENGINE
BEHAVIOURAL ECONOMICS
HEAD-TO-HEAD
TOP TEN
THE LEGAL VIEW
HFS RESEARCH
HEADLINES...
ONLINE ROUND-UP
INSIDE SOURCE
THE LAST WORD

Outsource Magazine Issue 27