Managing flexibility in outsourcing

Abstract

This paper seeks to clarify the multi-dimensional notion of flexibility in outsourcing, examining its four dimensions as robustness, modifiability, new capability and ease of exit. Adapting from Evans (1991), this paper proposed a portfolio framework of pre-emptive, protective, exploitive, and corrective maneuvers to manage flexibility in outsourcing. These strategic maneuvers mapped well to traditional notions in coordination theory, both in advanced structuring through loose coupling and dependency diversification, and in dynamic adjustment through proactive sensing and reactive adapting. A set of propositions were put forward to hypothesize the relationships between the various strategic maneuvers and the different dimensions of flexibility, and subsequent impacts on outsourcing success. In the second part of this thesis, the paper developed empirical insights on proposed framework by operationalizing the conceptual constructs and carrying these propositions into empirical validation. A survey of 171 outsourcing projects in Singapore was conducted. The findings bear evidence of the importance of flexibility in outsourcing, given its strong association with outsourcing success. The findings also indicate the relative effectiveness between traditional contractual provision and the various flexibility maneuvers for robustness, modifiability, new capability, and ease of exit.