Outsourcing

Outsourcing describes a company’s decision to purchase a value creating activity from an external supplier. Outsourcing has become important, and may become more important in the future, for two reasons:

• First, there are limits to the abilities of companies to possess all of the bundles of resources and capabilities that are required to achieve superior performance (relative to competitors) in its entire primary and support activities.
• Second, with limits to their resources and capabilities, companies can increase their ability to develop resources and capabilities to develop core competencies and achieve competitive advantage by nurturing only a few core competencies.

When outsourcing, a company seeks the greatest value. In other words, a company wants to outsource only to companies possessing a core competence in terms of performing the primary or support activity that is being outsourced. When evaluating resources and capabilities, companies must be careful not to outsource activities in which they can create and capture value. Additionally, companies should not outsource primary and support activities that are used to neutralize environmental threats or complete necessary ongoing organisational tasks