By strategically outsourcing and emphasizing a company’s core competencies, managers can leverage their firm’s skills and resources for increased competitiveness. The authors suggest ways to determine what those core competencies are and which activities are better performed externally. They assess the relative costs and risks of “making” or “buying” and present methods for containing risks while enjoying the benefits from their dual approach.
1. J.B. Quinn, T.L. Doorley, and P.C. Paquette, “Technology in Services: Rethinking Strategic Focus,” Sloan Management Review, Winter 1990, pp. 79–87.
2. J.B. Quinn, “Leveraging Knowledge and Service Based Strategies through Outsourcing,” in Intelligent Enterprise (New York: Free Press, 1992), pp. 71–97.
3. M. Moritz, The Little Kingdom: The Private Story of Apple Computer (New York: Morrow, 1984); and
W. Davidson, “Apple Computer, Inc.” (Charlottesville, Virginia: University of Virginia, Darden Research Foundation, Case UVA-BP219, 1984).
4. R. Coase, “The Nature of the Firm,” Economica, November 1937, pp. 386–405; and
O. Williamson, Markets and Hierarchies, Analysis and Antitrust Implications (New York: Free Press, 1975).
5. R. Rumelt, Strategy, Structure and Economic Performance (Cambridge, Massachusetts: Harvard University Press, 1974).
6. R. D’Aveni and A. Illinich, “Complex Patterns of Vertical Integration in the Forest Products Industry,” Academy of Management Journal 35 (1992): 596–625;
P.Y. Batteyri, “The Concept of Impartition Policies: A Different Approach to Vertical Integration Strategies,” Strategic Management Journal 9 (1988): 507–520.
7. G.J. Maloney, “The Choice of Organizational Form . . . ,” Strategic Management Journal 13 (1992): 559–584;
R. Miles and C. Snow, “Organizations, New Concepts and New Forms,” California Management Review, Spring 1986, pp. 62–73.
8. Rumelt (1974).
9. W. Davidson, The Amazing Race, Winning the Technorivalry with Japan (New York: John Wiley, 1983).
10. C. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, May–June 1990, pp. 79–91.
11. J.B. Quinn, T.L. Doorley, and P.C. Paquette, “Beyond Products: Service-Based Strategies,” Harvard Business Review, March–April 1990, pp. 58–68.
12. D. Turner and M. Crawford, “Managing Current and Future Competitive Performance: The Role of Competence” (Kensington, Australia, University of New South Wales, Australian Graduate School of Management, Center for Corporate Change, 1992).
13. H. Mintzberg and J.B. Quinn, “Honda Motor Co.,” The Strategy Process (Englewood Cliffs, New Jersey: Prentice Hall, 1993), pp. 140–155.
14. R. D’Aveni and D. Ravenscraft, “Economies of Integration vs. Bureaucracy Costs: Does Vertical Integration Improve Performance?” Academy of Management Journal, forthcoming; and
H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973).
15. J. Stuckey and D. White, “When and When Not to Vertically Integrate,” Sloan Management Review, Spring 1993, pp. 71–83.
16 “The Incredible Shrinking Company,” The Economist, 15 December 1990, pp. 65–66; and
“Costing the Factory of the Future,” The Economist, 3 March 1990, pp. 61–62.
17. Interview with J.B. Quinn, March 1992.
18. “Manufacturing: The Ins and Outs of Outing,” The Economist, 31 August 1991, pp. 54 and 56.
19. M.F. Blaxill and T.M. Hout, “The Fallacy of the Overhead Quick Fix,” Harvard Business Review, July–August 1991, pp. 93–101.
20. R. Reich, “Who Is Us?,” Harvard Business Review, January–February 1990, pp. 53–64.
21. E. von Hippel, The Sources of Innovation (New York: Oxford University Press, 1988).
We gratefully acknowledge the research support of McKinsey & Company; NovaCare, Inc.; Marsh & McLennan; William M. Mercer Companies; Arthur Andersen & Co.; and American Express on various aspects of this project.