Working Paper Series, Department of Industrial Economics & Strategy, Copenhagen Business School
No 02-1:
The Process of Vertical Dis-Integration: An Evolutionary Perspective on Outsourcing
Volker Mahnke
Abstract: It is argued that an evolutionary perspective on firm
boundaries with its strong focus on knowledge, as well as processes of
search, learning and capability development is instrumental in developing a
theory of firm boundaries that is close to managerial concerns. Building on
insights in evolutionary economics, propositions are developed regarding
scope, speed, and switching costs in the process of vertical
dis-integration of which outsourcing is a particular instance. Current
theories of firm boundaries give indication why certain activities might be
candidates for outsourcing by stressing efficiency gains in terms of
transaction and production costs. They overlook, however, that
‘technologically separable interface’ between activities might be not
available in codified form, and neglect learning dynamics that lead to
strategic consequences in terms of capability development and adaptability
in competitive environments of varying dynamics. An evolutionary
perspective on vertical disintegration recognises that firms make
contractual commitments and partly tacit capabilities develop in a path
dependent manner. The fact that the firm’s past casts a shadow on current
governance options and possibilities to realise them complicates the
process of governance change and imposes switching costs that impact the
scope and speed of vertical dis-integration. An evolutionary perspective on
vertical disintegration also suggests considering long-term consequences of
outsourcing decisions on the dynamic capabilities of the firm.
Keywords: evolutionary theory, switching costs, governance change; (follow links to similar papers)
JEL-Codes: C21; D21; D23; (follow links to similar papers)
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