Uncovering the hidden costs of offshoring: The interplay of complexity, organizational design, and experience

This study investigates estimation errors due to hidden costs—the costs of implementation that are neglected in strategic decision-making processes—in the context of services offshoring. Based on data from the Offshoring Research Network, we find that decision makers are more likely to make cost-est...

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Bibliographic Details
Published inStrategic management journal Vol. 34; no. 5; pp. 533 - 552
Main Authors LARSEN, MARCUS M., MANNING, STEPHAN, PEDERSEN, TORBEN
Format Journal Article
LanguageEnglish
Published Chichester, UK John Wiley & Sons, Ltd 01.05.2013
John Wiley & Sons
Wiley Periodicals Inc
Subjects
Business costs
Business structures
complexity
Cost control
Cost estimates
Cost reduction
Cost savings
Costs
Decision making
Design
Economic costs
Error
Estimation
estimation errors
hidden costs
Management science
Offshoring
organizational design
Outsourcing
Savings
Strategic management
Studies
Task complexity
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Summary:This study investigates estimation errors due to hidden costs—the costs of implementation that are neglected in strategic decision-making processes—in the context of services offshoring. Based on data from the Offshoring Research Network, we find that decision makers are more likely to make cost-estimation errors given increasing configuration and task complexity in captive offshoring and offshore outsourcing, respectively. Moreover, we show that experience and a strong orientation toward organizational design in the offshoring strategy reduce the cost-estimation errors that follow from complexity. Our findings contribute to research on the effectiveness of sourcing and global strategies by stressing the importance of organizational design and experience in dealing with increasing complexity.
Bibliography:ark:/67375/WNG-0JC2MM9V-5
istex:70FC431E9FF8B6C034BE9AB9D5EF97E89D6EAC25
ArticleID:SMJ2023
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0143-2095
1097-0266
DOI:10.1002/smj.2023