Article review assignment package 1.1 Make or buy decisions. Tuomas Antila Olli Kanninen Jaakko Laukkanen Topi Tynkkynen

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1 Article review assignment package 1.1 Make or buy decisions Tuomas Antila Olli Kanninen Jaakko Laukkanen Topi Tynkkynen

2 1 Make, buy, or ally: A transaction cost theory meta-analysis Topi Tynkkynen

3 1 Research objective and methods Purpose Article used quantitative meta-analysis to see how different empirical research results correlates on transaction cost theory (Coase 1937) The central question of transaction cost theory is whether a transaction is more efficiently performed within firm or outside Research question The research question was to see how well the data acquired and analysed from different literature sources correlates under hypotheses Literature research using meta-analysis on prior published materials (200 references) Hypotheses Hierarchical governance becomes preferred over market governance if: Asset specificity increases Volume uncertainty increases Market governance becomes preferred over hierarchical governance if: Technological uncertainty increases Assetspecificityhas a greater effect thanuncertaintyon choices between hierarchical and market governance As assetspecificityincreases, relational governance becomes preferred over market governance As uncertaintyincreases, market governance becomes preferred over relational governance Performance is enhanced when: Hierarchical governance appropriately aligned with transaction cost theory Relational governance appropriately aligned with transaction cost theory Transaction framework also includes transaction frequency

4 1 Main findings Results The research shows that hypotheses made based on the transaction cost theory correlate statistically quite well No evidence was found supporting the superior predictive power of asset specificity over uncertainty Transaction cost approach can be used to explain relational governance modes Interesting Hypotheses about transaction cost theory Meta-analysis as a statistical method to derive quantitative conclusions by systematically combining prior research results Learnings The transaction cost theory itself Making hypotheses in quantitative analysis Meta-analysis as a statistical research method

5 2 Firm and Individual Choice Drivers in Makeor-Buy Decisions: A Diminishing Role for Transaction Cost Economics Olli Kanninen

6 2 Focusal points The article challenged Transaction Cost Economics (TCE) model at predicting outcomes of makeor-buy decisions Importance of Individual Choice Driversin current business environment -> What are the effects of TCE variables vs. compensation systems? Study was conducted by survey where respondents rated the extent to which their compensation depends on implementing close relationships with customers and suppliers, choosing suppliers based only on price, and outsourcing whenever possible. The data were evaluated for compliance with key assumptions of the analysis techniques used to test the hypotheses.

7 Findings Some forms of compensation may be associated with make-or-buy decision outcomes Differential compensation across the professions involved may lead to conflict in decision process TCE hypotheses were not supported in this research TCE variables no longer viewed as being strategic enough? -> Incompleteness of the TCE explanation of decision outcomes and a need to include analysis of effects of compensation systems Aftermath In order to make optimized make-orbuy decisions, compensation systems need to be aligned with firm goals Decision making in the supply management not just about supply management strategy but also about business strategies 2

8 3 Outsourcing supply management Tuomas Antila

9 3 Research objective and methods Objective of the research was to study how applicable procurement activities are for outsourcing To meet this purpose following research questions were proposed: 1. What purchasing-related activities should be outsourced because they can be performed more efficiently and effectively on the outside? 2. What purchasing-related activities should NOT be outsourced because they can be performed better internally? 3. Does outsourcing represent an opportunity or a hazard for supply management? Are there any factors that would seem to make it lean one way or another? Written questionnaire to chief supply management officers Effective sample of 438 resulted in 126 responses

10 3 Findings and learnings Advantages Superior market knowledge Accumulated supply management expertise Advantage of large volume Disadvantages Inferior knowledge of The trade Needs of the production Compromised motivation to follow corporate strategy Strategic purchases should always be managed internally Non-strategic purchases may be more profitable to be managed by third party managers Furtherstudy consideringsupplier(third-party/outsourcedservices providers) point of view recommended.

11 4 Invisible costs in offshoring service work Jaakko Laukkanen

12 4 Invisible costs in offshoring service work Reasons for offshoring Cost savings in labor, comprehensive use of international expertise, 24/7 service availability Invisible costs in offshoring-context refer to lost customers or customer opportunities This occurs due to reduced customer service quality and ineffectiveness in processes The research questions of the article are Which factors in offshoring service work increase invisible costs? How can the impact of these factors be minimized? The article was a literature review and introduced a new concept for invisible costs The article did not suggest any quantitative model for measuring the impact of the different segments Major learnings, personal aspect: How culture can affect the customer experience, and how cultural attributes can affect one s behavior in a customer service situation (concepts of collectivism and power distance)

13 4 Two factors affecting invisible costs Interaction intensity Dimensions of interaction intensity Service content (how well defined) Service process (standardization, need for judgment, interdependence) How much interaction does the service require between the customer and the service provider The more intense, the more costs are likely to occur Interaction distance Dimensions of interaction distance Geographical distance Language distance Cultural distance How hard is it for the customer and the service providers to understand each other The more distance, the more costs are likely to occur

14 References Authors Title Journal, year, volume, issue, pages Geyskens, I; Steenkamp, J; Kumar, N Make, buy, or ally: A transaction cost theory meta-analysis Academy of Management Journal, 2006, 49, 3, McNally, R; Griffin, A Firm and individual choice drivers in makeor-buy decisions: diminishing role for Journal of Supply Chain Management, 2004, 40, 1, 4-17 transaction cost economics? Maltz, A; Ellram, L Outsourcing supply management Journal of Supply Chain Stringfellow, A; Teagarden, M; Nie, W Invisible costs in offshoring services work Management, 1999, 35, 1, 4-17 Journal of Operations Management, 2008, 26, 2,