Learning from outsourcing: the effects of outsourcing strategy on organizational efficiency

Abstract

Theories of firm boundaries and empirical research on the consequences of boundary choices typically focus on the transaction or capability level. Studies of organization-level governance strategies to tease out how organizations learn from their boundary choices over time to develop capabilities for enhancing performance are scarce. We use a longitudinal, large sample, panel dataset on organizations and their outsourcing decisions of a full set of organizational activities to study organizational learning from outsourcing strategy. We examine the effects of three dimensions of outsourcing strategy―depth, breadth, and dynamics―on organizational efficiency. We find evidence that over time the outsourcing dimensions affect organizational learning differently. The results suggest that repeated experience from deep outsourcing strategies and the diversity of knowledge gained through broad outsourcing strategies are important for learning to be more efficient. In contrast, we do not find learning effects from dynamic outsourcing strategies. We discuss the implications of these findings for theory and research on organization-level boundary choices over time