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Organizational capabilities for managing the offshoring of product development
Mälardalen University, School of Innovation, Design and Engineering.ORCID iD: 0000-0003-4077-6949
2011 (English)Licentiate thesis, comprehensive summary (Other academic)
Abstract [en]

Large multinationals must continually innovate to produce products and services that meet the needs of a global market. In order to distribute work across multiple sites, they use techniques such as offshoring and outsourcing. This requires them to address organizational and cultural aspects to coordinate distributed product development activities.  While these techniques have received great interest in business as well as research in recent years, as the latest trend is to send increasingly complex functions such as research, development and engineering (RD&E) overseas. When offshoring involves high value functions, the transitions occur rapidly, and the associated risks and costs of failing increase. In addition to the hidden costs of offshoring and outsourcing, there is a risk of losing core competences over time or spillovers of critical knowledge to competitors in the new market. Despite the criticality of succeeding with their offshoring efforts, little is known considering of how companies handle the process of distributing work globally, and the capabilities they develop to manage offshoring efficiently. The objective of this thesis is to explore the routines and capabilities that organizations´ need to develop to make offshoring an integral part of the management global RD&E.

 Two in-depth case studies are used to develop firm specific theories which can inform both the theory and practice of managing offshoring. Case A provides insight into a client-supplier relationship between the Swedish site of a multinational and its Indian service provider. The current challenges identified through the case study are paired with a retrospective analysis of the evolution of the decade-long relationship, to show how the cross-cultural interface has influenced the evolution of the relationship. With the assistance of a literature review, the findings are explained through the theoretical lenses of national culture, organizational culture and contextual factors. Case B provides insight into offshoring management in terms of a product management transfer from a Swedish site to a research center in China of the same multinational. Besides the insights into the transfer of responsibility for a complex product overseas, the case provides the base of an organizational capabilities framework for managing all stages in the offshoring process (decision, transfer, operations and governance stage). Four key capabilities were found to support the management of offshoring, namely; technological skills, process & tools, relationship management and knowledge management.

Place, publisher, year, edition, pages
Västerås: Mälardalen University , 2011.
Series
Mälardalen University Press Licentiate Theses, ISSN 1651-9256 ; 138
Keyword [en]
offshoring, outsourcing, product development, management, culture
National Category
Engineering and Technology
Research subject
Innovation and Design
Identifiers
URN: urn:nbn:se:mdh:diva-12260ISBN: 978-91-7485-019-2OAI: oai:DiVA.org:mdh-12260DiVA: diva2:417324
Presentation
2011-06-14, L348, Drottninggatan 12, Eskilstuna, 13:00 (English)
Opponent
Supervisors
Projects
Effective Outsourcing/Offshoring of Research, Development, and Engineering
Available from: 2011-05-17 Created: 2011-05-16 Last updated: 2013-12-03Bibliographically approved
List of papers
1. The evolution of an collaboration-between an european high tech company and its indian service provider
Open this publication in new window or tab >>The evolution of an collaboration-between an european high tech company and its indian service provider
2009 (English)In: 2nd Asian Management and Entrepreneurship Workshop, Brussels, 2009Conference paper (Refereed)
Abstract [en]

Companies are looking for new ways of decreasing costs and gaining innovation, as the competition is escalating. Striving to shorten product lifecycles and time to market, the product development has become increasingly important for companies on the global market (Van Echtelt et al, 2008; Primo, 2002), with respect to speed (Clark, 1989) performance and cost (Van Echtelt et al 2008). In addition to this, there is a need to manage geographically and functionally dispersed units, as well as suppliers all over the world, to remain competitive. A recent trend show that the capabilities and resources for managing product development increasingly reside outside company´s boundaries, e.g. relying on suppliers. The offshore outsourcing contracts have mainly been awarded to developing countries, to benefit from labour arbitrage. While the clients of outsourcing are concentrated in North America, Western Europe and Japan, India has been the leading destination (Mao et al. 2008).

Current research has identified several factors for successful outsourcing, including; Supplier competence in technology and quality control (Boutellier et al, 2008; Primo & Amundson, 2002), Interface management and communication (Boutellier et al, 2008; Primo & Amundson, 2002; Van Looy et al, 2005 ), Amount of direct interaction with supplier (Primo & Amundson, 2002), Legislation and contracts (Mao et al, 2008), Nature of supplier involvement (Primo & Amundson, 2002; Clark, 1989), Trust (Van Echtelt et al, 2008; Sherwood & Covin, 2008 ; Mao et al, 2008), Intercultural Understanding (Edoff et al, 2009) and the maturity of collaboration (Sherwood and Covin, 2008). While there is a buzz concerning strategies for outsourcing as well as incorporating Open Innovation (Chesbrough, 2003), there is a lack of understanding of the evolution and transformation of such collaborations. We will describe the complexity of governing outsourcing relationships, the actions and understanding needed to increase learning and innovation capabilities in a supplier-client relation.

In this paper we use an in depth case study to describe the relation between a high tech European company and an Indian consultancy firm, which started 2000. The companies were studied over a period of six months, in Sweden and at the Offshore Development Center in India, to provide a bilateral perspective on managing customer-supplier relationships. In total 40 respondents were interviewed, and the results were triangulated by observation (including participation in management day) as well as analyzing business review documentation. The collaboration has evolved from outsourcing maintenance, to product development of partial as well as whole products. But what does the shift from outsourcing in regard of cost, flexibility and value mean for outsourcing relation? The companies have performed a wide range of activities to strengthen the relation internally (common goal, intercultural understanding, order competence), within the relation (courses, workshops and exchanging employees) as well as external relations (university collaboration and Top talent program). The results of the case study show that the evolution of outsourcing relation is due to many different factors as stated in the literature, but also greatly affected by the intercultural differences. The intercultural factors influence not only communication, but the organizational culture and structure, motivation and the innovative capability of the companies. While the Indian service provider can take advantage of their collective culture to be efficient with processes and knowledge transfer, the Swedes can benefit from the low power distance to make quick decisions and try out radical ideas. If companies learn about the differences they can organize and adjust processes in a way that the relation gives them the best of both worlds.

Place, publisher, year, edition, pages
Brussels: , 2009
Research subject
Innovation and Design
Identifiers
urn:nbn:se:mdh:diva-9187 (URN)
Available from: 2010-03-03 Created: 2010-03-03 Last updated: 2013-12-03
2. Managing Offshore Development- an Intercultural Perspective
Open this publication in new window or tab >>Managing Offshore Development- an Intercultural Perspective
2009 (English)Other (Refereed)
Abstract [en]

Offshore Outsourcing, by utilizing the suppliers´ economy of scale and lower wages, is one of the solutions that companies use to reduce costs. However, as the outsourced tasks are getting more complex and require innovative practices, cultural differences get exposed. Cultural aspects are important to consider in securing efficiency and innovation in offshore outsourcing. Nevertheless, the cultural influence has only been studied to a limited extent in literature. With this in mind, we have performed a case study exploring the cultural differences between a Swedish high tech company and its Indian service provider. The study is based on 40 in-depth interviews, observations and business review documentation. The phenomenon of culture is framed by a literature review on organizational culture, national culture and contextual factors. Our results show that by understanding, relating to and managing cultural differences in a systematic manner, companies can gain competitive advantages.

Keyword
New product Development, outsourcing, Innovation, Intercultural communication
Research subject
Innovation and Design
Identifiers
urn:nbn:se:mdh:diva-12252 (URN)
Note
A preliminary version of this paper was presented at 16th IPDM Conference, Twente 2009Available from: 2011-05-12 Created: 2011-05-12 Last updated: 2013-12-03
3. Transfer Management for Global Product Development Organization
Open this publication in new window or tab >>Transfer Management for Global Product Development Organization
2011 (English)Conference paper (Refereed)
Abstract [en]

Global product development has become integral to the way enterprises work today. The drivers for distribution work to global locations such India and China began with a focus on the significant cost differentials when compared to executing the work in western countries (Mao et al. 2008). Since then, the availability of talent (Lewin et al, 2009; Quelin & Duhamel, 2003) and accessibility of markets (Goldbrunner et al, 2006; Mao et al. 2008) have become equally important motivators.

 

The use of offshoring adds an additional layer of complexity to the already complex product development governance processes that companies use. Current literature discuss the offshoring or outsourcing decision (Levina & Su, 2008), describing organizational objectives for offshoring (Quelin & Duhamel, 2003; Lewin et al, 2009), guidelines for location choices (Cohen et al, 2009), deciding what functions to send offshore (Contractor et al, 2010) coupled with core competencies, as well as risks associated with offshoring (Lewin and Peeters, 2006; Aron & Singh, 2005). The offshoring process itself can be framed in terms of the decision to send functions (components, products, or services) overseas, progressing to planning and executing a transfer and iterating through the governance associated with operations. Since the vast majority of the literature focus on the decision stage of the offshoring process, or the governance perspective on existing globally distributed teams, there is still a need for understanding the process of transferring components and whole products. This papers aims to shed further light on that gap by describing the actual process of executing a successful transfer.

 The empirical foundation of this paper is a single in-depth case study of a new product development organization being established in China. We used an inductive approach that relied on qualitative and archival data to truly understand the dynamics of managing the offshoring of complex products and uncover the underlying mechanisms and structures. Given the paucity of literature and experience reports on transfers, an exploratory approach for collecting qualitative data was used. The primary source of data collection in this paper was interviews with key stakeholders within the projects at the general management and project management levels. We interviewed 15 managers from the Swedish and Chinese centres, and analysed archival data to gain a deeper understanding into both the sending and receiving side.

 The case enterprise, called Eurosoft, has a rich history of outsourcing to other suppliers, and was beginning to establish its presence in China. A strategic decision was taken by senior leadership to create an offshore organization in China that would assume complete ownership of one of their flagship products. Contrary to the conventional wisdom of having the same organizational structure replicated on the European and Chinese sites, Eurosoft chose to establish a product-centred organization on the China side. This paper will give insight to the context of transferring entire product responsibility for a mature product. While the strategies and motivations of distributing work across the product development life cycle have been debated in the literature, the question remains – how do you implement it?

 The case highlighted the key challenges that organizations face when handing an offshoring scenario. Even though Eurosoft Swedish centre was transitioning work to a sister organization within the larger Eurosoft enterprise, they faced hurdles with respect to establishing a common framework for carrying out the product transfer; communicating across cultural and national boundaries; having the receiving team demonstrate and feel comfortable with their competence; and dealing with the mismatch of organizational priorities in the two organizations. Eurosoft found that it was challenging to adhere to the transfer model when key resources from the sending side were often also focused on development projects unrelated to the transfer. When those projects ran into problems, the mentors from the sending side were unavailable to the receiving side. This introduces variability in the transfer process. While everyone recognized the importance of defining and locking the scope of the transfer, they found that scope creep occurred because a strategic roadmap was not articulated to the whole team. Furthermore, the number of interdependencies within a given product and between the products in the portfolio made it difficult to get consensus on the scope. The challenges that emerged in the case are consistent with that faced by project managers studied by Lacity and Rottman (2008). While none of these challenges in and of themselves are unique, the combination of the challenges in the context of a transfer project provides useful insights to both theory and practice.

 Based on the study, our recommendations to the practicing manager are to:

-          Establish a standard transfer model that clarifies transfer scope up front, and develop a governance mechanism to assess progress.

-          Ensure communication modes and interface mechanisms are articulated and agreed upon, and that training has been provided to address soft issues such as culture.

-          Provide dedicated resources to ensure effective knowledge transfer to the receiving team

-          Develop competencies in the receiving team across the four areas of technical, product governance, ways of working, and cultural commonality.

Research subject
Innovation and Design
Identifiers
urn:nbn:se:mdh:diva-12258 (URN)
Conference
18th International Product Development Management Conference, Delft
Projects
Effective Outsourcing/Offshoring of Research, Development, and Engineering
Available from: 2011-05-16 Created: 2011-05-16 Last updated: 2013-12-03
4. Understanding Organizational Capabilities for Effective Offshoring
Open this publication in new window or tab >>Understanding Organizational Capabilities for Effective Offshoring
2011 (English)In: Proceedings of the 1st International Technology Management Conference, ITMC 2011, 2011Conference paper (Refereed)
Abstract [en]

In the current competitive environment, the question is no longer whether or not to go offshore, but in determining what should be offshored and how it should be offshored, while keeping the value proposition for the organization as a whole coherent. The decision to offshore work to locations such as India and China may often be initially driven by the need to leverage the cost differentials when compared to western sites, but evolve to focus on other key value levers such as access to talent and time to market. Given that globalization of product development projects is an organizational reality today, in order to remain competitive, organizations have to develop capabilities to successfully transition to this new way of working. Despite the prevalence of offshoring in large multi-nationals, there is limited understanding of the dynamics of standing up new sites. In this paper, we focus on identifying some of the key capabilities that organizations need to effectively offshore work, through a case study of the transfer of a product from the European site of large-multinational called Eurosoft to one of their Chinese sites. Starting with their strategic decision to offshore the development of the product, we study the critical actions undertaken as part of the transfer process and illustrate four types of organizational capabilities- technology (ability to understand and execute the project); process & tools (ways of working both within the organization and with clients); relationship management (ability to govern at both the project-level and at the relationship level); and knowledge management (ability to grow human capital, institutionalize best practices, and codify learning).

Keyword
Organizational capabilities, offshoring, product development
National Category
Engineering and Technology
Research subject
Innovation and Design
Identifiers
urn:nbn:se:mdh:diva-12259 (URN)10.1109/ITMC.2011.5995974 (DOI)2-s2.0-80053046749 (ScopusID)9781612849522 (ISBN)
Conference
1st International Technology Management Conference, ITMC 2011; San Jose, CA; 27 June 2011 through 30 June 2011
Projects
Effective Outsourcing/Offshoring of Research, Development, and Engineering
Available from: 2011-05-16 Created: 2011-05-16 Last updated: 2014-02-18Bibliographically approved

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