Organisational innovation, information technology, and outsourcing to business services
Hölzl, Werner, Reinstaller, Andreas and Windrum, Paul (2005). Organisational innovation, information technology, and outsourcing to business services. UNU-MERIT Research Memoranda. UNU-MERIT.
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Sub-type Working paper Author Hölzl, Werner
Reinstaller, Andreas
Windrum, PaulTitle Organisational innovation, information technology, and outsourcing to business services Series Title UNU-MERIT Research Memoranda Volume/Issue No. 30 Publication Date 2005 Place of Publication Maastrich Publisher UNU-MERIT Pages 19 Language eng Abstract This chapter examines the relationship between organisational innovation, the introduction of new internet-based ICTs, de-verticalisation, and the rapid growth in business service outsourcing over the last decade. In order to examine this issue, we develop a model of organisational innovation. In this model, the goal of managers is to identify an organisational design that more effectively integrates all the administrative activities of the firm. As part of the process of innovation, the managers can choose to carry out an administrative activity in-house, or to outsource that activity. A key factor influencing this decision are the relative information costs of organising activities internally and the information costs associated with setting up and maintaining interfaces with external suppliers. The framework has been implemented in a novel model of organisational innovation. Simulations conducted on this model enabled us to consider the short- and long-run impacts of outsourcing on administration overheads and on long-term productivity growth. The interesting finding is that managers of a firm can become locked into a low productivity growth trajectory, associated with the outsourcing of activities, if they are myopic and learn through their own actions. They perceive outsourcing to cut overhead costs in the short-run (as expected), and so engage in further outsourcing thereafter. This is to the detriment of long-run productivity gains (system economies) generated though organisational innovation. This occurs because the potential for organisational innovation is reduced when modular components are outsourced, placing them beyond the control of the firms' management. The findings accord well with the empirical data, and provide a salutary warning for managers and policy-makers about the potential long-term implications of outsourcing. Keyword Outsourcing
Organizational innovation
Long run productivity developmentJEL D23
D24
D83
O33Copyright Holder UNU-MERIT Copyright Year 2005 Copyright type All rights reserved -
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