De-Integration ? Whether vertical integration is a viable strategic option depends on its ? Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities ? Impact on investment cost, flexibility, and administrative overhead ? Contribution to enhancing a firm's competitiveness Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option! Outsourcing Strategies ? Concept: ? Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities When Does Outsourcing Make Strategic Sense? ? Activity can be performed better or more cheaply by outside specialists ? Activity is not crucial to achieve a sustainable competitive advantage ? Risk exposure to changing technology and/or changing buyer preferences is reduced ? Operations are streamlined to ? Cut cycle time ? Speed decision-making ? Reduce coordination costs ? Firm can concentrate on "core" value chain activities that best suit its resource strengths Strategic Advantages of Outsourcing ? Improves firm's ability to obtain high quality and/or cheaper components or services ? Improves firm's ability to innovate by interacting with "best-in-world" suppliers ? Enhances firm's flexibility should customer needs and market conditions suddenly shift ? Increases firm's ability to assemble diverse kinds of expertise speedily and efficiently ? Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders Pitfalls of Outsourcing ? Farming out too many or the wrong activities, thus ? Hollowing out capabilities ? Losing touch with activities and expertise that determine overall longterm success

The bargaining power of buyers -- Buyers can be strong enough to drive down product prices, or to require higher quality and better service (which increases a company's costs and may reduce profits) Buyers have a high bargaining power when: ? They are in large/small number ? They purchase large quantities of a company's product ? They can switch orders between companies at low penalty to themselves To reduce the impact of the bargaining power of buyers - a corporation can consider vertical integration forward...

The organization also needs to consider outsourcing in light of its long term strategic directions and its information needs. Competition is another area to be carefully considered...

A good strategy will have to look at if the risk is great enough to attempt to reach the desired goal that a company wants to achieve. When a company wants to outsource a particular resource, the company must look at if outsourcing will help protect capabilities for the future or deter them...