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 displayed 300 characters
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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 displayed 300 characters
