Managing hazards of the make-buy decision in the face of radical technological change

Woo Yong Park

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

Abstract

Purpose: The purpose of this paper is to consider the management of hazards arising from the make-buy choice in the face of radical technological change. This sourcing choice can lead to distinctive exchange and hierarchical hazards. This study’s main interest is in investigating the research question “How can firms reduce those distinctive exchange and hierarchical hazards arising from the make-buy sourcing strategy when dealing with radical technological change?” Design/methodology/approach: The author develops hypotheses that the in-house retention of outsourced component knowledge will likely reduce exchange hazards arising from the buy strategy choice. And prior exploratory technological experience will likely reduce hierarchical hazards arising from the make strategy choice. The author explores the US mountain bicycle industry from 1980 to 1992 to test the developed hypotheses. For endogeneity arising from the make-buy sourcing decision, the author uses Heckman’s two-stage switching regression model. Findings: The major findings are that the in-house retention of outsourced component knowledge and prior exploratory technological experience is distinctive moderating factors improving performance of a buy strategy and a make strategy, respectively. Originality/value: Since the extant literature tends to focus on which of the two sourcing strategies provides the greatest performance advantages in the face of radical technological change, there is a strong implication to suggest that if a firm performs poorly with one sourcing decision, the firm should switch to an alternative one. Different from the expositions of the literature, this study elevates the understanding regarding how firms can improve the performance of their current sourcing orientation rather than whether they should switch from one sourcing strategy to another.

Original languageEnglish
Pages (from-to)1345-1364
Number of pages20
JournalIndustrial Management and Data Systems
Volume118
Issue number7
DOIs
Publication statusPublished - 28 Sep 2018

Keywords

  • Exchange hazards
  • Hierarchical hazards
  • Make or buy sourcing decision
  • Prior exploratory technological experience
  • Radical technological change
  • Retention of outsourced component knowledge

ASJC Scopus subject areas

  • Management Information Systems
  • Industrial relations
  • Computer Science Applications
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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