Politics and firm boundaries: how organizational culture, group interest, and resource affect outsourcing

Presenters:

Roland Adi NugrahaSyayyidah Maftuhatul Jannah

Hendy Mustiko Aji

Presenters:

Roland Adi NugrahaSyayyidah Maftuhatul Jannah

Hendy Mustiko Aji

Politics and Firm Boundaries: How Organizational Structure, Group Interest, and Resources

Affect Outsourcing

Matthew J. Biddwell

Politics and Firm Boundaries: How Organizational Structure, Group Interest, and Resources

Affect Outsourcing

Matthew J. Biddwell

ProblemsProblems

Most researches on this research area still used unitary-model in explaining organizational decision making process.

In fact, organization is not unitary, there are groups within, with different set of goals.

Prior researches showed that there were a conflict of interests (between group within organization) affecting make-or-buy decision making.

However, reason and how those conflicts might happened were rarely found and explained in most research paper.

Presenter: Roland Adi Nugraha

ObjectivesObjectives

To explain the phenomena of how intra-organizational interests affecting outsourcing decision making process.

Moreover, this paper also want to explain how intra-organizational politics influencing make-or-buy decision making process.


Theoretical BackgroundTheoretical Background

Capabilities-based View

Firm may gain competitive advantage through unique capabilities that other firms lack of. (Grant, 1991; Hayes et al., 1996)

Firm need to reinvest to prevent and improve its capabilities, so that competitors can not imitate. (Mahoney, 1995).

Transaction cost-based Theory

The theory of how cost level may influence organizational decision in providing goods or services through market or internal organization.


Theoretical BackgroundTheoretical Background

Agency Theory

This theory explains how information asymmetry (conflict) between principal and agent occurred.

Resources Dependence Theory

Group ability to influence decision making output is contingent on the in-return resources.


Theoretical Background

Bidwell (2012) guessed that the different interests accross group within organization may influence decision making process whether to or not to outsource.

Some factors might influencing intre-organizational interests:– Each group’s goal & responsibility within organiztion– Internal coordination and administrative control mechanism.


Research Settings & MethodResearch Settings & Method

This study used qualitative method, and quantitative (survey), involving IT department in a Bank.

IT department tasks are: application making, problem solving, responsible for development.

Some IT’s tasks are usually both accomplised insourcely (by internal employees) and outsourcely (by external vendors)

Three IT units involved in this research divided into 3 division:

1. Consumer

2. Specialist

3. Institutional


Research Settings & MethodResearch Settings & Method


DataData

The interview involved 64 informants, they are:

• 9 Senior Manager• 4 HR Manager• 13 Sourcing Manager• 6 Finance Manager• 22 Project Manager• 7 Developer• 3 Vendor


DataData


Theoretical ModelTheoretical Model

Sources of Group

Interest

Sources of Group

Interest

Effects of Outsourcing

Group Evaluation

of Outsourcing

• Differentiated Goals and Responsibilites

• Organizational Rules• Interdependency

• Differentiated interest in evaluating capabilities

• Arbitraging organizational rules

• Contracting externally to reduce internal uncertainty

• Loss of authority• Change in incentives and

controls• Different capabilities

Presenter: Syayyidah Maftuhatul Jannah

Sources of Group InterestsSources of Group Interests

“Working with (offshore vendors) has proved to be difficult though. They are in different time zones, there is less communication, they need to get to understand the legacy systems, and there is a need to get the Business to really think deeply about what they want up front ...”

(Sourcing manager)

Differentiated Goals and Responsibilities


Sources of Group InterestsSources of Group Interests

“I almost think the firm purposely puts very interntional road blocks to bringing on permanent staff because at the most senior levels of the firm they want to rigidly control headcount and spending,...”

(Project manager)

Organizational Rules


Sources of Group InterestsSources of Group InterestsInterdependencies

“It has been a very painful process to get the idea adopted that we need to document things, and that the business needs to document things. For example, now we will not give an estimate until we have a spec from the business... It is hard to change the way that they are doing things. Using [the outsourced vendors] helps...”

(Manager within consumer)


Group ResourcesGroup Resources

• “That was really a program pushed from the highest levels of technology management here… [It’s a] matter of how aggressively individual managers pursued it. Some managers did it to get more bodies in the door. [It was not about] what projects are more suitable.” (Project manager –institutional group)

Hierarchical authority

• Mandates to increase outsourcing seemed to be more rigorously enforced in smaller IT groups in which information asymmetrics between senior managers and project managers were lower.

Access to information

• “There are some groups that are politically powerful and don’t want to use [offshore vendors]. For example, there is one desk that made 9 figures for the firm last year and have their own developers that have worked for them for years, and been brought along with them..”

Contribution of resources


Theoretical ModelTheoretical Model

Group Resources

Group Resources

Group Evaluation

of Outsourcing

Effect of Conflict

• Hierarchical Authority• Access to information• Provision of valued resources

• Resources as determinant of outcomes

• Contracting for internal audiences

Continue…

Presenter: Hendy Mustiko Aji

“[Doing a project fixed price] is desirable from a lot of perspectives. As a project manager it is tougher to sell, but It helps to validate the sell.

Financial understands exactly what the cost is.”

(Sourcing Manager)

Contracting for Internal AudiencesContracting for Internal Audiences

Minimizing costs of outsourcing


“Are the contract terms about disciplining you or the vendors?”

Interviewer

“Probably disciplining us!

The vendor will do what we ask them to do

Project Manager

Contracting for Internal AudiencesContracting for Internal Audiences

Prevent internal actor from engaging in costly behavior


DiscussionDiscussionOrganization-Level Perspective on Firm Boundaries

Organizational structure creates the system of incentives, information and authority through it’s effects on the interest and resources of different groups.

Outsourcing decisions were shaped by structural considerations as the allocation of goals and authority as well as structure of work and controls.

“First-best” decision that maximize the interests of overall organization will not be made by manager.

But to made “second-best” decision for incentives and task assignment to reduce information asymmetry.


DiscussionDiscussionStructural Variables for Understanding Firm Boundaries

Evaluation of outsourcing decisions was strongly influenced by differentiation of goals and responsibilities across groups.

Outsourcing decisions were influenced by the nature of organizational rules within the organization.

Pattern of internal interdependences may affect managers’ incentives to outsource.

Allocation of authority, information, and other resources across groups affect outsourcing decision


THANK YOU!

Leadership & Management

Politics and firm boundaries: how organizational culture, group interest, and resource affect outsourcing