Extending Organizational Boundaries Through Outsourcing: Toward a Dynamic Risk-Management Capability Framework

Abstract

Pressure to maintain organizational profitability in an increasingly uncertain business environment is driving executives to seek competitive advantage by increasing their dependence on outsourcing, consciously taking on the associated additional risks. While risk management around outsourcing is traditionally perceived as preventing bad things from happening, this paper extends this view to align it closer to the board and executive leadership strategic agenda, enabling them to consider the full spectrum of potential opportunities that outsourcing could create for their organizations, particularly those that are more radical or transformational in nature. Building on insights from the dynamic capability theory and empirical data collected via survey and follow-up interviews of top executives, we offer a framework that encompasses two new capabilities integral to managing service providers: (a) the capability to have a broader perception of risk in outsourcing that recognizes opportunities that these risks present in addition to the threats and hazards and (b) the "asset orchestration"capability to develop more mature risk-management mechanisms that enable organizations to maximize the opportunity while addressing the risk. The framework provides multi-industry perspectives on gaining competitive advantage and risk mitigation through a newer and more dynamic approach to outsourcing and related risk management.