Strategic sourcing: benefits, problems and a contextual model

This paper reviews the strategic benefits and problems relating to the outsourcing decision. These include issues of cost, quality, flexibility, strategic focus, leverage and diversification, the potential loss of critical skills and knowledge, and appropriation of final product value. The outsourcing decision is presented as one that will vary between firms within an industry through the differences in each organization’s context. A model is developed, structuring the contextual factors: capability, cost, technology, supply and product market conditions, to enable a consideration of the outsourcing decision through a focus upon its implications for competitive advantage.