A strategic needs perspective on operations outsourcing and other inter-firm relationships

Abstract

Abstract This paper considers two issues: the formation of inter-firm relationships, and the choice of governance form. These have been widely investigated in both the strategic management and operations management fields. This paper contributes to the literature in three ways. First, we address why firms enter inter-firm relationships by hypothesizing that managers enter them to pursue three strategic needs, that is: efficiency/effectiveness, knowledge/learning, and global market access. Our first contribution evidences the relationship between the above strategic needs and a number of operational objectives that managers normally pursue in an inter-firm relationship. Second, we hypothesize how the achievement of the above strategic needs influences the choice of governance form. Third, we compare our framework with the operations management approach to strategic networks by evidencing similarities between the two approaches and showing that managers pursue a similar approach when they face inter-firm agreement issues, whether agreements are supply-chain- or strategy-oriented. We empirically test our framework using secondary data consisting of 95 inter-firm agreements. Our findings largely support the theoretical predictions, and also have important practical implications. First, our results offer managers “practice” suggestions on what kinds of objectives can be pursued together in inter-firm relationships to achieve specific strategic needs, and which governance form is most suitable, depending on the strategic need in question. Second, we consider the strategic reasoning concerning inter-firm relationship management, and some engineering issues, such as time and quality objectives, that, while largely considered in the operations management literature, are often neglected in the strategic management field.