Sourcing strategies to keep up with competition: the case of SAP

Abstract

This paper applies the Red Queen theory to explain how organizations utilize various sourcing arrangements in order to compete in an evolutionary arms race where only the strongest competitors will survive. The case study incorporates competition, and views sourcing strategies as a means to improve the firm’s viability to survive competition in the marketplace. The study begins by positioning the Red Queen theory within the sourcing literature. It subsequently applies the framework to a case study of SAP AG to illustrate how sourcing strategies have changed over time in response to the logic of competition. The case study reveals that (a) organizations are adaptive systems and capable of learning to make strategic changes pertaining to sourcing arrangements; (b) organizations select the terms on which they want to compete by developing certain capabilities within the firm; (c) organizations are reflexive and over time develop competitive hysteresis which allows them to become stronger competitors. In the case of SAP AG, various sourcing arrangements were selected over its 40-year history to respond to technological and market changes.