1. Driven factors of BacksourcingExamining Outsourcing Failures
Student: Saranka Thyagarajah (Examination No.: 321804)
Supervisor: Jens Arvad Johansen
Delivery date: 10-12-2015
Introduction: Outsourcing is a trend that became visible during the
early 1990s, when companies such as IBM, Philips and Boeing decided to
try this sourcing style.1,2
Since then companies have backsourced their acti-
vities due to failed projects, which delivered low quality goods and services
leading to product recalls.3,4
This assignment identifies driven factors of backsourcing in order to under-
stand what goes wrong when outsourcing. The findings will help future deci-
sions-makers understand the consequences and possibilities of the decision
they are about to make.
Methodology: To answer the problem statement articles about out-
sourcing failures and backsourcing have been analysed. A literature review
have been conducted on these articles. This literature review have led to the
findings presented on this poster. The results are based on secondary
knowledge found in the articles. No primary data have been collected.
Definitions: The red arrows on Figure 1 illustrates backsourcing, while
the yellow arrows illustrate backshoring. This poster focuses on understan-
ding the movement of the red arrows.
Problem statement: “Why do companies backsource?”
Expectation Gap Strategic Organizational
Change
External Forces Market Trends &
Customer Demand
Conclusion: Organizations underestimate the complexity and influence outsourcing has on a project. This gap from expectation to reality results in a
disappointment, leading to the outsourcing failure, which in this study is seen as backsourcing.
“Devil is in the detail!” the driven factors indicate that details are not considered thoroughly when making decisions, which is why failures occur. The four
lists above, presents areas to handle with care when deciding to outsource. These will help companies from taking hasty decisions and prevent backsour-
cing. Since the cost of changing a sourcing decision is high, it is crucial for a company to make the right decision from the beginning.
Further work: two perspectives are open; one is to find other types of outsourcing failures, second is to look into how to tackle the driven factors of
backsourcing.
Less transparency. Partners keep-
ing secrets. 3,5,6,8,9
Organisation is resistant to
change.6,8,13,17
Desire to gain back knowledge.5,10
Focal company often loose spe-
cific knowledge about compo-
nents. 1,2
Fear to loose intellectual property
rights.2,6,10,13
New management in the organi-
sation. Shift of power and inter-
est.8,12
Internal growth giving new capaci-
ties in-house.14,9
Quick and responsive supply chain
(desire to reduce lead times). 14,15
Contractual issues and disagree-
ments between vendor and
client.5,13
High hidden costs. The total cost
of ownership is much higher than
expected. 1,5,10
Cultural differences when offshor-
ing.6,7
Vague relationship management
by both parties. 5,8,13,19
Asymmetry in information1,17
, due
to lack of sophisticated infor-
mation systems.5,6
Organisational complexity leading
to more transaction cost and bu-
reaucracy. 3,8,9
Inability of vendor to meet re-
quirements such as SLA and KPI. 8,9
National restrictions causing the
outsourced material to be illegal
domestically.4,7
Changes in regulations and nation-
al standards.8,11,16
Political uncertainties in collabo-
rating countries.6,7
Geographical challenges such as
natural disasters.
Working conditions not suitable at
partners’ workfield.14,16
Consumer demanding standards,
in terms of quality and methods of
manufacturing.14,16,17
Competitors change strategy, so
our company also feels pressured
to change. 2,11
Bandwagon effect.
Unethical CSR, leading to penal-
ties, in form of lost sales, from
customers.14,16,20
The entrance of new technologies.
Radical innovations. 2,11,18
Figure 1: Illustration of Backsourcing and Backshoring
Source: Saranka Thyagajarah inspired by Dmitrij Slepniov(2015)
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