Managing Flexibility in Outsourcing

In recent years, outsourcing has gained considerable management attention. However, the benefits of outsourcing are not without concessions. One major risk is losing the flexibility to change the extent, nature, or scope of the outsourced business services, and such flexibility is strategically imperative in today’s dynamic business environment. This paper seeks to clarify the multi-dimensional notion of flexibility in outsourcing by examining robustness, modifiability, new capability, and ease of exit. Adapting from Evans (1991), we also develop a framework to classify existing practices in managing outsourcing flexibility. We go beyond contractual provision to surface a portfolio of pre-emptive, protective, exploitive, and corrective maneuvers. These strategic maneuvers map well to traditional notions in coordination theory, both in advanced structuring through loose coupling and dependency diversification, and in dynamic adjustment through proactive sensing and reactive adapting. We put forward a set of propositions hypothesizing the relationships between the various strategic maneuvers and the different dimensions of outsourcing flexibility, and discuss the moderating impact of such maneuvers on outsourcing success. We hope the greater conceptual clarity will not only contribute to the effectiveness of outsourcing management but also spawn a new research agenda on outsourcing flexibility.