Uncovering the hidden costs of offshoring: The interplay of complexity, organizational design, and experience
Article first published online: 22 SEP 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 34, Issue 5, pages 533–552, May 2013
How to Cite
Larsen, M. M., Manning, S. and Pedersen, T. (2013), Uncovering the hidden costs of offshoring: The interplay of complexity, organizational design, and experience. Strat. Mgmt. J., 34: 533–552. doi: 10.1002/smj.2023
- Issue published online: 22 MAR 2013
- Article first published online: 22 SEP 2012
- Accepted manuscript online: 17 SEP 2012 09:04AM EST
- Manuscript Revised: 13 SEP 2012
- Manuscript Received: 7 SEP 2012
- hidden costs;
- estimation errors;
- organizational design
This study investigates estimation errors due to hidden costs—the costs of implementation that are neglected in strategic decision-making processes—in the context of services offshoring. Based on data from the Offshoring Research Network, we find that decision makers are more likely to make cost-estimation errors given increasing configuration and task complexity in captive offshoring and offshore outsourcing, respectively. Moreover, we show that experience and a strong orientation toward organizational design in the offshoring strategy reduce the cost-estimation errors that follow from complexity. Our findings contribute to research on the effectiveness of sourcing and global strategies by stressing the importance of organizational design and experience in dealing with increasing complexity. Copyright © 2012 John Wiley & Sons, Ltd.