The Sourcing Cube: a tool for well-founded assessments of companies' sourcing decisions.
As components of the continuing process of industrialization, value creation and in particular the concept of "sourcing" hold particular significance for companies. This fact is reflected in the scientific literature, in surveys amongst leading practitioners, and not least in observable development trends. However, sourcing decisions tend to lack any theoretical foundation in practice, and the topic is frequently dealt with from an overly abstract perspective in theory. The question, then, as to how to methodologically and meaningfully support sourcing decision-making, often goes unanswered. We intend to close this gap by elucidating the application of a framework of reference that we have derived from various theories, which will help to assess companies' sourcing decisions.

Our framework of reference is an innovative approach towards assessing sourcing decisions, because it is derived from the perspective of an operative process orientation. The framework is visualized through a so-called Sourcing Cube, which is based on a variety of selected theories. First, we examine the core contents of these theories and their contributions towards a foundation for sourcing decisions, and we follow up by compiling three axes: the relative market and competition potential, the relative process competence, and the interface and delegation costs. In doing so, we incorporate both operative aspects (e.g. costs) and strategic considerations (e.g. the competitive positioning of a company). Since the Sourcing Cube considers two dimensions per axis, the core processes of a company's value creation can be individually allocated to eight established "boxes" (or "octants") of the frame of reference. According to the specific dimension involved in the three axes, i.e. depending on which octant a process is allocated to, the Sourcing Cube delivers a recommendation for a specific course of action.

Keywords: Sourcing Cube, Sourcing Strategy, Sourcing Positioning, Sourcing Decision, Management Decision, Value Creation Management, Outsourcing, Cooperation, Insourcing

Article Type:
Vendor relations (Analysis)
Decision-making (Analysis)
Outsourcing (Analysis)
Braun, Dirk
Schiffer, Sarah
Schiffer, Michael
von Nitzsch, Rudiger
Pub Date:
Name: International Journal of Strategic Management Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2012 International Academy of Business and Economics ISSN: 1555-2411
Date: August, 2012 Source Volume: 12 Source Issue: 2
Computer Subject: Vendor relations; Outsourcing
Geographic Scope: Germany; Nigeria Geographic Code: 4EUGE Germany; 6NIGR Nigeria
Accession Number:
Full Text:

The perception of what value creation actually is, is constantly changing. Whereas companies in the 1990s were following the approach of standardizing product ranges in order to be more effective and to achieve lower unit costs, after the millennium a newly focused business model and a cost-oriented reduction of in-house production resulted in a new understanding of processes and customers (Davenport/Short,1990). Since then, customer orientation and process optimization have moved to the fore in the mass production and service provision of companies (Betsch, 2005 and Frohmuller, 2008).

By identifying its individual core competences and adapting its operating activities towards these, a company is empowered to differentiate on the market. Due to the complete outsourcing of secondary functions (e.g. IT), in-house production or service provision continue to decrease in relation. As a consequence, traditional company business models of integrated value creation are being substituted by the networked, cross-company provision of goods or services (Speek, 2008). It is understandable that companies attempt to limit the complexity of their business activities by focusing on particular areas of their value-creating activities and particular business units, and concentrating on their strengths (Flesch, 2005 and Voigtlander, 2002).

It is imperative that companies face up to the concept of "sourcing" so that they can specialize in particular core processes and can allow less efficient processes to be carried out by other providers. Companies have a variety of sourcing options open to them. Figure 1 provides an overview of a systematization, the approach and terminology of which are adhered to in this analysis.


The types of sourcing can be differentiated according to their coordination and charted on a scale of different coordination types ranging between hierarchy (where the coordination instrument is the issuing of directives) to market (where the coordination instrument is the price). As a generic term, sourcing covers all the different varieties of product and service procurement. Outsourcing refers to the utilization of external resources for fulfilling in-house functions and insourcing is where a company provides products or services for external third parties. Further sub areas are co-sourcing, where the product or service is jointly provided in cooperation between employees of the outsourcing company and external resources. There is also the (classic) own production. Own production, co-sourcing (also known as cooperation) and outsourcing are all various ways of procuring a product or service for a company's own use. On the other hand, insourcing involves a company producing goods or services in-house but for other companies (Braun/Schiffer, 2012).

Any sourcing decision must be carefully considered because it is a key factor for a company to ensure sustainability (Langhans, 2007). However, it is often the case that where decisions of this kind are made, a theoretical foundation is lacking, and a potential cost-saving is deemed to have priority. This is backed up by the literature (Best/ Weth, 2005 and Accenture/International Bankers Forum, 2003). However, only in a few cases do the expected cost advantages ensue, which demonstrates that basing sourcing decisions on this particular aspect is not satisfactory (Best/Weth, 2005 and Grum et al., 2008). Additionally, substantial problems with quality can occur. It is estimated that around 80% of the outsourcing deals made at the onset of the millennium have not resulted in the success that managements had hoped for (Computerwoche, 2002 and 2004). The consequence of this was that some decisions--in some cases very cost-intensive ones--were revised and a lot of managers developed a certain degree of reservation against decisions to outsource (Engstler/Vocke, 2005). On account of the high costs, usually substantial strategic consequences, and also the sometimes enormous operational impacts owing to interfaces and interactions of processes (Davenport, 1993), exact knowledge of processes on the one hand and on the other hand a focused theoretical foundation for assessing sourcing decisions are called for if past mistakes are to be avoided in future.

In this paper, we follow on from the conclusion that many of the sourcing decisions made up to now can scarcely be described as having had a theoretical foundation, and that this deficiency has led to considerable disadvantages during practical implementation in a lot of cases. Aided by various theories, we will develop a sound framework of reference which will facilitate more well thought through sourcing decisions. It is not a case of formulating a new mathematical model, since sourcing decisions are much too complex for that. Furthermore, they involve a great deal of qualitative influencing variables that cannot be adequately accounted for or determined in the practical implementation of such a model. We are more interested in identifying features which are particularly important when it comes to making sourcing decisions. First, with the help of a perspective matrix for sourcing deliberations, various relevant theories, approaches and framework conditions are compiled to provide a holistic framework for sourcing decisions. Following on from that, the individual theories and approaches are examined with regard to the contribution they make towards a basis for sourcing decisions. Furthermore, existing models for an integrated application of several theories are taken into consideration. The ensuing results are brought together in a three-dimensional form--the Sourcing Cube--comprising 8 "boxes" (or "octants"). Depending on the dimension on the three axes, that is, depending on the octant to which a process is attributed, a particular course of action is recommended.


First of all it is important to identify the perspectives which are important with regard to the deconstruction of value creation and the resulting sourcing decisions (Schober, 2004), in order to then relate them to the relevant theories and aspects.

Doubtlessly, there are various possibilities for structuring this problem. The approach selected here involves as a first step the strategic perspective (i.e. taking into consideration the impact on a company as a whole) on the one hand and an operative perspective on the other (e.g. for examining changes to concrete processes). Furthermore, sourcing decisions do not necessarily only impact on internal conditions (e.g. on the company structure) but also on external ones (e.g. positioning of a company on the market), so that it makes sense as a second step to observe these perspectives individually and in detail. Using this rough breakdown, various factors which are discussed in relationship to sourcing decisions, and also applied theories, can be identified and brought into context. The resulting perspective matrix is shown in Figure 2.


The theories named here cannot be attributed to the perspectives of the matrix in any clear-cut manner. Rather, this type of depiction shows how they mutually impact on each other and arranges them according to how they usually find application in the literature on sourcing. The legal framework conditions hold a particular position, since they do not constitute an explicative theory but rather a country-specific limitation to the practical implementation of sourcing activities. Their impact, then, cannot be weighed against contradictive theories in the sense of economic advantages; rather it represents a form of "veto". However, in this paper we shall not be examining legal issues, but rather we shall adopt an economic perspective. We merely wish to point out that different countries have substantially different regulations with regard to labor laws, laws of partnership and corporations, fiscal laws and data protection. It must be checked whether these regulations have been adhered to following the selection of an economically optimal strategy and before its implementation.

Figure 2 shows that a large area of the spanned perspectives is covered by the various theories. There are other theories in existence, of course, which deal with impacts on sourcing decisions. Thus, apart from the form of cooperations as a potential sourcing decision, Game Theory and Resource Dependence Theory are also possibilities (e.g. Schober 2004). But this poses no disadvantage for the model which is to be developed, because it sheds light on the most important core aspects of sourcing decision-making, whilst leaving room for new ideas, modifications, or case-specific adaptations. However, even if further models were to be considered, it would not be possible to completely illuminate all the "dark corners" of the perspective matrix, since theoretical models cannot fully depict reality. Models are, on the other hand, meant to simplify and contain those structures which are considered to be relevant (Bastian, 2004).


In the previous section we brought together various applied theories and we displayed these in a perspective matrix (cf. Figure 2). In order for sourcing decisions to be rendered more transparent and well grounded by each theory or viewpoint that flows into the frame of reference, we observe in the following the Cost-Accounting Approach, the Transaction Cost Theory, Benchmarking, the Market-Based View and the Resource-Based View--including the derived Core Competence Approach and the Principal-Agent Theory, to ascertain their value and significance for sourcing decisions. Finally, these strands from the various approaches are woven together into a "whole".

3.1 Cost-Accounting Approach

A look at the costs was, until now, always one of the key criteria for sourcing decisions (Hellinger, 1999 and Rebouillon/Bauer, 2001). The fact that processes are outsourced means that the outsourcer can transform fixed costs into quantity-dependent variable costs and thus reduce the risk of fluctuations in capacity. In addition, future investments can be avoided or at least kept to a minimum. Linked to this are expectations of increased reliability on the one hand and savings of up to 30% on the other. However, the emphasis has to be on "up to" because, as already mentioned, poorly planned sourcing can be very detrimental to expected cost savings. By variabilizing costs, a company can utilize the financial resources thus saved in order to focus on its core activities and concentrate more on its core competences. The insourcer, on the other hand, profits mainly from specialization and cost advantages stemming from economies of scale (Wernthaler, 2004, Herrmann et al., 2001, Eichelmann et al., 2004, Rebouillon/Bauer, 2001, Graband/Wand, 2003). However, these economies of scale are only possible for the insourcer if processes are standardized to a high degree and very similar across companies (Pohler, 2004).

From a cost-accounting perspective, processes should be outsourced precisely at the point where the cost of buying in from another company plus the costs of discontinuing at one's own company are lower than the costs for own production (Buhner/Tuschke, 1997). Pinpointing the costs of outsourcing is seen as relatively simple: these consist of the price to be paid to the company providing the service or product plus additional costs such as transport costs (Seichert, 1990). The transport costs for companies providing services are usually low because such services are not usually 'physical' but implemented via electronic means, so that IT costs are more likely to be incurred than actual transport costs. However, care should be taken if costs are compared, since some product/service providers are guilty of "bid dumping": an initial first price is submitted but--at a later date when the outsourcer is dependent on the good or service--prices are increased (Schneider, 1996). Although cost-accounting approaches do not take opportunistic behavior into consideration when sourcing decisions are being evaluated, the following Principal-Agent Theory does do so. The costs of a company's own production can be established by looking at the corresponding accounts (Buhner/Tuschke, 1997), but the question is: which costs are actually relevant for sourcing decisions? Amongst others, the maturity and the degree of utilization of the capacities are important (Hellinger, 1999).

With short-term sourcing decisions, it is sufficient to compare the variable costs with the costs of the outsourcing, since from a short-term perspective, the fixed costs are "sunk costs" and thus not relevant for this type of decision making situation. For longer-term planning horizons, however, fixed costs should be included in any deliberations (Heyd, 1998 and Fischer, 1993). Johnson and Kaplan (1987) suggest that for cost observations the length of the observation period should be generally extended in order to be able to treat all costs as variable ones. One reason for this is that in most companies, fixed costs are on the increase and are thus increasingly relevant for a cost-based decision. Although the percentage of direct labor costs for banks is, on account of the enormous significance of the "human resources" resource, much higher than in industrial production, the general costs have also increased in the latter case (Moormann et al., 2006). Here, we share this view, in particular because the outsourcing of core processes is not done on a short-term basis. Rather, the focus is on a long-term modification of the value chain.

The degree of capacity utilization has to be taken into consideration in those cases where the product or service provider is currently fully utilizing his capacities, but where capacities would become available if outsourcing were implemented, which could then be used for other bottlenecks. The potential future increase in production would have to be marked up as opportunistic costs against the costs of own production (Deyhle, 1996). An application of the Net Present Value Principle enables a comparison of current investments with future savings or additional costs, so that comparability is possible over a longer time period (Moerler/Uwer, 2004). From a cost-accounting perspective, insourcing is profitable if the costs of the product or service ordered by the outsourcer are lower than the price that the outsourcer is prepared to pay. Here, it is particularly important that the impact of the before mentioned economies of scale and the specialization effects are included in the costs of the insourcing. In addition, costs for the expanding of a company's own capacities are particularly relevant from a long-term perspective (Seichert, 1990). Apart from this, the costs are similar to those of own production, since insourcing is fundamentally own production being carried out for another company.

A problem with the Cost-Accounting Approach is primarily the difficulty of the accountability of the general or fixed costs for individual processes. This difficulty can, however, be alleviated through detailed process cost accounting (Buhner/Tuschke,1998). Additional problems are (1) decision making based on an isolated observation of the variable costs and ignoring the fixed costs, as this often leads to a decision against outsourcing or for insourcing because a company overrates its own cost situation (Hellinger, 1999) and (2) the lack of consideration of other forms of service or product provision (Benkenstein, 1994) apart from own production and outsourcing, and (3) the relevant company departments "playing down" their costs (Schneider, 1996).

We can see, then, that costs considerations--and thus the Cost-Accounting Approach--are very relevant for sourcing decisions, because low costs coupled with the same turnover lead to increased profit--the goal of practically every company. For this reason, the findings from the cost-accounting perspective will be allocated a superior position when it comes to creating a framework of reference. However, the Cost Accounting Approach entails several problems, so that a sourcing decision made solely on this basis is not meaningful. In particular the fact that costs which are not easily captured by an accounting system are not given due consideration speaks against a holistic sourcing decision. It is exactly at this point that Transaction Cost Theory comes into its own. Furthermore, this theory expands the spectrum of forms of outsourcing through additional possibilities (e.g. through cooperations), which are becoming increasingly important nowadays (Benkenstein, 1994). On the other hand, it completely neglects strategic considerations, which is why it is imperative that such a perspective is additionally incorporated into a frame of reference (Knolmayer, 1994).

3.2 The Transaction Cost Theory

This is one of the most frequently implemented theories when it comes to creating a basis for sourcing decisions. Transaction Cost Theory strives to explain why specific transactions, such as that of a good or a service or a legal right (Williamson, 1990 and Williamson, 1989), are more organized and more often implemented in some institutions than in others (Ebers and Gotsch, 2006). The determining of a transaction requires identifiable interfaces between the transaction processes (Williamson, 1990 and Commons, 1934). Following on from this, it is necessary that precisely those forms of institution should be chosen where the total sum of the before-mentioned production and transaction costs is the lowest (Williamson, 1990).

However, the implementation of transactions always entails costs. If these costs are included in an analysis together with production costs, it becomes clear that companies have a "right to exist" if--with the same production costs, transactions can be implemented more cheaply within the company than on the market (Coase, 1988). If, however, the transaction costs are higher within the company, then the good or service should be obtained on the market, i.e. should be outsourced. The transaction costs may be divided into fixed and variable costs on the one hand, should they be incurred in the course of specific investments in the facilities of the institution or depending on the number and scope of the transactions (Richter/Furubotn, 1996). On the other hand, external transaction costs are distinguished from internal ones, depending on whether the transaction is undertaken inside a company (e.g. for regulating the transactional relationships between the members of the organization) or via the market (Krakel, 2007 and Richter/Furubotn, 2003). In addition, the external transaction costs are divided up into ex-ante and ex-post (Ebers/Gotsch, 2006 and Picot, 1999). The internal transaction costs can also be broken down further--as Figure 3 shows.

WILLIAMSON (1990) goes a step further by denoting three key environmental characteristics of a transaction that have a big impact (particularly on the extent of the external transaction costs: (1) the extent of the transaction-specific investments that the transaction partners must carry out, (2) the uncertainty related to the transaction, and (3) the frequency of the transaction. Later, the characteristic "strategic significance" was added in order to cover strategic aspects in the Transaction Cost Approach. A more detailed insight will not be undertaken at this point (see, rather, e.g. Picot, 1990).

If transaction-specific investments are implemented outside of the relationship between service/good provider and service/good buyer, they lose value the more specific they are (Picot/Hardt, 1998). The extent of the specificity is the most important influencing factor for transaction costs (Picot, 1999). A person who has to carry out specific investments is in a less favorable position because negotiating a change of business partner cannot be done without incurring considerable new costs. Since the Transaction Cost Theory assumes opportunism for business partners and opportunistic behavior is regarded to be one of the biggest risks of outsourcing (Matiaske/Mellewigt, 2002), there is the danger of renegotiation of contracts to the detriment of the investor. This risk, on the other hand, results in higher negotiation and controlling costs in order to prevent precisely this scenario occurring (Wintergerst/Welker, 2007). Consequently, with growing specificity due to this mutual dependency, the tendency to engage in longer-term contracts entailing a greater degree of vertical integration increases (Riordan/Williamson, 1985). Figure 4 shows how the transaction costs behave in various forms of sourcing, depending on the degree of specificity.


The second influencing factor on the transaction costs--uncertainty--indicates that it is very expensive and practically impossible to completely specify a decision. Williamson (1975) differentiates here between parametric uncertainty, which includes situation-dependent uncertainties relating to the transaction, and their future developments, and behavioral uncertainties that arise from the risk of opportunistic behavior of a transaction partner based on asymmetrical information dissemination (Williamson, 1990). The transaction costs increase ex ante with increasing uncertainty, since more contingencies have to be included in the outsourcing contract. Nevertheless, the contracts remain incomplete owing to the assumption of limited rationality. With increasing uncertainty, the likelihood of renegotiation in order to adapt to changing conditions increases, as do the ex-post transaction costs (Ebers/Gotsch, 2006). For high uncertainty in conjunction with long-term specific investment, the coordination advantages of vertical integration will predominate. Thus, company-internal implementtation of the transaction would be the preferable choice. Of course, changes in internal transaction costs must also be considered, because the margin for internal opportunism increases with specificity and uncertainty (Baur, 1990). However, it is believed that internal transaction costs do, in general, change less than external ones (Kappich, 1989).

The frequency of transactions describes how often a good or service is provided per time interval within a transactional relationship (Nolting, 2006). Its impact on the extent of the transaction costs is not autonomous, though, but occurs in connection with the other influencing factors, moving towards the profitability of specialized coordination structures, such as hierarchies. This is demonstrated by the fact that even if high safety measures and standardization of a good or service are required, a very high rate of frequency of the transaction does not necessarily mean that the service or good should be acquired from within a company's own facilities. One only needs to think of standard products, such as payment transactions in the banking sector. Amongst other reasons, this dependency on other factors often means that the frequency of transactions is not considered to be particularly relevant. High frequency leads to fixed cost degression and thus helps to amortize the "set-up" costs that occur in particular in the case of internal transaction costs. Only a high degree of specificity coupled with high uncertainty results in the frequency of transactions also being relevant (Baur, 1990).

These three environmental characteristics have the greatest impact on the extent of the transaction costs. However, the before mentioned behavioral assumptions of limited rationality and opportunism together with the transaction atmosphere are also relevant. The last mentioned involves all the related social, legal and ethnological frameworks which impact on the various coordination and motivation tools (Picot et al., 2003). Finally, the question of the quantifiability of the transaction costs must be given attention. There are various approaches to doing this. For the search costs, for example, the cost savings from the search for a provider of a product or service who is less expensive than the average could be used as a measurement. The company-internal transaction costs could be measured as the percentage of the general costs of a company. The exact percentage is, however, not known and can only be estimated (Richter/Furubotn, 1996). It is apparent that an exact quantification of transaction costs is very difficult, since in most cases the factors are not measurable in monetary terms. Instead, the transaction costs must be estimated via the dimensions of the influence of the before mentioned influence factors (Picot, 1999). A lot of authors are of the opinion that the lack of knowledge about the absolute quantification is not a disadvantage, since a relative comparison of the transaction costs of alternative institutional arrangements is what is needed, rather than a statement on absolute efficiency (Williamson, 1991).

Summarizing, we can say that Transaction Cost Theory contributes some relevant (sometimes more, sometimes less situation-dependent) aspects for implementing sourcing activities, but could--with regard to the making of well-founded sourcing decisions--be substantially extended and refined. As an autonomous tool for weighing up sourcing alternatives, it is not adequate (Disselbeck, 2007). However, it must be taken into consideration. In their analysis on transaction costs in the American economy, WALLIS and NORTH (1986) find that in 1970 transaction costs were responsible for 46.66 to 54.71% of the GNP. Even if the strength of this claim is somewhat limited owing to the before-mentioned problems, it does demonstrate again the importance of transaction costs. Thus, Transaction Cost Theory findings must in addition to other Cost-Accounting Approaches be taken into the framework of reference (primarily from an operative perspective). As already mentioned, transaction costs also provide points of contact with strategic deliberations, which will be looked at later, as well as with the Principal-Agent Theory, which will now be examined with regard to its relevance for sourcing decisions.

The Principal-Agent Theory covers the relationships between one or more principals and an agent that they hire to carry out specific tasks (Jensen/Meckling, 1976). On account of the fact that both the principal and the agent are pursuing the goal of maximizing their own interests, potential conflicts of interest may arise. Because the principal--owing to asymmetric information--does not know the intentions of the agent, the relationship is secured by a contract (Elschen, 1991). This is intended to avoid the agent exploiting his information edge over the principal in an opportunistic manner by way of hidden characteristics, hidden action and information, or hidden intention (Picot et al., 2003 and Richter/Furubotn, 1996).

Hidden characteristics occur prior to finalization of a contract and result in the principal signing a contract with a "worse" party (adverse selection) because the principal misjudges that party. To avoid this situation, the principal can secure more detailed information, e.g. through tests and screening procedures. Also, the principal can offer the candidates different contracts, from which they may select one. These are formulated in such a way that hidden characteristics become evident (self selection). However, good candidates themselves have the chance to demonstrate their strengths to the principal, e.g. through certification (signaling) so that a worse co-candidate is not selected (Akerlof, 1970). Hidden action and hidden information show up after finalization of the contract, whilst the task is being implemented.

Hidden action implies that the agent has a certain amount of room for maneuver at his disposal, which he can use for his own interests (Picot/B6hme,1999), because the principal cannot watch him continuously (moral hazard). With hidden information, what the agent does is visible to the principal, but the latter cannot correctly judge the situation. In particular in cases where the principal lacks the necessary subject knowledge and is thus dependent on the agent, the agent can hold back the relevant information to his own benefit. Both of these problems can, for instance, be countered through contractual relations, monitoring or incentives (Breuer/Mark, 2004). Hidden intention will also only appear whilst a task is being carried out. It goes a step further than hidden action or hidden information. The principal is aware of the agent's opportunistic behavior but on account of advance provisions that are irreversible (sunk costs), he is dependent on the agent (Krakel, 1999) and is not able to punish this behavior (hold up). He is more likely to attempt to involve the agent in, for instance, the success of a good or service, so that the interests of both parties are balanced off.

Any improving of information deficits by the principal with regard to the above described problems is always bound up with costs--the so-called agency costs. These costs generally arise from collaborations, even in cases where a principal-agent relation is not clearly identifiable (Jensen/Meckling, 1976). They include the supervision and controlling costs of the principal (which are closely related to Transaction Cost Theory), the signaling and guarantee costs of the agent (both intended to lower the level of uncertainty), and the remaining welfare loss (residual loss), which arises from a lack--or partial lack--of transactions stemming from missing information. A type of cost-performance relationship or form of coordination should be selected which minimizes the agency costs (Picot et al., 2003). The types of problem described here are also of relevance for sourcing decisions, because these also entail the risk of the insourcer (agent) having an unfair advantage over the outsourcing institution (principal), because the agent may profit from an informational edge and intransparency. On the other hand, it is also the case that intransparent behavior will encourage the outsourcer to switch to the competition. It is, then, up to the agent to signalize commitment by increasing his transparency (Moerler/Uwer, 2004 and Macharzina/Durrfeld, 2004). However--in big companies in particular--the process of outsourcing can aid in decreasing the agency costs, since inter-departmental opportunistic behavior and so-called departmental egotism can be dismantled. Thus, a decreasing complexity can go hand in hand with a reduction of the vertical integration, lowering the company's internal agency costs (Cheon et al., 1995).

However, because the before mentioned problems may occur (again) in the frame of a principal-agent relation in a sourcing decision, it should be noted that with regard to agency costs, a reduction of vertical integration--which is the case with outsourcing--will on the one hand lower the internal agency costs of a company but on the other hand will result in an increase in external agency costs. For this reason, with sourcing decisions it is always necessary to weigh these two scenarios against each other (Wild, 2003 and Disselbeck, 2007). Analogously to the Transaction Cost Theory, the Principal-Agent Theory can be criticized with regard to the operational possibilities for establishing the observed costs, since although these can be defined, they are factually hardly observable or measurable (Ebers/Gotsch, 1999 and Elschen, 1988). Therefore, the generally complex problems in relation to the observation of principal or agent behavior need to be complemented by or combined with further theories. However, the Agency Theory has led to a much better understanding of what type of contract is to be expected or is optimal in cost-performance relationships with regard to specific incentive and information aspects (Elschen, 1991).

Taking a look at its practical application, we can criticize two assumptions of the Principal-Agent Theory. On the one hand, not all problems of a cooperative relationship can be cleared up by signing a contract. For example, problems can occur after a contract has been signed, and these need to be taken into consideration. On the other hand, a problem is posed by the lack of informative value with regard to making a decision about whether one company or a number of contract suppliers should be selected (Riedl 2003 and Dibbern et al., 2001). For its application with regard to the creating of a frame of reference for assessing sourcing decisions, we can say that the Principal-Agent Theory is mainly concerned with forms of contract between a company and service providers and is less supportive of establishing strategies for meaningful sourcing activities (Jensen/Meckling, 1976). Thus, findings from Principal-Agent Theory will--in addition to Transaction Cost Theory--enter into the framework of reference, but will have no central role.

3.4. Benchmarking

According to its creator Camp (1994), a Benchmarking program is a continuous process which entails products, services, and practices being measured against the strongest competitors or those companies which are regarded to be industry leaders. The core concept is a systematic, permanent comparative analysis of a company's own performance--including products or services, processes and methods against those of the competitors, in order to identify the latter's "best practices" and to adapt these to a company's own requirements. The selection of Benchmarking partners depends on the goals of a particular Benchmarking process. Basically, there are several comparison options. Ranked according to their increasing input requirements, these are (1) internal Benchmarking between individual departments, various locations of a company, or different divisions of a concern, (2) external, competition-oriented Benchmarking with competitors from the same industry, and (3) external, cross-industry Benchmarking, which is particularly helpful for deriving new ideas and innovative solutions from the concepts and methods of other companies (Pieske, 1994, Muller-Stewens/Lechner, 2003 and Scheffer 2007).

For sourcing decisions it is particularly external Benchmarking which is of interest. This can be implemented within the same industry or with other industries. Where non-industry-specific and centralized and location-independent processes are concerned, specialized service providers are available who can perform much more efficiently than any vertically integrated department of a company can. Camp (1994) proposes--as shown in Figure 5--specific phases for comparing performance efficiency of one's own company with that of others.

With regard to the significance of Benchmarking for sourcing decisions, and its influence on our intended framework of reference, we can say that it can provide a valuable contribution for operationabilitiy. Benchmarking enables a company to position itself in a comparison with its competitors. This requirement has already been examined with regard to Transaction Cost Theory. Furthermore, Benchmarking is also helpful with regard to strategic characteristics, enabling the positioning of a company within the frame of reference--which will be shown later. The creation of a Source Board (Braun and Schiffer, 2012) is particularly useful for ascertaining a company's own sourcing position and also for Benchmarking in relation to strategic decisions about sourcing activities.

3.5 Resource-Oriented Strategy Theory

The Resource-Based View (RBV) focuses on the analysis of internal processes of enterprises. This is in contrast with the approach which was popular until the 1990s and which was primarily market-based (and described hereinafter). Enterprises are no longer regarded as administrative units but rather as bundles of resources--first described by PENROSE (1959). A company is able to sustainably target strategic advantages and subsequently competitive advantages in the market if it uses its resources more effectively and more efficiently than its competitors or if it has resources which other companies do not have (Muller-Stewens/Lechner, 2003). WERNERFELT (1984), who is regarded to be the pioneer of our current understanding of the Resource-Based View, states that 'resources' involve everything within a company that can be regarded as a strength or a weakness. In the sense of the Resource-Based View, resources can be divided up into tangible and non-tangible ones and also human resources, i.e. competencies specific to individuals. In addition, organizational potential may also be regarded as a resource because it can generate advantages via a unique combination of available resources. Integrated bundles of resources are referred to as 'competencies' (Moormann et al., 2006), and we take a more detailed look at these later. Owing to the fact that no company is the same as any other company, the Resource-Based View assumes that all resources are heterogeneous and immobile. Resource advantages can only arise from imperfect factor markets, which are characterized by asymmetric information and transaction costs. If this were not the case, then it would be possible to correct the dissimilarities between companies within a short time period, because only the existence of heterogeneous and immobile resources enables competitive advantages to be gained in the long-term. Whereas short-run competitive advantages are easier to gain, only specific resources--so-called distinctive resources--have the potential for achieving sustainable success (B6rner, 2000a). The distinctive resources must be (1) valuable to the customer, (2) rare/specific to the company, (3) hard to imitate and (4) non-substitutable (Barney, 1991).

The Resource-Based View is particularly suitable for those strategic decisions which--in the broadest sense--relate to the provision of resources (B6rner, 2000b). Sourcing decisions belong to this category. Own production is--according to the Resource-Based View--always preferable in those areas where the available resources display the before mentioned 4 characteristics, whereas outsourcing can be considered for resources which do not have these characteristics, or only to a limited extent (Sjurts/Stieglitz, 2004).

3.6 Core Competencies

Directly related to the Resource-Based View is the identification of the core competencies of a company. These can be seen as particular configurations of the already mentioned 'distinctive resources' PRAHALAD and HAMEL (1990) were of the opinion that sustainable competitive advantages would arise not solely from resources but from the specific management of these resources. If a company theoretically has the right resources ('have positions') to create competitive advantages, this does not mean that they can be necessarily used on the market. This requires the corresponding competencies ('can positions'), i.e. skills, in order to have the most useful effect of resources for a customer via cooperation and coordination (von Nitzsch, 2008).

Long-term, sustainable competitive advantages in the sense of RVB can, however, only be reached if a competence is not only a general company competence but a so-called core competence. A pithy definition of a core competence is that by KRUGER and HOMP (1997): "A core competence is the permanent and transferable source of the competitive advantage of a company, which is based on resources and skills". If a company is intent on ascertaining its core competencies, a step-wise observation of these makes the most sense. A competency becomes a core competency by fulfilling the following six criteria: (1) creation of a unique and profitable customer solution, (2) limited mobility, (3) possibility of procuring/building up the competency 'under priced', (4) imperfect imitability and substitutability, (5) flexibility and transferability to other markets, (6) developability (von Nitzsch, 2008). By definition, a core competency only exists if all of these six conditions are fulfilled. However, the competitive advantage which a company secures for itself via a competence increases with each level of the 'escalator effect'. In order to identify (core) competencies, it is possible for Benchmarking to be used. By comparing a company with external competition, it becomes apparent that processes which are "running well" do not necessarily imply a core competency if there are competitors who are (considerably) better at them.

Finally, it should be noted with regard to the significance of 'core competencies' that, just as the costs are deemed the key reason for sourcing decisions from an operative perspective, from a strategic perspective, the identification and focusing on company-specific core competences is the key reason (Rebouillon/Bauer, 2001). Thus, in practice, apart from costs, the focusing on core competencies is one of the most frequently cited reasons behind sourcing decisions (Matiaske/Mellewigt, 2002). However, a Core Competencies Approach and a Resource-Based Approach can only be observed in tandem, since the Core Competencies Approach can be understood as a special interpretation of the Resource-Based View (B6rner, 2000a). Since outsourcing (as an activity) and Resource-Based Strategy (as a management tool) are mutually productive, without a bundling of strengths (i.e. outsourcing), no leadership position in competence can occur, and without a specific competence-orientation, no meaningful outsourcing can take place (Friedrich, 2000). Findings from Resource-Oriented Strategy Theory and the Core Competencies Approach should, then, be brought to bear on any decisions about sourcing activities.

3.7 Market-Oriented Strategy

The core element of the Market-Based View (MBV) is an external, market-oriented perspective, more exactly an analysis of the general economic environment, of the industry and of a company's competitors (Moormann et al., 2006). The competitive advantages of a company result primarily from the company's position in the industry and also the environmental influences. Particularly in the 1970s and early 1980s, the Market-Based View was the dominant strategic perspective, but lost out as of the early 1980s to the burgeoning popularity of the before mentioned Resource-Based View (Sampler, 1998, 343). The beginnings of the Market-Based View can be traced back to the structure-conduct-performance paradigm in the industrial organization of Mason (1939) and Bain (1956 and 1959) This claims that the success of a company results only from its environment, and thus the structure of the industry in which the company operates impacts on the company's conduct or strategy, and also dictates its performance (Porter, 1981 and Haertsch, 2000).

With his model of the Five Forces, PORTER (1999) expands on this idea. The competitive intensity and the performance of an industry are dependent on five forces of competition and their interaction: (1) First, competitors exist in an industry or, more specifically, at a value creation stage, which means that a natural rivalry is present amongst the existing companies. (2) There is also the threat of potential new competitors, (3) The bargaining power of the suppliers on the one hand and (4) The bargaining power of the buyers on the other hand as well as (5) The threat of substitute products or services. In order for companies to formulate their strategies, it is the strongest of these forces that are relevant. Depending on the industry and value creation stage involved, these are found in varying constellations (Porter, 1999 and Maa^/Scherm, 2005). Generally speaking, the more intensive the rivalry is shown to be in the form of the Five Forces, the lower the success potential and the attractiveness of the industry are (Ruhli, 1995 and von Nitzsch, 2008).

PORTER (1999) emphasizes that it should be the goal of any company to take up a position which allows the company the best protection against the five identified forces of competition or which enables the company to influence these threats to its own benefit. In concrete terms, ongoing research must be implemented and comprehensive information procured in order to establish a basis of knowledge on the industry or value creation stage--in particular with regard to a company's rivals--in order to be able to use this data to weigh up a rival's reaction to a strategic change in the company's own position (Moormann et al., 2006 and von Nitzsch, 2008). Within the framework of this competitor analysis (cf. what is said above about Benchmarking), it is possible to divide companies up into strategic groups, i.e. groups--which with regard to the Five Forces--are pursuing the same strategy (Porter 1999). In order to be competitively viable and even successful, a company must position itself so that it can defend itself against the competitive forces or even use them to its own advantage. This means that a company should select that particular strategic group which demonstrates low rivalry between its members but high market entry barriers (Porter, 1999 and von Nitzsch et al., 2008).

If we relate the deliberations on the Market-Based View to sourcing decisions, then according to SJURTS and STIEGLITZ (2004), own production is preferable because it strengthens a company's own market power. In particular, vertical integration lessens dependency on suppliers on the one hand and on the other hand increases market entry barriers, which means that fewer competitors can enter the market. However, this only holds true if all companies implement vertical integration, so that there is no potential for specialized suppliers of individual products or services. With regard to cooperations, this is a problem owing to the competitive perspectives of the Market-Based View, because self-interested conduct, which is a normal occurrence in practice--means that cooperations are usually an exception (Disselbeck, 2007). On the other hand, they provide the possibility for a company to "grow" more quickly and for both companies to jointly hold a stronger position vis a vis their rivals (Porter/Fuller, 1976). Schober (2004) is of the opinion that cooperations serve a good positioning on the market and therefore the Market-Based View justifies out- or insourcing.

With regard to the evaluating of sourcing activities, two points of criticism are frequently directed towards PORTER's contribution to market-oriented strategy, which are similar to those directed towards other theories mentioned above. On the one hand, the lack of precise knowledge of rivals' strategies with regard to a holistic observation of the relative profitability for external and internal factors and on the other hand the static character of this approach--or its lack of dynamics--are criticized because companies have to settle for a specific strategy and cannot change according to each new situation. Also, extensions of the model are difficult to implement because they would result in losing the plausibility of the industry structural analysis on which the model is based (Bresser, 1998 and B6rner, 2000b).

For the significance of the Market-Based View with regard to creating a frame of reference, we can say that PORTER's view definitely enriches the strategic perspective when it comes to assessing sourcing activities. From a strategic viewpoint, it also lowers complexity by providing clearly laid out aspects, and thus provides a practically applicable approach (Ruhli,1995). However, the attractiveness of markets and industries cannot be regarded as the sole sources of sustainable competitive advantage (Staehle, 1994). This condition is supported by a more intensive observation of company-specific features, which, ultimately, create the strategic competitive advantages.

There are obvious correlations between the Market-Based View and the Resources-Based View, so that a linked or integrated observation of the key aspects of each approach seems necessary with regard to (strategic) sourcing decisions. With regard to the integration of both approaches, it should be noted that there are two opposing views at work here: one view emphasizes the differences in the model assumptions and thus rejects any integration, whereas the other view evens out the differences and regards an integrated concept as meaningful on account of the possibilities of further modification (B6rner, 2000a, Verdin/Williamson, 1994 and Freiling, 2001). We shall be utilizing the latter view in the rest of this analysis in order to create a frame of reference, because it is precisely our objective to provide a holistic view which incorporates all the different theories.

With regard to concrete implementation of an integrated Market-Based View and Resources-Based View, and their subsequent consideration when creating a frame of reference for sourcing decisions, the "integration concept" of B6rner (2000b) is pertinent. He criticizes older approaches, e.g. that of Ruhli (1994) and claims they are unsuitable for an integrated model, since they analyze only insufficiently the differences between the two approaches and basically provide an "addition" rather than a holistic concept. We shall not provide a detailed "integration concept" here, but shall summarize the main ideas with regard to their later impact on the creation of a frame of reference: A hierarchical combination is preferable to a complementary integration of both approaches, whereby the Resource-Based View is regarded as superordinate because it tendentially incorporates the perspectives of the Market-Based View. Subsequently, the Resource-Based View is used for superordinate company decisions, whilst the Market-Based View finds application with subordinate decisions on the level of strategic business areas. This means that the Resource-Based View is allocated the role of market development. Following Porter, the generic strategies serve, in contrast, to establish market positioning (B6rner 2000b and Disselbeck, 2007). However, in order to integrate individual theories or their findings into a holistic framework of reference for sourcing decisions, a hierarchical combination is rather unsuitable. On the one hand, ranking of importance would have to be established by comparing each relevant individual theory, and this would involve substantial problems, since the relevance of a theory varies according to specific cases. Also, the relevance of the findings for some of these theories would practically be ignored, because the most "important" approaches would dominate, and it would not always be possible to adequately model mutual impacts. Rather, in this analysis we prefer to aim for a "fluid" combination by considering both connecting factors and reciprocal effects of the theories. Their respective impacts on sourcing decisions are then depicted by a generic model and can thus be adapted to the needs of each specific case.

3.8 Interim findings on the theoretical foundation of the frame of reference

Above, several theories or approaches were introduced as well as their relevant respective findings for sourcing decisions. The Cost-Accounting Approach and Transaction Cost Theory can serve directly towards the evaluation of sourcing decisions, whereas Benchmarking has a more supportive function. As pointed out, Benchmarking can be used by a company to examine its own processes with regard to strengths and weaknesses, in order to quantify the optimization potential. This enables a company to make the right decision particularly in cases which are not clear-cut. Further, Benchmarking is a suitable tool for, e.g. comparing a company's prices with those of the competition and potential sourcing partners, in order to gather data which are necessary for cost accounting comparisons. The Cost Accounting Approach allows a company to calculate the cost advantages of a particular type of sourcing and thus to ascertain how good the cost situation of own production is when compared to buying in off the market. The competency of a company with regard to cost efficiency can then be relativized. The result provides an impression of the "capability" of a company. In contrast, Transaction Cost Theory enables a company to estimate which type of sourcing--dependent on the properties of a transaction--is suitable to procure a service or good with the lowest possible transaction costs. In order to do so, the relative amount of transaction costs for the various types of coordination is ascertained depending on the different transaction properties.

The strengths of a company can be determined by the Resource-Based View in combination with the Core Competencies Theory. All of the resources required to provide a good or service are strategically analyzed with regard to those characteristics which enable a resource or core competency to generate competitive advantages, thus giving a clear picture of the competencies of a company in relation to those of its rivals and potential service providers or insourcers. At this point, Benchmarking can again be applied because the competencies in a particular area can be recognized as they can be positively distinguished from those of rivals, reference companies in other industries or even from a company's own wishes. It thus becomes clear in which areas a company has the potential for competitive advantages, and in which it does not. However, this potential is only of concrete value if the service or product can generate customer benefit, i.e. added value for the customer that the customer actually perceives. A company can then make extensive use of this and can set itself apart from its rivals, and own production becomes attractive. This attractiveness is also dependent on the degree to which own production contributes towards a company being able to survive in competition, which corresponds to the competitive perspective of the Market-Based View.

However, the already mentioned general strategic recommendation of the Market-Based View to engage in own production and vertical integration with the intention of increasing a company's power on the market is not recommended here, because reality has shown that this recommendation is too 'across the board' and thus not the correct strategy. In particular, aspects of a sourcing decision which lessen the impact of the 'Five Forces' should be incorporated into deliberations on the attractiveness of own production. It should be stressed again that we are particularly interested in uniting all the theories, so that certain aspects are suppressed whilst those which are particularly meaningful for sourcing decisions are selected. The Principal-Agent Theory supports the decision about the form of contract that should be drawn up in specific situations, and--similar to the Transaction Cost Theory--indicates costs which in reality are incurred by market weaknesses--when processes are transferred to other economic agents rather than implementing them oneself. This applies to external providers or even if it is only another department or employee in the same company. Here too--as with Transaction Cost Theory--the goal is to minimize costs by selecting the right contracts, incentive systems and forms of coordination.


Before we continue to create a frame of reference on the basis of the findings in the previous sections, selected models that have already tried to incorporate various theories or aspects into frameworks for sourcing decisions will be briefly introduced here. Although there are several models available, most of them--as the following examples will demonstrate--focus only on a specific perspective or only selected aspects of individual theories. But they still provide indications of the connections between selected theories, and thus contribute towards the holistic view we are aiming at in the planned frame of reference. For this reason, we give them due consideration in the following.

A frequently cited example is the business portfolio following HINTERHUBER and STUHEC (1997), who use aspects of the Core Competencies Approach and the Resource-Based View and who integrate a market orientation into their model by taking special consideration of the customer value aspect. They have customer value as the vertical axis of the portfolio (see Figure 6). Customer value can be established by, e.g., the KANO method (Kano, 1984) and by competence deployment (cf. information on operationalization of the framework of reference in Section 6). The horizontal axis shows the relative competency strength of a company. This relates primarily to core competencies that are not easily imitated and that can be identified via Benchmarking.

Depending on the relative competency strength and customer benefit, various courses of action are recommended. If both are 'high', this means that all requirements are fulfilled, and that the competency is a core competency and should not be outsourced. If both are 'low', then outsourcing is a suitable strategy, although here this should only be understood as the decision against own production; the type of coordination to be chosen must still be identified. In the other two cases, a situational decision is called for. With regard to the choice of coordination form in cases where a decision is made against own production, then the Transaction Cost Theory is recommended in order to chose the form which minimizes transaction costs. Weak points of the portfolio are the lack of possibility to insource, the lack of consideration of the Principal-Agent Theory and the marginal observation of market attractiveness.


Another model--that of HELLINGER (1999) follows the elaboration of PICOT and HARDT (1998). It is based on a blend of the Core Competencies Approach and Transaction Cost Theory. Its strategic importance is dependent upon whether a performance has a higher strategic potential at present or in the future and is suitable for building up competitive advantages. The higher the strategic importance, the higher the transaction costs are. The specificity is similar: if the strategic importance and the specificity are high, this model indicates that the competency is then a core competency. Here, too, depending on these two characteristics, courses of action are recommended. However, the influence of uncertainty and transaction frequency is neglected. Figure 7 shows the portfolio.


As in the previous model, according to HELLINGER's model, core competencies should not be outsourced, whereas services or goods with low strategic significance and specificity should definitely be. For "medium", cooperational outsourcing is proposed. 'Inherited liabilities' occur, for example, due to changed competitive conditions, whereby their strategic significance has dropped. 'Erosive advantages', although strategically significant, will--on account of changing framework conditions--remain standard in the future. An example of this would be a network of branch offices in the case of a bank. For the creation of the network, location-related investments had to be made, since the geographical proximity to the customer had a high specific importance. However, the developing of new information and communication media causes the strategic advantage to dwindle (Hellinger, 1999). In addition, there is a lack of comprehensive theoretical foundation, since neither the Cost Accounting Approach nor the Market-Based View nor the Principal-Agent Theory was taken into account.

Finally, we will briefly address the model of SJURTS and STIEGLITZ (2004). This is an approach which is oriented towards the SWOT analysis (Barney, 1991 and von Nitzsch et al., 2008), which is the intersection of the Market-Based View and the Resource-Based View, whereby this approach also relates to several other theories. The strengths and weakness of a company should be derived from the Cost-Accounting Approach together with the Resource-Based View, whereas opportunities are derived from a market perspective and risks are derived from a combination of the Market-Based View and Transaction Cost Theory. The strengths and weakness determine the resources position of a company. The opportunities and risks are determined by the strategic attractiveness of the product or service provision. Figure 8 shows the resulting strategic options.

If strategic attractiveness is low and resources position high, a spin-off can enable the maintenance of strategic resources. However, if the resource position is weak, a service or good can be procured on the market. If strategic attractiveness and resources position are both high, own-production is preferable in order to ensure sustainable competitive advantages. In the latter case, collective strategies, i.e. a close cooperation with a service or good provider can ensure access to the resources of the supplier (Picot/Hardt, 1998, Sjurts/Stieglitz, 2004 and Hellinger, 1999). Here, too, a criticism is that insourcing is neglected, although this would be suitable for low strategic attractiveness and a strong resources position (e.g. for standard processes). Also, the Transaction Cost Theory and the Market-Based View were only taken into consideration to a small degree, and Principal-Agent Theory not at all.


If we look at the key findings presented here after examination of the various theories and models which relate to sourcing activities, we can derive three general dimensions of a sourcing decision. These are presented in the following and will be combined to provide a holistic frame of reference. These dimensions are (1) the relative process competency of a company and (2) the relative interface and delegation costs and (3) the market and competition potential of each observed process. Figure 9 shows the three dimensions which will be elucidated on, and also the relevant theoretical models which are incorporated together with their key contributions or criteria for sourcing decisions.

5.1 Relative process competence of a company

With regard to an observed process, the relative process competence of a company is the company's current competence position in relationship to other similar companies (including those from other industries). It facilitates a decision as to whether a process is being performed particularly effectively and efficiently. The relative findings result from the Cost-Accounting Approach, since this covers the process costs--those costs which are incurred directly on provision of a good or service and distinguished from the interface and delegation costs, which are incurred because a good or service is partially provided by other employees or external institutions--in relation to those of rivals and service providers from industries. If the process costs are high in relation to the costs of a company's own production, this implies that the company has strong process competence. A further differentiation between influencing factors is hardly worthwhile, because the costs are directly quantifiable if cost data are gathered carefully. Furthermore, the resources competencies--which are taken into consideration via the Resource-Based View of the Core Competencies Approach--are of great strategic significance when it comes to determining a company's own competency position. The relative process competence can be evaluated as 'high' if the process shows the characteristics of imperfect imitability and substitutability, and limited mobility, flexibility and transferability to other markets as well as being capable of further development (cf. literature on core competencies, section 3.6). The observed process should be examined for evidence of these characteristics. Benchmarking is suitable in this dimension in order for a company to compare itself with its rivals--and thus determine a company's own (relative or comparative) position. Process costs should be given considerable attention, since these costs always prove in practice to be of great significance when it comes to making a sourcing decision. With regard to the other criteria (as elucidated in section 3.6), imitability and mobility are of prime importance, because they impact on the sustainability of the relative advantage vis a vis other institutions. This is a particularly important point for those companies which operate in business areas which are standardized.

5.2 Market and competition potential of a process

The market and competition potential of a process is the second dimension of the framework of reference. Whereas the relative process competency was concerned with how well a (particular) company commands a process, we now look at the extent to which a process (completely independent of the specific competence of an individual company) has the basic potential to create big competitive advantages for (any) company. The main focus is on two aspects: one, whether the process (as required for sustainable success in the framework of the Resource-Based View) is valuable for the customer, i.e. whether the process offers the possibility to create customer benefit, and thus to differentiate a company from its rivals. This is the case if the customer is consciously aware of and appreciates the result of a process or a process sequence. If the process has high potential for creating a particular customer benefit, then it should be implemented at high level with the company itself. In this manner, a certain differentiation advantage vis a vis a company's rivals can normally be secured. In order to derive the processes from criteria such as service, price or flexibility--through which a customer measures his satisfaction with, for instance, the service of a bank--the KANO method (as used by HINTERHUBER and STUHEC) can be implemented (cf. section 6.1) and followed up with competence deployment (Hinterhuber/Stuhec, 1997).

On the other hand, from the perspective of the Market-Based View, the question arises as to whether the process is capable of reducing the competitive pressure on a company or even capable of putting pressure on rival companies. PORTER's Five Forces Approach is suitable for examining this situation. If the process is indeed capable of doing either, for instance in the case of a bank implementing a process internally, the competitive potential is substantial. Out of the five competitive powers, the impact on a threat by new rivals or rivalry between existing companies is particularly interesting. If, for example, own production can result in helping to prevent new competitors entering the market, this can improve the competitive position of a company. Whether the rivalry amongst existing competitors can be influenced, is probably very dependent on the customer benefit, and thus it is important that interdependencies are observed. The negotiating power of the buyer is--in many industries--hard to influence because the customers usually have a large number of alternative suppliers to chose from, especially where standardized services or goods are involved. Thus, this aspect is only likely to be interesting for a few, specialized processes. The same applies for the negotiation power of the supplier and the threat posed by alternative products. If a specialized process is involved, then the weighting should be adapted accordingly.

5.3 Relative interface and delegation costs

The relative interface and delegation costs complete the holistic perspective of our frame of reference. They provide information relevant to the type of coordination or type of contracts by taking the transaction and agency costs into consideration that arise from market weaknesses (e.g. imperfect and asymmetric information, uncertainty and limited rationality). With regard to the transaction costs these factors are mainly specificity, uncertainty, and transaction frequency. What all of these features have in common is that if their strength increases, the extent of the company-internal transaction costs in relation to the transaction costs lessens if the good or service is procured on the market. With transaction costs, these are mainly the signaling costs and guarantee costs of the agent as well as the remaining loss of welfare, which is incurred by only partially implemented transactions or non-implemented transactions stemming from a lack of information. The supervising and controlling costs of the principal, on the other hand, are to a great extent already taken into consideration in the transaction costs. A key influencing factor on these agency costs is the transparency of the market with regard to a service or good provision in the sense of comparability of processes. If the potential service or good providers are difficult to compare, then a company can hardly manage to find or to select a suitable insourcer. Good insourcers, then, must make a particular effort to prove their quality (in advance). But this of course results in a further loss of market transparency and increased agency costs.

The following formula demonstrates how in this dimension the respective transaction and agency costs which are incurred inside a company stand in relationship to procurement on the market:

Relative interface and delegation costs = external transaction costs and agency costs / internal transaction costs and agency costs

Thus, despite a low market and competitive potential as well as low process competence, for example, it is possible that a different form of sourcing than that of outsourcing would be advisable owing to the high transaction and agency costs that would be incurred through market provision. Low relative interface and delegation costs, are then, tendentially an argument against a service or good being brought in from outside or outsourcing the corresponding process. This will be examined in more detail later.


All three dimensions introduced previously will now be incorporated into a holistic framework of reference, that is, the 'Sourcing Cube' (cf. Figure 10), which will now be 'vitalized' through the findings of the various theories. The Cube demonstrates the high complexity of sourcing decisions, since recommendations cannot simply be derived from cost observations. Further, a strategic 'black and white' observation ('make or buy') is also not advisable since cooperations in particular can, depending on the individual situation and form of contract, prove to be meaningful solutions for very attractive processes.

It has to be said that the Sourcing Cube is not a rigid element of analysis: it can be modified, e.g. by a middle dimension on its axes. This might lead to further, more differentiated recommendations, but would also be too extensive to include in this paper. It is also possible to include a fourth dimension in the sourcing decision, e.g. through a 'bubble factor' of the Cube elements, which would depict the value creation share of a process in relation to the total value creation of a company. It is important to be aware of how many influencing factors are impacting on sourcing decisions, and to observe these in a structured manner rather than jumping to conclusions. This requires more time initially, but in the long-term saves time--and in some cases very high costs when compared to decisions that are made too quickly and need to be 'repaired' later.


The processes being observed for a sourcing decision can be incorporated into the Sourcing Cube and corresponding courses of action can be derived. In the following, we describe approaches for incorporating the processes (6.1) and subsequently look at recommendations for courses of action (6.2).

6.1 Operationalizing the Sourcing Cube

In the following we take a brief look at the operationalizability of the frame of reference. The lack of application or implementation possibilities is an often-cited point of criticism directed at existing models. In order to determine the position of a sourcing decision inside the Sourcing Cube, the scoring model technique (Danowski/Diederichs, 2000 and Harting, 1994) is suitable. This involves the dimensions being concretized through specific criteria, weighted by relevance and then evaluated according to a scale (e.g. from 0 low to 6 high). The position inside the Cube then results from adding all weighted point values together that belong to one dimension (Warschburger/Hans, 1998). Generally, all the relevant qualitative and quantitative criteria should be determined and noted (Engelhardt/ Gunter, 1981). This has already been done within the development process of the framework of reference when determining the dimensions of the Cube. Now, the respective impacts of the individual criteria have to be assessed. This is done--as mentioned above--by using a scale. It is important for the significance of the whole dimension that for each observed criterion, comparative specification ranges are established with regard to their impacts, because the determining of target weights is also influenced by the respectively selected company values (von Nitzsch, 2006). The specifications are then compressed via weighting factors into a total score (Reinecke/Keller, 2006 and Kraus, 2005).The target weights are of particular importance, because they determine the strength of each criterion within the evaluation (Dreyer, 1974).

The concrete application of a scoring model can, for example, be implemented in six steps (Danowski/Diederichs, 2000): (1) Determining classes of criteria for each dimension of the Cube. (2) Weighting the classes of criteria (high weighting for high importance, and vice versa), (3) Evaluating the criteria with points from a pre-determined evaluation scale, (4) Multiplying the criteria point values by the respective weighting for that class, (5) Adding up the criteria values to get a total value (score) for each dimension, (6) Arranging the dimensions inside the Sourcing Cube, thus determining the octant. In the following, we provide some information regarding possible weightings of individual criteria for the three dimensions of the Cube. We should like to point out that the exemplary selected values merely reflect tendencies and are intended to clarify the general application of the concept. In each individual case, the criteria must be examined with regard to their relevance for a specific process, and the weightings must be "adjusted" correspondingly.

For the dimension of the relative interface and delegation costs, we have already identified and concretized in Section 5.3 the four relevant criteria 'specificity', 'frequency', 'transaction uncertainty', and 'market transparency' (cf. also Figure 9). On account of its very high importance, 'specificity' should be a key influencing factor and thus requires high weighting, e.g. 50-60%. Often, when transaction costs are being dealt with, the impact of the other factors is overlooked, and specificity alone is selected as relevant factor (Williamson, 1981). Within the framework of our model, however, attention is also given to the other factors. 'Uncertainty' (in particular uncertainty of behavior) is a good reason for choosing a form of sourcing that is close to that of hierarchy. This is particularly the case with service providers, since unlike other industries and goods, controlling the quality of a service being brought into a company whilst at the same time fulfilling the very high quality demands of customers is sometimes difficult. The very sensitive data which an insourcer has to be entrusted with also makes the situation difficult. If services or goods are procured on the market, then, very complex contracts are required together with high controlling costs.

The frequency of transactions is comparatively unimportant with most companies, since it does not have an impact of its own but has an intensifying role. Although internal fixed transaction costs are on the decrease, complex agreements are becoming more worthwhile, since they apply to several transactions and will thus pay for themselves. 'Uncertainty' should then be weighted with about 15-25% and the frequency of transactions with about 5-15%. Owing to the presumably low agency cost share of the interface and delegation costs, the market transparency should also be attributed with a comparatively low influence and also be weighted with about 5-15%. Before being placed into the frame of reference, each criterion and its specification must be additively and scale-linked.

When the dimension 'market and competition potential' is operationalized, certain core elements of the Resource-Based View and the Market-Based View must be considered. These two perspectives were already linked together in the sections 3.7 and 5.2. With regard to the findings of the Resource-Based View the value of a process (or its recognizable result) for a customer must be focused on (cf. Figure 9). The value for the customer cannot be ascertained simply from a performance ratio, but it can be indirectly determined via the indicator for customer satisfaction. Here, a two-step approach is recommended: First the current and future criteria which customers use to measure their satisfaction must be identified (Hinterhuber, 1996). For doing this, the already mentioned KANO method is useful (Hinterhuber/Stuhec, 1997 and Brusch/Baier, 2008).

KANO (1984) developed his model in order to weight customer demands and expectations. He differentiated between basic attributes, quality and performance attributes and excitement attributes. The basic attributes are characterized by their degressively increasing nature, and are not likely to be mentioned by a customer being surveyed although the customer takes it for granted that these attributes will be in place. Quality and performance attributes can be depicted as a medium inclined slope, and are always explicitly stated by the customer. Additionally, the customer will have expectations of the specification of an attribute. A progressive curve depicts the excitement attributes, which, according to KANO, can make the difference between rivals and their products. Here, customers can be 'wowed' into discovering attributes that they had never previously thought about (Lindemann, 2005, Hinterhuber et al., 1996, Brusch/Baier, 2008, Bailom et al. 1996).

After the relevant criteria have been identified, the customer value can be determined by the application of a 2-step correlation chain, the methodology of which is oriented towards Quality Function Deployment (Akao, 1992, Hauser/Clausing, 1988 and Wildemann 2008). A fitting description would be "product planning and development according to customer wishes" (Hinterhuber/Stuhec, 1997). However, transferring Quality Function Deployment is too involved an undertaking for assessing customer value. Competence Deployment--a simplified derivation (Stuhec, 1993 and Blasing, 2008) is more suitable. Customer values are identified on the basis of the before mentioned criteria for customer satisfaction and the performance attributes of products and processes. The correlation chain can be followed by the utilization of Competence Deployment matrices. Via the correlation chain, the criteria for customer satisfaction are utilized in order to determine the product (performance) attributes and then to identify the customer value with the help of a customer-oriented competence positioning of the observed product or service (Hinterhuber and Stuhec, 1997).

In addition to the 'value of a process for the customer'--derived from the Resource-Based View--the impacts of the Five Forces--derived from the Market-Based View--should also be carefully observed within the framework of the dimension 'market and competition potential". As this has been dealt with earlier in this paper, we shall not go into more detail here. These strategic analyses can be methodically implemented with the help of market or industry attractiveness analyses based on the factors described by PORTER in the evaluation of his Five Forces (von Nitzsch, 2008 and Lombriser/ Abplanalp, 2005). With regard to the concretizing and estimation of the individual factors, we refer here to the existing literature on that topic (Grant/Nippa, 2006 and Muller-Stewens/Lechner, 2003). An industry attractiveness analysis of this kind can be followed up by an analysis of industry development. A corresponding, more detailed observation is based on the theoretical model of product life cycle (Levitt, 1965 and Deyhle, 1996b) and supplements the "as is" analysis with a future-oriented perspective, because this model forecasts changes in competition and allows suitable strategies to be derived (Lombriser/Abplanalp, 2005 and von Nitzsch, 2008). However, the literature queries the applicability of this model, because not all industries develop uniformly in accordance with the model.

Furthermore, product innovations, strategic reorientations and shifts in the intensity of competition within a particular industry all influence the validity of the model (Porter, 1999 and Hax/Maijluf, 1991). In most industries, particularly in those 'established' ones with long operating cycles--for instance the banking industry--it would be more meaningful to identify the causes behind the industry development and to keep these under observation (Lombriser/Abplanalp, 2005). These factors--described by PORTER (1999) as 'driving forces' are: long-term changes in growth, product, process and marketing innovations, reductions in uncertainty and risk, dissemination of know-how, changes in the input costs and exchange rates, changes in a country's trade policy, market entrances and exits of established companies, and increasing globalization.

We briefly looked at the dimension of relative process competence in 6.1, where principally findings of the Cost Account Approach and the Core Competencies Approach are incorporated in the deliberations. The criterion of costs can be relatively simply ascertained by comparing internal process costs with external ones. All that is needed are concrete bids from potential insourcers together with an estimation of the discontinuing costs within the company. These are then related to the costs of the process within the company, which can be ascertained using company internal data, or can at least be estimated. The ratio indicates the cost-sinking potential, e.g. in the three variations 'high' (>20%), 'medium' (5-20%), and 'low' (>5%). It should be noted that in this particular dimension of the Sourcing Cube, another factor can also be used as a benchmark on account of the relative comparison. For instance, if a specific own equity ratio is defined as a goal, this can also be utilized as a benchmark for the (internally) gathered data. In the Sourcing Cube, this factor would form the border between the specifications of one dimension (upper or lower half), so that not only relative but also absolute cost effectiveness figures can be integrated into this dimension for consideration.

The core competencies are--supplemented by market structure and environmental impacts--the biggest influencing factor for determining the relative strength of a company's competencies. For the consideration of the findings from the Core Competencies Approach, ability profiles (Stuckey et al., 1992 and Hinterhuber/Stuhec, 1997) can be produced, which are then compared via Benchmarking with other banking institutes and suppliers. For service providers, this could include determining the relevant criteria for creating an ability profile, e.g. in the areas of process innovation management and information management. For example, the ability of a company in process innovation could lead to conclusions being drawn about competencies in the areas of product development and process automatization, should the company's performance be rated positively from a Benchmarking in comparison to that of rivals or selected reference companies.

The reputation that a company gains from its superior process management can then be deemed a scarcely imitable competence (Hinterhuber/Stuhec, 1997). For each process, a particular catalogue must be produced which then facilitates the assessing of high how the process competence is in relation to those of the company's rivals (Gallon et al., 1995). Using different weightings of rival competencies for present and future, a temporal profile can also be created (Hinterhuber/Stuhec, 1997). For the comprehensive weighting of the dimension of relative process competence, we can state that the total costs--as we have frequently observed and evidenced--are of great significance because they are, after all, a consequence of a process competence. According to the process involved, they should be weighted with 50-70%.

The models observed here--and all the related explanations are only intended to be approaches for operationalizing our Sourcing Cube, and as examples for how the Cube can be 'filled up'. In each individual case, the individual criteria must be checked for their relevance for a specific process, and their weighting must be adapted accordingly. On the other hand, other approaches that have not been suggested here, are possible for classifying and arranging into the Cube. With regard to the concretization and application of the generic Cube model, in each individual case, too, these must be modified and adapted. After a process has been allocated a position in a Cube dimension, various recommendations for courses of action can be derived. In the following Section, we will examine these recommendations for each of the octants.

6.2 Recommendations for courses of action

Having spoken about the criteria which have to be taken into consideration for the three dimensions of the Sourcing Cube, and the processes which can be incorporated into the frame of reference with the help of suitable models and methods, we now show how the reference strategies--as presented in Figure 10--can be derived for the different octants (boxes) of the Cube.

A company has high competence in this area and can thus implement the process more cost efficiently and also in a unique manner. However, this has no great impact on customer benefit, nor can it help to reduce the impact of rivals' strengths, and so it would be meaningful if the good or service were to be offered on the market, thus increasing turnover and incurring further effects of scale. However, what speaks against this are the very high interface and delegation costs on the market, i.e. internal costs are lower than external costs. If a good or service were to be placed on the market, this would incur additional high costs, e.g. for signaling, and outsourcing contracts would be complex. Taking consideration of these aspects, a type of coordination should be chosen which is in close proximity to a hierarchy. This would enable interface and delegation costs (which are directly dependent on transaction costs and agency costs) to be lowered, even though it entails a company or a bank losing some of its flexibility (e.g. with regard to a change of partner). One example for a more cost efficient form of coordination in this case would be that of insourcing with long-term contracts, thus allowing a company to profit from its own high competencies, even though customer benefit is rather low. Long-term contracts prevent an outsourcer from frequently changing, which would--owing to the high transaction costs and agent costs--negate any achieved effects of scale.

In this section of the cube, there are neither specific process competencies nor a high market and competition potential. Thus, it would make sense to outsource the processes involved here. Because the internal process costs are relatively high, the company can profit from presumably lower market prices and the superior competence available on the market. As there is no potential for differentiation here, outsourcing will not jeopardize any particular competitive advantage. As in the first case, however, the interface and the delegation costs on the market are very high, so that here, too, long-term contracts should be entered into (in this case with an insourcer). This will ensure that, e.g., high and recurrent search costs for a frequently changing provider are avoided. However, the selection of a particular provider must be made with due care.

With regard to the observed processes in this section of the cube, the company is more competent than its rivals and potential insourcers. Additionally, the process has a high value for the customer and can weaken competition, which means that it contains high market and competition potential. This combination identifies this process as a core competence, thus it would not be meaningful to source this valuable process out nor to allow rivals access to this unique competence. Although these factors alone would make a good reason for own production, the interface and the delegation costs on the market are high in comparison to those of the company. Therefore, the process should most definitely be implemented inside the company.

In comparison with octant 3, the company has a comparatively low process competence, which means that the high potential of the process for increasing customer benefit or facilitating survival in the face of competition cannot be fully exploited. For this reason, despite low internal interface and delegation costs and high market and competition potential, own production would not be advisable. Outsourcing, though, would lead to surrendering a strategically very important process, and would entail the company placing its competitiveness in the hands of outsiders. Also, interface and delegation costs would be very high. Here, a cooperation would ensure access to the resources of the cooperation partner and would also support the close collaboration required on account of the high potential of the process. This form of coordination, positioned midway between market and hierarchy, also lowers the extent of the transaction costs and agent costs, which would be incurred when buying in from the market.

Here, the potential and the process competence are similar to those of octant 1. Correspondingly, here too, offering the product or service on the market, i.e. insourcing, is recommended. However, in this case, the interface and delegation costs on the market are much lower than in octant 1. This means that in this case a more flexible form of insourcing can be selected; long-term contract agreements are not necessarily vital.

The first two features correspond to those of octant 2 of the Cube. With regard to the interface and delegation costs, these are the same as in case 5. Here too, then, a more flexible form of outsourcing can be chosen, which is also not bound up with long-term contractual agreements. In this manner it is possible, for example, to quickly switch to another insourcer if a better opportunity arises.

In the third case, it was clear that own production is preferable due to the high potential and high process competence involved. Even though the interface and the delegation costs on the market are very low in comparison to company-internal ones, this recommendation remains in place, because processes with high market and competition potential that are implemented very skillfully can create enormous competitive advantages for a company.

In the final octant of the Cube, analogously to the recommendation for case four, a cooperation should be selected, because the potential and market competence have not changed, and the converse conditions for interface and delegation costs resulting from the form of cooperation midway between market and hierarchy are of only slight relevance.


It was the aim of this paper to develop a tool for making well-founded assessments of sourcing decisions--a tool which can be implemented in the real world. We have done so by deriving a frame of reference in the form of a Sourcing Cube. The Cube is based on a number of selected theories, the core contents of which and their contributions to making well founded sourcing decisions were elucidated and then drawn together in three axes: the relative market and competition potential, the relative process competence and the interface and delegation costs. Both operative aspects (e.g. costs) and strategic deliberations (e.g. competitive positioning) were incorporated.

In the course of our work, we introduced those theories and concepts that enable an observation of the sourcing decision from all relevant perspectives. First, the legal aspects of sourcing activities were explained as framework conditions but these were not explicitly included in the development of a framework of reference because they vary from country to country. We included the Cost-Accounting Approach--which provides a very important comparison between the costs of own production and outsourcing, the Transaction Cost Theory--which considers those costs which are incurred by the numerous different trade relationships in economic systems with division of labor--and Benchmarking as a concept for a comparative analysis of own production and that of a company's rivals.

Additionally, aspects of the Resource-Based View--which considers a company to be a bundle of resources and which relates competitive advantages to an effective and efficient utilization of these resources, was included. Building on this basis, the Core Competencies Theory goes on to state that sustainable competitive advantages can only be achieved through core competencies, whose existence can be established from specific conditions. The Market-Based View, which we also looked at, is based on an opposing presumption. It stems from the observation of a company's rivals and postulates that the strategic conduct of a company--and also its success--is determined by the structure of the industry. The Principal-Agent Theory, which we introduced last, analyzes the relationship between one or more principals and the agents they hire under the assumption of asymmetric information dissemination, and draws conclusions about costs that are incurred and also provides further information about the form an optimal contract should take.

In order to develop our framework of reference and to operationalize it, we observed existing models that transfer the findings of these various theories onto sourcing decision making. This resulted in several ideas for integrating the theories. In order to achieve a comprehensive frame of reference, the various findings were drawn together into three dimensions. Dependent on either a high or a low dimension on the three axes, the structure of the Sourcing Cube took shape--resulting in eight octants. Owing to the integration of the findings from the various theories analyzed here, the Sourcing Cube enables sourcing decisions to be assessed in a well-founded manner. Depending on the dimension on the three axes, i.e. depending on which octant a process is allocated to, a company will receive a recommendation for a particular course of action. As an orientation aid for practitioners, we demonstrated briefly how a company can, for instance with the help of a scoring point system and relevant models, allocate its own processes within the Cube.

Many authors who have tackled this topic from a theoretical but also from a practitioner's perspective have also (as described in Section 5) provided portfolios of courses of action recommended for sourcing decisions. But in these cases a strategic perspective was usually adopted, so that owing to a lack of operative process orientation, the possibilities of applying or implementing these recommendations was rather limited in practice. Our innovative framework of reference is a different approach. It should initially be utilized in sub-areas in order to check its feasibility, but leading on from this--or even in parallel--questions need to be addressed as to whether all the necessary perspectives for a specific problem, i.e. an observed company or a particular core process, have been covered and are relevant. Owing to the plethora of existing articles and papers--some of which have been included here--full of new suggestions, linkages, and viewpoints that need to be considered, it has become evident that sourcing decision making is a highly complex process. Thus, in future, there will no doubt be other authors who illuminate new, hitherto unconsidered, aspects. Our Sourcing Cube has incorporated many aspects of existing models and complemented these with further aspects. However, the Sourcing Cube does not provide a general or final solution for all sourcing decisions, but rather, it provides a general framework that needs to be critically examined, modified, and adapted in each specific case.


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Dirk Braun, RWTH Aachen University, Aachen, Germany

Sarah Schiffer, RWTH Aachen University, Aachen, Germany

Michael Schiffer, RWTH Aachen University, Aachen, Germany

Rudiger von Nitzsch, RWTH Aachen University, Aachen, Germany


Dr. Dirk Braun received his Ph.D. in Business Administration from RWTH Aachen University, Germany, in 2010. Currently he is an assistant professor of Decision Theory and Strategic Management in Financial Services at RWTH Aachen University.

Sarah Schiffer earned her degree in Industrial Engineering and Management from RWTH Aachen University, Germany, in 2010. Currently she is a research assistant and Ph.D. student in Business Administration at RWTH Aachen University.

Michael Schiffer earned his degree in Industrial Engineering and Management from RWTH Aachen University, Germany, in 2009. Currently he is a research assistant and Ph.D. student in Industrial Engineering and Management at RWTH Aachen University.

Univ.-Prof. Dr. Rudiger von Nitzsch received his Ph.D. from the University of Cologne, Germany, in 1991. Since 1996 he has been a professor of Business Administration and Decision Theory at RWTH Aachen University, Germany. Currently he is also the chairman of the Research Institute for Asset Management at RWTH University and a member of the supervisory board of Generali Investment KAG and aixigo AG, Germany.


* Securing the continuous

* Complete integration of
best industrial practices
in all processes


* Benchmarking object (what?)

* Benchmarking partner (who?)

* Methods of data / information
procurement (how?)


* Comparison

* Determination of
performance gap

* Identification of best

* Projection of future
performance niveau

* Cognition of adaption


* Derivation of target specifications

* Communication of insights in the whole

* Conviction/acceptance of results

* Determiniation of functional goal


* Action plans

* Realization of results

* Periodical progress

* Adaptions

* Reporting

Figure 3: Summary of transaction costs

External transaction costs       Internal transaction costs

Ex-ante transaction costs #

* Information and search costs   Costs for establishing,
* Negotiation and contract       maintaining, or changing
costs                            an organizational
                                 structure ##

Ex-post transaction costs #      Operational costs of an
                                 organization #

* Monitoring costs               * Information costs
* Conflict and enforcement       * Costs related to the physical
costs                            transfer of goods and services
* Adjustment costs

## Fixed transaction costs       # Variable transaction costs


Resource-position\        low             high

strong                 Spin-off      Own-Production

weak                    Market         Collective
                     Relationship      Strategy
                      (external      (Cooperation)


Dimension                      Theory/Criteria

Relative        1. Cost-Accounting        2. Core Competencies
Process         Approach                  Approach
                Internal Process Costs/   Imperfect imitability and
                External Process Costs    substitutability, limited
                                          mobility, flexibility,
                                          transferability to other

Market and      1. Resource-Based View    2. Market-Based View
Potential       Process value for the     Influence on: threat of
                customer                  new rivals, rivalry
                                          between existing
                                          opponents, if applicable
                                          the 3 remaining forces

Relative        1. Transaction Cost       2. Principal-Agent Theory
Interface and   Theory
Delegation                                Market transparency.
Costs           Specifity, Uncertainty,
                Transaction Rate


1    Relative process competence:                high
     Market and competition potential:           low
     Relative interface and delegation costs:    low


2    Relative process competence:                low
     Market and competition potential:           low
     Relative interface and delegation costs:    low


3   Relative process competence:                high
    Market and competition potential:           high
    Relative interface and delegation costs:    low


4    Relative process competence:                low
     Market and competition potential:           high
     Relative interface and delegation costs:    low


5   Relative process competence:                high
    Market and competition potential:           low
    Relative interface and delegation costs:    high


6   Relative process competence:                low
    Market and competition potential:           low
    Relative interface and delegation costs:    high


7    Relative process competence:                 high
     Market and competition potential :           high
     Relative interface and delegation costs :    high


8   Relative process competence:                low
    Market and competition potential:           high
    Relative interface and delegation costs:    high
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