Hidden Costs and the Role of Modularity: A Study on Offshoring Process Performance

    Research output: Chapter in Book/Report/Conference proceedingConference abstract in proceedingsResearchpeer-review

    Abstract

    This paper addresses estimation errors in strategic decision-making processes due to hidden costs. While previous research has investigated the antecedents of hidden costs, this paper investigates performance consequences. Using unique data on 221 offshoring implementations, it is argued that the inability to effectively estimate the costs of implementing an activity in a foreign location has a negative impact on the process performance of that activity. Performance is deterred as operations are likely to be disrupted by opportunity costs and managerial responses. However, this relationship is mitigated by the degree of modularity in the activity as it reduces the need for costly coordination in offshoring. This paper contributes to research on offshoring and strategic decision-making by emphasizing the importance of organizational design and of estimating the costs of internal organizational change.
    This paper addresses estimation errors in strategic decision-making processes due to hidden costs. While previous research has investigated the antecedents of hidden costs, this paper investigates performance consequences. Using unique data on 221 offshoring implementations, it is argued that the inability to effectively estimate the costs of implementing an activity in a foreign location has a negative impact on the process performance of that activity. Performance is deterred as operations are likely to be disrupted by opportunity costs and managerial responses. However, this relationship is mitigated by the degree of modularity in the activity as it reduces the need for costly coordination in offshoring. This paper contributes to research on offshoring and strategic decision-making by emphasizing the importance of organizational design and of estimating the costs of internal organizational change.
    LanguageEnglish
    Title of host publicationProceedings of the 55th Annual Meeting of the Academy of International Business
    EditorsPatricia McDougall-Covin, Tunga Kiyak
    Place of PublicationEast Lansing, MI
    PublisherAcademy of International Business
    Date2013
    Pages234-235
    StatePublished - 2013
    EventAIB 2013 Annual Meeting : Bridging the Divide: Linking IB to Complementary Disciplines and Practice - Sabancı University, Koç University, and Özyeğin University, Istanbul, Turkey
    Duration: 3 Jul 20136 Jul 2013
    Conference number: 55
    http://aib.msu.edu/events/2013/

    Conference

    ConferenceAIB 2013 Annual Meeting
    Number55
    LocationSabancı University, Koç University, and Özyeğin University
    CountryTurkey
    CityIstanbul
    Period03/07/201306/07/2013
    Internet address
    SeriesAcademy of International Business. Annual Meeting. Proceedings
    Volume55
    ISSN2078-4430

    Cite this

    Larsen, M. M. (2013). Hidden Costs and the Role of Modularity: A Study on Offshoring Process Performance. In P. McDougall-Covin, & T. Kiyak (Eds.), Proceedings of the 55th Annual Meeting of the Academy of International Business (pp. 234-235). East Lansing, MI: Academy of International Business. Academy of International Business. Annual Meeting. Proceedings, Vol.. 55
    Larsen, Marcus M./ Hidden Costs and the Role of Modularity : A Study on Offshoring Process Performance. Proceedings of the 55th Annual Meeting of the Academy of International Business. editor / Patricia McDougall-Covin ; Tunga Kiyak. East Lansing, MI : Academy of International Business, 2013. pp. 234-235 (Academy of International Business. Annual Meeting. Proceedings, ???volume??? 55).
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    pages = "234--235",
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    Larsen, MM 2013, Hidden Costs and the Role of Modularity: A Study on Offshoring Process Performance. in P McDougall-Covin & T Kiyak (eds), Proceedings of the 55th Annual Meeting of the Academy of International Business. Academy of International Business, East Lansing, MI, Academy of International Business. Annual Meeting. Proceedings, vol. 55, pp. 234-235, Istanbul, Turkey, 03/07/2013.

    Hidden Costs and the Role of Modularity : A Study on Offshoring Process Performance. / Larsen, Marcus M.

    Proceedings of the 55th Annual Meeting of the Academy of International Business. ed. / Patricia McDougall-Covin; Tunga Kiyak. East Lansing, MI : Academy of International Business, 2013. p. 234-235.

    Research output: Chapter in Book/Report/Conference proceedingConference abstract in proceedingsResearchpeer-review

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    AB - This paper addresses estimation errors in strategic decision-making processes due to hidden costs. While previous research has investigated the antecedents of hidden costs, this paper investigates performance consequences. Using unique data on 221 offshoring implementations, it is argued that the inability to effectively estimate the costs of implementing an activity in a foreign location has a negative impact on the process performance of that activity. Performance is deterred as operations are likely to be disrupted by opportunity costs and managerial responses. However, this relationship is mitigated by the degree of modularity in the activity as it reduces the need for costly coordination in offshoring. This paper contributes to research on offshoring and strategic decision-making by emphasizing the importance of organizational design and of estimating the costs of internal organizational change.

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    Larsen MM. Hidden Costs and the Role of Modularity: A Study on Offshoring Process Performance. In McDougall-Covin P, Kiyak T, editors, Proceedings of the 55th Annual Meeting of the Academy of International Business. East Lansing, MI: Academy of International Business. 2013. p. 234-235. (Academy of International Business. Annual Meeting. Proceedings, Vol. 55).