Managing Hidden Costs of Offshoring: Learning to Achieve System Integration

This chapter investigates the concept of the ‘hidden costs’ of offshoring, i.e. unexpected offshoring costs exceeding the initially expected costs. Due to the highly undefined nature of these costs, we position our analysis towards the strategic responses of firms’ realisation of hidden costs. In this regard, we argue that a major response to the hidden costs of offshoring is the identification and utilisation of strategic mechanisms in the organisational design to eventually achieving system integration in a globally dispersed and disaggregated organisation. This is heavily moderated by a learning-by-doing process, where hidden costs motivate firms and their employees to search for new and better knowledge on how to successfully manage the organisation. We illustrate this thesis based on the case of the LEGO Group.