Sustaining innovation when outsourcing components in multi-technology, multi-component systems

Abstract

Firms producing multi-technology, multi-component systems are increasingly outsourcing selected components to achieve both reduced cost and enhanced innovation benefits.

Given typical interdependence between innovation at the system and component levels, an important challenge for the system firm is to align innovation trajectories, priorities and pacing between the system and component firms and sustain overall system-level innovation over the longer term.

We present two longitudinal case studies, drawn from the IT industry, which provide contrasting examples of outsourcing strategies in terms of the number of suppliers per component and the inter-firm arrangements that a system firm puts in place to align innovation. These cases help us to identify the range of outsourcing strategies that system firms could pursue and the factors which appear to influence which one is most appropriate.

Authors

Ian Mackenzie
Harvard Business School, Boston, MA.

Casimer DeCusatis
IBM Systems Networking Strategic Alliances,

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Keywords

innovation; inter-firm organization; IT industry; multi-technology, multi-component systems; outsourcing decision; outsourcing strategy; supplier management

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