Living with offshoring: The impact of offshoring on the evolution of organizational configurations

Abstract

Offshoring allows firms to pursue greater flexibility at lower costs, but it also presents major structural and managerial challenges. Adopting the activity configuration perspective, we argue that offshoring creates tensions between benefits to the competitive position of the firm, and potential disruption to the cohesion and consistency of the organization's internal activity configuration. We further argue that both benefits and risks increase as organizations move from offshoring low to offshoring high value-creating activities, and as they seek tight as opposed to loose couplings among offshored and onshored value-creating activities. Our research site is the UK operations of Tiscali, a European telecommunications firm. We examine how Tiscali uses offshoring as it grows and expands its service offerings from single, to double, and then triple play, and also analyze how Tiscali addresses the ensuing disruption to its activity configuration. We conclude with implications of our study to future research on offshoring.

Introduction

Research on offshoring brings together two perspectives on the evolution of organizations. The first perspective focuses on the macro level dynamics of offshoring at the level of the industry, nation, and the world (Doh, 2005, Farrell, 2005). This perspective sees offshoring as part of a global revolution in communications and transportation, and thus tracks the offshoring behavior of groups and populations of firms that imitate and learn from each other. The second perspective focuses on activities at the firm level (Tadelis, 2007). This perspective attempts to understand the factors that lead firms to undertake offshoring as a strategic move, and the problems that firms encounter when attempting to maximize the advantages and minimize the disadvantages of this particular strategy.

This paper builds on both perspectives. Our intention is to investigate why the promise of offshoring that is so evident at the macro level is so often difficult to attain at the micro firm level. To answer this question, we turn to the configuration view of strategy, which defines strategy as the formation, and subsequent reinforcement, of a set of interlocking value-creating activities (Csaszar and Siggelkow, 2010, Miller and Mintzberg, 1983, Porter, 1996, Porter and Siggelkow, 2008, Rivkin and Siggelkow, 2003). According to the configuration view, the key to superior performance is achieving internal consistency of the organization's core configuration while at the same time maintaining a favorable alignment with the external environment. But the two goals can be at odds—especially when the strategic moves used to improve alignment with the external environment disrupt the relationship between key parts of the configuration (Meyer, Tsui, & Hinings, 1993). When this happens firms must struggle not only to successfully execute the strategic move, but also to address the disruption to core configuration that occurs as a result of this move.

How organizations meet this challenge is the central theme of our paper. The response to the challenge begins with assessment of the potential of offshoring as a strategy that can deliver a variety of advantages: cost reduction, faster innovation, and improved core competencies. In practice, however, the disruptive impact of offshoring on the organization's core configuration can significantly curtail the advantages of this strategy. To realize the advantages of offshoring organizations must rectify the negative consequences of this strategy, and in most cases they must do this during the offshoring move. Living with offshoring often turns out to be more difficult than organizations initially suppose.

We examine how Tiscali UK, a telecommunications firm that began operations in 2001, has been dealing with this dilemma. Our research is based on public documents, company archival sources and interviews conducted with managers at multiple levels from March 2007 to February 2008. Our paper is structured as follows. We begin with an overview of configuration theory as it applies to offshoring. We next describe Tiscali's history and operations before turning our attention to a detailed examination of the company's offshoring efforts. We conclude with an analysis of how firms can address the tension between offshoring and internally consistent and cohesive configuration.