Supply Portfolio Concentration in Outsourced Knowledge-Based Services

In the extant vertical integration literature, the question of how the firm’s portfolio of outsourced work is managed across suppliers has been relatively understudied. We seek to advance this area of research by examining factors that influence how concentrated the firm’s outsourcing is among its set of suppliers. Using data on the outsourcing of patent legal services, we find empirical evidence that outsourced knowledge−based service work is concentrated in the hands of fewer suppliers when: (1) it requires greater firm−specific knowledge; (2) there is a higher level of interrelatedness across outsourced projects; (3) the firm’s reliance on outsourcing is high; (4) its outsourced projects are focused on a narrower (capability) domain; and (5) the technological dynamism of this domain is low. Our study suggests that examining portfolio−level phenomena in outsourcing is a useful complement to the predominant focus on transaction−level outcomes in prior research because it provides insights into how firms manage tradeoffs across their entire set of outsourced projects. We gratefully acknowledge comments from Anne Parmigiani. We also received valuable feedback from presentations at the Atlanta Competitive Advantage Conference (Georgia State University, 2010), Midwest Strategy Meetings (Kellogg School of Management, 2010), University of Illinois (2010), Mid−Atlantic Strategy Colloquium (University of Maryland, 2010), and ASQ−HEC−OMT Conference on “Coordination within and among organizations” (HEC Paris, 2011). Published: 2011 URL: http://www.business.illinois.edu/Working_Papers/papers/11−0106.pdf Supply Portfolio Concentration in Outsourced Knowledge-Based Services Mahka Moeen Department of Management and Organization Robert H. Smith School of Business University of Maryland 3330 Van Munching Hall College Park, MD 20742 E-mail: [email protected] Deepak Somaya Department of Business Administration College of Business University of Illinois Urbana-Champaign 185 Wohlers Hall 1206 South Sixth Street Champaign, IL 61820 E-mail: [email protected] Joseph T. Mahoney Department of Business Administration College of Business University of Illinois Urbana-Champaign 140C Wohlers Hall 1206 South Sixth Street Champaign, IL 61820 E-mail: [email protected]