Innovation Risks of Outsourcing within Knowledge Intensive Business Services (KIBS)

Innovation Risks of Outsourcing within Knowledge Intensive Business Services (KIBS)

Paul Trott (University of Portsmouth, UK) and Andreas Hoecht (University of Portsmouth, UK)
Copyright: © 2009 |Pages: 20
DOI: 10.4018/978-1-60566-176-6.ch004
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Abstract

The United States and European economies have witnessed an enormous increase in the amount of specialized business services, which now provide critical inputs to firms in all sectors. It is this area of the economy which has witnessed huge expansion and development. KIBS include traditional professional business services such as accountancy and law, but also a new generation of KIBS such as IT expertise and internet development. Coupled to this growth has been an increase in the level of outsourcing. Outsourcing was originally confined to peripheral business functions and mainly motivated by a cost saving logic, but has now developed into a routine strategic management move that affects not only peripheral functions but the heart of the competitive core of organisations. This chapter analyses previous research and adopts a conceptual perspective in investigating the innovation-related risks to the organisation that can arise from strategic outsourcing. It uses the example of KIBS outsourcing to highlight the increased risks that arise from a move from traditional to strategic outsourcing and discusses some measures that managers can take to attempt to control these risks.
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Introduction

Occasionally one would be forgiven for thinking that in these advanced developed economies servic es had replaced all manufacturing activities, and there had simply been a huge growth in coffee bars, smoothie bars and hair salons. In the most advanced service economies in the world such as the USA and UK, services now account for up to three-quarters of the wealth and 85% of employment (Tidd and Hull, 2003). Within the EU services now account for 60% of GDP (Eurostat, 2006). The term knowledge based economy has been coined to characterize some of the main changes in the development of economies over the past twenty years. Similarly, the influence of technology in general and information communication technologies in particular cannot be overstated. In virtually all industries there has been a huge growth in specialist knowledge and skills being made available to firms. For example in civil engineering and architecture, where previously much of the input came from the architect now the architect employs a range of specialists from: fire engineering; acoustic engineers; lighting designers, etc. A new range of disciplines have emerged offering specialist knowledge and skills. This has been replicated in virtually all industries (Gann and Salter, 2003).

The development of these economies has led to a massive increase in the amount of specialized business services which now provide critical inputs to firms in all sectors. It is this area of the economy (US and Europe) which has witnessed huge expansion and development. It is not simply that people are spending more time and money in hair salons (though that may also be true). It is these knowledge intensive business services (KIBS) which are the key behind the development of the service side of the economies. KIBS include traditional professional business services such as accountancy and law, as well as services that have a scientific and technical knowledge base such as IT/IS (Miles, 2003; Alvesson, 2004). Other examples include a new generation of KIBS. For example the provision of specialist services to the Oil industry has led to huge growth for Halliburton and Schlumberger, the world market leader for oil services. Indeed, while the share prices of Exon and Shell have doubled over the past four years the share price of Halliburton and Schlumberger has tripled (Financial Times, 2007).

The growth in information communication technologies during the 1980s and the development of the internet in the 1990s and into the 21st century has led to enormous sums of money being spent by firms in order to ensure that they are equipped to compete. In addition, the introduction of some of these business systems such as Enterprise Resource Planning systems (ERP) have led to significant reductions in costs and improvements in efficiency. If one then adds to the KIBS the huge growth in entertainment industries including the gaming industry (Xbox, Nintendo, Playstation, PC games, etc), the new on-line gambling industry (Party-Gaming, Gaming Corporation) and the more recent social networking industry (which includes Myspace, Bebo and Mypages) one begins to recognize just how much change and growth there has been to economies over the past ten years.

Key Terms in this Chapter

Outsourcing: A term used to describe the process of using external organisations to provide the firm with the necessary services it requires, and that it previously supplied from within. Such as maintenance, cleaning, catering, computer support, telecommunications services. The benefits of outsourcing include reduced costs and increased services.

Innovation: The process of developing and commercialising something new, usually a product, service or manufacturing process. The process is related to >invention but they are not identical twins. The management of innovation is a growing and significant subject in its own right. While there is continued debate in the literature about the range of activities covered by the term, there is broad agreement that successful innovation management involves research, technology development, marketing and manufacturing.

Core Capabilities: The knowledge and skill that resides in an organisation. Core capabilities include technical know-how, technical skills, business process know-how and business skills. Distinct capabilities are those things that the organisation is better at doing than its competitors.

Information Leakage: Information leakage refers to the unintended loss of information from an organization. This usually occurs as a result of employees passing information to others sometimes unwittingly sometimes wittingly.

Knowledge Intensive Business Services: Knowledge intensive business services (KIBS) include traditional professional business services such as accountancy and law, as well as services that have a scientific and technical knowledge base such as IT/IS. Other examples include a new generation of KIBS. The growth in information communication technologies during the 1980s and the development of the internet in the 1990s and into the 21st century has led to enormous sums of money being spent by firms in order to ensure that they are equipped to compete.

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