Academic journal article Academy of Strategic Management Journal

Globalization, Value-Based Management, and Outsourcing Strategies and the Application of the Theory of Constraints

Academic journal article Academy of Strategic Management Journal

Globalization, Value-Based Management, and Outsourcing Strategies and the Application of the Theory of Constraints

Article excerpt

ABSTRACT

The "Thinking Process" as introduced Dr. Eliyah Goldratt, in The Goal and further expounded upon in, It's Not Luck, is based on the Socratic teaching method of if ... then reasoning. This type of deductive reasoning is extensively used in the field of medicine, in the diagnosis and treatment of disease and for determining clinical pathways and other fields of science. Even though medical professionals find it easy to map out the cause and effect relationships when dealing with a disease process, few have explored the benefits of using their highly developed intuitive thinking skills in the area of solving problems in management. This paper will use elements of the Thinking Process, as outlined by Dr. Goldratt, in an attempt to elicit a logical, comprehensive solution to a multifaceted, intricate set of strategies: Globalization, Value-based Management, and Outsourcing.

INTRODUCTION

It is important to note how the environment in which we do business has evolved over the centuries. Technology, political agendas, and the integration of trade have impacted the borders of the business world. Today it is not uncommon for a corporation to buy and sell products from different intercontinental companies to maximize efficiencies. The exposure that these corporations, whom engage in intercontinental commerce, receive also allows them to establish a presence in foreign markets. By doing this they receive a much broader business horizon than that of a company operating in a single country.

From these changes, one would have to analyze whether previous business models still apply or whether change needs to be implemented to keep a firm afloat in a global economy. Corporations have since changed their strategies and focused on a stronger commitment to their stakeholders. Increasing their wealth has become the name of the game and a must to stay competitive in a global economy. A management style known as value-based management has since emerged to satisfy the hunger of the all-powerful investor. Such a framework revolves around the strategy that companies should operate in a matter that creates value. The end result is a strong corporation capable of producing above average returns.

Value-based management has a strong belief in outsourcing. Those activities that are not profitable are often outsourced to a company that is capable of doing the activity in a much more financially feasible form. Advocates of value-based management have since encouraged the use of outside sources. The fact that we are in a global economy and labor can be purchased inexpensively in other areas makes an outsourcing strategy an attractive offer to upper management.

The emphasis of this paper concerned it's self with the Theory of Constraints brought to light, by Elli Goldratt. Goldratt feels that companies should not be broken up to create efficiencies at any part of production. He suggests that by disturbing a link in the chain of production one could cause problems with production (Goldratt 1992c). Such problems are explored in the following section of the article. The article attempts to decipher whether priority should be place on a strategy of outsourcing and the value it creates in a firm or should corporations follow Goldratt's theory to minimize future problems that could arise from outsourcing.

GLOBALIZATION HELPS COMPANIES EXPAND

Globalization is rapidly becoming a part of the business world today. Barriers that once held nations autonomous from one another have deteriorated over time. The constant evolution of technology and the persistent ambition of the entrepreneurial spirit have created a force that has shifted the trade boundaries of nations. This trend has affected the corporate operations strategy and has added length to a once simple supply chain. The new phenomenon has allowed the creation of wealth through every liaison involved in the expansion of such multinational corporations. …

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