Managing Intellectual Capital: Organizational, Strategic, and Policy Dimensions

By David J. Teece | Go to book overview

Chapter 7 Outsourcing and Insourcing Strategies for Innovators: Opportunities and Limits*

7.1 Introduction

Champions of virtual corporations are urging managers to subcontract anything and everything. All over the world, companies are jumping on the bandwagon, decentralizing, downsizing, and forging alliances to pursue innovation. The idea of the virtual organization has become tantalizing, because many have come to believe that bureaucracy is bad and flexibility is good (see Chapters 3 and 4). In popular management rhetoric, it is frequently claimed that a company that invests in as little as possible will be more responsive to a changing marketplace, and more likely to attain global competitive advantage.

In this chapter, we endeavour to draw out further the managerial implications of the organizational design issues addressed in Chapters 3 and 4 . There is no question that many large and cumbersome organizations have been outperformed by smaller 'networked' competitors. Consider the eclipse of IBM in PCs, and of DEC in workstations by Sun Microsystems. But while there are many successful virtual companies, there are even more failures, suggesting that the virtues of being virtual have been exaggerated. The new conventional wisdom ignores the distinctive roles that large integrated companies can play in the innovation process. Those rushing to form alliances while neglecting to nurture and guard their own capabilities may be risking their future.


7.2 What's Special About Virtual?

What gives the virtual company its advantage? In essence, as explained in Chapters 3 and 4 it lies in quick response. Virtual companies conduct much

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