Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

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In this paper we build on recent progress in the area of plural sourcing and address these two limitations. In doing so we identify two mechanisms that help better understand the design and variability in plural sourcing strategies. First, resource co-specialization enhances the benefits of internalization. By resource co-specialization we refer to the synergistic gains that arise from the interaction of different resources within firm boundaries (Lippman et al., 2003; Teece, 1986). When firms outsource part of production they essentially position certain resources, e.g. personnel, equipment etc. outside of their boundaries. By doing so, they forego opportunities to harvest synergies resulting from resource combinations that increase their marginal productivity through on-going interaction, shared expertise, and knowledge spillovers (Dierickx et al., 1989; Kogut et al., 1992; Milgrom et al., 1995). Consequently, in cases of plural sourcing the extent of integration, or make, will increase when there are opportunities for resource co-specialization with other firm resources. Second, we highlight the impact of supplier concentration (Moeen et al., 2013) on the relative importance of internal versus external suppliers in plural sourcing. Here we suggest that the number of suppliers chosen to outsource to is not independent of the proportion that is bought. A large number of suppliers leads, ceteris paribus, to high mundane transaction costs and reduces the benefits from relational contracting (Baker et al., 2002; Langlois, 2006), resulting in the firm relying more heavily on make in plural sourcing. By contrast, when firms use a small number of suppliers, they will benefit from relational contracting and lower transaction costs and consequently buy more from their suppliers (Dyer, 1997; Moeen et al., 2013). We develop our arguments in the context of corporate legal services, a setting where the use of both internal and external suppliers for the same input, known as multi-sourcing, is common (Sako, 2011; Susskind, 2008). We demonstrate that resource co-specialization drives the design of plural sourcing strategies as the balance tilts in favor of make when firms 4
ely more on R&D resources, advertising resources, international presence, and legal expertise in their top management team. We also find that the extent of insourcing increases when the firm sources from a large number of law firms. Although this result might sound counterintuitive, it is explained by the endogenous impact of supplier concentration on the costs of contracting. This paper contributes to our understanding of plural sourcing by moving beyond the recognition of the phenomenon to the identification of specific strategies that firms employ and their antecedents. Moreover, this study is important in extending the inquiry on firm boundaries to the domain of corporate functions. The vast majority of an admittedly voluminous literature on vertical integration (or disintegration) has focused on primary activities (Gibbons, 2005; Williamson, 1985), to the neglect of corporate functions providing important support activities in the value chain (Porter, 1985). This paper highlights the importance of investigating firm boundary-setting and the mix of make and buy activities with a focus on value-adding professional and business services in corporate functions (Sako, 2013). Finally, our study contributes to debates outside the strategy field. Legal scholars (Regan et al., 2010; Schwarcz, 2008) and commentators (Smith, 2001; Susskind, 2008) have been debating recent make-and-buy trends in legal services without the benefit of any broadsample statistical evidence. We provide that evidence and demonstrate how strategy research can inform and, perhaps, promote evidence-based consensus on key issues in legal practice. In the next section we review the relevant literature and explain why corporate legal services provide an ideal setting to test our predictions. Then, we present in sequence our hypotheses, data and methodology, and results. The final part offers a concluding discussion. PLURAL SOURCING: THEORY & EVIDENCE TCE and RBV are the two dominant theories employed to understand firm boundary decisions. On the one hand, TCE explains the make-or-buy decision as a response to close 5
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Date: April 12, 2013 Topic: The Shr
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Page 59 and 60: REFERENCES Alavi, M., Leidner, D. E
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Page 63 and 64: Table 2: Descriptive Statistics Var
Page 65: Table 4: Results of Individual Fixe
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Page 71 and 72: 1 DECONSTRUCTING BIG LAW The Future
Page 73 and 74: The Stanford Law School Research Pr
Page 75 and 76: 2011 General Counsel with Power
Page 77 and 78: Executive Summary of Key Findin
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Page 107 and 108: Resource Co-Specialization and Supp
Page 109: al., 2009), plural sourcing (Bradac
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Page 115 and 116: specialized tasks such as complex a
Page 117 and 118: also distinct from economies of sco
Page 119 and 120: In case studies of innovating firms
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Page 125 and 126: Law firms. In order to measure the
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Page 141 and 142: Gulati R, Puranam P. 2006. Compleme
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Page 148 and 149: The Shrinking Pyramid: Implications
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Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

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