Effectively managing vertical supply relationships: a risk management model for outsourcing

Abstract

A significant feature of business management in the 1990s has been the practice of outsourcing. Firms and public sector bodies have reconsidered where the boundary of their organisation should be set, and passed to third parties responsibility for many business activities. However, many firms have been disappointed with the results they have achieved from outsourcing, not least when it has concerned high profile functions such as information technology. Part of the reason for this disappointment, it is argued, lies in the methodologies (or lack of them) which have been employed by managers. Very few have taken into account the main risks of the practice or identified the required safeguards. This article seeks to address these shortcomings by presenting a model for effective risk management. The article also provides a case study – outsourcing at Hewlett‐Packard – which shows what can be achieved if managers use the right criteria for their decisions.