The Theories Behind Outsourcing

Published Date: 02 Nov 2017

Introduction

This section seeks to demistify the pivotal technical issues in outsourcing associated with this research and present an awareness of the relevent concepts. The section explores and reviews literature on the strategic importance of outsourcing in the telecommunications industry. This entails a review of the theoretical and empirical literature that specifically underpins the study in line with the research objectives with a view to identifying any gaps in literature. The section will assess the context in which outsourcing is being discussed and identify key elements of the concept, and its linkage to an organization’s competitive advantage. An examination of the case for outsourcing in the telecommunications industry will be made. Contributions and arguments from other researchers will be explored and summarised.

The Outsourcing concept

Definitions of outsourcing

A plethora of literature on outsourcing exists, and most authors seem to agree that outsourcing is one of the most important management practices in the 21st century and that the practice is on the increase. Whereas Greaver (1999) defines outsourcing as the act of transferring some of an organization's recurring internal activities and decision rights to outside providers, as set forth in a contract, Domberger (1998) defines it as the transfer of the production of goods and services that have been carried out internally to an external provider. Of note in Domberger’s definition is that it excludes any goods and services that have not been produced internally. Brown and Wilson (2005) on the other hand define outsourcing as "the act of obtaining services from an external source." Linder (2004) provides a broader dimension of outsourcing by defining it as the purchasing of ongoing services from an outside company that a company currently provides, or most organizations normally provide, for themselves. Lei and Hitt (1995) broaden it further by stating that outsourcing is the reliance on external sources for the manufacturing of components and other value-adding activities. McIvor (2003) argues that the term outsourcing can cover many areas, including the outsourcing of manufacturing as well as services. For the purposes of this research, a combination of the last two definitions will be used to define outsourcing as the reliance on external sources for ongoing services and other value-adding activities that a company currently provides, or most organizations normally provide, for themselves. The opposite of outsourcing could be defined as vertical integration or insourcing which entails the production of goods or services within the firm.

Other terms similar to outsourcing are contracting, contracting out (Domberger, 1998) and farming out (Doig, Ritter, Speckhals and Woolson, 2001). Friedman (2006) uses the term "out-tasking" to refer to hiring an external provider on a limited basis for a particular project. In this research out-tasking is treated as another form of outsourcing. The difference between outsourcing and out-tasking is that outsourcing is long term in nature (and hence strategic), whereas out-tasking may be a one-time deal.However, when discussed in terms of outsourcing, out-tasking is simply another type of outsourcing, which is tactical in nature rather than strategic.

The Theories behind outsourcing

The conceptual basis for outsourcing can be traced from Williamson’s (1975) transaction cost analysis theory, which is essectially a combination of economic theory and management theory used to determine the optimal relationships an organization should develop in the marketplace (McIvor, 2005). The driving principle in transaction cost theory is "achieving efficiency depends on balancing the risks and benefits" (Lee, Huynh, Kwok & Pi, 2003 p.95). Williamson (1985) concludes that the organization should consider outsourcing those activities that would require excessive investment to get lower unit cost when produced internally. Modern day outsourcing can aslo be traced to the work of Porter (1985) who suggested that firms should manage their resources by optimizing transaction cost involved in outsourcing. From the evidence above, it is can be concluded that outsourcing exists to create value (Samuel, 2004)

Outsourcing can be directly linked to the Core Competence theory, Resource-based theory, Transaction cost theory, Network theory, Contractual Theory, and Contingency theory.

Core Competence theory

Hamel and Prahalad (1994, p.4) define core competencies as "the collective skills and learning inside an organization that create competitive advantage." However, there seems to be disagreement amongst many scholars as to what really constitutes a core competence. Quinn and Hilmer (1994) contend that core competencies are neither products nor those things an organization does well, but are infact those things that the company is very good at, especially those that require mental reasoning. Alvarenga and Manmiera (n.d., p.6) on the other hand observe that some executives think of their companies’ core competencies as the things we need to get right, others describe them as "the things we do best" and some executives define a core competency as "the basic skills required to compete in our industry" while, interestingly, some leaders simply ignore the concept altogether. However, other authors argue that the simple dichotomy core — non-core is weak in that there are several circumstances when outsourcing of core competencies can be very beneficial (Baden-Fuller, Targett, & Hunt, 2000). The difference between core and non-core arguably builds on a static view of the world, where "managers can place big bets about their markets, future technologies, and suppliers’ capabilities and motives with a great deal of certainty. The real world is however too turbulent, too unpredictable and complex" (Lacity & Willcocks, 1995). McIvor (2003) found it very difficult to distinguish the core in practice from the non-core.

Resource-Based Theory

This theory views organisations as a collection of productive resources and considers company resources, whether physical or not, as a source of competitive advantage. It is premised on the assumption that organisations gain competitive advantage by their internal resources. According to Barney (1991), the Resource Based View (RBV) can be seen as a substitute of Porter’s (1985) five forces model in analysing sources of competitive advantage. A company should be able to leverage on its resources to differentiate itself from competitiors. Outsourcing brings another persperctive where, if a company does not have sufficient physical and/or intangible assets, it uses outside resources for competitve advantage. Thus a firm can co-operate with partners, so that the firm’s knowledge is enriched by the partners’ knowledge and capability (Barney, 1991) to create sustained competitve advantage. As such, a firm with strategic outsourcing capability is likely to achieve success by leveraging on partners' capabilities and competencies (Khwanruedee et al., 2010).

Transaction Cost Theory

According to Williamson (1981), a transaction cost occurs "when a good or a service is transferred across a technologically separable interface". The theory is a framework for analysing the "comparative costs of planning, adapting, and monitoring task completion under alternative governance structures" (Williamson 1985, p. 2). Henisz and Williamson (1999) argue that transaction cost economics is a relative legal advancement to economic organization where the focus is on information of transaction and governance activities. According to Logan (2000) the theory helps companies to identify non-core activities that could be outsourced.

Network Theory and Agglomeration

According to the Industrial Network Theory, any market can be described as a kind of macro network (Axelsson and Easton 1992). A business network may be defined as a set of connected exchange relationships between firms (Forsgren and Johanson, 1992). The Network theory explains how firms' cooperation can be affected by viewing business as a network of relationships among communities or industry and among organizations or firms (Wilkinson and Young, 2002). The business network view seems to suggest that a company cannot develop strategic outsourcing and implement it in isolation, without a strong understanding of the embeddedness of individual relationships within wider networks (Gadde and HÃ¥kansson, 2001).Therefore, firms with strategic relationships gain competitive advantage, due to access to information and opportunities, over those firms that do not have.

Closely linked to the network theory is the concept of Spatial Agglomeration,

Spatial Agglomeration could be defined as the location of firms within a dense industrial area, increasing the probability of finding specialised suppliers (Antonietti & Cainelli, 2009) According to Quigley (2004), the concept of agglomeration, (which is not new but appeared in writings as old as 1849), is closely linked to the network theory. Hawkins (2011) notes that there are 3 main drivers of agglomeration economies;

Externalities arising from the presence of a large number of firms in the same industry in a specific location

Externalities arising from the presence of a large number of closely related industries, including suppliers and buyers, in a specific location, and

Those that arise from the presence of a large number of firms in unrelated industries in the same location.

Additionally, the sources of agglomeration economies and their relative importance differ with the degree of sophistication of the product manufactured. Adretech (2003) observe that the influence of agglomeration externalities on a firm’s profits depends on the efficiency benefits it derives from collocating and on the contributions it makes to its competitors’, suppliers’ and buyers’ production processes.

Contractual Theory

Gurbaxani (2007) defines an outsourcing arrangement as a long-term contractual arrangement in which one or more service providers are assigned the responsibility of managing all or part of a client’s infrastructure and operations.Solli-Saether and Petter (2009) observe that the outsourcing contract provides a legal framework that binds the right, roles and responsibilities of the parties in the contract and the inherent goals, policies and strategies of the arrangement. The contractual theory is the basis upon which the outsourcing relationship is based and is usually accompanied by Service Level Agreements which clearly spell out the responsibilities and benchmarks for performance measurement.

Types of outsourcing

A search of the Emerald research database with the key word outsourcing, (as at February 26, 2012) yields 6281 journals and 466 books. It is therefore clear that the topic of outsourcing is by no means a new area. As such, a number of classifications of outsourcing exist, and those that are relevent to this research will be reviewed here.

Hillary (2005) identifies three high level "flavours" of strategic outsourcing, namely;

Tactical Outsourcing

Tactical outsourcing is the practice of outsourcing a very specific problem or task which is usually applied where in-house resources cannot immediately deliver what is required. It can be mixed with in-house services creating a blend of in-house and outsourced services and is thus essentially a short-term approach.

Strategic Outsourcing

In strategic outsourcing, the overall corporate 'big picture' has to be considered, rather than individual projects or required skill-sets. As the cut-throat global competition increases, the scope of outsourcing and managed services changes from the traditional concept to strategy (Quinn & Hilmer, 1994). According to (Mazzawi, 2002) strategic outsourcing is concerned with creating value to align the business processes with the strategic goals. In this case the organization ceases to focus on whether to outsource or not and begins to consider what it does best and how. Strategic outsourcing can be an opportunity for the senior management of a company to do some serious re-engineering on the products and services offered. According to Hillary (2004), Haveckin (2012), the main reasons for choosing a strategic outsourcing solution are:

To provide access to the best resources in the business by ensuring that only leading experts work on your projects.

Internal resources can be freed from non-core activities and allowed to focus on revenue generation.

It allows the business to focus on its core competencies rather than reinventing the wheel.

It allows the company to save costs

As a response to industry competitve forces

To provide staff versatility

To introduce new technology and,

To gain competitve advantage.

Transformational Outsourcing

This goes beyond strategic considerations and works on the basis of how the business might be run if there was an opportunity to start over again. This complete business redesign would use outsourcing as a strategic tool to ensure that the benefits of strategic outsourcing are achieved as a new way of doing business is created. This is a complete corporate overhaul and has far-reaching long-term consequences.

According to Gilley, McGee, & Rasheed (2000) there are two broad types of outsourcing which are discussed below;

Substitution

This is outsourcing that arises from the substitution of internal activities by external purchases. In this case, an internal supplier is discontinued in preference of an external supplier and may be viewed as vertical disintegration.

Abstention

This type of outsourcing is not limited to activities shifted to external suppliers, but may also arise when a firm purchases goods or services not provided in-house previously. Abstention-based outsourcing differs from basic procurement because provision of the good or service outsourced is within the acquiring firm’s managerial capacity.

Gewald and Rouse (2012) on the other hand identify two major classes of outsourcing as;

Information Technology outsourcing (ITO)

IT outsourcing, is contracting for delivery of IT services and/or equipment by an external party. Closely linked to IT outsourcing is the concept of Cloud Computing.

Cloud Computing: In essence, cloud computing is a new way of delivering and using IT services "on demand" and in a manner in which the services are flexible, scalable and cost effective (Borts, 2012). It allows users to access and store information and use software functionality on remote servers owned and/or operated by third parties as and when they are needed. Some of the benefits of such an outsourced service include;

Cost saving: allows organisation to easily respond to fluctuations in demand

Capex reduced: no longer extensive expenditure on IT infrastructure (people, software, hardware)

Ease of integration and use: can access services/data/files anytime and from anywhere

Business Process outsourcing (BPO)

They define Business process outsourcing as outsourcing one or more specific business processes together with the IT that supports them, where business process is defined as a set of logically related tasks performed to achieve a defined business outcome.

Since the focus of this reasearch is competitiveness, which is strategic in nature, the classification by Hilary (2000) will be adopted. However, the classification by Gilley, et al., (2000) will also be used in order to provide the broad picture where outsourcing is not limited to activies that are transferred to external suppliers, but also include those not provided in-house previously.

Benefits of Outsourcing

Cost-cutting is often sited as the major advantage of outsourcing, though it can sometimes lead to dissapointment, since outsourcing does not always produce a cost benefit (Lankford and Parsa, 1999). They further argue that outsourcing works best when it is an outgrowth of reengineering. A much better reason is the specialized knowledge that the contractor can provide (Davies, 1995). Domberger (1998) and Hendry (1995) identified five advantages of outsourcing: namely; lower production costs, strategic focus, cost avoidance, relational rents and flexibility. Admittedly, outsourcing has a number of benefits which include enabling a company to redirect energy to its core competencies by making more efficient use of worldwide labor, capital and technology for non-core work, and allowing for the purchase of intellectual capital that would not otherwise be available. Gerwald and Rouse (2000) observe that, although there is a lot of literature that examines the benefits and risks of outsourcing, the majority of research was published on the benefits of outsourcing, and this may be due to the fact that the primary research objects – managers responsible for outsourcing – are much more focused on the benefits than the risks of outsourcing. This is turn may explain the seemingly increasing advantages of outsourcing that are being discovered in literature.The table below, summarises this trend.

Table 2 Benefits of Outsourcing

Burkholder(2006)

Outsourcing Institute (1998)

Elliot and Terke(1996)

Ciandella (1996)

Carter (1995)

Acceleration of reengineering benefits

Focus on core

Business

Focus on core

business

Focus on core

business

Focus on core

Business

Access to world-class capabilities

Access to leading

practices/

technology

Access to leading

practices/

technology

Access to leading

practices/

technology

Access to leading

practices/

technology

Cash infusion

Flexibility

Flexibility

Lack of internal

resources

Reduce costs

Freeing up resources for other purposes

Reduce costs

New skills/culture

Flexibility

Function difficult to manage or out of control

Lack of internal

Resources

Customer/supplier

orientation

Improved company focus

Free internal

Resources

Reduce costs

Reducing operating costs

Function out of

Control

Reducing risk

Access capital

Resources not available internally

Share risks

(Adapted from McDonagh and Hayward, 2000)

Disadvantages and/or risks of outsourcing

Academic work has been done to identify the drawbacks of outsourcing and the ones that stand out include hollowing out, opportunistic behavior, transaction costs, reduced learning and innovation (Domberger, 1998; Hendry, 1995). McDonagh and Hayward (2000) identify the most common problem areas reported in academic studies as

Outsourced workers less in tune with organisational needs or culture

A time-consuming bid or management process;

Failure by service providers to deliver promised service;

Slower response times;

Lack of control; and

Poor communication.

As enterprises continue to adopt varying operating models for outsourcing agreements, Pai & Basu (2007) assert that they must evaluate and weigh the importance of four key factors:

cost savings;

service quality/delivery;

level of control/governance; and

risk tolerance

These provide a key measure of the benefits outsourcing. These mesures will also be adopted in measuring the success of Liquid Telecom outsourcing.

Trends in the telecommunications industy

Unlike general outsourcing, there has not been much academic work done on outsourcing in the telecommunications industry. In fact most of the work in this field has either been done on, or by, original equipment manufacturers (OEMs) (for example, McIvor, 2000). Such studies have two limitations in relation to the focus of this research. Firstly, studies by telecommunications equipment vendors are likely to be biased and present outsourcing as a competitive advantage as the vendors seek to forward integrate by providing managed services to telecommunications service providers. Secondly, the value chain of the vendors is essentially different from that of service providers, thus studies on these organizationa cannot be extrapolated to telecommunications service providers. Most of the other studies on outsourcing have focused on IT outsourcing, which is also essentially different from the outsourcing in telecommunications organizations. As such, most of the available documentation on outsourcing by telecommunications service providers is by telecommunications research organizations, International Telecommunications Union (ITU) publications and by individual industry commentators. This lack of academic research on the subject of outsourcing in telecommunications service providers forms the basic motivating factor for embarking on this reseach work.

According to a Technology Forecasters Inc.'s (TFI) consultant "countries including Japan, Finland, and Sweden are looking at 100 percent penetration in cell phone ownership". Given this high penetration rate and advancing technology, outsourcing is a necessity." Another management consulting firm, Authur D Little, claims that outsourcing and infrastructure sharing can increase the telecommunications carrier’s operating free cash flow by up to 10 %. In 2004, an American research company, Booz&Co in a research on the outsourcing trends in North America, found out that more than 75% of the telecommunications industry executives consider outsourcing as a key business lever that allows their business to better respond to market challenges (Jaruzelski, Katz, Ribeiro, & Bordia,2004). The same research concluded that, the number one reason telecommunications Service Providers give for outsourcing is Operational expenditure (OPEX) reduction and Capital Expenditure (CAPEX) optimization. Most of the industry experts, and vendor presentations, site the pace of technology change as the greatest influence for the trend toward more outsourcing and managed services for operators.

Outsourcing options in telecommunications

Within the Telecommunications industry, there are a number of options for outsourcing, where the operators can decide to outsource a part or the whole process. The options can be listed as;

Staff Augmentation

Out-Tasking

Project Based Outsourcing

Managed Services

Staff Augmentation Model

Staff Augmentation is whereby a company takes on contract employees to meet temporary or short term increase in demand for their products or services (Tapscot & Ticoll, 2003). The challenge with such an approach is on how quickly the temporary workers can understand a company’s processes, strategy, culture and policies as such an understanding is a crucial variable in employee productivity. In this model, the contract workers can be supplied by an outsourcing vendor, but the vendor does not take full accountability.

Out-Tasking Model

According to Chambers (2003), out-tasking is a modified version of outsourcing where the client "maintains control over the strategy and implementation, and their out-tasking partner executes on it". The observation in this model is that the vendors are responsible for specific functions in the company while the client controls and manages all internal activities. In such an arrangement the service providers do not have ownership of any project as they only perform certain tasks from the project and are responsible for their activities. Crucially, the out-tasking client remains completely in control of the overall strategic systems architecture and the data architecture.

Project Based Outsourcing

Project-based outsourcing is whereby the outsourcing service provider is given responsibility for a project. A popular example of this model in the Telecommunications industry are the turn-key projects that are normmaly carried out by Telecommunications Equipment Vendors.In this type of setup, the client hands over overall project control and management to the vendor, but constantly monitors progress agaist specific deliverables and benchmarks.

Managed services Model

According to an Erricsson white paper, the managed services model "typically include establishing, operating and managing day-to-day operations of a telecom operator’s network, services and business support systems (www.erricsson.com). The term also covers the case where a provider takes responsibility for providing the required network capacity to an operator, when and where needed, as well as hosting of content, applications and enablers." Manish and Rohini (2007), on the other hand define managed service model as one in which the service provider has complete ownership for the delivery of services. The service provider responsibilities include design, building, operating and improving processes, applications, and infrastructure.

Of these models out-tasking, staff augmentation and project-based outsourcing are the most widely used in Zimbabwe. Although Managed services model is on the increase globally, no telecom company in Zimbabwe has embraced this model yet.

Selecting Appropriate Sourcing Model

According to Manish & Rohini (2007), the appropriate sourcing model for an organization is determined by its existing sourcing maturity level and its willingness to improve on it. He further argues that there is no one perfect sourcing maturity level, it depends on the business dynamics and strategic thrust of the organization as far as sourcing is concerned. Critical to the success of any model adopted is the willingness of the organization to actually support the partnership structures required at a given level of outsourcing. The two propose a sourcing maturity model that organizations can use to evaluate their readiness to use a given sourcing model.

Table 2: Sourcing Maturity Model.

(Adapted from "Outsourcing Models: Aligning Sourcing by Manish S., & Rohini W. ( 2007). Strategy to Business Objectives", White Paper. pp 2-12.)

It is thus clear that organizations that can take the strategic, enterprise wide approach to outsourcing are those that are highly mature in their sourcing models. An organization that has low sourcing maturity has limited options in their sourcing models and thus it is critical for management to assess current sourcing maturity level and take a strategic decision to move up the sourcing maturity curve in order to derive more benefits from outsourcing. The diagram below summarizes this model.

Figure 2: Sourcing Maturity Model

(Adapted from "Outsourcing Models: Aligning Sourcing Strategy to Business Objectives by Manish S., & Rohini W., (June 2007)., White Paper. pp 2-12.)

The concept of relationships in outsourcing

Closely linked to the sourcing maturity analysis model by Manish and Rohini (2007) is the concept of relationships. This is closely linked to the Network Theory discusssed in section 2.1.2.4 above. Various researchers have added additional dimensions to include a ‘relationship’ which is based on trust, commitment, culture, interdependence and communication (Goles & Chin, 2005).

These key terms are defined as follows:

trust: exchange relationships among participants;

commitment: keep promises and perform as per specified agreements;

culture: vendor and company communicate well and understand business rules and etiquette;

interdependence: balanced interdependence between entities in the service partnership;

communication: quality, accuracy, timeliness and credibility (Haveckin, 2012)

These "relationship" measures are key to the success of any outsourcing arrangement.

Haveckin (2012) further proposes the linkage map below to explain the key issues in outsourcing. Although the map was used in the analysis of IT outsourcing, the concepts that are pertinent to telecommunications organizations, which will be analysed among others include;

Benefits

Competitve Advantage and Bottom line costs

Drivers

Competitve advantage, Profits, Globalization, Technology and Versatility

Success Factors

Management support, User/provider relationship and internal controls.

Major Reasons

Cost control, Increased service levels, Access to technical expertise and freeing up internal resources.

Figure 2: Linkage Map for Outsourcing.

(From Information Technology outsourcing by large Australian Organizations by Haveckin, B. (2012).. (Doctorate thesis, Victoria University, Victoria, Australia) p. 29.)

Telecommunications value chain dynamics

Value chain analysis views the organisation as a sequential process of value creating activities (Dess and Lumpkin, 2002). Porter (1985) argues that competitive advantage cannot be understood by looking at a firm as a whole. He further argues that competitive advantage stems from many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its products. Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation. The value chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation.

Figure 2: The Firm’s value chain.

(From Information technology for management: Transforming organizations in the digital economy by Turban, E. McLean, E. & Wetherbe, J., (2004).)

The goal of these activities is to offer customers a level of value that exceeds the cost of the activities thereby resulting in a profit margin.The value chain enables a firm to implement a generic strategy of their choice by monitoring closely the value activities.

The telecommunications industry value chain is one characterised by an array of competitive dynamics, rapid innovation, and continuous re-alignment. In analysing outsourcing in the telecommunications, it is crucial to look at the fundamental principles of value chain analysis and the value it adds to assessing relationships.All the activities that form the telecommunications value chain have the potential of being outsourced. However, which activities are outsourced in a Telecommunications environment will depend on the position of the organization on the sourcing maturity curve (Manish and Rohini, 2007)

Telecommunications Business Processes (eTOM Model)

As discussed in section 2.1.5 (drawbacks of outsourcing) one of the major problems of outcourcing is that the outsourced workers are less in tune with organisational needs, culture and processes. In the telecommunications industry however, there is a model (the Enhanced Telecommunications Operations Map (eToM)) which is a Business Process Framework that describes and analyzes different levels of enterprise processes according to their significance and priority for the service provider business (eToM, Release 8.0, 2008). The enhanced Telecom Operations Map (eTOM) is a guidebook built on TeleManagement Forum’s Telecom Operations Map (TOM) and is currently one of the most widely used and accepted standards for business processes in the telecommunications industry. The framework is defined as generically as possible so that it remains organization-, technology-, and service-independent. The Business Process Framework serves as the blueprint for telecommunications service provider process direction, and provides a neutral reference point for;

internal process reengineering needs,

partnerships, alliances, and

general working agreements with other companies.

The eTOM model attempts to describe the whole scope of business processes key to a telecom service provider and defines critical elements and how they interact with each other.Such a framework will therefore be useful in analysing the relationship between Liquid Telecommunications and its outsourcing patners.

1.5.1 Enhanced Telecommunications Operations Map Brief Background

The Business Process Framework is an ongoing initiative of the TeleManagement Forum (TM Forum) and can be viewed as having the following three major process areas:

Strategy, Infrastructure, and Product (SIP) covering planning and lifecycle management

Operations covering the core of day-to-day operational management

Enterprise Management covering corporate or business support management

Figure 2: eTOM Level 0 Model.

Adapted from TMForum, (2008)

Competitive Advantage

A competitive advantage exists when the firm is able to deliver the same benefits as a competitor but at a lower cost or delivering benefits that exceed those of competing products. Barney (1991) says competitive advantage is attained when a firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. He differentiates this from sustained competitive advantage by defining sustained competitive advantage as implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when those other firms are unable to duplicate the benefits of this strategy. A competitive advantage is only sustained if it continues to exist after efforts to duplicate that advantage have ceased; sustained competitive advantage is an equilibrium position (Barney, 1991). A firm enjoying sustained competitive advantage may experience major shifts in the structure of the competition and may see its competitive advantage nullified by such changes. He further argues that, a sustained competitive advantage is not nullifies through competing firms duplicating the benefits of that competitive advantage. There are two major views of competitive advantage:

The Position or Environmental model

The Resource Based View

The Position/Environmental View

This view is mainly based on models put forward by Michael Porter: the value chain analysis and the generic strategies. The strategies focus on advantages derived from industry and competitive positioning.

Generic Strategies

Michael Porter presented three generic strategies that a firm can use to overcome the five forces in a competitive environment and achieve competitive advantage. The generic strategies are approaches to outperforming competitors in an industry (Porter, 1980 p. 35)

Overall Cost Leadership

Using this strategy, a firm aims at creating a low-cost-position relative to their peers (Dess and Lumpkin, 2002).With such a strategy, a firm must manage the relationships throughout the entire value chain and be devoted to lowering costs throughout the chain.

Differentiation

This strategy requires the creation of products and services that are viewed industry wide as unique (Porter, 1980) and valued. The emphasis is on "non price" attributes for which customers will gladly pay a premium (Dess and Lumpkin, 2002). It should however be noted that differentiation strategy does not allow the firm to ignore costs, but rather they are not the primary strategic target (Porter, 1980 p. 37)

Focus

A firm must direct its attention towards narrow product lines, buyer groups or target geographic markets. The entire focus strategy is built around serving a particular target very well, and each functional policy is developed with this in mind (Porter, 1980 p. 38) The strategy rests on the premise that the firm is thus able to serve its narrow strategic target more effectively or efficiently that competitor who are competing more broadly

The notion underlying the concept of generic strategies is that competitive advantage is at the heart of any strategy, and achieving competitive advantage requires a firm to make a choice - about the type of competitive advantage it seeks to attain and the scope within which it will attain it (Porter, 1985 p.12)

Porter (1980 p. 40) site two major risks in pursuing the generic strategies in general:

Failing to attain or sustain the generic strategy;

The value of the strategic advantage provided by the strategy being eroded by industry revolution.

Conceptual Framework

Outsourcing for competitive advantage in the telecommunications industry in Zimbabwe can best be analysed by using the outsourcing linkage map adopted from the one proposed Havenick (2012). Although Havenick’s map was drawn up for analysing IT outsourcing in Australia, the issues pertinent to telecommunications organizations in Zimbabwe were adopted and used in the study.

Issues tackled and discussed in the study were therefore derived from the objectives and from the map as follows;

Figure 2: Linkage Map for Outsourcing.

(Adapted From Information Technology outsourcing by large Australian Organizations by Haveckin, B. (2012).. (Doctorate thesis, Victoria University, Victoria, Australia) p. 29)

Chapter Summary

The chapter looked that the outsourcing concepts and the theory behind outsourcing as given by theorists. It was established that althought there is not much literature on outsourcing by Telecommunications companies in Zimbabwe, the concepts used in analysing outsourcing in other industries and in other nations could be used in Zimbabwe with some level of conceptualization. The next chapter looks at the methodology that was used to carry out the research study.