Don't dismiss power

Attended this interesting presentation by Ranjay Gulati, a professor of management at Northwestern's Kellogg School of Business. He talks about how interdependence in a sourcing relationship can impact the performance of the relationship, where interdependence is defined as the criticality of the exchange to participant firms. Such interdependence is manifested in both the power dimension of interdependence as well as the degree of collaboration between the firms. Gulati argues that the latter effect is dominant and positively impacts performance of the relationship.

However, I think the power dimension of the exchange would most definitely determine important attributes of the relationship such as price points and payment structures that are not an explicit element of performance. In addition, in the context of more information-intensive outsourcing such as BPO, power asymmetry will determine who owns the outsourced process and is responsible for process improvement and innovation. This is not an important factor in Gulati's study which looks at component sourcing in the automobile industry. However, it's extremely pertinent to BPO. This is especially true of strategic outsourcing initiatives, where the outsourced process is complex, impacts competitiveness and shares interdependencies with other organizational processes. Contracts are relatively incomplete for these initiatives - it's difficult to predict contingencies at the outset - and the power equation might well serve as a safeguard against incomplete contracts.

So, although we'd like to believe that the incentive to create value will supersede the threat of misusing power and appropriating value, I don't think that's completely accurate. Firms are not ready to be a part of that benign picture yet.

Don't dismiss power.