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Question 1

What are the relative advantages of out-sourcing versus in-


house development?
The primary variation between outsourcing and insourcing is the method in which work is
divided between various companies or departments for strategic purposes. Assigning a project to
a person or department within the company instead of hiring an outside person or company to do
the work is considered insourcing. Outsourcing is usually done as a cost-cutting measure. It can
affect jobs ranging from customer support to manufacturing, as well as technology and the back
office. Here are the key differences between the two business practices:

1. Cost

The cost associated with insourcing is different from the cost associated with outsourcing.
Insourcing is typically more expensive for an organization as a result of implementing new
processes to start a different division of the organization. Outsourcing uses the developed
workforce of an outside organization to perform tasks.

2. Resources

Resources are another major difference between these two business practices. Outsourcing uses
the resources of an outside organization for services and manufacturing products. Companies
can use outsourcing to better focus on core aspects of the business. Outsourcing non-
core activities can improve efficiency and productivity. Insourcing utilizes developed resources
within the organization to perform tasks or to achieve a goal. For example, an organization may
insource technical support for a new product as a result of already having technical support set
up for another product within the organization.

3. Control

The organization's control over operations and decision making differs while using outsourcing
and insourcing. Organizations that use outsourcing for a particular service or manufacturing
process have minimal managerial control over the methods of an outside organization. For
instance, an organization that is renowned for friendly customer service does not have the ability
to enforce or manage how an outside support center interacts with customers.

4. Location

Location is another difference between outsourcing and insourcing. Insourcing generally places
new operations and processes on-site within the organization, while outsourcing involves an
outside organization often away from the primary organization's operations.

Most companies end up with a hybrid model. You’ll likely have marketing experts in-house
and retain agencies when necessary. With customer support, you may build a core group
internally, and outsource overnight and weekend support. With website design, you can hire
outsiders for the latest design, but employ developers in-house to implement recurring CSS and
HTML needs. It’s useful to consider whether a function is better done in-house or by an outside
service provider. At my former ecommerce business, we ended up doing most things in-house
and hiring outside resources for short-term projects. But, that may not be the right answer for your
business. It comes down to skills, and time.

Question 2

Vertical Boundaries: Joint Ventures and Strategic Alliances;


Japanese keiretsu;
Although Japanese companies are perceived as being good at managing and working
within networks, much criticism has been leveled at their participation in and use of strategic
alliances – particularly international alliances, in which, as just noted, the country’s profile has
been high. Some of that criticism never stood up to scrutiny, and some of it is out of date. The
complaints nonetheless shed light on the divergent paths that Japanese and Western companies
have taken to the strategic- alliance process.
In high-tech fields, the international alliance partners pursued by Japanese corporations
have often been small, entrepreneurial Western firms. The reasons have little to do with any
Japanese propensity to prey on the innovativeness of the West. In cutting-edge science-based
industries, Japanese companies generally lacked the basic research capabilities of their Western
counterparts (Probert, 2006). As they acquired a stronger base of knowledge and experience,
their international biotech alliances became focused less on one-sided learning and more on long-
term, symmetrically cooperative relationships (Gassel and Pascha, 2000: 638)
Given their variety of types and forms, strategic alliances are difficult to define. They may
be said to include any cooperative and intendedly lasting partnership between two or more
companies that has some express business purpose geared to improving the performance and
competitiveness of the partner firms. While strategic alliances may have a variety of functions and
goals, they can be divided down the middle between alliances aimed at R&D—cooperation in the
creation or application of process or product technology—and alliances formed for other
purposes.
Much if not most of the scholarly literature on strategic alliances addresses the R&D case.
Beyond the critical distinction between R&D partnerships and other types, strategic alliances
serve a variety of purposes and take a variety of forms. They may be cost-sharing or economizing
as when two firms consolidate production or distribution. They may be skillsharing or learning-
based when one firm possesses expertise another needs (Sakakibara, 2002).
They may be synergy-producing as when two or more firms possess distinct but
complementary capabilities that interact in raising production or innovation. They may be
asymmetric as when one firm extracts knowledge from the other (e.g., by licensing technology)
or assists in gaining access to its distribution channels. They may be symmetric as when two or
more firms commit equal resources to or create dedicated boundary-spanning teams. An
important distinction in the class of symmetric alliances is between dissimilar
Question 3

Horizontal Boundaries: Economies of Scale and Scope.

Economies of Scale (EOS) are the key determinants of market structure and entry for
any organization. The phrase "bigger is better" found in the history of economics which trace
the history of economies of scale. The close coordination of economies of scale with era when
demand of the products in the market starts increasing and mass production became the trend
for most economic processes. The Economies of Scale facilitates a firm or an industry in
identification and measurement of the horizontal boundaries, which identify the quantities and
varieties of products and services that it produces. The extent of horizontal boundaries varies
across industries, along with importance of scale economies.
This source of Economies of Scale is very critical to formulating and implementing the
competitive strategy. Economies of scale refer to the phenomenon where the average costs
per unit of output decrease with the increase in the scale or magnitude of the output being
produced by a firm. Economies of scope exist when it is cheaper to produce two products
together (joint production) than to produce them separately. Economies of scope is a term that
refers to the reduction of per-unit costs through the production of a wider variety of related
goods or services. Whereas economies of scale for a firm primarily refers to reductio ns in the
average cost (cost per unit) associated with increasing the scale of production for a single
product type, economies of scope refers to lowering the average cost for a firm in producing
two or more products.
Horizontal integration is the act of integrating other infrastructures, assets and companies
of the same industry or in the same level of production. The acquisition of these assets typically
results in an expansion of existing operations rather than the establishment of new operations.
An example of horizontal integration would be one fast food chain buying another or one oil
company purchasing refineries from another oil company.

The principal benefit of engaging in horizontal integration is that it eliminates competition


from other firms. This is because the assets that it integrates are intrinsically assets that
competitors have been using to go after the same market sector. It also serves as a relatively
cheap way of breaking into new markets because, instead of engaging in all of the research,
analysis and legal issues involved with opening a branch in a new area, it allows a business to
take control of a branch that is already in place. However, governments tend to frown on horizontal
integration past a certain point. This is because, if a single firm takes control of an entire market
in this way, it becomes a monopoly, which means that it can charge exorbitant prices with little
fear of losing sales. When the marginal cost is less than average cost, there are economies of
scale Example: Computer software. The marginal cost of reproducing a CD is negligible
compared with the huge fixed cost associated with software development.
Question 4

What role do users/adopters have in innovation?

Customer adoption patterns are important to understanding how to market new product for
adoption. Without a clear understanding of what each type of adopter values it can be difficult, if
not impossible to target them through marketing. Rogers presents a social system for adopters of
recent innovation; the adoption of innovation varies throughout the course of the product-life cycle
as shown in the diagram above.

1. Innovators
2. Early Adopters
3. Early Majority
4. Late Majority
5. Laggards

Innovators

Innovators are the first customers to try a new product. They are, by nature, risk takers and
are excited by the possibilities of new ideas and new ways of doing things. Products tend to be
more expensive at their point of release (though some products do defy this trend) and as such
innovators are generally wealthier than other types of adopters (though in some cases they may
adopt products in a very narrow field and devote much of their financial resources to this
adoption). Innovators will often have some connection to the scientific discipline in which a new
product is generated from and will tend to socialize with other innovators in their chosen product
categories. It’s also important to realize that innovators are comfortable with the risks that they
take. They are aware that some products that they adopt will not deliver the benefits that are
promised or will fail to win mass market appeal.

Early Adopters

Early adopters are the second phase of product purchasers following innovators. These tend to
be the most influential people within any market space and they will often have a degree of
“thought leadership” for other potential adopters. They may be very active in social media and
often create reviews and other materials around new products that they strongly like or dislike.

Early adopters will normally have a reasonably high social status (which in turn enables thought
leadership), reasonable access to finances (beyond those of later adopters), high levels of
education and a reasonable approach to risk. However, they do not take as many risks as
innovators and tend to make more reasoned decisions as to whether or not to become involved
in a particular product. They will try to obtain more information than an innovator in this decision
making process.
Early Majority

As a product begins to have mass market appeal, the next class of adopter to arrive is the early
majority. This class of adopter is reasonably risk averse and wants to be sure that their, often
more limited, resources are spent wisely on products. They are however, generally, people with
better than average social status and while not thought leaders in their own right – they will often
be in contact with thought leaders and use the opinions of these thought leaders when making
their adoption decisions.

Late Majority

The late majority is rather more skeptical about product adoption than the first three classes of
adopters. They tend to put their resources towards tried and tested solutions only and are risk-
averse. As you might expect, in general terms, this category of adopter has less money, lower
social status, and less interaction with thought leaders and innovators than the other groups of
adopter. The late majority rarely offer any form of thought leadership in a field.

Laggards

Laggards are last to arrive at the adoption party and their arrival is typically a sign that a product
is entering decline. Laggards value traditional methods of doing things and highly averse to
change and risk. Typically laggards will have low socio-economic status and rarely seek opinions
outside of their own limited social set. However, it is worth noting that in many cases laggards are
older people who are less familiar with technology than younger generations and in these cases
they may still have a mid-level of socio-economic status.

If we know that the path taken for adoption runs from innovator to laggard with three stops
on the way; we can seek to target our marketing accordingly to each audience. Innovators will be
the first section to be targeted. You would expect the marketing team to identify these people very
early during the product development (and not following a launch). Marketing would be expected
to gain the interest of these people, involve them in early user trials and generally win their
support. From a design perspective user research conducted with innovators can be very useful
in developing prototypes prior to a more mass market final design.

Early adopters will be targeted following innovators, they too may be approached prior to
a product launch and again emphasis will be placed on research into what this sector needs.
Marketers may choose to support early adopters with additional technical insights or behind the
scenes perspectives of development to encourage them to share their thoughts with those who
follow their thought leadership. The mass market release of any product must be appealing and
beneficial to early adopters if it is to convince those thought leaders to support further adoption of
the product. The early majority, on the other hand, is likely to be targeted through more general
marketing approaches and it is hoped that their connection with the early adopters will drive word-
of-mouth sales. Designers may end up catering to the early majority through product iteration and
offering improvements to the product.

The late majority, will probably arrive as product differentiation occurs and the product has
established itself in a particular niche in the market. Marketing to this group is likely to be less
aggressive in direct marketing and more based on special offers and promotions to incentivize a
choice of one product over another in a competitive arena. It may be completely uneconomic to
target laggards with direct marketing and it is likely that by the time they adopt a product, it is
going into decline, and that pricing and general awareness of the product will most likely drive
adoption from this group.

Question 5

When is it most appropriate to outsource?


Few companies function completely independently. Instead, businesses form partnerships
with suppliers as well as with contractors. Working with outside contractors, or outsourcing, can
allow companies to do business more efficiently and effectively. However, knowing how and when
to outsource can be complicated. Even describing outsourcing can be complicated. Companies
generally outsource in one of two ways: they outsource a single component of their daily
operations, or they establish outsourcing as a strategic part of their business. Apple, as an
example of the latter, relies on outsourcing to fulfill their operations model. They design their
products internally, and then their contractors operate a complex supply and manufacturing chain
on their behalf. In contrast, outsourcing the printing of advertising fliers for your company is simply
outsourcing a portion of your daily operations.

Outsourcing is also different from offshoring, which involves contracting work overseas.
Any project that you opt against completing in-house falls into the realm of outsourcing. So – how
can you strategically build outsourcing into your business plans? The guide below can help you
decide how and when to outsource for best results. The tasks that you choose to outsource may
vary depending on your industry. In general, there are two broad types of tasks that lend
themselves particularly well to outsourcing:

A. Tasks that are critical to your operations, and not a vital component of your strategy.

Pretend, for a moment, that your company manufactures organic fruit snacks. While you need to
deliver your product to grocery stores and other outlets, how you choose to do so is unlikely to
impact the people who ultimately buy your snacks. Given that there is little strategic advantage to
shipping the product yourself, this might be a task that you outsource. If you can ensure that your
deliveries will be cost-effective and timely – thus avoiding unnecessary extra delivery and storage
fees – outsourcing may be able to help you more efficiently complete this task.

B. Commodity tasks. Commodity tasks are also well suited to outsourcing.

For instance, many printing companies offer an array of services that come with overnight
shipping. In order for you to quickly produce business cards of the same quality as one of these
companies, you would have to invest upfront in commercial-grade inks and printers. Or take
janitorial services – you can hire full-time team members to clean your office building, or you can
leverage the economies of scale that a full-service facilities business offers. The funds that you
save on full-time staff can thus be redirected to other areas of your company. Customer service
call centers are another example of this kind of outsourcing.