Although the previous chapter made clear that the outsourcing–performance curve is not entirely fixed, it focused particularly on inter-firm differences and how these affect constant c, in the formula underlying figure 3.2, and hence the top of the curve. There is, however, another parameter that determines at what level of outsourcing the optimum is found. This parameter, b, is more generic and driven by changes over time. It involves horizontal shifts of the curve, rather than vertical shifts. These shifts imply that the optimal outsourcing level can gradually become higher, or lower for that matter. The cause of such shifts is a change in the outsourceability of activities. Such a change is often caused by environmental factors over which firms have little or no control, although there are some instances where firms are active participants in shaping these factors. Initially the effect of these shifts will be considered in detail. This is followed by discussions of their causes and of how the effects of predictors of outsourcing levels can themselves change. Finally the steepness of the curve, as represented by parameter a in the formula underlying figure 3.2, will be analyzed.

Shifts in optimal outsourcing levels

In chapter 1 I described major changes in outsourcing levels over time. In recent times we have observed a shift towards more outsourcing by an overwhelming majority of firms; but there have also been times when vertical integration was in vogue, such as the middle part of the twentieth century.