Make, buy, borrow or crowdsource? The evolution and future of outsourcing

Purpose: The purpose of this paper is to provide a conceptual and historical overview of the evolution of outsourcing. The authors then focus and prognosticate on the future of outsourcing and develop several compelling ideas based on extant insights and the rule of three axioms. Design/methodology/approach: The insights are developed based on a review of the extant literature and evolution of trends. Findings: The paper generates several insights. First, there is a need to carefully differentiate between core and non-core functions when deciding on whether/what to outsource. Some outsourcing options may boost financial performance in the short run but undermine the long-term viability of the firm. Public firms outsource more than private firms after controlling for size. In many cases, the optimal number of primary suppliers for a critical function/process/stock keeping unit (SKU) is three (while also allowing for a number of secondary suppliers). The optimal share distribution between the suppliers for the same SKU is rank ordinal (i.e. not equal). The complexity and the maturity of the supply chain as well as industry life cycle, regulation and technology influence the optimal number of primary suppliers. Research limitations/implications: The insights have significant implications for outsourcing decisions and for improving their impact on firm performance. The emergence of the shared economy, subscription-based business models and crowdsourcing will lead to consumers, business and society that increasingly borrows rather than one that makes or buys. Originality/value: The paper represents the first attempt to integrate the axioms of the rule of three with the outsourcing literature and the theory of the firm. It emphasizes the need to align (long-term) performance objectives with managerial incentives as businesses manage their outsourcing efforts.