Exploration of Factors That Influence Failure in The Electronics Hardware Outsourcing Industry.

Oral Presentation

Submitted to the Faculty of Argosy University Campus, College of Business. In partial fulfillment of the requirements for

the Degree of Doctor of Business Administration

David O. Chavez 8-18-11

}  Research Problem: }  Failure in outsourced manufacturing

�  Survey: Only five percent achieve significant benefits (Lonsday, 1999).

�  Survey considered 37% outsourcing engagement failures, (Barthelemy, 2003).

}  Limited data exists in Electronic Hardware Manufacturing Outsourcing (EHMO) because: ◦  Publicity damage reputation and stock prices. ◦  High Technology Intellectual capital secrecy ◦  Competitive pressures

}  Research Problem Background ◦  $370 Billion Industry ◦  Global Industry ◦  Much Intellectual Property involved ◦  Over 4000 Contract Electronic Manufacturers supporting

Multinational Original Equipment Manufacturers. ◦  Impacts Manufacturing in the following industries: �  Medical Device �  Consumer Electronics (Cell phones, Tables, PCs, etc) �  Aerospace Electronics �  Military Electronics (Communications, etc.) �  Industrial Controls �  Communications (Infrastructure Hardware)

}  Main Research question: ◦  What did participants perceive as major factors that

influence failure in EHMO industry?

-Sub Questions: 1  How did participants perceive the alignment of

capabilities and goals as influencing failure in outsourcing in the EHMO industry?

2  What did participants perceive as failure in the EHMO industry?

3  What did participants perceive as the necessary types of people needed for a successful outsourcing relationships?

}  Market Drivers ◦  Cost Reduction: (Merrifield, 2006; Kroes, 2007; Griffiths, 2003; Harland, Knight,

Lamming, & Walker, 2005; Agrawal, Ferrel & Remes, 2003; Doig, Ritter, Spechals & Woolson, 2002; Value Cration, 2007)

◦  Increased Flexibility: (Lee, 2004; Loh & Vankatraman, 1992; Gottedson, Puryear, & Phillips, 2002; Harland et al. 2005; Ulric & Ellison, 2005)

◦  Access to Innovation: (Bozarth, Handfiel & Das, 1998; Harland et al. 2005, Gaio et al. 2005, Baloh, Sanjee & Yukika, 2008; Handfiel & Lawson, 2007; Baloh et al. 2008)

◦  Improved Quality: (Bozarth et al. 1998, Harland et al. 2005)

◦  Improved Time-to-market: (Webster, Alder & Muhlemann, 1997; Oberoi & Kamba, 2005)

}  General Capabilities: (Dastmalchi, 2007; Handfield & Lawson, 2007; Buckley, 2009, Baloh et al. 2008; Oberoi et al. 2005)

}  Time: (Aron, 2005; Al-Salim, 2007, Gilley, McGee & Racheed, 2004; Lackow, 1999, Dastmalchie, 2007)

}  New Product Introduction Stage: (Dastmalchie, 2007; Tatikonda & Stock, 2003; Sousa & Voss, 2007)

}  Mix and Volume Capabilities: (Dostaler, 2001; Sousa et al. 2007; Ulrich & Ellison, 2005)

}  Product Life-Cycle: (Hua & Wemmerlov, 2006; Ulku, Toktay & Yucesan, 2005)

}  Outsourcing wrong processes: (Harland, Knight, Lamming & Walker, 2005; Gottfredson et al. 2005; Baloh et al. 2008)

}  Trust: (Jennings & Whitaker, 2010; Mashal & Szabo, 2010; Daz & Teng, 2001; Oberoi et al. 2005)

}  Globalization Risks (Communication, culture, and language): (Whitman, 2008; Aron et al. 2005, Scheiderjans & Zukweiler, 2004; Dankbaar, 2007; Waehrens et al. 2008; Cateora, Gilly & Grahm, 2009; Rodenbaugh, 2010)

Literature review Factors

Communication People Capabilities Flexibility Goals

Capabilities X X X X Outsourcing Wrong Processes

X X X X

Integration Risks

X X X X X

NPI/NPT Risks

X X X X X

Product Mix and Volume Risks

X X X X X

Product Life Cycle Risks

X X X X X

Costs X X X X X Innovativeness X X X X Quality X X X X Time Related X X X Lack of Trust X X X X X Global Risks X X X X X !

}  Rationale for Qualitative Research ◦  Complex and interrelated Human factors such as

trust, commitment, communication and business culture.

◦  Qualitative research is good for: �  Providing Rich explanation of complex Phenomenon. �  Discovery of Human experiences and perceptions. �  Explore of evolving concepts or theories. �  Further understand human relationships and patterns. (Rubin & Rubin, 2005; Cronbach, 1975; Hoepfl, 1997;

Bloomberg & Volpe, 2008)

}  Criterion-based Purposeful Sample selected (Electronics Hardware Executives, 10+ yrs).

}  Develop Interview & critical incident questions & Demographic survey.

}  (1) Pilot Sample

}  Refine Research Design

}  (8) Semi-Structured, In-depth, telephone interviews

}  (1) Semi-Structured, In-depth, Face-to-Face Interview

}  Data is recorded, transcribed, coded, & analyzed in Nvivo and Synthesized.

}  Findings, conclusions & Recommendations

}  Rationale: Needed to have experience executives that have experienced failure and discuss details of factors.

}  Total of 10 executives

}  Electronics Hardware Executives with average of 10 year experience with CEMs, or OEMs.

}  Participated in electronic outsourcing selection process.

}  Manager, Director, CEO level experience

}  Experience working either engineering, management, quality, supply Chain, procurement, or sales.

}  Primary data collection tool is the recorder during interviews.

}  Recorder provided ability to: ◦  evaluate voice inflexion, ◦  emphasis on certain topics ◦  ability re-listen to details not gathered in live

interview. }  Memos, Annotations of Data, Notes }  Survey filled during interview

}  Read, re-read, listen to transcripts and annotate Data in NVivo.

}  Assign Preliminary categories based on on transcripts and literature review.

}  Translate Categories to “Free nodes” in Nvivo.

}  Consolidate Free nodes to broad nodes in NVivo.

}  Cross-code to capture data from prompted & non-prompted responses.

}  “Coding-on” and break down some codes to further define (Tree Nodes in Nvivo).

}  Validate Data (Text and Code association query)

}  Synthesis of Data.

Capabilities 21%

Communication 20%

Goals 18%

Commitment 17%

Trust 11%

Flexibility 9%

Business Culture

4% Manual code References

Goals 25%

Communications 19%

Trust 17%

Capabilities 16%

Commitment 10%

Flexibility 9%

Business Culture

4% Text Query

A  Code  Query  searches  for  associations  with  two  or  more  codes  assigned  in  data.  

0

10

20

30

40

50

60

70

80

Manual Code association References

References

}  Main Research question: ◦  What did participants perceive as major factors that

influence failure in the EHMO industry?

◦  Findings #1 1  Capabilities, 2  Communications, 3  Goals (cost, quality, delivery, functionality &

financial), 4  Trust, 5  Flexibility, 6  Commitment 7  Business Culture.

Capabilities 21%

Communication 20%

Goals 18%

Commitment 17%

Trust 11%

Flexibility 9%

Business Culture 4%

Manual code References

}  Finding #2: The majority (65% of participant code association references) cited commitment & capabilities combined with other factors to influence failure with other factors the most.

0

10

20

30

40

50

60

70

Par$cipant  Code  Associa$on  References  (Capabili$es  and  Commitment)  

}  Sub-Question 1

How did participants perceive alignment of capabilities and goals influence failure in the EHMO industry?

Finding #3: The overwhelming majority (82% of participant references) cited commitment, capabilities and goals influence failure.

Capabilities 35%

Goals 24%

Commiittment 23%

Flexibility 10% Value

8%

Manual  Code  References  

}  Sub-question 2: What did participants perceive as failure? Finding #4: 96% of participants cited

misalignment of relationships, communications & goals as influencing failure.

Goals 39%

Communication 36%

Relationship 21%

Significant Loss 4%

Percep$on  of  Failure  References  

Finding #5: 39% of participant references cited not meeting a critical goal (product price, quality, delivery, or functionality) as a failure.

Finding #6: 34% of participant references cited problems with relationships and communications related to failure.

0

5

10

15

20

25

30

Communication & Relationships

Communications & Goals

Relationships & Goals

Communcation & Significant Loss

Goals & Significant Loss

Relationhships & Significant Loss

Code Association References

Finding #7: 4% of participant references cited a “significant loss” related to failure. Significant loss is defined as a loss of large customer, opportunity, or catastrophic event.

Finding #8: 100% of participant references cited a skilled communicator, dedicated, & Flexible as the necessary type of people needed for successful outsourcing relationships.

Finding #9: 52% of participant references cited a

dedicated as necessary characteristic for outsourcing relationship.

Dedicated 52%

Skilled communicator

37%

Flexible 11%

Successful  People    Manual  Codes  References  

Capabilties 29%

Business Culture 18%

Committment 17%

Flexibility 15%

Goals 13%

Communication 8%

Critical Incident Report Code References

0 5

10 15 20 25 30 35 40 45 50

Code Association References

References

}  Failure occurs when one, some, or all of the following are misaligned: ◦  Communications ◦  Flexibility ◦  Commitment ◦  Goals ◦  Business Culture ◦  Capabilities ◦  Trust

}  Outsourcing cannot sustain non-achievement of certain critical organizational goals (price, delivery, quality, & functionality).

}  Goals were listed: ◦  Top 3 (Main Question) ◦  Top 2 (Sub-Question 1) ◦  Top 1 (Sub-Question 2) ◦  Top 5 (Critical Incident)

}  Misalignment of goals, trust, commitment & communications are “Fundamental Factors” to most failures. All within Top 4-5 factors in Code references

Goals

Business Culture

Capabilities Flexibility

Communication Trust

Commitment

}  Trust, Communications, & Commitment are key building blocks of a CEM and OEM outsourcing relationship.

Trust

Commitment

Communication

Relationship

}  Capabilities and Goal alignment is not enough to prevent failure. OEMs and CEMs must be committed to each other. Code Association Analysis & Interviews.

}  “Many-to-Many” communications lead to

“Many-to-Many” relationships to reduce failure. Code Analysis & Interviews.

}  Significant loss: non-achievement of critical goals, or loss of key customer relationship.

}  Only (10) participants. }  (5) Participants contributed much more in

Content to the study. }  Limited on the impact of factors on specific

Industries (medical, military, industrial, consumer, etc.)

}  Limited on the impact of factors on other geographic cultures, languages, markets and technologies.

}  Researcher interviewing and probing skills. }  Researcher Interpretation of data.

Hard Factors

Goals Capabilities

Soft Factors

Relationships: Communication, Trust, & Commitment

Business Culture

Flexibility

Visible & measureable

Not Visible & hard to measure

The Outsourcing Factor Iceberg

}  Emphasizes “Soft Factors” when evaluating Outsourcing partners.

}  Emphasizes managing and improvement of soft factors over time.

}  Transcends to other outsourcing industries such as: ◦  Pharmaceutical, ◦  Call Centers, ◦  Mergers and Acquisitions ◦  Strategic Supplier relationships.

Thank you