How organizational boundary choices impact capability development

Abstract

As construction-oriented public sector agencies have outsourced more and more of their construction-related activities, they have often suffered from an inability to provide appropriate oversight due to degraded capabilities. This had led to calls for these agencies to rebuild capabilities across different technical areas. A firm’s boundary choices—make, buy, ally and dual modes (make and buy simultaneously)—may impact the ability of a firm to maintain and even build new capabilities, and in this article, we seek to investigate the impact that boundary choices have upon rebuilding capabilities and the extent to which organizations may make sub-optimal choices economically to potentially create opportunities for learning and knowledge sharing. Using qualitative data from three project-based public sector organizations managing large construction projects, we observed that neither pure make nor buy decisions assisted significantly in capability building. Dual modes provided firms with some opportunities to build capabilities, but the most successful decisions seemed to occur in respect of using intermediate governance modes such as alliances. We also observed that the boundary choice was just one dimension of the capability building process and suggest organizations require a multi-pronged strategy to rebuild capabilities over time.

Keywords:

• Firm capabilities
• organizational learning
• outsourcing
• public sector
• qualitative analysis

Notes

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Governance choices, firm boundaries, vertical scope and vertical architecture are all terms used within the literature but relate to the same broad concept—what activities take place within a firm versus what takes place external to the firm boundaries. While a number of authors (e.g. Poppo and Zenger 2002) recognize contractual and relational governance approaches to organizing economic activities, our focus in this article is upon the contractual governance approaches to determining firm boundaries.

2 Makadok and Coff (2009) also distinguish intermediate modes from hybrids in that hybrids are market like in some dimensions (ownership, rewards and authority), but hierarchy like in others.

3 See Dodgson (1993) for a review of the early work on learning by doing.

4 The codes shown in the tables are the sub-set that relate to this research paper and a much larger set of codes was used across the entire project to meet the needs of the organizations.

Additional information

Funding

This work was financially supported by the CRC Construction Innovation [Grant 2006-039-A], Cooperative Research Centres, Australian Government Department of Industry.