Strategic Outsourcing Decisions of Small and Medium-Sized Enterprises

Abstract
Small and medium-sized enterprises (SMEs) play an important role in promoting their competitiveness and innovation. This research aims to investigate how successful SME owners, managers, and decision-makers can identify, assess, manage, and oversee their strategic outsourcing (SO) activities and collaborate with their SO partners to generate new knowledge and increase their innovation competitiveness. The ‘SO decision model ‘, which includes [component A], [component B], and [component C], is a key tool in this process. This study uses the interview results to pinpoint the main differences in SO management between them and high-performing SMEs. The analysis and interpretation of the findings led to the conclusion that continuously applying the SO decision model can assist companies in managing their SO effectively. The study aimed to assist the latter in making better SO decisions by emulating the former’s practices.

Keywords: Strategic outsourcing, Small and medium-sized enterprises (SMEs), Outsourcing management, Performance differentiation, Innovation competitiveness, Structured interviews

An updated version of part 2 of Ümit Güfte PEKÖZ Master’s Thesis, “Strategic Outsourcing Decision Model”.

Peköz, Ü. G. (2011). Strategic outsourcing decision model [Master Thesis, Technische Universität Wien]. reposiTUm. https://resolver.obvsg.at/urn:nbn:at:at-ubtuw:1-50533; WU Executive Academy.

Introduction

In the ever-changing business landscape, small and medium-sized enterprises (SMEs) are constantly challenged to balance competitiveness, innovation, and operational efficiency. Strategic outsourcing (SO) has emerged as a crucial tool for SMEs to bolster their capabilities, tap into specialized expertise, and drive growth in a rapidly evolving market. However, the effective management of outsourcing activities remains a complex and multifaceted task, influenced by a myriad of factors from organizational culture to market dynamics. This research delves into the strategic outsourcing decisions within SMEs, aiming to illuminate the practices that set high-performing SMEs apart from their average-performing counterparts.

This paper thoroughly examines strategic outsourcing decisions within SMEs, focusing on elucidating the practices that distinguish high-performing SMEs from their average-performing counterparts. Through structured interviews, analysis of findings, and theoretical frameworks, this research endeavors to shed light on the nuanced strategies and approaches SMEs adopt in managing their outsourcing activities.

The overarching objective of this thesis is to provide SME owners and managers with actionable insights into how they can identify, evaluate, and manage outsourcing activities effectively. By synthesizing empirical evidence with existing theories on SO management, this study aims to contribute to a deeper understanding of the factors that drive outsourcing success and innovation competitiveness within SMEs.

Building upon the assumption that high-performing SMEs exhibit superior capabilities in managing their outsourcing activities and partnerships, this research seeks to validate this hypothesis through empirical analysis. Drawing upon the work of Laugen et al. (2005), as cited by Harland et al. (2005), which established a correlation between outsourcing practices and performance, this study aims to extend our understanding of the specific practices and behaviors that underpin this relationship within the context of SMEs.

The subsequent sections of this paper will present a detailed analysis of the findings derived from structured interviews conducted with SMEs, broken down into seven key SO management steps. By examining the most significant differences in SO management practices between high-performing and average-performing SMEs, this analysis seeks to uncover the critical factors contributing to SMEs’ competitiveness and innovativeness.

This research utilizes a structured approach to categorize and interpret the interview findings, providing a comparative analysis of each group’s responses. This study aims to identify patterns and trends that offer valuable insights into effective outsourcing management practices by quantifying differences and similarities in SMEs’ approaches to key SO decisions.

This paper contributes to the existing knowledge on strategic outsourcing within SMEs by providing empirical evidence and theoretical insights into the practices that distinguish high-performing SMEs in this domain. By elucidating the factors that drive outsourcing success and innovation competitiveness, this research offers practical recommendations for SME owners and managers seeking to optimize their outsourcing strategies and foster strategic partnerships for sustainable growth and success.

Case Study Details and Findings 

The research presents and analyzes the findings from interviews and then interprets the results in relation to existing theories on SO management. The thesis aims to clarify how SME owners and managers can identify and manage the right outsourcing activities and collaborate with their SO partners to generate new knowledge and increase their innovation competitiveness. This work is based on the assumption that high-performing SMEs are better at managing their SO activities and partnerships than average-performing SMEs, and as a result, they benefit more from SO practices. This assumption is supported by the findings in the work by Laugen et al. 2005, cited by Harland et al. 2005, who found a correlation between outsourcing practices and performance.

The latter part of this chapter will present an analysis of the findings, which are broken down into seven SO management steps. This analysis will demonstrate the most significant differences in SO management practices between high-performing and average-performing SMEs, based on each company’s answers to the five-scale questionnaire presented in interviews. 

The interview findings are detailed in Appendix C, Tables 5A, 5B, 5C, and 5D. The results present the weighted average of each group of companies’ responses to questions in the SO stages using the scale below:

1. Strongly Disagree
2. Disagree
3. Neither Disagree nor Agree
4. Agree
5. Strongly Agree

By calculating the weighted average scores, we have identified each SME group’s understanding, approach, agreement, and disagreement towards the elements of SO decisions. 

This study uses the interview results to pinpoint the main differences in outsourcing management for SME companies that significantly contribute to their competitiveness and innovativeness. 

Structured Interview Findings 

The results of the structured interview questionnaire can be found in Appendix B, specifically in Tables 4A, 4B, and 4C. The results are divided into four categories: Most Significant Differences, Significant Differences, Differences, and Similarities, which provide a comparative analysis of each group’s answers.

We determined each subject matter expert’s (SME) understanding and acceptance of key supplier optimization (SO) decisions by calculating the weighted averages of their questionnaire responses. For example, we investigated how important SMEs consider the supplier’s geographical location during the supplier selection process in SO management. By quantifying the differences or similarities in each company’s approach to this key element, we were able to pinpoint where the main differences exist in SO management and partnership practices.

The last column of the table displays the differences in absolute numbers. Our study revealed slight differences and similarities between the practices of high-performing SMEs and average-performing SMEs in nearly half of the questionnaire questions. These findings warrant further discussion to understand why such similarities do not consistently translate into similar performance outcomes. This discussion is expanded upon in the final chapter of this document. 

Most Significant Differences in Answers 

The following are the key findings regarding the differences between high-performing and average-performing SME groups:

Q1: Only the central unit has the authority to make decisions regarding strategic outsourcing (SO), and separate business units cannot enter into SO contracts on their own. Surprisingly, high-performing SMEs allow their departments to independently make decisions for SO, while average-performing SMEs maintain tight control over decision-making for SO, keeping it top-down. This contradicts previous research, which suggests that independent outsourcing decisions could create a dependency on suppliers.

Q4: Average-performing SMEs are more protective of their core knowledge, while high-performing SMEs are willing to transfer some tacit core knowledge to suppliers, emphasizing the importance of knowledge sharing within trusted partnerships.

Q5: High-performing SMEs consider the overall impact of SO on the organization as part of the evaluation process for SO decisions while average-performing SMEs find it difficult to gauge the real effect before starting an SO project.

Q7: High-performing SMEs are aware of the potential for organizational structure and culture change through SO and business process transformation, while average-performing SMEs do not recognize this effect.

Q9: High-performing SMEs clearly identify the link between SO projects and business core competitiveness, while average-performing SMEs see this as irrelevant to SO activity.

Q46: High-performing SMEs view collaboration as an integral part of SO relationships and use it as an opportunity to gain knowledge. In contrast, average-performing SMEs consider collaboration as irrelevant to SO management, aiming to protect their knowledge by maintaining barriers between suppliers and their organizations. 

 Significant Differences in Answers 

Q2: Strategic outsourcing (SO) activities can come from the core activities domain, but core competency areas are off-limits. High-performing SMEs are more open to choosing some activities for SO from areas close to the company’s core activities, even if this can be risky for core competencies. They believe this can be advantageous with correct SO management. Average-performing SMEs choose not to consider this in their SO decisions.

Q10: Technology management can allow a company to be flexible. High-performing SMEs find technology management very important to their flexibility and comment on the importance of knowledge generation to competitiveness (to be understood here as innovation competitiveness). Average-performing SMEs do not show strong agreement with this point. This finding might be because this question was unclear in context to interviewees. This question was proposed to counter check how SMEs see business flexibility, if they only based their decision on financial means with fixed cost calculations or process efficiencies or if they also consider technological advantages.

Q12: Shorter time to market for new products brings in flexibility. It is generally accepted that time to market should be short and that quick reactions to market changes can bring flexibility, which is identified in the literature as the most significant contributor to business competitiveness. (M. A Stanko & Calantone 2011)(Harland et al. 2005)(Quélin & Duhamel 2003). High-performing SMEs strongly agree with this point, while average-performing SMEs disagree slightly with this decision element.

Q15: SO is considered if emerging technologies are taking over the company’s market. Some average-performing SMEs are practicing SO to gain new products and new technologies, but not all of them. It is a good approach in understanding the idea of SO apart from cost calculations. High-performing SMEs strongly agree with this point.

Q16: Future orientations are aligned with the SO project. High-performing SMEs find this difficult and do not agree with the possibility of including future trends and future goals in SO management. One high-performing SME commented that, from their experience, they find that this is not always possible as they operate in a changing dynamic environment. They, therefore, try to construct their SO contracts to accommodate unexpected developments throughout the contract duration so they can stay flexible and adopt SO projects according to changing needs. Average-performing SMEs seem to agree to this point rather than disagree. This finding will be interpreted with other findings in a later section.

Q19: SO performance indicators are identified with measurable target values. High-performing SMEs agree that setting their expectations with clear targets is an important element of SO activity evaluation. Average-performing SMEs see meeting price and technical specification requirements in an SO contract as the most important performance indicators. They agree to control SO contracts with these two main criteria.

Q34: The transition period is set realistically with the worst-case scenario. High-performing SMEs show high care for this activity transfer period and link the success of SO activity to this. They use their past experience in this stage and always expect to have unplanned breakages in the activity transfer phase, which can hurt delivering solutions to the customer at the accepted quality level. Average-performing SMEs are not fully aware of the importance of this stage. This point is also important in setting SO management standards and showing consistency in SO handling. In the long run, this can bring better scalability for SO management.

Q35: Resource planning is done according to activity needs for knowledge transfer (training, technical specifications, etc.). When SO activity is considered a supplier-buyer relationship, average-performing SMEs fail to recognize the relevance of resource planning, cross-training, or knowledge transfer. A main decision criterion for them is the issue of pricing. High-performing SMEs address this question within their SO management processes and keep it in calculations.

Q36: Activity knowledge is conserved within the company to support the exit strategy. Average-performing SMEs react to this point without concern, but such approaches in practice can cause many complications if the company ever tries to bring the activity back in-house and can even be problematic when changing suppliers (Lorber 2007). It was good to see that high-performing SMEs strongly agreed with this point, commenting that they try to keep process procedures fully documented and updated, even though this is far from common practice even within large multinational companies.

Q44: Barriers to sharing business-sensitive information and intellectual property are outlined in the supplier-operated contract with legal binding. Our company retains ownership of the process, and we oversee any changes to the solutions.

Average-performing small and medium-sized enterprises (SMEs) view a supplier-operated project as a simple buyer-supplier relationship. They share solution specifications with the supplier and aim for a competitive price without disclosing business information or intellectual property. On the other hand, high-performing SMEs are more involved in the details and share knowledge with the supplier for solution creation. They are cautious about sharing core business knowledge and company intellectual property rights. High-performing SMEs appear to be more conscious of the potential benefits and risks of close collaboration and partnership. As a result, they are more engaged in solution generation and knowledge cross-sharing.

Q51: An external consulting firm provides us with reports on emerging technologies.

This question aimed to understand how SMEs obtain market information beyond their interactions with customers or business partners, whether through systematic or ad-hoc approaches. This allows us to assess each SME’s ability to comprehend market trends and dynamics.

High-performing SMEs conduct additional research to monitor their industries and consider events from different perspectives, while also utilizing systematic market analysis within the company. Conversely, average-performing SMEs do not engage external consultants, as they believe they have the capability to monitor their market independently, as per comments from the interviews.

Q53: We translate customer needs into explicit knowledge and communicate this to our supplier-operated partner.

This point was identified to demonstrate the sharing of customer and market knowledge between the supplier-operated partners, which is believed to facilitate mutual learning. The results for this question showed significant differences in the questionnaire.

Top-performing SMEs did not find sharing customer knowledge harmful and considered collaborating a beneficial way. However, average SMEs disagreed, stating that they found sharing this information unfeasible, as they consider customer data part of their core business knowledge and believe that sharing it with suppliers could pose a threat in the future.

Differences in Answers 

1. A contingency plan and exit strategy are in place. High-performing SMEs emphasize the importance of having an exit strategy and developing a contingency plan as part of the planning phase. On the other hand, average-performing SMEs are unsure about this approach and tend to formulate the exit strategy only when the need is identified. Lorber (2007) highlighted the importance of exit strategy in their work.

2. The scope of approval for exceptions and conflict handling is defined. Top SMEs consider this as a crucial element in SO contract management, having learned from their past experiences. However, average-performing SMEs need a better understanding of the significance of this element in SO contract management.

3. In risky markets, SO can provide mitigation. Top players strongly agree that SO can help mitigate market risks, such as emerging technologies, new trends, and pricing drops. It is a tool for them to reach new market segments and embrace new technologies without taking high capital risks. On the other hand, average-performing SMEs neither agree nor disagree with this point, indicating a preference to avoid entering risky markets and staying within their own domains.

4. Potential SO risks are identified. High-performing SMEs are more aware of the potential risks associated with SO and are better prepared to handle them. This question provides insight into both groups of SMEs’ understanding of SO management and their capabilities to evaluate SO projects.

5. The goals and purpose of the SO project are clearly communicated to company employees. High-performing SMEs recognize the competitive advantage of sharing knowledge to ensure common goals among employees. On the other hand, average-performing SMEs are reluctant to implement open policies with their employees due to concerns about managing knowledge sharing. Some studies suggest that companies should protect strategic data as sensitive business information, while others argue that companies can achieve more through employee involvement in knowledge management (Szulanski 2003) (Hamel et al. 1989). 

Q26: We prioritize price competitiveness when selecting suppliers for our supply chain operations. This question confirms that average-performing SMEs view supply chain operations as a simple buyer-supplier relationship and are primarily focused on price competitiveness. On the other hand, high-performing SMEs consider factors beyond price competitiveness, such as reputation, quality assurance in solution delivery, geographical location, and shared ethics and values, to be more important in supplier selection.

Q27: Suppliers must adhere to the same ethical and legal standards as our organization. This question addresses how SMEs can incorporate social responsibility into their competitiveness strategy. High-performing SMEs strongly agree with the importance of this point, demonstrating their commitment to social responsibility and ethical standards, while average-performing SMEs find this point irrelevant in supplier selection.

Q28: Reputation is an important element in supplier selection. While average-performing SMEs are mainly interested in cost calculations and consider reputation somewhat relevant depending on the decision, high-performing SMEs emphasize the importance of reputation in supplier selection. They recognize that a supplier’s reputation can enhance their own brand value and provide access to new business networks.

Q20: The SO solution must be compatible with our existing business line and organization. High-performing SMEs acknowledge the importance of solution integration, while average SMEs also show some agreement. Further research is needed to understand if both groups of SMEs interpret this compatibility in the same way and how it is implemented in practice.

Q21: Deviations from the SO project plan are addressed in the contract creation. Average-performing SMEs typically do not handle SO contract creation and often use ready-made contracts from suppliers. In contrast, high-performing SMEs understand the importance of well-constructed contracts in successful SO management. They prioritize building flexibility into contracts for mutual benefit and are actively involved in contract creation based on their experience. 

 Q25: Trust can be established through a well-prepared supplier relationship (SO) contract. This question aims to understand how companies perceive and achieve trust in supplier relationship (SO) partnerships. 

Average-performing small and medium-sized enterprises (SMEs) tend to view SO relationships as typical supplier relationships, and their responses to this question reflect this perspective. They believe that trust can be attained through a well-crafted contract. 

On the other hand, high-performing SMEs recognize that trust cannot be guaranteed or achieved solely through contractual terms. They understand that trust needs to be built through long-term business relationships. Trust plays a significant role in facilitating knowledge sharing during SO partnerships and should be a top priority in SO partnerships (Hamel et al. 1989) (Ohmae 1989). 

Q29: Geographical location is not the primary factor in supplier selection. This question addresses a crucial aspect of supplier selection, despite the advancements in global logistics, transportation, and telecommunication that have exceeded expectations from 20 or 30 years ago.

High-performing small and medium enterprises (SMEs) consider certain factors important in their decision-making process, while average-performing SMEs do not prioritize these factors when selecting suppliers. In conclusion, high-performing SMEs prioritize social responsibility and also consider geographical location important for travel arrangements and onsite visits. It is important to consider other factors as well, such as the socio-political stability of the production site, alignment of social norms, and sharing the same ethical values and beliefs. For example, NIKE faced serious problems and accusations of using suppliers that employed child labor and provided unacceptable working conditions. This led to negative customer reactions globally, and the company had to address these accusations by implementing company-run audits.

When selecting suppliers, companies should inquire about the geographical location of the supplier and whether it is easily accessible for on-site visits. This is also important for regular meetings for knowledge transfer (Rundquist 2003).

In question 31, suppliers should disclose their cost components and have transparent pricing in place. Average-performing SMEs may not show significant interest in transparent pricing as long as they can obtain solutions at a bargain price. On the other hand, high-performing SMEs view supplier partnership as a long-term commitment and are interested in understanding the cost components.

Average-performing small and medium-sized enterprises (SMEs) focus on providing products to today’s customers to remain competitive but may overlook the potential threat of changing market characteristics. They expect to always find the right suppliers to stay competitive, which may only work until their competitors catch up and adopt similar strategies for similar products (Elango 2008).

Q32: Suppliers can locate their manufacturing and services operations wherever they find a competitive advantage. Average-performing SMEs are not willing to involve themselves in such details and strongly agree that suppliers can be located wherever they find suitable. However, high performers consider location in supplier-organization negotiations and are willing to involve themselves in such decisions. High-performing SMEs are more aware of the potential risks. For instance, if a company has a supplier that moves its operations to the far end of the world to increase its price and resource competitiveness, and if such a move will have effects on delivery schedules, then such changes are expected to be consulted with the firm. This question is very closely related to the question of geographical location but from the supplier’s perspective. The idea here is to see how close a relationship supplier-organization partners have, so that they can discuss such issues and seek solutions together. This comes into question when a supplier changes its operation sites if such a clause is included within the contract.

Q33: The supplier provides solutions exclusively to us and not to our competitors, aligning strategically with our company. While small and medium-sized enterprises (SMEs) often strive for loyalty and exclusivity from their suppliers to achieve economies of scale and competitive pricing, it’s not always feasible. High-performing SMEs understand this and tailor their approach to each supplier and situation.

Q42: Key Performance Indicators (KPIs) are clearly identified and communicated to the supplier. Average-performing SMEs focus on receiving goods that meet agreed-upon criteria and emphasize quality checks conducted internally. In contrast, high-performing SMEs place importance on preset and clearly communicated performance indicators, believing that this approach enables effective management of supplier contracts, allowing them to scale their management systems across multiple contracts. Please ensure that our company retains ownership of the process, and we will monitor any changes made to the solutions. High-performing SMEs strive to maintain continuous ownership of the solutions developed during the project to stay competitive in the market and lead further product developments. These companies also prioritize knowledge transfer even after the transition is complete and the project is stable. This is crucial in later stages to facilitate the transfer of implicit knowledge between the supplier and our company. Any modifications and technological improvements must always be discussed with our company.

One of the main differences between the two groups is that average-performing SMEs tend to closely control solution creation, which prevents them from fully benefiting from their partner. They impose tight controls on the partnership, creating obstacles for the supplier.

On the other hand, high-performing SMEs adopt a more relaxed approach to solution creation, fostering a better environment for knowledge sharing and new knowledge generation. They anticipate bringing this new knowledge in-house during the contract period to remain competitive in knowledge management.

Q48: R&D teams work together on various projects. Average-performing SMEs conduct their own R&D and marketing research activities without collaborating on development projects. This may be because they are afraid of losing their market and technology knowledge to external parties. If an organization is unable to learn from collaborations, it may end up giving out more than it gains (Hamel et al., 1989; Cohen & Levinthal, 1990). In contrast, high-performing SMEs encourage their teams to engage in co-development projects with their suppliers to generate new ideas and knowledge. When money is spent on research and development (R&D) but doesn’t result in in-house production, it is considered a cost. High-performing small and medium-sized enterprises (SMEs) prioritize creating and developing solutions, making R&D essential, even if it doesn’t always lead to in-house production. They are willing to share knowledge and intellectual property (IP) through partnerships as long as it leads to mutual profits. On the other hand, average-performing SMEs have concerns about R&D spending. For them, if R&D doesn’t result in unique production, the money spent is seen as a cost. They fail to recognize the knowledge benefits gained from these activities.

This question combines the concepts of absorptive capacity, learning effect, and organizational knowledge to understand how SMEs perceive their R&D expenditures (Cohen & Levinthal, 1990; S. A. Zahra & George, 2002; Madsen et al., 2008; Hamel et al., 1989). Similar to these studies, companies should engage in new solution development, even if it doesn’t lead to final products. Through these activities, organizations can learn from experience and become more receptive to new knowledge. They can achieve this by absorbing external knowledge into the organization, essentially being selective in filtering information. 

Similarities in Answers 

The following points are widely accepted as standard knowledge for service outsourcing (SO) management within the companies involved in the study, as similar answers were provided by all SMEs to these points.

Q24: The cost of change management is factored into SO evaluation. High-performing SMEs appear to have a better understanding of the meaning of change management, but they did not show clear agreement to this question. This question addresses how companies handle SO project transition and whether they include supporting activities necessary to apply the changes brought in by SO projects in their calculations. These activities might include moving departments around, training people for requalification, forming new departments, or laying people off. Average-performing SMEs neither agree nor disagree with this point.

Q40: Data management systems compatibility is checked and achieved before the contract starts. Both groups of companies neither agreed nor disagreed, but two of the high-performing companies expressed in their comments that they actually apply this criterion in some of the SO practices. Such integration helps in managing SO contracts that have stable direct data flow from suppliers, making data reliable and allowing it to be integrated into existing data processing systems of the company.

Q6: Flexibility means reducing our fixed operational costs. Both groups of SMEs strongly agreed that this is the primary driver of SO activity, as they find it as a means to be flexible. According to their comments, high-performing SMEs also consider this in their SO decisions, but it is not the main driver, as they find technological and operational competitiveness to also be significant contributors to business flexibility. 

Q8: Strategic alliances (SO) are valuable for accessing external knowledge. However, average-performing small and medium-sized enterprises (SMEs) tend to view this knowledge as tangible products and solutions rather than focusing on the transfer of knowledge and the potential for learning from their partners. Successful companies regard each alliance and partnership as an opportunity to access their partners’ knowledge, even beyond the formal agreements.

Q11: Flexibility can be achieved through strategic alliance partnerships. High-performing SMEs recognize the strategic importance of strategic alliances for flexibility. They understand the benefits gained from these partnerships. Other SMEs also agree, but their focus tends to be on financial aspects, overlooking the significance of long-term collaboration for achieving flexibility.

Q13: The ability to adapt to external driving forces (such as global economic and political changes) is a crucial consideration in evaluating strategic alliances. Both groups of companies agree on this point. Managing strategic alliances while considering broad factors, including global events, is a realistic approach. In today’s interconnected world, it’s essential to react to events accordingly. Scenario analysis and market monitoring play important roles in these practices (Ohmae, 1989). 

Q14: Market and customer characteristics are the primary factors influencing SO decisions. Both high-performing and average-performing SMEs acknowledge the significance of market dynamics in making SO decisions. While high-performing SMEs prioritize market dynamics, average-performing SMEs tend to focus on cost calculations to maintain competitiveness. This point is supported by various sources such as Lorber (2007), Kathleen (1995), and Michael A. Stanko et al. (2009).

Q30: We maintain communication with more than one supplier. High-performing SMEs agree that they engage with multiple suppliers and continue negotiations even when SO contracts are in progress. According to Lorber (2007), it is advisable for companies to inform their suppliers about ongoing negotiations with other parties to ensure closer attention to requirements. On the other hand, average-performing SMEs express partial disagreement, indicating that they do not consider this approach universally applicable in SO situations.

Q37: We retain existing resources until the SO activity stabilizes. This question aims to understand how companies manage activity transfer and the precautions they take to ensure a smooth transition. Both high-performing and average-performing SMEs have differing opinions on this matter, stating that its applicability depends on the project and activity. In practical terms, it is important to set the project timeline accurately, as financial pressure can lead to incorrect assumptions about the stability of the project. To address this, companies can establish preset performance indicators linked to the project transition phase to prevent premature intervention by financial teams and the premature liquidation of idle departments.

Q38: During the transition period, solution compatibility is ensured. Small and medium enterprises (SMEs) understand compatibility as meeting technical specification requirements rather than strategic compatibility. Although they agree on the importance of this point, their focus tends to be on technical specifications for components.

Q39: There is an aligned reporting line from the supplier, and we can access the supplier’s operational data. This addresses the compatibility and reliability of reporting systems and the ease of service order (SO) management. Companies running SO projects rely on suppliers to provide correct performance indicators in addition to our own measurements. Accessing core data from suppliers and standardized reporting can greatly help companies in SO control and management. Both groups of companies have found this point applicable, depending on the type of SO project.

Q43: We can scale our SO management capabilities to harmonize many SO contracts. Both groups believe in their abilities to scale SO management to handle many projects with the same efficiency rate. It may be worth conducting separate research to measure the accuracy of their understanding of successful SO management. This point would be worth studying, especially to see how learning effects improved through several SO projects.

Q49: During the contract, regular face-to-face meetings with suppliers at the operational level are planned (for implicit knowledge transfer). This point is important to secure tacit (implicit) knowledge transfer and to share lessons learned by both sides. This point is important for high-performing SMEs but varies according to the SO activity and solution type. Average-performing SMEs have found these meetings partially necessary, as they can be expensive to run and might not bring additional value, according to their comments.

Q50: Cultural differences should be considered for effective knowledge transfer. This can directly impact collaboration and organizational learning. Hamel et al. (1989) pointed out the cultural and behavioral differences between western and far eastern countries, citing examples of Japanese companies overtaking western partners due to the latter’s failure to understand learning opportunities from the former. According to Hamel’s study and interviews, western companies often approached Japanese companies with the attitude of a teacher and master of all processes, while Japanese companies took the opportunity to benefit from competitive collaboration. Both groups of SMEs recognize the importance of considering cultural differences in knowledge collaboration, indicating a positive sign for learning from each other’s collaboration.

Q52: Annual reviews of ongoing SO projects help to identify new potential SO partners with advantages. Both groups of SMEs share the perspective that they continuously monitor SO contracts and evaluate other suppliers for the same SO solutions. This approach, when implemented on a continuous cycle, can standardize SO management, leading to scalability through a continuous learning effect. Once stabilized, the supplier monitoring activity can be integrated into the SO management system.

Q54: Emerging technologies and trends play a role in in-house solution developments. Both groups of companies express neutrality towards this element, stating that its significance depends on the industry they operate in. 

SO Decision Elements Contributing to SME Performance 

In this section of the chapter, we will analyze and interpret the findings from the questionnaire to demonstrate how small and medium-sized enterprises (SMEs) implement the predetermined supplier outsourcing (SO) decision steps in their day-to-day operations.

The main objective is to identify significant differences and similarities in the approaches of SMEs towards these SO decision steps. This study is based on the assumption that better-performing companies have better SO practices (Laugen et al. 2005, as cited by Harland et al. 2005). Once we have identified the main differences in these SO decision steps, we can provide recommendations to average-performing SMEs to help them adopt the SO management steps of high-performing SMEs. This analysis aims to highlight the gaps in SO management practices for average-performing SMEs to raise their awareness of these significant differences. The aim of this work is to assist SME owners, managers, and decision-makers in selecting the right activities to outsource and managing SO partnerships effectively to gain new insights from SO practices. 

How do SMEs choose activities to outsource? 

The most significant differences in the results from interviews are found in the SO activity identification phase, which is considered a critical element for success in SO practices. In this phase, two groups of SMEs showed different approaches to decision-making, assigning decision-making power within the organization, understanding the core knowledge and competitiveness of the company, and understanding the potential effects of SO activity. 

Average-performing SMEs demonstrated an understanding that SO is limited to product and service outsourcing only, and they refrain from analyzing core activities to find areas where new knowledge, technologies, or improvements are needed, even though these improvements could potentially be achieved through external partnerships. These findings confirm the importance of correct SO activity identification at the beginning, as suggested in previous work. 

According to Elango’s argument, companies need to explore SO opportunities in the core enhancing square, i.e., complementary activities located in the core activity category. High-performing companies are partially applying Elango’s approach in SO activity identification. 

A note should be made here about the risks of wrong identification, as these risks pose a significant danger to companies, potentially exposing their core knowledge and competencies to external partners. Companies should pay great attention to these concerns but should not ignore the opportunities that SO partnerships can bring. 

Average-performing SMEs are also unable to see the importance of calculating the overall impact of SO activities on their organizations in both the short and long run. This can be understood to come from their overall reactionary approach to SO. Some slight differences between answers in this area can point to serious concerns even if the answers are fairly similar. 

The main differences in the approaches of SMEs lie in their understanding of flexibility. Average-performing SMEs see flexibility in terms of financial numbers using pure fixed cost calculations, while high-performing SMEs consider other criteria such as the ability to configure resources, meet market needs, and generate new ideas and creativity. 

These differences in the SO decision process split the road in the beginning as the two groups of companies identify activities in two different ways. Understanding the fundamentals of SO activity identification can contribute significantly to the success of SO management practices and can lead to better results and benefits from SO partnerships. 

How SMEs evaluate SO opportunities  

During the decision-making process concerning strategic outsourcing (SO), the most notable disparity lies in the companies’ understanding of how SO impacts their core business competitiveness. On average, less successful small and medium-sized enterprises (SMEs) face mental barriers that hinder discussions about identifying core-enhancing activities (Elango 2008). This may be attributed to their limited experience in SO practices. In contrast, high-performing SMEs recognize the clear link between SO effects and their core competitiveness, enabling them to identify potential benefits for those activities. Overall, average-performing SMEs tend to conduct less risk assessment compared to their more successful counterparts. This trend also extends to their organizational approach to SO. Average-performing SMEs generally prefer to make decisions at a higher level and do not openly communicate with their employees about SO decisions. While this approach may vary depending on the type of SO activity, it was not explicitly addressed by any of the SMEs in interviews. Average-performing SMEs often lack the business analysis capabilities to conduct scenario analysis or incorporate market variables into their calculations to assess how SO projects will evolve over the course of their contracts or to gauge the overall effects of SO projects on the organization. Establishing the right expectations for SO projects can significantly influence the end results and the success of the SO partnership.

Successful SMEs recognize opportunities in SO beyond cost savings or fixed cost calculations. They acknowledge additional benefits such as learning effects, identifying opportunities for co-developing new products through successful collaboration with external suppliers, and accessing new markets through SO partnerships. These varying expectations of SO can significantly impact the outcomes of SO management practices.

Based on the responses in this section, it can be inferred that SMEs evaluate SO projects differently due to varying understandings of flexibility stemming from different expectations of SO activity. These differences also significantly influence the execution of SO projects, as they may lead to flawed decisions and misallocation of resources. Given that resource allocation is crucial for the survival of SMEs, decision-makers must pay closer attention to this aspect in practice. 

With whom do SMEs partner and how they choose them? 

The main difference lies in the fact that average-performing SMEs primarily base their decisions on price competitiveness. Pricing is the key focus for these SMEs when selecting suppliers, whereas other factors such as supplier reputation, geographical location, strategic fit analysis, and relationship management are not fully considered. On the other hand, high-performing SMEs consider not only price competitiveness but also all these other factors that are overlooked by average-performing SMEs. High-performing SMEs consider supplier reputation, the ethical and legal standards under which the supplier operates, and the supplier’s geographical location as important factors in their supplier selection process. They do not consider price competitiveness as the primary criterion in their decision-making.

Both groups also value trust differently in their supplier partnership (SO partnerships). High-performing SMEs understand that trust can only be built through a long-term relationship, where all parties involved see the supplier partnership as a long-term collaboration opportunity for mutual growth. Average-performing SMEs attempt to build trust through supplier contracts, even though trust can only be achieved through collaboration and shared experience. It is recommended that companies consider all these decision elements in supplier selection, as this selection affects the future of sectors, nations, and companies (Harland et al. 2005) (Hamel et al. 1989) (Ohmae 1989), as well as the company itself in terms of learning and knowledge sharing (Rundquist 2003). These findings confirm that successful companies are more socially responsible, take into consideration the environment in which they operate, and aim to establish long-term partnerships where all parties can benefit from the collaboration. They are willing to share knowledge and profits, as this approach can lead to greater success.

How do SMEs transfer activities and knowledge between parties? 

In order for activities to be successfully transferred, it is important to have realistic projections and plans in place. Allocating appropriate resources and time for knowledge, technology, and asset transfers can also be a critical success factor in SO activity transitions (Kelley & Jude 2005).

Average-performing SMEs are seeking solutions that meet their product specifications and are competitively priced. They are cautious about sharing knowledge in order to protect their position within the market. This behavior may stem from their inability to collaborate, indicating a lack of necessary experience and management knowledge for leading SO partnerships.

Realistically, setting targets for the transition period can significantly contribute to the success of SO projects. The work and time invested by companies during the transition period will greatly impact the future SO project’s success. A well-planned activity transfer will help the supplier bridge performance gaps after the handover period and deliver high performance to the customer in a shorter time. This will ultimately lead to increased customer satisfaction, benefiting all parties involved.

How do SMEs control the SO contract and activities? 

Significant differences exist in each group’s approach to setting up barriers for core knowledge and sharing intellectual property (IP). Average-performing SMEs indicated that such barriers are not clearly defined in their service outsourcing (SO) contracts. This suggests that they may lack experience in preparing contracts or that the contracts are typically provided ready-to-sign by supplier companies. In either case, average-performing companies need to better understand the importance of contract preparation.

Another important aspect of SO contract management is the establishment of key performance indicators (KPIs). High-performing SMEs strongly agree that they identify KPIs before activity transfer and rely on them during SO management. This enables them to connect expectations with outcomes to assess if the work meets requirements. They operate their SO practices on a performance-based management system.

The significance of reporting in SO management is also widely acknowledged, but not every organization has the capability to implement a reporting-based management system. Average-performing SMEs rely on their own reporting and data readings and do not take advantage of data that can be provided by the SO partner. Differences in this SO management step are closely linked to activity identification and evaluation and should be considered when analyzing the SO contract control step results.

The high-performing SMEs are better equipped to handle multiple SO projects compared to average-performing SMEs. This finding can be attributed to well-prepared SO contracts and predefined performance indicators for SO outcomes. It is also possible to link this to correctly selected SO activities with clearly defined expectations.

This result is supported by Stanko (2009), who showed that experienced firms are better able to calculate the costs and benefits of outsourcing and can therefore manage SO contracts more effectively.

How do SMEs use the opportunity to learn from SO partnerships?  

During supply chain management, companies exhibit significant differences in their approaches to sharing the lessons learned from their supply chain operations (SO). Average-performing small and medium-sized enterprises (SMEs) often overlook opportunities to share knowledge, missing out on the chance to access specialist knowledge and facing challenges in sharing tacit knowledge.

Two types of knowledge are typically created during SO activities: technological knowledge and managerial experience. Average-performing SMEs may lose their competitiveness in the long run if they fail to understand the difference between product competitiveness and organizational competitiveness. Without collaborative platforms and knowledge-sharing mechanisms, these companies cannot access external knowledge, hampering their ability to compete effectively.

In contrast, high-performing SMEs prioritize close cooperation on operational levels, facilitating knowledge transfer and building better absorptive capacities, ultimately leading to increased innovation capabilities and competitive advantages.

Another notable difference lies in partner relationships. High-performing SMEs engage in regular face-to-face meetings for operational teams and explicitly transfer tacit knowledge. They maintain ownership of solutions, leading developments and improvements, and closely collaborate with partners. This approach allows them to stay competitive by leading product development and new technology initiatives. Overall, there is a significant gap between the managerial approaches of average-performing and high-performing SMEs in leveraging the learning opportunities presented by SO partnerships. Failure to build new capabilities and organizational knowledge from supply chain operations can lead to performance gaps and hinder their ability to adapt to changing market trends and customer needs in the future.

Monitoring of Markets Dynamics and Emerging Knowledge 

In the answers to this SO management step for monitoring market developments, we can see that average-performing SMEs are not fully aware of the benefits available from external consultants who can conduct market analysis for them, or the benefits of periodically reviewing SO contracts and potential suppliers during the contract’s lifetime. This indicates gaps in dealing with the external environment and in managerial data analysis for strategy development.

High-performing SMEs acknowledge the importance of collaborating with a consultancy company, while average-performing SMEs deny its significance. High-performing SMEs emphasize the need for additional market knowledge and different perspectives, apart from their own management practices. On the other hand, average-performing SMEs tend to keep customer requirements to themselves and isolate suppliers from their market data, which contradicts the idea of sharing information with SO solution suppliers. While there are advantages to keeping market knowledge private, companies also need to keep their SO partners informed to develop suitable solutions for the requirements.

As long as companies manage the relationship based on trust and equal opportunity for both parties, they can maintain their position in the partnership. However, they must also position themselves above the partnership and offer something of value to gain from the relationship. Another important aspect is to invest in research and development (R&D) for all activities. The findings of this study point out that average-performing SMEs consider R&D expenditures as an unwarranted cost unless R&D projects deliver in-house produced products. These SMEs are not aware of the findings that suggest active involvement in product development and collaborations to maintain and grow absorptive capacities and organizational knowledge. Overall, average-performing SMEs are lagging behind in seeking market data through consultancies and external data sources. Failing to observe market trends and analyze industry data can lead to serious risks, as these companies will be unable to meet developing and changing market requirements. 

Conclusion and Recommendations 

Summary of Findings 

The primary goal of this research was to investigate how successful small and medium-sized enterprises (SMEs) identify, assess, manage, and oversee their strategic outsourcing (SO) activities. It also aimed to understand how these companies learn from these partnerships to gain a competitive edge in the long run. Additionally, the research sought to explore how these successful companies keep track of market trends, evolving technologies, and changing customer needs to prepare themselves to tackle future challenges. By identifying the differences in SO approaches between high-performing and average-performing SMEs, this paper aims to present best practices of SO to company owners, managers, and decision-makers to assist average-performing companies in improving their SO management practices. While the scope of this study was ambitious, it is essential to note that the subject of SO management is extensive and must be examined differently in each industry and under varying market conditions. Nevertheless, this research partially contributes to the goal of helping average-performing SMEs by raising their awareness of the significant differences in SO management between them and high-performing SMEs, specifically within the context of manufacturing firms in Slovakia. The paper assumes that high-performing SMEs, being more experienced in SO, can manage SO activities more effectively and intends to share the lessons learned by these experienced firms with average-performing SMEs. This section will present the proposed solutions to the questions representing the stages of SO management, based on the findings of a comparative case study.

SO activity identification by SME 

In the initial stage of SO management, the findings indicate that high-performing SMEs are more skilled at making decisions regarding SO than their average-performing counterparts.

Previous research (Elango 2008, Kathleen 1995, Michael A. Stanko et al. 2009) has widely acknowledged the significance of the selection of activities to outsource. This study discovered that high-performing SMEs are more transparent in their identification practices and possess superior capabilities to analyze the expected effects of outsourcing activities compared to average-performing SMEs.

The most notable disparity lies in the companies’ decision-making structures, specifically in who or which departments are authorized to make decisions. High-performing SMEs exhibit a more democratic and open approach, granting departments the autonomy to make decisions independently. This practice may be associated with other differences in company management, such as having well-structured management layers that obviate the necessity for a central decision-making entity, but further research is required in this area.

Significant differences were also observed in the capabilities of each group to comprehend the impact of outsourcing on other departments and the organization as a whole. Average-performing SMEs are not as proficient as high-performing SMEs in data processing and utilizing this data for strategic decision-making. This disparity was also evident in subsequent stages of SO management, such as in the control of SO contracts. It is also noteworthy that high-performing SMEs are more cognizant of the opportunities they can leverage through SO partnerships. These companies explicitly acknowledged the opportunities identified in other studies, such as accessing external knowledge, regaining control over internal departments, and instigating organizational change. Average-performing SMEs failed to grasp the significance of these other motives in SO and selected their outsourcing based solely on cost flexibility.

In conclusion, in this management stage, high-performing SMEs demonstrate an ability to comprehend the significance of SO activities and conduct their identifications by considering not only cost calculations but also by examining the broader scope of outsourcing.

Proposition 1:

A better understanding of the opportunities presented by SO can result in improved identification of potential SO activities. 

SO project evaluation by SMEs 

The following text should be remembered: 

Previous research has highlighted the importance of establishing appropriate goals and expectations for SO projects (Elango, 2008; Kelley & Jude, 2005). However, this requirement is constrained by each company’s ability to internally analyze its business processes and practices to identify performance gaps and areas for improvement (Kelley & Jude, 2005; Lorber, 2007).

This research indicates that small and medium-sized enterprises (SMEs) share similar approaches when evaluating SO projects, particularly in areas commonly recognized as motivations for SO, such as expectations for business flexibility and cost management (Harland et al., 2005; Quélin & Duhamel, 2003; Gonzalez et al., 2005). However, differences were found in other aspects of evaluating SO projects, such as understanding the impact of SO on a company’s core competencies, flexibility in technology management, and the importance of factoring in future orientations and variables in SO evaluation.

Average-performing SMEs appear to understand the general characteristics of SO, but they lag behind high-performing SMEs in their ability to assess all potential benefits and risks associated with SO. As revealed in the activity identification phase, high-performing companies have superior data processing and management capabilities, granting them an advantage in evaluating the potential benefits and risks of the SO activity under consideration. Interviews also suggest that high-performing companies can comprehensively assess the wide-ranging impacts of SO practices and integrate this evaluation into their company’s strategic decision-making structure.

Proposition 2:

Enhanced abilities to analyze the long-term effects of SO can result in better evaluation of potential SO projects. 

SO Partner selection by SME 

The literature highlights the importance of supplier selection in supply chain activities. It is repeatedly suggested that supplier selection should be based on trust and aligned with the future goals of both companies (Baloh et al. 2008; Lorber 2007; Ohmae 1989). The research findings indicate that different companies prioritize various decision elements in the supplier selection process. It is recommended that companies consider all elements in their selection of suppliers and view it as a long-term relationship, akin to a marriage, focusing on how the partnership can develop in the future (Hamel et al. 1989; Kathleen 1995; Ohmae 1989).

The findings suggest that average-performing SMEs may not fully consider all elements in their decision-making, often focusing solely on the solution and cost elements in supplier selection. On the other hand, high-performing SMEs pay attention to the potential supplier’s approach towards ethical and social norms, expecting their partners to share similar values and ethics. They also take into consideration factors such as geographical location, understanding the cost structure of suppliers, and the importance of building trust and a long-term relationship. High-performing SMEs do not base their selection solely on price comparison in their partner selection.

Overall, high-performing SMEs take the selection process more seriously than average-performing SMEs and base their decisions on various elements, including the expected long-term impact of such partnerships.

Proposition 3:

Considering the long-term development of supplier partnership can lead to better supplier selection.

SO activity transfer to solution provider 

The research revealed significant differences in how two groups approach activity transfer. Companies with average performance find it easier to carry out this step compared to high-performing companies, but they overlook essential elements necessary for smooth and effective activity transfer. Average-performing small and medium-sized enterprises (SMEs) neglect to consider worst-case scenarios and fail to implement exit strategies. This oversight may stem from their focus solely on solutions and final products, leading them to believe that finding a new partner to provide the same product would be easy. 

In contrast, the study suggests that high-performing SMEs take these risks into account and dedicate more time to this phase in the service outsourcing (SO) contract, striving to retain knowledge in-house even after outsourcing related activities. High-performing SMEs associate these activities with the learning effect. Through interviews, they conveyed their understanding that by retaining knowledge in-house, they can later assimilate new knowledge generated by the partnership, significantly contributing to their future competitiveness (Cohen & Levinthal, 1990; Hamel et al., 1989). 

The overall findings indicate that high-performing SMEs view activity transfer as the beginning of a journey with the SO partner. They prepare themselves for this journey to better handle potential difficulties in later stages. They incorporate scenario analysis in the activity transfer phase, contributing to the successful management of the SO contract at a later stage.

Proposition 4: 

Anticipating a longer partnership in SO results in better preparation for activity transfer. 

SO contract management by SMEs 

This stage of SO management is closely linked to evaluating SO projects. It is important to set the correct performance indicators and realistic expectations for the SO activity in order to manage and control ongoing projects effectively (Kathleen 1995)(Lorber 2007)(Michael A. Stanko et al. 2009).

Research has shown that high-performing SMEs are better equipped to manage SO activity and can run multiple SO projects simultaneously with great care and attention. Their management systems are well-structured, and they have a more standardized approach to SO contract management.

The ability to set correct performance indicators and evaluate SO contracts is related to experience (Kathleen 1995)(Michael A. Stanko et al. 2009). While both high-performing and average-performing SMEs aim to have tightly structured contracts, only high-performing SMEs design and write their own SO contracts, while average-performing companies work with contracts provided by their SO suppliers. Consequently, average-performing SMEs accept the conditions and regulations set by SO suppliers and are unable to lead acceptance criteria for SO contracts apart from price negotiation and technical specifications.

The findings also indicate that high-performing SMEs approach their suppliers with a more collaborative mindset. Once they have set the correct performance indicators, they rely on suppliers to measure those indicators and provide management reports.

Proposition 5:

Setting better expectations for SO leads to identifying correct performance indicators. 

Learning and new knowledge gained through SO 

The text below discusses the motivations behind supplier outsourcing decisions for small and medium-sized enterprises (SMEs). Previous research has indicated that cost is the primary motivation for these decisions, while other studies suggest that SMEs are also motivated by the desire to acquire external knowledge through supplier outsourcing. The importance of generating new knowledge and know-how has been emphasized in various studies and business articles. It’s been highlighted that if companies fail to gain more than what they give away through supplier outsourcing partnerships, they may lose their competitiveness over time. It’s crucial for companies to lead new product developments and innovations, or else they risk becoming overly reliant on suppliers and losing control over supplier outsourcing. This research aims to explore how high-performing SMEs and average-performing SMEs perceive the importance of the learning effect and new knowledge generation through supplier outsourcing. The findings indicate that average-performing SMEs overlook the significance of knowledge sharing and collaboration in new idea creation. These companies have expressed that they are more interested in receiving products with specifications set by themselves, rather than seeking close collaboration with suppliers at the product development stage. They are more product and solution oriented, rather than focused on knowledge and new knowledge generation. The research suggests that average-performing SMEs attempt to oversee solution creation and maintain control over these activities, but they fail to truly collaborate with partners and instead create barriers for information protection. The text also proposes that closer collaboration with supplier outsourcing partners leads to more knowledge generation in supplier outsourcing practices. 

Monitoring of markets by SMEs 

This section explores how companies utilize external data and input to comprehend and monitor changes in their industry and markets. The study identified two key differences between high-performing SMEs and average-performing SMEs.

Firstly, average-performing SMEs do not utilize external consultancies to acquire market data, while high-performing SMEs heavily incorporate this option in their strategic decision plans.

Secondly, significant differences were found in how changing customer preferences and needs are communicated to the supplier. Average-performing companies express that they do not share customer needs with suppliers to prevent them from entering the market in the future to compete against them. This approach limits the supplier’s ability to provide better solutions for customer needs, as highlighted in previous research.

In conclusion, high-performing companies demonstrate a better understanding of market dynamics compared to average-performing companies. This enables them to identify gaps in technological and organizational performance and product performance. Once these gaps are identified, they can assess which activities require improvement or redesign in-house, or if they should be outsourced, as external resources may be more beneficial.

The study also observed that high-performing companies apply the Supplier Relationship Management (SRM) decision model in their SRM practices, and continuous utilization of the model seems to enhance learning from supplier contracts.

Proposition 7:

Enhanced capabilities for strategic data management lead to better identification of potential SRM activities.

Further hypotheses proposed:

Based on the analyzed results, we can propose the following hypotheses for future research:

1. Average-performing SMEs can enhance competitiveness by following SRM steps that contribute to the competitiveness of top-performing SMEs.

2. Greater experience in SRM leads to improved relationships with suppliers, resulting in a more productive partnership. 

Implications and Significance 

The analysis and interpretation of the findings led to the conclusion that continuously applying the SO decision model can assist companies in managing their SO effectively. This conclusion is based on the discovery that high-performing SMEs follow similar steps in their SO practices as outlined in the proposed model. It is believed that by implementing this model, average-performing SMEs can enhance their effectiveness in SO practices and achieve better results. The knowledge generation aspect of the model could significantly impact their approach to SO partnerships. The study aimed to highlight the differences in SO practices between high-performing and average-performing SMEs in order to aid the latter in making better SO decisions by emulating the former’s practices. The goal was to help SMEs improve their competitiveness in the long run and better manage the risks associated with SO by implementing these best practices. This work is significant as it consolidates extensive literature and previous studies on SO to create a decision model for SO management. Additionally, the study applies this model in a real-life context to clearly measure the differences between best practices and average performance. From this perspective, the study achieved its goal and met expectations. 

Conclusion

This paper delves into the intricacies of strategic outsourcing (SO) management within small and medium-sized enterprises (SMEs), aiming to discern the practices that distinguish high-performing SMEs from their average-performing counterparts. Through structured interviews and analysis of responses, several significant disparities have emerged, shedding light on the nuanced approaches to SO decision-making and partnership management.

Key findings highlight distinct attitudes and behaviors among high-performing SMEs, notably in their decentralization of decision-making, willingness to share core knowledge with suppliers, and consideration of broader organizational impacts in SO evaluations. Conversely, average-performing SMEs tend to maintain centralized control, prioritize safeguarding core knowledge, and overlook the holistic implications of SO initiatives.

Moreover, high-performing SMEs exhibit a proactive approach towards technology management, market adaptation, and risk mitigation within the context of SO, underscoring their strategic foresight and adaptability. This contrasts with the more reactive stance of average-performing SMEs, who often prioritize immediate cost considerations and are reluctant to embrace change.

Importantly, the study underscores the pivotal role of trust in SO partnerships, with high-performing SMEs recognizing the need for long-term relationship-building beyond contractual obligations. This emphasis on trust aligns with existing literature emphasizing the importance of collaborative, mutually beneficial relationships in fostering innovation and competitiveness.

The findings contribute to a deeper understanding of the nuanced dynamics of SO management within SMEs, highlighting areas for improvement and opportunities for enhancing performance and innovation competitiveness. By elucidating the practices that distinguish high-performing SMEs in the realm of SO, this research aims to provide actionable insights for SME owners and managers seeking to optimize their outsourcing strategies and cultivate strategic partnerships for sustainable growth and success.

Limitations 

The research made every effort to maximize reliability, but there were still some limitations. Initially, the research aimed to focus on manufacturing SMEs, but it ended up including three companies that had outsourced their manufacturing capabilities, even though they were component suppliers. These companies were considered to have knowledge of outsourcing from the perspective of manufacturing companies as they were previously involved in manufacturing.

The study was conducted only in Slovakia to understand how companies in the country are reacting to the challenges after entering the Eurozone. However, this limitation may restrict the generalizability of the study’s results. Conducting the same research in other settings, such as Western countries or other developing countries, could yield different results. Additionally, two of the companies participating in the research were foreign subsidiaries of Western companies, which might have influenced their approach to SO and the results of their interviews, potentially not representing those of Slovakian SMEs.

The interviews used a structured 5-scale questionnaire, but using open-ended questions could better capture each company’s approach to SO in broader terms. However, the 5-scale questionnaire was necessary to identify the differences between high-performing and average-performing SMEs and to give structure to the interviews and results, despite the potential for misrepresentation in answers.

Some interview questions were unclear to respondents, necessitating clarifications. It may be beneficial to review and rephrase the questions for clarity. Furthermore, pilot testing of the questions was not conducted, which would have improved the consistency of questions throughout each step and the reliability of findings. 

As business conditions are changing rapidly, research outcomes should be analyzed under today’s business conditions in Slovakia. This is particularly important given the changing perceptions and preferences, especially from a political point of view. Additionally, due to the risks of SO for nations and sectors, especially considering the challenges faced in Europe, such as high unemployment rates and debt crises, SO practices might have different consequences in ten to twenty years. 

Future Research 

Considering these limitations, conducting the same research using an open questionnaire could provide more detailed insights into how small and medium-sized enterprises (SMEs) manage their supply chain operations. Implementing such research on a larger scale could enhance the reliability of the findings. It would also be valuable to explore the reasons behind the differences observed among companies. A separate study for each step of supply chain management could help uncover the factors contributing to these differences.

In conclusion, further research is necessary to facilitate the generalization of the results of this study. This could involve increasing the sample size and reinforcing the findings with more quantitative results to enhance credibility and establish a robust foundation for supply chain management practices. By expanding our research efforts, we can better support SMEs in their supply chain operations, enabling them to derive greater benefits and mitigate the risks associated with supply chain management.

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AUTHOR
Ümit G. PEKÖZ
Faculty of Management
Comenius University Bratislava
Odbojárov 10, 82005 Bratislava 25, Slovakia

REVIEWERS:

Ing. Jaroslav Vojtechovský, Phd. 

Faculty of Management, Comenius University Bratislava

prof. RNDr. Michal Greguš, PhD. 

Faculty of Management, Comenius University Bratislava

Digital Science Magazine, Číslo 1, Ročník IX. ISSN: 1339-3782