The Offshoring Challenge || SMEs De- or Reorganising Knowledge When Offshoring?

Chapter 8SMEs De- or Reorganising KnowledgeWhen Offshoring?

Claus Jørgensen and Christian Koch

Abstract A growing number of Danish manufacturing companies feel compelledto offshore greater or smaller parts of their organisation. Drawing on organisationaltheory and, the concept of knowledge governance, this chapter examines two SMEsin the textile and the furniture sector, highlighting the knowledge-managementintersection. The two case studies show one SME reorganising its processes andintegrating knowledge through a mainly captive knowledge governance set-up; theother deorganises, disintegrates and, to a certain extent, ‘‘compensates’’ with virtualorganisational elements: exercising knowledge governance through IT systems aswell as through the establishment of an offshored physical intermediary controlelement. Furthermore, both case companies work with so-called soft knowledgegovernance approaches, in one case through the introduction of corporate socialresponsibility in the new captive set-up and in the other case through the specificselection of new suppliers and their capability/competence building over time.Organisation design approaches would focus on the initial diagnosis, choice andimplementation of a ‘‘new’’ organisation. However, the organisations studiedexperience emergent organisational design elements over time. Furthermore, theyare involved in dynamically tackling the learning of the organisational players aswell as the dynamics of their relationships with cooperating partners regardingmaintaining and developing their innovation capability. To manage thesechallenges, both case companies choose to revisit the organisational designelements and reconfigure their organisational design set-up, indicating a need toreinstate the classic design components along with a more dynamic perspective.

C. Jørgensen (&)Aarhus University, Birk Centerpark 15, 7400 Herning, Denmarke-mail: [email protected]

C. KochConstruction Management, Department of Civil and Environmental Engineering, ChalmersUniversity of Technology, Sven Hultinsgata 8, SE-412 96 Gothenburg, Swedene-mail: [email protected]

T. Pedersen et al. (eds.), The Offshoring Challenge,DOI: 10.1007/978-1-4471-4908-8_8, � Springer-Verlag London 2013

141

Keywords Knowledge governance � SME � Innovation capability � Organisa-tional design � Virtual elements

8.1 Introduction

The aim of the chapter is to show how the organisational design elementsregarding knowledge management and governance emerge and continuouslydevelop over time in a globalised offshore setting. The chapter will discuss thisdevelopment by examining the organisational challenges regarding knowledgeexperienced by two SMEs competing in global markets and value chains. Eachcompany has changed its global sourcing set-up due to a process of globalisationof their manufacturing set-up. A slice of the ‘‘original’’ organisation has beenidentified and relocated during an organisational design process.

As the globalisation of the value chain increases in complexity, the interde-pendency and the need for coordinating and controlling the organisation, andespecially its knowledge components, with respect to the different partners in thevalue chain increase from the perspective of the focal company. The originaldesign therefore enters into an emergent process, triggering a need for neworganisational and managerial approaches (Jørgensen 2010). In the chapter,organisational design studies and knowledge governance approaches (KGA) areapplied in the analysis of the managerial challenges of the organisations. Changesin the way the case companies choose to combine formal and informal coordi-nation mechanisms are presented and analysed. The two different approaches takenby the case companies are shown to be viable for solving the dynamic andcomplex challenges facing many SMEs in today’s business environment and formaintaining and developing the innovation capabilities within the new set-up.Advice for SME managers is developed based on the analysis of how the two casecompanies combine and design knowledge governance mechanisms differently inan increasingly complex, globalised setting of sourcing activities.

The chapter starts with a short introduction to the organisational design andvirtual organisation literature and continues with a discussion of the KGA regardingboth the formal/hard and the informal/soft coordination mechanisms in the inte-gration of knowledge between relations. We then introduce our methodologicalapproach and describe in detail how we have selected and studied the two casecompanies. Then follows two in-depth descriptions of the case companies, afterwhich we delve into a discussion of the cases based on the literature review. Finally,concluding on the findings, we sum up the organisational implications found in thediscussion part of the chapter and point to areas of interest for further studies.

142 C. Jørgensen and C. Koch

8.2 Theory

According to traditional organisational design literature, a proper reorganisationshould be initiated by a diagnosis of the current organisation followed by designand implementation phases (Cummings and Worley 2005). Typical designparameters would be control, coordination, formal communication channels anddivision of labour (horizontally) (Mintzberg 1993; Ensign 1998). On the basis ofextant classical literature, organisational design studies have moved into morespecific and currently prevalent issues. In this context, the management ofknowledge in and between organisations and the use of virtual organisations as away to solve these challenges have become parallel developments.

The notion of virtualisation has been used to both describe internal transfor-mation of organisations and new external forms of collaboration with variouspartners of the company. This focus can be seen as a response to and an appreciationof the tension between an increasing element of dispersiveness of organisations andthe related interdependencies. Dispersiveness could occur as singular nomads ormultinational corporations being increasingly globally networked (Castells 2000;Ensign 1998). Barnatt takes a radical approach and defines a virtual organisation asan organisation which relies on cyberspace to function, which has no identifiablephysical form, whose employer–employee relationship is transient and whoseboundaries are defined by ICT rather than bureaucratic rules and/or contracts(Barnatt 1995) [see also Hinds and Kiesler (2002), Okkonen (2004)]. In such anorganisation, intra- and inter-organisational virtualisation is mixed. IT technologiesmay act as a tool of transformation as well as a constraint for virtualisation. ICTscan be seen as assisting firms in the realisation of virtualisation by speeding accessto as well as processing information, facilitating internal/external communicationas well as linking and increasing the control over distributed organisational ele-ments (Buser et al. 2000; Koch and Buser 2003).

The issue of handling knowledge in organisations started with the attempt toconceptualise the learning organisation and continued into knowledge creation andknowledge management (Nonaka and Takeuchi 1995; Wenger 1998; Wenger et al.2002). A number of different organisational designs have been proposed to improvethe creation of knowledge-intensive services and products, and there has been anincreasing appreciation of the informal nature and tacitness of knowledge, also whenattempting to transfer, translate or transform knowledge (Carlile 2004). Even if globaland/or virtual organisations were discussed to some extent in this literature, theprimary focus was on co-location and singular types of organisations. However, thereis an increasing interest in the contemporary, disperse and international type ofknowledge organisation and in how the organisational set-up of these emerginginternationalised SMEs changes over time. In this chapter, we have chosen to focuson the KGA as a design element to examine closer how the formal/hard and informal/soft coordination activities of the case companies emerge/develop over a longerperiod of time (5 years) with the aim of involving the actors in the new set-ups of theknowledge integration processes of the ‘‘internal’’ innovation activities.

8 SMEs De- or Reorganising Knowledge When Offshoring? 143

Foss (2007) describes the knowledge governance problem: ‘‘The KGA identifies,grapples with, and solves problems that lie in the intersection of organization andknowledge processes, problems that for various reasons are hard to approach and solvewithin other knowledge-based approaches or where these approaches give a differentsolution than the KGA’’. Michailova and Foss (2009) further explain the KGA:‘‘‘Governing knowledge processes’ (…) means choosing governance structures(e.g., markets, hybrids, hierarchies) and governance and coordination mechanisms(e.g., contracts, directives, reward schemes, incentives, trust, management styles,organizational culture, etc.), so as to favourably influence processes of transferring,sharing, integrating, using, and creating knowledge’’ [see Choi et al. (2005) for asomewhat different understanding of the knowledge governance concept].

Michailova and Foss (2009) develop a fairly static approach to knowledgegovernance. A more dynamic approach is suggested by Scarbrough and Amaeshi(2009) who state that ‘‘it might be more important that such structures (knowledgegovernance) are able to change and adapt to the shifting needs of knowledgeintegration than pursue a best fit with circumstances prevailing at a single point intime’’. This interpretation points towards a more dynamic view of knowledgegovernance as the demands of the sourcing relations change over time due tochallenges regarding how to combine formal/hard and informal/soft coordinationmechanisms to achieve a knowledge governance system that fits the specificdemands towards maintaining and developing the innovation capabilities of theindividual organisations and their globalised value chains.

Foss et al. (2003) further divide knowledge governance mechanisms into hardand soft dimensions, where the governance practices are divided into a harddimension—for example, contracts, directives, incentives and rewards—as well as asoft dimension—for example, communication, trust, management styles andorganisational culture [an example of the application of these dimensions can befound in Peltokorpi and Tsuyuki (2006)]. We choose to follow this distinction in ouranalysis of the emergent developments of the two case companies to see how they,when the companies change their globalised and sliced organisational designs, differin their combinations [in accordance with Grandori (1997) who moves from ideal-type governance and coordination mechanisms to a variety of governance andcoordination mechanisms and their possible combinations] regarding both the softand hard side of knowledge governance. The approaches chosen by the case com-panies suggest a more dynamic and intrinsic view on the knowledge governancedesign setting regarding key suppliers/captive offshore operations in connectionwith which the companies combine the hard and soft dimensions of knowledgegovernance to maintain and develop their innovation capabilities in the set-ups.

8.3 Method

The empirical investigation took the form of qualitative case studies with a longi-tudinal orientation (Pettigrew 1990). The case companies were selected on the basisof being globally operating SMEs in the textile and furniture industry with


considerable experience in offshore sourcing. Field methods were onsite observa-tions, semi- and unstructure interviews and review of secondary materials.Respondents from each company were involved in commenting on case summaries,including revisions. Secondary materials from each company included annualreports, press releases, customer presentation material and stakeholder and mediamaterial. The comparative method was based on a few cases and a few events(strategic change) as a process research design (Pettigrew 1990; Van de Ven 2007)where interviews were transcribed and coded in NVivo (software from QSR Inter-national, Australia). The codes from the transcripts, the revised summaries of theinterviews and the secondary material were all used to build the case descriptions.

After the first visit, the companies were revisited in the next 3 years (the firstinterviews of key informants used a semi-structured questionnaire, and the follow-up interviews of the last 3 years were unstructured interviews; a total of 16interviews were conducted during the period). To identify and analyse possiblescripts, Barley and Tolbert’s (1997) four processes were adopted: (1) Grouping thedata by category or unit of observation, (2) identifying behavioural patterns(scripts) within categories, (3) identifying commonalities across scripts and (4)comparing scripts over time.

This study shows how factors and issues change over time by employing a real-time process approach based on narrative descriptions (Van de Ven 2007). Thecompanies appear to share similarities in their progression from offshore outsourcingto a more complex offshore constellation. The cases are seen as single entities (Van deVen 2007) due to the fact that they are small and medium size companies; they havefairly simple organisational structures constituting a single case category.

8.4 Two SMEs Outsourcing

The cases were selected for the purpose of studying different approaches to offshoresourcing and knowledge governance in two very competitive and globalisedindustries. Both companies are manufacturers who started outsourcing manufac-turing processes offshore for cost-reduction purposes. Furthermore, at the outset ofthe investigation, both companies fitted into the SME category in terms of size andboth companies had survived recent turmoil in the markets, caused by what is named,the financial crisis, and had shown growth tendencies after the financial crisis.

Additionally, the case companies have seen their markets change from fairlyslow-moving (working garments and durable furniture) into markets with a greaterdemand for continuous product innovation, leading to internal demands for processinnovation as well. Both companies have made significant downstream moves andchosen to build closer ties with their consumers through the establishment of ashop-in-shop concept in case A and a franchise concept in case B, although anumber of the outlets are still owned by company B. Another reason for choosingthese specific cases is found in the choices made within the case companies duringthe period of study. Due to resource constraints before, especially during and after


the financial crisis, the companies chose to reallocate their resources in oppositedirections. Case A decided to invest more resources in a captive manufacturingset-up, whereas case B chose to divest the captive manufacturing set-up andinstead move its resources to the downstream activities of the company.

8.4.1 Company A

The company outsourced its sewing activities in the late 1980s to Eastern Europe asan early mover in the Central Jutland textile cluster. The organisational design set-upwas fairly simple, as it kept all its activities in Denmark except the sewing activities,which were outsourced to suppliers in Eastern Europe and later on India, China andVietnam. Recently, the organisational design set-up became more complex, ascompany A began to move its Eastern European activities to its own newly estab-lished production facilities in Vietnam, while retaining outsourced sewing activitiesin China, India and Vietnam. In mid-2009, it employed around 1,100 workers inEurope and Vietnam and had about 2,500 workers in the Far East engaged inoutsourced activities. The recent change in the organisation, the establishment ofown production facilities in Vietnam, reflects a wish to reduce costs as well as toimprove the time-to-market of the manufactured goods. Yet another token of thiswish is the physical relocation of the raw material stock from Denmark to Vietnam.

Development and quality control take place in two laboratories located inDenmark (development) and Vietnam (quality), respectively. To manage the flowof tacit and systemic knowledge between Denmark and Vietnam, the companymoves key employees back and forth between the two countries for longer periodsof time and a few expatriates work at the Vietnamese site. The expats play animportant role as knowledge translators between the entities in Denmark andVietnam, as does the local Vietnamese manager (a Dane who has previously held adiplomatic post in Vietnam) who is responsible for the implementation ofcorporate social responsibility (CSR) as a managerial tool in the Vietnamesepremises. From the perspective of the company, the use of CSR has the dualfunction of profiling the company in the local context and establishing a lead in theongoing recruitment battle with other international companies in the area. Thisfocus has resulted in a fairly stable group of workers in the local setting and thusreduced the need to continually train sewing skills of new employees and increasedthe local knowledge stock within the company. Explicit knowledge is managedthrough a number of IT tools as well as different knowledge flow channels such asSkype, video conferencing and email.

The level of knowledge transfer between the outsourced, offshore productionunits and the company is lower, but the control function implemented by thecompany transfers and translates manufacturing improvements between the dif-ferent sites on an ongoing basis. Part of this knowledge is also made explicit in thecompany’s own IT systems. Recently, the company has offshored the cutting-outprocess (drawings) to Vietnam; initially, the process was constantly monitored via


IT by a Danish employee. This control function has now been rendered redundantbecause of an increase in the knowledge stock and understanding among keyemployees (Vietnamese, not expats) on the premises in Vietnam.

The knowledge governance structure of the company has changed, mostnotably with the captive establishment of production, quality control and ware-housing in Vietnam. In doing so, the company has increased its capacity to manageboth formal/hard and informal/soft coordination mechanisms across its develop-ment, sales and marketing activities in Denmark and its other activities in Vietnam(mainly manufacturing, but also quality control and basic marketing tasks). Fur-thermore, the demands towards the external coordination mechanisms of thecompany regarding its outsourced production activities have diminished, as themore difficult and complex production activities are now handled by the com-pany’s captive Vietnamese activities. During the period of study, the company hasreversed its strategic goal of 30 % in-house offshore production and 70 % offshoreoutsourced to a goal of 70 % in-house and 30 % outsourced offshore sewingactivities, indicating a need for further investments in the local captive manu-facturing set-up; investments that were initiated in the spring of 2011.

8.4.2 Company B

Company B has recently changed its strategy and organisational design set-up fromonly producing furniture to include retailing. It has also reduced its ownership of theproduction units (offshore outsourcing) in the same process. At the beginning of2009, the company had around 560 employees in Denmark and abroad.

Furniture production involves two product groups: Upholstery and flat-packfurniture. A few years ago, the company decided to change its organisationaldesign set-up and outsource the production of upholstery furniture because theskills required in the upholstery field are less demanding and more labour-inten-sive compared to those of the flat-pack area. The flat-pack furniture departmentwas not outsourced due to high flexibility and quality demands of the productionprocess, lack of competent suppliers in Eastern Europe and Asia as well as thehistorical path of the company.

As part of the new organisational design, the upholstery production unit inDenmark was bought by the former management and moved to Lithuania to reducelabour costs. Today, the company cooperates closely with this supplier in terms ofinnovative activities, since the facility is still run by the old management group fromDenmark. This facilitates knowledge integration between the units due to the highlevel of tacit knowledge still present in the outsourced company. As part of the newand more dispersed organisational design set-up, the company uses an external designcompany to develop new designs together with the suppliers and the company’s ownproduct managers. This entails physical relocation of designers and product managers,since they join the local manufacturing staff in the different production units (both inLithuania and China) to discuss new designs and how to produce them at the factories.


Physical movement is preferred due to the difficulties of translating tacit knowledgevirtually between employees, suppliers and sites.

The company’s other main supplier of upholstery furniture is located in China.Because the Chinese suppliers in general lack knowledge and understanding of thecompany’s quality demands due to an initially inadequate level of absorptive andlearning capacity as well as cultural differences, the company decided to makeadditional changes to the organisational design set-up by establishing a control unitin China and hiring local quality employees to function as the case company’squality controllers in each supplier factory. This organisational design set-up hasrecently been extended by the establishment of a second Chinese control unitgeographically dispersed from the other control unit to achieve physical closenessto other key suppliers as well as its newly established warehouse activities.

The company is now sourcing more activities from the control units in China andhas outsourced and geographically condensed its warehouse activities, previouslymanaged internally in Denmark and Japan, to a new supplier in China. The companytransfers Danish employees to the control units in China for longer periods of time totrain and work with local employees. Chinese employees are located to Denmark forshort-term training to transfer both tacit and explicit knowledge and attempt totranslate the company’s organisational culture into a Chinese context. The localexpats function as knowledge translators in the interaction between the Chinesesuppliers and the Danish entity. To a certain level, the company’s product managersalso assume the role of knowledge translators with the Chinese suppliers in thedevelopment activities, whereas their translation role is somewhat reducedregarding the Baltic supplier due to the higher level of tacit knowledge present at thissupplier’s Baltic site (Danish expats and managers at the supplier end).

In its search and selection of the key suppliers in China, the company haschosen a more soft governance approach regarding the development of the sup-pliers’ knowledge and skill bases. The company considers building the Chinesesuppliers’ competences over time its own responsibility, as it strategically prefersto identify suppliers with developmental perspectives and sizes matching its own,thereby putting itself in a position to establish itself as an important customer inthe new supplier’s perspective.

The company has devised its governance activities differently in the BalticStates compared to Asia due to differences in knowledge stock and understanding.In the Baltic States, the company relies heavily on informal/soft coordinationmechanisms due to its prior connections with the management team of itsupholstery supplier. In Asia, the company has established its own control units togovern and control especially quality and delivery issues based on more formal/hard coordination mechanisms. It has established some informal/soft coordinationmechanisms with its key upholstery supplier as well, but not at a level that equalsthe relation established with the Baltic opponent. The Danish mother company iscontinuously working with improving both the more formal/hard coordinationmechanisms with its suppliers as well as the internal and partly informal/softcoordination mechanisms with the captive control units in Asia to improve theknowledge transfer, sharing and integration between the entities.


8.5 Discussion

Both case companies have managed to navigate through the recent crises and areonce again picking up speed regarding growth in sales and financial results.According to the representatives of the case companies, part of this success isclosely connected to the upstream moves they have made during recent years;however, it is not isolated to these moves, as both companies have made significantmoves downstream as well. In total, both companies have witnessed significantchanges in their value chain over the last 5 years—a period of time during whichorganisational and managerial demands have become much more complex andglobalised. These changing settings intensify the demands towards both the for-mal/hard as well as the informal/soft coordination activities. This is especially thesituation regarding the management of knowledge of both companies’ supplierbases to maintain and develop the case companies’ innovation capabilities in thenew and sliced organisational design set-up. However, the two case companieshave taken different and, to some extent, crossing paths to steer clear of theperilous waters of the recent crises (in economic terms, both companies performedvery well in the latest financial year).

By establishing its own production facilities to be able to manage the more complexproduction activities, company A has chosen to depart from a long trajectory of nothaving any ownership of its production activities. Here, we witness a reorganisationthat involves integrating new elements in the virtual organisation. Through this move,the company has gained partial control of its production activities and the possibility toconduct 100 % quality control of its products, those produced in-house as well asthose sourced through the established number of suppliers in the region. Furthermore,the demands towards formal/hard coordination with suppliers have diminished due tothe sourcing of less complex products from the suppliers, the in-house production ofthe more complex products and the in-house capability of producing smaller quantitieson a shorter-term basis. The informal/soft coordination activities have been improvedwithin the boundaries of the organisation because of the movement of personnel backand forth between Denmark and Vietnam. CSR is introduced in Vietnam to reducepersonnel turnover and the continual development of IT solutions and communicationtools to improve the dialogue and the type of knowledge being transferred andtranslated between the premises. Furthermore, the use of knowledge translatorsbetween the offshored and domestic activities has been crucial in combination with theabove-mentioned developments in maintaining and increasing the product innovationrate in the company.

Company B, on the other hand, has been dissolving its own production activ-ities and increased dramatically the number of products sourced, mainly in Asiaand the Baltic States. To manage the increasing complexity, which is triggered bythe number of different products being sourced, as well as the number of suppliersdispersed geographically, the company has chosen several paths. In the case of theBaltic connection, company B has mainly relied on informal/soft coordinationmechanisms based on the close relationship with the supplier’s management team


consisting of former employees of company B. In the Chinese region, the companyhas chosen to establish a number of control units close to the key suppliers and toposition its own local quality personnel at the key suppliers, thus depending onmore formal/hard coordination mechanisms to manage the transfer of knowledge.This places demands on the knowledge translators (expats) based at the controlunits as well as on the product managers who are being flown to the differentpremises of the suppliers to mainly initiate, together with the external designers,the new product development work.

At the same time, the company is incrementally trying to use informal/softcoordination mechanisms to continuously build competences within the new keysuppliers in China. This to further develop and improve the suppliers’ ability toreceive and translate knowledge from the case company regarding mainly man-ufacturing skills, quality understanding and, in a single case in China, the processinnovation skills of the supplier.

The organisational and knowledge governance changes can be summarised asshown in Table 8.1.

Table 8.1 Changes in organisational and knowledge governance dimensions

Case A Case B

Organisationalchanges

Insourcing of the more complexsewing activities in Vietnamincreases the control of bothproduction and quality, whichin turn is expected to facilitateoffshoring of more complexactivities, like construction ofdesigns, at a later stage. Optionsbeing considered to facilitatevertical integration to includeacquisition of a dye plant. Amove from a mainly market-oriented governance set-uptowards a hybrid governanceset-up

Outsourcing of the less complexupholstery production to theBaltic states and China.Establishment of severalcontrol centres in China overtime to create a physical linkbetween headquarters and keysuppliers that also createsindirect control betweenheadquarters and key suppliersin China. A move from ahierarchical governance set-uptowards a hybrid governanceset-up

Knowledgegovernance harddimensions/formalcoordination

Captive production unit in Vietnamtaking over more and morecomplex manufacturingactivities. Continuousdevelopment of IT tools tosupport the link betweenheadquarters and theVietnamese entity regardingmainly formal knowledge

Continuous development of ITtools to support the linkbetween headquarters and thecontrol centre regardingespecially formal knowledge

(continued)


8.6 Conclusion

During the last 5 years, both case companies have been working with changingtheir organisational and knowledge governance set-up, adjusting both the soft andhard knowledge governance dimensions to improve the capability within theirvalue chain to integrate knowledge and maintain and develop their innovationcapability within the offshored set-up. This has been done using traditional, for-mal/hard organisational coordination mechanisms, virtual coordination and com-munication mechanisms as well as informal/soft coordination mechanisms.Moreover, the paths chosen by the two case companies are very different and theycross, to some extent, each other in the chosen governance set-up over time, whichimplies that there is more than one possible path to follow when trying to governknowledge within dynamic, globalised sourcing set-ups. The cases also demon-strate that combining both formal/hard and informal/soft coordination mechanismsis an ongoing challenge, and both companies demonstrate that it is sensible toinclude both approaches in the continuous management of the sourcing activitieswithin the value chain to maintain and develop the innovation capability within theemerging set-ups.

The chapter has highlighted the role played by the organisation of theknowledge component in maintaining and developing innovation capabilities. Oneorganisation reorganised its processes and integrated new knowledge, the otherdeorganised and ‘‘compensated’’ with a moderate, virtual organisational element,both cases emphasising the knowledge governance element over time. Moreover,organisational design approaches tend to overemphasise the initial diagnosis,choice and implementation of a ‘‘new’’ organisation (the design fallacy). As

Table 8.1 (continued)

Case A Case B

Knowledgegovernance softdimensions/informalcooperation

Increasing physical movement ofpersonnel back and forthbetween Denmark andVietnam, thus moving lesstransferable and robustknowledge, such asorganisational values andnorms. Furthermore, a dyeexpert is hired to help a keysupplier, initially in Vietnam,then in Pakistan. Increasing useof expats as knowledgetranslators at the Vietnameseentity and application of CSR toreduce personnel overturn andthereby maintain and developthe local knowledge stock

Increasing physical movement ofpersonnel back and forthbetween Denmark, the Balticstates and China, thus movingless transferable and robustknowledge, initially in theproduct development processand later within manufacturing,warehousing and logistics(China). Strategic positioningof expats in control centres toact as knowledge translators aswell as to continuously help thelocal suppliers build theirmanufacturing capabilities andquality understanding


demonstrated, the organisations are emergent over time and involved in dynami-cally tackling the learning of the organisational players as well as the dynamics oftheir cooperation partners, visiting the organisational design elements more fre-quently to improve their upstream value chain set-up. In the cases, no significantdevelopment towards a pure virtual set-up (Barnatt 1995) without physical formscan be detected; on the contrary, both cases seem to need the direct interactionbetween organisational unit members through physical co-presence: In case Athrough the reorganisation and establishment of a captive set-up in Vietnam and incase B through the establishment of control units to support the deorganisation ofthe manufacturing set-up caused by the previous offshore outsourcing moves madeby the company.

Furthermore, from the perspective of the focal company, a consequence mightbe that they should be more aware of how the hard and soft issues of knowledgegovernance are combined to support and link the actors together in the neworganisational offshore set-up in the effort to maintain and develop the innovationcapabilities within the emerging set-up. A key development here has been thecontinuous and growing use of expats as knowledge translators, which, in bothcases, initially was seen as a temporary set-up to bridge knowledge between theentities. However, these positions have apparently become permanent part ofthe set-ups and have even been extended by more expats being positioned in thecaptive set-up in case A in Vietnam and in the established control centres in Chinain case B.

Being SMEs, both case companies seem to be continuously challenged by howthe allocation of a limited amount of resources in their global value chain set-up iscombined appropriately, thus indicating a need for SMEs to be open to changingthe set-up of their organisational design elements more frequently. Several areas ofinterest for further research can be identified based upon this indication. In thechapter, we have chosen to focus on the upstream activities of the case companies;however, a downstream focus would point towards the way the knowledge gov-ernance structure evolves in this area concerning both the development of theorganisational design set-up and the dynamic or static set-up of the informal/softand formal/hard coordination activities in the case companies. This and the factthat the two case companies have chosen different trajectories in this area indicatethat the connection between the sourcing and distribution set-up and the way theorganisational design set-up of the entire global value chain evolves in a knowl-edge governance perspective would be an interesting area to study in more detailin the future. Yet another interesting area for further studies would be the mana-gerial implications of the changing organisational set-ups and trajectories; morespecifically, how the directional control and organisational routines are combinedand put into play to integrate knowledge and create close cooperation between theactors.


References

Barley SR, Tolbert PS (1997) Institutionalization and structuration: studying the links betweenaction and institution. Organ stud 18(1):93–117

Barnatt C (1995) Office space, cyberspace and virtual organisation. J Gen Manag 20(4):78–92Buser M, Poschet L, Pulver B (2000) Télématique et nouvelles formes de travail. TA- report 35a.

Conseil suisse de la science, BernCarlile P (2004) Transferring, translating, and transforming: an integrative framework for

managing knowledge across boundaries. Organ Sci 15(5):555–568Castells M (2000) The rise of the network society, 2nd edn. Blackwell, CambridgeChoi CJ, Cheng P, Hilton B, Russell E (2005) Knowledge governance. J Knowl Manag 9(6):67–75Cummings TG, Worley CG (2005) Organization development and change, 8th edn. Cengage,

New YorkEnsign PC (1998) Interdependence, coordination, and structure in complex organizations:

implications for organization design. Mid Atlantic J Bus 34(1):5–23Foss NJ (2007) The emerging knowledge governance approach: challenges and characteristics.

Organization 14(1):29–52Foss NJ, Husted K, Michailova S, Pedersen T (2003) Governing knowledge processes: theoretical

foundations and research opportunities. In: CKG working paper 1/2003, the center forknowledge governance, Copenhagen Business School, Copenhagen

Grandori A (1997) Governance structures, coordination mechanisms and cognitive models.J Manag Gov 1:29–47

Hinds P, Kiesler S (2002) Distributed work: new ways of working across distance usingtechnology. MIT Press, Cambridge

Jørgensen C (2010) Offshore supplier relations: knowledge integration among small businesses.Strateg Outsourcing Int J 3(3):192–210

Koch C, Buser M (2003) Getting hold of the disappearing worker?—managerial issues ofdistance work. In: Zedtwitz MV, Haour G, Khalil T, Lefebvre L (eds) Management oftechnology: growth through business, innovation and entrepreneurship. Pergamon Press,Oxford, pp 481–495

Michailova S, Foss NJ (2009) Knowledge governance: themes and questions. In: Foss NJ,Michailova S (eds) Knowledge governance—processes and perspectives. Oxford UniversityPress, Oxford, pp 1–24

Mintzberg H (1993) Structure in fives: designing effective organizations. Prentice-Hall,Englewood Cliffs

Nonaka I, Takeuchi H (1995) The knowledge-creating company: how Japanese companies createthe dynamics of innovation. Oxford University Press, New York

Okkonen J (2004) How virtuality affects knowledge work: points on performance and knowledgemanagement. Int J Network Virtual Organ 2(2):153–161

Peltokorpi V, Tsuyuki E (2006) Knowledge governance in Japanese project-based organization.Knowl Manag Res Pract 4:36–45

Pettigrew AM (1990) Longitudinal field research on change: theory and practice. Organ Sci1(3):267–292

Scarbrough H, Amaeshi K (2009) Knowledge governance for open innovation: evidence from anEU R&D collaboration. In: Foss NJ, Michailova S (eds) Knowledge governance: perspec-tives, processes and problems. Oxford University Press, Oxford, pp 220–246

Van de Ven AH (2007) Engaged scholarship—a guide for organizational and social research.Oxford University Press, Oxford

Wenger E (1998) Communities of practice. Cambridge University, CambridgeWenger E, McDermott R, Snyder WM (2002) Cultivating communities of practice: a guide to

managing knowledge. Harvard Business School Press, Cambridge


Documents

The Offshoring Challenge || SMEs De- or Reorganising Knowledge When Offshoring?