integration in the global sourcing organization_an information processing perspective

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INTEGRATION IN THE GLOBAL SOURCINGORGANIZATION AN INFORMATION PROCESSING

PERSPECTIVE

GERHARD TRAUTMANNSiemens AG

VIRPI TURKULAINENHelsinki University of Technology

EVI HARTMANNEuropean Business School

LYDIA BALSCopenhagen Business School

Global sourcing refers to the integration of decision making across worldwidepurchasing units within a multinational corporation (MNC). In order tomanage the integration challenge, firms have a number of tools, varyingfrom centralization and formalization to cross-locational teams. In this paper,

we focus on explaining how and why to integrate in different circumstances.The aim of this paper is to complement prior research on global sourcingorganizations, which is still rather scarce and more exploratory in nature.By extending the arguments of the information processing perspective of or-

ganizations to the global sourcing context, we seek to propel a theoreticaldiscussion on integration in the global sourcing organization. Based onthe results of 12 case studies in three MNCs, we propose that integrationapproaches in global sourcing organizations vary depending on the threecontingencies of category characteristics, supply environment characteristicsand interdependence of the purchasing units.

Keywords: international/global purchasing; organization; case studies

INTRODUCTIONGlobal sourcing refers to the integration of purchasing

units across a firms worldwide locations, looking for

common items, processes, design, technologies, knowl-

edge and suppliers (Faes, Matthyssens and Vandenbempt

2000; Rozemeijer 2000; Monczka and Trent 2003).

Rather than merely searching for cost savings by cen-

tralization and harmonization of activities (e.g., Arnold

1997; Faes et al. 2000; Rozemeijer 2000; Rozemeijer, Van

Weele and Weggeman 2003), integration (or coordina-

tion) means the extent to which the purchasing activities

of the worldwide units are mutually supportive, and

unity of effort is achieved, to accomplish the firms

overall goal (March and Simon 1958; Lawrence and

Lorsch 1967).

Management research covers a wide variety of mana-

gerial tools to integration, called integration mecha-

nisms. These include centralization, formalization and

information systems, as well as the creation of lateral

relations (e.g., by cross-locational purchasing teams).

Although the terms global sourcing and international

sourcing are sometimes used interchangeably, this paper

makes a clear distinction between them, as the latter

implies that the local purchasing units act independently

(Trent and Monczka 2003). The key distinctive charac-

teristic of global sourcing, and a central focus of this

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paper, is the integration of managerial decision making

among geographically dispersed purchasing units.

While most multinational corporations (MNCs) per-

ceive global sourcing as a strategic necessity (Trent and

Monczka 2003), the implementation of global sourcing

has posed severe challenges (Kaufmann and Hedderich

2004; Kotabe and Murray 2004). The design of globalorganizations has turned out to be particularly chal-

lenging, yet critical for the success of global sourcing

strategy (Trent and Monczka 2003; Trent 2004; Quintens,

Pauwels and Matthyssens 2006a). On the academic side,

the majority of prior research has taken a strategic per-

spective on global sourcing, assessing, for example the

pros and cons of a global sourcing strategy (e.g., Alguire,

Frear and Metcalf 1994; Bozarth, Handfield and Das

1998; Cho and Kang 2000). Significantly less attention

has been paid to organizational issues like the integration

of purchasing units (Trent and Monczka 2003; Quintens

et al. 2006a). In particular, Gelderman and Semeijn(2006) have pointed out that despite an increased focus

on global sourcing, little is known about the actual

integration of purchasing across worldwide business

units. In this paper, we address this gap by focusing on

the following question: How do MNCs effectively inte-

grate global sourcing activities across their geographically

dispersed purchasing units?

Prior research differentiates among three major global

sourcing organizations types (Fearon 1988; Narasimhan

and Carter 1989; Arnold 1999): (1) centralized struc-

tures; (2) decentralized structures and (3) hybrid struc-

tures. Centralized structures are preferable when several

geographical units buy similar categories (products),while a decentralized structure becomes attractive when

each unit produces unique or markedly different prod-

ucts. Hence, organizational design of global sourcing

organizations is dependent on the category-related1

synergies across geographical units.

Most companies have adopted a hybrid structure

(Johnson and Leenders 2004), intending to manage the

centralizationdecentralization tradeoff most effectively

(Kaufmann and Hedderich 2004; Kotabe and Murray

2004; Hartmann, Trautmann and Jahns 2008), but still

struggle to fully exploit the benefits of global sourcing.

The key challenge in hybrid structures is to distinguish

between different types of categories, identifying the ones

with synergy potential and determining their appropriate

form of integration across geographical units (Arnold

1989; Matthyssens and Faes 1997; Faes et al. 2000).

However, currently there exists little empirical evidence

or theoretical explanation for how integration is attained

across different types of categories. Therefore, the focus of

this paper is on integration of global sourcing activities at

the category level rather than at the organizational level.

From a methodological viewpoint, this paper follows

a theory elaboration research design. We present the in-

formation processing framework (IPF) on integration

(Galbraith 1973; Tushman and Nadler 1978), a major

framework for understanding organizational integration,

and extend it to the global sourcing context. Thereby,

in addition to addressing the gap in the existing literatureon integration in global sourcing organizations, we

simultaneously address the plea for cross-disciplinary

research on global sourcing (e.g., Quintens, Pauwels and

Matthyssens 2006b; Wynstra 2006). In order to elaborate

the IPF, we analyze data collected by a multiple case study

design (12 cases in three MNCs).

LITERATURE REVIEW AND THEORETICALBASIS

IPF

This paper focuses on integration of geographicallydispersed purchasing units. As integration is inherently

an organization design phenomenon, we build on the

theoretical arguments of organization scholars, especially

those of the information processing view (Galbraith 1970,

1973, 1977; Tushman and Nadler 1978; Nadler and

Tushman 1997). The focal idea of the IPF is that organi-

zations differ in their requirements for information pro-

cessing and subsequently use different mechanisms for

integration. The general IPF is presented in Figure 1 below.

In effective organizations, there is a fit between the

information processing requirements and the informa-

tion processing capacity. When the requirements for in-

formation processing are high, numerous complex lateralmechanisms are needed, but when the information

processing requirements are low, the organization can do

well with vertical mechanisms like centralization. Fur-

thermore, due to the costs of integration mechanisms,

increasing the information processing capacity excessively

would not be rational. Instead, the goal is to achieve the

mentioned fit of information processing capacity to the

extent required.

Integration mechanisms (right side of Figure 1) can be

divided into vertical and lateral ones (Galbraith 1973,

1977, 2000). Vertical mechanisms include centralization,

formalization, standardization and vertical information

systems. Lateral mechanisms include, for example, job

rotation, cross-unit teams and integrators. The integration

mechanisms are suggested to vary both in their capacity to

facilitate information processing in an organization and

in their costs of use (both managerial time and financial

costs). Vertical mechanisms like centralization require less

investments but their capacity to facilitate information

processing is lower than that of lateral mechanisms.

Tushman and Nadler (1978) further suggest that or-

ganizations face different requirements for information

processing (left side of Figure 1), arising from uncertainty

imposed by the characteristics of its environment. These

1A category encompasses a group of similar items that are required

for specific business activities of the firm.

Journal of Supply Chain Management

Volume 45, Number 28


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contingencies are classified as task characteristics, task

environment characteristics and interunit task interde-

pendence. The first and last are internal to the organi-

zation, whereas the second one is a characteristic of its

external environment. The uncertainty they impose is

problematic because it interferes with the attainment of

organizational goals (Thompson 1967). When uncer-

tainty is high, the organization does not have all the

relevant information to achieve its predetermined goals

and it needs to process information to complete its task.

The information processing arguments have been

widely applied by scholars in different fields (e.g., Egel-

hoff 1991; Jarvenpaa and Ives 1993; Nobel and Birkin-shaw 1998; Kaipia 2007), but not extensively in the global

sourcing context. We suggest that the IPF has significant

implications for increasing the understanding of integra-

tion in the global sourcing context for the following rea-

sons. First, although prior research (e.g., Rozemeijer 2000;

Trent and Monczka 2003; Trent 2004) has identified

a number of different mechanisms for integration in

the global sourcing organization, the benefits have been

emphasized and costs have been ignored. Second,

although it has been suggested that the design of global

sourcing organizations is affected by factors such as the

level of corporate internationalization, purchasing matu-

rity and international purchasing strategy (Arnold 1999;

Rozemeijer et al. 2003; Trent and Monczka 2003), the

extant studies are highly descriptive and rather explor-

atory in nature. Therefore, prior research provides little

theoretical explanation for either when integration is par-

ticularly important orhowandwhyvarious contingencies

affect integration in the global sourcing organization.

In this paper, the IPF serves as a theoretical basis for

analyzing the use of various integration mechanisms

under different circumstances in purchasing organiza-

tions. In this process, we theoretically elaborate on the

IPF for the global sourcing context. In the following

sections, we discuss prior research on (1) integration

mechanisms (right side of the IPF in Figure 1) and (2)

uncertainty in the sourcing context (left side of the IPF)

in the sourcing context.

Studies on Global Sourcing OrganizationsThe majority of research on global sourcing organiza-

tions has focused on the issue of centralization versus

decentralization (e.g., Corey 1978; Guinipero and Mon-

czka 1990; Arnold 1999; Quintens, Matthyssens and Faes

2005). These studies tend to perceive integrated organi-

zations as centralized hierarchies. Some authors have

extended the discussion and included additional ways ofintegration. For example, it was shown that global

sourcing firms use a variety of mechanisms, such as

harmonized IT infrastructures, strategy review meetings

and cross-unit teams to manage integration (Trent and

Monczka 2003). Also, the use of different organizational

design mechanisms, networks of people, and informa-

tion and communication infrastructure was assessed

(Rozemeijer 2000) and the importance of socialization

mechanisms for integrating activities across purchasing

locations was highlighted (Faes et al. 2000). Finally, re-

porting the results of an exploratory study on how vari-

ous organization design features such as cross-unit teams

and colocation vary across different organizational size, it

was suggested that larger firms rely more on both vertical

and lateral mechanisms, simultaneously (Trent 2004).

Moreover, prior research on global sourcing organiza-

tions has taken an organization level of analysis, sug-

gesting that the global sourcing organization is the same

across purchased categories. However, it has long been

recognized that category characteristics significantly affect

organization design (Davis, Epen and Mattson 1974;

Smith 1999; Daft 2004; Englyst, Jorgensen, Johansen and

Mikkelsen 2008) and that effective purchasing organi-

zations are designed differently across categories within

Task Characteristics

Task Environment

Inter-unit TaskInterdependence

UncertaintyFacing theSubunits

InformationProcessing

Requirements

InformationProcessingCapacity

VerticalIntegration

Mechanisms

LateralIntegration

Mechanisms

Effectiveness

FIT

FIGURE1The General Information Processing Framework (adapted from Tushman and Nadler 1978)

Integration in the Global Sourcing Organization

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one firm. Although this approach has not yet been taken

very often, a noteworthy exception to this is a study on

integration analyzing 15 large MNCs, suggesting that

integration of purchasing units indeed varies across cat-

egories (Matthyssens and Faes 1997).

Studies on Uncertainty in the Sourcing ContextUncertainty in the sourcing context has been addressed

mainly in the literature on organizational buying be-

havior (OBB) (e.g., Robinson, Farris and Wind 1967;

Webster and Wind 1972; McQuiston 1989; Laios and

Moschuris 2001; Lewin and Donthy 2005). Summarizing

the main ideas of OBB, five contingencies can be iden-

tified as having an impact on uncertainty in the sourcing

context (shown in Table I): (1) purchase novelty; (2)

category complexity; (3) purchase importance; (4) de-

mand volatility and (5) supply market characteristics.

The five characteristics presented in Table I can be

clustered into two groups that closely echo the contin-gencies presented in the IPF of Tushman and Nadler

(1978). The first four contingencies relate directly to task

characteristics and are internal to the organization. The

fifth characteristic, supply environment, relates to the

task environment of the IPF and is external to the orga-

nization. The final contingency of interunit task inter-

dependence of the IPF has not been addressed in the

sourcing context. This, however, is not surprising because

purchasing literature has mostly focused on uncertainty

from the perspective of a single purchasing unit.

RESEARCH METHODOLOGY

Research DesignOwing to the lack of theory on global sourcing orga-

nizations (Quintens et al. 2005) especially in terms of

providing theoretical explanations for relationships

among concepts (the questions of How and Why in

the definition of good theory [Bacharach 1989; Wacker

2008]), this research started without precise hypotheses

or propositions. Our research design can best be de-

scribed as theory elaboration (Vaughan 1992; Lee 1999;

Gilbert 2005). In comparison with testing an existing

theory (Popper 1959) or developing a new theory (Gla-ser and Strauss 1967; Eisenhardt 1989), the key idea of

theory elaboration as applied in this paper is to extend

the IPF to the global sourcing context, thereby providing

theoretical explanations for the use of different inte-

gration mechanisms across different categories. The

TABLE I

Factors Affecting Uncertainty in the Purchasing Context

Contingency Definition How and Why It Affects Uncertainty ExampleReferences

(1) Purchasenovelty

Experience the firm has onpurchasing the item: new task,straight rebuy or modified rebuy

New tasks are more uncertainbecause the firm does not have theexperience and knowledge of thepurchase

Cardozo (1980),Hill (1972),McQuiston(1989)

(2) Productcomplexity

Degree to which the product is acommodity or highly customized

Customization increases theunderstanding of productcharacteristics and purchasingprocess, making the situation moreuncertain

Hill (1972),McQuiston(1989), Xideasand Moschuris(1997)

(3) Purchase

importance

Degree and type of risk

perceived in the purchasingsituation and purchase volume

High volume and risk increase the

exposure to loss, making thepurchase more uncertain

Cardozo (1980),

Hill (1972),Bunn (1993)

(4) Demandvolatility

Degree to which the demand ofthe purchased item changesacross periods

Strong demand fluctuations makethe planning of purchase difficult,increasing uncertainty of thesituation

Walker andWeber (1984)

(5) Supplymarketcharacteristics

Degree of global availability ofthe item, uncertainty inproduction and supply, stabilityof supply

A turbulent environmentcharacterized by a rapid rate ofchange and lacking transparency ofsupply markets, making the situationmore uncertain

Cardozo (1980),Bunn (1993),Xideas andMoschuris(1997)




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outcome of the paper can therefore be classified as mid-

dle-range theory (Merton 1968; Bourgeois 1985; Layder

1993) which is defined as theory that generalizes beyond

a particular case but within a particular context or setting

(Woodside, Liukko and Vuori 1999; Ketokivi 2006).

In order to elaborate the IPF in the global sourcing

context, we collected empirical data following a multiple

case study design with a replication logic (Yin 2003). We

selected this case study research design for three reasons.

First, our research aim is to understand how and why

contingencies lead to differences in integration mecha-

nisms at the category level (Meredith 1998; Yin 2003).

Second, research on global sourcing organizations is in

itsexploratory stageand existing knowledge on the factors

affecting organization design at the category level is

scarce (Yin 2003; Voss, Tsikriktsis and Frohlich 2002;

Quintens et al. 2005). And finally, there has been a call for

more case studieson global sourcing (Trent 2004; Dubois

and Araujo 2007). The ways by which validity criteria

(Miles and Huberman 1994; Yin, 2003) in qualitative

research were addressed are shown in Table II.

In the case selection, we focused on MNCs because they

are more likely to be engaged in global sourcing (Bozarth

et al. 1998). Details about the case firms are presented in

Table III.

In our pursuit to achieve a theoretical sample, three

MNCs were studied from different industries (gas, phar-

maceutical, automotive), thus varying the following at-

tributes: Company sizes, degrees of multinationality and

global sourcing ratios. All three case firms have extensive

global sourcing experience with hybrid purchasing

structures in place. The primary structural dimension

TABLE II

Addressing Validity Criteria, Based on Miles and Huberman (1984) and Yin (2003)

Validity Criterion Means by Which This Was Addressed in the Case Study

Objectivity/Confirmability:

relative neutralityand reasonablefreedom from unacknowledgedresearcher biases

Clear research design

Detailed and explicit data collection processResult: Methodology transparent and repeatable

Reliability/Dependability/Auditability:whether the process of the study isconsistent, reasonably stable over timeand across researchers and methods

Data were collected across a full range of carefully selectedrespondents and settings as suggested by the research questionsShared questionnaire for all interviewers/field-workersDevelopment of case study databaseCoding checks to ensure agreement of coders

Result: Stability and consistency of study process ensured

Internal and Construct Validity:establishing causal relationships

whereby certain conditions are shownto lead to other conditions,as distinguished from spuriousrelationships

Use of theoretical frameworkTriangulation of interview data and documents studied

Context-rich data collectionResult: Transfer Participants agreed to the interpretations; ofinformation processing framework to global sourcing contextperformed and substantiated

External Validity:establishing a domain in which thestudys findings can be generalized

Clear description of case company context and situationDetailed descriptions of specific category considerations for thecompanies studiedReplication in further research is suggested and facilitated by clearparameter specification (e.g., industry, size, hybrid sourcingorganization)

Result: Robust findings applicable to specific domain

Utilization/Application/Action

Orientation:what the study does for its participants,both researchers and researched, aswell as for the consumers

Research setting of hybrid sourcing organizations poses a

practically challenging fieldCategory-level analysis provides in-depth and practical informationto practitioners and researchers alike

Result: Practical value of research findings for organizationsengaging in global sourcing, as well as providing stimulus for theresearch field of coordination mechanisms in MNCs and specificallyregarding hybrid sourcing organizations


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along which the purchasing organization of the casecompanies is organized is the category. Categories with

large purchasing volumes that show cross-locational

synergy potential are led by category managers situated at

headquarters. In addition, Gas and Auto have a regional

structure with regional managers, as a second dimension,

to ensure the implementation of global strategies in their

particular regions. Also, this is meant to improve coher-

ence between globally developed strategies and regional

requirements. Category and regional managers have a

direct reporting line to the Chief Purchasing Officer.

Local purchasing sites have a dotted reporting line to

corporate purchasing, showing their formal participation

in the global purchasing community. As a result, thecorporate purchasing department has a direct reach on

the activities of the local supply managers and their ap-

praisal system.

Most purchasing scholars agree that organizational

buying activities vary among specific products purchased

(Cardozo 1980; Xideas and Moschuris 1997; Monczka,

Trent and Petersen 2006). Thus, in our pursuit to maxi-

mize heterogeneity of results, four product types were

defined within each MNC: (1) raw materials; (2) capital

expenditures (CAPEX); (3) services; and (4) mainte-

nance, repair & operations (MRO). Then, for each of the

three firms one globally sourced category for each of

these types was analyzed. This design yielded 12 cases

giving us a chance to study the research problem across a

high diversity of case contexts (Miles and Huberman

1984; Yin 2003). Table IV provides a detailed description

of each individual case.

Data CollectionAs the aim of the paper is to develop middle-range

theory, the theoretical framework (IPF) dictates the form

of the required data (Layder 1993). The primary data

were collected between July 2006 and June 2007 using

semistructured interviews. A total of 15 interviews (five in

each company, a total of approximately 25 hours) wereconducted in two phases.

First, 12-hour interviews were conducted at head-

quarters with each of the senior supply managers being

responsible for a particular product type (e.g., raw

materials or services). Owing to their perspective on the

purchasing organization as a whole, these managers at

headquarters were the primary source of information.

Topics covered include, for example, the role of purchas-

ing, global sourcing strategy, motivation for global

sourcing, purchasing organization, category characteristics

and integration of purchasing units within the company.

Second, one and a half hour group meetings were

organized; supply managers interviewed in the firstround were gathered together in each firm to discuss

differences in global sourcing across product types. The

goal was to improve the understanding of drivers that

determine the particular form of integration but also to

ensure reliability of the data from prior interviews

by repeatedly discussing some of the first round issues

(Eisenhardt and Graebner 2007). After each interview,

detailed interview transcripts were prepared and circu-

lated among all the participants for potential clarification

(Eisenhardt 1989; Yin 2003). All interviews were con-

ducted by two researchers, with one responsible for the

interview and the other one for taking notes.

In addition, archival documents, such as various in-

ternal reports, process documentations and presenta-

tions, were analyzed and used mainly for preparation of

interviews. For example, process charts enhanced the

understanding of how different purchasing units interact

on a global scale. Archival documents, however, were

used only as secondary source of information for cross-

checking the interview findings.

DATA ANALYSISData analysis was carried out in two major phases. First,

within-case analysis focused on each case separately and,

TABLE III

Case Firm Characteristics

Firm FirmSizea

Size ofPurchasing

Departmenta

PurchasingStructure

Extent ofMultinationalityb

Global SourcingExperience

(Years)

GlobalSourcing

Ratio (%)c

Gas 25,000 300 Matrix: region/category

70% foreignspend

7 80

Pharma 41,000 370 Category 75% foreignspend

6 4050

Auto 300,000 720 Matrix: region/category

20% foreignspend

6 70

aSize measured as the number of employees.bPurchased volume of subsidiaries compared with headquarters.cRatio of globally sourced volume to total volume.




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second, cross-case analysis looked for common patterns

between the use of integration mechanisms and category

characteristics (Eisenhardt 1989; Yin 2003). In a first

step, individual profiles of the cases have been developed

to become more familiar with each single entity. As wehad prespecified many constructs a priori based on the

literature review, data from different sources could be

clearly converged to the respective constructs in each case.

In a second step, we followed techniques for cross-case

analysis and tabular displays to note similarities and

differences across the cases studied (Miles and Huber-

man 1984; Eisenhardt and Graebner 2007). Finally, re-

lationships between constructs were analyzed and

findings were derived based on the relevant literature

explanations, resulting in the three aggregate research

propositions presented in the next section.

The 12 cases were divided into three groups based on

the primary underlying motive for implementing global

sourcing identified in prior research: Economies of scale,

economies of information and economies of process

(Arnold 1997; Faes et al. 2000; Trautmann, Bals and

Hartmann, 2009). An overview of the findings is pre-

sented in Tables V and VI below. Our findings indicate

that the specific economies of a product affect how in-

tegration is managed.

To elucidate this finding, the following sections focus

on explaining (1) how uncertainty is induced along the

three groups and (2) how integration is managed.

By this, we analyze the components uncertainty and

integration mechanisms of the IPF (as shown in

Figure 1, from left to right). First the uncertainty and its

contingency factors are treated, then the corresponding

integration mechanisms are treated. For each group, we

conclude with propositions concerning why and howintegration approaches differ across cases based on the

arguments of information processing theory.

Group 1: Economies of Scale

Uncertainty Faced by the Organization. The findingsindicate that for five cases (liquid crystals, gas, steel,market research and IT-hardware) the primary motivefor global sourcing is economies of scale, namely thebundling of volumes across sites. The use of severalintegration mechanisms, particularly more elaboratelateral ones like global teams, indicates that uncertainty

and subsequent information processing requirements arehigh. The category characteristics indicate low uncertaintyas nearly all cases are characterized as straight rebuy(Robinson et al. 1967) with stable demand patterns(Walker and Weber 1984) and high degree ofstandardization (Hill 1972; Cardozo 1980; McQuiston1989). Thus, the purchasing task is largely planable withlittle need to gather additional information during taskexecution. This can be exemplified by the case of IThardware, where once specifications have been set for alaptop, they will not alter during its lifecycle. Thedemand pattern is predictable, as these products arerenewed after 34 years for all employees within a firm.

TABLE IV

Case Firm Characteristics

Firm Product Type Category Description

Gas Raw materials Gas Gases required for production and also for trading purposes

Gas CAPEX IT hardware Mainly PCs and laptopsGas Services Management

consultingConsulting services for strategic management projects

Gas MRO Office supplies All materials required for daily use in the offices (pens, paper,coffee, etc.)

Pharma Raw materials Liquid crystals Substances with characteristics of liquids and crystals andessential component of product with highest growth rates infirm

Pharma CAPEX Innovative analyticalinstruments

Special instruments that are necessary for daily use inlaboratories

Pharma Services Market researchservices

Market data (market share of competitors, market volume,growth rates, etc.)

Pharma MRO Wear parts Components that need to be replaced regularly duringproductionAuto Raw materials Steel Critical component required for many parts of carsAuto CAPEX Robots Industrial robots required in many production steps such as

weldingAuto Services Agency services Creative services for marketing and branding purposesAuto MRO IT consumables All supplementary material for IT (mice, batteries, discs, etc.)


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TABLEV

Overview

onIntegrationMechanisms

Motive

Case

Centralization

Formalization

InformationSystems

LateralMechanisms

Economiesof

scale

Liquidcrystals,

gas,steel,market

research,

IT-

hardware

Strategicpurchasing

centralizedatcategory

manager(specification

setting,marketanalysis,

sourcingstrategy,

contractplacement)

Operationalpurchasing

ateachsite(ordering,

expediting)

Standardized

purchasingprocesswith

cleardefinitionofroles

andresponsibilities

ITsystemtoleverage

inform

ationonlocal

needs

,prices,

contractstructures

andsuppliersacross

allsites

Categorymana

gerandlocal

managerswork

inteamsto

developglobal

strategiesfor

acategory.

Localknowledg

eand

requirementsareconsidered

inglobalstrategy

developmentandacceptance

acrosssitesise

nsured

Economiesof

information/

learning

Innovativeanalytical

instruments,robots,

consulting,agency

services

Categorymanagermust

approveRFQlistand

sourcingdecision

Purchasingprocesses

differacrosssites,but

comparableoutputs

foreachmajoractivity

defined

Decisiongatesfor

importantactivities

(supplierselection,

categorystrategy)

defineda

prioriby

categorymanager

ITsystemtoleverage

inform

ationonbest

price,

suppliersand

contractsacrosssites

Knowledgedatabase

withd

etailed

inform

ation,

templates,etc.about

project,

bestpractices

Categorymana

gertotransfer

categoryandm

arket

knowledgebybeinginvolved

inthepurchasin

gtransaction

andworkingtogetherwiththe

respectivelocalsites

Economiesof

process

Wearparts,IT

consumables,office

supplies

Fullpurchasingauthority

isdecentralizedtosites

Manuals,guidelines

andinstructionswith

best-practice

purchasingprocess

andrelatedtools

Globa

ldatabase

withm

anualsand

instructions




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TABLEVI

CategoryCharacteristicsforEachCase

Motive

Case

Purchase

Novelty

Purchase

Importance

Category

Complexity

Demand

Volatility

SupplyEnvironment

Typeof

In

terdependence

Economies

ofscale

Liquid

crystals,

gas,steel

Straight

rebuy

Highvolume,

highcriticality

Standardized

item

Regular

andrecurring

demand

C

ompetitivesupplierbase,

stablemarket,high

transparency,

lowdeliveryrisk

Reciprocal

IT-Hardware

Straight

rebuy

Medium

volume,

high

criticality

Standardized

item

Regular

andrecurring

demand

C


d

ynamicmarket,high

transparency,

lowdeliveryrisk

Reciprocal

Market

research

services

Straight

rebuy

Medium

volume,

high

criticality

Specifications

setbysupplier

Regular

andrecurring

demand

C


stablemarket,high

transparency,

lowdeliveryrisk

Reciprocal

Economiesof

information/

learning

Innovative

analytical

instruments

Newbuy

Highvolume,

lowcriticality

Highly

customized

Irregularand

infrequent

demand

Fewglobalsuppliers,stable

m

arket,lowtransparency,

high

d

eliveryrisk

Reciprocal

Consulting,

agency

services

Newbuy

Highvolume,

highcriticality

Highly

customized

Irregular

demand

Fewglobalsuppliers,

dynamic

m

arket,lowtransparency,

high

d

eliveryrisk

Reciprocal

Robots

Modified

rebuy

Highvolume,

highcriticality

Specifications

setbysupplier

Irregularand

infrequent

demand

Fewglobalsuppliers,stable

m

arket,limitedtransparency,

m

ediumdeliveryrisk

Reciprocal

Economies

ofprocess

Wearparts,

Working

clothes,office

suppliers

Straight

rebuy

Lowvolume,

lowcriticality

Standardized

item

Irregular

demand,

high

quantityof

orders

C


stablemarket,high

transparency,

lowdeliveryrisk

Pooled


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Finally, specifications are highly standardized for theseitems with low pressures for regional adaptation, leadingthe company Gas to label IT-hardware as commoditypurchasing.

Also, the supplier environment poses low uncertaintysince most cases have high global supply availability

with a competitive supplier base, low delivery risk andtransparent markets (Cardozo 1980; Noordewier, Johnand Nevin 1990). Again using the case of IT-hardware,there exist global suppliers (e.g., HP, Dell, etc.), compe-tition is high, the market is transparent and products canbe delivered cost effectively across more than one site. Asmost products are purchased on a regular basis and arehighly standardized, the purchasing department is familiarwith the relevant suppliers (enabling also a dual sourcestrategy) and therefore the risk that products are notdelivered on time, on cost and/or in the desired quality,is rather low. Owing to the presented characteristics of theitems in this group, the pooling of demand across sites on

a regional basis is feasible, leading to lower prices for allsites involved in the group contract.

Finally, the results indicate that high uncertaintyarises mainly from interdependence; the analyzed casesare characterized by reciprocal interdependence, whichaccording to Thompson (1967) poses higher uncertaintythan pooled or sequential interdependence. Reciprocalinterdependence among organizational units is a resultof the concentration of strategic purchasing activities atone location to take advantage of scale effects, whileretaining sourcing flexibility and responsiveness to localinterests. To exploit economies of scale, activities such asthe initiation of common bundling projects increase

dependency of the purchasing units. Therefore the infor-mation processing requirement and thus the requiredvariety of integration mechanisms to successfullyaccomplish the purchasing task increase.

Integration Mechanisms. To achieve economies ofscale, a variety of different integration mechanisms havebeen implemented. First, decision-making authority forthe complete strategic purchasing process is centralizedto a category manager, being responsible for the cross-border integration of purchasing activities for a particularcategory. Hence, category managers drive sourcing con-solidation of group-wide requirements and explorationof global supply markets, while local sites remain

responsible for operational activities and maintainproximity to internal clients. A standardized purchasingprocesswith clear definition of roles and responsibilitiesfor each purchasing step (e.g., need definition, marketanalysis, strategy development) reduces misunder-standings between the category manager and the localsupply managers at each site. In addition, a global infor-mation system allows for efficient exchange and analysis ofglobal spend data, providing category managers withinformation about local contracts, suppliers, specifi-cations and maverick spend. Finally, global strategiesare developed through global category management teams,

embracing senior supply managers from key sites(regional managers in the case of Auto and Gas) andthe respective category manager. By working togetherwith the affected local supply managers, the acceptanceand compliance of global strategies is ensured. Inaddition, it facilitates that knowledge of local supply

managers is feeding into global purchasing strategies.For example, in the case of IT-hardware, the categorymanager and his team of Gas established a Europeancontract with one supplier for the delivery of laptops tobundle volumes across sites. To achieve harmonizationof specifications, local supply managers first had to beconvinced of the benefits of a joint approach. The specificrequirements of local users (e.g., service conditions,repair, replacement) were communicated within thestrategy development process, thereby ensuring thatinternal customers satisfaction would not suffer due tothe new approach. As a result, the application of thepresented integration mechanisms enables the firms to

exploit economies of scale for these categories.Theoretical Interpretation of Uncertainty Situation and

Integration Mechanisms. Based on information processingtheory, the following propositions are formulated:

Proposition 1: For global sourcing categories with higheconomies of scale potential, the main contingency factoraffecting uncertainty is reciprocal interdependence amongpurchasing units.

Proposition 2a:For global sourcing categories with higheconomies of scale potential, companies use verticalintegration mechanisms for uncertainty reduction in

interdependent units as reflected in formal purchasingprocesses and global systems.

Proposition 2b:For global sourcing categories with higheconomies of scale potential, companies use lateralintegration mechanisms for uncertainty reduction asreflected in the use of cross-locational teams, categorymanagers and integrators.

Reciprocal interdependence induces high uncertainty inthe organization and in the case of high uncertainty,decentralization of decisions is required. Under uncer-tainty, the information processing requirements are so

significant that centralization would lead to overloadingthe top management (Galbraith 1973; Tushman andNadler 1978). In such cases, a specialized liaison rolecan be assigned to manage information processingbetween the reciprocally interdependent units (Galbraith1973, 1977) and in cases of highly differentiated units(such as sites in different locations) the liaison role needsto have formal power. This gives an explanation forthe assignment of the category manager, who has theliaison role. The findings concerning the formalizationof the purchasing process can be explained as follows.A formalized purchasing process across locations reduces




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the role ambiguity and increases the predictability ofoutcomes of reciprocally interdependent units (Galbraith1973; Roth, Schweiger and Morrison 1991). As such, muchof the uncertainty related to unpredictable tasks is reduced(e.g., when to send spend requirements from each site tothe category manager and according to which template).

The need to constantly exchange routine informationamong interdependent purchasing units, such as spendrequirements, specifications or prices, explains the imple-mentation of global information systems (Jarvenpaa andIves 1993), as a vertical mechanism. And finally, the use oflateral mechanisms, such as cross-locational teams orintegrators with formal authority, can be explained bythe fact that not only routine information about localvolumes and suppliers is required for planning bundlinginitiatives, but also a common understanding for the jointproject has to be established. For example, local know-how needs to be integrated into a global sourcing strategyand opinions about the most feasible strategy for all units

need to be exchanged in order to reduce equivocality (Daftand Lengel 1986). This requires lateral integration mech-anisms which facilitate the processing of large amounts ofnonroutine and rich information, thereby explaining theuse of cross-locational teams and category managers.

Group 2: Economies of Information and Learning

Uncertainty Faced by the Organization. The findingsindicate that for four cases (analytical instruments, robots,consulting and agency services) the primary motive forglobal sourcing is economies of information and learning.For example, in the case of analytical instruments the

different research facilities of Pharma purchased theseitems rather infrequently, so that category specific knowl-edge could not be developed at each site.

Implementation of complex integration mechanismsindicates a high level of uncertainty in completing thepurchasing task. In contrast to the first group with thefocus on economies of scale, here uncertainty induced bycategory characteristics is significant; cases are characterizedby either a new buy or modified rebuy (Robinson et al.1967; Cardozo 1980), high category importance (Bunn1993; Lewin and Donthy 2005), high level of technicalcomplexity (Hill 1972) and volatile demand pattern(Walker and Weber 1984; Woodside et al. 1999). For

example, consulting and agency services are tailored tocustomer needs and therefore represent mostly new buy,are of high relevance for the business, and thespecification of service needs is challenging and requiresexpertise. In addition, demand from an individual siteperspective is volatile, as it always represents projectbusiness and therefore local sites can hardly developknowledge concerning the purchase of these services.

Uncertainty induced by the supply environment is alsosignificant; due to the limited number of capablesuppliers and the heterogeneity in offers being high,the need to obtain more detailed supply marketinformation is high in order to identify feasible

suppliers and to enable an objective comparison of theiroffers. Because of purchase novelty, supply managers haveto deal with unfamiliar suppliers, increasing theuncertainty in the purchasing process, as suppliers mightnot perform as expected in terms of quality and delivery(Cardozo 1980). This can be exemplified by analyzing the

case of agency and consulting services, where it becomesvery difficult to evaluate and choose the best supplier forthe required service.

Owing to the presented characteristics of the items inthis group, the exchange of category and market know-ledge across sites is the dominant motive for globalintegration of purchasing activities. The systematic andworldwide exploitation of strategic knowledge andinformation between units carrying out similaractivities is emphasized as a unique advantage of globalMNCs (Bartlett and Ghoshal 1989; Hedlund andRolander 1990). This creates reciprocal interdependencein global sourcing organizations; each units ability to

achieve its own goals is to some extent dependent on itswillingness to mutually support other units in achievingtheir goals (Bartlett and Ghoshal 1989). The pool ofknowledge dispersed worldwide thereby increases theinterdependence (Bhagat, Harveston and Triandis2002) and also increases the uncertainty faced bypurchasing units.

Integration Mechanisms. Considering the high tech-nical complexity involved when purchasing these items,the lack of know-how precluded local supply managersfrom early involvement into the purchasing process. Theintegration challenge was described by the senior supplymanager of Pharma as follows:

We have developed purchasing specialists for these

categories here at headquarters. Our key idea was to

use their expertise for the benefit of all sites, making

their category and market knowledge accessible to

the whole group.

To attain economies of information and learning,decision making is centralized to a global categorymanager. The extent of centralization varies across caseswith the category manager determining for each indi-vidual transaction, approval and decision gates with

comparable outputs for major activities along the pur-chasing process (e.g., market analysis, strategic actionplan, supplier short list), thereby ensuring involvementin key decisions at local sites. On the one extreme, thecategory manager at least confirms request for quotationlists and makes final sourcing decisions, but on the otherextreme can also assume responsibility for the wholepurchasing process. For example in the case of agencyservices, the responsible category manger at the head-quarters of Pharma accompanies the whole purchasingtransaction when a major site launches a new marketingcampaign for a new product. This is because marketingmanagers rather often dislike the fact that purchasing is


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involved in the creative part of the purchasing transactionas they consider the selection of an agency as a funda-mental part of their own work. Thus, the idea is to estab-lish a category manager situated at headquarters with therespective knowledge in order to convince managers thatpurchasing can make a contribution by providing

expertise, thereby facilitating early process involvement.Information systems are implemented to maintain trans-parency over contracts, suppliers and prices includingbest-price comparisons across sites. Category managersensure that dispersed knowledge that is shared acrosssites is aggregated, acting as aliaison between the differentpurchasing locations. For example, in the case of analyt-ical instruments the high level of technical complexity,high variety in specifications and low supply markettransparency forces the category manager to be in-volved in the whole purchasing process for every trans-action. As there are very few suppliers that can providethis technically complex item, the category manager

works closely with local buyers from other sites to gainaccess to their market knowledge. In contrast, the marketfor robots is more transparent and specifications aregiven by suppliers, so that the value added provided bya category manager is considered to be lower, resulting ininvolvement only during the most important stages ofthe purchasing process.

Theoretical Interpretation of Uncertainty Situation and

Integration Mechanisms. Based on information process-ing theory, the following propositions are formulated:

Proposition 3: For global sourcing categories with higheconomies of information and learning potential,the main contingency factors affecting uncertaintyare category characteristics, supply environment andreciprocal interdependence among purchasing units.

Proposition 4: For global sourcing categories with higheconomies of information and learning potential,companies use mainly lateral integration mechanisms,reflected in the paramount role of the category manager.

Our empirical findings suggest that decision-makingauthority remains with the units faced by uncertainty andis not transferred upward in the hierarchy, but rather

aggregated at the level of one category manager. Thesheer volume and the complexity of information flowslimit the ability to integrate through centralization(Galbraith 1973; Bartlett and Ghoshal 1989).Following the line of argument presented for group 1,comprising cases characterized by economies of scale,decision-making authority is allocated to one local unit,being responsible for managing knowledge and infor-mation transfer across sites. Owing to the high volumeand complexity, information processing needs are sosignificant that centralization to headquarters wouldimmediately overload the top management. This givesan explanation for the assignment of the category

manager; he has the liaison role as in cases charac-terized by economies of scale.

Second, the high diversity related to the purchase ofeach of these unique and novel categories makesintegration through a completely standardized purchas-ing process less feasible (Woodside et al. 1999). Formal-

ization does not facilitate information processing asrequired in this situation. Routine information, such asprices, information on suppliers, or project descriptions,on the other hand, can most effectively be transferredthrough global information systems. However, a lot ofthe required information for these categories is veryknowledge intensive (e.g., setting up complex contractstructures, defining service level agreements or con-ducting detailed supplier evaluations). Therefore, themost effective way to transfer the nonroutine andhighly knowledge-related information is through lateralmechanisms that enable local supply managers to learnand make use of the information (Nonaka 1990).

Building on the arguments of Daft and Lengel (1986)and Galbraith (1973), the need to process varyinginformation explains the use of a category manager; hehas the capability to process more and richer informationamong organizational units, hence, acting as an integrator.

Group 3: Economies of Process

Uncertainty Faced by the Organization. For the finalthree cases (wear parts, IT consumables and officesupplies), the primary motive for global sourcingis economies of process. Although bundling of thesecategories at one regional supplier is possible, the

benefits related to it are limited as the value of theseitems is rather low. As these categories are highlystandardized and the supply availability is high, categoryand market knowledge exchange is not as critical as for theprior groups 1 and 2 of categories. However, demandplanning for these items is very difficult, leading to a highorder frequency and as a consequence to the problem thatlocal supply managers often spend 80 percent of theirtime on purchases that represent


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sometimes be volatile; however, uncertainty duringpurchasing remains low. Also, uncertainty induced bythe supply environment is low. There is a stable andtransparent supply market with a large, competitivesupplier base and high supply availability (Xideas andMoschuris 1997).

In terms ofinterdependence, uncertainty is also low; thepurchasing units are characterized by pooled rather thanreciprocal interdependence as in other cases (Thompson1967). The interdependence characterizing these relation-ships is pooled because once new purchasing processes ormethods have been implemented and established acrosslocations, each purchasing site is capable of executing thepurchasing task independently.

Integration Mechanisms. Within these cases the deci-sion-making authority is decentralized and remains ateach site, but standardized purchasing processes aredefined. One senior supply manager for MRO pointedout the importance of formalization:

It is simply impossible and not value adding that we

are involved in every purchasing transaction from

our local sites. We rather need to ensure that they

adhere to our prescribed purchasing standards.

Formalized processes are critical since they

accelerate learning as best practices can be

incorporated into process descriptions. Since

electronic procurement solutions often play a major

role in re-engineering purchasing processes, we

often first need to train local site supply managers

and acquaint them with the new methods. Then, it

is all about ensuring that everybody adheres to the

prescribed standards to achieve a significant

bottom-line effect for the whole company.

Finally, global databases serve as a platform for makingdocuments, templates, manuals and best-practice de-scriptions available for all sites. For example, in the caseof wear parts, the establishment of catalog agreementswith the respective suppliers is considered an efficientsolution to cut down process costs. Global integrationinvolves the recommendation of corporate headquartersto install these catalog agreements across sites, the provi-sion of the software and training, as well as manuals that

include the most important aspects concerning theinstallation and implementation. Once the catalogs areinstalled, each purchasing site conducts the purchasingtask independently.

Theoretical Interpretation of Uncertainty Situation andIntegration Mechanisms. Based on information process-ing theory, the following propositions are formulated:

Proposition 5: For global sourcing categories with higheconomies of process potential, the main contingencyfactors affecting uncertainty are category characteristics,supply environment and pooled interdependence amongpurchasing units.

Proposition 6:For global sourcing categories with higheconomies of process potential, companies use mainlyvertical integration mechanisms, reflected in purchasingprocess formalization.

The high reliance on formalization of activities in this

case can be explained as follows: due to pooledinterdependence, the uncertainty is low and the taskcan be preplanned. Hence, a standardized cost-effectivepurchasing process can be developed to ensureintegration (Galbraith 1977; Tushman and Nadler1978); that is, all units follow the same best-practicepurchasing process. Finally, as there is a need fordocuments, templates and best-practice processdescriptions across sites, impersonal mechanisms, suchas global databases are able to convey this routineinformation cost-effectively across sites (Egelhoff 1991).

SUMMARY AND CONCLUSIONIn this paper, we have addressed the organizational de-sign aspects of global sourcing, in particular integration in

global sourcing organizations. The contribution of the

paper is threefold and tackles the identified research gaps

pointed out in the Introduction. First, we have comple-

mented the mainly strategy-focused research on global

sourcing by assessing global sourcing from an organization

design perspective. We have sought to enrich the dominant

centralizationdecentralization debate by providing in-

sights on how companies apply a number of different

integration mechanisms to manage their geographically

dispersed purchasing units. Second, by emphasizing the

need for more research in purchasing organization designwith a category-level of observation, we have sought to

improve the understanding of hybrid purchasing organi-

zations, finding that effective hybrid organizational struc-

tures differ across categories. And finally, we have sought to

complement the highly exploratory and data-driven em-

pirical work on global sourcing organizations by providing

theoretical explanations for global sourcing units through

elaborating the information processing perspective in the

global sourcing context.

Based on the model developed by Tushman and Nadler

(1978) and the case studies above, we can summarize by

stating that three key contingencies affect integration in

the global sourcing organization: (1) category character-

istics, (2) supply environment and (3) interdependence

of the purchasing units. These three contingencies echo

those identified by Tushman and Nadler (1978) but are

adapted to the global sourcing context.

Category characteristics relate to what Tushman and

Nadler (1978) call task characteristics: in the global

sourcing context the task is the purchase of the category.

Category characteristics are internal to the organization

and include purchase novelty, purchase importance,

category complexity and demand volatility. Along the

three groups of cases studied, task characteristics explain


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uncertainty faced by the organization while in cases

characterized by economies of scale and economies of

process, uncertainty related to the task is rather low. The

high complexity involved in purchasing capital expendi-

tures and services in the group characterized by economies

of information, explains the need to process more infor-

mation during task execution. Therefore, we conclude:

Conclusion 1: The higher the uncertainty induced by

category characteristics, the higher the need for integra-

tion mechanisms with high information processing

capacity.

In further research, these integration mechanisms could

be studied in more detail, analyzing how the varying

category characteristics affect the detailed design and im-

plementation of vertical and lateral integration mecha-

nisms. As was discussed in the previous section, those

categories with the highest uncertainty posed by categorycharacteristics (i.e., such as with high potential for

economies of information and learning), were managed

by predominantly lateral integration mechanisms. An

overview study of the kinds of lateral mechanisms as well

as their distribution among different industries could be

particularly valuable for practice.

The second contingency of Tushman and Nadlers

(1978) work is task environment, which in the global

sourcing context is the supply subenvironment (Duncan

1972) including the aspects of availability of global

suppliers, transparency of supply market and familiarity

with the suppliers (Cardozo 1980; Noordewier et al.

1990; Xideas and Moschuris 1997). The environmentaffects the organization because according to the open

system perspective to organizations (Scott 1998), orga-

nizations continuously adapt to their environments

(Joyce, McGee and Slocum 1997; Baum and Rowley

2002). This adaptation creates uncertainty because the

environment is mainly outside the control of the orga-

nization (Thompson 1967). Our observations point out

that for cases characterized by economies of scale and

process, supply market uncertainty is rather low, whereas

for cases of economies of information the constant

search for alternative suppliers, the lack of supply market

transparency and the low familiarity with suppliers

makes preplanning difficult and requires extensive in-

formation-processing among purchasing units.

Conclusion 2. The higher the uncertainty induced by

supply environment characteristics, the higher the need

for integration mechanisms with high information pro-

cessing capacity.

Further research could examine how companies design

and implement dedicated systems and structures within

their global sourcing organizations to scan and monitor

their supply environments, addressing the varying levels

of uncertainty discussed in this paper. Herein, interesting

aspects lie also in the questions of whether these systems

depend on the size of the company, as well as the variety

of supply markets the company has to consider.

Finally, interdependence among organizational units is

highly significant in creating integration needs. For

Tushman and Nadler (1978), interdependence refers tointerdependence of the functions, but in the global

sourcing context it refers to the interdependence of the

purchasing units distributed across locations. While cases

characterized by economies of scale and information

have reciprocal interdependence among purchasing

units, the cases characterized by economies of process

are characterized by pooled interdependence. As elabo-

rated, reciprocal interdependence is a more complex type

of interdependence, creating higher task uncertainty

(Thompson 1967).

Conclusion 3.The higher the reciprocal interdependenceof purchasing units, the higher the need for inte-

gration mechanisms with higher information processing

capacity.

In further research, it could be studied in more detail how

reciprocal interdependence affects global sourcing decision

making. Questions arise as to whether there is some kind

of optimal degree of reciprocal interdependence, and how

such a state could be determined. Also, how the transition

process from a central or decentral organization to a hybrid

one can be managed, taking into account reciprocal inter-

dependence, is an interesting question.

Based on the discussion above, it can be summarizedthat three contingencies (1) category characteristics,

(2) supply environment characteristics and (3) reciprocal

interdependence of purchasing units influence the

level of uncertainty faced by global sourcing organiza-

tions, and in turn affect the level of information pro-

cessing requirements. Effective management of the global

sourcing organization requires the implementation of

different types of integration mechanisms to respond to

these information-processing needs. When information-

processing needs are high, complex lateral mechanisms

are required. In the case of low information processing

requirements, the organization can do well with simple

vertical mechanisms.

A particular contribution of this paper to information

processing theory lies in elaborating on its understanding

of interdependence. By transferring this contingency to

the context of global sourcing, the understanding has

been extended beyond the interdependence of functions,

to the current reality of geographically dispersed func-

tional units in a globalized business environment. We

expect that this interpretation could be taken on in a

variety of future research approaches, studying diverse

realms of application (e.g., globally dispersed production

sites or sales).




15/18

More theoretical and empirical research on integration

in the global sourcing context is needed. The theoretical

propositions developed in this paper require empirical

testing. Future research on these propositions could ad-

dress the viability of various configurations of integration

mechanisms, complementing the mostly descriptive re-

search in the area. Also, the headquarters-perspectivetaken in this paper when collecting empirical data could

be complemented with data collection at the subsidiary

level, in order to point out potential differences in cross-

subsidiary integration patterns. Finally, it would be in-

teresting to analyze organizational design phenomena in

the global sourcing context from different theoretical

perspectives. In particular, the resource dependence per-

spective offered by Salancik and Pfeffer (1978) is a com-

peting viewpoint in the organization design field and

could provide alternative explanations for our findings.

The presented findings have important practical impli-

cations for companies and supply managers dealing withglobal sourcing. First, the results suggest that as compa-

nies design their global sourcing organization they need

to follow a category-based approach: Different categories

require different ways of integration even within the same

firm. Second, depending on the peculiarities of a category

and the particular synergy potential to be exploited, a

template for structuring the global sourcing organization

has been brought forward. Third, the results emphasize

that global sourcing is not only about pooling volumes by

centralization to attain high cost savings. An effective

implementation of global sourcing also generates high

value by exploiting economies of information and

learning, and economies of process. Fourth, our findingsillustrate that for effective global sourcing, companies

need to gain access and commitment of local sites. By

providing these insights as well as a concrete template we

hope to enable managers to take these considerations

into account deliberately when designing and managing

global sourcing organizations.

In an increasingly globalized environment, achieving

global integration of dispersed functional units becomes a

rewarding, albeit challenging task. As was highlighted

throughout this paper, understanding the influences be-

hind varying requirements for information processing

capacity is essential. By matching these requirements with

suitable vertical and lateral mechanisms, the MNC can

become more than the sum of its organizational units.

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Gerhard Trautmann (Dr., European Business School,

Germany) is a consultant at Siemens AG in Munchen,

Germany. Dr. Trautmanns research interests include

global sourcing, organizational design, offshoring and

performance measurement.

Virpi Turkulainen (D.Sc.,Tech., Helsinki University ofTechnology) is a senior researcher in the department of

industrial management at Helsinki University of Tech-

nology. Her interests include organization design and

theories as well as global operations. More specific re-

search topics have covered organizational integration in

the cross-functional, global sourcing and global opera-

tions contexts, as well as plant location decisions and

global operations strategies. Dr. Turkulainens current

projects include various topics related to organization

design, management of global operations and emerging

business models as well as High Performance Manufac-

turing research. She will be a visiting researcher at Stan-

ford University in 2009.

Evi Hartmann(Dr. Ing., Technical University Berlin) is

an assistant professor for purchasing and supply man-

agement at European Business School in Wiesbaden,

Germany. Her research on purchasing strategy and or-

ganizational design, offshoring, global sourcing and

service procurement has been published in Journal of

Purchasing and Supply Management,Journal of International

Management,International Journal of Production Economics,

Journal of Customer Behavior, Journal of Business Economicsand other managerial and academic outlets.

Lydia Bals(Dr., European Business School, Germany)

is senior consultant at Bayer Business Consulting, Ger-

many. Simultaneously, Dr. Bals is a visiting scholar at

Copenhagen Business School, Center for Strategic Man-

agement and Globalization (SMG) in Denmark. She has

made research visits to the Wharton School at the Uni-

versity of Pennsylvania and Columbia Business School at

Columbia University. Her research interests include glo-

bal sourcing, offshoring, sourcing of services and early

internationalization. She has published in Journal of

Purchasing and Supply Management, Swiss Journal of Busi-ness Research and Practice, Journal of Business Economics,

Journal of International Management and International

Journal of Production Economics.


integration in the global sourcing organization_an information processing perspective

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