General Knowledge About Outsourcing And Vertical Integration Information Technology Essay

A typical feature of the Austrian building industry is the part of the companies. Investigating the building market closer one will detect that there are four large participants, with an one-year gross of more than one billion euro each, followed by about 150 medium sized houses and at the terminal, in footings of size, there are about 30.000 non industrial little companies[ 1 ]. As the StatistikAustria shows the building industry turned over 40[ 2 ]billion Euro in 2008, latest published figures.

This thesis focuses on the 150 industrial medium sized building companies, industrial refers to the fact that these houses have a high cost portion of mechanization – non human work power – in their operating finance construction.

The four large participants, which are STRABAG 10,746 billion, Porr 2,743 billion, Alpine 2,6 billion and Swietelsky with 1,333 billion, turn-over 17,422 billion Euros[ 3 ]. In comparative figures the turn-over is 44 % of the whole industry. The gross of the staying 146 houses additions 7,818 billion which equals 19 % of the full industry. The 15 billion left out so far are turned over from the non industrial little companies with 37 % of the Austrian building industry.

Sing this figures the thesis will analyse these moderate-sized companies in order to supply a strategic method which enables these companies to vie with the large four mentioned above. It is important to back up the medium sized companies because they are endangered to either be bought up or non being competitory any longer due to economic systems of graduated table and range for case and hence travel bankrupt. As the yesteryear shows the large companies are non turning organically but by amalgamations and acquisition. If the tendency continues the full industry will be ruled by a smattering companies which will hold the power to put the monetary values. In order to avoid this, the thesis will supply possible chances for the medium sized houses to vie against the large companies and remain competitory or even spread out.

This thesis will make chiefly analysis in the Outsourcing and perpendicular Integration field of the strategic direction and will non see other strategic methods such as strategic usage of information systems, strategic confederations, ecology and sustainability policies or variegation schemes. The probe will ensue in a connexion between the two strategic direction methods Outsourcing and perpendicular Integration and the economical factors of profitableness, flexibleness and advantages in competition. Therefore three research inquiries have been formulated:

What is the more economical profitable method of strategic direction for moderate-sized building companies in Austria?

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How make these methods impact the day-to-day runing flexibleness of these companies?

What is the strategic direction method incorporating a competitory advantage particularly over the large companies?

The path map:

The first chapter is the debut showing the ground for this research, the background, the ends and the research inquiries.

The 2nd chapter contains literature reappraisal on outsourcing and perpendicular integrating in general.

The 3rd chapter is giving sufficient information to do an estimation of the dependability and cogency of the used methods.

The 4th chapter presents the consequences of the literature research combined with the interviews conducted.

In the 5th chapter the results are discussed and the two strategic direction methods of the two investigated companies are compared and advantages and disadvantages are analyzed.

Finally the 6th chapter provides a short decision of the full thesis.

General Knowledge about Outsourcing and perpendicular Integration


The Definition

Outsourcing is the contractual usage and profitable development of resources, assets and competences of 3rd parties ;

Outsourcing provides guaranteed public presentation criterions in footings of quality, stableness, cost-effectiveness standards and their measuring ;

Outsourcing has the end to supply services that were antecedently performed in-house ;

Outsourcing perchance requires the transportation of a portion of the staff to the external service suppliers ;

and / or a transmutation / regeneration of the administrative procedures and engineerings ;[ 4 ]

The six Principles

The six rules that needs to be fulfilled to win with the strategic direction method outsourcing[ 5 ]:

Clear understanding: Involve the board of managers and other stakeholder in the procedure of happening an understanding on the aims and on current determinations doing.

Hazard: Ensure the protection of both sides due to public presentation failures and concern alterations every bit good as for an equal reglement in the instance of a backdown of a concern spouse.

Common value: prosecute the understanding merely if there is sufficient added value on both sides. Run common emphasis trial during the contract term, utilizing standard and non-standard concern scenarios.

Value-driven dialogues: Negotiate foremost internally, so with the outsourcing spouses on common values aˆ‹aˆ‹and a common apprehension.

New method of thought: Supply appropriate administration constructions and direction controls to guarantee a smooth passage and effectual continuance of the day-to-day concern.

Use: Supply cross-functional squads with line-managers, corporate moneymans and procedure applied scientists.

Advantages and Disadvantages

Since there is no perfect strategic direction method, table 1 lists beyond the advantages and disadvantages of outsourcing. The pros and cons are grouped in four chief groups[ 6 ]:


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Human Resources.

Table 1: Motivations vs. Problems of Outsourcing[ 7 ]

Vertical Integration

The context

Since perpendicular integrating is non as well-known so far as outsourcing is, the start will be to set this strategic direction method in the right context. Therefore in figure 1 the “ Ansoff matrix ” is depicted beyond. The matrix contains four different strategic waies[ 8 ]:

Market Penetration, Consolidation

Merchandise Development

Market Development and


Figure 1: Ansoff matrix ( strategic waies )[ 9 ]

Vertical Integration is one method of variegation and the literature knows related and unrelated variegation. Unrelated variegation is defined by the development of merchandises or services beyond the current capablenesss and value web. This variegation is besides called “ pudding stone scheme ” because there are no obvious economic systems of range between the different concerns but they gain pudding stone price reductions which are higher than for single companies standing entirely.

However perpendicular Integration is a related variegation scheme as shown in figure 2 beyond. There are two chief groups perpendicular and horizontal integrating. In the undermentioned chapter definitions for those integratings are provided.[ 10 ]

Figure 2: Related Diversification[ 11 ]

The Definition

Related variegation is corporate development beyond current merchandises and markets, but within the capablenesss or value web or the organisation[ 12 ].

In microeconomics and strategic direction, perpendicular integrating is a theory depicting a manner of ownership and control. Vertically incorporate companies are united through a hierarchy and portion a common proprietor. Normally each member of the hierarchy produces a different merchandise, and the merchandises combine to fulfill a common demand[ 13 ].

Backward integrating is development into activities concerned with the inputs into the company ‘s current concern[ 14 ]. An illustration for backward integrating in the building industry would be if a building company bought or merged a provider or a subcontractor. STRABAG for case merged with CEMEX, which is a concrete provider.

Forward integrating is development into activities which are concerned with a company ‘s end product[ 15 ]. Forward integrating means including the following member in the production or supply concatenation. For case a building company would besides run a existent estate undertaking development company. Here the building company PORR has to be mentioned.

Vertical integrating is contrasted with horizontal integrating, which means the development into activities which are complementary to present activities[ 16 ].

Advantages and Disadvantages

The rating of motivations and hazards[ 17 ]in the field of perpendicular integrating is split up in three major countries as shown beyond in table 2:

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Strategic control

Intellectual belongings

Table 2: Motivations vs. Risks of Vertical Integration

Refering the bing literature and the research analysis done so far in this field, one will observe that there is literature in general about Outsourcing and perpendicular Integration. There are besides thesiss covering with this topic of the building industry of other states. This thesis should analyse the two strategic direction methods for the Austrian market and its moderate-sized building companies viing with each other, the five large participants and besides the mass of little non industrial building companies.

The Methodology

This portion is split into two subjects covering with the manner how the inquiry, mentioned above, will be answered and besides with more elaborate information and account which data demands to be collected. So this subdivision is divided in the research design and informations aggregation portion.

Research Design

First the general issue and definitions of outsourcing and perpendicular integrating will be presented. Additionally informations of the Austrian building market will be provided including figures, facts and the chief features every bit good as participants and relationships within the Austrian market.

Then these two parts will be conducted and adopted for the building industry significance that typical characteristics of this market will be integrated. This measure will be supported by two bing research analysis and two interviews of employees of moderate-sized Austrian building houses following different strategic directions. One company prefers the thin construction doctrine, therefore outsourcing whereas the other company is covering with perpendicular integrating. Both companies are runing in the same wide scope of building subjects and are at a comparable same size. The result will depict the relationship between the two strategic directions outsourcing and perpendicular integrating and their impact of profitableness, flexibleness and advantages in competition.

Data Collection

For the first portion general academic literature of the field of economic is used for specifying and showing the two strategic directions, which are outsourcing and perpendicular integrating.

For the specific portion of following this general information to the building industry two published research analysis are supplying elaborate informations.

The two interviews with employees of Austrian building companies are holding a qualitative character in order two describe grounds and determinations taking towards one of the two different schemes of outsourcing and perpendicular integrating. Furthermore the interviews will explicate the development of the companies and the issues and steps behind the determinations which were made.