The big danger of outsourcing value chain activities is
making it harder and more costly for the company to control the quality of its product offering, thus impairing the value it delivers to its customers.
curtailing the company’s ability to achieve strong differentiation of its products or services.
farming out too many or the wrong types of activities, thereby narrowing the scope of its capabilities in ways that unwittingly reduce or degrade its long-term competitiveness and prevent it from being a master of its own destiny.
impairing a company’s distribution capability and weakening its ability to access customers directly.
increasing the firm’s risk exposure to supply chain management failures and the price increases of suppliers.
The correct answer and explanation is:
The correct answer is:
“Farming out too many or the wrong types of activities, thereby narrowing the scope of its capabilities in ways that unwittingly reduce or degrade its long-term competitiveness and prevent it from being a master of its own destiny.”
Explanation:
Outsourcing value chain activities can offer cost savings, efficiency, and flexibility, but it comes with significant risks. The biggest danger is that a company may outsource too many or the wrong types of activities, leading to a loss of crucial capabilities. When a company overly depends on external vendors for key operations, it diminishes its ability to innovate, differentiate, and control its strategic direction.
For example, if a company outsources its core competencies—such as product development, customer service, or manufacturing—it may lose critical knowledge, technical expertise, and the ability to make quick adaptations in response to market changes. This reliance on external suppliers can weaken the firm’s competitive advantage, making it difficult to sustain differentiation and long-term success.
Furthermore, heavy outsourcing may create dependence on third-party suppliers who may not always align with the company’s strategic goals. If these suppliers fail to meet quality standards, raise prices, or even discontinue service, the company could struggle to maintain consistency and control over its products and services. This could lead to weakened brand reputation, increased costs in the long run, and difficulty in reclaiming lost capabilities.
Ultimately, while outsourcing can help streamline operations, companies must carefully evaluate which activities to keep in-house to retain control over critical capabilities and ensure long-term competitiveness. The key is to strike a balance between efficiency and maintaining essential strategic capabilities.
Here is the generated image illustrating the risks of outsourcing value chain activities. Let me know if you need any modifications or additional details!
