Outsourcing order fulfillment when starting up
a webstore: An exploratory study
By
Wim Henk Schokkenbroek
University of Groningen
Faculty of Economics
MSc Technology and Operations Management
1
TABLE OF CONTENTS
1.
INTRODUCTION ... 2
2.
RESEARCH DESIGN ... 4
3.
ECOMMERCE ORDER FULFILLMENT FOR STARTUPS ... 8
4.
OUTSOURCING FACTORS ... 9
5.
STARTUPS ... 12
6.
THEORY BUILDING ... 13
7.
RESULTS... 20
8.
DISCUSSION ... 25
9.
REFERENCES ... 27
APPENDIX A:
... 34
ABSTRACT
This research develops a framework for Ecommerce startup entrepreneurs that consider to
outsource order fulfillment. A literature review is used to derive relevant outsourcing
factors for Ecommerce startups and to provide parameters to categorize Ecommerce
startups. Upon the facts gathered in the literature review, the model of entrepreneurial
aspirations is developed. The model contains four categories that each represent a
different kind of Ecommerce startup. For every category, the outsourcing factors are
ranked according to their importance to the order fulfillment outsourcing decision. The
rankings are done theoretically and empirically. Theoretical rankings inspired by
academic theories are the starting point for the empirical research. In the empirical
research, entrepreneurs from The Netherlands and Japan ranked the factors from their
point of view and did contribute factors to the rankings. The theoretical and empirical
rankings differed for several factors. On several occasions the entrepreneurs provided
valuable insights about the importance of specific outsourcing factors.
KEYWORDS
2
1. INTRODUCTION
Starting up a store has never been easier. Ecommerce enabled millions of entrepreneurs with the opportunity to sell their products online. An online store has many advantages over a physical store, there is no rent to pay, one does not have to open the door at fixed times and millions of customers can be reached from any destination. Ecommerce entrepreneurs tend to focus on gaining the attention of the customer above anything else. A trustworthy and appealing looking website receives most of the attention when starting up a webstore (Van der Heijden and Verhagen, 2004). After the online store is set and finished the order fulfillment process has to be organized. Order fulfillment is a demanding task for startups that is often underestimated by entrepreneurs. Warehousing, packaging, labelling and driving to the post office consume a lot of time (Ricker and Kalakota, 1999). The order fulfillment process is the only physical process that has to be taken into account when operating a webstore, all other activities can be done online (Laudon and Traver, 2007). A well-organized order fulfillment process that allows the entrepreneur to deliver the products undamaged on the right address and in the shortest possible timeframe increases customer loyalty, which leads to more sales (Roa et al. 2011). Because the order fulfillment process is a very demanding process for entrepreneurs that just started up a webstore, outsourcing could be a logical decision to focus on the digital environment only. An outsourced order fulfillment process has the advantages that an entrepreneur is able to invest more time in attracting customers and in updating the webstore. Outsourcing order fulfillment also reduces the need to hire employees, which leads to less managerial complexity and secures flexibility. Whether outsourcing would be a logical decision for entrepreneurs that started up a webstore depends on the factors that have to be considered in the decision making process.
The aim of this research is to identify and prioritize the factors that a startup entrepreneur needs to take into account when considering outsourcing Ecommerce order fulfillment. This research ranks various drivers and obstacles for different kinds of startups to aid entrepreneurs with the order fulfillment in – or outsourcing decision. The managerial and scientific contributions are the following. This research summarizes the factors that influence the order fulfillment outsourcing decision that need to be taken into account by entrepreneurs that consider to outsource Ecommerce order fulfillment. This will offer knowledge about the motivators and obstacles involved when outsourcing the order fulfillment process. Furthermore, this research tries to prioritize outsourcing factors for different kinds of startups to establish a theoretical framework that can be used for further research.
3 The academic field on outsourcing practices for startups is quite new. However, Erkinheimo et al. (2015) researched what crowdsourcing can do for a specific type of startup. Although the research of Erkinheimo et al. (2015) is dedicated towards a completely different topic than order fulfillment, this paper and the paper of Erkinhiemo et al. (2015) both address that startups should consider outsourcing to make the most efficient use of the limited time that startup entrepreneurs and their potential
employees have. Both crowdsourcing and outsourcing order fulfillment could positively influence the competitive advantage of the startup.
The timing to research the factors that influence the order fulfilment in-or outsourcing decision for Ecommerce startups is about right. More and more university graduates all over the world choose to pursue an entrepreneurial career over a corporate career. (Nabi and Holden, 2006) The ease of launching a webstore, attracts many of these young entrepreneurs to get involved in Ecommerce. Every year more and more webstores are launched and the competition among webstores has become tremendous (Boon, 2014). Order fulfillment has become overly important, due to rising customer expectations. Customers expect to receive their order at least the following day (Ji and Liu, 2014). This puts even extra stress on startup entrepreneurs and outsourcing could be a logical decision to invest all available time in the digital environment.
Currently, there is no research available on the factors that influence the order fulfillment outsourcing decision for startups. This means, that there is currently no theoretical guidance for startups that summarizes the factors that need to be considered when thinking about in-or outsourcing Ecommerce order fulfillment. There is an adequate amount of literature available on outsourcing. However, existing literature has some problems in the context of this research. First, outsourcing literature is mainly dedicated to large organizations. Startups and large organizations differ in so many ways that most theoretical frameworks are not suitable for startups (Busenitz and Barney, 1997; Shane and Venkataraman, 2000). Second, the outsourcing motivators and obstacles described in existing literature are often too general (de Boer et al., 2006). Third, the motivators and obstacles may not always be the same for every outsourcing decision. According to Salimath et al. (2008) the specific list of motivators that influence the outsourcing decision varies between the type of outsourced activity and the type of organization.
4
2. RESEARCH DESIGN
In this section the methodology of the research is described. As explained in the introduction, this research consists of a theoretical and an empirical part. First, the factors relevant to outsourcing order fulfillment for Ecommerce startups are derived from literature Second, literature about
entrepreneurship is reviewed with the aim to categorize different kind of Ecommerce startups. Third, the outsourcing factors from the first step are ranked for each category with the use of literature to create a hypothetical ranking for each type of startup. Fourth, the hypothetical rankings are further enhanced by conducting telephone interviews with Ecommerce entrepreneurs.
Figure 1 provides an impression of this study’s research design.
Exploratory Descriptive Explanatory
Quantitative
Qualitative
Abductive
Inductive
Deductive
Experiment
Survey
Case study
Research Purpose Research approach Method approach Research strategyFIGURE 1: The methodology diagram
Research Purpose
According to Saunders et al. (2009), there are three different types of academic research. These are, exploratory, descriptive or explanatory research. A research effort does not have to be dedicated to one single research purpose, research purposes can be combined.
5 The purpose of this research is to identify and prioritize the factors that startup entrepreneurs need to take into account when considering outsourcing Ecommerce order fulfillment. There exists an extensive amount of knowledge about outsourcing, order fulfillment and entrepreneurship. However, identifying the factors that influence the order fulfillment outsourcing decision for entrepreneurs that just started a webstore is entirely new to academic literature. No similar studies have been executed in the past. This research is an effort to fill the current knowledge gap. Therefore, this research is
classified as an exploratory research.
Research approach
The research approach can either be quantitative or qualitative (Karlsson, 2009). Quantitative research entails that data that is collected can be measured and analyzed with statistical methods. Quantitative research can be best described as working with numbers. A qualitative research approach uses data gathered by interviews or other verbal data gathering methods. Qualitative research can be best described as working with phrases and opinions.
The data for this research is collected by a literature study and telephone interviews. The literature is acquired by searching through various academic databases, such as Emerald insight, Taylor & Francis, and Google Scholar. The keywords that are used to gather the outsourcing factors are: “Outsourcing”, “Ecommerce outsourcing”, “startups outsourcing”, “SME outsourcing”, “outsourcing order
fulfillment”, “outsourcing framework”, and “outsourcing factors”. The keywords relevant to the literature review with the aim to identify startup business categories are: “Startups”, “new businesses”, “small firms”, “new ventures”, “Ecommerce startups”, “entrepreneurship”, and “entrepreneurial framework”. Next to academic articles, also several books are used to derive the necessary information for the literature review. This research is characterized by a qualitative research approach, because scientific theories and verbal data gathering methods are used to base conclusions upon.
Method approach
A method approach can either be deductive, inductive or abductive (Saunders et al. 2009: Karlsson, 2009). A deductive research approach entails that the researchers deploy theories to assume that the real world works according to these theories. An inductive research approach is the exact opposite, inductive researches observe reality and derive principles from these observations to create theory. The abductive research approach is a combination of deductive and inductive research.
6 the framework that is created in the theoretical part. The added value of the telephone interviews is that this method is able to gather information that is not yet theorized. The ranking of outsourcing factors for different kinds of Ecommerce startups is new to academic literature and existing literature cannot provide accurate guidance for this ranking procedure. The inductive approach of the telephone interviews makes it possible to continue with gathering information, till the point where existing literature does not provide an accurate guidance anymore. This research uses an abductive research approach because it combines deductive and inductive research.
Research strategy
There exist three main research strategies for conducting empirical research, namely surveys, case studies and experiments (Saunders et al., 2009; Karlsson et al. 2009). A survey is a research strategy aimed at testing theory, opinions, statements etc. Usually the sample size of a survey is quite large. A survey is only aimed at finding correlations, rationales behind these correlations remain untested. A case study strategy uses a much smaller group and much more defined group. Case studies provide a comprehensive view on the situation, wherein many factors can be identified in order to create a complete picture of the case. Different types of data collection methods can be used within the case studies, such as interviews, observations and investigating company data. The experimental strategy focusses on specific variables and tries to control the factors that affect these variables. With
experimentation manipulation of variables is involved to observe the effects on the dependent variable. This research enhances the theoretical findings with multiple case studies. The case study strategy is used to find the rationale behind the decisions and opinions of the entrepreneurs. Saunders et al. (2009), describes that the case study strategy fits best with the exploratory research purpose. The case study offers most insights and gathers the most information of all research strategies to gain as much knowledge as possible to fill the knowledge gap (Saunders et al., 2009).
The case studies
The case studies consist of 8 telephone interviews with entrepreneurs that operate a startup webstore in Japan or in The Netherlands. Eisenhardt (1989) states that 4 to 10 cases usually work. These telephone interviews are conducted in two countries with different cultures to gather more insights. Because entrepreneurship is influenced by cultural beliefs (Reynolds et al., 2005), gathering data in different cultures enhances the applicability of this study’s theoretical framework.
The telephone interviews are characterized by semi-structured interviews, since the purpose is to enhance the framework. The interviews are performed by telephone, because of the geographical distances and to mitigate any form of uncomfortableness for the interviewee. The strengths of telephone interviews are that the interviewee can answer the questions from his or her own
7 interviewer and the interviewee never meet in person, which restrains the interviewer from analyzing the interviewee’s face expressions and from monitoring the interviewee’s genuine interest to
participate in the interview (Bamton and Cowton, 2002).
The telephone interviews are aimed at having the entrepreneurs rank the outsourcing factors from their point of view. In these interviews the rationale behind the ranking is just as important as the ranking itself. These telephone interviews consist of a general introduction, questions to gather background information, questions to group the startup in one of the proposed categories and the actual ranking of the outsourcing factors. The function of the introduction is to set the entrepreneur at ease and to explain the purpose of the telephone interview. Background questions about whether the entrepreneur currently outsources the order fulfillment process are used to put the answers into perspective.
Questions to group the startup into one of the proposed categories are based on the parameters derived from the literature review aimed at the categorization of Ecommerce startups. Ranking of the
outsourcing factors is done by introducing each factor one by one to the entrepreneur followed by asking if the factor is of great, moderate or weak importance to the entrepreneur. Every factor is ranked two times, for the current situation and the aspired situation. The aspired situation is included to address the thoughts of the entrepreneur to find whether the importance of the outsourcing factors change when the startup evolves. Appendix A includes the interview questions – and procedure. The entrepreneurs are also asked to contribute factors to the ranking. The factors that are contributed to the rankings by the entrepreneurs are merged in the framework. For the contributed factors no selection criteria apply. Without these selection criteria the theoretical framework will be enhanced with a larger amount of factors and no bias towards the contributed factors can occur.
Startups are selected by multiple criteria. First, the businesses have to be eight years or younger to classify as a startup business according to the definition proposed by Rosenbusch et al. (2011). Second, the startups have to be genuine Ecommerce businesses. This means that, the startups are only active on the internet and do not operate a physical store. Third, the startup is from The Netherlands or from Japan. The individualistic Dutch culture and the collectivist Japanese culture provide different entrepreneurial views that can enhance the applicability of this research. Fourth, the Japanese
entrepreneurs needed to have the ability to communicate in English. In appendix A, characteristics of the startups can be found.
The results of the telephone interviews are generated by quantifying the rankings of the entrepreneurs. The great, moderate and weak indicators are respectively quantified to 3,2 and 1 points. This
quantification of the indications means that all the rankings can be merged into one large ranking. The sequence in which the factors are ranked, depends on the cumulative score of every specific
8
3. ECOMMERCE ORDER FULFILLMENT FOR STARTUPS
In the introduction it was stated that order fulfillment is a very time consuming task for startups. In this section Ecommerce order fulfillment is defined for startup businesses and it is discussed why Ecommerce order fulfillment is such a demanding activity for startups.
Ecommerce order fulfillment is the process from the point that a customer decides to buy a product online, to the point that the customer is fully satisfied with the product (Ricker & Kalakota, 1999). According to the definition provided by Ricker & Kalakota (1999), order fulfillment consists of storing, picking, packaging, labelling, distribution and the process in reverse, when the customer decides to return the product. The sub activities of the order fulfillment process demand a lot of physical labor, as explained in Table 1.
Definition
Storing Storing the products till the customer decides to place an order.
Picking Accumulating the product(s) from the warehouse/storage space.
Packaging Protecting the product(s) from physical impact from outside or inside the packet.
Labeling Print + stick a label on the packet with the address of the customer on it.
Distribution Taking the packets to the depot of the logistics provider.
TABLE 1: Activities in the order fulfillment process, based on Laudon and Traver (2007).
The distribution to the customer’s address is usually done by large logistics providers, such as UPS, DHL, FedEx, etc. The entrepreneur needs to take the packets to the depot of these logistics providers. It is highly unlikely that a startup entrepreneur that operates a webstore delivers each packet at every location in the country. Park and Lee (2015) state that only few enterprises can meet the efficiency of the established logistics providers.
Ecommerce order fulfillment is characterized by a higher degree of complexity compared to traditional order fulfillment (Bayles 2001). The differences are listed in Table 2.
Traditional order fulfillment Ecommerce order fulfillment
Shipment type Bulk Small packets
Customer Known Unknown
Inventory/order flow One-way Two-way
Average order amount Large Small
Destinations Concentrated Highly dispersed
Demand Stable Fluctuating
9 return the product, the package is sent back to the entrepreneur and the entrepreneur needs to refund the payment. When the sales increase rapidly for a period of time, the entrepreneur might not be able to invest any time in activities other than the order fulfillment process. Due to the fluctuating nature of the orders, hiring employees might involve large financial risks (Gilbert, 2006). The conclusion of this section is that the order fulfillment process consists of sub activities that are labor intensive, especially when demand is fluctuating and when customers decide to return products.
4. OUTSOURCING FACTORS
This chapter is dedicated to introduce the factors that influence the order fulfillment outsourcing decision for Ecommerce startups. Before introducing the outsourcing factors, definitions on outsourcing are provided and the outsourcing concept is explained.
Outsourcing is a business concept referring to “outside sourcing”, which means gathering resources from the outside (Troacă et al., 2012). Much debate exists in literature about the most suitable definition of outsourcing (Gilley and Rasheed, 2000; Harland et al., 2005). Some scholars define the outsourcing concept as activities that were previously performed in-house. Perry (1997) defines outsourcing as: “another firm’s employees carrying out tasks previously performed by one own’s employees”. Other scholars define outsourcing as activities that may or may not have been performed in-house in the past. Bhalla and Terjesen (2013) define outsourcing as “a strategic move which involves both sourcing absent activities that new firms may not have completed in-house in the past, or the substitution of internal activities by transferring these, in part or whole, to a third party supplier that performs the task, function or process”. The latter perspective about outsourcing is the one applied more often in academic literature about outsourcing (Gilley and Rasheed, 2000).
Outsourcing is a strategy to gain competitive advantage (Maltz, 1994; Porter, 1980). Outsourcing can be done for “core” activities as well as for “non-core” activities. Core activities contribute directly to the competitive advantage of the firms. Non-core activities are also known as support activities. These activities do not contribute to a competitive advantage, but are necessary to the firm to support the execution of the core activities (Harland et al., 2005). The remainder of this section presents the outsourcing factors derived from literature. The result of this part of the literature study is a list with relevant outsourcing factors with regard to the order fulfillment process for Ecommerce startups. Table 3 provides an overview of all outsourcing factors relevant to this research.
10 outsourcing can enhance the flexibility of the firm (Harland et al., 2005). Outsourcing will result in smaller firms, with less hierarchical layers and less formalization. In general, smaller firms are able to deal better with environmental uncertainty (Miles and Snow, 1986). Successful businesses might use outsourcing to scale up their volumes. For scaling up production, sales or logistics activities,
outsourcing is an often used strategy (Bayles, 2001). Outsourcing can also be applied to increase the credibility of the firm. Establishing outsourcing contracts with superior providers can increase the image of the firm (Greaver, 1999). Outsourcing is also used to help companies gain global competitive advantage (Clott, 2004). Globalization of the firm’s activities can be achieved faster by outsourcing, due to using existing resources and infrastructure. According to Aron et al. (2005) outsourcing can also be used to manage risks, such as avoiding risky investments that could harm the organization. Factors that negatively influence the outsourcing decision, includes the loss of control over the outsourced activity (Lonsdale and Cox, 2000). Outsourcing makes a firm dependent on a third party. The higher level of dependency is often associated with higher risks. Also, inadequate development of capabilities to perform the activity in-house, negatively influences the outsourcing decision (Jennings, 2002). Outsourcing restricts organizational learning of the specific activity, which increases the difficulties to take back the activity from the third party. In new markets or specific geographical locations, a lack of capable third parties (Razzaque and Sheng, 1998) can occur. Another counteracting factor is the fear of opportunistic behavior by the third party (Bhattacharya et al., 2015). Opportunism is the act of taking advantage of the circumstances without paying attention to the consequences for others. Specifying appropriate terms and regulations to the party to whom the activity is outsourced is also a negative factor (Beaumont, 2004). Specifying terms and regulations, prevents that the relation is solely based on trust. Formulating appropriate terms and regulations to build a contract is a
complicated process that requires knowledge of the law (Osei-Bryson et al., 2006).
Literature dedicated specifically to Ecommerce outsourcing also identifies cost reduction as one of the main factors for outsourcing (Lee et al., 2003). Joong-Kun Cho (2008) states that outsourcing logistics activities has a positive effect on the focus of the core Ecommerce activities, which enhances firm performance. Also, flexibility is a motivator to outsource for Ecommerce firms (Lynch 2004). Ecommerce organizations tend to face a high degree of uncertainty, which increases the chances of survival for flexible Ecommerce firms (lynch, 2004). Wymbs (2000), mentions that Ecommerce firms that outsource logistics are able to globalize faster and simultaneously increase scalability, due to the globalization efforts. In line with the reasoning provided by Greaver (1999), April (2008) reasons that outsourcing can help small Ecommerce businesses gain credibility when establishing relationships with superior third parties.
11 associated with costs for the development of adapted or mediating IT systems. Quantifying
requirements to IT systems for Ecommerce outsourcing comes with high complexity. The systems of the firm and the supplier need to be understood and the appropriate business process needs to be established and programmed (Sila, 2013).
Especially startup organizations are more likely to suffer from bounded rationality compared to large organizations according to Minnity and Bygrave (2001). Entrepreneurs that start a new business are more likely to base their decisions on limited information compared to large companies. Entrepreneurs often “jump in” without researching all possible options, due to a lack of multiple resources as time, knowledge, financials and different perspectives from stakeholders (Minnity and Bygrave, 2001).
Outsourcing factor: Derived from: Mentioned as:
Cost reduction Gilley and Rasheed (2000) Primary motivator
Focus Harland et al. (2005) Motivator
Flexibility Harland et al. (2005) Motivator
Scalability Bayles (2001) Positive impact
Credibility Greaver (1999) Benefit
Globalization Clott (2004) Solution
Managing risks Aron et al. (2005) Motivation
Loss of control Lonsdale and Cox (2000) Risk
Underdeveloped competences Jennings (2002) Negative factor Lack of capable third parties Razzaque and Sheng (1998) Obstacle
Fear of opportunistic behavior Bhattacharya et al. (2015) Negative influence Specifying terms and regulations Beaumont (2004) Difficulty
IT integration Sila (2013) Hurdle
Bounded rationality Minnity and Bygrave (2001) Blockade
12
5. STARTUPS
This section is aimed at identifying parameters from academic literature that can be used to categorize different kinds of startups. Section five provides the literature review, the actual categorization of startups relevant to this research is done in section six. Before introducing the literature aimed at the categorization effort, the term “startups” is defined.
“A startup is a business that has recently begun operation.” (Shane and Venkataraman, 2000). A startup business is the product of an entrepreneur or multiple entrepreneurs pursuing a business opportunity (Cassar, 2014). There are no hard rules on defining a startup, because revenues, profits and growth rates differ between industries and countries (Forbes, 2013). According to Rosenbusch et al. (2011) the ultimate age of a firm that still qualifies for the term “startup” is 8 years.
Startups differ in terms of the industry they operate in, the strategy they develop, the personal traits of the entrepreneur, their direct environment and so on (Shane and Venkataraman, 2000). Even within the same industry all startups are unique. Past efforts in academic research on categorizing startups within the same industry used entrepreneurial traits (Cassar, 2014) and the size of the startup, measured in the number of employees (Korunka et al., 2011).
Research has shown that the personal traits of the entrepreneur have an influence on the startup strategy, the growth rate and the success of the startup. (Ma and Tan, 2006; Morris et al., 2001). Traits that have been investigated are; age, gender, education, culture, entrepreneurial experience and entrepreneurial aspirations. Younger entrepreneurs are more likely to view business opportunities more optimistic than older entrepreneurs (DeNeve and Cooper, 1998). Female entrepreneurs tend to deploy more conservative strategies when setting up a startup (Kwong et al. 2012). This leads to less growth, but increases the ability to survive, due to better evaluation and management of risks. Higher educated people possess on average higher judgement abilities (Colombo and Grilli, 2005), which is beneficial for finding new business opportunities and for dealing with uncertainty. According to Mueller and Thomas (2001), country cultures have an influence on the development of entrepreneurial skills. They found that individuals in individualistic countries are more likely to start a business compared to collectivist cultures.
13 homogenous with regard to the aspirations they possess (Cassar, 2014). Empirical research of Cassar (2006) on the assumption that all entrepreneurs have the same aspirations, has shown that
entrepreneurial aspirations are in general inconsistent among entrepreneurs instead of homogenous. The size of the startup can be divided into two main categories, namely startups that operate without dependent employees and startups that consist of multiple persons (Korunka et al., 2011). Startups that operate without employees are also known as person businesses. Unique characteristics of one-person businesses is the low degree of social complexity, high requirements to the entrepreneur and the lack of social balancing systems (Korunka et al., 2011). In a one-person startup it is not possible to delegate tasks, decisions or responsibility. Every activity has to be performed by the entrepreneur himself. The low social complexity that comes when operating a one-person business leads to high requirements to the entrepreneur. The entrepreneur needs to be able to switch between various roles to perform all activities within the startup. In a one-person startup the identity of the business depends on the ideas of the entrepreneur (Lussier, 1995). The entrepreneur has no colleagues to discuss any situation or opportunity. This enhances fast decision making and flexibility, but the lack of the social balancing system also makes the one-person startup vulnerable to the personal preferences of the entrepreneur and his personal blind spots.
Startups consisting out of multiple employees in general score higher on social complexity and social balancing systems, while the requirements on the entrepreneur are reduced (Korunka et al., 2011).
6. THEORY BUILDING
In this section theory is built upon the directions provided by existing literature. In section five the term “entrepreneurial aspirations” was introduced. The researches of Cassar (2006; 2014) and Korunka et al. (2011) provided valuable insights towards the combination of entrepreneurial aspirations and the size of the startup.
14 Building upon the idea of Cassar (2006) that entrepreneurs have different aspirations concerning the size development of their startup. This study presumes that, Ecommerce entrepreneurs that do not want to build a large business do not necessarily have to have low revenue aspirations. First, the use of the internet and IT systems facilitate operating with less employees (Mithas et al. 2012). Second, outsourcing very time consuming activities as the order fulfillment process decreases the need to contract employees even further. Operating as small as possible comes with a low degree of social complexity, which entrepreneurs value in general (Morris et al. 2001). The counterarguments to stay operating as a one-person business are that the entrepreneur does not possess all necessary skills or the amount of work is too high (Gilbert, 2006).
The need to build a two-way model of entrepreneurial aspirations comes down to the presumption of this research that revenue is not necessarily correlated with the number of contracted employees, which is often believed to be correlated by scholars (Gilbert, 2006; Josefey et al., 2015; Korunka et al. 2011).
IT systems and outsourcing are able to keep the business small or even facilitate to operate as a one-person business. Besides this, existing models regarding entrepreneurial aspirations often focus on entrepreneurial traits instead of business characteristics (Kwong and Thompson, 2016). Models focused on entrepreneurial traits alone lack the link with the business, which make them inapplicable for business decisions, such as outsourcing. Entrepreneurial traits are useful to predict an
entrepreneur’s mindset (Haynie, et al., 2010), but the accuracy of these predictions is moderate (Carland et al., 2015). Because, not all assumptions hold for every entrepreneur. Just as the entrepreneurial traits discussed in the literature review cannot exactly forecast the entrepreneur’s decisions, but the traits can be used to predict an entrepreneur’s mindset or to validate an
entrepreneur’s statements.
Built upon the argumentation in this section, the two-way model of entrepreneurial aspirations is formulated, figure 2.
15 The two-way model presumes that an entrepreneur makes two choices regarding his or her aspirations. The entrepreneur chooses to operate as a one-person business or to contract employees and the
entrepreneur chooses to pursue a high or low revenue strategy.
The outsourcing factors that influence the outsourcing decision of the order fulfillment process differ for every startup, based upon the entrepreneurial aspirations. Hereafter, the outsourcing factors from the literature review are ranked for every category of the two-way model.
The two-way model of entrepreneurial aspirations is duplicated for the current and aspired situation. Although the rankings within the categories remain the same, the meanings differ. The current and aspired situation visualize the factors that have to be taken into account at this point in time and in the future. Whether a startup has an aspired situation depends on the entrepreneurial aspirations. For example, an entrepreneur that starts a webstore on his or her own and has the aspirations to grow in size and in revenue within a few years, will shift from a hobbyist to a business expander. The ranking of outsourcing factors that apply to this startup will change when the transformation from hobbyist to business expander is complete. From a managerial perspective this duplication provides startups the information on which factors would be important when the size and revenue characteristics of the startup change.
Based on the upcoming research in this section, figure 3 is formulated. In figure 3, the outsourcing factors from the literature review are ranked for each category of the two-way model. The remainder of this section is dedicated to the argumentation behind figure 3.
FIGURE 3: The two-way aspirations model with the ranked outsourcing factors.
1. Bounded rationality -2. IT integration - *
3. Fear of oppurtunistic behavior -** 4. Focus + ***
5. Loss of control - **
6. Specifying terms and regulations -7. Cost reduction + *** 8. Lack of capable third parties -9. Flexibility + *** 10. Managing risks + * 11. Underdeveloped compet. - ** 12. Scalability + * 13. Globalization + * 14. Credibility + * 1. Scalability + * 2. Globalization + * 3. Focus + *** 4. Flexibility + *** 5. Credibility + * 6. IT integration - * 7. Lack of capable third parties -8. Fear of oppurtunistic behavior -** 9. Specifying terms and regulations -10. Managing risks + * 11. Cost reduction + *** 12. Bounded rationality -13. Loss of control - ** 14. Underdeveloped compet. - ** 1. Cost reduction + *** 2. Loss of control - ** 3. Bounded rationality -4. IT integration - *
5. Fear of opportunistic behavior - ** 6. Underdeveloped compet. - ** 7. Specifying terms and regulations 8. Lack of capable third parties -9. Managing risks + * 10. Flexibility + *** 11. Focus + *** 12. Scalability + * 13. Globalization + * 14. Credibility + * 1. Cost reduction + *** 2. Loss of control - ** 3. Scalability + * 4. Globalization + * 5. Credibility + * 6. Underdeveloped compet. - ** 7. Lack of capable third parties -8. IT integration - *
9. Specifying terms and regulations -10.Fear of opportunistic behavior -** 11. Managing risks - * 12. Flexibility + *** 13. Focus + *** 14. Bounded rationality 1. Bounded rationality -2. IT integration - *
3. Fear of oppurtunistic behavior - ** 4. Focus + ***
5. Loss of control - **
6. Specifying terms and regulations -7. Cost reduction + *** 8. Lack of capable third parties -9. Flexibility + *** 10. Managing risks + * 11. Underdeveloped compet. - ** 12. Scalability + * 13. Globalization + * 14. Credibility + * 1. Scalability + * 2. Globalization + * 3. Focus + *** 4. Flexibility + *** 5. Credibility + * 6. IT integration - * 7. Lack of capable third parties -8. Fear of oppurtunistic behavior -** 9. Specifying terms and regulations -10. Managing risks + * 11. Cost reduction + *** 12. Bounded rationality -13. Loss of control - ** 14. Underdeveloped compet. - ** 1. Cost reduction + *** 2. Loss of control - ** 3. Bounded rationality -4. IT integration - *
5. Fear of opportunistic behavior -** 6. Underdeveloped compet. - ** 7. Specifying terms and regulations 8. Lack of capable third parties -9. Managing risks + * 10. Flexibility + *** 11. Focus + *** 12. Scalability + * 13. Globalization + * 14. Credibility + * 1. Cost reduction + *** 2. Loss of control - ** 3. Scalability + * 4. Globalization + * 5. Credibility + * 6. Underdeveloped compet. - ** 7. Lack of capable third parties -8. IT integration - *
9. Specifying terms and regulations -10.Fear of opportunistic behavior -** 11. Managing risks - *
12. Flexibility + *** 13. Focus + *** 14. Bounded rationality
-Size
Current situation Aspired situation
Multiple-person
One-person
Revenue
16 The outsourcing factors are ranked in order of importance for each of the four startup categories. The decision to outsource the order fulfillment process is more likely for the categories where the positive factors take in the top of the chart. Every factor is ranked, while assuming to be in the position of the entrepreneur for every startup of the two-way aspirations model.
After an investigation of the presence of the outsourcing factors in academic literature the reasoning behind the rankings is highlighted. Researching the emphasis of each outsourcing factor in academic literature has the purpose to sketch the importance of every factor. The presence ranking is used to strengthen the argumentation of the ranking of the outsourcing factors, later in this section.
The presence of the outsourcing factors in academic literature was researched by deriving a sample of 30 articles from 5 scientific journals. The articles were derived from the sources, Journal of Operations Management, Production and Operations Management, Electronic Commerce Research, Logistics and Transportation Review and the Journal of Small Business Management. These magazines were selected according to the relevance to this research and on their legitimacy in the academic world. The legitimacy of these scientific journals was validated by researching the image, of the journals in the SCImago database (scimagojr.com). The selection criterion for this research is that the journals achieved the highest achievable score regarding their image over the last 8 years. The reason that multiple scientific magazines were investigated, is to avoid a bias towards specific outsourcing factors. Taking one journal that is dedicated to one specific field of study does not provide a sample various enough to represent the logistics, Ecommerce and entrepreneurship perspectives on outsourcing that this study provides.
From the selected scientific journals, articles that discuss outsourcing factors and were published between 2008 and 2016 fall within the borders of the sample. Selection was done by the following two criteria. First, the articles had to explicitly state the term “outsourcing” in their abstract. Second, the article needed at least 20 citations to be selected.
This sample generates the information to draw conclusions about the presence of the specific
outsourcing factor in academic literature. The presence of the outsourcing factor is an indication of the importance of a specific factor. Factors that are highly present in academic literature are likely to have more importance regarding the outsourcing decision, in comparison to outsourcing factors that are weakly present or not present at all.
17 Table 4 provides an overview of this investigation. Note that several articles mentioned multiple outsourcing factors, therefore several references are duplicated for various outsourcing factors.
Factor Presence Evidence
Cost reduction *** Ellram et al. (2008), McIvor (2009), Bititci et al. (2009), Zheng et al. (2014), Narayanasamy et al. (2011), Kauffman and Tsai (2010), Li et al. (2009), Zhen (2014), Hills et al (2008), Gray et al. (2009), Zipkin (2012), Dekkers (2012).
Focus *** Bititci et al. (2009), Vaithianathan (2009), Reeves et al. (2010), Hills et al. (2008), Liberman-Yaconi et al. (2010).
Flexibility *** Welborn (2009), Stevenson et al. (2009), Kouvelis and Li (2013), Rundquist (2008), Kroes and Ghosh (2010). Scalability * Zhao et al. (2014).
Credibility * Reddy et al. (2009). Globalization * Metters (2008).
Managing risks * Tsai et al. (2012), Grahovac et al. (2015).
Loss of control ** Steven et al. (2014), Tsai et al. (2012), Rundquist (2008). Underdeveloped
competences
** Tsai et al. (2012), Nieto et al. (2015), Aksin and Masini (2008).
Lack of capable third parties
-
Fear of opportunistic behavior
** Handley and Benton (2012), Gray et al. (2009), Xiao et al. (2013).
Specifying terms and regulations
-
IT integration * Sila (2013) Bounded rationality -
TABLE 4: An investigation of the presence of the outsourcing factors in academic literature. From table 4 it can be concluded that the emphasis of the outsourcing literature is spread differently among the outsourcing factors. Cost reduction has by far the most presence in academic literature, followed by the factors, focus and flexibility. Lack of capable third parties, specifying terms and regulations and bounded rationality did not occur in the sample.
18 indicated with stars in figure 3, represents the importance of the outsourcing factors in general. In this research not every factor has the same importance as believed by literature.
The best way to illustrate this is with the factor “IT integration”. Nor Ecommerce, startup or general outsourcing literature appoints “IT integration” to be one of the most important obstacles to consider carefully when thinking about the outsourcing decision. However, in this research “IT integration” is an obstacle presumed to be of great importance. Assuming that most Ecommerce entrepreneurs are no IT experts, the Ecommerce entrepreneurs are likely to worry about the connection of their webstore systems to the systems of their partner. Sila (2013) states from a large business perspective instead of a startup perspective, that linking Ecommerce systems comes with great complexity and that the
business processes and the systems itself should merge into each other to secure sufficient performance. So, “IT integration” is not an obstacle of great importance in general outsourcing literature, nor in ecommerce literature. But, an entrepreneur that operates a webstore fully on his own, is likely to have very little knowledge about the best way to integrate IT systems. Even when an entrepreneur obtains professional help to integrate the systems, the entrepreneur could have difficulties understanding the professional, because operating a webstore and coding software are two fields very far apart.
When comparing the rankings within the two-way model, it is clear that noticeable differences exist between every ranking. The differences arise from the importance of outsourcing the order fulfillment process for every group. For the single achievers, outsourcing the order fulfillment process is more relevant compared to all other groups. Without outsourcing it is plausible that the single achievers will reach a scalability limit very soon. Bayles (2001) underpins that enterprises that do not wish to expand in size, would do well by deciding to outsource. The factors, scalability and globalization were ranked high for the single achievers and low for the hobbyists. As opposed to the single achievers the
hobbyist will probably have less troubles with handling the orders internally. The hobbyist wishes to generate a lower revenue, which puts less stress on the amount of products that need to be sold, which makes the factor scalability less important. According to Clott (2004) and Bayles (2001) the factors scalability and globalization are related. Increasing the sales volume is easier to achieve when more customers can be reached (Clott, 2004). The most present outsourcing factor, cost reduction. Is presumed to be of little importance to the single achievers. In this situation the entrepreneur is not interested in outsourcing to minimize costs, the entrepreneur is in need to meet the scalability issues that are attached to webstores that generate high revenue numbers. Without outsourcing the
19 The factor ranked on top in the hobbyists category is bounded rationality. According to Minnity and Bygrave (2001) new entrepreneurs often “jump in” without considering all possible options.
Entrepreneurs in this group should first overcome this factor, before the entrepreneur is able to take all other factors in consideration. Bounded rationality is ranked low for the single achievers category, because when the need arises that the current approach is insufficient, the individual opens up to consider more information and perspectives (Arthur, 1994). In the sample, no articles were detected that mentioned bounded rationality as a factor of importance to outsourcing practices. With regard to startups this is presumed to be an important factor to include in the framework for new entrepreneurs. As Minnity and Bygrave (2001) state, entrepreneurs that just started, do not consider all options. In fact many of them, just “jump in” without considering any alternatives at all.
The multi-person startups categories differ from the single-person startup categories in terms of the amount of work they can process, the human capital they possess and the social complexity that arises when contracting employees (Korunka et al. 2011). Businesses contract employees to fulfill a higher amount of work or to attract valuable skills. Operating in the order fulfillment process is a fairly low skilled type of labour (Laudon and Traver, 2007). A webstore that is willing to employ people is likely to process more orders in comparison to one-person startups. Multiple-person startups and the solid survivors in particular have presumably less need to outsource their order fulfillment process, because the limit of the amount of orders they can process is presumed to be higher in comparison to one-person startups. When there are alternatives to outsourcing, such as hiring employees to keep the order fulfillment process in house, cost reduction is the main motivator to switch to outsourcing (Gilley and Rasheed, 2000). The revenue aspirations shift several factors around. For example, to generate more revenue “globalization” is a high ranked positive outsourcing factor. Clott (2004) recognizes that outsourcing significantly speeds up the globalization process, due to the use of infrastructure that is already developed.
Also the factor “fear of opportunistic behavior” is ranked differently for the solid survivors and the business expanders. This difference in ranking is based upon the logic that larger businesses with high revenue are likely to have a greater reputation and obtain more respect from their partners, because they provide a higher level of dependency (Atanasov et al., 2012). This higher level of respect, means that business expanders are somewhat less prone to become a victim of opportunistic behavior
20 Other factors inserted in the theoretical framework, but not detected in the sample are the factors, lack of capable third parties and specifying terms and regulations. The newness of outsourcing order fulfillment for Ecommerce startups does mean that there are still few specialized organizations that offer this service. Specifying terms and regulations is a process that demands lots of effort from the entrepreneur and therefore can cause a serious hurdle. Large organizations have contracts specialists to define terms and regulations, for an entrepreneur this is a necessary evil that can be experienced as a serious hurdle.
The idea of ranking outsourcing factors for startups is entirely new in academic literature. Currently no literature is available to provide guidelines on how to rank outsourcing factors for startups. The two-way aspirations model with the ranked outsourcing factors is a hypothetical approximation. The approximation was done by reasoning how the factors relate to the specific type of startup. The reasoning was done with the theories provided by academic literature. The examples, that were introduced in this section highlight in which way the general theories provided the directions to rank the factors. This section is not long enough to include every academic theory that has led to final ranking, as shown in figure 3. The most important conclusion from this section is that the importance of the outsourcing factors depends on the size and revenue aspirations of every startup category. The investigation regarding the presence of each outsourcing factor in academic literature showed that not all factors important to this research are important to academic literature in general. This has led to argumentations, on why the rankings proposed by this research differs from the general believes on what is important.
The hypothetical two-way model inspired by academic theories as shown in figure 3, is the starting point of the empirical part of this research. The ranking is further enhanced by gathering evidence from entrepreneurs that operate a startup webstore.
7. RESULTS
This section elaborates on the results of the empirical research. In figure 4, the positions of the startups are shown in the two-way model of entrepreneurial aspirations for the current and aspired situation.
21 Startups 1, 4, 5, 6, 7 and 8 do not have the aspirations to change their position in the two-way model of entrepreneurial aspirations. These startups rather operate according to the current size and revenue dimensions instead of changing one or both dimensions. This means that, the outsourcing factors with regard to the solid survivors and the single achievers were ranked two times each. The outsourcing factors for the hobbyists and the business expanders were ranked three times each. Various reasons were provided by the entrepreneurs about having no aspirations to change revenue or size dimensions. The arguments included, that the startup is a hobby and that this person’s main income is generated from a corporate career. Also, the increased responsibilities that arise when managing people was mentioned as a reason to operate as a one-person business. Several startups in this research explained that they already have experienced enough revenue growth to comfortably make a living out of operating the webstore and that they are not necessarily trying to achieve any higher revenue rates. The ranking of each individual startup entrepreneur was merged into the two-way aspirations model with the outsourcing factors for the current and aspired situation, figure 5. From the telephone
interviews seven new factors were introduced by the entrepreneurs. The rationales behind these factors are introduced in this section. Also a comparison between the major differences and overlaps between the theoretical ranking and the empirical ranking is provided.
FIGURE 5: The two-way aspirations model with the outsourcing factors for the current and aspired situation based on the empirical research.
9p IT integration - * 9p Focus + ***
8p Specifying terms and regulations -7p Lack of capable third parties - 7p Bounded rationality -6p Managing risks + * 6p Loss of control - * 5p Cost reduction + *** 5p Scalability + * 4p Flexibility + *** 3p Globalization + * 3p Credibility + * 3p Underdeveloped compet. - ** 3p Fear of oppurtunistic behavior -**
6p Scalability + * 6p Focus + *** 6p Flexibility + *** 6p IT integration + * 6p Lack of capable third parties - 5p Specifying terms and regulations -4p Loss of control -**
3p Enhanced living environment + 3p Funding
3p Webstore complexity -3p Corporate carreer ambitions +
2p Managing risks +* 2p Underdeveloped compet. - ** 2p Globalization + * 6p Loss of control - **
6p IT integration - * 6p Lack of capable third parties -6p Flexibility + *** 5p Cost reduction + *** 5p Focus + ***
5p Lack of capable third parties 4p Specifying terms and regulations
-3p Import benefits + 3p enjoyment
-2p Bounded rationality - 2p Fear of oppurtunistic behavior -** 2p Credibility + *
2p Globalization + *
9p Lack of capable third parties -9P IT integration - * 8p Cost reduction - *** 8p Flexibility + *** 7p Loss of control - ** 7p Globalization + * 6p Credibility + * 6p Contract duties - 5p Scalability + * 5p Bounded rationality 5p Specifying terms and regulations -4p Focus + ***
3p Managing risks - *
3p Fear of oppurtunistic behavior -**
Size
Current situation Aspired situation
Multiple-person One-person Revenue Low Low High High 2p Bounded rationality -2p Credibility + *
2p Fear of oppurtunistic behavior -** 2p Cost reduction + *** 2p Managing risks + * 2p Underdeveloped compet. - ** 3p Underdeveloped compet. - ** 9p IT integration - * 9p Focus + ***
8p Specifying terms and regulations -7p Lack of capable third parties - 7p Bounded rationality -6p Managing risks + * 6p Loss of control - ** 5p Cost reduction + *** 5p Scalability + * 4p Flexibility + *** 3p Globalization + * 3p Credibility + * 3p Underdeveloped compet. - ** 3p Fear of oppurtunistic behavior -**
6p Scalability + * 6p Focus + *** 6p Flexibility + *** 6p IT integration + * 6p Lack of capable third parties - 5p Specifying terms and regulations -4p Loss of control -**
3p Enhanced living environment + 3p Funding
3p Webstore complexity -3p Corporate carreer ambitions +
2p Managing risks + * 2p Underdeveloped compet. - ** 2p Globalization + * 6p Loss of control - **
6p IT integration - * 6p Lack of capable third parties -6p Flexibility + *** 5p Cost reduction + *** 5p Focus + ***
5p Lack of capable third parties 4p Specifying terms and regulations
-3p Import benefits + 3p enjoyment
-2p Bounded rationality - 2p Fear of oppurtunistic behavior -** 2p Credibility + *
2p Globalization + *
9p Lack of capable third parties -9P IT integration - * 8p Cost reduction - *** 8p Flexibility + *** 7p Loss of control - ** 7p Globalization + * 6p Credibility + * 6p Contract duties - 5p Scalability + * 5p Bounded rationality 5p Specifying terms and regulations -4p Focus + ***
3p Managing risks - *
3p Fear of oppurtunistic behavior -**
2p Bounded rationality -2p Credibility + *
2p Fear of oppurtunistic behavior -** 2p Cost reduction + *** 2p Managing risks + *
2p Underdeveloped compet. - **
22 The rationale behind the factors introduced by the entrepreneurs in the empirical research is explained one by one in clockwise direction, starting off in the solid survivors group. In this group two new factors are introduced, by two different entrepreneurs.
The factor “import benefits” was introduced by a Dutch entrepreneur. The entrepreneur buys his products in large quantities in the United States, where after he ships these products to a warehouse in Sweden. From this warehouse in Sweden the items are sent to customers in The Netherlands. This entrepreneur is not the owner of the warehouse in Sweden, the entrepreneur outsourced the order fulfillment process to the Swedish party. When importing large quantities of products from the United States to The Netherlands, one has to pay various taxes. The entrepreneur found a way around paying some of this specific taxes, by importing the items to Sweden first. The products are sold solely to Dutch consumers. The Swedish warehouse acts as an intermediary party in this import construction that is used to avoid taxes and to fulfill the order fulfillment process of this startup. The second new factor, “enjoyment” was proposed by a Japanese entrepreneur that sells phone and computer
accessories. The entrepreneur mentioned that he enjoys packing the boxes and taking these to the post office every day. He enjoys the social-talk with his employee and the desk attendant at the post office. In the business expanders category two entrepreneurs suggested the “contract duties” factor. “Contract duties” refers to the extent in which the entrepreneurs are strapped down to contractual terms and regulations with regard to firing employees. One of the entrepreneurs explained, when an entrepreneur has contracted an employee for quite some time, it is not that simple to dissolve the contract.
According to these entrepreneurs, the strict contracts limit the flexibility of the business. In the single achievers group four new factors were proposed. The factor “enhanced living environment”, was proposed by a Japanese female entrepreneur in a quite peculiar story. This entrepreneur is specialized in selling various brands of perfume. She does the order fulfillment from her apartment, that consist of only one room. At some points in time she needs to store over 500 perfumes in her apartment, which limits her living space considerably. Next to this inconvenience, every now and then a bottle of perfume gets damaged, due to the cramped living space. The damaged bottles of perfume spread the odor in her living area, which often remains smellable for quite some time.
23 Another entrepreneur in the single achievers startup category proposed the factor “webstore
complexity” This entrepreneur outsources the order fulfillment process. This entrepreneur stated that every change in the product range is time consuming when the order fulfillment process is outsourced. Adding products to the product range requires more storage space, which is not always available. And the new SKU needs to be introduced to the entrepreneur’s webstore, but also needs to be registered in the information system of the third party, this does not happen automatically in this case.
The last factor proposed by entrepreneurs to the two-way model of entrepreneurial aspirations for the current and aspired situation is the factor “corporate career ambitions”. A Japanese male entrepreneur stated that he experienced that operating a webstore for a living was quite monotonous. One of the main reasons he outsourced the order fulfillment process, is that he can pursue a corporate career. Now the rationale behind the additional factors is explained, a closer look on the most important differences between the theoretical ranking and the empirical ranking is provided.
A factor that showed to be different in the empirical research in all groups of the two-way aspirations model is the factor “the lack of capable third parties”. The overarching train of thought of the
entrepreneurs is that there are only very few businesses specialized in taking care of the order
fulfillment activities for starting up webstores. Two entrepreneurs that currently outsource their order fulfillment process underpinned that there was a limited choice in partners when they took the
outsourcing decision. One of these entrepreneurs reasoned that a considerable amount of the providers are not interesting for startups. The entrepreneur continued by stating that the providers want large amount of units and low variety to operate in an efficient manner. According to this entrepreneur the large amounts and low variation combination is often provided by large Ecommerce organizations instead of startups.
Another finding that applies to all groups is that the factor “underdeveloped competences” is located in the lowest region of the ranking of every group. This contradicts the established theories that believe that a firm should always built competences to deal with uncertainty (Roldan, 2008). The entrepreneurs that were interviewed did not seem to worry about their businesses competences in relation to the order fulfillment process. On one occasion it was even mentioned that the order
fulfillment process is a necessary evil that only consumes time, but does not demand a high amount of thinking power.
24 service and to manage marketing activities. The entrepreneur himself is only monitoring the
performance of his business. This entrepreneur owns more businesses that consume the rest of his time.
It was explained in the theoretical section that cost reduction is the most present motivator in academic literature with regard to outsourcing studies. Gilley and Rasheed (2000) suggested that when there exist realistic alternatives to outsourcing, such as hiring people, cost reduction is the most important factor that influences the outsourcing decision. The rankings of the entrepreneurs are not in line with this statement. The entrepreneurs are more worried about the loss of control and about IT integration. In the telephone interviews the entrepreneurs stated to doubt whether a third party puts the same amount of effort in the order fulfillment process. Also the factor “IT integration” is ranked higher than “cost reduction” in the multiple-person groups. It was mentioned multiple times, that the entrepreneurs had no idea, on how to deal with the connection between their and the IT system of the third party. The remainder of this section highlights the overlap of the most important factors between the theoretical ranking and the empirical ranking.
In section six, it was introduced that the factor IT integration is presumably a factor of great
importance for Ecommerce startups that are considering to outsource their order fulfillment process. The empirical investigation strengthened that IT integration is possibly one of the most important outsourcing factors. In every category of the two-way model of entrepreneurial aspirations, IT
integration is ranked among the most important factors. A Japanese entrepreneur specialized in selling computer accessories explained that he uses a website with an underlying platform that is owned by an internet service organization specialized in hosting websites. He explained that any form of IT
integration would be difficult to realize, because it is likely that the intellectual property of the website’s platform is protected. This Japanese entrepreneur stated that building a new website to realize IT integration is financially not feasible for him at this point in time. A Dutch entrepreneur that currently outsources the order fulfillment activities mentioned that when he was in the process of looking for capable third parties, one of the main criteria was that the third party would take over IT integration. According to this entrepreneur, not all third parties have the competences to take care of IT integration, which leads to an ineffective business process for the Ecommerce entrepreneur. It is also explained in the theory building section of this paper that cost reduction is not necessarily an important factor for every type of startup. Especially for the single achievers it is unlikely that
25 that he does not want to deal with the social complexity of delegating subordinates and outsourcing is the only option to operate at the desired revenue level.
Although the factor bounded rationality is not ranked as the most important factor in the hobbyists category, it ended up high. On two occasions, the entrepreneurs had never even considered outsourcing order fulfillment. One entrepreneur acted already surprised in the introduction of the telephone interview and stated that the interview was an eye-opener to him. In comparison to the hobbyists, bounded rationality ended up low in the single achievers category. In section six it was argued that entrepreneurs start to open up to more information when they face harder challenges (Minnity and Bygrave, 2001). The single achievers face a more complex task than the hobbyists and presumably for this reason they are less restricted by bounded rationality.
8. DISCUSSION
This research offers a hypothetical framework for Ecommerce startups that consider to outsource their order fulfillment process based on theoretical and empirical research. In the theoretical part, the outsourcing factors relevant to Ecommerce startups were derived, Ecommerce startups were
categorized and the outsourcing factors were ranked for each startup category. The categorization of Ecommerce startups was done according to the entrepreneurial aspirations of the entrepreneur
regarding the parameters size and revenue. The framework is based on the presumption that revenue is not necessarily related with the number of employees that an entrepreneur employs. Outsourcing enables Ecommerce startups to keep the business small, or even to operate as a one-person business and generate high revenue at the same time. The ranking of outsourcing factors within each category was done according to academic theories in combination with the presumptions of the researcher about the influence of each outsourcing factor to the outsourcing decision. In the empirical part, interviews were conducted with the aim to have Ecommerce entrepreneurs rank the outsourcing factors from their point of view and to contribute factors to rankings.
The main conclusion of this research is that the rankings of the outsourcing factors are different for each startup category. The importance of a specific outsourcing factor depends on the influence of this specific factor on the type of startup. The focus of academic literature with regard to the outsourcing factors is not evenly distributed. Academic literature about outsourcing is most focused on cost reduction. In this research it was argued that even though cost reduction is the most popular
outsourcing factor it does not necessarily have to be taken into account when considering outsourcing order fulfillment. Depending on the entrepreneurial size and revenue aspirations of the startup, the importance of the outsourcing factors change.
26 compared to the theoretical framework. The entrepreneurs reasoned in line with each other that there is limited choice in outsourcing partners that are able or interested in, in taking over the order fulfillment process from an Ecommerce startup. Another insight provided by the empirical research is that Ecommerce startup entrepreneurs do not seem to care about the development about the capabilities of the business to operate the order fulfillment process internally. This finding is not in line with what is generally believed by academic literature. In academic literature it is believed that a business should always develop adequate competences to deal with uncertainty (Roldan, 2008).
There are several limitations to this research. First, this research used telephone interviews instead of “regular” interviews. As explained in the research design section, telephone interviews mask the face expressions of the interviewee. This makes it harder for the researcher to tell whether the interviewees participate with the intentions to provide the best possible answers. Second, the telephone interviews were conducted in only two countries. It is believed that different cultures, have different views on entrepreneurship. So, the more countries are researched, the better the applicability of the framework becomes. Third, this research measured the entrepreneurial aspirations at only one point in time. The aspired situation in this research is based on what the entrepreneurs think which outsourcing factors are important further down the road. Fourth, the two-way model of entrepreneurial aspirations is a rough approximation of the real world. In practice, size and revenue aspirations are likely to have more than two dimensions.
This discussion is closed by quoting a remark from Shane and Venkataraman (2000): “We recognize that we may have offered some uncertain assumptions, potentially flawed logical arguments or have made statements that will prove, ultimately to be inconsistent with data yet to be collected.
27
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