A Limit to Outsourcing Complexity: Coordination vs. Cooperation in the Airbus A350 Program

Abstract

Designing complex product systems across firms poses significant organizational challenges. While much research has focused on how interdependencies between system components can hamper the integration of collective efforts, the fact that complex systems consist of multiple hierarchic levels has received less attention. A basic decision that firms face, however, is how much complexity to outsource. The hierarchic nature of complex systems can guide this decision – which system levels to design in-house, and which to contract out? In this paper, we use an in-depth study of the aircraft manufacturer Airbus’ A350 program to understand the organizational consequences of this decision. We find that allocating higher-level design tasks to suppliers entails a tradeoff: on the one hand, it shifts the locus of dealing with complexity and reduces the outsourcing firm’s “coordination load” – its share in ensuring the alignment of actions; on the other hand, it can deteriorate cooperation within the supplier network and thus increase the firm’s “cooperation load” – its burden of aligning interests. Outsourcing higher-level design tasks, we argue, can backfire by creating conditions that are toxic to dealing effectively with complexity: (a) the supply network becomes more stratified, requiring competitors to cooperate while changing bargaining positions in adverse ways; (b) suppliers have to absorb the uncertainty of unstable design requirements, which reinforces the negative implications of (a). If organizing effectively implies reconciling specialization with coordination and cooperation, this tradeoff may impose a limit to the interfirm collaboration in complex systems design.