The role of financial and
non-financial goals in the
make or buy decision at a
family firm
three rows
MASTER
THESIS WITHIN: Business Administration NUMBER OF CREDITS: 30
PROGRAMME OF STUDY: International Logistics and Supply Chain Management
AUTHOR: Rasmus Skarphagen & Björn Åkerström JÖNKÖPING May 2020
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Master Thesis in Business Administration
Title: The role of financial and non-financial goals in make or buy decisions at family firm
Authors: Rasmus Skarphagen & Björn Åkerström Tutor: Matthias Waldkirch
Date: 2020-05-18
Key terms: Make or buy decisions, family firm, financial and non-financial goals, manufacturing in-house, outsourcing to external parties, make or buy models.
Abstract
Background: Make or buy decisions is the most fundamental part in a company’s
manufacturing strategy. The decision is complex and involves sacrifices whichever strategy is chosen, and before making the decision the firm should understand and evaluate the trade-offs and comparative costs of manufacturing or outsourcing. The uniqueness of family firms is that they often operate their business with non-financial goals at the centre. This study will investigate the make or buy decisions at Väderstad AB, a family owned firm that deals with decisions of make or buy on a large scale, with many thousands of parts included in their final machines, and decisions made daily whether to make or buy. There is no existing research looking at the qualitative non-financial goals and factors in family firms and how it affects the make or buy decision.
Purpose: This master thesis studies the make or buy decision at a family firm. The aim is
twofold, namely, to explore the potential uniqueness of family firms within the context of the make or buy decision and then to create a make or buy decision model for a family firm. This aim is explorative, i.e. to generate theory, in the realm of family firm research.
Method: This is a qualitative study performed by conducting a single case study
methodology. 12 Semi-structured interviews with 14 employees from all parts of the case company and the use of documents from archival records were collected as data. The data was analyzed with the technique of 1st order concepts, etc. as developed by Gioia.
Conclusion: Our analysis showed that in the context of family firms, the primary factors
influencing make or buy decisions at the case company were not financial goals. Instead drivers were goodwill for customers, innovation, quality, flexibility and control which are non-financial goals. However, financial goals were not neglected, but rather costs were measured after a decision had been made, proving that it was not in the centre of their operations before and during the decision and thus, it was secondary. As a result, non-financial goals played a larger role than non-financial goals in the make or buy decision.
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Acknowledgements
First, we would like to thank Väderstad AB for letting us conduct a case study at their company. Mainly, we would like to thank Thomas Wiesquickl for providing us with this opportunity. We also would like to express gratitude to all interviewees who offered their time to be part of this study to help us collect the needed information to reach our goal. We would also like to extend our sincere gratitude to our supervisor, Professor Matthias Waldkirch, who has helped to guide us through this extensive process. In addition, we would also like to thank our fellow students and opponents, Philip Moreton, Yan Du, Yara Galouk, Visa Seinelä, Wangshu Gao and Guanhua Wang for providing constructive
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Table of Contents
Abstract ... i
Acknowledgements ... ii
1. Introduction ... 1
1.1 Background ... 11.1.1 The make or buy decision ... 1
1.1.2 Gaps ... 3
1.2 Purpose and research question ... 4
1.3 Delimitations... 4
2. Literature review ... 6
2.1 The make or buy decision ... 6
2.1.1 A decision tree model ... 7
2.1.2 A holistic model ... 9
2.2 Manufacturing parts in-house ... 10
2.2.1 Motivations, benefits and risks with manufacturing ... 10
2.3 Outsourcing manufacturing to external parties ... 11
2.3.1 Motivations, benefits and risks with outsourcing ... 12
2.4 Core competencies ... 12
2.5 Family firms ... 13
2.5.1 Definition, level of involvement and non-financial goals ... 13
2.5.2 Family firms and RBV... 15
3. Methodology ... 17
3.1 Research method ... 17
3.2 The case company ... 18
3.3 Data collection ... 19 3.3.1 Interviews ... 19 3.3.2 Archival records ... 20 3.4 Data analysis ... 21 3.5 Research quality ... 22 3.5.1 Construct validity ... 22 3.5.2 External validity ... 22 3.5.3 Reliability ... 23 3.5.4 Ethics ... 24
4. Findings and analysis... 25
4.1 Findings... 25
4.1.1 Innovation through customers ... 27
4.1.2 Preferences of manufacturing in-house ... 28
4.1.3 Lesser cost drive ... 30
4.1.4 Cementing working practices ... 32
4.1.5 Supplier relationships ... 34
4.1.6 Buying receives less attention ... 35
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4.2.1 Financial and non-financial goals in the make or buy decision at
Väderstad.. ... 37
4.2.1.1 Customer relationships and innovation ... 37
4.2.2 Towards a make or buy model at Väderstad ... 46
5. Conclusions ... 53
5.1 Summary ... 53
5.2 Concluding discussion ... 54
Reference list ... 57
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Figures
Figure 1: A practical framework for evaluating the outsourcing decision ... 8
Figure 2: Make-or-buy framework ... 9
Figure 3: Gioia Matrix - Thematic findings ... 26
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1. Introduction
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This chapter introduces the topic by a background and problem description, followed by the aim and research questions.
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1.1 Background
1.1.1 The make or buy decision
In this competitive world organizations face the strategic decision of manufacturing or purchasing. The decision concerns what to be manufactured in-house and what to be outsourced on the market. This is the classic dilemma of the make or buy decision, which has up until this day been and further continues to be a central issue to manufacturers (McIvor, 2010). This decision is complex and involves sacrifices whichever strategy is chosen, and before making the decision the firm should understand and evaluate the tradeoffs and comparative costs of manufacturing or outsourcing (Coyle, 2017). Welch & Nayak (1992), stressed the importance of make-or-buy decisions as the average cost of purchased inputs accounted for roughly 53 percent of sales revenue across all U.S. manufacturing sites. McIvor (2000) argues that outsourcing must be integrated with the company's overall strategy, and Gonzales-Benito (2007) argues that it is essential that the purchasing function and business strategy are aligned. Many firms however have
historically failed at regarding strategic and technological issues in the make or buy decision, where their main focus has instead been on costs (Welch & Nayak, 1992). One example of this is that companies have focused disproportionately on the labor variable, and not so much on other variables, when allocating overhead. Also, make or buy decisions are often taken in short-term perspective, opting for short-term cost reduction and gains and thus with a lack of long-term as well as strategic perspective (McIvor, 2000). Welch & Nayak (1992) points out the dangers of only regarding costs in the make or buy decision by giving the examples of Dodge and Japanese radio manufacturers. Dodge started out as a supplier to Ford, and U.S manufacturers outsourced radio manufacturing to Japan. Both Dodge and Japanese radios, later after having internalized their capabilities, developed, and started to sell under their own brands. Sundquist, Hulthén & Gadde (2015) adds to the point that analysis of the make or buy decision is crucial. If the analysis before taking the make or buy decision is insufficient and the subsequent outsourcing is a failure, firms may have to take back the outsourcing decision and re-insource. In decision making, empirical
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findings show that strategies regarding comparative advantage, supplier management, and economies of scale can oftentimes be based on managers emotions rather than facts. Thus, strategic investments can therefore, many times be irrational (Venkatesan, 1992).
There have been multiple studies looking at make or buy decisions, and Westphal & Sohal (2013) making a taxonomy of the make or buy research come to the conclusion that there are three types of decision models for the make or buy decision, which namely are: decision tree models, heuristic models/portfolio instrument and scoring models. This study
concerns decision tree models but not the latter two types of decision models. One such decision tree model is created by McIvor (2000) and in creating a make or buy decision model McIvor (2000) argues that the key areas to be integrated are the value chain perspective, core competency thinking and supply base influences. McIvor (2000) also points out three key problems with the make or buy decision. The first is that companies do not have any formal process of making the decision. Second, the cost analysis the companies perform when making the make and buy decision is limited. Third, companies do not understand their core competencies. Although there are many make-or-buy
frameworks to help companies shaping their make-or-buy strategy, it appears that none of them are designed to address specific make-or-buy decisions (Cánez, Platts & Probert, 2000). Also, regarding decision models specifically Cánez et al., (2000) argue that the decision tree models are too aggregated and simplistic to capture the complexity of the make or buy decision, and to remedy this simplicity Cánez et al. (2000) propose a decision model that is rich in details and includes aspects such as the external environment, triggers, areas, factors and performance measures. This model favors a holistic view before a simplistic. Then, as for theories on the make or buy decision, the three theories of
transaction-cost economics, the resource-based view (RBV) and core competencies are the most used (Dekkers, 2011). The two latter are related, and one of their main concerns that they have in common is how competitive advantage first is created by firm-specific resources or capabilities and then how this competitive advantage is sustained (Handley, 2012).
Add to this picture of the make or buy decision, the family firm perspective. The family firm is a major factor in the economy as it employs over 80% of the workforce in the U.S., and produce over 50% of U.S. gross-national product, and one third of the companies in S&P 500 have family members in their management (Sirmon, Arregle, Hitt, & Webb, 2008). Litz (1995) define family firms as: “a business firm may be considered a family
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business to the extent that its ownership and management are concentrated within a family unit, and to the extent its members strive to achieve and/or maintain intra-organizational family-based relatedness”. While non-family firms typically pursue financial goals, family firms typically pursue non-financial goals, even to the extent that it can come at the expense of wealth creation, which may however not be a downside to the family firm because what it want in place of regular wealth is the socioemotional wealth (Memili, Chrisman & Chua, 2011). Socioemotional wealth (SEW) is a theory that explains why family firms typically are motivated and committed to non-financial goals (Berrone, Cruz & Gomez-Mejia, 2012), and some typical non-financial goals of family firms are:
perpetuation of the family dynasty, values, harmony, social capital and altruism between family members (Chrisman, Chua & Sharma, 2005). The idea why family firms rank non-financial goals before non-financial goals is because they want to preserve the family, and so to preserve socioemotional wealth, i.e. family traits, is essentially the main goal in itself (Gómez-Mejía, Haynes, Núñez-Nickel & Moyano-Fuentes, 2007). Other traits of family firms include strategic proximity, a close involvement and knowledge about the core business, and long-term perspectives (Sirmon et al., 2008). Family firms are not as
dependent on short-term results and instead want to develop sustainable capabilities in the long-term. Sirmon et al. (2008) also point out that family involvement has had both positive and negative results, so it is not clear that family involvement automatically translates into positive results. Even though Welch & Nayak (1992) suggest that the make or buy decision should be about strategic and technological matters, it is mostly about short-term reduction of costs, and since it is a theory of firms in general and not family-firms specifically, it is all about financial goals. Then, family family-firms and their pursuit of non-financial goals and make or buy theory is a combination of theories that have yet to be explored. It is not at all clear how the make or buy decision, which is so centered around short-term reduction of costs and financial goals, takes place at a family firm which values the opposite of financial goals, namely non-financial goals.
1.1.2 Gaps
Chrisman et al. (2005) proclaim that in general, theories of the family firm have just begun to be developed, there is little research done on how family firms exploit unique resources and capabilities, and so they argue that a strategic management perspective should be included in the theories of the family firm, and one valuable way to go about this research, they argue, is to apply mainstream theories of the firm to family firms. Also, Chrisman, Steier
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& Chua (2008) call for research on how family involvement influences strategic management. Westphal & Sohal (2013) claim that research on the make or buy decision is lagging behind practice and is risking to lose relevance, and Kremic, Icmeli Tukel & Rom (2006), state that the make or buy research is lacking in providing tools and guidelines to make or buy decisions.
Here gaps in the literature have been identified, where a single case study has the potential to reveal in detail how the make or buy decision takes place at a family firm. Two current make or buy decision models will be used as references in this study where the aim is to develop a decision model that is (1) more fit for purpose and can provide tools and guidelines to practitioners and that is (2) adopted to the specific capabilities of a family firm. This study will combine general theories of the make or buy decision, including make or buy decision models, core competencies and the resource-based view (RBV) with theories of family firms including. The aim of the study will be achieved by a qualitative method of the case study, where the collected data consists of interviews and documents from archival records and Väderstads intranet. So, this study will look into the make or buy decisions at Väderstad AB, a family owned OEM that deals with decisions of make or buy on a large scale, with many thousands of parts included in their final machines, and decisions made daily whether to make or buy. There is no existing research looking at the qualitative non-financial goals and factors in family firms and how it affects the make or buy decision.
1.2 Purpose and research question
This master thesis studies the make or buy decision at a family firm. The aim is twofold, namely, to explore the potential uniqueness of family firms within the context of the make or buy decision and then to create a make or buy decision model for a family firm. This aim is explorative, i.e. to generate theory, in the realm of family firm research. To achieve the aim, the following research question is formed:
RQ: What role do financial and non-financial goals play in the make or buy decision at a family firm?
1.3 Delimitations
The distinction between the ‘make or buy decision’ and ‘outsourcing’ is vital to this study and deserves to be clarified here. The make or buy decision involves, in the instance of a manufacturing firm, two choices. Items (1) should be produced in house/insourced (make)
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or (2) bought in the market/outsourced (buy). From this it follows the make or buy decision, which is the bigger picture, where outsourcing (buy) is one of two choices (the other choice is ‘make’). With this distinction made clear, this study’s main concern is the make or buy decision, including both make and buy and not one or the other (e.g. only outsourcing specifically).
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2. Literature review
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This chapter introduces the theoretical concepts and previous research relevant to the make or buy and family firm research field. The chapter starts with make or buy theory, including make or buy models,
manufacturing parts in-house, outsourcing manufacturing to external parties, core competencies and then continues with family firm theory.
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The literature review was conducted to establish a theoretical framework, consisting of theoretical concepts and empirical evidence, which provided the basis of this study: what is the current situation in the given context, and what can be studied further? All the articles in this study were found through the database ‘Primo’ of the Jönköping University Library. All articles are peer-reviewed and published in journals that have three or more in ABS rating. Some of the search words that were used are: make or buy, purchasing, sourcing, manufacturing and family firm. At first the literature review covered a broader area, as the scope of the research had not yet been identified, but as the literature review process went on, the research scope became clearer and more focused. The literature review is ordered into different themes. The big bulk of the literature review was conducted in the beginning of the research period in January and February, but continued through all spring, as some bits of literature were added here and there. The order of the literature review is to provide a solid understanding of the topic discussed. First make or buy decision is discussed in general, then each part i.e. make and buy is discussed in more detail followed by core competencies and then finally family firms and non-financial goals.
2.1 The make or buy decision
In their study, Welch & Nayak, (1992), made arguments that the decision to make or buy is the most fundamental part of manufacturing strategy. The decision if a firm should be vertically integrated i.e. produce most components themselves, or if components should be sourced from various suppliers to perform assembly through the combination of inputs from many suppliers to produce a finished good is central to production. The sourcing dilemma continues to be a central part of what to make and what to buy. While cost always is of great importance when making decisions, a shift towards more strategic and technological focus is important in conjunction with these decisions. As many companies solely focusing on cost have experienced, they start to wither, and eventually die. On the other hand, companies that
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focus strategically on sourcing models together with cost analysis are more likely to move towards world-class stature in terms of sourcing decisions.
Tayles & Drury (2001), said that a company can use a model to integrate cross-functional activities, and get better insight into capital allocation and purchasing, which help to make better make or buy decisions in order to follow the strategic direction the company wants to take. Thus, a model is useful because it helps the company to bring various considerations into a framework that facilitate the make or buy decision. As a result, a model is helpful in making sure that key issues are dealt with accordingly when it comes to important decisions. However, it is important for a company to not fully rely on a model to make decisions for them, because it is still important to have management judgment as part of the make or buy process, although, a model can help to bridge the gap of information needed for management decisions. Finally, Sako, Chondrakis & Vaaler (2016), stated that the design of a company's supplier portfolio and the make and buy decision are mutually reinforcing and theories can help the firm to benefit by accounting for the dynamics in studying the internal boundaries of the company.
2.1.1 A decision tree model
(McIvor, 2000) present a generic framework that divides the make or buy decision into four steps (see Figure 1.) Here, the first step is to perform a distinction between the company's core and non-core activities to get a good foundation of where the company stands. This will help to easily distinguish between what should or must be outsourced (non-core activities), and what the company should produce in-house as part of their core activities. In the second stage, a value chain analysis is to be made of those core activities identified in stage one. Here, the internal capabilities should be compared to those of potential suppliers' capabilities. This benchmarking of core activities performed internally will help to provide strategic input to the decision making going into stage three, where a total cost analysis is to be made. In stage three, a cost analysis is to be performed on each activity required to be performed internally in order to arrive at the total cost of producing the good in-house. This cost analysis is to be compared to the total service cost of outsourcing the activities to external providers, and thus, work as strategic input to determine the best way to go. In the fourth and final step, a full comparison and contrast is to be made between the option of performing the production with internal capabilities, or to outsource the production to an external partner. This step is referred to as the relationship analysis, where a final determination is to be made
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on which decision the company should make. Here, the strategic approach must consider whether or not the suppliers that can provide the service are compatible and if they are a threat that could potentially harm the company in the future, which will impact the outsourcing decision. On the other hand, the company must also consider whether no compatible suppliers exist, and if they are no threat to the company. This could result in the recommendation that the firm should invest the necessary capital in order to be able to perform the activities in-house.
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2.1.2 A holistic model
Cánez et al. (2000) refer to five make or buy frameworks (Welch & Nayak, 1992; Venkatesan, 1992; McIvor, Humphreys & McAleer 1997; Probert, 1997; Cox, 1997) and come to the conclusion that these previous models are too aggregated and simple to capture the complexity of the outsourcing decision. Still, Cánez et al. (2000) credit these models for being of help when forming a make or buy strategy, but because they are too simple, they leave out factors which they argue are very much relevant. Cánez et al. (2000) then themselves create their own make or buy framework (see Figure 2), that strives to capture the complexity including all relevant factors of the outsourcing decision, and this model is more holistic they say.
Figure 2. Make-or-buy framework (Cánez et al., 2000)
There are four larger parts in this model: the external environment, triggers, areas and factors, and performance measure, and it is implied that the process of following these four parts is linear, i.e. it starts with the external environment and continues with triggers and so on. As for the external environment, this is something the firm has little or no control over. Price competition is a typical external environment dimension that firms face and which they cannot do anything about. The external environment usually turns on the triggers. The triggers simply are reasons to take a make or buy decision, and a typical trigger could be cost reduction, which could be due to price competition (the external environment). Then factors are clustered into four areas, (1) technology & manufacturing, (2) cost, (3) supply chain management & logistics and (4) support systems, and each area consists of a number of
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factors. Finally, there are the performance measures, and these are criteria to which the make or buy decision are measured. Note that the performance measures are linked to the triggers, and for instance if the trigger is cost reduction one suitable performance measure could be cost savings. The arrows in the model coming out of the performance measures indicate that the internal process and actions within the company feedback into the external environment again, implying that the company has effect on the external environment and this is somewhat of a self-reinforcing cycle.
2.2 Manufacturing parts in-house
Make or insourcing refers to the business practices performed internally at the own organization, using its own operational infrastructure to perform tasks. This is the opposite of outsourcing where an external party is hired to perform a task (Wisner, 2012). A product is considered to be produced in-house (make), when 80 percent or more of the unique product requirements are performed internally. If less than 80% are produced in-house, the product is considered as part of outsourcing (buy) (Parmigiani, 2007).
In their study Sundquist et al. (2015), stated that the decision to make products in-house affect the utilization of resources. First, the existing resources are altered since a new resource set-up is necessary because there is a new interface between resources when a change takes place. Secondly, in terms of bringing home production that has been outsourced before, new investments are often necessary. Third, the change in strategy between make and buy affects the firm's ability to access resources of business partners. According to Drauz (2014), the most common reasons for making products in-house are: higher flexibility, lower dependency, quality control and core competencies, which are discussed further in the next section about motivations, benefits and risk with insourcing.
2.2.1 Motivations, benefits and risks with manufacturing
In their study Sako et al., (2016), looked at fortune 500 companies and found that companies with many less stable and capable suppliers leaned towards making products in-house. Also, companies with a high supplier concentration and stability leaned towards more insourcing to improve their risk mitigation and deal with balance of power in terms of being dependent on suppliers. According to Parmigiani (2007), some motivations to make products in-house are, for example, avoiding high supplier dependency i.e. when markets are thin or narrow where there are not many sources available. Also, performance uncertainties, where a firm
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cannot fully rely on external partners to perform tasks. In addition, supplier dependency was also stressed by Tayles & Drury (2001), where a market with few suppliers, or one dominating one, is a high risk which makes companies more inclined to produce themselves. According to Wisner (2012), there are several reasons for firms to move or keep production in-house (make): 1) Protect proprietary technology: If a company has developed or invented a product, processes or technology that gives them competitive advantage, it is in their interest to protect it. This helps to avoid competitors to get hold of sensitive information, thus, it helps to give the company an advantage when releasing new products to the market to get ahead of their competition. 2) No competent supplier exists: If there are no sources available on the market with necessary technology or capabilities to meet product requirements, the firm might not have a choice but to make it themselves. 3) Quality control: If the firm has the capabilities and knowledge to produce themselves, the control over design, manufacturing process, labor and other inputs can be better controlled in order to ensure that the product is of high quality. 4) Usage of idle capacity: In the short-term a company could choose to produce products in-house in order to increase capacity utilization. 5) Logistics: If a company makes the product in-house, they can gain better control over lead times and costs associated with logistics. This is possible through the management of all phases associated with production from design to delivery. 6) Lower cost: If the product is within the company’s core competencies, the costs related to technology, capacity, managerial and labor can be more economically viable, where fixed costs are often higher, but variable costs can be much lower than outsourcing the product to an external party.
2.3 Outsourcing manufacturing to external parties
Strategic outsourcing is defined as “organizing arrangement that emerges when firms rely on intermediate markets to provide specialized capabilities that supplement existing capabilities deployed along a firm’s value chain”, and it can take the form of either (1) outsourcing current production, where outsourcing is a substitution of production, or (2) outsourcing production that the company never had to begin with, meaning that the company from the get go in the development of a product take the strategic decision not to manufacture in-house (Holcomb & Hitt, 2007). Further, Holcomb & Hitt (2007) outline the distinction between strategic outsourcing and strategic purchasing, where the latter constitutes more of routine decisions and ongoing processes, such as dealing with suppliers, contracting and procurement, and where the former in contrast is the not as common and it involves more of organizing aspects, to find partners that can provide specialized capabilities. Global
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sourcing is another specific form of outsourcing, which has become more prevalent in recent years, where the firm turns to the global market to outsource their in-house manufacturing (Jia, Lamming, Sartor, Orzes & Nassimbeni, 2014).
2.3.1 Motivations, benefits and risks with outsourcing
Kremic et al. (2006) gather the vast amount of research on outsourcing for the two decades prior to 2006 and present commonalities such as the motivations, benefits and risks with outsourcing. Firstly, as for (1) motivations, they conclude that it is cost, strategy and politics that drive companies to outsource. Cost reduction can be achieved because the supplier has achieved specialization and economies of scale on a particular product, that the focal firm has not. Strategy concerns such issues as core competencies and flexibility. The concept of core competencies suggests that activities that are non-core should be outsourced, and the resources that are subsequently released are then available to be invested in core core activities. As for politics as a drive to outsource, this concerns public organizations, which is not relevant to this study, and so no explanation will be given further to this driver. Then, continuing with the expected (2) benefits of outsourcing, the study by Kremic et al. (2006) summarises a lot of different benefits (derived from a great number of other studies): cost savings, reduced capital expenditures, quality improvement, increased speed, access to latest technology, access to skills, etc. Finally, as for (3) risks connected to outsourcing, these among others include unrealized savings or hidden costs, poor contract of selection of partner, loss of knowledge and skills, power shift to supplier and poor performance of suppliers.
2.4 Core competencies
When it comes to core competencies, a solid understanding of one's own company helps to make sure that internal resources can be maximized and allows the firm to exploit its core competencies and, thus, focus on what they do best. Core competencies consist of both individual technologies and production skills, that work as the foundation of a company's product lines. An organization's make or buy decision should preserve and exploit its core competencies, and avoid measuring competitiveness only in terms of price, since it could erode those same core competencies. A core activity is a central component of a firm's ability to deliver value to customers, and acts as a driving force in gaining competitive advantage (Moschuris, 2007). This is further supported by McIvor (2000), that states that core competencies include the skills, knowledge and technologies in which an organization has in
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its possession and its success depends on. Outsourcing decisions are among the most strategically important choices a company can make, since they deal with the basic choice of which functions the organization believes internal expertise has developed and can be nurtured and for which expertise need to be purchased. As a result, the function of make or buy decisions has a significant impact on profitability and the financial sustainability of the firm. Make or buy decisions can therefore impact the overall business strategy, core competencies, and thus, cost structure and its flexibility and ability to compete, which impact customer service (Moschuris, 2007).
2.5 Family firms
2.5.1 Definition, level of involvement and non-financial goals
According to Jayaram, Dixit, & Motwani (2014), approximately 85 percent of businesses in the European Union and 90 percent of US businesses are family controlled. In the world, this number is staggering 75 percent of the top 100 companies, helping one to understand the significance of family businesses. There is a distinction between family firms and non-family firms where uniqueness stems from the involvement of non-family which increases alignment and unification between the ownership of the firm and control (Carney, 2005). Litz (1995) define family firms as: “a business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit, and to the extent its members strive to achieve and/or maintain intra-organizational family-based relatedness”. Gomez-Mejia, Cruz, Berrone & Castro (2011) adds to this that although family firms are typical defined as firms “where a family owner exercises much influence over the firm’s affairs”, it could be that there are non-family members, owners or professional executives that have influences the firm’s affair, but still the firm is considered to be a family firm. In a similar vein, Shanker & Astrachan (1996) sort family firm definition into three levels of family involvement, from broad to middle to narrow, whereas for a ‘broad involvement’ that family is only involved in the strategic direction, whereas for ‘middle involvement’ the family is more involved and in the ‘narrow involvement’ the family is involved as much as can be, in day-to-day operations. With respect to these three levels of family involvement Gómez-Mejía et al. (2007) state the more ‘broad’ the involvement is, i.e. lesser family involvement, the more the family is willing to give up control, and hence equivalently, the more ‘narrow, the involvement is, i.e. more family involvement, the lesser the family is willing to give up control. As a side-note to the family firm definition, Chrisman et al. (2005) state that family firms need not only involvement of family but also certain traits
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like intention, vision and behavior typical of family firms, which means that how much a family firm is a family firm varies. Then, some typical characteristics of family firms are parsimony, personalism, and particularism, and they may lead to cost advantages, facilitate the development of strong social capital, and encourage entrepreneurial investments (Chrisman et al., 2005).
Furthermore, there are oftentimes clear differences between the goals of family and non-family firms, and what makes non-family firms unique is that they often possess non-financial goals at the center of their operations, which can often be at the expense of wealth creation, but on the other hand increase the socioemotional wealth instead (Memili et al., 2011). Socioemotional wealth (SEW) is theory that explains why family firms typically are motivated and committed to non-financial goals (Berrone et al., 2012), and it was developed because there was not any model that could adequately explain family firm behaviour (Gómez-Mejía et al., 2007), given that the non-financial aspect plays a large part in family firms. Some typical non-financial goals of family firms are: perpetuation of the family dynasty, values, harmony, social capital and altruism between family members (Chrisman et al., 2005), and to say that non-financial goals are prioritized before financial goals means that these non-financial goals are more important than firm performance in monetary terms. The idea why family firms rank non-financial goals before financial goals is because they want to preserve the family, and so to preserve socioemotional wealth, i.e. family traits, is essentially the main goal in itself (Gómez-Mejía et al., 2007). The following text consists of various traits specific to family firms and related to socioemotional wealth.
Family ownership appears to affect strategy proximity and persistence, because long involvement of family members give great knowledge about the core business, and persistence which allow for long-term perspectives with focus on stability and patience, which often lead to comparative advantages (Sirmon et al., 2008). Family businesses attitude towards growth is often reflected from the owners’ risk appetite and professional management. Capabilities of family firms is that they are more independent which is often portrayed in their strategic investments and development of sustainable capabilities which stems from a long-term orientation, which allow them to take on more risky strategies, and as a result can help to outperform non-family firms (Jayaram et al., 2014). On the contrary to this, Porta, Lopez-De-Silanes & Shleifer (1999) postulates that concentration of ownership may turn family firms risk averse to the extent that it may correspond to lesser economic
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growth. In a similar vein, Gomez-Mejia et al. (2011) find family firms have a lower R&D expenditure and technological diversification, i.e. a lower degree of innovation, which they argue to be because family firms perceive innovation as a potential risk that may decrease the socioemotional wealth. Further, research shows that family firms can be more effective by professionalizing their management and governance bodies (Jayaram et al., 2014). However, the downside of family involvement on firm performance, could be for example, that strategic proximity could lead to groupthink, alienation, and strategic simplicity (Sirmon et al., 2008). Sirmon et al. (2008) point out that family involvement in businesses has had diverse results, both positive and negative, so it is not at all clear that family involvement automatically means positive results.
2.5.2 Family firms and RBV
The resource-based view (RBV) is one theory that has been employed to understand family firms. The resource-based view of a firm is concerned with how internal resources and capabilities are managed in order to create competitive advantage. RBV explains how firms can outperform competitors not by the products they deliver but by utilizing their internal resources more effectively, including both tangible and intangible resources like human capital, financial resources, knowledge and technology (Weele & Raaij, 2014). Further, the key insights of the RBV and make or buy decision is that 1) a company should not outsource capabilities that create competitive advantage, and 2) buying and alliances may be vehicles for obtaining capabilities, and 3) the company should choose sources that are complementary to their own capabilities (Shook, Adams, Ketchen & Craighead, 2009). As to family firms and RBV there is the ‘familiness’, which is a combination of resources and capabilities unique to family firms (Habbershon, Williams & Macmillan, 2003), and the idea of family firms and RBV is that family firms must identify strategic resources that not only leverage their family ties but also are sustainable in today’s fierce competitive landscape (Eddleston, Kellermanns & Sarathy, 2008). Sirmon & Hitt (2003) study resource management in family firms and explore five unique resources that provide competitive advantage: human capital, social capital, patient financial capital, survivability capital and governance structure attributes. We limit ourselves in this study to four out five of the uniqueness’ as they are more relevant to the make or buy decision. In general terms human capital deals with knowledge, skills and capabilities. On a personal level, “human capital represents the acquired knowledge, skills, and capabilities of a person that allows for unique and novel actions" (Sirmon & Hitt, 2003). Sirmon & Hitt (2003) also state that in a family firm, the positive aspects of human capital
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may include strong commitment, intimate relationships which often lead to deep tacit knowledge about the firm, whereas a negative aspect of human capital include path dependencies. Colbert (2004) and Hatch & Dyer (2004) add that human resources (similar to human capital) that are built up by complex social structures over time have the potential to become very valuable and difficult to imitate, in other words real assets in terms of competitive advantage. Social capital refers to structural, cognitive and relational dimensions of the firm. Structural deals with network and configuration, cognitive deals with the shared narratives and language within the firm, and relational is the norm in the firm. As to the relational dimensions of the firm, this refers to relationships to customers and suppliers, and Adams, Taschian & Shore (1996) state that it is essential that family firms satisfy these as to avoid social and reputational sanctions, and thus to keep a legitimacy and reputation. Further, Milton (2008) states that relationships are a potential source of competitive advantage. Family firms can often be very successful in creating environments which result in very strong social capital that is then leading to stronger relationships with suppliers, customers, and support organizations (Sirmon & Hitt, 2003), and as Carney (2005) puts it, family firm tends to develop this social capital, or goodwill, in relationship on a long-term. This social capital acts as a social insurance in bad times when the stakeholders, i.e. customers and suppliers will give the family firm the benefit of the doubt (Godfrey, 2005). Sirmon & Hitt (2003) said that “a firm’s social capital affects its ability to acquire resources. For example, a firm’s relationship with suppliers affects its access to valuable external resources (e.g., raw materials, capital). A firm’s social capital contributes to its legitimacy with the firm’s constituencies, an attribute of particular importance for smaller and entrepreneurial firms.” Patient Financial Capital is more constrained for family firms as they do not share equity with non-family members and can thus not access capital markets to the same extent as nonfamily firms. However, the structures of finance can often be more advantageous as family firms often have a longer orientation and are thus not as dependent on short-term results (Sirmon, & Hitt, 2003). The fourth and last uniqueness is Governance Structure and Costs which revolves around the central question of control over the firm, including aspects such as incentives and monitoring (as to keep control over the firm). Family firms typically lack a need of control, i.e. there is no need for incentives or monitoring as to keep control of the firm, the firm can function well without those (Sirmon & Hitt, 2003).
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3. Methodology
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This chapter explains the methodological matters such as research method, the case company, data collection, data analysis and research quality. Here it is explained how the study was carried out.
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3.1 Research method
As for research philosophy, this study takes the ontological view of relativism and the epistemological view of social constructionism. Ontology concerns “philosophical assumptions about the nature of reality” (Easterby-Smith, 2015), meaning how many truths there are and what are facts. As to the ontology of relativism, this view holds that there are many truths and that facts depend on the perspective of the beholder. Then, epistemology concerns “a general set of assumptions about ways of inquiring into the nature of the world” (Easterby-Smith, 2015), meaning what is ‘reality’ and how it should be studied. As to the epistemology of social constructionism, this view holds that reality is socially constructed, meaning that reality is not objective but constructed by people, and that people may have different views on what is reality. The focus of social constructionism is thus to explore the different views of people, and not to look for causality and fundamental laws as is the focus in the positivist tradition.
This is a qualitative study and more specifically it is a case study methodology. The focus of case study research is to understand dynamics in single settings (Eisenhardt, 1989), or in the words of Yin (2003), to study a decision or set of decisions (or processes, organizations etc.), and a key word here is complexity. The one main concern of the case study is to offer a rich and complex explanation to a particular “real-life” context, and this is done by exploring various perspectives (Leavy & Simons, 2014). The main rationale of this study is that of the ‘critical case’, meaning, to test theory, i.e. confirming, challenging or extending theory (Yin, 2003), i.e. the aim of this study is to build theory. Now, regarding deduction and induction, this study involves both, but mainly it should be regarded as an inductive. Although there was a literature review in some type of unfinished iteration at the start of the data collection, which would point to the study being deductive, it was the data collection that very much gave the area of focus to the study, narrowing it down further than the literature review pre-data collection could achieve. This relates to the question of whether theory or pre-data should come first, to which Easterby-Smith (2015) says that theory and data may come interactively, and not necessarily one before the other. The focus of the literature review was on the make
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or buy decision in a manufacturing family firm because this was something that the family firm under study wanted to develop. This suggests that the fundamental concept of the make or buy decision initially came to the researchers as data and not theory, but theory nonetheless was indispensable, as it helped in adding richness and shaping the research scope. The study followed the data where it led the researchers.
Unit of analysis is the basis of a sample, which concerns ‘what is the case’ (Yin, 2003). This case study involves one company, making this a single case study. Yin (2003) also points out that it is important that the unit of analysis is similar to previous studies in order to enable a sufficient comparison between the given study and previous studies.
3.2 The case company
The case company in this study is Väderstad AB. Väderstad AB is a family owned original equipment manufacturer (OEM) that produces agricultural machinery (Highly Efficient Farm Machinery - Vaderstad, n.d.). The company was first founded by Rune Stark in 1962 and is now run by the second and third generation of the family. With over 1000 employees at the site in Väderstad, and over 1500 employees worldwide they are considered a large company (according to Basfakta om företag, (n.d.) a company in Sweden with over 250 employees is classified as large). As of 2019, the company experienced yet another record-breaking year reaching 3.35 Billion SEK in turnover (Väderstad Experiences New Record Year, n.d.). The company headquarters is located in the southern part of Sweden in the town bearing the same name, Väderstad. Besides the manufacturing site in Väderstad, Väderstad Group also owns and operates production facilities in Överum, Sweden, and Langbank, Canada. Väderstad AB manufactures a variety of agricultural machinery, with a breakdown of 60 different product categories and 180 subcategories covering a range of over 7000 items with forecasts involved in the final products. Also, there are several thousand additional parts for aftermarket and customizations that the end customers might add to their machines. The machines manufactured by Väderstad are grouped into three categories: tilling, drilling and planting. As a result of being a manufacturer, with such a large amount of items included in their final machines, Väderstad constantly needs to deal with make-or-buy decisions: Väderstad makes some items in-house and buys (outsource) some on the market from external suppliers. Further, at Väderstad the majority of the board members are family members, which means that all of the strategic decisions come from or need to be permitted by family members. Väderstad is wholly owned by family members. As to operating the firm
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there are only a few positions held by family members, e.g. the business developer and one member in the ‘innovations-group’, and this points to that Väderstad in terms family involvement relate to the category of broad involvement by Shanker & Astrachan (1996), meaning that the family is typically only involved in the strategic direction of the firm and not the day to day operations. As for sampling, Väderstad was selected to be studied because they are a family firm and a manufacturer and because the make or buy decision is such a central part of their business. Furthermore, Väderstad were interested via this study to increase their knowledge on the make-or-buy decision, and willingly allowed the researchers full access to data, including flowcharts, routines, product information, and the possibility of interviews, and this enabled the study a deeper penetration of learning.
3.3 Data collection
The data collected in this study involved interviews, and archival records. These data sources are amongst the most used ones in case study research (Leavy & Simons, 2014). The interviews are primary data sources, i.e. the data was created for this study, whereas the archival records were a secondary data source, i.e. it existed prior to and without this study. It can be added that interviews made up the bulk of the data collected, in that they were more important and more resources were spent in creating and facilitating these, but the archival records nonetheless were valuable in providing a picture of the company early on in the research as well as a reference to compare the results to.
3.3.1 Interviews
The interviews involved fourteen interviewees. Each interviewee was interviewed one by one except for the project buyers, who were all three interviewed collectively. The interviewees were selected based on what they were working as, with the intent from us the researchers to cover the whole make or buy picture, including all of the concerned parties at Väderstad and operational and strategic decision takers. The interviewees are listed in appendix I. The ERP coordinators work with the make or buy decision operationally, they are the ones taking the make or buy decision. The concept and processing manager is the manager of the ERP coordinators. Then there are the purchasers, ‘category manager’ and three project buyers, who facilitate purchasing, i.e. the external part of the make or buy decision. The component manager and assembly manager are on the production side of things, they are working with in-house production. Then there are the purchasing manager and the purchasing director of which the latter is currently on the board, and the former were previously on the board, and
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these had insights on the make or buy decision from a strategic perspective, in terms of investments and such. Finally, there is the CEO, who also has a strategic perspective on the make or buy scheme of things.
The interviews lasted about half an hour each, they took place in Väderstad, they were audio recorded, and both of us the researchers were present at each of the interviews. The interviews were conducted in a semi-structured way, meaning that the interviews were open-ended and that a framework of interview questions, a so-called topic guide, was used to provide us with direction. The topic guide was organized into opening questions, questions covering the key topics, and closing questions. The opening questions regarded the interviewees profile, and the key topics were questions on the make or buy decision and the company culture (the topic guide can be found in appendix II). Yin (2003) points out that interview questions should be easy to understand and that they should avoid
theoretical concepts and jargon. Then, about the open-endedness of the interview questions, this means that the interviewees responded and reflected more freely. Further, this style of interviewing can potentially create a dialogue between the interviewer and the interviewees. Easterby-Smith (2015) adds that besides questioning and listening, the interviewer should interpret the interviewees beyond the immediate response by paying attention to silences and what they do not say. The interview started by us asking the consent of the interviewees, then the topic guide was followed, after which the interviewees were asked if they had anything to add, and lastly, they were asked for follow up contacts. The interview questions were formed as a result of the literature review, the purpose and research question.
Easterby-Smith (2015) brings up the issue of interview bias, which is where the interviewer imposes a reference frame on the interviewee when asking questions and interpreting the answers. This could not be totally avoided since the interview questions did come from a frame of theory and previous research, but the researchers were anyway aware of this issue and deliberately imposed as little as reference frame as possible on the interviewees. 3.3.2 Archival records
The data of archival records constituted of organizational reports, documents, maps, charts and articles. The data was collected predominantly in the beginning of the research period, by accessing the database as well as the website of Väderstad. As Leavy & Simons (2014)
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point out, analysis of documents, and archival records, are helpful in providing antecedents and the policies in the company. Still, archival records might suffer from systematic biases, such as the widely known bias in newspapers reporting crime, where the newspapers over-emphasize some types of crimes (Yin, 2012).
3.4 Data analysis
According to Grbich (2013) there are two stages before data analysis can be conducted: transcription of the data and preliminary data analysis. So, first the audio recordings of the interviews were transcribed, and then as to the preliminary data analysis, this involved looking into the data briefly, to identify areas that needed follow up, and questioning where the data led us. All of the data was collected into one place, a so-called case study database. Face sheets were created for each of the interviews, which contained identification and summaries. Then as for the analysis-technique, this study used the concept as developed by Gioia, Corley & Hamilton (2013). This analysis concept involves so called 1st order concepts, 2nd order themes and aggregate dimensions, which together form the data structure. Practically, the actual analysis of the raw data started by identifying a vast number of categories, which is so called the 1st order concepts. Then, similarities and differences were sought in these categories, and ultimately the categories were distilled into less (as in numbers) categories which were subsequently labelled, and these are the 2nd order themes. In trying to find structure amongst the 2nd order themes a larger narrative was considered, i.e. trying to see ‘the bigger picture’ of it all together. Also, the themes were compared to theory (existing prior to the study), and the idea here was to focus on themes that appeared not to be covered in the theory, i.e., novel themes. This idea of Gioia et al (2013) by comparing data themes with theory is more or less identical with Yin’s (2003) concept of ‘pattern matching’, i.e., to match patterns in data with patterns in the theory. Then, these 2nd order themes were like the 1st order concepts before them also further distilled into less categories, so called aggregate dimensions. Together the 1st order concepts, 2nd order themes and aggregate dimensions formed the data structure, and this is the whole picture. The data structure is visualized in a model in chapter 4. This visual model helped us researchers in the analysis process, and it creates a chain of evidence available to the readers. It should be noted that some of the concepts and themes that emerged in the analysis were interpreted slightly differently by the researcher, and to settle this we revisited the data, discussed and came to consensual interpretations. Finally, as Yin (2003) points out is important, in order to create
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a high-quality analysis, we sought to attend to all of the evidence, rule out alternative interpretations and considered rival interpretations.
3.5 Research quality
In concern of the quality of a case study design, Yin (2003) states that the four important conditions are: (1) construct validity, (2) internal validity, (3) external validity and (4) reliability. Internal validity is not included in the text below, as it is not relevant to exploratory case studies such as this one.
3.5.1 Construct validity
Construct validity concerns the correctness of the constructs: are they the right measures to use for the given study? This is problematic for case study research, and typical criticism is that the case study researcher is subjective and fails in establishing correct measures. To establish right measures there are two steps, namely (1) selecting the right measures and relating them to the main objective, and (2) demonstrating that these measures do reflect the event that is studied. As to the first of these steps, selecting the right measure, this study did that by reviewing the literature and identifying what measures other research typically have. Practically this means that we identified make or buy theory and family firm theory. Then in regards to the second step, to demonstrate that the chosen measures are correct, this study followed the three suggested tactics outlined by Yin (2003), namely, to use multiple data sources, create a chain of evidence and have the case study report reviewed by key informants. The idea of using multiple data sources, is to corroborate the empirical evidence from different lines of inquiry. The data is then said to be triangulated, and in fact, case studies are recommended to use multiple data sources, which is one of the strengths of the case study method. Chain of evidence will be explained in the text connected to reliability below. Finally, having the case study report reviewed by key informants increases the accuracy in that the key informants are experts on the given matter and so can agree or disagree on the facts in the study. Yin (2003) argues that it may be acceptable that the key informants disagree with the researchers' interpretations and conclusions, but they should not disagree with the actual facts of the study.
3.5.2 External validity
External validity concerns how the study’s findings can be generalized beyond the case study. This has been a problem for case study research, as typically, it is criticized for giving poor possibilities of generalization. However, this type of criticism is from researchers in the
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positivistic paradigm, who claim to achieve generalization by statistical tests, and according to Yin (2003) this is not relevant to case studies, which instead should rely upon analytical generalization. The idea of analytical generalization is not to generalize the findings to other cases, like statistical generalization, but to generalize the findings to theory. In principle, the findings are generalized to the extent that the findings confirm the theory. Similarly, Easterby-Smith (2015) states that whereas quantitative research claims to be objective and strives to draw conclusions to other settings than in the study, qualitative research is subjective and strives to draw conclusions in the given settings.
3.5.3 Reliability
The goal of reliability is to minimize errors and biases (Yin, 2003), meaning, that the procedures of the research should be documented and described as operational and clear as possible, so that in principle it would be possible to carry out the same research with the same results again. Even so, Easterby-Smith (2015), argues that most often qualitative research cannot be replicated, as they study “a particular setting at a particular point of time”. Historically case study research has been criticized for having poor documentation, which has raised concerns of reliability. The two tactics that Yin (2003) suggests to overcome the shortcomings of reliability are: to use a case study protocol, and to develop a case study database. The case study protocol contains an overview of the study, field procedures and general research questions. This provides guidance and improves the reliability in the data collection. Then, regarding a case study database, this is a place where raw data is stored, and presentable available for inspection. The idea is that other researchers should be able to access and review the empirical evidence in the database, and Yin (2003) claims that this greatly increases the reliability of the case study. A case study database consists of four components: (1) notes (from interviews, observations etc.), (2) documents, (3) tabular materials (like matrices and such) and (4) narratives (which is a special practice where the researcher creates open-ended answers to the questions in the case study protocol). Finally, a study should maintain a chain of evidence, where the idea is that the progression of the study, from the initial research question to the conclusion should be so clear as to allow an external observer to follow the process of study. Adequate procedures for chain of evidence includes sufficient citations to the database, accurate display of evidence in the database and the protocol linking to the initial study questions.
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3.5.4 Ethics
There are numerous issues pertaining to ethics. In this study, we follow the key principles as put forth by Easterby-Smith (2015). This includes ensuring consent from the research participants, ensuring confidentiality of the research data, being explicit and honest about the aim of the research and in the communication about the research, and report the findings as objectively as possible. Further, we the researchers wish to disclose that Rasmus Skarphagen, one of the researchers, worked at Väderstad at the time of this study.
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4. Findings and analysis
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This chapter presents the empirical findings and the analysis of literature and empirical data. The chapter is divided with regard to the underlying research question. First, we present our results that have contributed to the identified themes important for make or buy decisions at Väderstad AB. Secondly, an analysis including the most important insights gained from this.
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4.1 Findings
Our empirical findings illustrated in the Gioia matrix below have resulted in six second order concepts that pertain to family-firm specific themes that help answer our RQ. These themes are in more detail: Innovation through customers, Preferences of manufacturing in-house, Cementing working practices, Lesser cost drive, Supplier relationships and Buying receives less attention, and they are further presented on the next page:
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4.1.1 Innovation through customers
The goodwill of the customers and innovation are more important than costs to Väderstad, and this view permeates through the rest of the organization. Customers and innovation essentially constitute the starting point which carries over an effect on everything else. As to the goodwill of the customers at Väderstad, this involves producing a high-quality product, being there for the customers and supporting them and delivering products when needed and listening to requests on changes of the products. Therefore, quality of the product, being available to the customers, and listening to the customers are hallmarks of the Väderstad brand aimed at maintaining or increasing the goodwill of the customers. Listening to the customers means that when Väderstad designs agricultural machines they pay attention to what methods the farmers are using, as well as the development of these methods, and adapting the machines according to the farmers' requests, or in the words of the CEO who previously worked at Volvo and by comparing Volvo and Väderstad comes to the conclusion of the following dissimilarities:
“At Volvo, the will to invest and the driving force behind the development were governed by the economic situation alone, and I don’t think that we worked as principled and strategic as we do here. Here it is more connected to the well-being of the product and the well-being of the customer, at first hand” (interviewee N) “At Volvo for example, it was governed by economics since there were business economists in the business management, and this causes caution, and you need a belt and suspenders on every decision you take, and then nothing gets done. Here it very much revolves around ensuring that we keep up in terms of innovations, that we follow the development of methods and that we invest in what the farmers want” (interviewee N)
Then as to innovation, this follows as a result of listening to the customers and following the development of methods. Innovation is a top priority for Väderstad, and it is an additional hallmark of the Väderstad brand. The focus on innovation is so big that Väderstad is more of a “prototype-workshop” rather than a manufacturing plant. In fact, this emphasis on innovation translates into a lot of prototypes, meaning that many of the produced machines are unique, which cannot always be implemented effectively into the manufacturing operations. Also, Väderstad prefers to own the manufacturing process in-house to enable innovative capabilities, and the designers developing new products are very eager to experiment with new manufacturing capabilities whenever Väderstad invests in them. Väderstad did indeed invest in a tube laser cutter some years back, and they are currently also
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investing in a sheet metal laser cutter. However, innovation does not necessarily come at an efficient cost, so, from a manufacturing point of view it is more important to be innovative than cost efficient, even though costs can of course not be disregarded. The component manager confirms this picture of innovation at Väderstad:
“We are a development-workshop. If one looks at our manufacturing and compares it to Volvo, we are a pure prototype-workshop. Not a lot of products that roll out are the same, even if we talk about the same machine to be honest, and that is also because we are so customer-centred of course. We thrive on our innovative drive.” (interviewee L)
“The sheet metal laser is a major investment, and when I think of the discussions we often have, if we are talking about development and designers, they love to have something that they can experiment with, it's great that way, but when it comes to the costs, it happens that we outsource manufacturing because we are so expensive manufacturing in-house…” (interviewee L)
4.1.2 Preferences of manufacturing in-house
Väderstad has a long history and passion for producing machines and parts in-house. From the start of the company in 1962, Rune Stark did not have many resources but a strong will and drive to solve problems that he faced in his workshop and find innovative solutions. These values have followed the company throughout its history and are still significant today. Therefore, it does not come as a surprise that Väderstad prefers to produce as much as they can in-house. The owner family have always been clear that Väderstad AB shall have production in Väderstad, the town that bears the same name. This has continued with the second generation of the family now controlling the business. Väderstad also has a frame of mind that they like to explore new things and is willing to try out new ways of working in order to learn more. This attitude influences the make or buy decision and is explained by a project buyer who is relatively new at the company:
“... I am new and come from the outside, I have some kind of feeling that Väderstad has started this business as one, here we fix everything, and we can do it ourselves within four walls. Then if it is something that we absolutely cannot do, then we must buy it then, and that feeling I can sense is a bit left in some way, even as you have grown and become bigger and bigger, and gained a product catalog that is huge with great number of part numbers and such. You are still a bit left in the fact that we only buy what we need; had we had an injection mold here it would have been very fun. But that's just a subjective feeling in me” (Interviewee K).
