The Outsourcing Debate: Theories and Findings

Abstract

This paper addresses the issue of services outsourcing by looking at both theoretical and empirical arguments. Previous debates have often concentrated on the motives for adopting the practice rather than the outcomes. These various themes can be discussed under the twin concepts of the cost and efficiency argument and the fashion and isomorphism approach. Our research provides strong evidence to support the cost efficiency argument. On average, significant cost advantages were sought and delivered, as well as improvements in service levels and systems. Many organisations in the current environment in Australia look at outsourcing not only as a method of increasing efficiency but also as gaining competitive advantage through harnessing the superior specialist skills and experience of the outsourcing provider who takes someone's back office function and transforms them into their front office. A 10% net cost saving was considered necessary by an organisation before embarking on an organisational change that was disruptive and in some cases involved downside risks. Even if other efficiency gains such as service levels or systems improvements were required, so were 10%+ cost savings. A number of the organisations thought their skills in managing outsourcing had improved considerably such that they were in a position to move from a client/server relationship to a partnership model (i.e. an alliance).