Impact of Outsourcing on Organizational Performance

Elmuti

The Perceived Impact of Outsourcing on Organizational Performance

Dean Elmuti, Eastern Illinois University

Abstract

Outsourcing is the strategic use of outside resources to perform activities that are usually handled by internal staff and resources. By using a well-managed outsourcing agreement, companies can gain in markets that would otherwise be uneconomical. This study was designed to explore why companies are undertaking outsourcing projects and identifies factors that may facilitate or impede outsourcing projects. In addition, this article examines the relationships between outsourcing strategies and organizational performance. The results show that organizations generally considered themselves successful at outsourcing. However, while they achieved significant improvement in organizational performance, they have not reached the magnitude of improvements ascribed to outsourcing.

The market for providers of outsourced services of all types is growing rapidly.

Introduction

In today’s world of ever increasing competition, organizations are forced to look for new ways to generate value. The world has embraced the phenomenon of outsourcing and companies have adopted its principles to help them expand into other markets (Bender 1999). Strategic management of outsourcing is perhaps the most powerful tool in management, and outsourcing of innovation is its frontier (Quinn 2000). Outsourcing is a management strategy by which an organization delegates major, non-core functions to specialized and efficient service providers, or as Corbett (1999). President of Michael F. Corbett and Associates asserts, “Outsourcing is nothing less than the wholesale restructuring the corporation around our core competencies and outside relationships.” The traditional outsourcing emphasis on tactical benefits like cost reduction (for example, cheaper labor cost in low-cost countries), have more recently been replaced by productivity, flexibility, speed and innovation...