Business outcomes of outsourcing: lessons from management research

Outsourcing has been broadly recognized as an important strategic choice made by companies and other organizations to achieve a wide variety of goals. Many studies have focused on the economic and financial impacts and on the relationship between outsourcers and outsourcees. This chapter offers a comprehensive overview of actual outsourcing outcomes found in management research, including impacts on human capital. Analysis of the evidence on outsourcing in the OECD STAN database (OECD 2011: 1970-2009) shows that both the number of transactions (deals) and their scope (activities involved) have increased constantly during the last 20 years. Over time, outsourcing popularity peaks have coincided with certain trends, such as business process reengineering, strategic focusing on core business, outsourcing/offshoring strategies, shared services and corporate downsizing (e.g. Brunetta and Peruffo 2014). Furthermore, as recent research shows, companies are expeditiously outsourcing non-core business processes and functions in order to maximize their profits. Business profits can be increased through reducing costs and/or via acquiring external sources of strategic differentiation (e.g. higher-quality raw materials or distinctive expertise/competences able to improve the overall quality of products and services, enabling companies to sell them at higher prices) (De Fontenay and Gans 2008; Gospel and Sako 2010; Angeli and Grimaldi 2010; Doellgast and Gospel 2012; Giustiniano et al. 2014). In such a scenario, multinational companies (MNCs) have a wider range of opportunities for outsourcing and offshoring activities due to their scope and international presence. On the other hand, MNCs are exposed to possible changes in employee relations models in the diverse labour markets in which they operate (Marginson and Meardi 2006; Sippola 2011). At company level, the decision to outsource activities is linked to expected structural and strategic changes which can be assessed through the adoption of a long-term perspective. While immediate results are related to purely economic assessments, long-term effects are more strategic and made up of opportunities (e.g. focus on core competencies and pursuit of greater higher specialization) and drawbacks (e.g. less strategic flexibility). Nevertheless, in a company’s strategic plans, management focus is generally on the short-term results due to the (shorter, expected) timespan of their individual assignments and the contingent pressures of shareholders and financial markets. The short-term nature of outsourcing assessments is also a traditional argument used by trade unions and emphasized by the widening geographic scope of outsourcing and offshoring. While unions have been traditionally considered as opposing outsourcing and offshoring (e.g. Lommerud, Meland and Straume 2009), more recent studies have detected a significant shift from resistance to proactive strategies (Ramioul and De Bruyn 2006). Similarly, MNCs embracing outsourcing are better able to interpret the differences existing in national cultures, business practices, workplace representation systems and collective bargaining structures (Anner et al. 2006; Doellgast and Gospel 2012; Pulignano and Doerflinger 2013), contributing to a better local strategic responsiveness in their local subsidiaries (Almond et al. 2005; Arrowsmith and Marginson 2006; Bartlett and Ghoshal 1992). The aim of this chapter is to illustrate the main findings on the expected outcomes as reported in management and financial literature. To achieve this, the chapter explains a number of management paradoxes related to outsourcing, as well as how companies relate to their stakeholders. Management paradoxes referred to include: a) the paradox of financial and economic vs. strategic and organizational outcomes; and b) the time paradox. The chapter draws on previous research conducted on outsourcing antecedents, processes and outcomes, both in general (Marchegiani et al., 2012) and applied to specific activities within the value chain (Gospel and Sako 2010; Doellgast and Gospel 2012; Giustiniano et al. 2014; Brunetta, Giustiniano and Marchegiani 2014; Sorrentino et al. 2015). The focus is on analysing the ‘lessons learned’ reported in management and financial literature to nurture implementation strategies, for use by workers representatives (e.g., Benassi 2011). Among these lessons, it seems useful to affirm that in order to maximise the positive outcomes of outsourcing strategies, organizations have to take into account all the human implications of outsourcing, such as the effects on workers and their representatives. To illustrate this, the investigation on the outsourcing outcomes will be complemented by an analysis of certain aspects related to organizational design (i.e. company boundaries, coordination mechanisms) and labour issues (i.e. human reactions: resistance to change, hidden costs and the loss of competences and competitive advantage).