The Organizational Change Implications of Outsourcing

One the of key issues to emerge for many organizations has been the increasing importance of outsourcing. The potential for outsourcing has moved on from those activities that are normally regarded as of peripheral concern to the organization, such as cleaning, catering and security, to include critical areas of activity such as design, manufacture, marketing, distribution and information systems with almost the entire value chain open to the use of outside supply [1]. Outsourcing is now recognised as an area of strategic importance for o~ganizations and one that can contribute to the achievement of competitive advantage. The outsourcing decision can often be a major determinant of profitability making a significant contribution to the financial health ofthe company [2]. Quinn and Hilmer [3] argue that outsourcing has a number of advantages including access to economies of scale, flexibility, the ability to focus on the remaining specialised aCtivities, reduction in overhead costs and a flatter and more responsive organization. During the late 1980s ·and 1990s, some vertically integrated companies have found vertical integration to be competitively inflexible in a rapidly changing business environment. For this reason, companies have become interested in 'quasi-integration' strategies such as joint ventures, strategic alliances, technology licenses, asset ownership, franchising and long term preferred supplier relationships (Schmitz et al., 1995). Large Western manufacturers have been attempting to bridge the gap between the traditional make versus buy decision by combining the strengths of vertical integration and outsourcing in order to achieve vertical integration without financial ownership.