Potential Benefits of Outsourcing
Unintended Consequences
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Organisations have experienced a variety of unintended consequences due to outsourcing. For instance, Davis (1992) found that in their eagerness to save labour costs, organisations were giving up more of their strategic capability than they anticipated. Bettis, Bradley and Hamel (1992) discovered that outsourcing can lead to industrial decline when organisations make narrowly based outsourcing decisions. Outsourcing, they conclude, can accelerate, rather than reverse, the downward spiral that leaves organisations without the skills and competencies they need to compete. Eckerson (1991) found that outsourcing failed to reduce labour costs as promised, did not reduce total costs and did not improve quality. Kiely (1992) discovered that disclosing outsourcing decisions to soon has devastated employee morale at some organisations.
Quinn, et al., (1990) and Welch and Nayak (1992) suggest that some side effects might have been avoided if organisations had taken the strategic approach to outsourcing. Williamson (1979) points out that the service vendor may fail to perform as promised, to terminate the relationship, leaving the organisation without key services. He also notes that disputes may arise over performance standards, over changes in price, or over allocation of responsibility when circumstances arise that formal agreements did not foresee. The costs of safeguarding against these risks may be substantial.
Perhaps human resource literature is slow to address outsourcing of human resource activities because the topic is threatening to the security of HR managers or seems to diminish the importance of the HR professional within the organisation. Whatever the reasons for considering outsourcing, whether pressures from the environment or from top management, or because a vendor promises new economies, managers would benefit from a better understanding of how to make outsourcing decisions and how to manage relations with vendors more effectively.
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Introduction and Overview | Potential Benefits of Outsourcing | Unintended Consequences | Lessons Learned | Summary
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Updated on January 17, 2003
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