Hostname: page-component-848d4c4894-nmvwc Total loading time: 0 Render date: 2024-07-04T20:11:10.812Z Has data issue: false hasContentIssue false
  • English
  • Français

The Decision to Outsource: A Case Study of the Complex Interplay Between Strategic Wisdom and Behavioural Reality

Published online by Cambridge University Press:  18 September 2015

James D Hunter  and
Ray W Cooksey
James D Hunter
Affiliation:
New England Business School, University of New England, Armidale NSW 2351, Phone: +612 6773 2630, Fax: +61 2 6773 3914, Email: [email protected]
Ray W Cooksey
Affiliation:
New England Business School, University of New England, Armidale NSW 2351, Phone: +612 6773 2563, Fax:, + 61 26773 3914, Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The last two decades have seen an unprecedented growth in the use of outsourcing interventions in diverse organisational contexts. This phenomenon can be viewed as a means of unbundling the vertically integrated activities of organisations in response to existing strategic wisdoms that focus upon value-creating activities as a means of enhancing an organisation's sustainable competitive advantage. This paper explores the delicate balance between these more conventional strategic motives and the more complex, emergent and interconnected behavioural impacts and considerations in the context of a decision to outsource the meter reading activities of a well-established, publicly listed Australian energy company. By drawing upon the idiosyncratic experiences reported by particular groups of individuals involved in, or affected by, an outsourcing decision, the authors note some important lessons that may inform the pursuit of such decisions in the future.

In recent years the outsourcing phenomenon has fundamentally altered the processing and delivery of a wide range of goods and services by organisations in public, private and not-for-profit sectors (Auguste et al. 2002; Osterman 1998: Industry Commission 1996; Domberger & Hall 1995). Despite the stellar rise of outsourcing as a mainstream management tool, outsourcing's proponents seem unable to successfully distance themselves from ongoing questioning of the rationale for, and fallout resulting from, its adoption (Jennings 2002; Doig et al. 2001; Humphry 2000; Hunter & Gates 1998: Commonwealth Ombudsman 1996; Rees & Rodley 1995).

Much of the debate and research relating to outsourcing has been informed by the principles of transaction cost economics (Williamson 1979; Williamson 1975; Coase 1937) whereby the make-or-buy decision is crystallised by simply comparing the costs of managing transactions (using the market) with production costs (producing internally). In short, the transaction cost approach suggests that markets are most efficient for all transactions, except those that involve assets of a highly specialised nature used frequently as these represent a set of circumstances open to opportunistic behaviour by the market.

However, the hard lessons learned with the passage of time have shown (the informed observer) that managers who limit their sourcing decisions to cost comparisons alone are likely to run the risk of seeing their organisation wither and die: rigorous cost analysis is a part, albeit an important part, of a plethora of other strategic considerations that combine to move an organisation toward its long-term goals and objectives (Fill & Viser 2000: Rule 1999; Meredith 1998; Domberger 1998; Hunter & Gates 1998: Hodge 1996; Koehan et al. 1994). Indeed, this strategic context forms the cornerstone from which this paper proceeds to explore the appropriateness and meaningfulness of the strategic literature's conception of outsourcing decisions for the realities of a complex and dynamic operating environment.

Type
Research Article
Information
Journal of Management & Organization , Volume 10 , Issue 2 , January 2004 , pp. 26 - 40
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2004

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abrahamson, E. 1991. ‘Managerial lads and fashions: The diffusion and rejection of innovations’, Academy of Management Review, vol. 16, no. 2, pp. 586–612.CrossRefGoogle Scholar
Auguste, BG. Hao, Y.Singer, M & Wiegand, M 2002. ‘The other side of outsourcing’, The McKinscv Quarterly, no. 1. pp. 53–63.Google Scholar
Beinhocker, ED 1997. ‘Strategy at the edge of chaos’, The McKinscy Quarterly, no. 1, pp. 24–39.Google Scholar
Boisot, M 2000. ‘Is there a complexity beyond the reach of strategy?’, The MeKinsey Quarterly. no. 2. pp. 114–134.Google Scholar
Bonn, I 1996. Strategic Management in Australian Organisations. PhD thesis. Swinbourne University of Technology, Melbourne.Google Scholar
Brown, SL & Eisenhardt, KM 1998. Competing on the edge: Strategy and structured chaos. Harvard Business School Press, Boston.Google Scholar
Charmaz, K 1998. ‘Grounded theory: Objectivist and eonstructivist methods’, in Denzin, NK & Lincoln, YS (eds). The landscape of qualitative research: Theories and issues. Sage Publications, Thousand Oaks. pp. 509–535.Google Scholar
Coase, RH 1937. ‘The nature of the firm’, Economica, vol. 4, no. 16, pp. 386–405.CrossRefGoogle Scholar
Commonwealth Ombudsman 1996. Commonwealth Ombudsman Annual Report. Australian Government Publishing Services, Canberra.Google Scholar
Cooksey, RW 2000a. Scaling the peaks of ‘business strategy: When visibility is poor, the ground keeps moving and the climbing party can / seem to stay together. UNE 2000 Inaugural Lecture Series. Armidale.Google Scholar
Cooksey, RW 2000b. ‘Mapping the texture of managerial decision making: A complex dynamic decision perspective’, Emergence, vol. 2, no. 2, pp. 102–122.CrossRefGoogle Scholar
Creswell, JW 1998. Qualitative inquiry and research design: Choosing among five traditions. Sage Publications, London.Google Scholar
Denzin, NK & Lincoln, YS (eds) 1998. The landscape of qualitative research: Theories and issues. Sage Publications, Thousand Oaks.Google Scholar
Doig, SJ. Ritter, RC. Speckhals, K & Woodson, D 2001. ‘Has outsourcing gone too far?’, The McKinsey Quarterly, no. 4. pp. 24–37.Google Scholar
Domberger, S 1998. The contracting organization: A strategic guide to outsourcing. Oxford University Press, Oxford.CrossRefGoogle Scholar
Domberger, S & Hall, C (eds) 1995. The contracting casebook: Competitive tendering in action. Australian Government Publishing Services, Canberra.Google Scholar
Fill, C & Viser, E 2000. ‘The outsourcing dilemma: A composite approach to the make or buy decision’, Management Decision, vol. 38, no. 1, pp. 43–50.CrossRefGoogle Scholar
Fischli, I 1996. ‘Outsourcing: A new management tool or just a fad?’, Bulletin of the American Society for Information Science, vol. 22, no. 4, pp. 20–21.CrossRefGoogle Scholar
Gahan, C & Hannibal, M 1998. Doing qualitative research using QSR NUD*IST. Sage Publications, London.Google Scholar
Glaser, BG & Strauss, AL 1967. The discovery of grounded theory: Strategies for qualitative research. Aldine Gruyter, New York.Google Scholar
Hamel, G 1996. ‘Strategy as revolution’, Harvard Business Review, vol. 74, no. 4, pp.69–82.Google ScholarPubMed
Hodge, G 1996. Contracting out government services: A review of international evidence. Montech Pty Ltd. Melbourne.Google Scholar
Humphry, R 2000. Review of the whole of governnient information technology outsourc ing initiative. Commonwealth Government Publishing Services, Canberra.Google Scholar
Hunter, JD & Cooksey, RW 2003. ‘Discovering strategic lessons for “surfing’ the outsourcing wave and avoiding the “wipe-outs”’, electronic proceeding from the 17th annual conference of the Australian and New Zealand Academy of Management. Fremantle. Western Australia.Google Scholar
Hunter, JD & Gates, GR 1998. ‘Outsourcing: Functional, fashionable or foolish?’, in Griffin, G. (ed.). Management theory and practice: Moving to a new era, Macmillan Education Australia. Melbourne, pp. 133–144.Google Scholar
Industry Commission 1996. Competitive tendering and contracting by public sector agencies. (Report no. 48) Australian Government Publishing Services, Melbourne.Google Scholar
Jackson, MC 2003. Systems thinking: Creative holism for management. John Wiley & Sons Ltd. Chichester.Google Scholar
Jennings, D 2002. ‘Strategic sourcing: Benefits, problems and a contextual model’, Management Decision, vol. 40, no. 1, pp. 26–34.CrossRefGoogle Scholar
Kochan, TA. Smith, M.Wells, JC & Rebitzer, JB 1994. ‘Human resource strategics and contingent workers: The case of safety and health in the petroleum industry’, Human Resource Management, vol. 33, no. 1, pp. 55–77.CrossRefGoogle Scholar
Lonsdale, C & Cox, A 2000. ‘The historical development of outsourcing: The latest fad?’, Industrial Management & Data Systems, vol. 100, no. 9, pp. 444–450.CrossRefGoogle Scholar
Marton, F & Booth, S 1997. Learning and awareness. Lawrence Erlbaum Associates. Mahwah.Google Scholar
Meredith, H 1998, ‘Crisis in critical infrastructure’, Australian Einancial Review. 6 08, p. 11.Google Scholar
Midgley, G 2000. Systemic intervention: Philosophy, methodology and practice. Kluwer Academic Plenum Publishers, New York.CrossRefGoogle Scholar
Miles, MB & Huberman, AM 1994. An expanded sourcebook: Qualitative data analysis. 2nd edn. Sage Publications, Thousand Oaks.Google Scholar
Minichiello, V.Aroni, R.Timewell, E & Alexander, L 1995. In-depth interviewing: Principles, techniques, analysis. Addison Wesley Longman Australia, Melbourne.Google Scholar
Mintzberg, H 1990. ‘The design school: Reconsidering the basic premises of strategic management’, Strategic Management Journal. vol. 11, pp. 171–195.CrossRefGoogle Scholar
Osterman, P 1998. Employment factors: Reorganisation, dislocation and public policy. Oxford University Press, Oxford.Google Scholar
Parker, D & Stacey, R 1995. Chaos, management and economics: The implications of non-linear thinking. The Centre for Independent Studies, Sydney.Google Scholar
Patton, MQ 2002. Qualitative research & evaluation methods. 3rd edn. Sage Publications, Thousand Oaks. CA.Google Scholar
Peters, T & Waterman, RH 1982. In search of excellence. HarperCollins, Sydney.Google Scholar
Porter, ME 1985. Competitive advantage: Creating and sustaining superior performance. Free Press, New York.Google Scholar
Porter, ME 1996. ‘What is strategy?’, Harvard Business Review, vol. 74, no. 6, pp. 61–78.Google Scholar
Prahalad, CK & Hamel, G 1990. ‘The core competencies of the corporation’, Harvard Business Review, vol. 68, no. 3, pp. 79–91.Google Scholar
Priesmeyer, HR 1992. Organizations and chaos: Defining the niethods of nonlinear management. Quorum Books, Westport. CN.Google Scholar
Qualitative Solutions and Research Pty Ltd 1997. QSR NUD*IST 4 Users Guide. 2nd edn. La Trohe University, Melbourne.Google Scholar
Quinn, JB & Hilmer, FG 1994. ‘Strategic outsourcing’, Sloane Management Review, vol. 35, no. 4, pp. 43–55.Google Scholar
Rees, S & Rodley, G (eds) 1995. The human cost of managerialism. Pluto Press, Sydney.Google Scholar
Reilly, P & Tamkin, P 1996. Outsourcing: A flexible option for the future?’. The Institute for Employment Studies, University of Sussex, Brighton.Google Scholar
Rothery, B & Roberts, L 1995. The truth about outsourcing. Gower Publishing, Aldershot.Google Scholar
Rule, A 1999. ‘A death that should not have been’, The Age. 21 03, pp. 10–11.Google Scholar
Rumelt, RP 1974. Strategy, structure and economic performance. Harvard University Press, Cambridge.Google Scholar
Senge, PM 1990. The fifth discipline: The art and practice of the Icttrning organizittion. Random House Australia, Sydney.Google Scholar
Shapiro, EC 1995. Fad surfing in the boardroom: Reclaiming the courage to manage in the age of instant answers. Harper Collins Publishers, Sydney.Google Scholar
Stacey, RD 1996. Strategic management and organisational dynamics. 2nd edn. Pitman Publishing, London.Google Scholar
Stacey, RD 2003. Strategic management and oiganisational dynamics: The challenge of complexity. 4th edn. Prentice Hall, London.Google Scholar
Strauss, AL & Corbin, J 1990. Basics of qualitative research: Grounded theory procedures and techniques. Sage Publications, Newberry Park.Google Scholar
Williamson, OE 1975. Markets and hierarchies: Analysis and antitrust implications. Free Press, New York.Google Scholar
Williamson, OE. 1979. ‘Transaction cost economics: The governance of contractual relations’, Journal of Law and Economics, vol. 22, no. 2, pp. 233–261.CrossRefGoogle Scholar
Yin, RK 2003. Case study research: Design and methods. Sage Publications, Thousand Oaks. CA.Google Scholar