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BPOUTSR S14

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Case Analysis about
“Does Outsourcing really improve firm performance? Empirical evidence and
research agenda” by Somnath Lahiri

 

What is the premise/objective of the study? 

            The
case is all about outsourcing whether it can improve firm performance or not.
According to the author, it is necessary to know the answer to the question
because outsourcing nowadays is widely used by different kinds of firm across
industries in order to have a strategic tool to improve performance. The
purpose / objective why the author wrote this case was to let the readers know whether
or not outsourcing can improve firm performance by showing a lot of different findings
of other researchers who observed specific industries involving outsourcing. The
author was able to show that outsourcing can either have positive, negative,
mixed, or no significant effect on firms. These effects were categorized in
such a way that each effect there are several scenarios made by different researchers
and each of them having conclusion and suggestion.

How can different research methodologies on outsourcing
impact the results? Provide scenarios mentioned in the study.

            For
the methodology, the author was able to include a lot of publications involving
the discussion of outsourcing and its effect on the firm’s performance. In my
opinion, having different methodologies is a good way to show that a certain
finding can be proven in different ways thus making the research more effective
and convincing. In addition, having different methodologies also avoid having
biases and being one sided since the results of these different methodology were
from different viewpoints.

A scenario in positive effect:
direct measure of performance (manufacturing) where the author Kroes and Ghosh
was able to find out that offshore outsourcing increases firms’ export
performance. On the second scenario of the same category, Gorg and Hanley was
able to show that outsourcing results to productivity gain but only happens
with firms that possess low export intensities. These 2 finding can somehow
relate with each in a sense that both scenarios can show that outsourcing has
positive effect on firms’ exports particularly those that possesses low export
intensities. Having these 2 scenarios somewhat gave a more convincing
information to those firms that possesses low export intensities than only
having one scenario since there is more information.

 In positive effect: direct measure of
performance (manufacturing and services), there is a scenario that the authors
found out that offshore outsourcing of administrative and technical services
positively affects the international competitiveness. On the other scenario of
the same category, Arvanitis and Loukis showed that outsourcing enhances
innovative performance particularly in process innovation. In my opinion, both
of these 2 scenarios can somewhat be connected with each other, outsourcing
administrative and technical can enhance innovative performance because of
having new methods and ideas brought by the administrative sector or the
technical services sector. Overall, having different research methodologies on
outsourcing made it more effective because some results of it supported each
other, while others gave more detailed proofs.   

The article mentioned some key concepts, research (with
proper citation) and explain how these affect outsourcing

            Outsourcing
can affect different aspects of business. According to Agrawal & Haleem
(2013), in manufacturing and services, IT outsourcing improved cost efficiency,
growth, profit of the organization. In other research, according to Damanpour
et al (2015), outsourcing can provide cost efficiency by lessening upfront
investment costs. In terms of productivity, outsourcing doesn’t always increase
the productivity of an organization. When an organization shifts between outsourcing
and insourcing of services, there will be a lot of changes within the working
environment thus can lower the productivity of some employees due to their
resistance to change (Nickerson & Zenger 2002). As for production cost in
the manufacturing sector, the requirement of international outsourcing is that
one must understood it by balancing between minimizing production cost and
decreased local transaction cost (Mol et al, 2005). Another research showed
that outsourcing can lessen production cost because outsourcing suppliers
specialized in different expertise may provide service at a lower cost (Quinn,
1992). In terms of profitability, a certain evidence showed that larger firms
tend to be more profitable than smaller firms due to outsourcing material
inputs (Gorg and Hanley, 2004). On the multi-channel retailing, Pentina &
Hasty (2009), showed outsourcing services to third party providers is a good
way to improve when it comes to the early stages of multi-channel retailing but
on the later part will have no effect which is why e-commerce functions like
web design, hosting, development etc. were outsourced by integrated retailers
but don’t show much difference in terms of online sales with in-house. Agency
Theory is where principals employ agents to do certain task for the
organization. When an entity controls a business activity, it doesn’t mean that
that entity owns the economic result. The risk comes in when vendors in agency
position hire employees that can ruin the business and can lead to loss of profit
(Geis, 2006). As for transaction cost economics, outsourcing can reduce
production cost when the firm focuses on outsourcing tasks to external
providers than internal (Ang & Straub 1998).

Is the study conclusive? Why or why not?
Support your position by properly citing the reasons mentioned in the study.

            The
study in my opinion is both conclusive and inconclusive. Conclusive in a sense
that it gave the reader insights on the different effects of outsourcing in the
different aspects of business. The study also isn’t conclusive particularly in
the scenarios in a sense that it just states the finding and conclusion without
answering the question why it happened. Overall, the study just gives firms a
guide about outsourcing so that they will have an idea and not be blinded about
it which will help in their decision making regarding outsourcing.

What key learnings have you acquired from the article? Why
are these important from your perspective?

            After
reading the case, I learned that outsourcing has a variety of effects depending
on the firm’s nature of business. The question “Does Outsourcing really improve
firm performance?” cannot be answered by a yes or no answer since it really depends
on the situation and the firm.  I somewhat
agree on what the author said that with the review of 57 studies published, the
answer is “Yes, but not always” since the question cannot be directly answered
with a 100% yes or 100% no. Somehow, I was able to learn some insights about the
effects of outsourcing even though the finding were not detailed. In my
opinion, having some insights about the effects of outsourcing is important
because when I am in the corporate world, these information / insights will /
might come in handy involving decision making about outsourcing.

 

Reference

Agrawal, P. and
Haleem, A. (2013). The impact of the outsourcing of IT on firm

performance: an empirical study. International Journal of Management,
30, pp. 1

21–139.

Ang, S. and Straub,
D.W. (1998). Production and transaction economies and IS

outsourcing: a study of the US banking industry. MIS Quarterly,22, pp.
535–552.

Geis, G. (2006).
Business Outsourcing and the Agency Cost Problem. Retrieved

January 30, 2018 from https://papers.ssrn.com/

sol3/papers.cfm?abstract_id=923105

Gorg, H., &
Hanley, A. (2004). Does outsourcing increase profitability? Retrieved

January 30, 2018 from http://ftp.iza.org/dp1372.pdf

Lahiri, S. (2016). Does Outsourcing really improve firm performance? Empirical

evidence and research agenda. International Journal of Management Reviews,

18. pp.464-497

Nickerson, J. A.,
& Zenger, T. R. 2002. Being efficiently fickle: A dynamic theory of

organizational
choice. Organization Science, 13(5): 547-566.

Pentina, I. and
Hasty, R.W. (2009). Effects of multichannel coordination and e-

commerce on online retail performance. Journal of Marketing Channels,16,
pp.

359–374.

Quinn, J. B. 1992.
Intelligent Enterprise: A Knowledge and Service Based Paradigm for

Industry.
Simon and Schuster.