The Contracting Organization: A Strategic Guide to Outsourcing

The Contracting Organization: A Strategic Guide to Outsourcing

The Contracting Organization: A Strategic Guide to Outsourcing

The Contracting Organization: A Strategic Guide to Outsourcing


When should organizations contract out services traditionally produced in house? Is outsourcing another ephemeral management fad, or is it an efficient and effective means of delivering sevices and of adding value? What are the characteristics of strategically sound contracting decisions, and how can organizations prosper from the outsourcing revolution? These questions are among those tackled by Simon Domberger. Based on over a decade of research and consulting experience, its conclusions have many practical implications. The book develops an analytical decision-making framework for the assessment of contracting options, and has relevance in both the private and public sectors. Containing a wealth of illustrations and over 25 case studies, the coverage is fully international. Over 50 companies and public sector organizations are discussed, including well-known names such as Microsoft, BP, Marks & Spencer, and Samsung. This book will be valuable to all those seeking a better understanding of the outsourcing phenomenon, and useful to managers, strategists, management and business consultants, public sector administrators, policy makers, as well as to students of economics, business, management and public administration. Pre-publication Endorsements John Kay, Said Business School Oliver Hart, Harvard University Rob Grant, Georgetown University


In the mid-1980s, while at the London Business School, I embarked on a study which was to determine the course of my research endeavours for the next thirteen years. The purpose of the investigation, conducted with David Thompson and Shirley Meadowcroft of the Institute for Fiscal Studies, was to establish whether the contracting out of refuse collection saved local councils any money. The answer turned out to be around 20 per cent of previous expenditure. Other studies, for different services, suggested similar results, and policy makers jumped enthusiastically on the contracting bandwagon. In local government, health and white-collar services contracting was to unleash market forces, as a means to cheaper and better-quality services.

In the private sector similar developments were occurring under the name of outsourcing. Touted as the latest management fad, outsourcing extended its reach to many services and activities hitherto kept firmly in-house. These parallel developments raised the question of the appropriateness of such public policies and business policies, and their sustainability over time. The persistence of contracting and outsourcing activity was certainly a clue that something more than transitory was going on. But it also raised the question of where the limits of contracting lie, for limits there must surely be.

At the same time exciting new developments were taking place in the theory of the firm, led by Oliver Hart of Harvard University. They shed light on questions such as when should activities be integrated under single firm ownership, and when are arm's-length market transactions more efficient? This work is highly relevant to the contracting decision, although it is theoretical in nature and not easily accessible to non-specialist readers.

For practitioners, the question of what to outsource and what to keep inhouse superficially appeared to boil down to a matter of cost comparison. If it costs more to do in-house, contract out. Admittedly, an important influence on contracting decisions in the public sector was the pursuit of smaller government, using private sector expertise wherever possible. Efficiency-and budget -- considerations lay at the heart of this trend. But a simple cost comparison is not adequate to reach such decisions. What of the opportunity costs of managing the in-house operation? Should they not be counted in the . . .

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