Academic journal article The Economic and Labour Relations Review : ELRR

Outsourcing, Organisational Performance and Employee Commitment

Academic journal article The Economic and Labour Relations Review : ELRR

Outsourcing, Organisational Performance and Employee Commitment

Article excerpt


During the late 1980s Australian business enterprises came under pressure to restructure and improve their competitiveness in the domestic and international marketplace. A number of Government initiatives were implemented to encourage and assist Australian companies achieve such objectives (Best Practice Demonstration Program; National Industry Extension Scheme). This quest for efficiency and improved productivity led to a more strategic approach to management and human resource practices. Total quality management, best practice benchmarking, lean production, and continuous performance improvement are all terms that have been used to describe the various managerial approaches of the 1990s.

In addition, a number of writers have argued that enterprises will improve efficiency by concentrating on their core functions and outsourcing all peripheral activities to firms that specialise in such tasks (Cannon, 1989; Edwards, 1994; Harrison and Kelley, 1993; James, 1992; Rees and Fielder, 1992; Sharpe, 1997; Smith, 1991). The increasing use of contractors, for the supply of components and services, has been one of the notable trends in work organisation in Australia over the past decade (Mayhew, Quinlan and Bennett, 1996: 1). As Benson and Ieronimo (1996) reported most Australian manufacturing firms surveyed had outsourced at least one activity with most planning further outsourcing within the next three years. This finding is supported by Wooden and VandenHeuvel (1996) who found that 90 per cent of the 522 workplaces surveyed had used contractors in the past year.

The concept of outsourcing is not new. Firms have been outsourcing since the early 1900s, although under a variety of labels (Cappelli, 1995; Chandler, 1964; Quinlan, 1998). The activities outsourced, however, were not generally central to the core objectives of the firm and usually made a low contribution to the value chain. Conventional wisdom was that outsourcing core activities or technologies would threaten the firms' competitive advantage (Bettis, Bradley and Hamel, 1992). The success of companies like Microsoft, Benetton and Nintendo has, however, demonstrated that a competitive advantage can be achieved through outsourcing arrangements. These firms have outsourced many of the traditionally perceived core competencies including product design, software development and distribution. Many of these firms are new and so are free from historical practices and cultural restraints.

Is it possible for mature firms to achieve a competitive advantage through an outsourcing strategy? According to Quinn (1993) all firms must re-examine their entire value chain and outsource those activities found not to be at a 'world class' standard. Mature firms are now beginning to appreciate that their current organisational arrangements may no longer be suitable for their key competencies (Goldman, Nagel and Preiss, 1995). Indeed, significant advantages, such as lower costs, lower production and market times, and improved innovation, may result from market-based relationships (Stalk, 1988). This has led to an increasing number of firms outsourcing their key competencies and capabilities (Miles and Snow, 1992; Piore and Sabel, 1984).

Yet despite these developments little is known about the long-term consequences of mature firms pursuing a flexibility strategy based on outsourcing. Evidence is now emerging which points to higher health and safety risks under an outsourcing strategy (Kochan et al, 1994; Mayhew, Quinlan and Bennett, 1996; Mayhew and Quinlan, 1998). Will a similar fate be bestowed on firm performance and will workers be disaffected in the process? These are important questions as unlike many of the other management strategies of the last decade it will be, in many cases, difficult for firms to reverse the process. In part, this is due to the nature of the contracts entered into and, in part due to the loss of the key skills necessary to perform the particular function. …

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