Academic journal article The Economic and Labour Relations Review : ELRR

Outsourcing and Downsizing: Processes of Workplace Change in Public Health

Academic journal article The Economic and Labour Relations Review : ELRR

Outsourcing and Downsizing: Processes of Workplace Change in Public Health

Article excerpt


The introduction of the National Competition Policy (NCP) in 1995 by the Federal Government provided the impetus for outsourcing, benchmarking and downsizing in the late 1990s. The policy was based on an ideology that private sector pressures and competition would make the public sector more efficient. The Policy stated that 'competition, or the threat of it, can create powerful incentives for management to improve internal efficiency and to become more responsive to customers' (State Government of Victoria, 1996: 5).

The implementation of competitive neutrality principles required that by June 1996, all public hospitals were to identify significant business activities and develop an implementation timetable (Phillips Fox & Casemix Consulting, 1999: 93). However, in adopting NCP there was no compulsion to outsource functions, or indeed, to adopt any particular organisational form. The Health Service Review Discussion Paper (Phillips Fox et al., 1999) stated that by 1999 a considerable proportion of the non-clinical services in public hospitals had been evaluated against competitive neutrality principles. It reported that in some cases outsourcing occurred with resultant savings, but even when internal provision was retained, it provided a means for in-house staff to identify efficiencies and restructure workplaces. Many hospitals also implemented a second phase of competitive neutrality through benchmarking and the possible outsourcing of clinical services, such as pathology and radiology (Phillips Fox et al., 1999: 93).

This paper will investigate how one rural and one city hospital attempted to make changes and improve efficiency by adopting NCP guidelines. But first a review of the literature highlights the reasons for outsourcing, the interconnected nature of outsourcing and downsizing, the use of downsizing to affect the climate and acceptance of outsourcing, and outsourcing's role in reducing employee numbers.

Reasons for Outsourcing

Ang (1994) believes that the main attraction of outsourcing has been the relative production cost advantage of using external service providers. The outside provision of services introduces economic efficiencies through the outsourcing vendor's ability to utilise specialist human resources, technologies and physical infrastructure. Such specialisation, it is said, creates economies of scale when the products or services are sold to multiple customers (Lacity & Hirscheim, 1993: 31).

A reduction in wages and other working conditions has been a reason found to account for these cost savings. For example, Domberger (1994), and Milne & McGee (1992), reported that cost savings arising from public sector outsourcing result from associated wage reductions rather than increases in efficiency. Ascher (1987), in a British study, similarly found that reductions in employees' wages and conditions were the result of compulsory competitive tendering, even if the tender was won in-house.

It has also been reported that savings were due to increased flexibility of the labour force which outsourcing produced, although often flexibility and reduction in wages were linked. A Labour Research Department study on the impact of competitive tendering in the British public sector during the mid 1990s reported that the reduction in wages and conditions was linked to outsourcing, and resulted from an increased trend towards the use of part-time labour by contractors (Industry Commission, 1995: 160).

The extensive review of work practices that outsourcing has initiated in government services has also been cited as a reason behind the government privatisation policies (Industry Commission, 1995: E27-28). It was suggested that the mere threat of contracting-out in-house services can lead to improvements in efficiency and productivity (see, for example: Domberger, Meadowcroft & Thompson, 1986; Donald, 1995; Industry Commission, 1995; Sharp, 1995; Hodge, 1996). …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.