Academic journal article Journal of Economics & Management

Evaluation of the Impact of Outsourcing on the Performance of Lithuanian Electricity Industry

Academic journal article Journal of Economics & Management

Evaluation of the Impact of Outsourcing on the Performance of Lithuanian Electricity Industry

Article excerpt

Introduction

Under the pressure of modern business conditions, public sector companies, as well as the ones operating in private sector, seek for efficiency gain. Outsourcing is one of business strategies applied as a recognised way of cost reduction and efficiency increase [Gonzalez et al. 2013; Shoup et al. 2012; Furlong, Al-Karaghouli 2010]. Providing so many organizational benefits, outsourcing has extended to different spheres of public sector including electricity industry [Raiborn et al. 2009; Vilko 2011]. In spite of that, the scientific literature still lacks of the research to analyze the determinants of outsourcing contracts in electricity industry. In general, the main dimensions of the research on outsourcing in public sector include:

1. Aims (objectives) of outsourcing [Joha, Janssen 2010; Gerstlberger, Schneider 2013];

2. The impact of outsourcing determinants on the performance of public sector enterprises [Duhamel et al. 2014; Mutiganda 2014];

3. Negative outcomes of outsourcing (Rajabzadeh et al. 2008; James 2011].

The scientists who have analyzed the outsourcing in electricity industry mostly focused on the first and second of the dimensions mentioned above. However, the studies were mainly performed in Scandinavian electricity industry [Trygg et al. 2010; Tanskanen et al. 2007; Lassila et al. 2009] while other countries were hardly analyzed. That is why this article is aimed at evaluation of the impact of outsourcing on the performance of Lithuanian electricity industry. The following objectives were raised to fulfil the aim of the research: 1) to research theoretical material on the impact of microeconomic outsourcing determinants on the performance of electricity industry; 2) to analyze the structure of Lithuanian electricity supply network; 3) to present the methodology of the research; 4) to introduce the results of the empirical research on the impact of outsourcing on the performance of Lithuanian electricity industry.

The object of the research is the impact of outsourcing on the performance of Lithuanian electricity industry. The methods of the research include systematic analysis of the scientific literature and expert evaluation.

1.The impact of microeconomic outsourcing determinants on the performance of electricity industry: theoretical background

According to Vilko [2013], an outsourcing decision is always based on the hypothesis that the outsourcing will bring some benefits - operational, strategic or both - to the company. Operational advantages usually provide short-term trouble avoidance, whereas strategic advantages offer longer-term contributions in terms of maximizing opportunities [Rajabzadeh et al. 2008]. The main aims (objectives) of outsourcing in public sector enterprises, highlighted by the scientists, are as follows:

* At operational level - cost reduction, substitution, current state improvement [Raiborn et al. 2009; Vilko 2013];

* At strategic level - capability enhancement, competitive advantage, corporate restructuring [Gewald, Dibbern 2009; Immonen et al. 2011].

Operational aims are usually related to cost reduction meaning lower expenditure. However, some authors [Hagy, Flyn 2001] criticize the over-concentration on costs and suggest treating cost reduction not only as ordinary expenditure calculation but also as cost control, increased availability of capital funds, cash infusion, access to external resources and the chance to off-load problematic functions [Lassila et al. 2009; Chodzaza, Gombachika 2013]. Anyway, according to Pérez-Reyes and Tovar [2010], many companies consider outsourcing to be a solution when they are looking for better operational efficiency - usually purchasing operations from the private sector, which is commonly thought to be more efficient.

Strategic aims are associated with the need to focus on core activities, acceleration of re-engineering benefits, risk sharing and the re-direction of resources [Vilko 2013]. …

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