OUTSOURCING OF HUMAN RESOURCE

INTRODUCTION

In recent years, organizations have outsourced an expanding variety of activities in an attempt to improve service and product quality, reduce production cycle times, lower costs, increase their focus on core competencies, and, in general, enhance organizational effectiveness. Organizations appear to be focusing on a relatively narrow set of functions and are contracting with outside suppliers to perform the others. This trend toward a focus on activities key to competitive advantage and the outsourcing of low-value-added activities has found enthusiastic proponents among both scholars and practitioners (Quinn, 1992; Hirschhorn and Gilmore, 1992).Despite the trend toward outsourcing, evidence of its performance effects is scarce. Appealing arguments have made the case both for and against outsourcing as a means of achieving long-run competitive advantage. On the one hand, by outsourcing tasks to specialist organizations, organization may better focus on their most value-creating activities, thereby maximizing the potential effectiveness of those activities (Dess et al., 1995; Kotabe and Murray, 1990; Quinn, 1992). In addition, as outsourcing increases, costs may decline, and investment in facilities, equipment, and manpower can be reduced (Bettis et al., 1992). On the other hand, anecdotal evidence suggests that increased reliance on outsourcing may lead to reduced innovation (Kotabe, 1992), eventual competition from outsourcing partners (Bettis et al., 1992), and reductions in control of the task in question. Thus, the performance effects of outsourcing are uncertain. In the current study, we attempt to shed light on the relationship between outsourcing and organization performance by testing the relationship empirically.