Organization: Contemporary Principles and Practice, 2nd Edition

CHAPTER 9

Outsourcing and Offshoring

WHAT THIS CHAPTER COVERS

Outsourcing has become a major feature of organizational restructuring. This chapter begins by defining outsourcing and describing its scale and scope. It identifies two categories of outsourcing, the first being of value chain activities and the second being the outsourcing of support activities. Examples are given of manufacturing outsourcing as well as of outsourcing by service companies. The chapter then discusses the attractions of outsourcing, followed by the problems and pitfalls that can arise. This leads naturally to the considerations that should inform a decision on outsourcing and the outlines of a methodology for creating successful outsourcing partnerships.

Outsourcing and Changing Organizational Boundaries

Outsourcing refers to the contracting out of activities that need to be undertaken on a regular basis, which otherwise would be conducted within an organization. Outsourcing has become a major area of restructuring, and one that is dramatically changing the traditional boundaries of organizations. James B. Quinn, best-selling author and business visionary, has called outsourcing “one of the greatest organizational and industry structure shifts of the century.”¹

The term “outsourcing” is not usually applied to the buying in of specialized services that are required only occasionally, such as legal advice, ...