Culture, community and networks: The hidden cost of outsourcing

Abstract

One of the strongest and most sustained trends within business over the last ten years has been the trend towards outsourcing. With increased fervour and conviction, corporations have sought to reduce costs by contracting out services and activities traditionally provided in-house. The rationale of this movement is simple and compelling. If contracting something out is cheaper than doing it yourself, outsource. That way you not only save money through greater efficiency but also gain effectiveness by focusing more clearly on those things you can do better in-house. The benefits are obvious. In this paper John Hendry argues that, supported by political ideology, management fashion and short-term responses to recessionary pressures the benefits of outsourcing have become so obvious that they have hidden the very real associated costs. He first reviews the economic logic and competitive reasoning in support of outsourcing and show how these have been reinforced by both political ideology and management fashion. Drawing on an informational model of organisation, he then explores what is lost when an activity is outsourced and how this loss might affect the capability of the organisation. He concludes by arguing that any move towards outsourcing should be assessed in terms of its impact on a range of organisational characteristics and on the dynamic balance between these.