This study analyzes outsourcing trends in the next decade. The study assesses this by focusing on the past and current trends, problems and issues in outsourcing via semi-structured interviews. Major trends and processes will be revealed and assessed for their relevancy, depth and breadth.
Companies belonging to most industries are very much considered to be the units that are vertically integrated, or so-called usual industrial firms (Stigler, 1951), where activities in all links in value chain have been internally conducted. For example, gasoline of its own is delivered by 7-Eleven and it is also used to make ice and candy, also it had cows for producing milk which it previously used to sell (Gottfredson et al., 2005). At present, it is not delivering gasoline and ice or candy is not being made by it neither does it posses any cows. Contrarily, IBM used to make the computers containing their own CPUs and these were sold with the operating system made by IBM too. These days, people go for the IBM computers having Intel chips along with OS of Microsoft, and all are made by IBM originally. Core business of IBM actually lies in selling services while the computers containing IBM logo mostly are manufactured by some other companies. However the changes haven't taken place overnight. Hence the main thing to consider here is how the point has been reached (Hatonen and Eriksson, 2009; Javalgi, 2009)?
Outsourcing has been described by Corbett in the book "The outsourcing Revolution" (2004) as the phenomenon which is not necessarily new, and that has grown recently, gaining momentum when it comes to volumes and strategy importance for firms' overall success. When we look at developments taking place in their overall strategy then it can be identified that there are three broad phases that overlap but are still distinct: Big Bang era, Bandwagon era, Barrier-less Organizations' era (Hatonen and Eriksson, 2009; Javalgi, 2009).
Big Bang is considered to be the outsourcing's first wave. The origin of the name lies in intensity and the way popularity was gained by strategy. Even though manufacturing executives used the outsourcing concept in the end of 1970s (Corbett, 2004), but the term had its official introduction just after one decade. Still, just after one decade Harvard Business review referred it to be one great ideas of management throughout the last century Sibbet, 1997). When we talk about outsourcing's history as the corporate strategy then its beginning is marked in the early 1950s (Dibbers er al., 2004; Quinn and Hilmer, 1994), and it turned out to be a viable option in 1980s, when organizations started to frame out the call centers along with other operations that were service-oriented (Lacity and Hirchheim, 1993). During outsourcing's first wave, which lasted till late 1980s, non-key business processes were outsourced by companies for cutting down the operational costs. New catchword "outsourcing" became the tool for increasing the efficiency of the organizations as part of the economic units in order to maximize profit. Outsourcing majorly took place at domestic level and relationships had been managed very closely, relying on the contracts the company already had (Hatonen and Eriksson, 2009; Javalgi, 2009).
In early 1990s momentum was really gained by outsourcing (Morgan, 1999). This was the time when the concept of outsourcing wasn't even recognized by Oxford English Dictionary (which is one prestigious asset), but still the practice started to gain momentum (see Oxford English Dictionary 1990). All positive experiences of the starting outsourcing cases caused other companies come in to bandwagon (Lacity and Hirschheim, 1993), and this started new era in the history of outsourcing- the Bandwagon era. This was the time when one new approach to management was introduced by an influential article titled "The core competence of the corporation," written by Hamel and Prahalad (1990), for replacing the thinking of strategic business unit (SBU). By this the managers had to rethink the competitive edge that they had. This resulted in companies to start the outsourcing functions which didn't fall in their expertise area. Cost efficiency wasn't the only objective of outsourcing; rather external skills were sought out by the companies along with knowledge and competencies for providing to extra difficult and strategically significant organizational processes (Hatonen and Eriksson, 2009; Javalgi, 2009).
The new catchword "strategic outsourcing" then came into existence (Alexander and Young, 1996b; Quinn and Hilmer, 1994). Contrary to the traditional ways of outsourcing, the functions that were more strategic were now outsourced and hence managing the relations at an arm's length turned out to be insufficient. This resulted in the initiation of making closer relationships with the vendors by the firms. The boundaries were stretched by the organizations for the sake of gaining competitive edge by utilizing outsourcing. Popularity was gained by the management ideology to focus on the core competence, and outsourcing the rest (e.g. Porter, 1996) in different industries. Even though the resources as well as the knowledge base were searched primarily from the domestic markets, in the beginning of 1990s firms started to consider the resource pools of international level to be accessible (Hatonen and Eriksson, 2009; Javalgi, 2009).
Purpose of the study
The purpose of the study is to analyze Outsourcing Trends in the Next Decade. The study will analyze this by focusing on the past and current trends, problems and issues in outsourcing via semi-structured interviews.
Significance of the Study
On a general level, this study will carry significant value for outsourcing companies around the world since this research will thoroughly cover past and present outsourcing trends.
1) The findings of this study will provide valuable information for the policy makers both in the top management of these companies to make effective decisions to support and fund effective outsourcing programs.
2) This study and its findings will become an addition to and update of the international research on outsourcing.
Chapter 2: Literature Review
"Transformational outsourcing," 21st century's new catchword, aims to create latest radical business models by which the firms can have competitive edge and can change the rules to operate in the industry (Engardio, 2006).
When we talk about what's there in transformational outsourcing then while the focus is on sweating the assets in "traditional outsourcing," and the aim of the "strategic outsourcing" is to acquire the capabilities lacked by the firm, "transformational outsourcing" believed in changing the entire scenario, i.e. To target new enterprises which are adaptive (Linder, 2004; Linder et al.,2002; Mazzawi, 2002). According to this, earlier outsourcing was considered to be the tool used to streamline the internal operations, now it has turned into the tool used to transform firms into some organizational forms that are flexible whereas it has replaced the role of hierarchy which is tightly integrated into the organizational actors' networks that are loosely coupled (see Schilling and Steesma, 2001). Even though, several years back, it was concluded by Hennart (1982) that faster adaptation is allowed by internal organization to the change as changing the internal transactions doesn't require it to obtain all parties to agree to transaction, the view these days is very much opposite. Outsourcing has now reached the stage where operational flexibility might be achieved by the firms and they don't have to incur costs that have association with bureaucracy (Hatonen and Eriksson, 2009; Javalgi, 2009).
As far as the management perspective is concerned, collaboration, cooperation and co-development have now been the main issues to manage the outsourcing relations; and all of these enable the decomposition of the activities that are creative-in-nature and knowledge intensive. It has resulted in forcing the management executives creating competencies in portfolios' management of supplier relations that are value-adding. It appears as if the future competitive advantage lies in flexibility which one can achieve via tight focus on operations and leveraging the outer core competencies beyond this area of focus (e.g. Quinn, 1999) Table 1 given at the end summarizes all the above discussion (Hatonen and Eriksson, 2009; Javalgi, 2009).
Theoretical and historical background of outsourcing studies
This chapter provides historical perspective of the development as well as evolution of outsourcing research with regards to the theory and concepts. After having a look at the evolution of the concept and definition of outsourcing, research questions have been discussed that led the previous outsourcing research. Lastly, core theories to examine the phenomenon as well as the practices are discussed (Hatonen and Eriksson, 2009; Javalgi, 2009).
How the outsourcing concept grew and developed
All the new concepts should be made for describing the phenomenon or it can be some modification in the existing one to make it accurate, rather than overriding the existing ones. A concept, according to the definition, is the abstraction which represents a particular phenomenon and the major purposes that it demonstrates for introducing some perspective - a way to look at the empirical phenomenon (Frankfor-Nachmias and Nachmias, 1992). But what value can outsourcing deliver; has the definition been accurate and are there some previous concepts overridden (Hatonen and Eriksson, 2009; Javalgi, 2009)?