Outsourcing Advantages and Disadvantages Research Paper


According to Cusmano, Mancusi and Morrison (2007, p. 5), outsourcing can occur on both the national and international level. Outsourcing, also known as offshoring, has been the target of increasing analytical and policymaking attention, as it is seen as a key driver of change in the competitive market. In technologically advanced regions, outsourcing has been present since the mid 1970s. This trend has grown towards the 1990s, with a general process of “deverticalization taking place (Cusmano, Mancusi and Morrison, 2007, p. 5). In addition, outsourcing tasks have also evolved over time in terms of functionality. Currently, outsourcing tasks might include anything from repetitive functions to more specialized work such as sensitive and knowledge-intensive work. This increasingly wide distribution of specialized tasks has resulted in a type of fragmentation across the globe in terms of international division of labor.

Outsourcing has also sparked a debate regarding its effectiveness in terms of labor, price, and policymaking. This is particularly the case in the public sector, where outsourcing necessarily involves the application of public money, i.e. money provided by taxes. Hence, the interest parties are more widely spread than only the business making use of offshoring.

Another concern in the debate is the effect of offshoring in terms of destinations such as India, China, the Philippines, Russia, etc. These offshoring destinations tend to be emerging economies, and often do not have sufficient institutional frameworks and legal systems in place to enforce contractual fairness (Kedia and Mukherjee, 2006, p. 3).

Public Sector Outsourcing

Hosay (2006) addresses the phenomenon of public sector outsourcing. Outsourcing in the public sector means that public sector goods and service entities make use of private sector companies for some goods and services. Because of the increased specialization of certain skill sets, outsourcing has become more or less a necessity in the world of business and for the optimal functioning of both public and private sector companies. This has created a considerable platform of debate for or against its use, especially in the public sector, where the issue of public money is at stake, as seen above.

Those in favor of outsourcing in the public sector hold that outsourcing is a means towards greater efficiency in the system. It has the potential to address and modernize antiquate bureaucratic systems. Furthermore, it could reduce costs by means of streamlined business processes, with better services offered to both taxpayers and direct customers in the public sector (Hosay, 2006, p. 8). Not all are, however, as optimistic that money will be efficiently applied to the outsourcing process.

Indeed, at the opposing side of the debate, warnings about that mismanagement of outsourcing contracts could create a negative effect in terms of pricing and service delivery. The advantage of lower prices and services, for example, would be negated by mismanagement practices. Government managers who do not properly supervise contracts, for example, could result in costly delays, decreases in service, and ultimately higher costs to taxpayers to create a platform for remedying the problems identified. According to this sector, outsourcing therefore creates a “slippery slope” towards higher and higher prices for products and services that are subject to delays and a lack of quality.

Another important factor is the opinion of labor unions, who warn that government employees are likely to lose their jobs to outsourcing. This would create a sense of counterintuitive use of the taxpayer money, as job creation is one of the primary purposes of government.

Furthermore, the possibility of corruption cannot be denied. Some opponents go as far as arguing that elected officials will not be concerned with the quality of contracted service so much as with outsourcing to companies and individuals that contributed to specific election campaigns. This in itself negates the purpose of outsourcing, which is to create for the customer as much value as possible at a highly competitive price (Hosay, 2006, p, 9).

These criticisms have, however, not prevented outsourcing in the public sector, of which the state of Florida is no exception.

Outsourcing in the State of Florida

In the state of Florida, outsourcing is currently occurring in most public program areas (Hosay, 2006, p. 9). These areas include the delivery of health and human services, prison operations, road building, and technology services. Studies conducted in the financial health of these services found that, in the fiscal year 2004-2005, 11% of the budget for Florida State was used in the purchase of outsourced goods and services.

Although the state has mandated competitive sourcing requirements since the 1950s, little has been done to create a regular entity or strategy for regulating these activities. Competitive sourcing requirements in the public sector, then has mandated that private sector providers provide goods and services at competitive prices, and that these be chosen not only for the quality of service and product delivery, but also for the price of these, which would eventually translate to the taxpayer (Hosay, 2006, p. 10). These mandates, however, would mean relatively little in the face of a lack of tight regulation.

Attempts have been made at regulating outsourcing activities in the state of Florida. Procurement policy, for example, is the responsibility of the Department of Management Services (DMS) in the executive branch of the state’s government. The difficulty arises in terms of a contradictory provision within Chapter 287, which governs the policy While centralized authority is provided to the DMS for contracting goods and services, there is also a provision that these can be bought by each agency, which in effect decentralizes the procurement of goods and services, and makes regulation almost impossible (Hosay, 2006, p. 11). Hence, there is a discrepancy between the ideal, where procurement practices are centralized and regulated by a single agency, and practice, where individual agencies buy products and services without answering to any central agency.

Another entity created in the state of Florida to help facilitate the process of outsourcing is the State Council on Competitive Government (SCCG). This Council consists of the Governor, Attorney General, and Chief Financial Officer. The primary function of this agency is to identify opportunities for outsourcing in the executive branch, and recommend the specific state agency that is to govern this process. Because of its increasing relevance and use across government agencies, several reports and audits have focused on the outsourcing mandate in the Florida public sector, precisely because of its irregular practice across the sector (Hosay, 2006, p. 12).

Towards the middle of the last decade, for example, the Auditor General has performed operational audits of outsourcing projects to determine the need for oversight and improved management. Areas addressed include planning, procurement, performance-based monitoring, and risk management and mitigation. By creating these audits and reports, the government is able to review and evaluating outsourcing initiatives to prevent corruption and ensure quality of service not only to direct government clients, but also the public, whose taxpayer money is applied to acquire these goods and services.

Furthermore, these audits would also create a platform towards the prevention and mitigation of the concerns raised by opponents to outsourcing. Government corruption and unfair payments towards supporters, for example, would be mitigated by the auditing and evaluation process, while quality and the most efficient pricing practice would be ensured. In the state of Florida, as well as in other states, it is unlikely that outsourcing will be discarded in favor of services provided primarily by the government and its direct agencies. Indeed, some services have become so specialized and integrated that the best possible practice is derived from outsourcing.

Advantages and Disadvantages

The most common advantage of outsourcing is a reduction in operational costs, if it is managed correctly (TTSB, 2011). Other advantages include the creation of a strategic initiative to improve customer service, while also improving the quality and cost ratio for customers. This is particularly important…