OUTSOURCING

Outsourcing

Executive Summary

In this study, I am trying to explore the concept of “Outsourcing” in a holistic context. The main focus of the research is on “Outsourcing” and its relation with “Staff Reduction”. The research also analyzes many aspects of outsourcing and tries to gauge its effect on staff of an organization. Finally, the research describes various factors which are responsible for “Outsourcing” and tries to describe the overall effect of on staff on an organization.

Table of Contents

Executive Summary2

Introduction4

Problem Statement4

Theory Statement5

Literature Review6

Theoretical Perspectives9

The Administrative Structure of the Firm10

Transaction Costs11

Resources and Capabilities12

Case Studies14

Procter and Gamble14

Unilever21

Comparisons and Discussion28

Incentive to Reduce Transaction and Coordination Costs31

Impact of the Existing Administrative Structure of the Firm (Degree of Centralization)32

Impact of Capabilities In The Supply Market33

Impact on the Distribution of Capabilities34

Conclusions36

References38

Outsourcing

Introduction

In recent years, there has been a significant increase in the outsourcing and offshoring of business services. To date, much attention has been placed on the supply side of this phenomenon, in particular the rise of Information Technology (IT) services and business process outsourcing companies, not least in emerging markets such as India (Dossani, 2003; Athreye, 2005). However, to appreciate how and why these new service markets have arisen, I need to develop a deeper understanding of the demand side of outsourcing and offshoring. Recent research on the demand side focuses on IT (Willcocks and Lacity, 2006) or on offshoring only (Lewin et al., forthcoming). This research builds on such work to develop a more holistic and historical analysis of outsourcing (i.e. make-or-buy) and offshoring (i.e. location) decisions taken together by user firms. These are typically large global corporations which pursue outsourcing and offshoring as part of broader corporate restructuring.

Problem Statement

In the research, I have provided a historical overview of the unbundling of corporate functions, i.e. the outsourcing of business processes in administrative functions, either preceded by or coinciding with the creation of shared services (SSs), defined as business processes which are shared across units within a company. I addressed the following questions. When and why have major global corporations started creating SSs and outsourcing functions such as IT, finance and accounting (F&A), and human resources management (HRM)? How important are corporate structure, internal organizational capabilities, and the development of supplier markets in influencing the timing of such decisions? How far can firms outsource functions without undermining their core capabilities?

The research addresses these questions through a comparison of two leading consumer products companies, P&G and Unilever. Large consumer goods companies are noted for a complex internal organization structure required to manage their wide portfolio of products and brands. The companies were chosen as two of the largest in the sector, comparable in size and scope, and regarded as leaders in moving towards SSs and outsourcing. They were also chosen for their headquarter locations in country contexts (USA and UK) with some similar institutional environments (though the Dutch side of Unilever should not be ignored). Data sources include the following: an examination of primary documents, an examination of secondary materials, extensive interviews with managers, mainly higher-level executives, from ...