Outsourcing

Outsourcing is typically the domain of trade economists, whereas nonstandard work arrangements are the province of labor economists. Temporary work is one aspect of nonstandard work arrangements just as are part-time work, contract work, and other work forms. Although there are many polemics on the positive and negative results of outsourcing and nonstandard work on productivity and personal well-being, industrial-organizational (I/O) psychologists have paid scant research attention to either.

In the early 1980s outsourcing referred to the situation in which firms expanded their purchases of products (such as automakers buying car seat fabrics) rather than making them themselves. By 2004 outsourcing had taken on a different meaning. It referred to the specific segment of the growing international trade in services. This segment consists of arm’s length or long-distance purchase of services abroad. Thus X-rays made in Boston can be transferred to Bombay for reading, and call centers in Deli can serve customers in Denver. This move is accompanied by the debate about whether the United States is weakening its economic power by shipping jobs abroad.

All in all, outsourcing is a growth industry and takes many forms. Some firms have partnered with competitors in some fashion for decades. Among the reasons firms team up with competitors are to secure sophisticated, cost-driven contracts; to fend off threats from other industries; to evaluate a partner’s suitability for long-term joint ventures; to set industry standards for product compatibility in hopes of expanding markets for everyone; and so on. One study of a company’s outsourcing partners found that approximately 50% were with competitors. One observer noted, “In today’s complex, intertwined economy, the business-as-war, winner-take-all mind-set doesn’t cut it. Better get a piece of the pie than no portion at all.” In war, outsourcing cuts it. Outsourcing has been done in every war the United States has fought. In the second Gulf War, the U.S. military outsourced everything from feeding troops to providing heavy machinery. Both the numbers and types of coopetitions are rising.

Partnering has a number of advantages and disadvantages. Some operational benefits accrue from partnering. Partners can teach new things, perhaps through access to best-of-class processes. Perhaps partnering competitors can learn technology secrets from one another. Where industry benchmarks aren’t well-known, partnering with a competitor can offer insights on a company’s productivity, quality, and efficiency.

But there are also obvious disadvantages. Lack of control is a critical disadvantage. If a U.S. oil company operating in a foreign environment outsources security to an in-country organization, and the in-country security force comes in contact with drug traders, it can start a war that the United States will then have to deal with. The demise of ValuJet, for example, happened because the company outsourced cargo handling to a company where they could not control quality standards. In another form of outsourcing, competitors learn from each other’s operations, which may be detrimental to one or more partners. Or a coopetition may self-destruct before the renewal option dates arrive. A new company board for one of the partners may not approve of the other partner. The strategic aims of partners may change midstream, causing failure. These are just some of the reasons for outsourcing failures.

The current trend is to export international outsourcing as a source of cost saving, particularly in service-related industries. International outsourcing takes a number of forms: out tasking or subcontracted exportation of particular tasks or function to a foreign enterprise; a partial exportation of a task; the foreign-local subsidiary model that relies on a foreign enterprise to support a foreign subsidiary of the U.S. customer; a jointly owned subsidiary to provide shared services to affiliates; and global multilateral outsourcing that relies on a multinational enterprise to support a multinational customer’s operations in multiple countries.

Outsourcing has a number of advantages and disadvantages. Among the advantages are price and cost reductions, the ability to expand contract programs in short periods of time, enhanced service benefits, finding and using new talent, and lower turnover rates when outsourcing is from the United States to non-U.S. countries. This latter is generally because the kinds of jobs outsourced from the United States are not as attractive as are other jobs to U.S. employees.

Risks are also involved in outsourcing. When outsourcing is done from the United States to other countries, political instability may be a factor. Companies also run the risk of losing their core competencies to their outsourced partners. Unemployment backlashes are another risk.

Temporary Work

Contingent labor is one of the fastest growing industries in the United States. The temporary work revolution is not limited to the United States. In Europe it grew 18% in 1997 alone. Although the number of contingent jobs is growing, the types of these jobs are changing. Health care and technology jobs are two of the fastest growing job sectors. For temporary workers nearly all the traditional human relations functions—recruitment, administration, and so on— have shifted from the work organization to temporary work agencies. Users of temporary workers are afforded considerable labor flexibility and reduced obligation to these workers. In addition to flexibility, rationales for hiring temporary workers are labor cost savings, increased global competition, new technology, and the need to respond quickly to changing conditions. Despite the increased use of temporary workers, human relations contemporary textbooks offer the area scant or no coverage.

Current research in the area of temporary and contingent employment addresses the demographic characteristics of the workforce and the evolution of organizations leading to their use. In 1998 the National Association of Temporary and Staffing Services (now called the American Staffing Association) conducted a demographic survey about the state of temporary employment. This survey counted 2.8 million Americans as a part of the temporary workforce. Forty-one percent of these people had at least a two-year college degree, and another 19% currently attended college. Twenty-one percent of temps recently finished high school or college and viewed temporary work as a means of entry into the workforce. Clerical and administrative positions counted for 40.5% of all temporary jobs, a decrease in the types of positions available through staffing agencies. Technical and professional positions accounted for 25% of available openings, but health care positions decreased by 2.2%. An earlier survey by the same organization reported that 80% of all temps were women.

Other research addresses how organizations use temps, individual consequences of temping, and individual responses to temping. Organizations with high variability in their product lines have increased need for temps, but they are also used when permanent employees leave their positions (e.g., vacation, long-term disability leave, maternity leave). Client companies reduce their training costs by hiring specialized temps. Because companies view temps as resources, temps see themselves as alienated and have little or no commitment to the organization. Individual responses to temping include developing coping strategies to reduce feelings of alienation. Temps may seek autonomous, mentally challenging work, or control the pace of work to exert some control over their environment. Temps often look for long-term assignments to counter isolation. Existing research does not explain the motivational processes in which individuals engage while temping, despite the fact that motivation is one of the most frequently researched areas in I/O psychology.

Temps come in two types. There are those seeking permanent employment, or temporary temps, and those not seeking permanent employment, or permanent temps. About one third of both groups enjoy the variety of temporary jobs and the quality of job assignment. Temporary temps are more likely than permanent temps to use temporary employment to find job leads and develop networks. Permanent temps are more likely to feel they do not have time for permanent jobs and are more likely to value the flexibility of temporary work.

Summary

Outsourcing and temporary work are both given short shrift in I/O research. In the early 2000s outsourcing came to mean the arm’s length or distance purchase of services abroad. Outsourcing is a growth industry, and there are many forms of partnering that have a number of advantages and disadvantages.

Temporary work is one part of the contingent labor force and is growing dramatically. Existing research addresses the demography and organizational uses of temps. It also addresses individual consequences of and individual responses to temping and why people seek temporary work. Sadly lacking is research on the motivational aspects of temporary work.

References:

  1. Davis-Blake, A., & Uzzi, B. (1993). Determinants of employment externalization: A study of temporary workers and independent contractors. Administrative
  2. Science Quarterly, 38, 195-223.
  3. Greaver, M. F. (1998). Strategic outsourcing: A structural approach to outsourcing decisions and initiatives. New York: AMACOM AMA Publications.
  4. Housman, S., & Osawa, M. (2003). Nonstandard work in developed economies: Causes and consequences. Kalamazoo, MI: W. E. Upjohn Institute for Employment Research.
  5. National Association of Temporary and Staffing Services. (1998). Who are temporary workers? You may be surprised to learn. Alexandria, VA: Author.
  6. Wheeler, A. R., & Buckley, M. R. (2001). Examining the motivation process of temporary work employees: A holistic model and research framework. Journal of Managerial Psychology, 16, 339-354.

See also: