Configurations of outsourcing firms and organizational performance: A study of outsourcing industry in India

There is an increasing recognition of outsourcing firms as new organizational forms with unique systems and practices. This paper seeks to use a configurational approach to integrate learning from outsourcing literature, organization and management theory, strategic management and strategic human resource management in order to understand similarities and differences between outsourcing firms and their performance. It aims to examine if certain combinations of work designs, strategic orientations, client relations and contexts could lead to better organizational performance within a sample of outsourcing firms.

A combination of descriptive and exploratory research design has been used to collect data from 60 outsourcing firms across India. Using survey and semi‐structured interviews, data have been collected from the top management team and non‐managerial employees in each organization (n=836 respondents). Principal components factor analysis, Ward's minimum variance method, K‐means cluster analysis, and χ² have been used to arrive at configurations of outsourcing firms. Kruskal‐Wallis one‐way ANOVA and Tamhane's T2‐test have been used for further hypothesis testing.

Five dominant configurations of outsourcing firms emerge, namely, clear‐eyed strategists, adapting professionals, focalizing artisans, conservative controllers, and overambitious associates. Specific configurations of outsourcing firms are associated with better performance across a variety of organizational performance parameters (average attrition, growth in employment, growth in clients, growth in offered processes and overall satisfaction with organisational performance).

Future research could include financial performance measures and could examine potential conflicts in performance outcomes. It would also be interesting to include client perspective in future studies on outsourcing firm success. Replicating the results of this study across countries would enhance their validity and generalizability.

It is hoped that the findings of this paper will contribute to theory building in the field of both outsourcing and configurational research. At the same time, the study is expected to help managers who are trying to move their outsourcing firms in the direction of sustainable success through the choice of appropriate strategies, designs, inter‐organizational relations and contexts.

This is one of the initial studies to classify outsourcing firms using organizational level variables. While most prior studies have examined outsourcing success from the client perspective, this paper provides an important shift towards studying organizational performance from the outsourcing firm's perspective. Since configurational membership can predict which firms will perform better than others on objective and subjective performance measures, this paper provides a useful framework to managers for structuring processes and inter‐organizational relations while making informed strategic choices.