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Journal cover: International Journal of Operations & Production Management

International Journal of Operations & Production Management

ISSN: 0144-3577

Online from: 1980

Subject Area: Operations and Logistics Management

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Outsourcing effects on firms' operational performance: An empirical study

Document Information:
Title:Outsourcing effects on firms' operational performance: An empirical study
Author(s):Bin Jiang, (Department of Management, Kellstadt Graduate School of Business, DePaul University, Chicago, Illinois, USA), Gregory V. Frazier, (Information Systems and Operations Management Department, College of Business Administration, The University of Texas at Arlington, Arlington, Texas, USA), Edmund L. Prater, (Information Systems and Operations Management Department, College of Business Administration, The University of Texas at Arlington, Arlington, Texas, USA)
Citation:Bin Jiang, Gregory V. Frazier, Edmund L. Prater, (2006) "Outsourcing effects on firms' operational performance: An empirical study", International Journal of Operations & Production Management, Vol. 26 Iss: 12, pp.1280 - 1300
Keywords:Cost analysis, Outsourcing, Productivity rate, Profit
Article type:Research paper
DOI:10.1108/01443570610710551 (Permanent URL)
Publisher:Emerald Group Publishing Limited

Purpose – This research aims to empirically investigate the effect of outsourcing on firm level performance metrics, providing evidence about outsourcing influences on a firm's cost-efficiency, productivity and profitability.

Design/methodology/approach – This study is concerned with empirically examining the impact of outsourcing on a firm's performance. The results are based on a sample of 51 publicly traded firms that outsourced parts of their operations between 1990 and 2002. Publicly available accounting data are used to test for changes in operating performances that result from outsourcing decisions. Operating performances are examined over a four-quarter period after the outsourcing announcement.

Findings – This research provides evidence that outsourcing can improve a firm's cost-efficiency. While existing literature on outsourcing has also sought to draw anecdotal and conceptual evidence that highly visible companies have improved their productivity and profitability as well through outsourcing, the research reveals no evidence that outsourcing will improve a firm's productivity and profitability.

Research limitations/implications – This research is limited to what is available in public databases. Also, financial data pertain to the firm as a whole and not just to the outsourcing department or division, which would obscure the real outsourcing effects on the particular department or division.

Practical implications – This research makes two contributions to both practice and theory. First, this is the first empirical study to examine the link between outsourcing implementation and firm-level performance metrics. Second, empirical evidence is provided of the difference between outsourcing firms' performance and their non-outsourcing competitors'. Outsourcing firms have an obvious significant advantage in cost efficiency over their counterparts which do not outsource any activities at the same time. They also may obtain more available resources from outsourcing to invest in other productive capacities.

Originality/value – This research on outsourcing effects is the first to empirically test the relation between the outsourcing decision and the firm's productivity and profitability. Never before has outsourcing played such an important role in business, yet the overall impact of outsourcing on performance remains largely an unexplained puzzle. The research explores opportunities for further research to investigate the returns on outsourcing.

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