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Outsourcing is growing in popularity as a means of cutting costs and increasing flexibility. However, it can also entail a variety of unforeseen consequences. These problems can include administrative costs, reduced employee morale, decreased employee performance, and ethical trade-off. Managers must consider this full range of consequences to develop a more balanced perspective of the net effect of outsourcing.
Introduction
The 1990s witnessed numerous additions to the vocabulary of business. Two of the more important additions that transcend jargon and slang are the concept of the "virtual corporation" and one of its integral components "outsourcing." The creation of these new dictionary entries represents a fundamental change in the workplace as we know it and a transformation of the American corporate structure.
At the core of this transformation is the advent of the virtual corporation. This new organizational structure is characterized as a legal-financial entity whose physical plant is scattered across the globe and whose people-- parts are almost as interchangeable as chips in a motherboard. The ties that bind corporations to people and places are increasingly seen as tentative, temporary, and optional.
A critical element of the virtual corporation is the process of outsourcing, which can be defined as the contracting out of functions, tasks, or services by an organization for the purpose of reducing its process burden, acquiring a specialized technical expertise, or achieving expense reduction. A key aspect of outsourcing is the substitution of full-time workers with part-time, contract, and other contingent workers who receive few or no benefits. Although outsourcing has historically been a major element of the Japanese economy, the concept of workers not having extended or career-long employment with a single firm has until recently been an alien concept in America. Firms historically characterized as paternalistic are now actively seeking to employ temporary workers.
Although outsourcing did not become a significant and wide-spread aspect of the American business environment until the 1990s, it has been used since the early part of the century by manufacturers seeking to realize cost savings. At one time limited to the production of component parts, outsourcing has expanded into areas that were assumed to be immune from the process. For example, a recently created firm specializes in leasing scientists to corporate clients. Its...