Outsourcing in Public and Private Entities

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Table of Contents

Executive Summary
Introduction
Literature Review
Conclusion
List Of References

Executive Summary

Business enterprises, both profit, and non-profit organisation have adopted outsourcing as a viable way of increasing effectiveness and efficiency. To assess the factors leading to outsourcing, this study delves into the outsourcing strategy used by the University of Wisconsin (UW), as well as the challenges they face in the implementation process.

As such, this report is in a position of highlighting the reasons behind adopting alternative outsourcing, and this facilitates understanding of the costs and benefit of such a venture in relation to other institutions as well as the private entities.

The findings were attained through a review of literature as well as through an ethnographic study in the school setting, which comprised of students, the staff, and members of legal authorities.

This study is consistent with Hirschheim (2009: 19) findings, as it affirms that though the outsourcing companies tend to obtain the same benefits, not all can apply the same outsourcing strategy.

This study highlighted how outsourcing in public entities is different from private entities, the benefits and challenges of outsourcing in public entities, as well as recommendation for improving the alternative outsourcing in higher learning institutions. This report brings to light the rationale behind outsourcing services as a business management practice.

Introduction

In the recent past, outsourcing services have been on the increase, with both profit and non-profit organisations considering it as an effective business managerial practice. The University of Wisconsin (UW) is one of the institutions that have adopted outsourcing services in an effort to increase efficiency in the provision of its services.

The application of outsourcing, though, is compounded with many facets. Hence, this necessitates a suitable framework for evaluating the extent to which the university is able to uphold outsourcing as a business managerial practice. As a result, the institution has already interviewed the chief business officers, the purchasing officer, as well as the physical plant directors.

More so, a number of interviews have already been conducted with the University’s office of procurement staff, the capital planning /budget staff, and the financial administration staff. However, a successful report on outsourcing for this institution necessitates a review of the literature on outsourcing in higher education institutions.

Literature Review

A vast majority of the higher education institutions has adopted diverse outsourcing strategies owing to tighter budgets and increased pressure on accountability (Hirschheim 2006: 269). These institutions have taken the approach of outsourcing a number of services, including the provision of food, bookstore operations, laundry services, and air conditioning, among others.

A survey carried out in 1999 indicates that outsourcing in the food sector in higher education institutions has gone on for a number of decades, with only 5.3 percent of national colleges not undertaking the strategy (University Microfilms International. 2009).

Indeed, a vast majority of the UW institutions had already adopted outsourcing services decades ago. Since then, there has been a significant increase in outsourcing services within the public sector, including higher education institutions (Chi, Jasper, & Scott 1998: 23).

However, even though outsourcing has been faced with limited resources since then, the move has facilitated meeting the needs of many institutions, according to Chi, Arnold, & Perkins (2003).

More so, the study of outsourcing continues to facilitate the success of outsourcing in higher education institutions. Achieving this success, however, calls for an outsourcing strategy that is congruent with the business operations within a given institution.

As such, the UW adopted the statutory and administrative framework in 1981(Chi, Jasper, & Scott 1998: 27). This framework aimed at highlighting the advantages of using management controls rather than engaging in contract arrangements.

More so, the institution’s legislature, through its commission, highlighted the rationale behind outsourcing through privatization strategies in 1995 (Chi, Arnold, & Perkins 2003).

This commission was tasked with the role of evaluating strategies of saving the taxpayers money through outsourcing services to the private sectors. Three strategies came into play while evaluating the strategies of saving taxpayers money: politics, cost, and strategy.

The UW institutions are aware that while cost is one of the major factors that trigger a company to adopt outsourcing, the success of outsourcing is also faced with many controversies. The savings on cost emanates from the fact that if an institution adopts an outsourcing service that eliminates some of its indirect costs, such as some employees, infrastructure, and training requirements.

Then the company is expected to save significantly on overhead costs. However, outsourcing can sometimes result to an increase in costs. This cost emanates from monitoring the service, contract generation, and transition costs, among others (Hunter 2006: 57).

Additionally, the UW is aware that strategy elicits a company to adopt outsourcing due to the high rate of technology innovation. Therefore, it is necessary for the UW institutions to ensure that the students’ needs are congruent with the current technology trend in order to meet their demand.

In cases where the current technology becomes obsolete, the UW institutions should use the appropriate outsourcing company for business transformation. In this case, the use of strategy involves increasing the level of accuracy through the development of modern technology systems such as the application of computer software.

Lastly, the UW is cognizant of the political strategy of outsourcing within the institution. Thus, the outsourcing strategy of this institution does not take due consideration of the market demand or the need of achieving profit.

The grounds of setting up outsourcing strategy in a higher education institution highly depends on social factors rather than the economic factors, making the outcome to be based on the well-being of public (DiStefano, Rudestam, & Silverman 2004:364 ). Therefore, the UW values the well-being of the members of the institution over cost and strategy.

Additionally, the outsourcing strategy of UW institutions is influenced by public opinion, elected officials, as well as national/international trends. While the private entities engage in outsourcing services in a bid to reduce cost and adopt new technology, the public entities engage in outsourcing services to provide general welfare to the public(Khosrowpour 2003: 64). However, both companies tend to achieve the same benefits of outsourcing.

Environment analysis (external and internal)

One of the external factors that affect the outsourcing services is lack of suppliers in cases where the mission of one of the entity differs from the mission of other entities. For case in point, outsourcing for higher education institution is faced with inadequate suppliers who have expertise on maintenance of schools’ laboratory equipments such as microscopes and telescopes, hence limiting the chances of outsourcing such services.

Additionally, pressure emanating from the political leaders is an external factor that affects outsourcing of the UW institutions (Amaral, Meek, & Larsen 2003: 245). This stems from the fact that, unlike the private entities, the public institutions do not make decisions with the aim of making a profit or reducing the cost of business operations(Kretovics 2011: 125). Thus, their decisions on outsourcing are highly influenced by political leaders, national/international trends, as well as the current opinion of the public.

Outsourcing is also influenced by internal factors such as the opinion of people who have a stand in the decision-making process. More so, managers of the institutions influence the outsourcing process even though they lack formal influence on the process.

Thus, institutions face hidden influences emanating from such managers, and hence face a challenge while evaluating the degree to which they can adopt outsourcing services.

The degree to which an institution should adopt outsourcing services is also influenced by legal factors such as suppliers’ contract, agreements with the union, and initiatives of the minority, among others (McBurnie & Ziguras 2007: 156). The presence of many legal requirements serves the role of reducing the chances of outsourcing services within a higher learning institution.

Additionally, the outsourcing service for an institution is faced with a conflict of interest, with the supplier being forced to act in a manner that contravenes other interests (Derose 1999: 76). The presence of suppliers coming up with innovation can mislead the outsourcing company, making the company to buy product/services that are not viable.

Because of this, the decision-making process of the outsourcing company is delayed since the decision-makers of the outsourcing organization are unaware of whether the supplier wants to make additional profit or whether the proposed innovation is viable.

The other environmental factor experienced by outsourcing company is the competitors’ behavior (Kumar 2006: 16). This is based on establishing whether the competitors have adopted the outsourcing services in a bid to evaluate whether it is a worthwhile goal.

This shows that outsourcing companies, as well as the suppliers, are faced with high levels of uncertainty when it comes to evaluating its authenticity. As a result, the suppliers are forced to charge more due to the uncertainty of risks involved in the process.

Analysis of existing outsourcing strategy

The UW institutions outsourcing procedure are based on the statutory framework, which entirely depends on the results obtained from the Legislative Fiscal Bureau study that was carried out in 1981 (Redovich 2005: 94). More so, this bureau provides tips on how the institution can improve on the outsourcing sector.

This study highlighted the management controls while carrying out business managerial practices rather than adopting contractual service agreements.

The framework used provides the state agencies with an opportunity to purchases services for the UW institutions.

In this case, the Bureau of Procurement is the purchasing agent for the state, and is tasked with this role providing services internally as well as outsourcing them, while the Department of Administration (DOA) is tasked with the role of evaluating the services that are economical within the institution from the ones that necessitate outsourcing (Redovich 2005: 95).

Moreover, the Board of Regents Policy facilitates management of cost and provision of quality services in the UW institutions by encouraging cooperation between the institutions. However, the institutions have not yet come up with a standardized procedure that should be used as a criterion for evaluating the services that should be handled internally from the ones that necessitate outsourcing services.

Purchase of library materials, including the IT department materials, is the responsibility of the institution’s Administration Office of Procurement. The office, however, gives direction to auxiliary managers on decisions relative to outsourcing.

This office is tasked with the role of evaluating outsourcing from the basis of cost analysis obtained from previous experiences of other companies. Additionally, the office is responsible for providing contract template in cases where a decision has already been made regarding outsourcing.

Identification and critical evaluation of alternative outsourcing strategies

There was a need of carrying out a study aimed at establishing the validity of the outsourcing procedure at the UW institution.

This study meticulously analysed the outsourcing strategies through a framework that contains 5 stages: the rationale for outsourcing, the unique factors relative to outsourcing in higher education institutions, the factors contributing to successful outsourcing, the trends of outsourcing in the higher education institutions, and the future/growth of outsourcing in the UW institutions (Siegel 2010: 53).

Method

The method used in the critical evaluation of alternative outsourcing strategies stemmed the following sources:

An analysis of literature review based on alternative outsourcing in a bid to come up with relevant questions.
An intense consultation with all the staff responsible for outsourcing services within the school through the focus groups.
A quantitative and qualitative survey of a sample size consisted of all people who have a declaration on outsourcing services.
A case study analysis aimed at establishing alternative outsourcing strategies in an effort to highlight the lessons learned through outsourcing services.

Key Findings

The literature on alternative outsourcing in the higher learning institutions portrayed that a vast majority of these institutions uphold alternative outsourcing because it served as a cost reduction strategy, it facilitated upgrading and adopting to new technologies, and it assured financial results (DiStefano, Rudestam, & Silverman 2004: 364).

For case in point, after weighing the advantages and disadvantages of alternative outsourcing, the George Mason University adopted outsourcing services in the dormitories, parking, bookstore, as well as mail delivery sector. The City Colleges of Chicago outsourced financial operations such as purchases of products and payroll in order to eradicate inability to concentrate on the school’s mission.

The University of Miami adopted outsourcing services for acquisition of maintenance materials as well as stocking its medical center. The University of Texas carried out a cost-benefit analysis and acknowledged alternative outsourcing services in the area of accommodation facilities (Francis 2006: 141-148).

However, it was imperative to note that the alternative outsourcing does not always lead to a positive result. By reviewing the literature, it was apparent that the Pennsylvania University was faced with unsuccessful maintenance service due to a number of limitations experienced by the supplier.

Additionally, we were able to verify that the Radford University experienced unsuccessful results from the supplier after the supply closed the business (DiStefano, Rudestam, & Silverman 2004: 365-373). Hence, we noted quite a number of outsourcing inadequacies emanating from the suppliers, such as poor communication, poor defined performance criteria, poor monitoring of the outsourcing services contract.

However, reviewing of literature in all these institutions was paramount because it facilitated evaluation of alternative outsourcing strategies through benchmarking the UW institutions with the other institutions carrying out outsourcing as a business management practice.

Through holding intense consultation with all the staff responsible for outsourcing services within the school, we were able to confirm that the alternative outsourcing for higher learning institutions are characterised by unique factors that, in turn, affect business decisions (Hirschheim 2009: 19). Some of these factors include the following:

The school’s mission/vision statement;
The hours of services, especially for the laboratory and libraries, which call for regular janitorial services from the supplier; and
The academic calendar resulting in low and high season, thus affecting affective sustainability of the supplier; and
The decision-making process, which calls for consultation between the staff and the students

Through the quantitative and the qualitative survey, we were able to identify quite a number of statutory requirements that play the role of complicating alternative outsourcing. These factors helped us evaluate alternative outsourcing strategies. Some of them include the following:

The length of the contract, as a contract in the UW, is renewed once in 5-7 years;
The employee bargaining agreement that creates a conflict between employees and the suppliers; and
Funding restrictions owing to the fact that the UW institutions do not receive additional funds even in cases of inflation

Choice of solution (s) and justification of the course of action that the organisation should follow

Owing to the advantages associated with outsourcing in the UW, it is imperative for the UW institution to identify and follow strategies that help to achieve a smooth running of the operations.

Therefore, the institution should develop an outsourcing framework that takes into account the ability to have an open discussion with the supplier on a regular basis, provides an opportunity for joint procure agreements between the outsourcing company and the supplier, and creates an avenue for collaborative agreements with other institutions on the criteria of outsourcing their services (Dominguez 2006: 45).

In doing so, the outsourcing services in the institution will have an opportunity of expanding its operation with the outsourcing company at a reduced cost that takes into account the welfare of the public.

Conclusion

Outsourcing in UW institutions reflects a vital business management operation that is faced with logistical challenges. However, its functions cannot be overlooked since it has managed to resolve a number of business dilemmas such as tight budgets, accountability in the academic sector, and the escalating student demand.

Hence, it is accredited for the high reductions in cost, adaptation to innovation, and public satisfaction within the higher learning institutions. Because of this, many institutions have taken the approach of adopting alternative outsourcing in various sectors within the higher learning institutions.

The UW institutions provide us with the knowledge that they have been outsourcing their services for a number of decades and that these institutions are relentlessly evaluating the services that necessitate effective alternative outsourcing. As such, the administration holds backs sensitive services such as budget allocation and staff constraint.

Additionally, the institutions provide us with knowledge that there are differences on the choice of services outsourced by the UW institutions, stating that this depends highly on the size of the institution, as well as the location of the institution, among other factors.

However, centralization of the alternative outsourcing can only be achieved through collaborative efforts between the institutions, as well as between the federal laws and the UW institutions.

List Of References

Amaral, A., Meek, V. L., & Larsen, I. M. 2003. The higher education managerial revolution?. Dordrecht, Kluwer Academic Publishers.

Chi, K.S., Arnold, K.A., & Perkins, H.M. 2003. Privatization in State Government: Trends and Issues. Web.

Chi, K. S., Jasper, C., & Scott, M. J.1998. Private practices: A review of privatization in state government: full report. Lexington, KY, Council of State Governments.

Derose, G. J. 1999. Outsourcing: Training & education. Alexandria, VA, American Society for Training & Development.

DiStefano, A., Rudestam, K. E., & Silverman, R. J. 2004. Encyclopedia of distributed learning. Thousand Oaks, Calif, Sage Publications.

Dominguez, L. R. 2006. The manager’s step-by-step guide to outsourcing. New York, McGraw-Hill.

Francis, P. H. 2006. Reconstructing alma mater: The coming crisis in higher education, a blueprint for reform. New York, Algora Pub.

Hirschheim, R. 2009. Information Systems Outsourcing: Enduring Themes, Global Challenges, and Process Opportunities. Berlin, Springer.

Hirschheim, R., Heinzl, A., & Dibbern, J. 2006. Information systems outsourcing: Enduring themes, new perspectives, and global challenges. Berlin, Springer.

Hunter, I. 2006. HR business partners. Aldershot, Hants, Gower publishers.

Khosrowpour, M. 2003. Information technology and organizations: trends, issues, challenges and solutions, Volume 1. Nevada, Idea Group Inc.

Kretovics, M. 2011. Business practices in higher education: A guide for today’s administrators. New York, Routledge.

Kumar, G. S. 2006. Outsourcing laboratory based services: Inventing a new future for R&D and testing. New Delhi, Tata McGraw-Hill Pub. Co.

McBurnie, G., & Ziguras, C. 2007. Transnational education: Issues and trends in offshore higher education. London, Routledge.

Redovich, D. W. 2005. The big con in education: Why must “all” high school graduates be prepared for college?. New York: iUniverse.

Siegel, D. J. 2010. Organizing for social partnership: Higher education in cross-sector collaboration. New York, NY, Routledge.

University Microfilms International. 2009. Dissertation abstracts international. A, The humanities and social sciences. Ann Arbor, MI, University Microfilms International.

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