Strategic Outsourcing is the opposite of vertical integration. There are three basic types of outsourcing according to Gupta and Zehender (1994):
1. Outsourcing involving secondary services and contingent workers.
2. Outsourcing involving networks and subsidiaries.
3. Outsourcing involving collaborative relationships with competitors. (p. 74) Strategic Outsourcing in its ideal case is a strategy that the organization would outsource everything that is not a core competency (Hilmer & Quinn, 1994, p. 47). The strategic issue of outsourcing concerns whether a company can achieve a sustainable competitive advantage by performing a task internally versus outside the organization (Hilmer & Quinn, 1994, p. 48). Outsourcing must create value for the shareholders, not just the benefits from quick cost cutting. Reasons and benefits for Outsourcing:
1. To improve company focus.
2. To access world class capabilities.
3. To accelerate reengineering benefits.
4. To share and minimize risks.
5. To free resources for other purposes.
6. To infuse cash into the organization.
7. To make capital funds available.
8. To reduce and control operating costs.
9. To provide resources not available internally.
10. To manage or control difficult or out of control functions. (Outsourcing Institute, 1997, pp. 1-5)
11. To provide the organization’s buyer (s) with greater flexibility.
12. To decrease the organization’s product-design cycle time. (Hilmer & Quinn, 1994)
13. To improve efficiency and to establish competitive advantages. (Nicosla, 1997, p. S-8)
14. To gain access to technology that would be too expensive to duplicate internally. (Burzawa, Sherts, & Spencer, 1995, p. 32)
15. To improve employee morale by outsourcing mundane, non critical tasks leaving more critical duties to the remaining in house labor force. (Sinensky & Wasch, 1992, p. 33)
16. To improve