Exploring the financial impact of outsourcing services strategy on manufacturing firms

Abstract

Procuring business services has become an important part of the way that companies acquire external resources. However, there is limited empirical evidence in Operations Management research that explores the financial consequences of outsourcing services. This paper seeks to fill this gap by analyzing the effects on financial performance of one of the dimensions of the services outsourcing strategy, depth, which entails deciding whether each of the activities is outsourced totally or partially. The financial effects have been measured by indicators relating to cost, productivity and profitability. Data are drawn from a sample of 1,522 Spanish manufacturing firms. The results show significant differences on all levels for personnel-related indicators and that these depend on the depth of the services outsourcing strategy. Moreover, the companies that tend to outsource their services totally are those that present the most favorable values for each of these indicators. These findings imply that when companies outsource services they should consider that the depth with which they outsource activities has an impact on financial indicators.