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Outsourcing Strategy: A Recent Literature Review And Model Update

OUTSOURCING STRATEGY: A RECENT LITERATURE REVIEW AND MODEL UPDATE

By
LINA FERIA
BUAD 591

CALIFORNIA STATE UNIVERSITY, FULLERTON
Abstract

The importance of including an outsourcing strategy in the overall firm's operations has become increasingly important over the last decade. Companies in the U.S. pay about $68 billion every year to other companies for outsourced services and although a major part of these contracts succeed, there is an increasing concern due to recent broken deals. A recent study shows that 80% of companies that outsource their customer based functions are failing to meet their cost savings targets. Usually companies fail to budget hidden outsourcing costs such as customer dissatisfaction that can eventually jeopardize the future of the firm. In this paper I reviewed the most current literature on outsourcing and built a model that includes the principal four factors influencing the success of outsourcing strategies: the firm's Comparative Advantage, Employees, Suppliers and Customers.
Outsourcing Strategy: A Recent Literature Review and Model Update

Introduction
Every year in the United States, companies pay about $68 billion to other companies for key services or products that help them focus on their core business and delegate other functions (Thurm, 2007). The value of IT Outsourcing contracts worldwide was $119 billion in 2004 (Pai, 2007). Without a doubt, outsourcing is a major part of the business strategy that drives organizations to success. Whether at its simplest version of buying raw materials from a large supplier to its most complex variation of offshoring services, outsourcing is present in all business strategies.

However, outsourcing strategies are not always successful; therefore it is crucial to understand the factors that influence a firm's outsourcing strategy. In 2004, J.P Morgan Chase & Co. took its main technology functions to be in-house again abandoning a $5 billion agreement and Electronic Data...