2014 Cambridge Conference Business & Economics
ISBN : 9780974211428
“Outsourcing - To – Outsourcing” In Employment Service
Industry: Lithuanian Experience
Ligita Gaspareniene
Department of Economics and International Trade
Faculty of Economics and Management, Kaunas University of Technology, Kaunas, Lithuana
Rita Remeikiene
Department of Economics and International Trade
Faculty of Economics and Management, Kaunas University of Technology, Kaunas, Lithuana
Vaidas Gaidelys
Department of Economics and International Trade
Faculty of Economics and Management, Kaunas University of Technology, Kaunas, Lithuana
Abstract
The article is aimed at the establishment of the factors of outsourcing for performance of noncore activities in public and private employment service sectors. According to the research
carried out by the authors of this article, the number of the research of this kind is limited due
to the specificity of the topic and lack of the data in such transition economies as Lithuania.
With reference to the results of the empirical research, it has been established that the main
factors determining the choice of outsourcing or having a positive impact on it differ in
public and private sectors in Lithuania. Public employment service companies link the
positive effects of outsourcing with cost saving while private employment service companies
treat positive effects of outsourcing as lower time costs. Poor service quality, interrupted
service provision, loss of intellectual property rights and confidentiality flows are the main
factors that have negative impact on outsourcing in both sectors. Also, it has been established
that employment services are treated as core activities by both private and public companies.
Thus, outsourcing of employment services in this case is not practiced or practised very
occasionally.
Keywords “outsourcing – to - outsourcing”, outsourcing, supply chain, employment services,
private and public sectors.
Introduction
Problem topicality. Recently, the phenomenon of outsourcing has become an inseparable part
of the activities in numerous companies. Development and implementation of new
technologies, increasing customers‘ needs, thread of rising costs, declining profits, constantly
changing business environment conditions and other factors determine companies’
concentration on their core activities while the services related to non-core activities are
bought from outside. Concentration on core activities as well as the use of outsourcing for
specific operations enable companies to become more competitive in global markets.
Numerous studies (Aubert, et. al., 2004; Barton, 2006; Jain, Natarajan, 2011; Juma’h,
Wood, 2000; Moschuris, Kondylis, 2006; Ok, 2011) found that application of outsourcing,
first of all, is efficient due to cost reduction. Beyond cost reduction, there are other not less
important factors that influence outsourcing decision: lack of competence in particular
sphere, lack of skilled specialists, use of innovations, time saving, an increasing wish to
respond to customers’ needs and so forth. Nevertheless, the opponents (McIvor, 2000) state
that organisations are not achieving the desired benefits from outsourcing. Each company in
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particular stage of its supply chain has to make the decision on outsourcing application. The
decision is not easy since it requires specific knowledge selecting an outsourcing provider;
managers have to consider not only outsourcing costs but also they have to realise that
particular functions and responsibilities will be transferred. The feeling of uncertainty due to
the complete loss of the control of transferred functions is one of the reasons making
thoroughly consider the necessity of outsourcing in the company (Gunasekaran, et. al. 2007).
In many cases, outsourcing providers seeking for the efficiency of their activities also
use outsourcing services. One of the examples of “outsourcing – to – outsourcing” is
employment service market. The practice shows that core activities of employment service
companies are personnel search and selection and personnel rent while other services, for
instance, cleaning, security, bookkeeping, office supply delivery, maintenance and others,
without which companies would face difficulties to remain competitive, are bought from
outside providers. Scientific literature lacks of the research on the outsourcing of employment
service companies, but increasing number of such companies (with reference to the data of
Lithuanian Department of Statistics, the number of employment service companies increased
4.3 times from 2005 to 2010) determines the need to research the motives of employment
service companies working in public and private sectors to buy outsourcing services and so
ensure the functioning of their non-core activities. The choice of private and public sectors
has been determined by the public opinion that state-owned enterprises are too big, inefficient
and unable to react to environmental changes while private sector is more flexible, able to
absorb innovations and more inclined to respond to customers’ needs. According to Barton
(2006), the size of state-owned enterprises should be decreased by privatizing them, and the
rest of public services should be provided applying outsourcing from private business sector.
Consequently, the following scientific problem can be formulated: what factors are important
to employment service companies while making the outsourcing decision and whether these
factors are identical in private and public employment sectors?
The aim of the research is to identify the factors determining the use of outsourcing in
employment service companies for the performance of their non-core activities.
The following objectives have been raised to fulfil the aim of the research:
1. To analyse the models which reflect outsourcing decisions in company’s supply
chain;
2. To present the methodology of the research;
3. Using the method of expert evaluation, to identify the factors that determine
outsourcing of non-core activities in the companies operating in Lithuanian public
and private employment services sectors.
The methods of the research include logic, systematic analysis of the scientific literature
based on comparative and summary methods and the method of expert evaluation.
In order to fulfil the aim of the research, the managers of private (employment service
companies “Noriu personnel decision group”; “Noriu darbo”; public institution “Sopa”;
company of limited liability “Opus Verslas” and others) and public (Lithuanian Labour
Exchange, Kaunas University of Technology Career Centre) employment service companies
that use outsourcing services were included. Different sectors have been selected
purposefully seeking to compare the factors that determine the outsourcing of employment
services.
The rest of the paper is organized as follows: section 2 systematizes the models of the
decision-making on outsourcing in the context of supply chain; section 3 describes the
methodology and data; section 4 presents the results and section 5 concludes.
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Models for Decision-Making on Outsourcing in the Context of Supply Chain
Outsourcing is a modern management strategy the main point of which is that non-core
activity spheres are transferred to an outside partner. This enables a company to focus on the
resources and funds that are necessary for core activities performing which a company gains
competitive advantage. Numerous studies (Dekkers, 2000; Hwang, Rau, 2008; Li, Wan,
2013; McIvor, 2000 and etc.) stressed the importance of outsourcing in the process of supply
chain. Consequently, the models for identification of the criterions and factors that determine
the choice of outsourcing have been designed (see Table 1).
Table 1: Outsourcing selection models for supply chain management
Author,
year
Supply chain stages in which
an outsourcing decision is
made
1. Defining the core activities
of the business;
2. Evaluate the relevant value
chain activities:
2.1 Evaluation of the
relevant value chain
activities
2.2 Total costs analysis of
the core activities
3. Total cost analysis of core
activities
4. Relationship analysis
The principle of model
operation
Sector
The model included the main
supply chain elements: core
competency thinking and
supply base influences into
the decision-making process.
The process of outsourcing
decision making should be
company’s strategic step
during which activities are
classified in core and noncore. Consequently, it enables
deeper insight into customers’
needs in particular markets
which, in turn, has the impact
on company’s
competitiveness.
Applicable in
any sector
Dekkers,
2000
1. Defining manufacturing
strategy and strategic
decision making on
outsourcing;
2. Tactical decision making
on outsourcing in predesign, design,
engineering,
manufacturing
engineering stages
The model includes an
outsourcing service provider
from initial stages of product
creation (design, engineering
or operational decisions) to
manufacturing. The external
effect of such decision at the
end of supply chain is
concentration on core activity
and suppliers’ abilities.
Manufacturing
sector
Li, Wan,
2013
1. IT demand, application
status, and department
performance evaluation
2. IT development and
programming
3. Outsourcing strategy
4. Contract object design
and outsourcing provider
selection
Once an outsourcing decision
has been made, another
important point in company’s
supply chain is the choice of
an outsourcing supplier using
MADM (multiattribute
decision making) method.
Designed for
IT sector
McIvor,
2000
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5. Contract negotiation
6. Implementation and
supervision
7. Project approval.
Hwang,
Rau, 2008
1. Market segmentation
phase
2. Sub-market analyze phase
3. Choosing target market
phase
4. Select a new outsourcing
company and build up the
objective phase
5. Value adding phase
6. Performance evaluating
phase
7. Profit sharing and risk
pooling phase.
The main idea of the model is Applicable in
that the impetuses of the
any sector
market are members of a
supply chain and a final
consumer. The choice of an
outsourcing supplier company
combines the entire supply
chain strategy and customers’
needs.
Hsiao, et.
al. 2010
1. Identification of the main
factors: asset specificity,
core closeness and supply
chain complexity;
measuring uncertainty;
logistics strategy
2. Distinguished levels of
logistics outsourcing (1st
level – transportation,
warehousing; 2nd level –
value added activities; 3rd
level – inventory
management,
transportation
management)
3. Performance.
Outsourcing framework also
indicates that logistics
activities at different levels
are outsourced for different
reasons.
Logistics
outsourcing in
food supply
(source: prepared by the authors)
As it can be seen from the models presented above, scientists focus on outsourcing
decision making in particular stages of a supply chain in private sector. The authors of the
article are of the opinion that outsourcing is applied in the supply chain of each company, no
matter in what sector it operates. Of course, it depends not only on external business
environment but also on internal situation and the motives which are different in private and
public sectors. After systematisation of the information introduced in Table 1, we present a
recommended simplified process of decision-making on outsourcing (see Figure 1).
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Figure 1: Process of making a decision on an outsourcing
1st alternative.
Using of internal
resources for
non-core
activities
1st
stage. The
identification
of core
activities and
non-core
activities
Cost analysis for
both alternatives
2nd alternative.
Outsourcing
application for
non-core activities
Yes
2nd stage.
Choice
between
outsourcing
and internal
resources of
the company
3st
stage.
Outcomes
Yes
Outsourcing
companies’
capacities
Select outsourcing
providers
Company’s
willing to
cooperate
The principle of the designed model’s operation should be interpreted as follows: in the
first stage of the decision on whether to include an outsourcing company in its supply chain,
the company has to identify its core and non-core activities. Then, the company should
estimate the costs of the two alternatives and make the decision. If it decides to hire an
outsourcing company for non-core activities, selection of the most suitable outsourcing
service provider should be made. Scientists specify the criterions which should be followed
selecting an outsourcing provider. According to Choy, Lee (2003), the provider selection
process should consider not only the price, but also a wide range factors such as quality,
organization and culture with a view to decision making by considering the whole provider’s
capability. Other criterions of an outsourcing provider are as follows: flexibility, efficiency,
expertise and willingness to provide the desired result, financial stability, previous customers’
recommendations, financial and human resources, responsibility (Hwang, Rau, 2008). In the
second stage, the company should choose between outsourcing and internal human resources
for the performance of non-core activities. In the final stage, the company assesses whether it
was able to achieve the results: to save costs and time, manage the company more efficiently,
focus on responding to customers’ needs, share the risk with another company, prevent
personnel lack, get technical assistance and so forth (Rajabzadeh, et. al. 2008; Jain, Natarajan
2011; Gonzalez, et. al. 2012; Lonsdale, Cox 2000).
Methodology and Data
Substantiation of the selected research method
Development of the employment services industry is one of the indicators reflecting the
situation in the labour market because the companies providing the services of personnel
search/rent faster than others feel the changes of demand and supply.
Collection of the information about outsourcing in employment industry was difficult
not only because of the specificity of the topic, but also due to the lack of detailed
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information in statistical databases. This determined the choice of expert evaluation method
which enabled to collect the data about the necessity of outsourcing in public and private
employment services sectors, outsourcing service types, internal factors that determine the
efficiency of employment services in public and private sectors and so forth.
Expert selection and characteristics
Since Lithuanian Labour Exchange centrally manages ten territorial labour exchanges,
Lithuanian Labour Exchange deputy director, the heads of the departments of labour
resources, personnel and administration and public procurement, holding the positions not
shorter than three years, having enough (at least three years) experience buying outsourcing
services in employment sector were selected as experts. The head of the Career Centre in
Kaunas University of Technology was also selected as an expert since the centre provides
employment, practice and mediation with employers services acting in public sector.
In private sector, the managers of such employment agencies as “Noriu personnel
decision group“, “Noriu darbo”; public institution “Sopa”, the company of limited liability
“Opus Verslas”, “Personnel decisions” were included in the survey. With reference to
Augustinaitis et. al. (2009), in order to retain the reliability and accuracy of expert evaluation,
it is recommended to include not less than five experts.
Aim and process of the research
The aim of the research is to establish experts’ attitude towards the factors that would
encourage (discourage) to apply outsourcing in public and private employment institutions.
The expert evaluation was performed in three stages:
 Questionnaire formation;
 Survey of the experts;
 Analysis and summarising of the survey results.
With references to the analysis of the scientific literature, in the first stage of the
research, the questionnaire for the expert survey was formed. The questionnaire consisted of
two parts. The first part “The spread of outsourcing in public and private employment service
sector” included a few questions of closed type with possible answer alternatives. The first
question “Do you use outsourcing services?” was aimed at the establishment whether public
and private employment companies working in Lithuania are inclined to use outsourcing.
Further question “What outsourcing services do you use (used)?” was aimed at the
establishment of the nature of outsourcing services used. The second part “Internal factors of
outsourcing that have the impact on the efficiency of public and private employment sectors”
included the questions with Likert evaluation scale, where 1 means that a factor or a criterion
does not have any impact, and 5 – it has very significant impact on the efficiency of public
and private employment services. For the evaluation of the efficiency, the factors that can
have positive and negative impact on the choice of outsourcing for non-core activities and the
criterions following which an outsourcing service provider can be selected have been
introduced in the questionnaire.
The expert survey was carried out via e-mail and telephone. It lasted from September 25
to October 9, 2013. The data of the survey was processed using the Microsoft Office Excel
and SSPS software packages.
Limitations
Performance of the empirical research was difficult due to several reasons: firstly, most
managers of employment service companies did not know the term of outsourcing, so the
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authors of the article had to introduce the managers with the terminology and, secondly, only
Lithuanian Labour Exchange is responsible for outsourcing service buying in public sector
since it centrally manages ten territorial labour exchanges operating in different regions in
Lithuania. Due this reason, optional number of the experts decreased which limited the
sample of the survey.
Results
The empirical research included calculations of Cronbach’s alpha coefficients (α public sector =
0.730, α private sector = 0.830) which showed that formulated questions adequately reflect the
targeted size. Experts’ answers are statistically reliable because value p is lower than 0.05.
100 per cent of the research participants pointed that their institutions use and buy services
from outside. Comparing public and private sector, it was established that the assortment of
the services bought by private sector is much wider than that of public sector. Private
employment agencies buy rent, IT, juridical, cleaning, security, office supply, maintenance,
water/food supply services while public companies buy procurement, refresher courses,
training, cleaning, security and water supply services. The differences between outside
services used by public and private sectors are caused by Lithuanian political-legal
environment which determines procurement requirements for public companies. What is
more, public companies exceed private employment service companies by their size, so IT,
juridical, maintenance services are performed by the employed professionals. Having
processed the data of the expert evaluation, it can be concluded that employment services are
bought neither by private nor by public employment service companies, and the motive is
that employment services are their core activity and their interest.
Rank and average methods used to calculate the data of the experts’ answers enabled to
identify the motivating factors that have the biggest and lowest impact on outsourcing in
Lithuanian employment service companies (see Table 2).
Table 2: Outsourcing motivating factors in Lithuanian employment service companies
Outsourcing motivating factors in
public sector employment service
companies
Cost saving
Mean
Rank
Outsourcing motivating factors in
private sector employment service
companies
Time costs
Mean
rank
Concentration on more efficient
management
Time costs
7.80
8.7
7.20
Concentration on more efficient
management
Process reorganisation efficiency
Technical assistance
6.70
Meeting customers’ needs
6.9
Saving on personnel training
costs
Internal resources which could be
used for other aims
Process reorganisation efficiency
6.60
Costs of the control of expenses
6.8
6.50
Concentration on core activities
6.7
6.20
Technical assistance
6.3
Meeting customers‘ needs
6.20
Cost saving
5.9
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7.80
9.5
8.0
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Concentration on core activities
5.90
Saving on personnel training costs
5.9
Costs of the control of expenses
5.90
Lack of personnel
5.8
Lack of personnel
5.70
4.8
Risk sharing with another
company
5.50
Internal resources which could be
used for other aims
Risk sharing with another
company
2.7
(prepared by the authors with reference to the data of calculations)
The data presented in Table 2 shows that such factors as cost saving, concentration on
more efficient management, time costs, technical assistance and saving on personnel training
costs are the factors that have the biggest positive impact on the use of outsourcing for public
sector’s employment service companies. Less important factors pointed by the experts are
meeting customers’ needs, concentration on core activities, costs of the control of expenses,
lack of personnel and risk sharing with another company. The experts of private sector’s
employment service companies consider time costs saving, concentration on more efficient
management, process reorganisation efficiency, meeting customers’ needs and costs of the
control of expenses to be the main outsourcing motivating factors. The factors less
influencing the decision to apply or not apply an outsourcing, according to the experts, are
cost saving, saving on personnel training costs, lack of personnel, internal resources which
could be used for other aims and risk sharing with another company.
The results have revealed that the importance of the outsourcing motivating factors in
both analysed sectors slightly differs. The main differences appear in such spheres as meeting
customers’ needs and cost saving. Private employment service companies find it more
important to meet customers’ needs while cost saving is considered to be less important
factor for outsourcing. Different situation has been found evaluating public employment
service companies.
Marking the criterions by which a provider of an outsourcing service is selected, the
experts were unanimous (see Fig. 2). Service quality (mean rankpublic sector = 5, mean rank private
sector = 5.2), offered price (mean rankpublic sector = 4.6, mean rank private sector= 4.4) and previous
experience of buying services from outside (mean rankpublic sector = 4, mean rank private sector =
3.5) are considered to be the main criterions. Service variety (mean rankpublic sector = 3.1; mean
rank private sector = 3.4), reputation of the company (mean rankpublic sector = 2.4; mean rank private
sector = 2.4) and financial position of the company (mean rank public sector = 1.9; mean rank private
sector = 2.1) are thought to be less important criterions of outsourcing services.
Figure 2: Establishment of the most and least important criterions by which a provider
of an outsourcing service is selected in private and public employment service
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Most important
Less important
Service quality
Service variety
Criterions
Offered price
Previous
experience
Reputation of
the company
Financial
position of the
company
Comparing opinions of the experts working in public and private employment service
sectors, it can be seen (see Table 3) that poor service quality, confidentiality flows,
interrupted service provision, loss of intellectual property rights, loss of long-term employees,
possible indebtedness to outsourcing service providers and decrease of strategic flexibility are
the main obstacles for the public sector to use outsourcing services while the factors that
negatively influence an outsourcing decision in the private sector, according to the experts,
are not so numerous and they include poor service quality, possibility of interrupted service
provision, loss of intellectual property rights, information confidentiality flows and decrease
of strategic flexibility.
Table 3: Outsourcing demotivating factors in Lithuanian public and private
employment service companies
Outsourcing demotivating factors in
public employment service
companies
Poor service quality
Confidentiality flows
Interrupted service provision
Mean * Outsourcing demotivating factors
in private employment service
companies
5
Poor service quality
4.2
4
4.4
Interrupted service provision
4
Loss of intellectual property rights
4
4
Loss of intellectual property rights
3.8
Confidentiality flows
Loss of long-term employees
3.6
Possible indebtedness to service
providers
Loss/decrease of strategic flexibility
3.4
Loss/decrease of strategic
flexibility
Loss of core activities
3.4
Loss of internal consistency
Loss of internal consistency
3.2
Loss of the regular practice,
processes, traditions
Loss of core activities
3
Possible indebtedness to service
providers
Loss of the regular practice,
processes, traditions
Loss of long-term employees
2.6
Mean
3.2
3
3
2.8
2.6
2
(prepared by the authors with reference to the calculations)
*If an average value is higher than 3, it is considered that the factor does not have any negative
impact on outsourcing decision.
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The results presented in Table 3 propose the differences of the main risks on outsourcing
application in public and private employment service sectors:



For public employment services, loss of long-term employees (mean 3.6) is one
of the most significant factors discouraging these companies from the use of
outsourcing while following the opinion of the private sector experts, loss of longterm employees does not have any significant impact (mean 2) on outsourcing
decision;
The experts of public sector are inclined to think that outsourcing is not a threat to
lose core activities while following the opinion of private sector experts, outsourcing
can become one of the threats to lose particular workplaces;
According to the experts, outsourcing has bigger negative impact on company’s
strategic flexibility in the labour market in private employment service sector than
that in public employment service sector.
Сonclusion
Although the phenomenon of outsourcing is widely-spread all over the world and numerous
scientific studies on outsourcing application in business activities are carried out, in
Lithuania, the practice of outsourcing mostly appears only through buying such services as
security, cleaning, IT, juridical, maintenance services and so forth. The results of the expert
evaluation have revealed that outsourcing for employment services in Lithuania is not applied
except single cases such as buying the services of refresher courses or training. The authors
of the article presume that unpopularity of outsourcing in private and public employment
service sectors can be determined by the fears to lose a particular workplace.
The empirical research revealed that in public employment service sector, outsourcing
has the biggest positive impact on such fields as cost saving, concentration on more efficient
management, time costs, technical assistance (average values of the experts’ answers are
higher than 4). The main factors that have the biggest negative impact on the decision to use
outsourcing or not are as follows: poor service quality, confidentiality flows, interrupted
service provision. In private employment service sector, the biggest positive impact on an
outsourcing decision is made by such factors as time costs, concentration on more efficient
management and process reorganization efficiency (mean higher than 4). Negative impact on
outsourcing application is made by the same factors as in public employment service sector
with the difference of the sequence of the factors by their importance.
The research also enabled to establish the main differences of the impact of particular
factors on outsourcing in public and private employment service sectors: outsourcing in
private employment service sector is applied in order to meet customers’ needs more
qualitatively and so that companies could concentrate on core activities while public
employment service companies use outsourcing mainly with a view to saving costs, but
meeting customers’ needs or concentration on core activities are not considered to be the
main motivating factors. The barrier to use outsourcing in public employment service sector
is dismissal of long-term employees while, following the opinion of the experts working in
private employment service sector, loss of long-term workers does not have any significance.
According to the experts, private employment service companies are more concerned about
losing their core activities as a result of outsourcing while public employment service
companies little concern about that.
Selecting an outsourcing service provider, the factors of service quality, offered price
and previous experience of the provider are considered to be the most important.
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The differences between application of outsourcing in public and private employment
service sectors can be substantiated considering the fact that the main aim of the private
sector is earning profit which is determined by successful meeting of customers’ needs and
prompt service provision while the main driving force in public companies is the aim to
provide employment services for population without earning high profits.
Further research on this topic will be aimed at the comparative analysis of outsourcing
application in public and private employment service sectors in the Baltic States. The
information collected during the research would enable to identify and compare outsourcing
patterns and existing outsourcing practices in the Baltic States.
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