THE INFLUENCE OF OUTSOURCING ON ACHIEVING
BUSINESS GOALS IN LARGE CROATIAN COMPANIES
Ivica Parlov*
Received: 25. 09. 2003
Accepted: 10. 11. 2003
Preliminary communication
UDC: 65.017.1 (497.5)
This paper presents results of a research conducted in large Croatian companies
that intended to connect and establish eventual influences between the usage of
outsourcing and achieving business goals in those companies. It was also meant to
establish if (and in which segments) outsourcing was being used in large Croatian
companies, what were the main reasons for its use, if it was conducted according
to specific plans and with tracking of achieved results, if expectations that
surveyed companies had about outsourcing were met, and what are the future
possibilities and perspectives of those companies regarding outsourcing. Many
other useful data regarding outsourcing and goal achievement were also collected
and linked together in order to establish eventual influences of outsourcing on the
effectiveness of making business in large Croatian companies.
1. INTRODUCTION
Today, in order to survive extremely intensified competition on world
markets and almost daily changes of production technologies and labour
organization in general, companies must seek for new paths to do business
effectively, that is to achieve targeted business goals. More and more
international companies are realizing that the tactics that lead to survival and
development include concentration on activities that add the most value and
elimination of other activities.
One way to improve the effectiveness of doing business is by using
outsourcing, which is an act of transferring unessential internal activities to
outside providers, and focusing on core (main) company activities (Greaver,
Ivica Parlov, MSc, Brodomerkur dd, Poljička cesta 35, 21000 Split, Croatia, Phone: + 385 21
301 271, Fax: + 385 21 301 554, Email: ivicaparlov@yahoo.com
*
47
Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
1999, 3). Outsourcing is currently the only tool available that enables focusing
on core activities (that companies do best and is recognized by) and the
abstraction of important but non-core activities that do not represent the driving
force of the company, while simultaneously improving the quality and cutting
costs of performing those activities (Bendor-Samuel, 2000, 22).
The usage of this managerial tool has been especially intensified in the last
10 years due to certain changes in the conditions of making business. The most
important changes that allowed outsourcing to be embraced as an important
restructuring tool are as follows (Greaver, 1999, 12):
 Large organizational size is no longer a competitive advantage.
 Small, agile niche competitors can now change industries and cost
structures overnight.
 Product and service cycle times have reduced dramatically and time based
competition demands a quicker response.
 Investors demand a focused management that delivers.
 Significant operating and financial performance improvements are critical
for success and long-term survival.
 Supplies of technical specialists are reasonably plentiful; thus, employing
them internally is unnecessary for their availability.
 Cutting edge technology and knowledge are now recognized as competitive
weapons, but are expensive to acquire and successful results are often
elusive when implemented internally.
The relationship between outsourcing partners is only likely to work if the
following are in position (Gay/Essinger, 2000, 78):
 a definition (in the form of a contract) of the nature of the relationship with
the supplier
 a boundary defining the responsibilities of the service provider and the
responsibilities of the organization that has appointed the service provider
 a way of measuring the success of the outsourcing initiative.
In history, outsourcing was used only when organizations could not
perform due to incompetence, lack of capacity, financial pressures or
technological failure. Only short-term indicators were considered important and
the most important factors in the decision of whether to produce internally or to
outsource were the achieved economy of scale and the capability of performing
a specific activity, as shown in Figure 1.
Figure 1 shows that outsourcing was considered only in the case of a subcritical internal economy of scale and average or under-average capabilities of
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Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
performing a certain activity, while it was avoided in all other cases. In the
beginnings of the planned implementation of outsourcing, almost the only
reason for the use of this tool was to get a lower price, if possible with a better
service, by using the provider’s economy of scale. Today, it is not only about
the costs as before, although they are still the main reason for conducting
outsourcing. Besides short-term economic justifiability and previous success of
performing a certain activity as reasons for outsourcing, today it is also used to
restructure organizations that have been quite successful. This is due to the fact
that these organizations now recognize that management’s undivided attention
on building core competencies and serving customer needs is crucial. Anything
that distracts from this focus will be considered for outsourcing. Outsourcing
begins with processes furthest from the core and then moves toward it.
Leading
In-source
Produce in-house
Outsource
Compete
CAPABILITY OF
ACTIVITY
PERFORMING
Average or
under-average
Low
High
INTERNAL ECONOMY OF SCALE
Figure 1. Buy/produce decision matrix (Willcocks/Feeny/Islei, 1999, 296)
A question that will probably come to mind when management decides to
outsource a successful internal unit will be why not just continue to use its
services if the unit performs so well. The answer is because it has been
determined that the organization’s core competencies are not to be found in this
unit. These activities are important but not core, that is they are not necessary
for the survival and development of the company. Accordingly, restrictions
should now be placed on the resources allocated to this unit, which would
probably result in the deterioration in performance over time.
Figure 2 shows how project team members should consider the perspective
of the internal unit, considering the current situation and existing factors of
49
Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
influence. If the management of the company chooses outsourcing, it has to
keep in mind that a well-defined methodology should be used for its successful
implementation.
The reason why more and more companies choose outsourcing is because
of the many advantages that go with it. However, certain potential imperfections
and risks, which could become a reality if not approached in the right way,
should also be considered.
Positive
performance / cost


Joint venture
Outsource to
existing personnel
Absolutely keep
and invest
Possible
embedded
core
competencies
No embedded
core
competencies
Absolutely
outsource
Outsource to a
strategic partner or
invest heavily
Negative
Performance / cost
Figure 2. Deciding about the future of internal units (Greaver, 1999, 153)
It is clear that no success can be guaranteed, but good preparation will
prevent or minimize most of the risks and, thereby, increase the probability of a
successful outsourcing initiative. Each risk should be scored against the
likelihood of its occurrence, as well as the severity of its impact. The
organization’s managers may be asking: “Why should we take these risks?” The
answer is simple. In today’s fast-changing environment, staying the same is
riskier than outsourcing. If a function or process is not performing well, they are
a burden to the organization. The risk of an outsourcing failure is greatly
lessened when a thorough methodology is followed.
Speaking of preparing for outsourcing, an issue important for every
company should be considered - how much outsourcing affects the achieving of
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
company goals. Therefore, it is very important to provide an answer for the
following question: Is there a relationship between the use of outsourcing
and achieving the main company goals? The purpose of the conducted survey
was to establish if such a relation exists in large Croatian companies.
2. RESEARCH METHODOLOGY
2.1. SAMPLE
While exploring the influence of outsourcing on achieving company goals
in large Croatian companies, the criterion of choosing a company into the
observed sample was that the company employed 250 or more workers. In
March 2003, 497 Croatian companies fulfilled this condition (www.hgk.hr,
10.03.2003.). The research was made during March and April 2003 using a
mailed questionnaire as the main research instrument. The questionnaire was
filled out by representatives of higher management levels in large Croatian
companies. As the survey was anonymous, the presentation of the gained
research results will not contain the names of the surveyed companies.
The questionnaire was filled out and returned by 91 companies from 18 out
of 21 Croatian districts. The research excluded companies in the process of
bankruptcy, public companies, and companies with privileged and often
monopolistic positions on the Croatian market. The questionnaire was,
therefore, sent to 412 companies, where the 91 obtained responses make 22 %
of the desired sample or 18 % of the basic sample.
2.2. RESEARCH INSTRUMENTS
The main research instrument was a questionnaire that included general
questions about the surveyed companies (3 questions), questions about using or
not using outsourcing in these companies (25 questions), questions regarding
measurement and achievement of company goals (10 questions), and questions
connecting outsourcing and the achievement of those goals (2 questions).
Collected data were processed using relevant statistic methods.
2.3. HYPOTHESES
The research contained three main hypotheses:
H1: There is no significant interdependence between using outsourcing
and achieving main company goals in large Croatian companies.
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Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Using or non-using outsourcing, as an individual and independent factor,
can hardly make a significant impact on achieving main company goals, but it
can be expected that outsourcing would help doing this in combination with
other managerial tools and measures of a company’s economic policy.
This assumption stands especially in the business context of Croatia, with
many companies being transformed and with still ongoing various transition
processes, where outsourcing as a managerial tool still has not been fully
developed and implemented in the right ways using specific methodologies as it
has been in the western world (where greater impacts of using outsourcing on
achieving company goals can be expected due to this fact).
This is the reason why, while exploring the influence of the independent
variable on the dependent one, it has been assumed in this case that there is no
statistical significant interdependence between using/non-using outsourcing and
the degree of achieving goals in large Croatian companies.
H2: There is interdependence between the existence of plans for
implementing outsourcing projects and the degree of achieving outsourcing
goals.
It is logical to assume that the existence of plans for implementing
outsourcing projects would improve the achievement of outsourcing goals,
which would be proven in the case of large Croatian companies by confirming
the hypothesis stated above.
H3: The geographical position of a company, as well as its age, type of
ownership structure, share of foreign capital and type of activity do not
have a significant influence on the level of outsourcing.
Testing the validity of this hypothesis meant establishing an eventual
existence of interdependencies between the factors mentioned above and the
extent of using outsourcing in large Croatian companies.
2.4. STATISTICAL ANALYSIS
Establishing an eventual existence of interdependencies between particular
variables in the case of all three hypotheses was conducted using the ChiSquare test (used for testing a hypothesis that the distribution has a certain form
and a hypothesis of independent characteristics).
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
In cases of establishing an interdependence between two characteristics,
the strength of the relationship was also established by calculating the
correlation coefficient (Somer’s d) that represents a measure of the
correspondence degree between random variables (Rozga, 1997, 140). The
statistical processing of gathered data was made on a PC using Excel and SPSS
10.0 for Windows.
3. RESEARCH RESULTS
3.1. Analysis of the hypotheses
H1: There is no significant interdependence between using outsourcing
and achieving main company goals in large Croatian companies.
Table 1. Relationship between the use of outsourcing and achieving company goals
no
Use of
outsourcing
yes
Total
Count
% within "Use of
outsourcing"
Count
% within "Use of
outsourcing"
Count
% within "Use of
outsourcing"
Achieving of goals
no
yes
6
19
24.0%
76.0%
Total
25
100.0%
7
10.6%
59
89.4%
66
100.0%
13
14.3%
78
85.7%
91
100.0%
Exact Sig.
(2-sided)
Exact Sig.
(1-sided)
.175
.101
Chi-Square Tests
Pearson
Chi-Square
Continuity
Correction (a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
No. of Valid Cases
Value
df
2.656(b)
1
1.675
1
2.445
1
2.627
1
Asymp. Sig.
(2-sided)
.103
.196
.118
.105
91
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Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Due to the fact that during testing of the hypothesis the empirical value of
the Chi-Square (2.66) did not exceed the table value (2.71) on the significance
level of 10 %, it has been concluded that the use of outsourcing indeed has no
significant impact on achieving company goals in large Croatian companies. It
can be assumed that the reason for this is that outsourcing, as an individual and
independent factor, can hardly make a significant impact on achieving main
company goals. However, it can be expected that it would help doing this in
combination with other managerial tools and measures of a company’s
economic policy.
H2: There is interdependence between the existence of plans for
implementing outsourcing projects and the degree of achieving outsourcing
goals.
Table 2. Relationship between the existence of plans for implementing outsourcing
projects and the degree of achieving outsourcing goals
Existence of the outsourcing plan (X)
A
detailed
plan
A
general
plan
No plan
Total
54
Count
% within the
"Existence of
the outsourcing
plan"
Count
% within the
"Existence of
the outsourcing
plan"
Count
% within the
"Existence of
the outsourcing
plan"
Count
% within the
"Existence of
the outsourcing
plan"
Not
established
Completely
under-achieved
Partly
realized or
exceeded
Completely
realized or
exceeded
Outsourcing goals were : (Y)
Total
5
10
15
33.3%
66.7%
100.0%
6
20
1
27
22.2%
74.1%
3.7%
100.0%
5
11
4
4
24
20.8%
45.8%
16.7%
16.7%
100.0%
16
41
4
5
66
24.2%
62.1%
6.1%
7.6%
100.0%
Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Chi-Square Tests
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear Association
No. of Valid Cases
Value
df
13.657(a)
15.356
6,490
66
6
6
1
Asymp. Sig. (2sided)
.034
.018
.011
It was logical to assume that the existence of plans for implementing
outsourcing projects would improve the achievement of outsourcing goals.
This was proven in the case of large Croatian companies by confirming the
hypothesis set above due to the fact that the empirical value of the Chi-Square
(13.66) exceeded the table value (12.59) on the significance level of 5 %.
Table 3. The correlation between the existence of plans for implementing outsourcing
projects and the degree of achieving outsourcing goals
.257
Asymp.
Std.
Error(a)
.110
.281
.117
2.247
.025
.236
.105
2.247
.025
Value
Symmetric
Was there a plan for
Somers' implementing outsourcing?
d
Dependent
Set outsourcing goals were:
Dependent
Approx.
T(b)
Approx.
Sig.
2.247
.025
In this case, a week (0.236) correlation was established, which means that
the existence of plans for implementing outsourcing projects has a positive (but
not strong) impact on the degree of achieving outsourcing goals.
H3: The geographical position of a company, as well as its age, type of
ownership structure, share of foreign capital and type of activity do not
have a significant influence on the level of outsourcing.
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Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Table 4. Relationship between the age of the company and
the level of outsourcing
1944
1945
-1989
1990
-
Age of company
total
Total
Count
% within "Age
of company"
Count
% within "Age
of company"
Count
% within "Age
of company"
Count
% within "Age
of company"
0
1
2
3
4
5
6
4
3
20.0
%
7
13.0
%
3
13.6
%
13
14.3
%
1
2
3
1
1
26.7%
18
33.3%
4
18.2%
26
28.6%
Total
15
6.7% 13.3% 20.0% 6.7% 6.7% 100.0%
8
4
10
5
2
54
14.8% 7.4% 18.5% 9.3% 3.7% 100.0%
9
1
3
1
1
22
40.9% 4.5% 13.6% 4.5% 4.5% 100.0%
18
7
16
7
4
91
19.8% 7.7% 17.6% 7.7% 4.4% 100.0%
Chi-Square Tests
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
McNemar Test
No. of Valid Cases
Value
df
10.530(a)
9.903
12
12
Asymp. Sig.
(2-sided)
.570
.624
.027
1
.870
Exact Sig.
(2-sided)
.(b)
91
In all the researched cases, it was established that the empirical value of the
Chi-Square exceeded the table value on the test significance level of 10 %. This
normally would mean that for the confirmation of the tested hypothesis, the
level of outsourcing was not depending significantly on the geographical
position of a company, its age, type of ownership structure, share of foreign
capital and type of company activity.
However, because of the insignificance of the Chi-Square test on the
significance level of 10 %, this hypothesis cannot be generalized and accepted
as true for all large Croatian companies, just for the observed sample.
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Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Table 5: Relationship between the geographical position of a company and the
level of outsourcing
District
Total
Zagrebacka Count
% within District
Krapinsko- Count
zagorska
% within District
SisackoCount
moslavacka % within District
Karlovacka Count
% within District
Varazdinska Count
% within District
Koprivnicko Count
-krizevacka % within District
Primorsko- Count
goranska
% within District
Viroviticko- Count
podravska % within District
PozeskoCount
slavonska
% within District
BrodskoCount
posavska
% within District
OsjeckoCount
baranjska
% within District
SibenskoCount
kninska
% within District
Vukovarskosrijemska
Splitskodalmatinska
Istarska
Count
% within District
Count
% within District
Count
% within District
Dubrovacko Count
-neretvanska % within District
Medimurska Count
% within District
City of
Count
Zagreb
% within District
Count
Total
% within District
0
1
2
3
0
0%
0
.0%
1
25.0%
1
50.0%
0
.0%
1
16.7%
1
33.3%
1
33.3%
0
.0%
0
.0%
3
37.5%
1
100.0
%
1
33.3%
8
47.1%
2
22.2%
1
50.0%
0
.0%
5
25.0%
26
28.6%
1
33.3%
0
.0%
0
.0%
1
50.0%
0
.0%
2
33.3%
1
33.3%
1
33.3%
0
.0%
0
.0%
1
12.5%
0
0
.0%
1
100.0%
0
.0%
0
.0%
1
25.0%
0
.0%
0
.0%
1
33.3%
1
100.0%
1
50.0%
0
.0%
0
1
33.3%
0
.0%
0
.0%
0
.0%
1
25.0%
1
16.7%
0
.0%
0
.0%
0
.0%
0
.0%
2
25.0%
0
.0%
.0%
.0%
0
.0%
1
5.9%
2
22.2%
0
.0%
0
.0%
3
15.0%
13
14.3%
1
33.3%
3
17.6%
2
22.2%
0
.0%
2
100.0%
5
25.0%
18
19.8%
0
.0%
1
5.9%
0
.0%
0
.0%
0
.0%
1
5.0%
7
7.7%
4
5
6
0
0
1
.0%
.0% 33.3%
0
0
0
.0%
.0%
.0%
2
1
0
50.0% 25.0% .0%
0
0
0
.0%
.0%
.0%
1
1
0
25.0% 25.0% .0%
1
1
0
16.7% 16.7% .0%
1
0
0
33.3% .0%
.0%
0
0
0
.0%
.0%
.0%
0
0
0
.0%
.0%
.0%
1
0
0
50.0% .0%
.0%
1
0
1
12.5% .0% 12.5%
0
0
0
.0%
.0%
.0%
Total
3
100.0%
1
100.0%
4
100.0%
2
100.0%
4
100.0%
6
100.0%
3
100.0%
3
100.0%
1
100.0%
2
100.0%
8
100.0%
1
100.0%
0
1
0
3
.0% 33.3% .0% 100.0%
3
1
0
17
17.6% 5.9%
.0% 100.0%
1
1
1
9
11.1% 11.1% 11.1% 100.0%
1
0
0
2
50.0% .0%
.0% 100.0%
0
0
0
2
.0%
.0%
.0% 100.0%
4
1
1
20
20.0% 5.0% 5.0% 100.0%
16
7
4
91
17.6% 7.7% 4.4% 100.0%
57
Management, Vol. 9, 2004, 1, pp. 47-72
I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Chi-Square Test
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
McNemar Test
No. of Valid Cases
Value
df
77.505(a)
78.721
102
102
Asymp. Sig.
(2-sided)
.966
.958
1.206
1
.272
Exact Sig.
(2-sided)
.(b)
91
Table 6. Relationship between the type of company ownership
and the level of outsourcing
Private
owner-ship
State
owner-ship
Mixed
owner-ship
Type of ownership
Total
Total
Count
% within
Type of
ownership
Count
% within
Type of
ownership
Count
% within
Type of
ownership
Count
% within
Type of
ownership
0
1
2
3
4
5
6
15
9
11
4
13
6
4
Total
62
24.2% 14.5% 17.7% 6.5% 21.0% 9.7% 6.5% 100.0%
4
1
4
1
1
1
33.3% 8.3% 33.3% 8.3% 8.3% 8.3%
7
3
3
2
2
0
41.2% 17.6% 17.6% 11.8% 11.8% .0%
26
13
18
7
16
7
0
12
.0% 100.0%
0
17
.0% 100.0%
4
91
28.6% 14.3% 19.8% 7.7% 17.6% 7.7% 4.4% 100.0%
Chi-Square Tests
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
McNemar Test
No. of Valid Cases
58
Value
df
8.489(a)
10.851
12
12
Asymp. Sig. (2sided)
.746
.542
4.722
1
.030
Exact Sig.
(2-sided)
.(b)
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Table 7. Relationship between the share of foreign capital
and the level of outsourcing
Total
0%
0.1 - 50%
50.1 - 100%
Share of foreign capital in ownership
Count
Total
0
1
2
3
4
5
6
21
12
12
5
12
3
1
Total
66
% within
Share of
31.8% 18.2% 18.2% 7.6% 18.2% 4.5% 1.5% 100.0%
foreign
capital
Count
3
1
2
0
1
2
1
10
% within
Share of
30.0% 10.0% 20.0% .0% 10.0% 20.0% 10.0% 100.0%
foreign
capital
Count
2
0
4
2
3
2
1
14
% within
Share of
14.3% .0% 28.6% 14.3% 21.4% 14.3% 7.1% 100.0%
foreign
capital
Count
26
13
18
7
16
7
3
90
% within
Share of
28.9% 14.4% 20.0% 7.8% 17.8% 7.8% 3.3% 100.0%
foreign
capital
Chi-Square Tests
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear Association
McNemar Test
No. of Valid Cases
Value
df
12.816(a)
14.629
5.388
12
12
1
Asymp. Sig.
(2-sided)
.383
.262
.020
Exact Sig.
(2-sided)
.(b)
90
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Table 8. Relationship between the type of company activity and the level of outsourcing
Dominant activity
Total
Construc- Count
-tion
% within
Dominant
activity
Mfktg.
Count
% within
Dominant
activity
Trade
Count
% within
Dominant
activity
Services Count
% within
Dominant
activity
Count
% within
Total
Dominant
activity
Total
0
1
2
3
4
5
6
3
0
0
1
1
0
0
5
.0%
100.0
%
2
56
60.0% .0%
15
.0% 20.0% 20.0% .0%
9
13
4
8
5
26.8% 16.1% 23.2% 7.1% 14.3% 8.9% 3.6%
3
2
0
1
3
0
1
10
30.0% 20.0% .0% 10.0% 30.0% .0% 10.0%
5
2
5
1
4
2
13
18
7
16
7
100.0
%
1
20
25.0% 10.0% 25.0% 5.0% 20.0% 10.0% 5.0%
26
100.0
%
100.0
%
4
91
28.6% 14.3% 19.8% 7.7% 17.6% 7.7% 4.4%
100.0
%
Chi-Square Tests
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
McNemar Test
No. of Valid Cases
Value
df
11.800(a)
15.780
18
18
.836
1
Asymp. Sig. Exact Sig.
(2-sided)
(2-sided)
.857
.608
.360
.(b)
91
3.2. Influence of outsourcing on achieving company goals
As this was the basic question of the research, the answer to it was sought
after in two ways. In addition to the more objective way that tried to establish
the eventual existence of an interdependence between using or non-using
outsourcing and the degree of achieving company goals by using complex
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
statistical methods, Figure 3. shows subjective opinions of representatives of
surveyed companies about the influence of outsourcing on the achievement of
company goals.
The influence of outsourcing on achieving company goals
0%
3%
no influence
8%
small inluence
29%
significant influence
crucial influence
not sure
60%
Figure 3. The influence of outsourcing on achieving company goals
Research results show that the majority of respondents (60 %) considers
that outsourcing has a small impact on achieving company goals, which goes
along with the main hypothesis of the research stating that there is no significant
interdependence between using outsourcing and achieving main company goals.
A significant number of respondents (29 %) thinks that outsourcing has a
significant influence on achieving company goals, while 8 % considers that this
managerial tool has no influence on the degree of goal achievement.
3.3. Usage of outsourcing in large Croatian companies
The research showed that 73 % of the interviewed companies is using
outsourcing (of which, 61 % for two or more activities), while 27 % of them has
not been using outsourcing.
The usage of outsourcing in large Croatian companies
27%
yes
no
73%
Figure 4. The extent of using outsourcing
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
It was interesting to establish the reasons for not using outsourcing for
those companies that have not tried out this managerial tool yet.
Research results show that most of such companies (44 %) have not been
considering outsourcing at all until now, while a significant number of
companies (28 %) thinks that it is best to perform all necessary activities
internally or are concerned about preserving jobs of internal staff (20 %).
it's best to perform all
necessary activities
internally
Reasons for not using outsourcing
fear of loss of control
28%
44%
0%
8%
20%
concern about preserving
jobs of internal staff
non-existance of quality
providers on the market
outsourcing hasn't been
considered at all
Figure 5. Reasons for not using outsourcing
3.4. Activities outsourced
It was established that activities that are most often submitted to
outsourcing were activities related to transport and/or distribution (61 % of
companies that uses outsourcing).
They are followed by activities concerning information technologies and
keeping/maintaining (both 41 %), manufacturing and law department activities
(30 %), marketing activities (27 %) and export/import services (26 %).
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
61%
41%
41%
30%
27%
17%
9%
2% 2%
nting
law d
epart
ment
trans
port/d
istrib
ution
wareh
ousin
g
infor
matio
n tech
no...
expor
t/imp
ort se
rvice
s
keepi
ng/m
ainta
ining
huma
n reso
urces
gener
al/ad
minis
trativ
e
e
3%
12%
accou
finan
c
eting
mark
sales/
manu
su p p l
y
3%
26%
other
30%
factu
ring
Number of companies in %
Outsourcing of particular activities in large Croatian companies
Figure 6. Outsourcing of particular activities
3.5. Satisfaction with outsourcing results
It is noticeable that a great majority of surveyed companies is more or less
satisfied with the achieved outsourcing results, while a very small number of
them is unsatisfied. This can be taken as the first indicator that outsourcing
represents a useful managerial tool.
Satisfaction with outsourcing results
2% 2% 4%
14%
very satisfied
satisfied
22%
partly satisfied
unsatisfied
very unsatisfied
56%
not sure yet
Figure 7. Satisfaction with outsourcing results
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
3.6. Comparison of internal unit and provider performances
One of the main ideas of outsourcing is to transfer some of the activities to
the providers that will carry out those activities in a better and more efficient
way than the internal company units previously did. In order to establish if this
was the case with large Croatian companies, the surveyed companies were
classified by the way they rated provider performances compared with previous
performances of company units. A great majority of companies (93%) stated
that providers are achieving better performances (much better – 11%; better –
34%; mostly better – 48%) than the internal units previously did, while only 7%
of them declared the opposite (mostly worse – 5%; much worse – 2%).
Comparison of provider performances with internal unit performances
5% 0% 2%
11%
much better
better
mostly better
mostly worse
48%
34%
worse
much worse
Figure 8. Comparison of company and provider performances
3.7. Side-implications of outsourcing
World practice has shown that outsourcing often implicates some positive
side-implications besides the regular outsourcing goals stated as the reasons
why companies decided to try out outsourcing. This research showed that 80%
of the companies that are using outsourcing noticed one or more positive sideimplications of outsourcing. Most of the time, it was manifested through the
improvement of business analysis and better control of internal costs (36%).
However, outsourcing was also often acting as a catalyst for changes elsewhere
in the organization (30%) and for the improvement of results in other internal
units that are candidates for outsourcing because of employee fears from its
consequences.
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
Number of companies in %
Positive side-implications of outsourcing in large Croatian companies
36%
30%
23%
20%
2%
acting as a catalyst improvement of
for changes
results in internal
elsewhere in the
units that are
organization
candidates for
outsourcing
improvement of
business analysis
and better control
of internal costs
other
none
Figure 9. Positive side-implications of outsourcing
In addition to the positive ones, outsourcing can also cause some negative
side-effects. It was established that one or more negative side-effects appeared
in 52% of the surveyed companies, which is a significant percentage, but much
smaller than the frequency of the appearing of previously established positive
side-effects. The most common negative side-effect is the appearance of
unexpected hidden costs (18%), followed by slower problem-solving (17%),
higher costs of outsourced activities (14%), loss of control and dependence on
the provider (12%), etc.
Research results showed that the most common reason for the appearance
of these negative implications, in the case of large Croatian companies, was
poor preparation for the outsourcing project inside the company (35%). This
means that the negative implications could have been avoided with better
preparations and plans regarding the implementation of outsourcing.
As some other reasons for the appearing of negative side-effects, the
respondents stated poor evaluation of provider abilities (24%), incapabilities
and/or false provider promises (21%), and poor communication with provider
representatives (18%).
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
worse quality of provider
services compared to the
internal unit
higher costs of outsourced
activities
Negative implications of outsourcing
Number of companies in %
48%
appearance of hidden costs
loss of control and
dependence on the
provider
bigger employee
dissatisfaction
spending too much time in
managing relations with
the provider
slower problem-solving
18%
17%
14%
12%
5%
5%
other
6%
3%
no negative implications
Negative implications
Figure 10. Negative implications of outsourcing
3.8. Outsourcing implications on employees
The research showed that in most cases (52%), the employees that
previously were performing outsourced activities ended up transferred to other
activities inside their company.
In 8% of the examined cases, they were transferred to the provider and in
3% of the cases, they were fired. A total of 37% of the surveyed companies
conducted some kind of combination of the mentioned options (mostly the first
two options, without anyone getting fired).
With projects such as outsourcing, some kind of employee resistance can
always be expected because of the uncertainty of job preservation that comes
with it.
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
The destiny of employees previously performing
outsourced activities
transferred to other activities
inside the company
37%
transferred to the provider
fired
52%
3%
combination of mentioned
options
8%
Figure 11. The destiny of employees from outsourced activities
This was the reason to classify companies by the intensity of employee
resistance after presenting the outsourcing decision.
A total of 61% of the surveyed companies registered some kind of
employee resistance after hearing about the decision to outsource, while 39% of
them did not notice any kind of resistance.
Employee reaction on the outsourcing decision
13%
strong resistance
39%
moderate resistance
28%
20%
week and sporadic
resistance
no resistance
Figure 12. Employee reactions on outsourcing
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I. Parlov: The influence of outsourcing on achieving business goals in large Croatian companies
3.9. Usage of outside advisors
It has been established that a very small number of companies (3%) used
services of outside advisors during the whole outsourcing process, while 36% of
them used such services occasionally, and 61% not at all. The gained results are
logical considering the lack of outsourcing experts in Croatia.
The usage of outside-advisor services during decision-making about
outsourcing and its implementation
3%
yes, during the whole process
36%
yes, occasionally
no
61%
Figure 13. Usage of outside-advisor services
3.10. Opinion about outsourcing as a managerial tool
The research showed that most respondents (58%) considers outsourcing as
a useful managerial tool, while 30% of them considers it occasionally useful
depending on the situation, and 12% considers it a very useful tool. None of the
respondents thought of outsourcing as a harmful or an unuseful managerial tool.
The opinion about outsourcing as a managerial tool
very useful
0%
12%
30%
useful
occasionally useful
(depending on situation)
not useful
58%
harmful
not sure
Figure 14. The opinion about outsourcing as a managerial tool
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3.11. Other research results
As the main reasons why large Croatian companies decided to implement
outsourcing, the following ones were established:
1. to reduce and control costs (65%)
2. to focus on core activities (36%)
3. to free internal resources for other purposes (21%)
4. to increase flexibility (18%)
5. function difficult to manage (15%), etc.
Regarding the importance of criteria by which the surveyed companies
chose outsourcing providers, the following ranking was established:
1. commitment to quality
2. price
3. references/reputation
4. access to resources and needed technology
5. flexible contract terms, etc.
The research showed that 63% of the respondents thinks that the
outsourcing initiative is fully or mostly coordinated with the main company
goals and strategies, while ranking company goals by their importance in the
following way:
1. customer satisfaction
2. increase of product/service quality
3. growth of market share
4. employee satisfaction
5. development of new products/services.
Finally, it is important to mention that 33% of the surveyed companies
brought back one or more in-house activities (the main reason (35%) was poor
preparation for the outsourcing project), while 86% of them intends to
outsource again, 15% of which intends to outsource all activities except the core
ones.
4. CONCLUSION
In a world of fast and revolutionary changes, business subjects must adapt
themselves to those changes in a quick and efficient manner, while
simultaneously keeping or improving the quality of their products or services,
and reducing their costs. This situation puts great pressure on company
managements, demanding of them to successfully lead their companies through
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all these changes, in spite of the fact that, in most cases, they cannot afford
enough time or resources to do this in a satisfactory way. Searching for
solutions for such problems, companies are trying out various managerial tools
that they hope will help them solve the problems and adjust to the changes. One
of these tools is outsourcing, as one of the alternatives for solving different
kinds of problems.
This is why outsourcing has become a large trend in today’s businessworld, especially in the USA (where it is currently used by more than 90% of
the companies) and Western Europe, with a tendency of further progressive
expanding. The conducted research showed that outsourcing, as a world trend,
has been recognized also in Croatia, where it is being used more and more, but
is still not established as a managerial tool in the business practice of large
Croatian companies as much as it is in the western world. Outsourcing is being
implemented mostly for tactical reasons (mostly in order to reduce costs),
although it is also being used more often for strategic reasons, with the aim of
long-term reconstruction and development of the whole business-organization.
Previous experience has shown that those organizations that have carried
out thorough preparations and used adequate methodologies are the most
successful ones when it comes to outsourcing non-core functions. This includes
(as a start) a detailed internal analysis and the examination of eventual needs for
outsourcing, with estimates of possible consequences of outsourcing, especially
regarding employees that are conducting the activities planned for outsourcing.
After that comes the selection of an adequate outsourcing provider and setting
up rules that will define the responsibilities of the provider and the company. It
is also important to define ways of measuring provider performances in order to
be able to establish at any time how well he is achieving the goals that were set
up (and promised); that is, to establish the successfulness of implementing the
outsourcing project.
All of this has to be monitored by a relationship manager, whose
responsibility is to secure fast and efficient communication with provider
representatives in order to conduct all the required activities (and solve eventual
problems) in time and without unnecessary hold-ups. All of these activities have
to be well coordinated with other company goals and activities in order to create
better conditions for achieving the wanted results. Outsourcing can also be
implemented without the previously mentioned preparations and usage of
adequate methodologies, but that increases the chances that a project like this
would bring more harm than benefit to the company. It can be said that most
companies have noticed the need for specialized knowledge and superior
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technologies that will enable fast and efficient solving of complex problems.
However, they are also aware that internal use of such knowledge and
technologies does not guarantee results any more because of their high price,
fast changing, and difficulties in achieving and managing.
Just because of the high costs and needed time for managing new
technologies, many companies have realized that it is cheaper and safer to
cooperate with specialized companies that have already managed the required
technologies.
Of course, if a company thinks that it can compete with the best in every
aspect of its operation, it can also choose the “noble” option that takes into
consideration all company employees. By doing this, it can invest in itself and
its workers (by investing in new technologies and the acquisition of knowledge)
instead of in the providers, thinking that it will eventually achieve the same
gains as it would by using outsourcing. However, this alternative brings along
much bigger risks and consequences of eventual poor estimates because it
requires constant investments in all company activities and does not promise
any results in return. This will eventually jeopardize the existence of all
company employees and not only those performing activities that are candidates
for outsourcing.
An indisputable fact is that it is almost impossible to be the best at
everything (that is in many different types of activities), especially considering
that, in most cases, specialized outsourcing providers are far ahead compared to
the company’s internal units regarding knowledge, technological equipment and
investments in those two variables. By using outsourcing, the provider’s core
competencies are complementing the core competencies of the company,
creating the “best of the best” combinations.
As a conclusion, it can be said that the world has become a “global village”
due to the intense global competition that has brought business partners closer
from all parts of the world. Additionally, low costs and superior performances
of all activities are more than ever necessary for the survival of the company.
This can be achieved by focusing on core company activities, in which the
company is best on the market. It also creates the highest values for the
company, while simultaneously transferring other activities to specialized and
more efficient providers, which will enable the company to be more flexible in
doing business and to possibility offer only the best. This is why more and more
Croatian and international companies have recognized outsourcing as a
managerial tool that will help them to adapt to the future world of making
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business, in which only those who are the best in what they do will be able to
survive.
The concept of outsourcing enables finding and using resources that add
the highest values, regardless of where those resources are located, all in order
to achieve company goals more efficiently.
REFERENCES:
1. Bendor-Samuel, P.: Turning lead into gold, Executive Excellence
Publishing, South Provo (USA), 2000
2. Brown, M. G.: Keeping score, Productivity Inc., Portland, 1996
3. Gay, C. L.; Essinger, J.: Inside outsourcing, Nicholas Brealey Publishing,
London, 2000
4. Greaver, M. F.: Strategic outsourcing, AMACOM, New York, 1999
5. Rozga, A.: Statistika za ekonomiste, Ekonomski fakultet Split, Split, 1997
6. Willcocks, L .P.; Feeny, D. F.; Islei, G.: Managing IT as a strategic
resource, The McGraw-Hill Companies, London, 1999
7. www.hgk.hr, 10. 03. 2003
8. www.outsourcing.com, 12. 03. 2002
UTJECAJ OUTSOURCINGA NA OSTVARIVANJE CILJEVA VELIKIH
HRVATSKIH PODUZEĆA
Sažetak
U svijetu sve bržih i revolucionarnijih promjena, poslovnim subjektima je nametnuta
potreba brzog i efikasnog prilagođavanja tim promjenama, uz istovremeno zadržavanje
ili podizanje razine kvalitete poslovanja. Jedan od menadžerskih alata koji to, uz
pravilnu primjenu, može omogućiti jest outsourcing, koji je u ovom radu definiran kao
postupak prijenosa sporednih aktivnosti poduzeća na vanjske opskrbitelje, te fokusiranje
na sržne (glavne) aktivnosti poduzeća. U ovom je radu istraživana primjena
outsourcinga kod velikih hrvatskih poduzeća, te njegov utjecaj na ostvarivanje ciljeva
poslovanja tih poduzeća. Utvrđeno je da je trend korištenja outsourcinga stigao i u
Hrvatsku, gdje ga 73 % anketiranih poduzeća trenutno koristi (naspram cca. 90 % u
SAD-u gdje se ovaj menadžerski alat najviše koristi). Zabilježeno je i zadovoljstvo
anketiranih rezultatima koje postižu njihovi outsourcing opskrbitelji, iako provjera
osnovne hipoteze rada pokazuje da outsourcing ne utječe značajno na ostvarivanje
osnovnih ciljeva velikih hrvatskih poduzeća, što se međutim može očekivati daljnjim
razvojem ovog alata u Hrvatskoj, te njegovim korištenjem na pravilan način primjenom
za to razvijenih metodologija.
72