Outsourcing core and non-core competences: a study of alternative
strategies for building managerial capacity
Gordon Kingsley
(gordon.kinsley@pubpolicy.gatech.edu)
School of Public Policy
Georgia Institute of Technology
and
Sooho Lee
(sooho.lee@pubpolicy.gatech.edu)
School of Public Policy
Georgia Institute of Technology
Paper presented at Public Management Research Association 8th Research Conference
University of Southern California, School of Policy, Planning, and Development
Los Angeles, California, September 29-October 1, 2005
Abstract
How much impact does privatization have on public agency’s managerial capacity? Is
there any significant difference in perception of outsourcing impact on managerial
capacity between core personnel who manage and work for core competences and noncore personnel who work for non-core competences? By using survey and interview data
of a state Department of Transportation, this study found that public mangers perceive
outsourcing impact on managerial capacity in a neutral way. In other words, they tend to
think that outsourcing does not enhance or reduce managerial capacity in the agency.
However, the difference between core personnel and non-core personnel in the perception
of outsourcing impact on managerial capacity is very significant; the former is more
likely to be negative than the latter. These findings are discussed with some implications
for outsourcing strategies in public agencies.
1
Outsourcing core and non-core competences: a study of alternative
strategies for building managerial capacity
Introduction
Recently managerial capacity building has been one of the most important issues
not only in the private sector but also in the public sector (Donahue, 2000; Hou et al.,
2003: Barringer and Jones, 2004). Particularly related to outsourcing, agencies and firms
tend to have substantial interest in managerial capacity by which outsourcing is
appropriately negotiated, implemented, and evaluated. As typified in the so-called
“privatization paradox” (O’Looney, 1998) or Rainey conundrum (Rainey, 2003),
outsourcing is usually better performed when the agency has sufficient managerial
capacity and competence (Kelman, 2002).
Although managerial capacity makes an important role in managing outsourcing,
the impact of outsourcing on managerial capacity, in a reverse way or a two-way of
interaction in the spectrum, is little known. At a first look, one may easily speculate that
outsourcing reduces the managerial capacity of an agency because outsourcing usually
accompanies a loss of human capital (e.g., retirement or relocation of personnel). But a
speculation may not be made so simply as it is related to different level of activity in
which core and non-core competences in the organization are distinguished. Core
competences tend to be kept in-house rather than outsourcing because it has key strategic
objectives and high actual/potential value. By contrast, non-core competences are more
likely to be considered for outsourcing since those activities are not related to high
strategic goals or high returns (Quinn, 2000; Keane, 2003). Does outsourcing core
competence have the same impact on managerial capacity as outsourcing non-core
competences?
2
By using a case of Georgia Department of Transportation, this study goes to a
little deeper level of core and non-core differences with focus on the difference between
core personnel who directly work for core competences and non-core personnel who
directly work for non-core competences in case of outsourcing. Three major questions are
examined:
1. How much positively or negatively do government agency managers perceive
managerial capacity change under outsourcing?
2. How differently do core personnel who manage and work for core competences in
an agency perceive managerial capacity change than do non-core personnel who
work for non-core competences?
3. What factors are related to the increase or decrease of managerial capacitybuilding and the difference of core vs. non-core perception of managerial capacity
change?
In the first section, we review the previous studies regarding managerial capacity
under outsourcing and the difference of core vs. non-core competences. The hypotheses
are proposed from the reviews. In the second section, we describe the case of Georgia
Department of Transportation. In third section, we describe data and method. We
conducted a survey and interviews. In the fourth section, we present our findings. In the
final section, we discuss some implications and conclude the study.
3
Managerial capacity under outsourcing
Does outsourcing have a positive or negative impact on managerial capacity
building in an organization? A general view is that outsourcing reduces the managerial
capacity of government organizations (Donahue, 1989; Kettl, 1993; Gooden, 1998;
Wallin, 1997; Lawther, 1999; Milward & Provan, 2000; Morgan, 1992; Van Slyke,
2003). Once government agencies privatize the services, they might need fewer workers.
The typical outcome is “hollowing the state” (Milward & Provan, 2000) in which
government agency loses its capacity and more relies on contractors to produce goods
and deliver services.
Another theoretical aspect that supports reduced managerial capacity is based on
principal-agent theory. In a contract relationship, agent or contractor is assumed to
behave in the principal or government agency’s interests. Nevertheless, agents often
dominate needed information, leaving principals with little capacity to manage service
delivery. As government increases its use of contracting, it simultaneously reduces its
own managerial capacity, imperiling its ability to be a smart buyer of contracted goods
and services (Van Slyke, 2003).
However, some recent studies indicate that outsourcing rather enhances
managerial capacity (Oscar, 2000; Van Slyke and Hammonds, 2003). By using a
privatization case of a state park in Georgia, Van Slyke and Hammonds (2003) found that
management capacity actually increases as a result of outsourcing, primarily because the
public staff who remained with the agency has more time for planning, monitoring, and
managing while having fewer supervisory, personnel, and marketing responsibilities. The
study defined managerial capacity as contract management and policy expertise that can
4
develop competition; ability to design contracts, define contract goals, measures, and
outcomes and evaluate program results; and the financial and informational resources
necessary for overseeing and holding contractors accountable.
Similarly, Brown and Potoski (2003) found that management capacity change
under outsourcing varies among government agencies; some agencies are more actively
engaged in capacity building activities. The authors focused on three components of
managerial capacity such as feasibility assessment capacity, implementation capacity,
and evaluation capacity. By using the ICMA survey data1, they found that 75 percent of
the respondents reported that it had studied the feasibility of adopting private service
delivery within the past five years; 45 percent reported that they had undertaken certain
activities to ensure success in implementing private service delivery for public services;
and 52 percent reported that they had used specified techniques to systematically evaluate
its private service delivery. These relatively high percentages indicate that managerial
capacity would improve under outsourcing. With the total capacity, they found that
dissatisfaction, transaction cists, council-manager government, population, and presence
of political conflict have significant positive impact on the three components of capacity.
The answers to the question of reduced or enhanced managerial capacity seem
largely depend on how managerial capacity is defined and on what aspects or level of
management are evaluated. It seems that as the broader definition2 of managerial capacity
is examined, the more negative response is found on managerial capacity. Taken
together, the previous studies seem make it unclear whether outsourcing has a positive or
negative impact on managerial capacity in the organizational level. Accordingly, we want
to test the rival hypothesis of this issue by using the perception of government managers.
5
H1a. Government managers perceive that outsourcing enhances their agency’s
managerial capacity.
H1b. Government managers perceive that outsourcing reduces their agency’s
managerial capacity.
Core vs. non-core competence
A typical outsourcing strategy in an organization usually identifies and considers
core and non-core competences in an outsourcing decision. Non-core competences are
often the primary candidates for outsourcing because non-core competences are not
related to strategic goals or high returns (Quinn, 2000; Keane, 2003). The practice is
more obvious in the private sector (e.g., technology sub-network) (Quinn, 2000).
Outsourcing non-core competences may not have much impact on the overall managerial
capacity in an organization. As indicated in Van Slyke and Hammonds (2003), rather it
could enhance managerial capacity because the organization could focus more on the
core competences with concentrated resources and human management.
Does the typical strategy and assumption reflect the perception of government
employees who directly work either core competences or non-core competences? How
differently do these different groups of personnel perceive managerial capacity change
under outsourcing? Very few studies have been conducted regarding this issue. In a
recent study, DeHart-Davis and Kingsley (2005) found that government managers with
stronger professional identity perceive more negative outsourcing impacts than those with
weaker professional identities. Outsourcing may contradict professional identity by
requiring professionals to interact interdependently with contractors, blurring the
boundaries within which agency professionals operate, and displacing professional tasks
6
with managerial ones. Similarly, Kettl (1993) observed that outsourcing sometimes shifts
a public employee’s daily tasks from work for which they have been trained to contract
monitoring and compliance, for which they have not been trained. Bureaucratic tasks
generally have been shown to alienate professional more so than non-professionals,
presumably by limiting participation in core organizational tasks and curtailing
professional autonomy (Green, 1978; Miller, 1967). Based on the professionalism and
actual and potential limited participation, core personnel may have more negative
response against managerial capacity building under outsourcing. We hypothesize:
H2. Core personnel who manage and work for core competences in an agency
perceive more negative impact of outsourcing on managerial capacity in the
agency than do non-core personnel who work for non-core competences.
The case of the Georgia Department of Transportation
This study, based on observations of the Georgia Department of Transportation
(GDOT), began in 2001. The study was designed to examine the agency’s “consultant”
management strategies. (State departments of transportation use the term consultant to
denote delivers of professional services, including pre-construction engineering
(Witheford 1999). We use the terms consultant and contractor interchangeably in this
paper. The project’s data collection methods include case studies of GDOT projects, case
studies of other state DOT’s consultant management practices, extensive semi-structured
interviews with managers from the agency and the contracting organizations, a review of
the transportation literature, and a survey of mid-level managers. This section provides
the context for the survey research gleaned through interviews, the case studies and
literature review.
7
State transportation agencies historically have outsourced the construction of
transportation systems (such as roads, bridges, air and water ports, and metropolitan
subway and light-rail systems). Over the last 10 years state transportation agencies have
come under increasing pressure to outsource other activities such as maintenance,
information systems, entire road and port systems, and other administrative activities
(Ellis, et al. 2000; Witheford 1997, 1999). However, many state agencies have been
reluctant to outsource engineering design work because it is a key point of quality control
in the development of the public infrastructure (Cochran et al. 2004). In any given
transportation project roughly 90 percent of the budget will go to the construction of the
project, and roughly eight to 10 percent is devoted to the engineering design (also called
the preconstruction) work.
Historically, the engineers working on the design teams have constituted the
cultural heart of state DOTs. Entry-level professional training is in civil engineering.
Agency leaders typically work their way up by spending a portion of their career in the
various engineering design departments. While the number of individuals involved in
engineering design is relatively small (roughly ten percent or less of most state DOTs),
over time they provide a talent pool of managerial leadership for the agency.
This study focuses on the contracting out of engineering design and inspection
services that have traditionally been conducted in-house. One of the interesting aspects of
GDOT’s experience with privatization is that the decision to begin to contract out did not
come from a top-down political directive. While the State of Georgia has a history of
several governors strongly promoting privatization as state policy, GDOT’s engineering
8
design has remained largely immune from such pressures. Instead, several factors have
created the conditions for privatization:

Expansion of Public Transportation Programs – Under the last several governors,
the state has sought to improve or increase the highways and roads. This has led
to a sharp increase in the number of projects being initiated under the State
Transportation Implementation Plan.

Public Finance Rules – At the same time the rules governing public bonds issued
by the state to finance specific classes of transportation projects have changed and
no longer permit the addition of state personnel. This has limited GDOT’s ability
to use state personnel on many projects.

The completion of the interstate highway system and the changing attitudes
towards the role of the public sector and use of public funds among the citizenry
have led GDOT, as well as other DOTs, to downsize their workforce. To
illustrate, GDOT went from roughly 10,000 employees in the 1960s and early
1970s to less than 6,000 employees in 2005. Attrition, reductions in force, and the
elimination of vacant positions have become the norm rather than the exception
among transportation agencies.

Retirements – GDOT, like many agencies, is in the midst of a wave of retirements
from the public service. These retirements are creating a personnel void that
cannot be adequately filled due to restrictions created by public finance rules.

Changing Civil Service Rules – Georgia recently eliminated the merit system
governing civil service employees. Also eliminated were revolving door rules
preventing public officials from going to work for the private sector firms with
whom they interacted in their previous positions. The lifting of this constraint has
led employees to retire from GDOT then go to work for GDOT consultants. This
9
“revolving door” creates two ethical issues. First, retirees may simultaneously
receive healthy consultant salaries and state funded pensions, a phenomenon
known as “double dipping” (Sostek 2003). Second, conflict-of-interest may arise
when retirement-age GDOT managers interact with consultants as potential
employees as well as clients.
Under these circumstances many GDOT managers have felt coerced to hire
consultants. One of the findings from semi-structured interviews with senior GDOT
leadership is that the increased use of contractors is a second-best solution stemming
from these constraints in their working environment. The initial attempt to cope with this
situation was to create an Office of Consultant Design (OCD), which was supposed to be
the unit that managed all projects hiring consultants. OCD was to act as a buffer and
boundary-spanning unit shielding the other design engineers from the distraction of
contract management.
However, the quick expansion of the transportation program soon overwhelmed
all efforts to buffer. The result has been large numbers of design engineers with mixed
portfolios of projects. Consequently, a GDOT design engineer may wear two hats: one
where he or she is responsible for producing the engineering design, and the other where
he or she is responsible for overseeing contractors performing the work.
In this study we focus on the perceptions of GDOT managers regarding the
impacts of consultant usage on the agency. To summarize, managers have developed
these perceptions in the contexts of rapid expansion of the GDOT program; severe
constraints on personnel availability; professional service contracts where the focus is
less on cost control and more on quality assurance; unsuccessful efforts to contain
consultant management to a single unit (OCD); and expansion of the day-to-day tasks of
10
engineering professionals to include both creating engineering designs (a desired activity)
and managing the work of consultants in doing so (a less desired activity).
Data
Data collection was based on a mail survey questionnaire of GDOT project
managers. The survey was designed in accordance with the best practices outlined in
Dillman's Tailored Design Method (1999). These practices include: (1) A questionnaire
with reader-friendly content; (2) four personalized contacts with respondents (including
an alert letter, a cover letter with survey, a reminder postcard, and a replacement survey)
that used a consistent design; (3) carefully crafted messages regarding the importance of
the survey content; and (4) the provision of self-addressed envelopes affixed with postage
stamps.
Survey content was based on input collected through 17 semi-structured
interviews with mid-level and senior agency managers between April 2002 and July
2003. Twelve case studies of consultant projects gathered between October 2002 and
March 2003 also informed survey development, but for parts of the survey not directly
related to managerial perceptions of privatization. A draft survey was pre-tested in person
with three key informants, two current employees and one former employee. Feedback
during these interviews resulted in improvements to question design and survey format,
including additional questions, conceptual clarifications and improved language
consistency. The final survey design encompassed 16 pages, 33 questions, and nearly 300
individual items.
11
The sampling frame was developed by telephoning, e-mailing and faxing all
office heads within the agency to request contact information (including telephone
numbers and mailing addresses) for employees working with consultants. Some offices
reported no employees working with consultants, while one office provided contact
information for 25 employees interacting with consultants. This effort yielded 286
employees from eight divisions, 41 offices and seven districts. The composition of
employees represented on the list ranged from project managers to administrative
personnel to division heads.3
The text of all survey materials stressed that participation was voluntary and that
individual results and survey participation would be kept confidential. Survey materials
also emphasized the agency’s desire to better understand the issues and challenges of
increased consultant usage from the perspective of its most affected personnel. To
communicate the independent nature of the study, all survey materials were returned
directly to the research team.
The survey process yielded 231 returned and completed questionnaires,
representing an 81 percent response rate. The percentage of mail surveys received from
the different agency offices is proportional to the percentage distributed to them,
suggesting a sample highly representative of managers working with consultants across
the organization. As for the substantive composition of managers in the sample, 65
percent had exclusively performed engineering-related tasks, including construction
oversight, design engineering, and construction or pre-construction project management.
Only eight percent of managers in the sample had exclusively performed work in areas
not represented by traditional engineering processes, such as legal counsel, auditing,
12
planning, and accounting. Nineteen (19) percent had performed both core and support
roles, while nine percent had performed tasks outside these categories.
Measures
Dependent variable: Managerial Capacity
Managerial capacity was measured by using twelve question items (impact on
enhanced service, added skills, administrative flexibility, agency effectiveness, effective
use of in-house staff, stronger in-house core competencies, motivated staff, increased
employee performance, more staff, motivated management, accountability gained, and
higher quality work). The definition of managerial capacity in this study is broad,
covering the overall management rather than specific managerial skills related to
outsourcing. A scale, adapted from Kakabadse and Kakabadse (2001), measures
aggregate perceptions of outsourcing’s impacts on the managerial capacity of agency.
The scale sums a manager’s indications of where, on a numeric continuum of one to five
between opposite characteristics, lies the nature of twelve potential impacts of consultant
usage on the agency. The impacts pertain to effectiveness, administrative flexibility,
reputation, agency capacity, employee motivation, accountability, and output quality. The
lowest score possible is twelve (where a respondent marks “one” for each of the twelve
items), while the highest possible score is 60 (where a respondent marks
“five” for each of the twelve characteristics). Higher scale scores reflect more positive
agency impacts (e.g., lower cost, improved agency reputation) and vice versa. Cronbach’s
alpha, which measures the reliability of a scale from 0 to 1, is 0.91 for this scale.
13
Independent Variable: Core personnel
Core personnel are defined as engineers who have worked as a project manager
either in construction, preconstruction, or design. The project managers in these three
major works perform the most important part of the services in the GDOT and also
provide a talent pool of managerial leadership for the agency. This study also divided the
core personnel into two groups: engineer and dual experience of engineer and
administrator to see how the administration experience is related to the perception of
outsourcing impact.
Core personnel: engineer
Non-core personnel: general administration and support sections
Control Variables
We controls various effects of employees’ characteristics regarding outsourcing:
professional identity, professional self-interest, frequency of interactions, private sector
experience, quality of manager-contractor relationship, gender, education, work
experience at the agency, percentage of a respondent’s projects that use consultants.
Professional identity are based on an agency manager’s responses to survey
questions in which they are asked to register their level of agreement or disagreement on
a Likert-type scale with the following statements: My work should be primarily technical
rather than managing consultants. Professional reputation is more important to me than
rank. I identify myself as a professional more so than a public servant. The first measure
seeks to tap an agency manager’s preference for technical tasks over contractor
management, an orientation expected among professionals in highly privatized settings
14
(Kettl, 1993). The second measure pits professional reputation against rank, representing
different sources of organizational prestige in professional and civil service personnel
systems, respectively (Henry 2004). The third measure pits professional identity against
public service identity, given the potential for professionals to espouse loyalty to their
profession over loyalty to public service (Wilbern 1954).
Professional self-interest served by privatization is measured using a scale that
sums a survey respondent’s level of agreement or disagreement (1-5 scale) to the
following statements: Employees who manage consultants are more quickly promoted
than those who do no manage consultants. Experience in managing consultants is
necessary for advancement at this agency. Consultant management experience is a good
skill to have. Consultant management experience enhances my attractiveness to other
employers. These statements were developed based on interviews with agency employees
indicating their beliefs that consultant management experience provided opportunities for
advancement within the agency, as well as skills marketable to the private sector. The
Cronbach’s Alpha for the scale is 0.74.
Relational distance is the frequency of interactions between the manager and
consultants taking place outside the agency setting. Survey respondents were asked to
indicate the frequency (from 0=never to 4=frequently) with which they interacted with
consultants in ten settings: professional organizational meetings, the agency’s consultant
relations group, training sessions, alumni groups, service organizations, civic groups,
sports clubs, youth groups, religious organizations and social events. The higher the scale
score, the more interaction that takes place between the manager and consultants outside
15
the agency. These items are based on ideas outlined in the social network literature (see
Wasserman and Faust 1994). The Cronbach’s Alpha for the scale is 0.87.
The fourth measure of relational distance is a respondent’s private-sector
experience, which is used to capture the shared-experience dimension of relational
distance (Hood et al. 1999; Grabosky and Braithwaite 1986). While not used as a
relational distance measure, Brudney, Hebert and Wright also used private-sector
experience to predict support for government reinvention reforms (1999). Private-sector
experience is measured using a dummy variable indicating whether (1) or not (0) the
respondent has worked in the private sector on transportation-related issues.
The final measure of relational distance is a scale that gauges the quality of
manager contract or relationships. The scale, adapted from Kakabadse and Kakabadse
(2001), sums a manager’s indication of where, on a numeric continuum between opposite
characteristics, lies the nature of the respondent’s relationship with contractors. The scale
sums managerial responses, ranging from one (1) for the most negative version of the
characteristic to five (5) for the most 18 positive version of the characteristic, for ten
items: formality versus informality, distance versus friendship, closed versus open,
disrespect versus respect, outsider versus partner, adversarial versus cooperative,
declining versus improving, all business versus social, and distant versus involved. Thus
total scores range from 10 (a score of one for each of the ten items) to 50 (for a score of
five on each of the 10 items). Higher scores on the scale indicate more positive
relationships. Cronbach’s alpha for the scale is 0.90.
Gender (male =1), level of education (0=GED, 1=high school diploma, 2=some
college education, 3=associates degree, 4=undergraduate degree, 5=graduate degree),
16
length of time that the manager has worked at the agency (to control for those
respondents who have witnessed increased privatization at the agency over time) and the
percentage of a respondent’s projects that use consultants (to account for the level of
privatization experienced by the respondent) are also used.
Findings
Outsourcing impact on managerial capacity
Public mangers’ perception of outsourcing impact on managerial capacity is likely
to be neutral with a normal distribution. As shown in Figure 1, about a substantial portion
of responses are centered on the neutral zone, indicating that outsourcing does not affect
managerial capacity. The impact score between 33 and 38 (in the scale of 12 to 60) in the
neutral zone takes account for about 34.3% of the responses; the impact score beyond 39
accounts for 25.2%; almost 40.5% have the impact score below 32, which many public
mangers perceive that outsourcing have minimal or negative impact on managerial
capacity.
*****************************************************
Figure 1. Impact of outsourcing on management capacity
*****************************************************
Core vs. Non-core difference in outsourcing impact
Engineering project managers (construction, preconstruction, and design) tend to
perceive more negative impact on managerial capacity under outsourcing, compared to
general administration managers and administrators. By using ANOVA, we test the
17
difference of the three groups: engineering project mangers (core personnel), general
administration managers, and administrators who came from engineering project
managers. Engineering project managers and general administration managers are
significantly different (p <.01) as shown in Figure 2. Likewise, engineering project
mangers are more likely to be negative or neutral than are those administrators who used
to be engineering project managers (p< .01). But general administration mangers are not
significantly differently from administrators who used to be engineering project
managers. The findings clearly indicate that core personnel whose work is directly related
to core competences are more likely to have less positive perception of outsourcing
impact on managerial capacity than non-core personnel who work in non-core
competences. This finding is consistent with the hypotheses.
***************************************************************
Figure 2. Core vs. non-core difference
***************************************************************
Core vs. Non-core difference in the perception of outsourcing impact on managerial
capacity
Can the significant difference that exists in the ANOVA model sustain as several
relevant variables are factored in and controlled? This time we use OLS to test the
significance of the core vs. non-core difference by controlling the relevant variables.
As shown in Table 1, in the whole model, even with controlling the relevant
variables, core personnel (engineering project managers) are significantly different from
non-core personnel in perceiving outsourcing impact on managerial capacity (p<.05).
They perceive managerial capacity change under outsourcing significantly more
18
negatively, on average, about five points less than do the reference group. The Beta
weight (-.269) indicates that engineering variable has the most impact on the dependent
variable, a one standard change in core personnel makes .282 standard deviation changes
in the dependent variable.
The quality of manager-consultant relationship is strongly associated with the
impact score (p <.01). Those who think they have informal, open, cooperative, and
friendly relationship with consultant are more likely to perceive that outsourcing has
positive impact on managerial capacity in the agency. A one standard deviation increase
in quality of relationship increases .253 standard deviation in impact score of managerial
capacity. This variable is also strongly significant in both sub-models of engineering and
general administration.
Surprisingly male is strongly positive in the perception of outsourcing impact on
managerial capacity (p <.05), compared to female. As a caveat, this should be carefully
interpreted since there are only 34 females in the data and among them 18 are
engineering managers and 5 have dual experiences in both engineering and
administration. Thus, the relatively less positive perception of female may be influenced
by the fact that the majority of female in the data are young engineering managers.
The level of education has also negative impact on managerial capacity
perception (p <.05). The more educated the more negative against the managerial
capacity. This may be caused by the difference between engineers and general works in
the education level. Engineers are generally more educated, with at least bachelors degree
and some have master degree, required to have a professional degree, compared to
19
general workers. Such a difference between the two may reflect the difference in the
managerial capacity perception.
In the sub models, engineering managers show a very similar pattern as the whole
model. Quality of relationship with consultants, gender, and education are strongly
associated with managerial capacity perception. Unlike the whole model, percentage of
work time with consultants is negatively associated with moderate statistical significance.
In the general administration model, only the quality of relationship is statistically
significant (p<.05). However, the dual experience model shows a different pattern
compared to the other sub-models and the whole model. Quality of relationship is not
significant whereas percentage of work time with consultants, work years at GDOT as an
engineer, and years working with consultants are strongly associated with managerial
capacity perception (p<.05). In particular, the work experience as an engineer is
associated with less positive perception of outsourcing impact, but the years of working
with consultant is associated with more positive perception of outsourcing impact on
managerial capacity.
***************************************************************
Table 1. Core vs. non-core difference in the perception of outsourcing impact on
managerial capacity
***************************************************************
20
Discussion and conclusion
In the inception of this study, we proposed a rival hypothesis of public managers’
perception of outsourcing impact on managerial capacity: outsourcing would either
enhance or reduce managerial capacity. We also hypothesized that core personnel who
work directly for core competences in a government agency would be more likely to have
less positive perception of outsourcing impact on managerial capacity than non-core
personnel who work directly for non-core competences.
The analysis shows that overall, public managers perceive outsourcing impact on
managerial capacity in a neutral way. In other words, they tend to think that outsourcing
does not enhance or reduce managerial capacity in the agency. However, the difference
between core personnel and non-core personnel in perception of outsourcing impact on
managerial capacity is very significant; the former is more likely to be negative than the
latter. This finding is consistent with our hypothesis.
The neutral perception of public managers seems to reflect public managers’
attitude against privatization. In a decision-making process for privatization, political
factors often prevail over the judgment of professionalism and mid-level management
(Warne, 2003). But once contractors come in an agency and work together for several
years with public employees, the distinction between in-house employees and contractors
gets blurry and the relationship is somehow institutionalized. We identified blurry
distinction in our interviews with the GDOT managers since managers in the agency
often regard the project team in which consultants are included as the same unit of other
teams in the agency without any distinction. Such solid relationship or de facto
institutionalization of using consultants as semi-public employees seem to affect the
21
attitude or perception of public mangers to be neutral, with no extreme objection or
preference.
However, surprisingly there is a significant difference between core personnel and
non-core personnel in the perception of outsourcing impact. We expected that the less
positive perception of core personnel might be influenced by their professional norm or
bureaucratic alienation. Even with controlling professional aspects and administration
work experiences, the status of being an engineering project manager is a strong indicator
for the different perception. As we identified in the interviews, engineering project
mangers are concerned with control and coordination issues as they use consultants for
their project. Compared to when they use only the in-house employees, they need more
time for coordination to guide consultants and monitoring over the consultant works. This
may be one additional layer of work that would not be necessary in the in-house only
project.
Another possible reasons why engineering project managers are less positive in
outsourcing impact seems to be based on their potential concern with their job stability
under expanded outsourcing. In particular, young engineers are more negative about
outsourcing impact on managerial capacity, although it is not statistically strong.
Expanding privatization of core competences might mean potential relocation of their
jobs. Thus, even though they find some advantages or benefits in using consultants, the
perception of outsourcing impact seems not much affected.
22
Notes
1
The authors used two major ICMA survey of 1992 and 1997. The data include 1504 municipal and county
governments in the 1992 survey; 1586 in the 1997 survey
2
Managerial capacity has been defined by many ways. One of the most extensive studies was done by the
Government Performance Project (GPP) at Syracuse University. It defines managerial capacity as
“government’s intrinsic ability to marshal, develop, direct, and control its human, physical, and information
capital to support the discharge of its policy directions.” Such a general term includes the capacity of
financial management, human resources management, capital management, information technology
management, and managing for results (Government Performance Project, 2002). Particularly, the GPP
theorizes managerial capacity as the major determinant of performance. In other words, building capacity is
viewed as creating the potential for performance (Donahue et al, 2000; Hou et al., 2003; Coggburn and
Schneider, 2003). Howitt (1978) and Honadle (1981, 1986) defined it in a fashion of policy stage cycle, as
“the government ability to anticipate and influence change, make informed, intelligent decisions about
policy, develop programs to implement policy, attract and absorb resources, manage resources, and
evaluate current activities to guide future action.” Unlike the general approaches, more recent studies focus
on specific elements of managerial capacity in certain context. De Loe (2004) examined the managerial
capacity of groundwater protection program on Long Island, New York, by defining it as the capacity to
develop and implement appropriate management strategies. Gazley and Brudney (2005) defined it with
even narrower focuses on financing and staffing.
3
After this initial list was compiled, the research team telephoned the individuals on the list to verify their
contact information. These phone calls yielded minor contact 26 information changes, allowing us to
finalize the list and proceed with survey implementation. The survey implementation process proceeded in
five stages. First, agency managers received a letter alerting them that the survey would be forthcoming.
The letter was printed on agency stationary, signed by an agency department head, and sent through the
agency’s interdepartmental mail. The first survey package followed the alert letter, which included a cover
letter from the principal investigator explaining the survey's purpose and importance, a copy of the survey,
and a stamped self-addressed envelope. This survey package was sent through interdepartmental mail.
Three days later, a postcard was mailed reminding the agency employee that the survey had been mailed,
and requesting that they contact the principal investigator if they had not received it or had any questions.
Non-respondents were sent another survey package on the third week of the process, followed by a
reminder follow-up call one week later.
Reference
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25
Figures and Tables
Figure 1. Impact of outsourcing on managerial capacity
50
Frequency
40
Mean = 34.2381
Std. Dev. = 7.28047
N = 210
30
20
10
0
10.00
20.00
30.00
40.00
Managerial capacity change
26
50.00
60.00
Figure 2. Core vs. non-core difference
37.00
Mean of management capacity
36.00
35.00
34.00
33.00
32.00
31.00
1.00
2.00
Eng=1, General adm=2, Dual experience =3
27
3.00
Table 1. Outsourcing impact on managerial capacity
Variable
Whole model
(N=210)
Engineer
model
(N=70)
General
administration
model
(N=58)
Dual
experience
model
(N=82)
Core (eng. project manager
=1)
-5.363**
(-.282)
Professional identification
-.156
(-.085)
-.211
(-.116)
-.184
(-.103)
-.228
(-.106)
Professional self-interest
.066
(.065)
.023
(.023)
.113
(.110)
-.041
(-.041)
Frequency of interaction
.142
(.111)
.149
(.135)
.080
(.053)
.145
(.136)
Relationship quality
.381***
(.253)
.285**
(.202)
.607**
(.353)
.122
(.085)
% of consultant among the
projects
-.635
(-.024)
1.841
(.075)
-1.711
(.056)
2.396
(.105)
% of work time with
consultants
-.028
(-.090)
-.054*
(-.191)
-.061
(-.176)
-.121**
(-.413)
Experiences in the consultant
firms
-.646
(-.034)
.099
(.006)
.299
(.014)
-1.490
(-.082)
Gender (male =1)
5.832**
(.242)
5.856**
(.213)
4.270
(.200)
3.984
(.149)
Education
-1.448**
(-.169)
-1.554**
(-.205)
.946
(.055)
-2.02
(-.265)
Work years at GDOT as an
engineer
-.008
(-.009)
-.005
(-.006)
Years working with
consultant
.135
(.101)
.144
(.121)
.119
(.082)
.357**
(.301)
R-square
F
Significance
.257
3.458
.000
.228
2.366
.013
.274
2.411
.009
.302
2.986
.000
Notes: * p< .10, ** p<.05, *** p<.001
Values in parentheses are beta weights
28
-.355**
(-.350)