Outsourcing and Organizational Performance: The Employee Perspective
| DOI | 10.1177/0275074019855469 |
| Published date | 01 November 2019 |
| Author | Sergio Fernandez,Deanna Malatesta,Shinwoo Lee,Gyeo Reh Lee |
| Date | 01 November 2019 |
| Subject Matter | Articles |
research-article2019
Article
American Review of Public Administration
2019, Vol. 49(8) 973 –986
Outsourcing and Organizational Performance:
© The Author(s) 2019
Article reuse guidelines:
The Employee Perspective
sagepub.com/journals-permissions
https://doi.org/10.1177/0275074019855469
DOI: 10.1177/0275074019855469
journals.sagepub.com/home/arp
Gyeo Reh Lee1 , Shinwoo Lee2 , Deanna Malatesta1,
and Sergio Fernandez1,3,4
Abstract
We develop a conceptual framework that integrates and extends existing explanations of outsourcing’s effects on the
government workforce and organizational performance. We then test our logic using 5 years of panel data (2010-2014)
from U.S. federal agencies. The evidence presents modest negative effects of outsourcing on organizational performance as
perceived by employees. The analysis also reveals that outsourcing affects perceived performance through its influence on
job satisfaction.
Keywords
outsourcing, government contracting, organizational performance, job satisfaction
Since the advent of the New Public Management (NPM)
broader understanding of how this practice affects public
Reforms in the 1980s, governments have relied extensively
organizations.
on the private sector for the production and delivery of public
To explore how government outsourcing influences
services (Pollitt & Bouckaert, 2011). Outsourcing is an
employee perceptions of organizational performance, we
important policy tool employed in the name of greater effi-
bring together disparate literatures on public–private partner-
ciency and a decided preference for business-like practices.
ships, transaction cost economics (TCE), principal-agent
Yet, we have made only limited progress in understanding the
problem, public service motivation (PSM), psychological
broader consequences of outsourcing (Heinrich, Lynn, &
contract, and job satisfaction to propose a logical explanation
Milward, 2009). Most of the research focus has been outward
of why and how outsourcing may affect perceived organiza-
on the efficiency and effectiveness of public functions and
tional performance among federal employees. While the tra-
services (Williamson, 1985, 1991), while government per-
ditional approach in developing theoretical grounds has
sonnel’s perspective on the effects of outsourcing on organi-
predominantly relied on a unidimensional, either positive or
zational performance has been rarely evaluated. This renders
negative, outcome of government outsourcing, we take a
fractional explanations of outsourcing outcomes (Lindholst,
comprehensive approach considering both dimensions.
Hansen, Randrup, Persson, & Kristoffersson, 2018).
Empirically, we use panel data (2010-2014) associated with
This research provides an exploration of the impact of out-
U.S. federal agencies. Findings explain some of the variation
sourcing on organizational performance from the perspective
in job satisfaction and perceived performance that appears in
of public employees. As one of the key public sector constitu-
the Federal Employee Viewpoint Survey (FEVS) results
ents, government employees have different interests, thoughts,
reported by U.S. Office of Personnel Management (OPM).
and values that set them apart from other constituents. In par-
Our theoretical and empirical approaches contribute to offer-
ticular, public employees have witnessed the continued expan-
ing the evidence on federal employees’ evaluation on out-
sion of government outsourcing for the several decades as an
sourcing outcomes in terms of organizational performance.
alternative tool for delivering public services and, therefore,
hold certain expectations about the consequences of outsourc-
ing—both good and bad—for themselves and their organiza-
1Indiana University, Bloomington, USA
2
tions. A huge literature on work-related attitudes indicates that
University of South Florida, Tampa, USA
3University of Pretoria, South Africa
what employees think and how they feel about their organiza-
4University of Johannesburg, South Africa
tion, its policies, and its leaders influence their motivation,
behavior, and, ultimately, their performance (Ostroff, 1992;
Corresponding Author:
Gyeo Reh Lee, School of Public and Environmental Affairs, Indiana
Riketta, 2008). Thus, analyzing how government outsourcing
University, 1315 E. 10th Street, Bloomington, IN 47405, USA.
influences employee perceptions and attitudes can foster a
Email: gyeolee@iu.edu
974
American Review of Public Administration 49(8)
The next section provides a theoretical framework that
Robinson, 1984; Ketokivi & Schroeder, 2004; Singh,
connects outsourcing, employee job satisfaction, and per-
Darwish, & Potočnik, 2016; Vij & Bedi, 2016; Wall et al.,
ceived organizational performance. The “Method” section
2004). These studies report correlations between perceptual
explains the sampling strategy, data sources, variables, and
and more objective measures of performance between .50
measures. We then present our findings, and conclude with a
(Walker & Boyne, 2006) and .60 (Dawes, 1999; Dess &
discussion of implications for theory and practice, limita-
Robinson, 1984; Wall et al., 2004); Nathan and Alexander’s
tions, and research extensions.
(1988) meta-analysis reports correlations as high as .90.
Bommer et al.’s (1995) meta-analysis also finds a correlation
Theoretical Framework
between the two types of measures (r = .30) that becomes
much stronger (r = .71) when perceptual and objective mea-
This section lays out our theoretical framework to account
sures of performance tap the same dimension of performance
for how outsourcing affects organizational performance as
(e.g., effectiveness or efficiency). Furthermore, Wall et al.
perceived by employees, both directly and indirectly through
(2004), Ketokivi and Schroeder (2004), and Singh et al.
its influence on job satisfaction.
(2016) find sufficiently high correlations between perceptual
and objective measures of performance to warrant treating
Employee Perceptions of Organizational
the former as reliable and valid measures of performance. In
short, while not interchangeable, employee perceptions of
Performance
performance are sufficiently correlated with more objective
The conceptual domain of organizational performance, one
measures to allow one to make reasonable inferences about
of the central concepts in the field of management, is incred-
how well an organization performs.
ibly broad, with a wide range of approaches developed by
In addition, employee perceptions of organizational per-
experts to describe and measure organizational performance
formance are valuable because they are correlated with vari-
(Amirkhanyan, Kim, & Lambright, 2014; Andersen, Boesen,
ous antecedents of organizational performance. Research on
& Pedersen, 2016; R. E. Quinn & Rohrbaugh, 1981; Rainey,
employees’ perceived image of their organization, including
2014). The perceptions of stakeholders—internal as well as
its values, mission, capacities, and performance, indicates
external figures—have been prominently operated in major
that more positive images lead employees to identify more
approaches to organizational performance, including the
strongly with their organization (Dutton, Dukerich, &
Competing Values Approach (R. E. Quinn & Rohrbaugh,
Harquail, 1994; Rho, Yun, & Lee, 2015). Organizational
1981) and the Balanced Scorecard (Kaplan & Norton, 1996).
identification, in turn, has been found to be related to a range
Reviews of research on organizational performance attest to
of antecedents of performance, including cooperation
the importance of employee perceptions of organizational
(Dukerich, Golden, & Shortell, 2002), extra-role behavior
performance as one of key facets of this concept and a criti-
(Rho et al., 2015; van Dick, van Knippenberg, Kerschreiter,
cal source of performance information (Andersen et al.,
Hertel, & Wieseke, 2008), job satisfaction (van Dick et al.,
2016; Andrews, Boyne, & Walker, 2006; Boyne, 2002).
2004; van Dick et al., 2008), motivation (Pratt, 1998), and
Employee perceptions of organizational performance fur-
organizational commitment (Dutton et al., 1994). Thus,
ther our understanding of organizational performance in two
knowledge of employee perceptions of performance can be
ways. First, knowledge of how employees perceive organi-
used to infer something about employee behavior and atti-
zational performance can be used to infer how well the orga-
tudes that influence organizational performance.
nization is actually performing. A growing body of evidence
reveals moderate to strong correlations between perceptual
The Direct Link Between Outsourcing and
or subjective measures of performance and more objective or
Performance
archival measures of performance, indicating that both types
of measures converge on the underlying concept of organiza-
Public organizations have undergone significant reforms
tional performance. To be sure, some researchers like Meier
over the last few decades, including the growing use of mar-
and O’Toole (2013a, 2013b) warn against the use of percep-
ket-based practices, such as outsourcing that are associated
tual measures of performance in public management with the NPM (Hodge, 2000).1 Proponents of NPM-oriented
research. Their analysis reveals weak correlations between...
To continue reading
Request your trial