European Journal of Purchasing & Supply Management 8 (2002) 83–95 Outsourcing in Edinburgh and the Lothians W. Bailey, R. Masson, R. Raeside* School of Mathematics & Statistics, Napier University, Sightill Court, Edinburgh EH11 4BN, Scotland, UK Received 10 March 1999; received in revised form 16 February 2001; accepted 27 April 2001 Abstract The findings of a survey into the outsourcing activities of large organisations in the Edinburgh and Lothian region of Scotland are reported in this paper. The aim was to carry out a study of outsourcing activity against a theoretical framework of practice and problems derived from the literature. It was found that 70% of the organisations outsourced at least one activity, with cleaning, maintenance, catering, security, and manufacturing/operations being the most common areas, the principal motivation being to improve the quality and cost of the activity outsourced. The criteria used for selecting outsourcing contractors were mainly reputation, cost, previous contacts and technical capability. The main benefits of outsourcing were reduced costs, improved quality of service, increased management focus on core activities, and access to new capabilities. The main problems with outsourcing were loss of control, poor supplier management and problems with confidentiality and opportunist exploitation by supplier. This research was supported by Lothian and Edinburgh Enterprise Ltd. r 2002 Elsevier Science Ltd. All rights reserved. Keywords: Outsourcing; Survey; Strategy 1. Introduction Outsourcing can be defined as when an organisation uses an external company to carry out activities previously carried out within the organisation. We take the definition of outsourcing to be similar to that used by Willcocks et al. (1995), when researching into IT outsourcing. The definition is that outsourcing an activity ‘‘means handing over to a third party manage- ment, for required result, some or all of’’ that particular activity and related services. It is not a new phenomen- on: services such as security have been outsourced since the 1960s and earlier. However, the volume and range of activities has significantly increased in the last 10–15years, to include such services as information technology, personnel, finance and accounting, and even activities traditionally central to the firm such as manufacturing and research and development (see, for example, Bedford, 1996 and Bailey et al., 1998). According to Hendry (1995) outsourcing is ‘one of the strongest and most sustained trends within business over the last ten years’, and it has been estimated that d130 billion a year is spent on outsourcing in the UK alone (Bedford, 1996). This way of doing business has been variously described as the ‘network organisation’ (Miles and Snow, 1986), the ‘virtual company’ (Erens et al., 1996) or the ‘shamrock organisation’ (Handy, 1989). The trend to outsourcing has been influenced by management techniques such as business process reen- gineering (Hammer and Champy, 1993), which demands that radical solutions be found to business problems to achieve step improvements; the use of downsizing to achieve cost savings and increase flexibility; the intro- duction of benchmarking, which encourages the com- panies to look outward to achieve world class performance; and the theory of core competence (Prahalad and Hamel, 1990), which argues that compa- nies succeed because they are only able to perform a limited range of ‘core’ activities to a world class standard. Organisations have increasingly come to question what is ‘core’ and what is ‘non-core’ or peripheral. A number of categorisations have been developed; for example Nichols (1998) defines core activities as ‘activities which are of critical importance to the enterprise’, complementary activities as those which are ‘facilitating activities which enable or enhance value’, and residual activities as ‘auxiliary services which are non-critical’. According to this classification, *Corresponding author. Tel.: +44-131-444-2266; fax: +44-131-455- 3485. E-mail address: r.raeside@napier.ac.uk (R. Raeside). 0969-7012/02/$-see front matter r 2002 Elsevier Science Ltd. All rights reserved. PII:S0969-7012(01)00008-9