CHAPTER 1: INTRODUCTION

Background information and introduction to the problem

Outsourcing can be defined as contracting out some routine organizational functions that companies do not do well in them to other outside companies that specialize in such functions (Amiti, 2004). The strategy behind outsourcing is to hire out the non­core functions to contractors so that the company can use its staff to focus on the core functions of the business. Outsourcing is a growing business phenomenon that presently involves engaging a separate entity to manage some sections or entire organization, firm or company. According to Freeman and Minnow (2009), outsourcing is the most preferred strategy to business operations because it helps share costs, risks and losses. While many business, organizations and government sectors in the United States have adopted and practiced outsourcing in the operations, the US defense is yet to fully adopt this strategy of modern organizational operations (Burkholder, 2006).

The concept of outsourcing has been associated with the greatest dilemma in today’s business and financial environment (Schniederjans et al, 2005). Though the choice of outsourcing in an organization is brought about by the objective of cutting operational costs and relieving the organization of total risks, many organizations have made severe mistakes in the choice of services that they should outsource. According to US Congress Committee (2009), some organizational services are too sensitive and critical to be outsourced. Outsourcing and contracting is widely practiced in the United States. Among the most outsourced services include catering, information and communication technology, cleaning and supply management among other general organizational activities (Lind, 2006).

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