Refashioning Organizational Boundaries ... - Wiley Online Library

Journal of Management Studies 43:3 May 2006 0022-2380

Refashioning Organizational Boundaries: Outsourcing Customer Service Work*

Janet Walsh and Stephen Deery King’s College London abstract In recent years there has been a discernible trend towards the outsourcing and subcontracting of work. However, there has been very little empirical research on employees’ attitudes to work in outsourced firms. This study is conducted in the area of call centre services where there has been a substantial growth in the provision of external market suppliers. It examines employees’ perceptions of their work and employment arrangements in both an in-house producer and an external service provider and identifies and compares the factors that shape their organizational commitment and intentions to quit. The research found that the character of the internal labour market and the nature of the work regime were more important explanations of organizational commitment and intentions to quit in the external market supplier than in the in-house producer. The paper discusses the implications of these findings for the quality of customer service provided under subcontracting arrangements.

INTRODUCTION Firms make choices about the types of employment systems they use to allocate work. Some place a reliance on internalized arrangements based on long-term commitments and the utilization of bureaucratic employment practices while others draw more heavily on externalized forms of employment incorporating outsourcing and other market-based practices (Colling, 1995; Deakin and Michie, 1997; Kinnie, 2001; Lepak and Snell, 1999). Since the mid-1980s there has been a discernible shift towards the externalization of employment in the form of outsourcing and the subcontracting of work (Abraham, 1990; Baron and Kreps, 1999; Cappelli, 1995, 2000; Davis-Blake and Uzzi, 1993; Lepak et al., 2003; Vining and Globerman, 1999). Moss et al.’s (2000) study of US financial services and high-tech electronics firms indicated that outsourcing for basic parts and Address for reprints: Janet Walsh, Department of Management, King’s College London, University of London, Franklin-Wilkins Building, 150 Stamford Street, London SE1 9NN, UK ( janet.walsh@ kcl.ac.uk). © Blackwell Publishing Ltd 2006. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

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services had become widespread. In Britain similar trends have been identified in a range of industries and occupations from catering and cleaning to call centre and telebureau work (Colling, 1995; Kinnie, 2001). The Workplace Employee Relations survey revealed, for example, that more than 90 per cent of all workplaces subcontracted one or more services (Cully et al., 1999, p. 35). These developments are seen as symptomatic of the erosion of internal labour markets and a sign of the increased importance of market-based activities and relatively short-term contractual arrangements ( Jacoby, 1999; Osterman, 1988). Some observers have suggested that the wider use of outsourcing and subcontracting has meant that the employment relationship has become mediated by the market rather than insulated from the market (Cappelli, 2000; Moss et al., 2000).[1] According to Abraham (1990, p. 86) these work arrangements have involved the substitution of arms-length market-mediated transactions for direct employment relationships. Indeed the growth in outsourcing and subcontracting has been said to herald the ‘revival of contract as the foremost organizing mechanism of economic activity’ (Deakin and Michie, 1997, p. 1). To date, however, there has been very little empirical research on employees’ perceptions and experiences of work in outsourced firms. As Baron (2000, p. 97) noted recently, ‘we know remarkably little about . . . what these changes in employment relations mean for workers, individually and collectively, their pay, training, careers, job satisfaction, union clout, and the like’. Although there have been a number of empirical studies that have focused on the implications of contracting out for employees’ substantive terms and conditions of employment (Colling, 1995; Doogan, 1997; Escott and Whitfield, 1995; Walsh and O’Flynn, 2000), it is true to say that ‘. . . our knowledge of the impact of outsourcing on employee attitudes and behaviour remains extremely limited’ (Kessler et al., 1999, p. 5). The purpose of this paper is to examine employees’ perceptions of their work and employment arrangements in both an in-house producer and an external service provider and to identify and compare the factors that help shape their organizational commitment and intentions to quit. The research is conducted in the area of call centre services where there has been a substantial rise in the use of subcontractors. Outsourcing accounts for approximately 10–15 per cent of call centre employment in the UK and it is estimated that this sector is expanding at between 15 and 20 per cent a year (Wiggin, 2002, p. 1). In the USA over 11 per cent of agent positions are said to be in outsourced firms. The outsourcing market is projected to grow at three times the rate of the internal call centre market (Doellgast, 2004). The study seeks to increase our understanding of the character of employee well-being in different work settings and how outsourcing can affect the quality of the services that are provided to customers. In the paper, we firstly examine the factors that have been associated with the growth of outsourcing. We then look at the implications for employees and service © Blackwell Publishing Ltd 2006

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provision. This is followed by an outline of the organizational setting and the methods used in this study. The final section of the paper provides a discussion of the empirical findings and sets out our concluding observations. THE DECISION TO OUTSOURCE The recent growth of market-mediated employment arrangements follows a considerable period of consolidation of internal labour markets. During most of the twentieth century firms across North America, Europe and Japan reduced their reliance on subcontracting and developed more elaborate organizationally-based employment arrangements (Cappelli, 1995; Gospel, 1992; Jacoby, 1984, 1985). The contract system of labour was seen to involve problems of labour instability, haphazard skill development and uneven quality outcomes and to have encouraged opportunistic short-term behaviour by contractors (Cappelli, 2000; Jacoby, 1985; Marsden, 1999). Employee turnover and absenteeism were especially common, particularly during periods of strong labour demand. The re-emergence of subcontracting in the 1980s and 1990s was driven by a number of factors. Firstly, firms increased their reliance on independent contractors in order to reduce labour costs (Harrison and Kelley, 1993; Rees and Fielder, 1992). By contracting out, organizations were able to economize on the costs of recruitment, screening, training and managing employees as well as in some cases the costs of unemployment insurance, pensions and other employment benefits (Pfeffer and Baron, 1988). Furthermore, they were able to effect cost reductions by reassigning work to subcontractors who paid lower market wage rates (Abraham and Taylor, 1996). Subcontractors were often able to reduce labour costs by subjecting their employees to stricter systems of discipline and supervision (Clawson, 1980; Jones, 1982; Williamson, 1985, p. 226). Hence the efficiency benefits of subcontracting systems were derived from a combination of lower labour costs and higher work intensity ( Jacoby, 1984; Marsden, 1999). Relatedly, subcontracting and the use of independent contractors have been used to attenuate the growth of trade union representation and organization and weaken the collective bargaining power of workers (Pfeffer and Baron, 1988). Secondly, outsourcing has been stimulated by efforts to benchmark internal performance against market competitors and to ascertain the relative costs and benefits of alternative production or supply arrangements. It has not been uncommon for organizations with their own in-house facilities to contract with external market suppliers of the same production or service activity in order to assess the performance of their ‘insiders’. This is said to be associated with a process of organizational learning (Moss et al., 2000). Thirdly, subcontracting has been increasingly used to buffer uneven consumer demand for firms’ products and services. By assigning peak period work to outsiders an organization can employ a smaller, core workforce that can be occupied productively during periods of lower © Blackwell Publishing Ltd 2006

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demand (Abraham, 1990). The evidence indicates that seasonality and cyclicality in industry employment levels have been associated with greater reliance on independent contractors (Abraham and Taylor, 1996; Davis-Blake and Uzzi, 1993). Lastly, subcontracting has been stimulated by organizations seeking to secure access to specialized skills and distinctive capabilities. Skills that were judged to be too expensive or difficult to develop in-house or simply deemed to be outside the organization’s core capabilities were often regarded as best purchased from outside vendors (Prahalad and Hamel, 1990; Quinn, 1992, 2000; Saunders et al., 1997, p. 64). Although there have been a variety of motives for subcontracting, a number of commentators highlight the importance of labour cost savings and the desire to capitalize on the potential for subcontractors to offer lower wages and less generous benefits (Davis-Blake and Uzzi, 1993; Harrison and Kelley, 1993; Purcell and Purcell, 1999, p. 166). This appears to have been particularly pronounced in low-skilled labour markets (Houseman and Erickcek, 2002). Moreover, Abraham (1990, p. 93) suggests that the objective to cut costs and shift certain activities to outside suppliers has been fuelled by the constraints imposed on organizations by the operation of their own internal labour markets. Internal equity considerations, for example, tend to limit the ability of organizations to alter wage differentials and introduce low paid activities into an established employment system without adversely affecting employee morale or inviting union opposition (Baron and Kreps, 1999; Doeringer and Piore, 1971; Pfeffer and Baron, 1988). Accordingly, ‘moving work outside . . . permits the firm to take advantage of low market wage rates for certain types of work without violating internal equity constraints’ (Abraham, 1990, p. 85). THE IMPLICATIONS FOR EMPLOYEES AND SERVICE PROVISION Outsourcing can affect sub-contracted employees in a number of ways. The first relates to job security. It is often difficult for sub-contracting firms to maintain long-term employment relationships because commercial contracts are of a fixedterm duration and potentially subject to outright termination. As Colling (1995, p. 14) has observed, ‘contracts enable firms to subject [employees] to specific financial and performance targets under threat of termination, financial penalties and/or legal action; to the extent that these pressures are passed on to the employees of subcontractors, they become subject to commercial contracts in addition to their own employment contracts’. Hence Purcell and Purcell (1999, p. 174) note that because supply contracts generally last no more than five years, most outsourced employees are vulnerable to employment insecurity. Rees and Fielder (1992, p. 356) also observed that contractors were able to enforce ‘highly exploitative working arrangements not simply by means of direct, on-the-job supervision, but also through the discipline of each worker’s contract of employment’. They found © Blackwell Publishing Ltd 2006


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that cleaners and supervisors in a contract cleaning company could be given immediate notice to quit if the firm’s supply contract was terminated. The second and related implication of outsourcing pertains to training and development and promotional opportunities. It has been observed that subcontractors generally lack the organizational resources that underpin the operation of an internal labour market and the provision of sustainable long-term employment relationships (Pfeffer and Baron, 1988). This tends to reduce their willingness to invest in employee training and development and to supply opportunities for promotional advancement (Cappelli, 2000). The third possible effect of outsourcing relates to the work regime. Studies suggest that contracting organizations generally engage in tighter forms of supervision and labour control (Deakin and Michie, 1997; Pearce, 1993; Rees and Fielder, 1992; Williamson, 1975, 1985). The subcontracting of work has been associated with greater work intensification. The historical evidence indicates a tendency for contractors to work both employees and capital equipment more intensively in an effort to maximize short-term output (Clawson, 1980; Marsden, 1999; Williamson, 1985). Such trends have been evident in recent years. Bach’s study (1989) demonstrated that the process of contracting out for ancillary services in the British Health Service had been accompanied by an intensification of work effort with employees working harder for lower bonus payments. In addition, Rees and Fielder (1992) found that contract cleaning firms had sought to minimize costs by reducing employees’ wages and enhancing labour productivity through effort intensification. Furthermore, job reductions meant that fewer employees were required to do the same number of tasks. Within the service sector, greater work intensity has often been accompanied by higher levels of burnout and emotional exhaustion (Deery et al., 2002). Lastly, contracting out can entail a downgrading of pay and benefits, a loss of union status and in some circumstances the denial of due processes in the form of grievance procedures (Houseman and Erickcek, 2002). The negative effects of outsourcing may not simply be restricted to employees. Where organizations subcontract activities to outside vendors in order to take advantage of the external supplier’s lower costs it can often result in the supply of poorer or degraded services that must be offset against the savings obtained from the subcontractors’ lower costs (Vining and Globerman, 1999). This is highly relevant to the decision to contract out business services. Front-line service work is quite critical to the success of organizations that seek to compete on customer loyalty (Frenkel et al., 1999; Heskett et al., 1997). As Batt (2002, p. 588) notes, ‘customer-contact employees manage the boundary between the firm and its customers . . . and the behavior of these employees shapes customers’ buying behavior’. Customers’ perceptions of service quality are critically affected by the organizational commitment of employees (Loveman, 1998; Tornow and Wiley, 1991). Moreover, high turnover rates of employees have been found to have a negative impact on customer sales in various service settings (Heskett et al., 1997). © Blackwell Publishing Ltd 2006

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Should subcontracting therefore be associated with less committed employees and a more unstable workforce it could adversely affect the quality of service provision, reduce customer service and require a recalculation of the net benefits of outsourcing to the firm. In this context we sought firstly to identify the factors that shaped organizational commitment and employee turnover intentions in both an in-house and an outsourced call centre, and secondly to compare the relative effects of those factors on organizational commitment and employee turnover intentions in those two centres. In terms of our first objective, we expected to find similar associations between our predictor variables and our dependent variables in both the external service provider and the in-house producer. Specifically, we predicted that those employees who were more dissatisfied with their pay, training, promotional opportunities and job security would have lower organizational commitment (Allen and Meyer, 1990; Mathieu and Zajac, 1990). Similarly, we expected that perceptions of lower procedural injustice, inadequate supervisory support, poor employer– employee communications and perceptions that the organization was not customer service focused would have a negative effect on organizational commitment (Folger and Cropanzano, 1998; Gaertner and Nollen, 1989). Furthermore, perceptions of greater work pressure and higher burnout were believed to be associated with lower commitment (Cordes and Dougherty, 1993; Moore, 2000). In relation to employee turnover, we also expected that dissatisfaction with pay, training, promotional opportunities and job security would increase employees’ intention to leave in both centres (Griffeth and Hom, 1995; Griffeth et. al., 2000). In addition, it was anticipated that negative perceptions of procedural justice, supervisory support, internal communications and the organization’s customer service orientation would be associated with higher intentions to quit (Arthur, 1994; Mobley et al., 1979). Moreover, work pressure and burnout were expected to increase employees’ turnover intentions ( Jackson et al., 1986; Moore, 2000) while organizational commitment was considered to reduce the propensity to quit (Meyer and Allen, 1997). In relation to our second objective we expected to find differences in the relative influence of our explanatory variables on organizational commitment and employee turnover intentions in the two centres. Specifically, it was anticipated that the attitudinal variables pertaining to the internal employment arrangements within the organization (pay satisfaction, training, promotional opportunity and job security) and to the nature of the work regime (work pressure and burnout) would have a greater influence on organizational commitment and intention to leave in the outsourced service supplier than in the in-house operation. Where labour is contracted out it can give rise to different exchange relationships from those associated with internalized arrangements where people are employed in-house (Kalleberg and Reve, 1992; Lepak and Snell, 1999). This is particularly the case where outsourcing has been driven by a desire to take advantage of the © Blackwell Publishing Ltd 2006


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lower labour costs of the external market provider (Abraham, 1990; Davis-Blake and Uzzi, 1993). In those circumstances it has been noted that subcontractors’ relationships with their workers will tend to be transactional in nature with a focus on short-term economic exchange (Tsui et al., 1997). In contrast, internalized employment modes have been viewed as more organization centred emphasizing greater reciprocity and collaboration (Baron and Kreps, 1999; Rousseau, 1995). It would also appear that outsourced establishments would be characterized by more rudimentary internal labour market arrangements and more intensive work regimes (Cappelli, 2000; Colling, 1995; Marsden, 1999; Williamson, 1975). This may be evident in the provision of poorer quality promotional opportunities, less secure jobs and an under investment in training and development. This type of internal labour market environment has been associated with lower organizational commitment and higher employee turnover (see Allen and Meyer, 1990; Griffeth and Hom, 1995; Griffeth et al., 2000). In addition, more intensive work pressure and burnout can also weaken organizational commitment and lead to higher intentions to quit (Cordes and Dougherty, 1993; Jackson et al., 1986; Moore, 2000). Consequently, we expected that factors relating to the internal labour market within the organization and to the work regime would play a more important role in shaping organizational commitment and intention to leave in the external supplier than in the in-house producer. RESEARCH CONTEXT The research for this study was conducted in two different telephone call centres in an international airline. The company operated a number of in-house call centres in addition to one that it had outsourced. The decision to outsource a part of the organization’s customer service business was based principally on cost considerations. The company sought to benchmark its internal operations against the service of an external supplier in the belief that it could achieve long-term cost savings in its call centre operations by progressively contracting out more of its activities. The airline was able to obtain the outsourced service at a lower cost than if the service had been provided in-house. This was principally due to the subcontractor paying lower wages and benefits and utilizing more parsimonious staffing levels. The outsourcing decision was made principally by the finance and operations department in the company. The initiative, however, had not gone uncontested. Senior HR/IR managers at the airline company had expressed reservations about the wisdom of such a strategy especially in relation to the potentially negative impact on employees’ experience of work and the maintenance of service quality and customer loyalty. This was perceived to be important as the company operated in a variety of market segments, including high prestige business customers. Indeed it was emphasized in the company’s service standards that ‘customers want quality . . . they have selected an airline that will make them feel secure, special and © Blackwell Publishing Ltd 2006

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valued . . . [U]nderstanding our customers and their expectations – and understanding how to meet those expectations – is the key to enhancing our position as one of the world’s best airlines’. Both the in-house and outsourced centres received in-bound calls from customers involving enquiries, reservations and sales. Not unlike other call centres, the company required its employees to be skilled at interacting directly with customers while working with advanced computer-based systems. The organization also highlighted the importance of social competencies and communication and organizational skills in the performance of customer service work (Callaghan and Thompson, 2002). The outsourced call centre had principal responsibility for the airline’s frequent flyer passengers although all centres dealt with this category of customer. The outsourcing contract involved the supply of human capital. The employees carried out their activities within the airline’s organizational infrastructure. The building, the computer technology and the office furniture were owned by the airline. The airline also supplied its own uniforms to staff at the outsourced call centre. Moreover, the technology enabled business calls and queries to be transferred between the in-house and outsourced centres with the result that employees communicated with each other on a regular basis. The outsourcing contract had been entered into on a three-yearly basis and was subject to the threat of termination. At the time of the study performance targets based on volume and timeliness of response to calls were specified in the contract and monitoring by the airline company occurred through the submission of weekly performance indicators. According to the classification of the customer (viz., gold, silver or white frequent flyer), a certain percentage of calls were required to be answered within a particular time frame (e.g. 90 per cent of calls within 20 seconds for gold frequent flyer holders). The work tasks and responsibilities of the customer service representatives (CSRs) in both the in-house and outsourced centres were the same. In the in-house centre that formed part of this study just over 200 telephone staff were employed, while the outsourced centre was smaller with just under 100 staff. Employees in both centres worked with the same technology and carried out the same functions. They were also measured on similar criteria, namely, average time of calls, after call work and idle time. The wages and benefits of the outsourced and in-house employees were different however. The in-house employees received higher wages (approximately 7–8 per cent higher) and enjoyed better entitlements including more generous annual and sick leave arrangements, as well as extensive benefits such as free and discounted air travel and accommodation. The outsourced employees were less well remunerated and did not receive any of the travel benefit allowances available to airline staff. In addition, they handled more calls per day (130–150 compared to 100–110 at the in-house centre) and were provided with less time between calls (an average of 6.8 seconds compared to 21.6 seconds at the in-house call centre). © Blackwell Publishing Ltd 2006


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Telephone staff at the outsourced centre also received less induction training (four compared to eight weeks). In addition, career pathways were largely absent at the outsourced call centre. Indeed, the outsourced employees were made aware at the commencement of their employment that a position with the subcontractor was not a bridge to employment with the host company. By contrast, customer service representatives at the host company experienced greater internal career mobility. After a period of probation, call centre staff were able to move into career positions located elsewhere in the organization, such as airports and booking facilities. In 1999 a survey was conducted of all telephone staff in both centres. The questionnaire was formulated after site visits and extensive discussions with focus groups of employees, trade union representatives and call centre managers. Questionnaires were sent to all customer service representatives at the two sites: 220 CSRs at the in-house centre and 90 at the outsourced centre. Employees were also encouraged to add comments at the end of the questionnaire concerning their views about employment arrangements and working conditions in the two centres. The survey yielded 251 usable surveys representing an 82 per cent response rate for employees at the in-house centre (N = 180) and a 79 per cent response rate for employees at the outsourced centre (N = 71). Respondents were asked to indicate their attitudes to their employment arrangements and work regime at the company in which they were employed. Information was sought on their pay satisfaction, training, perceived promotional opportunities, job security, work pressure and burnout (emotional exhaustion). In addition, respondents provided information on their perceptions of procedural justice, supervisory support, employer–employee communications, the employer’s customer service orientation, as well as their organizational commitment and intention to quit. Data were also collected on the respondents’ demographic and personal characteristics including union membership. The variable definitions and sources of the measures are presented in the Appendix. With the exception of the demographic and personal characteristics, participants responded to items on a five-point Likert-type scale ranging from ‘strongly disagree’ = 1 to ‘strongly agree’ = 5. Table I shows that the respondents in the outsourced centre were mainly female employees (79 per cent). Most were full-time employees (92 per cent) and were highly educated (12.6 mean years). The sample had a low average tenure rate (1.7 years) with an average age of 32 years. The union membership rate was relatively low among the outsourced employees, with only 23 per cent of the respondents reporting membership of a trade union. The in-house respondents were also predominantly female (76 per cent). Over two thirds were employed on a full-time basis. The average tenure of the sample was higher (4.3 years) while the average age was 33 years. The educational level was high (12.9 mean years of formal education). It was also more densely unionized: 58 per cent of the respondents reported membership of a trade union. © Blackwell Publishing Ltd 2006

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Table I. Personal characteristics: outsourced and in-house employees

Sex (% female) Age (mean years) Education (mean years) Status (% full-time) Tenure (mean years) Union member (%)

Outsourced employees (N = 71)

In-house employees (N = 180)

79 32 12.6 92 1.7 23

76 33 12.9 67 4.3 58

Table II. Attitudinal differences: outsourced and in-house employees Variable Internal employment arrangements Pay satisfaction Training Promotional opportunity Job security Management practices Procedural justice Supervisory support Communications Customer service focused Work regime Work pressure Burnout The organization Organizational commitment Intention to leave

Outsourced employees (N = 71)

In-house employees (N = 180)

2.23** 3.65** 2.47** 3.39**

2.95 4.02 2.88 3.74

3.10 3.87 2.76 3.07**

3.03 4.00 3.03 3.78

4.46** 3.36**

3.30 2.57

2.95** 2.83**

3.93 1.76

* p ⬍ 0.05; ** p ⬍ 0.01.

WORKER PERCEPTIONS AND EXPERIENCES There were clear differences between the in-house and outsourced employees in terms of their work experiences. Table II reports the results of mean scores and t tests as they relate to employee perceptions of their work and their organization. First, in respect of their internal employment arrangements, employees at the outsourced location were significantly less satisfied with their pay (M = 2.23 compared to M = 2.95) and their level of training (M = 3.65 compared to M = 4.02). They also perceived significantly fewer promotional opportunities (M = 2.47 compared to M = 2.88) and less job security (M = 3.39 compared to M = 3.74). Second, employees at the outsourced location held significantly more negative views about the nature and character of the work regime. They felt that they worked more © Blackwell Publishing Ltd 2006


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intensively than their in-house counterparts (M = 4.46 compared to M = 3.30) and reported significantly higher levels of burnout or emotional exhaustion (M = 3.36 compared to M = 2.57). Furthermore, there were major differences in the employees’ attitudes towards their respective organizations. Outsourced employees were significantly less committed to their organization (M = 2.95 compared to M = 3.93) and were more inclined to quit their employment than the in-house employees (M = 2.83 compared to M = 1.76). In relation to the management practices, however, the results were more mixed. There were no significant differences between the two centres in terms of the employees’ perceptions of procedural justice (M = 3.10 compared to M = 3.03); supervisory support (M = 3.87 compared to M = 4.00) and the quality of employer–employee communications (M = 2.76 compared to M = 3.03) although outsourced employees believed that their organization was significantly less customer service focused than the in-house employees (M = 3.07 compared to M = 3.78). The evidence indicates that the outsourced employees were clearly less satisfied with many aspects of their job and were significantly more negative in their assessments of their work regime than those who worked in-house. In this context it is relevant to explore how those attitudes affected the organizational commitment and intentions to quit of employees in both centres. Regression analyses were undertaken in order firstly to identify the factors that were associated with organizational commitment and turnover intentions and secondly to compare the relative effect of those factors on organizational commitment and intention to leave in the two centres (see Tables III and IV). In the models we controlled for sex, employment status, education, tenure and union membership. A number of studies have identified the possible confounding effects of these demographic variables on both organizational commitment (Mathieu and Zajac, 1990; Meyer and Allen, 1997) and turnover intentions (Griffeth and Hom, 1995; Mobley et al., 1979). In Table III the analysis showed that the most significant influence on organizational commitment in the outsourced centre was burnout. Those employees who felt more highly stressed by their work (b = -0.38; p ⬍ 0.05) displayed significantly lower levels of organizational commitment. Similarly, those who perceived limited promotional opportunities were less organizationally committed (b = 0.28; p ⬍ 0.10). In the case of the in-house centre, organizational commitment was lower amongst employees who were more dissatisfied with the quality of communications within the organization (b = 0.23; p ⬍ 0.05), those who perceived that the organization was not customer service focused (b = 0.22; p ⬍ 0.01), those who did not regard the pace of work as excessive (b = 0.15; p ⬍ 0.05) and employees who felt burnt out (b = -0.14; p ⬍ 0.10) and were dissatisfied with their pay (b = 0.11; p ⬍ 0.10). As can be seen in Table IV, higher turnover intentions in the external service supplier were associated with lower organizational commitment (b = -0.48; p ⬍ 0.01), perceptions of limited © Blackwell Publishing Ltd 2006

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Table III. Multiple regression results for organizational commitmenta Variables Demographic variables Sex (female) Status (full-time) Education Tenure Union member R2 F change Internal employment arrangements Pay satisfaction Training Promotional opportunity Job security R2 DR2 F change Management practices Procedural justice Supervisory support Communications Customer service focused R2 DR2 F change Work regime Work pressure Burnout R2 DR2 F change Adjusted R2 Total F

Outsourced employees

In-house employees

0.09 0.02 -0.07 0.14 0.06 0.10 1.30

-0.07 -0.05 -0.03 -0.24*** 0.03 0.21 8.50***

-0.04 -0.04 0.28* 0.11 0.38 0.29 6.57***

0.11* 0.03 0.08 0.09 0.41 0.20 13.64***

0.13 0.15 0.07 -0.02 0.48 0.09 2.36*

-0.02 0.04 0.23** 0.22*** 0.50 0.09 7.10***

0.10 -0.38** 0.52 0.05 2.44* 0.38 3.70***

0.15** -0.14* 0.52 0.02 3.18** 0.47 3.18**

Notes: a Standardized beta coefficients are from the simultaneous regression with all variables entered. * p ⬍ 0.10 (2 tailed), ** p ⬍ 0.05 (2 tailed), *** p ⬍ 0.01 (2 tailed).

promotional opportunities (b = -0.26; p ⬍ 0.10), excessive work pressure (b = 0.22; p ⬍ 0.10) and lower tenure (b = -0.22; p ⬍ 0.10). Higher turnover intentions in the in-house call centre were principally related to lower organizational commitment (b = -0.56; p ⬍ 0.01). Turning to the relative effect of our predictor variables in both centres it can be seen from Tables III and IV that those variables associated with the internal employment arrangements (pay satisfaction, training, promotional opportunity and job security) and with the work regime (work pressure and burnout) had a © Blackwell Publishing Ltd 2006


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Table IV. Multiple regression results for intention to leavea Variables Demographic variables Sex (female) Status (full-time) Education Tenure Union member R2 F change Internal employment arrangements Pay satisfaction Training Promotional opportunity Job security R2 DR2 F change Management practices Procedural justice Supervisory support Communications Customer service focused R2 DR2 F change Work regime Work pressure Burnout R2 DR2 F change The organization Organizational commitment R2 DR2 F change Adjusted R2 Total F

Outsourced employees

In-house employees

0.10 0.11 0.06 -0.22* -0.10 0.07 0.87

0.04 -0.06 -0.09 0.19** -0.03 0.19 7.64***

0.08 -0.04 -0.26* -0.17 0.45 0.38 9.85***

0.01 0.02 -0.05 0.07 0.25 0.06 3.08**

-0.01 0.04 -0.04 0.06 0.48 0.03 0.85

0.09 -0.06 0.10 -0.09 0.30 0.05 2.96**

0.22* 0.07 0.55 0.07 4.04** -0.48*** 0.66 0.11 16.31*** 0.55 6.13***

0.06 0.04 0.31 0.01 0.86 -0.56*** 0.46 0.15 43.01*** 0.41 8.15***

Notes: a Standardized beta coefficients are from the simultaneous regression with all variables entered. * p ⬍ 0.10 (2 tailed), ** p ⬍ 0.05 (2 tailed), *** p ⬍ 0.01 (2 tailed).

greater influence on organizational commitment and turnover intentions in the outsourced service supplier than in the in-house producer. This was consistent with our expectations. Perceptions of the internal employment arrangements accounted for 29 per cent of the variance in organizational commitment in the © Blackwell Publishing Ltd 2006

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outsourced supplier (compared with 20 per cent in the in-house producer) while perceptions of the work regime accounted for 5 per cent of the variance in organizational commitment in the outsourced supplier (compared with 2 per cent in the in-house producer). In the case of employee turnover intentions the differences were more marked. Perceptions of the internal employment arrangements explained 38 per cent of variance in intentions to leave in the outsourced supplier (compared with 6 per cent in the in-house producer) while perceptions of the work regime explained 7 per cent of variance (compared with an insignificant effect in the in-house producer). We also sought to compare the effects of the specific predictor variables on organizational commitment and intention to leave by undertaking a moderated regression analysis. The samples of outsourced and in-house employees were pooled for the purpose of analysing whether the relationships between the predictor variables and the dependent variables of organizational commitment and intention to leave were moderated by an employee’s work location. After controlling for the main effects of the predictor variables and work location (outsourced work location = 1, in-house work location = 0), we examined a series of interaction terms in which each independent variable was multiplied by the moderator (work location).[2] We found that perceptions of customer service focus had a significantly different effect (b = -0.100; p ⬍ 0.10) on organizational commitment in the outsourced centre relative to the in-house centre. In addition, promotional opportunities (b = –0.134; p ⬍ 0.10) and job security (b = -0.104; p ⬍ 0.10) had a significantly different effect on intention to leave in the outsourced centre compared to the in-house centre. It should be noted that it is generally difficult to demonstrate the existence of moderator effects when sample sizes are relatively small (as in this study) (Bobko, 2001, pp. 229–30). Nevertheless, in the case of intention to leave the evidence points to the relatively distinctive influence of factors pertaining to the internal labour market (viz. promotional opportunities and job security) in the outsourced centre. The findings contained in Tables III and IV were consistent with our qualitative research. The issues of burnout and excessive work pressure were matters of particular concern to the outsourced staff. For example, in a written survey response one full-time female worker with ten months’ tenure complained that the telephone operators were ‘expected to do too much work’ and that ‘pressure is put on you to always take more calls’. The views of two other employees were indicative of workers’ concerns about the pace and intensity of work: There is no support for staff regarding stress, and an enormous amount of pressure is put on staff resulting in more sick leave than necessary. More emphasis needs to be put on staff coping with the work they do, than trying to force more out of them than is possible. (Full-time female employee with 2 years’ service) © Blackwell Publishing Ltd 2006


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I feel we should have time to do our paperwork as we don’t get time when answering calls. This adds tons of stress to us all. (Full-time female employee with 7 months’ service) Moreover, there was a feeling that the ‘lunch’ and other ‘breaks’ were too short and that workers were ‘too closely monitored’ (full-time female employee with 11 months’ service). In part, the degree of work intensity at the outsourced call centre could be attributed to the nature of the service contract that the subcontracting firm had with the airline company. As noted above, the contract specified performance targets based on the number of calls taken and the average response time to calls. Although average call handling times were similar at the two centres (e.g. 180 seconds), staff at the outsourced centre were expected to answer a greater number of calls. At the time of the study employees were required to respond to between 130 and 150 calls a day (compared to between 100 and 110 at the in-house centre). While the subcontractor sought to measure the quality of interactions between the call centre operators and customers, this was conducted on a sporadic basis. Indeed it was emphasized that the quality of service interactions was only effectively monitored during the first three months of employment in order to screen out poorly performing staff. After this initial period a process of random employee monitoring occurred but this was not done on a systematic or regular basis due to lack of suitable staff. By contrast, the airline company employed rather more varied forms of measurement to assess service performance at its own call centre. Management at the in-house call centre sought to downplay performance measures based on the throughput of calls, and instead prioritized the quality of service interactions. This involved periodic monitoring of employees’ customer service interactions through call evaluations. Such monitoring, although regular, was conducted in a developmental manner and was thus designed to assist employees in the performance of their jobs. Hence the training managers emphasized that call evaluations were carried out in a ‘constructive’ and ‘positive’ way so that staff were ‘used to it and all happy to participate in it’ [interview notes]. Although employees referred to an informal performance norm of between 100 and 110 calls a day at the in-house centre, such ‘informal’ targets were clearly below those of the ‘formal’ measures in operation at the outsourced call centre. Moreover, the in-house call centre management argued that they did not focus on the number of calls taken. This is borne out by the survey data which indicate that the average time between calls at the outsourced centre (an average of 6.8 seconds per employee) was considerably (and significantly) shorter than at the in-house call centre (21.6 seconds), thus indicating that the outsourced employees were under more intense work pressure. These differences in the work regime had implications for customer service. Respondents at the in-house call centre were significantly more likely to believe © Blackwell Publishing Ltd 2006

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that their organization was ‘customer service focused’ than those at the outsourced centre (see Table II). Employees at the outsourced call centre were critical of the neglect of service quality. One full-time female respondent complained that there was ‘too much emphasis on statistics with not enough emphasis on “quality customer service” ’. Another full-time female employee with 10 months’ service argued that ‘statistics’ do not reflect ‘problem solving skills and the lengths you go to help solve a difficult problem’. In addition, a full-time male employee with nearly 3 years’ service claimed that employees were: ‘constantly yelled at to take calls’. Interestingly, the pressure to take more calls appeared to be associated with more errors and a greater number of customer ‘call-backs’. One full-time female employee with 1 year’s service complained that the company’s strategy of ‘clocking up the calls’ meant that more people had to ‘ring back because incorrect info is given’. There was also evidence that passengers sometimes were deliberately furnished with incorrect information as acts of employee sabotage (interview with union official).[3] In contrast, employees at the airline company’s in-house call centre were clearly more satisfied with their conditions of employment. One observed that ‘the job is relatively easy’ and ‘the pay [is] good’ (full time female with ten year’s service). A full-time female respondent with one year’s tenure stated ‘I feel very fortunate to work with [the airline company] and enjoy my work here’. Employees emphasized that the work environment had a ‘good feel’: I am extremely happy and proud to work for [the airline company] as I have never worked in such a professional call centre environment. Everyone is happy to be here and to do this job unlike my previous call centre experience in banking/finance. (Part-time female employee with 7 months’ service) I am enjoying working with [the airline company] and find them a very fair company to work for. At times it can be stressful but there is always someone on hand to help you . . . (Part-time female employee with 8 months’ service) At the external service provider there was evidence that work intensification and employee exiting behaviour had affected unionization efforts. As indicated earlier, unionization rates at the outsourced centre were substantially lower than at the in-house operation (see Table I). It was emphasized in our interviews that the union had encountered problems in establishing a foothold in the outsourced operation. The union official responsible for the site believed that the workforce was difficult to unionize because of the more intensive nature of the work regime and the unstable character of the employment arrangements. Because of the pace of work there was little scope for employees to devote time to union activity and involvement. The lack of porosity in the working day (average 6.8 seconds between calls) robbed the union of the time necessary to secure the involvement © Blackwell Publishing Ltd 2006


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of employees in day-to-day union activities (reading circulars; discussing grievances; assisting colleagues with work-related problems). Moreover, the high turnover rate led to a continual haemorrhaging of union numbers and a constant pressure to recruit new members. These factors were important obstacles to union membership growth at the outsourced workplace and impeded any collective effort to challenge managerial decisions on staffing levels and work intensity. Dissatisfaction with the internal employment arrangements was also evident at the outsourced centre. Written questionnaire comments revealed that staff were clearly aware of the differences in pay and employment arrangements between the two centres. In particular, they believed that they were inadequately rewarded for their work effort and responsibilities. This evoked feelings of injustice. For example, one full-time female employee with 11 months’ service stated that ‘. . . for the amount of work and quality service we provide, the pay we receive should be higher. I . . . feel we provide [the client organization] with good service and that we are part of them, and so we should receive the same privileges as [client organization] staff.’ Employees also experienced difficulties in obtaining adequate training. A newly appointed employee complained that ‘over the nine months I have been here only one opportunity for training has come up’. The outsourced employees were also critical of the lack of recognition of their work. A full-time female employee felt that the outsourced workers ‘should receive more recognition from [the airline company] itself. The fact that [the airline company] has received so many awards is due to [the subcontractor] so [the airline company] should recognize this . . .’. Another part-time female employee with 1 year’s service stated that ‘we should be recognized and be given travel . . . opportunities as we are really selling the product. We just get a thank you on a memo and that’s it.’ Indeed the union official who represented workers at the outsourced workplace emphasized that travel allowances were seen as a ‘mark of respect and recognition’ and that such benefits were perceived to be more important than rises in pay [interview notes]. The inability of the union to secure a strong presence in the centre, however, handicapped efforts to openly challenge the airline’s policy on this matter. DISCUSSION The decision of the airline to outsource part of its customer service business was driven principally by a desire to reduce labour costs. It sought to capitalize on the ability of the subcontractor to pay lower wages, offer less generous fringe benefits and economize on staffing numbers. However, the market-based relationship between the airline and the subcontractor engendered less job security for the outsourced employees. The staff also faced a more rudimentary internal labour market. They had significantly fewer opportunities for promotion and © Blackwell Publishing Ltd 2006

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training and they received considerably less induction. It is noteworthy that employees’ perceptions of a lack of promotion were associated with lower organizational commitment and higher intentions to quit. This was not the case in the in-house centre where promotional opportunities were more widely accessible and perceptions of their availability had no effect on commitment or exit intentions. The service contract between the subcontractor and the client organization was tendered on a three-yearly cycle and was subject to termination. The workforce was aware that the organization would lose the call centre service contract if it did not meet the performance measures and targets stipulated in the agreement with the airline company. The nature of the service contract between the subcontracting organization and the airline company dictated that the work regime was more intensive at the outsourced call centre. This had a significant effect on employee turnover intentions. By way of contrast, employees’ perceptions of work pressure at the in-house centre had no discernible impact on their intentions to leave. Quite unexpectedly we also found that perceptions of work pressure were associated with higher organizational commitment. It is possible that the intensity of work in the in-house centre was not viewed unfavourably. It should be noted, however, that there were no significant differences between the outsourced and in-house centres with respect to employee perceptions of procedural justice, supervisory support or the quality of employer–employee communications (see Table II). While the internal labour market arrangements were less well developed and the work regime was more intensive at the subcontractor, it was apparent that the overall relationship between staff and management was perceived to be fair and supportive. Management at the outsourced call centre had sought to develop open communication channels with the staff. At the same time they had formalized and codified their human resource policies and practices with the stated aim of developing a ‘people oriented place’ with effective relationships between staff and management. Outsourcing enabled the airline to reduce its labour costs without having to disrupt its own internal industrial relations arrangements and wage relativities. It will be recalled that earlier studies have suggested that outsourcing can enable firms to legitimate differences in pay and employment arrangements between those who carry out the outsourced tasks and the firm’s regular employees (Baron and Kreps, 1999). Where a firm may find it difficult to introduce low paid activities into an established internal labour market it has been said that subcontracting can supply such benefits without violating norms of internal equity (Abraham, 1990). Our findings suggest, however, that while this might protect the motivation and morale of in-house staff it may not prevent negative attitudinal and behavioural responses from employees of the outside contractor. The research points to the difficulties of workforce segregation and the importance of interdependencies between the client organization and the subcontrac© Blackwell Publishing Ltd 2006


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tor. Although outsourcing enabled the airline company to impose distinctions between its own employees and outside workers, in practice it was difficult to inhibit processes of social comparisons across work site boundaries. These comparisons were encouraged by the technological and normative linkages between the workplaces, the social contact and fraternization that took place between the employees and the airline’s insistence that subcontracted employees should exhibit the same organizational behaviour towards customers as its own staff.[4] Research studies have indicated that customer satisfaction and loyalty can be influenced by employees’ perceptions of equity as well as job satisfaction and organizational commitment (Bowen et al., 1999; Heskett, 1994). High employee turnover has been correlated to high customer turnover (Heskett et al., 1997). An inability to build a stable long-term workforce can deprive an organization of an accumulated knowledge of products, customers and work processes that are seen as crucial to the provision of high-quality service (Batt, 2002). There is also evidence to indicate that employees who believe that management practices are unsupportive of quality and customer service are likely to be less satisfied with their organization and also less likely to provide superior service (Tornow and Wiley, 1991). Thus, lower levels of organizational loyalty combined with higher turnover intentions can act to undermine the value of the subcontracting relationship [transaction] to the outsourcing firm. If employees feel badly treated they are likely to adjust the quantity and quality of their inputs (Ichniowski, 1986, p. 80). In this context, Singh (2000) found that the quality of service provided by customer contact employees deteriorated directly with increasing burnout levels. In our study we had noted earlier that there had been evidence of attempts to ‘sabotage’ the customer service relationship in the outsourced centre by providing misinformation about the services supplied by the airline. This could have the effect of impairing the reputation of the organization and reducing its patronage (Schneider and Bowen, 1985). It is also important to note that the contracting arrangement between the airline and the outsourcer had led to important information asymmetries which carried further negative consequences for service delivery and customer satisfaction. Frenkel et al. (1999, p. 7) have noted that front-line service workers perform an ‘intelligence-gathering’ role within their organizations, frequently contributing to knowledge creation and future innovation. The dissemination of knowledge within a firm has been identified as an important source of enhanced performance (Matusik and Hill, 1998). At the outsourced call centre customer complaints about the airline or its service were very infrequently transmitted to the airline because of the absence of any specific financial incentive in the contract to do so. This resulted in a systematic loss of customer-specific information from the organization which obstructed company efforts to remedy perceived service deficiencies and repair any damaged relationships with customers. © Blackwell Publishing Ltd 2006

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Such tensions and contradictions may, of course, lead management to re-evaluate their outsourcing decisions. In this context Moss et al. (2000, pp. 118–19) have argued that outsourcing, as well as other initiatives that lead to the dismantling of internal labour markets, can often reflect the ‘groping of firms dealing with bounded rationality’ rather than the smooth adjustments expected of rational planners and optimizers. Indeed, they characterize the shift by firms towards market-mediated employment arrangements as a process of ‘experimentation, blundering and learning’ (Moss et al., 2000, p. 96). Interestingly, in the wake of such experimentation there is evidence of firms attempting to reconstruct internal labour markets in areas of work where organizational commitment and an ability to innovate are most critical. In some cases this has led to ‘backsourcing’ or the reinstatement of activities that had been formerly outsourced (Vining and Globerman, 1999). CONCLUSION AND LIMITATIONS The purpose of this study was to analyse employees’ perceptions of their work environment and employment arrangements in both an outsourced market provider and an in-house producer and to compare the factors that shaped their organizational commitment and turnover intentions. The research revealed that employees at the outsourced call centre were significantly less satisfied with most aspects of their work and that the factors that shaped organizational commitment and intention to quit in both centres were different. Of particular interest were those variables that captured the architecture of the employment relationship and the work regime which had a more marked effect on organizational commitment and intention to leave in the external supplier than in the in-house centre. The external supplier lacked the organizational resources to underpin the provision of a long-term employment relationship and the development of a stable and predictable work environment based on mutual and diffuse obligations. On the other hand the in-house producer was able to build an exchange relationship upon a more elaborate structure of employment arrangements that provided for greater continuity and loyalty. Outsourcing involved a shift of activities from a high-commitment workplace nested within an established internal labour market to an environment that was characterized by pressures of contract renewal and work intensity. It delivered direct labour saving benefits to the airline. However, it also carried potential costs. By assigning the service provision of its customers to a subcontractor whose staff were less organizationally committed and more overworked and who indicated a greater desire to quit their jobs the airline introduced the risk that it would supply its customers with a poorer quality service. If this were to occur it would be necessary for the organization to reassess the net benefits of its outsourcing decision. © Blackwell Publishing Ltd 2006


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Some limitations of this study, however, should be acknowledged. Firstly, it must be pointed out that employees at the two call centres were exposed to different human resource practices. Consequently, the effect of outsourcing on employees’ attitudes and behaviour could not easily be disentangled from the effects of those different human resource practices. Thus our findings on organizational commitment and intention to leave could be due in part to unmeasured differences in the human resource practices that operated independently of the contracting relationship between the two organizations. Secondly, the findings from our research may not generalize to other organizational settings. In this study, the decision to outsource was dictated by cost considerations. In circumstances where outsourcing was driven by the need to obtain specialized services or skills, for example, the implications for outsourced employees could be quite different. Moreover, the study was confined to one firm and its outsourced partner and the findings may be influenced by the specific context in which those organizations conducted their business and by the particular service sector environment in which they operated. Future studies in this area would benefit from examining sub-contracting relationships where in-house and outsourced employees were subject to the same human resource practices. This would enable us to identify more clearly the effects of outsourcing on employee attitudes and behaviour. It would also be valuable to examine the impact of outsourcing in multiple organizational settings and in contexts where sub-contracting was driven by factors other than cost minimization.

NOTES *The authors would like to thank Riccardo Peccei for helpful comments and suggestions on this paper. [1] It is of course quite possible that the increased use of outsourcing may actually enhance the operation of the internal labour market for certain positions in the outsourcer. With the more extensive use of external labour firms may be able to offer greater protection to core employees. We would like to thank one of our referees for pointing this out. [2] Each independent variable was transformed into a z-score and then interacted with the z-score for the work location variable. The use of standardized z-scores in interaction terms is recommended in order to reduce multicollinearity among the predictor variables (Bobko, 2001; Cohen and Cohen, 1983). [3] It should be noted that the union official had formerly worked at the outsourced call centre and thus had an intimate knowledge of work practices and employee behaviours. [4] Equity theory suggests that individuals’ evaluations of situations are based largely upon how they compare themselves to some other self-selected referent group (Goodman, 1974; Oldham et al., 1982, 1986). In terms of social comparisons, the choice of referents is a function of both the availability of information about a referent and the relevance or attractiveness of the referent for the comparison (Goodman, 1974).

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APPENDIX Definition of variables Variable

Number of items

Definition and source of measure used

Pay satisfaction

3

Training

1

Promotional opportunity

3

Job security

3

Procedural justice

3

Supervisory support

3

Communications

3

Customer service focused

1

Work pressure

3

Burnout

5

Organizational commitment

9

Intention to leave

2

The overall degree to which an individual is satisfied with his/her pay (Cammann et al., 1983) (e.g. ‘I am very happy with the amount of money I make’) (a = 0.84) The extent to which employees have the necessary training to deal with the requirements of their jobs (Caplan et al., 1975) (e.g. ‘I have sufficient training to deal with the requirements of my job’) The degree of movement between different status levels in an organization (Price and Mueller, 1986) (e.g. ‘Promotional opportunities are widely available’) (a = 0.77) The extent to which an organization provides stable employment for employees (Oldham et al., 1986) (e.g. ‘I am confident that I will be able to work for [the organization] as long as I wish’) (a = 0.85) Fairness of procedures designed to determine the outcomes an employee receives (Moorman, 1991). (e.g. ‘[The organization] has procedures to ensure that decisions affecting employees are consistent’) (a = 0.77) The degree of consideration expressed by the immediate supervisor for subordinates (House, 1981). (e.g. ‘My supervisor is willing to listen to work-related problems’) (a = 0.90) The degree to which management informs and consults with employees (formulated by researchers) (e.g. ‘Communication between management and employees is effective’) (a = 0.85) The extent to which the individual feels the organization is customer-service focused (e.g. ‘I feel [the organization’s] management are not customer service focused’; recoded) The extent to which the pace of work is regarded as excessive (Caplan et al., 1975) (e.g. ‘My job requires me to work very fast’) (a = 0.71) The degree to which an individual feels emotionally drained from their work (Wharton, 1993) (e.g. ‘I feel used up at the end of the work day’) (a = 0.91) The degree of loyalty to the organization (Porter et al., 1974) (e.g. ‘I am willing to put in a great deal of effort beyond that normally required in order to help [the organization] be successful’) (a = 0.93) The degree of likelihood of an employee leaving their own employer (Krishnaswamy, 1991) (e.g. ‘I plan to leave [the organization] as soon as possible’) (a = 0.81)



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Definition of variables Continued Variable Sex Age Education

Employment status Tenure Union membership

Number of items

Definition and source of measure used Dichotomous variable, coded males ‘0’, females ‘1’ Age in years Recoded levels of education as years of education, calculated on the basis of the mid-point of that education level Dichotomous variable, coded part-time ‘0’, full-time ‘1’ Years of service with employing organization Dichotomous variable, coded non-unionist ‘0’, unionist ‘1’

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