Is Outsourcing Profitable?

p In this lecture Prof. Strassmann will show results of his studies over the last ten years which have demonstrated that outsourcing does not consistently deliver lower costs and increased profitability. This lecture will be illustrated by the record of General Motors who have increased the amounts of outsourcing from 58.8% in 1986 to 75% in 2004 while experiencing a steady degradation in profitability as well as a severe decline in its Knowledge Capital per employee. While the number of General Motors employees was declining, the ratio of transaction costs to value-added was rising which raises the question whether GM's outsourcing of I.T. was effective. /P p The presence of the perverse effects of outsourcing have been now detected for a large number of U.S. industrial firms. Prof. Strassmann has concluded that the key in making decisions about achieving cost reductions through outsourcing is to also consider the effects on the consequential gains or losses in a firm’s Knowledge Capital. His findings will be supported by financial data from over 500 U.S. industrial firms. /P George Mason University Lecturer: Paul A. Strassmann