On SAGE Insight: Outsourcing Services to Improve Financial Performance: Is There a Limit?

[The following post is re-blogged from SAGE Connection. Click here to view the original article.]

gbra_19_2_cover_-231x300The outsourcing of both manufactured goods and services has been identified as a key factor in improving companies’ financial performance. This has contributed to the practice spreading considerably in recent years and becoming the norm.

In general terms, when a company decides to outsource an activity it is because it considers that it will have positive effects, such as cost reductions, less need for capital investments, a greater focus on its core business and increased flexibility. However, that decision also entails a series of disadvantages and risks, such as the possible loss of control over the outsourced activity, which might result in a reduction in the quality of the outsourced good or service, and an overestimate of the cost savings linked to the outsourcing. These disadvantages are intensified as the outsourcing level increases and can reach the point that they counteract the positive effects of the process. These advantages and disadvantages linked to the decision to outsource impact on the company’s financial performance.

The studies that have analyzed the financial effects of outsourcing assume that the relationship is positive and linear, that is, the greater the level of outsourcing, the better the financial performance. However, the widely differing results of these studies raise doubts as to this point of view and question whether it is logical to define the relationship between the outsourcing level and the company’s financial performance in this way, as outsourcing involves not only advantages but also disadvantages. Read more…

Abstract

Outsourcing has been identified as one of the key factors for improving companies’ financial performance. Moreover, the procurement of business services has become an important element of companies’ acquisition of external resources. However, there is a lack of evidence linking services outsourcing and performance. Limited prior literature has mostly assumed that this relationship is positive and linear. Our empirical study reveals that firms may be able to increase their performance through services outsourcing; however, this is only true up to a point, beyond which the performance decreases as a consequence of further outsourcing. Identifying the type of relationship between the variables under study is a key point to company managers formulating their service outsourcing strategies. They must be aware that there is a level of outsourcing that should not be exceeded. Future research should help managers to determine which is the most effective level of service outsourcing for their companies.

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Article details
Outsourcing Services to Improve Financial Performance: Is There a Limit?
Carlos Sanchís-Pedregosa, María-del-Mar Gonzalez-Zamora, María-José Palacín-Sánchez
First Published October 9, 2017
DOI: 10.1177/0972150917713274
From Global Business Review

How People Think About Prices

shopping-1724299_1280 (1)[We’re pleased to welcome authors Lane T. Wakefield of Mercer University and Kirk L. Wakefield of Baylor University. They recently published an article in the Journal of Service Research entitled “An Examination of Construal Effects on Price Perceptions in the Advance Selling of Experience Services,” which is currently free to read for a limited time. Below, they reflect on the inspiration for conducting this research:]

02JSR13_Covers.inddWhat motivated you to pursue this research?

As a huge sports fan and one that enjoys concerts and vacations as much as the next person, I find this research interesting as it suggests how people think about ticket prices.

In what ways is your research innovative, and how do you think it will impact the field?
This research can impact the field by offering practitioners guidance in identifying who, when and where buyers of experiences are likely to be more or less price sensitive and perceive more or less value. This information helps managers to deliver the right offers or, at least, frame their current offerings more effectively.

Were there any surprising findings?

Our most surprising finding was that buyers tend to think about what other buyers are doing in the market. We found that the majority (65%) of buyers consider what others may perceive as a good price. When it comes to fun experiences, buyers assume that others see those experiences as having high value even if they do not share that feeling personally. Sellers may do well to frame their offerings in terms of how typical fans may see them rather than asking the buyer for their own thoughts. Price perceptions are affected by who you bring to mind (self vs others).

What did not make it into your published manuscript that you would like to share with us?

We identified a segment of consumers who are more price sensitive when they perceive high value. Typically, this relationship is seen as the opposite. That is, those who perceive high value may be less price sensitive (i.e. can you really put a price tag on the Cowboys vs Redskins on Thanksgiving?). However, we believe that there are some who enjoy attending games, concerts and the like so much that they become price sensitive in order to be able to afford to have more experiences within their limited budgets. Hopefully you’ll see more about this research soon!

Stay up-to-date with the latest research from the Journal of Service Research and sign up for email alerts today through the homepage!

Price tag photo attributed to gdakaska. (CC)

The Impact of FSMA on Restaurants

restaurant-2623071_1920[We’re pleased to welcome author Mark Johnson of Michigan State University. He recently published an article in Cornell Hospitality Quarterly entitled “An End User Perspective: The Impact of FSMA on Restaurants,” which is currently free to read for a limited time. Below, Dr. Johnson talks about the background of this research:]

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On January 4, 2011, President Obama signed into law the Food Safety Modernization Act (FSMA or P.L. 111-353). This act may be the most far-reaching food safety legislation since the Food, Drug and Cosmetics Act of 1938 (FDCA). FSMA aims to ensure that the U.S. food supply is safe by shifting the focus of regulation from contamination response to prevention. This legislation imposes administrative costs on the food supply chain in the U.S. by requiring additional record keeping and safety procedures.

The law created record keeping requirements for firms. These requirements are often referred to as one-up-one-down. This nickname emphasizes the fact that the act requires grocers, wholesalers, and food processors to keep track of the immediate parties that they buy food and food products from as well as the parties that they sell food and food products too. This ensures that any contamination problems in the U.S. food supply chain can quickly and efficiently be traced to its source and aid in the rapid response to foodborne illness before it becomes widespread. The Congressional Budget office (August 12, 2010) estimated that FSMA would directly cost taxpayers $1.4 Billion through federal administrative costs. However, attempts to measure the costs imposed on businesses by the legislation were largely ignored until we reported, in a previous study, that expected costs to food processors, wholesalers and grocers was approximately 10% of equity value (Johnson and Lawson 2016). This represented a market value cost of $33 Billion. This previous result encouraged me to consider that others in the food supply chain, end users, such as consumers and restaurants may bear some of these supply chain costs.

The surprising evidence from my current article indicates that restaurants lost approximately 5% of firm value. In this case of restaurants this represents approximately 7.5 billion dollars of lost value. These equity costs represent expected future cash flow and risk effects for the firms studied. These costs, 1.4+33+7.5= $42B, should be weighed against the potential benefits to consumers that the act brings. These benefits may be directly measurable in a potential drop in food borne illness cases over the next 5-10 years as the act is fully implemented.

Previous article:
The Impact of the Food Safety and Modernization Act on Firm Value,” M. Johnson and T. Lawson, Agricultural Finance Review, 2016, 76(2): 233-245.
Current article:
An End User Perspective: The Impact of FSMA on Restaurants,” M. Johnson, Cornell Hospitality Quarterly, Forthcoming

Stay up-to-date with the latest research from Cornell Hospitality Quarterly and sign up for email alerts today through the homepage!

Kitchen photo attributed to StockSnap. (CC)

Discover the Hidden or Not-So-Hidden Implications of ‘Entrepreneurship’ and ‘Knowledge Management’ That Facilitate Management of ‘Organizational Change’

BMC coverChange is constant in a business environment. Survival of the fittest is all about adaptability to a changing environment and adjusting to new competitive realities, in short ‘agility’.

We live in volatility, uncertainty, complexity and ambiguity world, which is an era of risk and instability. Globalization, new technologies, greater transparency and social responsibility have combined to increase the complexity of the business environment to give many CEOs a deep sense of unease. On the other hand, enterprising CEOs sense great opportunities in this uncertainty and change.

Industry competition has always been a fact of life, but in current business environment, the chasm between ‘relevance’ and ‘obsolescence’ threatens to grow wider every day. To avoid obsolescence, firms must be agile and be able to pre-empt the move embracing innovation. Global competition has become an entirely new game, with a more crowded playing field, with networked economies and a faster clock. In the past, executives could quickly size up their competitors and could anticipate their tactical moves. But now, firms in all sectors have to be on constant alert to face new technology-enabled challengers that are sprouting with surprising speed from unsuspected corners of the globe. Firms need to anticipate geopolitics, globally emerging trends and markets, and be proactive to these new demands with knowledge, innovation and entrepreneurship. They also need to be equipped on ‘How to evolve a strategy for coping with unanticipated events, challenges and crises? How does leadership create a work-environment and work-life that not only survives a crisis but capitalizes on today’s frequent and disruptive accelerating changes?’

Knowledge is a strategic resource in knowledge-intensive world, its effective management by the organizations is critical for competitiveness. The culture of innovation which enables continuous pumping of new technologies would have a strong impact on firm’s competitiveness, working life and expected behaviour.

To read in detail about Change Management Drivers and its relationship with Entrepreneurship and Knowledge Management, subscribe to the recent issue from South Asian Journal of Business Management.

Click here to read Change Management Drivers: Entrepreneurship and Knowledge Management for free from South Asian Journal of Business Management.

Income Inequality and Subjective Well-Being: Assessing the Relationship

[We’re pleased to welcome author Ivana Katic of the Yale School of Management.  Katic recently published an article in Business & Society entitled, “Income Inequality and Subjective Well-Being: Toward an Understanding of the Relationship and Its Mechanisms,” co-authored by Paul Ingram of Columbia Business School. Below, Katic details the inspiration for the study:]

What inspired you to be interested in this topic? Inequality has always been a major topic in sociology. In the academic community and beyond, this interest in inequality simply exploded in the wake of the financial crisis of 2008, as well as the Occupy protests around the world. Despite the amount of attention that income inequality has been receiving in empirical studies across psychology, sociology, economics as well as political science, my co-author Paul Ingram and I noticed that the literature was still quite mixed in regards to the effects of income inequality. In fact, extant studies had found positive, negative and neutral effects of income inequality on the subjective wellbeing and happiness levels of individuals. This lack of a consensus, we thought, was quite interesting, especially in contrast to the commonly held belief that inequality has exclusively negative consequences for individuals, as well as communities—ranging from lowered trust and health and increased crime levels to, ultimately, lower overall wellbeing. We decided that the time was ripe to pursue a comprehensive study that would allow us to better understand how income inequality affects subjective wellbeing (SWB). Such a study would also allow us to better understand the channels through which income inequality may affect SWB. We set out to answer these important, and particularly timely questions, by constructing a rich cross-country dataset including 65 countries from 1995 to 201B&S_72ppiRGB_powerpoint.jpg1.

Were there findings that were surprising to you?Given the common notion that income inequality is always detrimental to human flourishing, we were initially surprised to see that income inequality had a strong and very robust effect on SWB in our analysis. On the other hand, this was not the first time a study had found a positive effect—so there was clearly precedent for our finding in previous literature on the topic. However, to be quite certain, we threw everything we could at our results in a variety of robustness tests (including different operationalizations of our key independent variable and our dependent variable, as well as a series of different estimation techniques). Our results never budged.

How might one use the study’s main finding of a positive main effect of income inequality on SWB to create policy? While our main effect suggests that decreasing income inequality may not increase SWB, we caution against using our study as justification for lowering taxes and increasing inequality. First, our results do not necessarily indicate that income inequality is never a negative for a variety of other life outcomes. Second, we cannot rule out that income inequality may increase beyond the range studied in our paper, and we similarly cannot guarantee that it would not have negative effects beyond that range. Third, in a separate working paper, we find that any changes in the level of income inequality are uniquely damaging to SWB, suggesting that fluctuating levels of inequality may be particularly psychologically taxing for individuals to adjust to.

However, our study has another way forward for policy. A particularly important aspect of our study is that it sheds light on the mechanisms of income inequality’s relationship with SWB. Specifically, we found that income inequality has more positive effects on individuals who are relatively better off, those that perceive the income generation process to be fair, and surprisingly, those that do not perceive a lot of social mobility in their society. It is with these mechanisms in mind that we suggest constructing policies that focus on increasing perceptions of fairness and reducing social comparisons to the superrich.

In terms of future research, we hope that our study paves the way for other work that might further unravel the complexity of income inequality’s effects. In particular, future scholars should continue to investigate how income inequality may impact individuals differently depending on who they are, and where they live. Finally, the role of organizations in affecting levels of income inequality (and consequently, SWB) is also a very promising area of study. Given the complexity of this social phenomenon, as well as its highly significant implications for policy, future work on all of these topics is direly needed.

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The Tragedy of Modern Economic Growth

3404903571_07e490e4fd_z.jpgH. Thomas Johnson, a long standing accounting historian, reflects on how current business practices, which predominantly utilise accounting as their language, are hastening the planet’s decline. His latest article, “The tragedy of modern economic growth: A call to business to radically change its purpose and practices,” is recently published in Accounting History, and is currently free to read.

Johnson argues that modern growth-oriented economies consume resources at a rate faster than the Earth’s ecosystems can presently regenerate, threatening the sustainability of all life. Johnson elucidates how fundamentally new thinking is required to change business practices in ways that protect the Earth. As a solution, this article proposes that the tangible ecological principles that underpin Earth’s life-restorative natural ecosystems provide a more suitable language for materialising a sustainable human economy than the abstract language drawn from accounting and finance.

Click here to access the article. 

Hope/economy photo attributed to Simon King (CC).

Call for Papers: Financial Markets and the Transition to a Low-Carbon Economy

                                                          Call for Papers
OrO&E_Mar_2013_vol26_no1_72ppiRGB_powerpoint.jpgganization & Environment- Special Issue
Financial Markets and the Transition to a Low-Carbon Economy

Submissions Due: April 28, 2017

Guest Editors
Céline Louche, Audencia Business School
Timo Busch, University of Hamburg
Patricia Crifo, University Paris X, Ecole Polytechnique
Alfred Marcus, Carlson School of Management, University of Minnesota

 

This special issue of Organization & Environment seeks to advance an emerging field of research on the financial sector and the transition to a low-carbon economy.

The COP 21 in November 2015 in Paris has intensified the reciprocal influences between the financial world and issues around climate change. Even the 2°C threshold has been discussed, and it is now acknowledged that “efforts [should be pursued] to limit the temperature increase to 1.5°C above pre-industrial levels” (UNFCCC, 2015). One of the main efforts consists in a cumulative investment of $53 trillion in energy supply and energy efficiency over the period from 2014 to 2035 (International Energy Agency, 2014). This consists not only in a shift from fossil fuels to renewable energy investments but also in much more investments in energy efficiency.

If the objectives in terms of carbon emissions and technologies deployment to keep the global average rise in temperature below 2°C are well defined (International Energy Agency, 2014; Meinshausen et al., 2009)—even if some space remains for alternative scenarios regarding specific technologies like Nuclear or Carbon Capture and Storage—the process to get there is not yet clear.

Governments can stimulate these changes notably through regulations. However, governmental actions might represent a long and cumbersome process. One may also question the feasibility to see widespread and significant actions from policy makers, which might not be enough to meet the ambitious climate objectives. If strong climate change–related regulatory actions seems to be emerging, investors already face substantial financial risks to see their assets become stranded in the context of a transition to a low-carbon economy (Ansar, Caldecott, & Tilbury, 2013; Leaton, 2013). This already calls for new ways of integrating climate change–related financial risk for investors.

If immediate and effective action cannot be expected to come from policy makers, financial markets could step in and play a significant role in the transition to a low-carbon economy. Indeed, they have the ability to massively redirect capital toward players that positively contribute to a climate-resilient economy, be it through dedicated financial instruments or the allocation choices investors make. Many indicators show that there is already a strong interaction between financial markets and the issues around climate change. Voluntary initiatives have emerged from the financial sector, like the Montreal Pledge or the Portfolio Decarbonization Coalition. New institutions addressing the need for climate-related data have emerged like CDP (Carbon Disclosure Project) and divestment or divest/invest campaigns such as the Fossil Free Campaign lead by 350.org. Financial services providers are also starting to handle the question by designing so-called “low-carbon” or “carbon-efficient” financial products. The regulatory body is also acknowledging the potential role of the financial market. As an illustration, in May 2015, France passed a new law—the French legislation on climate reporting for investors1—requiring mandatory ESG and climate policy reporting to all asset owners on a “comply or explain” basis. Another example is the Financial Stability Board’s Climate Disclosure Taskforce founded by Michael Bloomberg, whose objective is to give recommendations on what and how information should be disclosed by companies to better inform investors, lenders, and insurers about climate-related financial risk (Task Force on Climate-Related Financial Disclosures, 2016).

With or without regulation, the financial markets will play a crucial role in the transition toward the low-carbon society of the future. In addition to disclosure and portfolio adjustment issues, the financial sector can drive all other sectors’ transitions by discriminating the access to funding in the banking, insurance, and capital markets as a function of firms’ sustainability performance. However, the lack of research in this area is prevalent and many questions remain to be explored. Given the urgency of the climate change problem, further contributions in this area are both timely and needed.

Despite many initiatives to assess the performance of corporates regarding climate change, it appears that it is still extremely difficult to assess the contribution of a financial portfolio or an investment strategy to the energy transition. The indicators available to measure the alignment of the financial sector with those needs are far from clear and harmonized. Some work has already been done on the potential roles the financial sector can play for sustainability (Busch, Bauer, & Orlitzky, 2015) and on the ability of a given investment strategy to “hedge against climate risk” based on lower scopes 1 and 2 carbon intensity (Andersson, Bolton, & Samama, 2014; Schoenmaker & van Tilburg, 2016). Also, there is very little research on the potential contribution of financing streams to climate change mitigation and the transition to a low-carbon economy.

This Special Issue therefore addresses the variety of ways in which financial markets are already paving this way ahead and could or should do in future. Contributions to the Special Issue may cover (but are not limited to) the following research questions:

  • Which are the key stakeholders in the financial industry`s value chain for fostering a low-carbon economy? What are their barriers/motivations for accelerated action?
  • What is the potential leverage of different asset classes for financing of the energy transition?
  • What is the impact of current low-carbon investment practices regarding their contribution to climate change mitigation? Which challenges remain?
  • Which new institutions are required/likely to emerge for fostering the energy transition through financial markets?
  • What is the capacity of nonregularity initiatives like CDP or divesting movement in influencing the financial markets to engage in the transition to a low-carbon economy?
  • What is the financial relevance of climate effective investment strategies? Can current assessment tools fully capture related risks?
  • Are long-term climate goals coherent with short-term and/or long-term financial strategies?
  • What are the main drivers for low-carbon strategies in financial markets: regulatory pressure, underestimated risks, underestimated opportunities, and/or new social movements?
  • What are emerging practices in low-carbon finance, including the suitability and inclusivity of methodologies, tools, and metrics? What theories are emerging from those emerging practices?
  • What are the behavioral impediments of investors, asset managers, investor advisers, and other financial market actors to the development and adoption of low-carbon investment practices?
  • What are the enabling and hindering factors influencing financial institutions’ capacity to change and adapt their portfolio allocations, as well as their internal decision processes leading to pricing and capital access choices related to clients’ environmental performance?
  • Authors should submit their full manuscripts through ScholarOne Manuscripts by April 28, 2017, through http://mc.manuscriptcentral.com/oe
  • Be sure to specify in the cover letter document that the manuscript is for the special issue on “Financial Markets and the Transition to a Low-Carbon Economy.”
  • Manuscripts should be prepared following the Organization & Environment author guidelines, available at http://oae.sagepub.com/
  • After an initial screening by the guest editors, all articles will be subject to double-blind peer reviewing by a minimum of two anonymous referees and editorial process in accordance with the policies of Organization & Environment.
  • Authors who are invited to revise and resubmit their papers will be invited for a manuscript development workshop (expected date and location: Fall 2017, Paris). Acceptance for presentation at the workshop does not guarantee acceptance of the paper for publication in Organization & Environment.

Please click here to view this in full-text format, along with references.