School of Accounting C2-1

A review of the literature concerning outsourcing by the Australian public sector in the watershed period from the mid-1990s through to 2000 led to the discovery of a serious evidentiary void regarding the validity of claimed cost savings. This paper provides a report on a contemporaneous, multi-method research study within this context. The prior outsourcing and cost savings research is reviewed and critiqued, and three key themes are investigated in the review and in the reported study. The themes concerned the importance afforded cost savings as an objective of outsourcing, the use (or non-use) of transaction cost data in making outsourcing decisions, and the role of cost information for ex-post decision evaluation in substantiating cost savings. The research comprised a series of qualitative depth interviews with managers from 15 Australian public sector organisations and a quantitative survey questionnaire administered to managers of a further 131 public sector organisations. The research results revealed that, despite government policy and the underlying tenets of transaction cost economics, in making and evaluating outsourcing decisions in Australian public sector organisations: pursuit of the cost savings objective is not a paramount or overriding concern; the transaction costs of external supply are rarely considered; and most organisations either do not evaluate the cost economy of outsourcing decisions after the fact or do not use information appropriate for so doing