Outsourcing to increase service capacity in a New Zealand hospital

Service firms manage variability using both demand-side tactics (levelling customer demand), and supply-side tactics (increasing available capacity). One popular way of increasing available capacity is the outsourcing of non-core services. This article uses a case study to examine the impact of an outsourced non-core service on a hospital's overall service system. Findings show that the outsourced service provides access to more sophisticated technology, increases in-house capacity and saves capital expenditure. However, the outsourcing also increases the scheduling problems that the hospital faces. These problems are largely due to communication delays from the involvement of more than one organisation. These delays decrease the response time available to match changes in demand for the outsourced service. Given the obvious benefits of such outsourcing, the article concludes that management should pay close attention to the communication pathways between organisations, in order to minimise the end effects identified in this study.