Outsourcing: two case studies from the Victorian public hospital sector

Outsourcing was one process of privatisation used in the Victorian public health sector in the 1990s. However it was used to varying degrees and across a variety of different services. This paper attempts to answer the questions: Why have managers outsourced? What have managers considered when they have decided to outsource? The research was carried out in a rural hospital and a metropolitan network in Victoria. The key findings highlight the factors that decision makers considered to be important and those that led to negative outcomes. Economic factors, such as frequency of exchange, length of relationships between the parties, and information availability, were often ignored. However, other factors such as outcome measurability, technology, risk, labour market characteristics and goal conflict, and political factors such as relative power of management over labour were often perceived as important in the decision-making process. Negative outcomes from outsourcing were due to the short length of relationships and accompanying difficulties with trust, commitment and loyalty; poor quality; and excessive monitoring and the measurement of outcomes.