Outsourcing, or the allocation of specific aspects of a corporation

Outsourcing, or the allocation of specific aspects of a corporation to a business entity specializing in those areas, has become such an integral part of a company’s organizational structure that few question outsourcing’s long-term viability.

Two recent studies on this topic are no exception; both focus on ways in which outsourcing can be improved. Each, for the most part, discusses different aspects of outsourcing. Yet, there is one area in which there commendations of both theories overlap somewhat. Peavy chiefly discusses ways in which companies can mitigate the potential negative effects of confidential information reaching competitors. Presently, when a corporation outsources even a small operational function, it must share information pertaining to this function. In other words, the more of its operation a company entrusts to another business entity, the more confidential information that company will have to release. According to Peavy, one way to minimize the negative consequences should any of that information fall into a competitor’s hands is to impose stronger penalties on any business entity entrusted with such information, should it divulge that information. However, Peavy is concerned mostly with exploring the effect of increasing the severity of penalties for any one instance of leaked information, and he devotes only one chapter to an existing structural check on such “information leaks”: as a company specializing in outsourcing assumes more clients, its legal liability will increase with each company that becomes a client, an effect, he notes, that becomes more conspicuous the more a company diversifies.

Morgan, on the other hand, looks at those business entities that performed the outsourced work. As such entities grow, their ability to provide specialized services to a specific client diminishes. Since, like most business entities, they are driven to grow profits, often doing so by diversifying, the needs of a specific client are often subordinate to this larger goal. Morgan’s aim is to educate corporations engaged in outsourcing so that they choose a firm that focuses on providing one service. This view, however, is somewhat shortsighted, since the long-term trajectory of a company is not always clear and a firm may end up diversifying.

In this regard, there is a curious overlap between the two studies: in some ways both see problems with diversification, Peavy focusing on the liability and Morgan the diminishment in quality of the services rendered. Yet, it is important to note that Peavy focuses on how diversification negatively affects a company providing services to companies outsourcing, whereas Morgan focus on how the latter is negatively impacted.

1. The author of the passage considers Morgan’s plan to educate corporations “shortsighted” since it

A. seeks to educate only corporations and not business entities to which corporations outsource work
B. assumes that companies that plan to diversify may not end up doing so
C. provides advice that might not be relevant in the near future
D. fails to distinguish between corporations and companies to which corporations outsource work
E. confuses specialized services with services pertaining to the entire operation

2. The primary purpose of the passage is to

A. describe the way in which two theories conflict
B. propose two different solutions to the same problem
C. discuss how two studies arrive at contradictory conclusions
D. explore two reactions to a phenomenon and draw a parallel
E. support one theory and discredit a second

3. It can be inferred from the passage that which of the following would be most immune to the “structural check”?

A. A company doing outsourcing work that does not diversify in terms of the services it provides.
B. A company involved in outsourcing that has been entrusted with confidential information from a large number of companies across varying industries.
C. A business entity that provides one narrow function for a number of corporations.
D. A company that does not have a clear vision of its long-term trajectory
E. A business whose sole existence is based on providing ancillary services to exactly one corporation.

4. According to the passage, which of the following is common to both Peavy’s and Morgan’s studies?

A. Both welcome diversification in business entities providing services for corporations.
B. Both discuss the effect that outsourcing has on the long-term viability of a corporation.
C. Both explore the way in which diversification and growth within a corporation can affect outsourcing.
D. Neither focus on the impact of diversification on business entities providing services for companies outsourcing.
E. Neither questions whether outsourcing itself is a beneficial practice for corporations.