Running head: CASE STUDY 4 1
Thompson technology: a Case study in Controlling Labor Costs [Case Study 4]
Edward R. Reyesarroyo
Liberty University
Running head: CASE STUDY 4 2
Thompson technology: a Case study in Controlling Labor Costs [Case Study 4]
Gomez-Mejia, Balkin, and Cardy (2012)
What kind of agreement should Thompson have in place with the PEO for transferring
regular employees to contract labor?
The company in question attempted to get the best the outsourcing and insourcing
approaches. Firstly, “outsourcing is the delegation of a business function from a firm to a
contractor, under the terms and conditions of a contract. Such an arrangement has become a
widespread industrial organization strategy…” (Singer and Donosco, 2009, pp. 338). On the
other hand, insourcing refers to the use of internal assets and core competencies internal to the
organization. The initial actions of Thompson correlated with the popular approach of changing
an employee status into an independent contractor status to cut cost and reduce taxes (Gardner,
Daff, and Welch, 2013). However, while prioritizing cost cutting the company might have
overlooked the productivity and loyalty factors. This is validated by the attitude of the former
organic employees at the end of the case study. Furthermore, the approach selected provided a
very permanent solution to a possible temporary problem. Case in point, once the employees are
moved to contracting status must will feel a perception of demotion which would hinder loyalty,
and once the market gets better, possible increase in turn-over rate.
These issues could have been averted by developing a more employee centric agreement
with the gaining contracting company. For example, the initial agreement could have stipulated
that the new company would allow the employees to remain with the same kind of insurance or
benefits for at least a period of adjustment time. In addition, the contracting agreement should
