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Free Technology Essay: JIT Outsourcing Case Study

1). Analysis of JIT Outsourcing Case Study

There are scores of empirical outcomes which shows that outsourcing decision brings enormous advantages to an organisation (See e.g. Mann and Borga, 2004; Yeaple, 2006). As the authors note, while outsourcing brings enormous cost advantages, it also allows firms to focus on other important strategic areas of their business, thus improving their strategic capability and strength in other areas. McCray (2008) on the other hand argues that the problem with outsourcing is that very often, there tends to be poor change management and effective governance structure. In his in-depth qualitative examination of the problems with outsourcing, McCray further identified that the following problems arise from outsourcing processes.

Post contract processes and decisions not understood
Poor mutual understanding of the Contract
Loss of key talent or poor knowledge transfers
Cultural Clash between the Client and the Service provider

In another delineation of the outsourcing process by Adams (2009) he suggests that many issues emerge from outsourcing because potential service providers are wrongly identified or selected. The author therefore laid emphasis on the identification process and how credible partners or service providers can be selected. Applying some of the authors thought to the present context, it appears that JIT outsourcing suffers from the same challenges identified by the authors quoted above. However, given the company’s ongoing difficulty in managing its helpdesk to meet staff’s expectations, outsourcing can be considered to be a good strategic decision for JIT though, lacking in the appropriate elements and process.

More importantly, decision to outsource at JIT did not consider some important elements of successful operations in the post outsourcing process, therefore subjecting the outsourcing motive to questioning. According to Fitzsimmons and Fitzsimons (2008) to achieve cost advantage and operational effectiveness for superior performance, it is very important to consider the 5 elements of operations performance which are “quality, speed, dependability, flexibility and cost. Rather, the decision of JIT to outsource seemed to only focus solely on cost in the performance hierarchy.

While the improvement of service quality was part of the motive for outsourcing the company’s PC helpdesk and data centre as John Smith made clear to the senior management in his presentation, the seriousness and motivation attached to obtaining quality of service after the outsourcing process was absent because much focus was concentrated on cost reduction and less on quality of service. Generally, many authors agree that it is natural for managers to think that outsourcing would mean that the quality of service would improve because they can have more time to monitor quality and achieve better efficiency. But that perception is wrong because outcomes of outsourcing in numerous organisations have consistently shown that quality of service drops after it has been outsourced to an outside party and this could happen for several reasons. Part of the reasons why it dropped in JIT however was because of gaps in the change management process and the governance structure in the post outsourcing regime. In organisational decisions, there must be a learning process especially when it has to deal with change management – in order to avoid disappointment and disasters which may arise as a result (Hammon, 2005).

In consonance with existing theories on outsourcing Cullen (2009) a senior consultant who consults for outsourcing projects at Cutter Consortium suggests that the achieve success in any IT outsourcing process. The outsourcing lifecycle in the framework which is in (figure 1) below must be followed reliably by an organisation.

Using this framework as an audit of John Smith’s decisions, it is notable that his and the management decision to outsource did not consider the implementation of some stages of the framework such as negotiation, transition and refreshing.

While basic negotiation was done, such negotiation was not properly conducted to ensure that it would strictly deliver the requirements of JIT objectively in other service terms which may be outside of the contractual agreement.

Lack of sufficient management of the transition stage was also responsible for the problems encountered in the first three months of the data centre off-shoring. Because, if a transition or change management process was properly managed, the loss made by JIT would have been avoided. Secondly, the management concerns governance of the post outsourcing regime. According to Walsh (2003) a good governance structure in the post outsourcing period must include cultural synergy, embodiment of effective communication systems into the two organisational cross communication into and continuous learning through the continuous exchange of information. These suggestions also appear to be missing in the governance structure of JIT during its post outsourcing period.

Source: Cullen (2008)

Finally, the last building block which concerns refreshing was also missed out by JIT with CPMI because no regular or interval checks are done with the organisation to ensure that everything is fine and it is not going through any problem as a result of the outsourcing management. This only happened on occasions when complaints are made to John Smith and he attempts to speak to the director of CPMI.

In addition, the strategic decision of JIT’s senior management did not consider the very important aspect of culture considering that both Japanese and English speakers are within its vertical operations and needed to man the PC helpdesk in order to support the rotational staff at any point in time. Inspite of this requirement, the senior management decided to force English on its business process and still went on to outsource its PC helpdesk to CPMI who did not provide a Japanese speaker that would make it account for rotational staff at every point.

Given the choice between CPMI and (the latter) Outsourcing Solution who would provide a fluent Japanese speaker who is also fluent in English, the decision to outsource to CPMI was taken quite wrongfully by senior management because Outsourcing solution would have been of more advantage in terms of meeting JIT’s cultural need.

More so, such cultural consideration would have offered a better interaction between JIT which is the outsourcing company and Outsourcing Solutions which is the service provider, such interaction would be useful in avoiding what McCray (2008) described as poor cultural clash between the client and the service provider, the cultural clash which arises from the outsourcing decision to CPMI is not only limited to language barriers and interaction, but the fact that CPMI staff did not understand Japanese protocol of behaviour.

To a certain extent, understanding Japanese protocol of behaviour by JIT’s service provider would have helped in avoiding some of the interaction problems which arises between PC helpdesk and members of staff of JIT. In a white paper by the Outsourcing factory (2008), it was suggested that outsourcing companies should concentrate on their corporate culture: i.e. the way business gets done in the company, the values they share and the way people interact. In another poll conducted by Accenture (2007) of 200 U.S. business executives, it was found that adopting cross-cultural communication problems and bridging cultural barriers through the implementation of cross cultural values and programs could increase productivity by an average of 26%.

Applying the same to JIT means that taking adequate care of Japanese protocol, language and behaviour in the outsourcing decision would have improved performance of its outsourcing by 26%.

To further demonstrate that some of the major problems in the outsourcing process of JIT is a result of the cultural gap between CPMI helpdesk and JIT staff, we may take a lesson from the research work of Gislen et al (2006) who find that between an outsourcing company in Sweden and a service provider in India, there was cultural gap because Indian staff were often scared of conflicts with their partners in Sweden and therefore could not communicate their dissatisfaction and emerging issues succinctly to their Swedish counterpart. Both employees in India and Sweden therefore lacked feedback which would make them be carried along and avoid potential problems in cross business interaction.

This evidence suggests possibly that, some of the problems encountered by JIT staff like Bob could not be solved because CPMI staffs were not confident enough to communicate because of the cultural differences or perhaps the gaps in culture or communication styles.

Another area where management could have optimised outcome from its outsourcing strategy would have been by having more than two potential service providers for the PC helpdesk that is to be outsourced. Having up five different service vendors would have allowed for better negotiation, comparison and consideration of strength of potential service providers. This would have also allowed for a better cost/benefit analysis and help management to determine the best quality that can be derived from the overall process.

Choosing from two service providers is not a smart management decision because it limits management’s view and exposure about the benefits of its potential outsourcing and off shoring especially since it would last for a long period of time. Therefore, following John Smith’s suggestion to outsource, management could have requested for more competitors experienced competitors who have more credence in the industry so as to allow for prudent and good strategic decision which would make the outsourcing process and decision more promising.

In addition, the outsourcing process does not reflect the critical show of prudence as much negotiation was not conducted by John Smith and Management before outsourcing and off shoring to CPMI and DR solutions to take over. Some show of prudence, negotiation and conscientiousness could have been displayed by John Smith through the contract initiation process to suit his own company and his outsourcing objective rather than the service provider. For example, John Smith could have negotiated a constant two way communication process and flexibility of service by the provider wherein, he can demand better service from the service provider even when such agreement is not stipulated in the contract agreement.

Also to be noted is the fact that John Smith and management decision to outsource to CPMI in particular did not emphasize on experience, strength and deliverability of the service provider. This would have simply helped to avoid the drawbacks and problems faced in the post outsourcing era. Infact, considering cost savings, management would have still been able to save considerable cost if it had outsourced its PC helpdesk to Outsourcing Solutions which would have perhaps provided better service more efficiently because of its experience in the industry. Hosting a long list of fortune 500 companies’ processes is simply a proposition that would have been considered at least to test the waters of outsourcing.

2). Summary of Key Problems

Given the outlined analysis of issues emerging from JIT’s outsourcing process, the main problems of JIT’s sourcing strategy could be summarized as thus:

The company did not place adequate emphasis on operations performance which are the core of any successful process or project – whether outsourced or retained within the organisation. The performance measures are: “quality, speed, dependability, flexibility and cost. Rather more emphasis was placed on cost savings and reduction rather than on these overall performance measures. This poor decision reflects in the decision to outsource to CPMI rather than Outsourcing Solutions who has better track record, reference and experience to deliver than CPMI who is only a small company and whose capability cannot be sufficiently proven. The problem with the outsourcing strategy also concerns the fact that less regard was given to cultural gaps.

Fixing the Helpdesk problem: Recommendations to John Smith

Considering the consequences of the company’s decisions and the problems faced by John Smith, it is recommended that to address the helpdesk problems John Smith should immediately negotiate with the management of CPMI outside the contract for issues of communication and cultural gaps to be addressed. This is very important as pointed out by Radoff (2006) who argues that communication gap can lead to big disaster for the outsourcing firm. For the remaining terms of the contract if more than 6 months, John Smith can partner with the management of CPMI to arrange a short course where staff will be trained and given the knowledge of Japanese Protocol Behaviour so as to immediately address the problems faced by helpdesk staff and Japanese Executives. Quelin and Duhamel (2003) consider this as organisational learning and a way of synchronising partners’ needs with each other for effective performance.

The Short course would be short term solution. However on the longer term, John Smith should consider other service providers by reviewing the offers of up to five different potential outsourcing partners. He should therefore decide based on their deliverability, flexibility and experience as well as capability, while considering the quality they can deliver and their ability to make his cost savings objectives achievable. More importantly, a well articulated explanation to management about the dangers of forcing English on rotational staffs would be necessary for John Smith so as to ensure that future service providers have the capability to understand Japanese Protocol Behaviour and bridge cross cultural gaps in outsourcing operations.

John Smith must also importantly focus on ensuring that the rest of the helpdesk staff are properly trained and motivated through flexible working hours so as to reduce the instance of less motivation and less performance which can still occur after major processes have been outsourced. Finally, it would be pertinent to state that all of the recommendations are important. However, it is advised that for optimum and effective performance to be achieved with immediate effect, he should place emphasis on renegotiating with CPMI management and arrange possible short term courses on Japanese protocol behaviours and business ethics as well as service delivery and performance.

This is only recommended as quick short term solution to last within the remaining period of the contract. However, to find lasting solution, it is recommended that the option of new potential service providers should be considered while emphasis should be placed on the 5 elements of operations performance mentioned earlier. With the new service provider, flexibility and quality of service should be given high priority so as to ensure that cost savings is not the only advantage derived from the company’s outsourcing process. Finally, on an ongoing basis, John Smith should implement a continuous training program where remaining employees will be given up to date skills so as to ensure that they are in line with new developments from their service partners to whom they have outsourced their helpdesk.

Offshoring Recommendations

On the long list as to whether off-shoring should be considered or not for both data centre and the PC helpdesk, it can be argued that off-shoring is a perfect decision for the data centre because of its nature and structure and particularly because of the operational risks involved in managing a data centre which is becoming high in the growing technological world of today. More so, many off-shoring firms have more competence and professional capability in managing IT systems than companies like JIT whose primary activities are in other areas. Off-shoring the data centre will indeed allow management to bear less secondary operational risks and challenges that is associated with data management. For a certain fee, management can cut down costs while improving the quality of its data management when handled by a third party.

In considering the off-shoring decision however, management must place emphasis on the quality and past performance of vendors who will be given the data centre operation to manage. Furthermore, according to best business practice – it is advised that up to five vendors should be selected and weighted according to their service offers, flexibility and closeness to the objectives of JIT. It is also advised that the off-shoring process should be conducted in a systematic and gradual approach. A recommended approach would be for John Smith or a chosen manager of JIT to spend at close to two weeks or better still one month in the offshore location so as to understand their working practices and know what the potential challenges might be.

In addition, only a once year contract should be first signed by JIT to understand the vendor and learn if the off-shoring process is of benefit to the organisation or has to be relinquished for certain reasons.

For the PC helpdesk on the other hand, it is recommended that off-shoring is not the best process because of the need for staff’s personal computers to be checked physically in certain instances. Besides, for other business reasons offshoring the PC helpdesk could cause operational problems and problems which may arise from various instances. It is therefore, advised that PC helpdesk should be retained for outsourcing rather than offshoring.

In outsourcing the PC helpdesk, the same care and consciousness advised for data centre offshoring should be exercised because of the risks that might be involved. Also, five outsourcing service providers should be invited to tender their quotes and offers. Such offers, should be gauged to determine whose service best suits JIT’s objectives. During the process, it is very important as recommended to John Smith initially that the five operational performance elements should be included and not only the cost should be considered.

The quality of service that will be provided by the vendor should be given utmost priority, followed by cost, flexibility and dependability and speed. For these elements to be found in a potential vendor, the importance of experience and past performance must be emphasized in the sourcing process. In addition, the company who can blend with JIT’s operations and give tailored service should be given better scrutiny and attention.

Lastly, it must be taken into consideration that JIT’s vertical operation comprises Japanese and English speaking staff. Therefore, it must be ensured that all the company’s internal processes, rotational staff and outsourcing partners have capability in Japanese and English behaviour protocol.

Outsourcing to vendors who have no understanding of the cultural ethics and behavioural protocols of service users will further leave cultural gaps and communication problems for management to deal with. Indeed, it is a counter productive process when one learns from other past experiences of outsourcing and the cultural problems involved.

Additionally, to be educated of the potential risks and dangers involved in the outsourcing process – both in transition and in the proper regime. A learning process is recommended whereby, John Smith spends time in the offshoring company to understand their mode of operation and how it works so as to take the lessons back home into his company’s final contract before performing the final outsourcing.

An ongoing governance structure should also be given proper attention such that: in the post outsourcing regime such that communication and other important facets of operations are constantly reviewed from time to time, the performance of the vendor, weaknesses and strengths should also be reviewed so as to constantly ensure that the service offered meets JIT’s objectives and the expectations of all its staff.

Conclusion is drawn on the note of the outsourcing factory (2008) which suggests that:

“Whilst price is very important, productivity is even more important, which is why you companies must factor this non tangible aspects, related to outsourcing, into their purchase decisions. They must ensure that the company they are dealing with are mature enough to overcome the cultural barriers as well as the communication/organizational ones. Then, when the deal is signed they should not forget that relationships have to be managed as it will not manage itself”.

References

Adams, K. (2009). IT outsourcing evolution, past, present and future, Communication of the ACM, pp. 84 – 89

Cullen, S (2008) Key Activities of the Outsourcing Lifecycle: Part I: Senior Consultant, Cutter Consortium. Available at: http://www.cutter.com/content-and-analysis/resource-centers/sourcing-and-vendor/sample-our-research/srcr0901.html

Hammon, J. (2005). Change Management in IS Outsourcing: A literature analysis, University of Alicante, San Vicente del Raspeig, Alicante, Spain, pp. 821 – 834.

Fitzsimmons, A.J. and Fitzsimons, M. J. (2008). Service Management: McGraw-Hill International Edition

Gislen, M. and Venugopal, V. Godwin, U. (2006). Managing the Cultural Challenges for Successful Software Outsourcing. Gislen Software Pvt. Ltd. India, pp. 1 – 6

Mann, M., and Borga, M., (2004). US. International Services, Cross-Border Trade in

2003 and Sales Trough Affiliates in 2002, Survey Current Business, October

McCray, J (2008). The problem with Offshoring and Outsourcing: Lessons from organisational experience, Journal of Organisational Strategy 34 (4) pp. 56 90.

Outsourcing Factory (2008) Overcome cultural differences in the outsourcing process, Accessed from www.outsourcing-factory.com

Quelin, B. and Duhamel, F. (2003). Bringing Together Strategic Outsourcing and

Corporate Strategy, European Management Journal Vol. 21. Great Britain.

Radoff, S. (2006). Improved Cross-Cultural Communication Increases Global Sourcing Productivity. United States: Acc

Walsh, H. (2003). Issues in foreign outsourcing, Information System Management, Volume 14, Issue 2, pp. 27 – 32

Yeaple, E. (2006). Offshoring, Foreign Direct Investment and the structure of

US trade, Journal of the European Economic Association, April-May, 4 (2-3), pp. 602-611, Accessed from: www.sciencedirect.com

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Free Essays

The impact of outsourcing on HSBC, United Kingdom

INTRODUCTION

1.1 Research Title

The impact of outsourcing on HSBC, United Kingdom

1.2 Research Question

What is the impact of outsourcing on HSBC bank in the UK?

1.3 Research Objectives

The objectives behind reviewing previous literatures and doing this project are:

To discuss the concept of outsourcing
To identify and understand the outsourcing strategy of HSBC bank, UK
To analyse how outsourcing has impacted on the HSBC bank in the UK

1.4 Background and Definition

HSBC Holdings is one of the largest banks across the globe. Pal and Pantaleo (2005) suggest that HSBC Holdings has over 9500 offices scattered in 80 countries.

Outsourcing has been defined by many authors. Laabs, C. (1997) as summarised by Embleton & Wright. (1998, p. 94) defines outsourcing as “… having an outside vendor provide a service that you usually perform in-house”. (Gibson. 1996, p. 19) describes outsourcing as “The transfer of routine and repetitive tasks to an outside source”. Outsourcing arrangements are normally classified into two categories which are IT outsourcing and Business Process Outsourcing (BPO). Examples of IT outsourcing are system analysis, data processing and security management among others. On the other hand, BPO are back office administration, call centres, document processing and management of other selected processes.

Offshore outsourcing is a subcategory of outsourcing where banks outsource services to a third party in another country other than the one in which the bank is based. This relates to HSBC as it already has a number of processing centres in India and Malaysia according to Pal and Pantaleo (2005). As discussed by Rohde (2003), it planned to move some business tasks such as data processing and call centre enquiries to India, Malaysia and China by 2006.

The next part of the paper draws on the critical literature review which explores the overall concept of outsourcing related to HSBC. It explores different sub sections which are discussed in detailed.

2. LITERATURE REVIEW

2.1 History and concept of outsourcing

This section provides some historical background of the concept of outsourcing. According to Jacques (2006), outsourcing also known as offshore outsourcing, started in the 1950s. At that time, manufactured products rather than services were mostly outsourced. Jacques further suggests that Nike and Reebok were among the first to subcontract their production of shoes to Taiwanese and Korean suppliers. However, Busi & Mclvor (2008) and Lonsdale & Cox (2000) argued that it is very difficult or rather impossible to determine the origin of outsourcing.

Jacques (2006), Lonsdale & Cox (2000), Jiang & Quresh (2005) and Foogooa (2008) all agreed that the concept of outsourcing for services emerged in the 1990s. Services such as canteen management and security have however been outsourced since the early 1960s or even earlier. The size and array of activities has drastically increased in the last 15–20 years to add in logistics, IT, finance, accounting and personnel. Many banks and financial institutions have since been moving their payroll, IT systems and customer services offshore.

The outsourcing industry is one of the largest industries in the UK. The country is home to practically one fifth of all outsourcing agreements. Goodman & Fox (2008) suggested that outsourcing was originally used during the recession period by firms to cut costs and achieve productivity. It is now more often considered as a key part of organisational change programme and also a strategic activity.

In the public sector, extensive outsourcing which is more generally known as contracting-out began in the 1980s. It first began in the local government and then continued to central government in the 1990s. The next section will draw on the benefits and drawbacks of outsourcing.

2.2 The reasons behind HSBC outsourcing

This section will limit it discussion to the various reasons which forced the bank to outsource some work. As stated by Kripalani (2006), “HSBC decided to outsource mainly because the need to constantly improve technology was becoming difficult for the bank, drawing attention away from its core financial-services business.” However, Pal & Pantaleo (2005) argue that increasing pressure from Citigroup to remain competitive on cost triggered HSBC to outsource.

With a revolution in technology, banks should be able to provide fast and efficient technology. While almost all banking transactions are now done online, HSBC had to move to a new technology platform to remain competitive and become more efficient. Hence, the UK based bank had to outsource its IT support and software development in India and Malaysia. Being in the financial services industry, HSBC could not cope with the increasing new technologies adopted by other banks.

The other reason behind the decision to outsource was indeed cost saving. Griffiths (2003) cited that HSBC justified its decision to slash jobs from the UK to Asia in an attempt to cut costs. HSBC goes on to say that labour costs in India for example is much cheaper than in UK. The cost to maintain IT and back office work in the UK is quite high. Labour cost is relatively much higher in the UK than in Asian countries and economies of scale make the cost cheaper in those countries. Kripalani (2006) contended that the bank wanted to get the job done as fast as possible even if it means putting more workers on the job. As a result the job is done much quicker as a lower cost.The HSBC bank also looked to India as the country’s reputation for quality software work was becoming increasingly known.

Moreover, access to the huge and potential Asian market is made easier by outsourcing in those countries as the bank gets more familiar to the local laws and regulations.

2.3 The outsourcing strategy of HSBC

Lee, Miranda and Kim (2004) divide IT outsourcing strategies into three categories which are degree of integration, allocation of control and performance period. According to Kripalani (2006), HSBC learned from its outsourcing experience to develop strategies. The first strategy is to start small. HSBC started out a centre with only 30 people and many mistakes were made in the beginning. The bank therefore learned from those mistakes. Furthermore, by starting from scratch, it helped to build a relationship from the start with various departments.

The second strategy is customer involvement. While trying to upgrade its international financial processing system, HSBC found out that it is crucial that experts get involve rather than making a request on paper only.Thirdly, the use of a hybrid offshoring model is another strategy. Moreover HSBC bank built a sense of community within the organisation to work towards quality work. Finally HSBC made sure that quality is maintained as it is a key factor to successful business. HSBC in-house short-term jobs and outsource long-term work. It can be argued that all those strategies above might not be enough for a successful outsourcing. How about supervision and control?

Another strategy pointed out by Farrell (2009) is that HSBC in the UK split its service into two, with ordinary account holders served by Indian call centres and premier account holder by UK call centres.


2.4 The impact of outsourcing on HSBC

HSBC has a wholly owned BPO subsidiary in Kolkata which employs 2000 employees working on back-office operations. It also has a software development centre in Pune. According to Mann (2005), HSBC “revealed a 37% rise in pre-tax profit to ?9.2bn ($17.6bn) for 2004 – largely on the back of the company’s performance outside the UK.” Again quoting Mann (2005) “expansion for HSBC has not been without its share of problems.”

Due to outsourcing to cut down costs, HSBC had to face trade unions who were not happy with the increasing cutting down of jobs in the UK. Farrell (2009) stated that “HSBC ran into a row over its latest round of job cuts yesterday when the main trade union representing its staff claimed the bank’s announcement of 1,200 redundancies was fewer than half the real number.” Mann (2005) makes the point that concerns were raised in the UK about outsourcing banking services such as call centres in India due to quality standard. Moreover during the Asian crisis HSBC lost quite a lot of money due to outsourcing activities there. As said by King (2010), IT and outsourcing costs increased in 2009 due to progress in the bank’s standardisation plan.

Research by Embleton & Wright (1998) suggests that outsourcing brings benefits as well as drawbacks. They claim that the main advantage is cost saving. By outsourcing, small companies benefit from economies of scale whereas large companies benefit from the transfer of departments which are not performing well. They go on to suggest that other benefits are time saving to set up the department, hidden costs which are discovered, activities which are outside the company’s core business are taken care by experts, cash injection by selling assets when an activity is outsourced, greater flexibility in allocating human resources, accountability by the suppliers to provide agreed level of service which may not be controlled if activities are in-house, more free staffs in-house to do other important tasks, access to specialist tools, skills and technology, geographical problems may be reduced and finally outsourcing can improve quality due to the expertise of the provider.

On the other hand, they also point out that the drawbacks include unsuccessful attempt to reduce costs, the surrender of control, difficulty and cost involve in bringing back a process in-house, morale of existing staffs may be affected due to cut in staffs, costly contracts and lost in quality.

3. CONCLUSION

As in the previous sections, outsourcing has emerged from a practice mostly done to cut costs on a temporary basis to a strategy adopted by many companies around the world. HSBC bank in the UK outsources mainly to cut costs and remain competitive in the fast moving technology world. It mostly outsource its IT and back office work such as customer service and data processing.

Having outsourced from the beginning, the bank has learned to adopt outsourcing strategies such as starting small, maintaining good relationship and quality.On balance it can be concluded that outsourcing has had a rather effective impact on HSBC by cutting costs but other risks such as increase in outsourcing costs should be managed.

The impact on local employees’ morale has to be considered also. Moreover according to BBC News (2006), a worker in the data processing department in Bangalore has been taking money from customers’ accounts by hacking the system. Although the customers’ were reimbursed, it had a huge impact on the security of data held outside the UK. Nasscom, the trade body for the Indian IT and services sector, commented that they are aware that customers prefer to deal with call centres that are based in the UK rather than outside firstly because of the language difficulties and the opportunity to deal with the local branch.

REFERENCE LIST

Books

Barrar, P. & Gervais, R. (2006). Global outsourcing strategies: an international reference on effective outsourcing relationships. Hampshire: Gower Plublishing Limited.

HSBC. (2007). HSBC’s Guide to Cash and Treasury Management in Asia Pacific 2008. Hong Kong: PPP Company Ltd.

Jacques, V. (2006). International outsourcing strategy and competitiveness: Study on Current Outsourcing Trends : IT, Business Processes, Contact Centers… Paris: Publibook.

Kondabagil, J. (2007). Risk Management in electronic banking: concepts and bestt practices. Singapore: John Wiley & Sons (Asia) Pte Ltd.

Pal, N., & Pantaleo, D. C. (2005). The agile enterprise: reinventing your organization for success in an on-demand world. New York: Springer Science+Business Media, Inc.

Journals/Magazines

Busi, M., & McIvor, R. (2008). Setting the outsourcing research agenda: the top – 10 most urgent outsourcing areas. Strategic Outsourcing: An International Journal. 1(3) p. 185-197.

Embleton, P. R., & Wright, P. C. (1998). A practical guide to successful outsourcing. Empowerment in Organization. 6(3) p. 94-106.

Foogooa, R. (2008). IS outsourcing – a strategic. Business Process Management Journal. 14(6) p. 858-864.

Gibson, V.M. (1996). Outsourcing can save money and efficiency. Benefits Administration. March. p. 19.

Goodman, R, & Fox, M. (2008). Outsourced and Business Services – A UK Success Story. BSA – The Business Services Association. November p. 6.

Lee, J., Miranda, S. M., & Kim, Y. (2004). IT Outsourcing Strategies: Universalistic, Contingency, and Configurational Explanations of Success. Information Systems Research. 15(2) p. 110-131.

Lonsdale, C., & Cox, A. (2000). The historical development of outsourcing: the latest fadIndustrial Management & Data Systems. 100(9) p. 444-450.

O’Riordan, A., & Sweeney, E. (2007). An investigation into outsourcing practice in Ireland: a new direction in logistics and supply chain management. European TransportTrasporti Europei. 35. p. 64-80.

Rohde, L. (2003). Bank Gets Earful for Exporting IT Jobs. CIO. 1st December. pp. 24-26.

Websites

BBC News (2006). Man held in HSBC India scamprobe . [Online]. Available from: http://news.bbc.co.uk/1/hi/5122886.stm [Accessed: 2 May 2011]

King, L. (2010). HSBC profits increase, but so do IT and outsourcing costs. [Online]. Available from: http://www.cio.co.uk/news/3234073/hsbc-profits-increase-but-so-do-it-and-outsourcing-costs/ [Accessed: 10 March 2011]

Kripalani. (2006). HSBC’s Lessons in Outsourcing . [Online]. Available from: http://www.businessweek.com/magazine/content/06_05/b3969426.htm [Accessed: 10 March 2011]

Mann, H. (2005). HSBC banking on global expansion . [Online]. Available from: http://news.bbc.co.uk/1/hi/business/4268223.stm [Accessed: 15 March 2011]

Farrell, S. (2009). HSBC’s 1,200 job cuts spark row with union. [Online]. Available from: http://www.independent.co.uk/news/business/news/hsbcs-1200-job-cuts-spark-row-with-union-1654297.html [Accessed: 17 March 2011]

Griffiths, K. (2003). HSBC to outsource 4,000 UK bank jobs to Asia. [Online]. Available from: http://www.independent.co.uk/news/business/news/hsbc-to-outsource-4000-uk-bank-jobs-to-asia-583652.html [Accessed: 17 March 2011]

BIBLIOGRAPHY

Books

Jacques, V. (2006). International outsourcing strategy and competitiveness: Study on Current Outsourcing Trends : IT, Business Processes, Contact Centers… Paris: Publibook.

Pal, N., & Pantaleo, D. C. (2005). The agile enterprise: reinventing your organization for success in an on-demand world. New York: Springer Science+Business Media, Inc.

Journals/Magazines

Busi, M., & McIvor, R. (2008). Setting the outsourcing research agenda: the top – 10 most urgent outsourcing areas. Strategic Outsourcing: An International Journal. 1(3) p. 185-197.

Embleton, P. R., & Wright, P. C. (1998). A practical guide to successful outsourcing. Empowerment in Organization. 6(3) p. 94-106.

Foogooa, R. (2008). IS outsourcing – a strategic. Business Process Management Journal. 14(6) p. 858-864.

Gibson, V.M. (1996). Outsourcing can save money and efficiency. Benefits Administration. March. p. 19.

Goodman, R, & Fox, M. (2008). Outsourced and Business Services – A UK Success Story. BSA – The Business Services Association. November p. 6.

Lee, J., Miranda, S. M., & Kim, Y. (2004). IT Outsourcing Strategies: Universalistic, Contingency, and Configurational Explanations of Success. Information Systems Research. 15(2) p. 110-131.

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OUTSOURCING: BENEFITS AND RISKS-A CASE STUDY ON UNILEVER

INTRODUCTION

1. THE EVOLUTION OF OUTSOURCING

Businesses have evolved consistently over the years driven by different factors. First it was to build market share and market dominance, especially in the 1960s with the invention of new technologies and the evolution of the service industry. Then in the 1980s, it was on competition for market dominance and survival. Organisations needed to build competitive advantage by producing the goods and services their customers required, and maintaining customer relationships through these feats. Businesses evolved from being mainly product based, to being customer focused, and through that being able to ascertain what customers want, and redefine their operating models to fit in with these changes (Willcocks et al, 2009).

The constant evolution of businesses meant that they had to constantly change and adapt their resources and capabilities to fit with the changing customer taste, and this meant focusing their core efforts on what mattered most, that factor that resulted in sustainable competitive advantage for the company. The decision for organisations to focus on their major operations, put into consideration other back office functions such as Human Resources, Finance, Technology and Procurement, and steps that the organisation could take to make these more efficient, save costs, whilst also adopting best practices.

The revolution of the technological industry in the 1980s showed that the PC industry did not need just one provider for all-in-one computer technology (Hardware, software, peripherals), by showing that different parts could be sold separately, especially with the establishment and growth of Apple, Oracle, and Microsoft. That same revolution has been showcased within organisations to show that the firm does not necessarily need to take ownership of all functions required within the organisation (InfoWorld, 2006). According to Varadarajan (2009), there are functions that are core to an organisation, while some others are basically support functions. Both entail capital, manpower, and other resources to run, however, core functions are also profit centres, while support functions usually serve mainly as cost centres. Therefore, organisations are increasingly concentrating on their core services, while delegating the function of their support functions to external service providers that specialise in providing these services, services otherwise known as outsourcing.

1.1 OUTSOURCING

Outsourcing is defined as the transfer of an organisation’s operations, processes or functions to an external service provider, which is obligated based on specific and/or flexible contractual terms to conduct these tasks on behalf of the organisation (Quinn et al, 1995). The global outsourcing has witnessed enormous growth over the past decade, from $232 billion in 2000, to $442bn in 2010, and predicted to grow to $518 billion by 2013 (Accenture, 2009). Outsourcing usually involves the transfer of responsibilities, but could also include the transfer of staff and business processes to providers inshore or offshore. According to Accenture (2009), outsourcing has dramatically changed the manner in which most companies “create and distribute value”.

Outsourcing has gradually evolved from being hardware and applications based, to higher-level business processes and services. Now instead of companies just outsourcing their IT maintenance and installation to external parties, they now outsource their support functions such as Human Resources, Finance, Procurement and Technology, all so they could reduce costs, avoid wasted resources, utilise best practices and concentrate on their core services, albeit theoretically. It is increasingly becoming a major strategic option for most small, medium and large companies, hence the reason why it has been chosen as an important topic for this study. The following are examples of companies that have adopted outsourcing as a strategic option for their organisational growth.

Ericsson has recently announced that it has finally signed an outsourcing contract with HP. It is a five-year contract that will allow HP to manage the infrastructure services, desktop support, helpdesk and output services for Ericsson. This contract is actually an extension of a contract that was signed in 2003. The IT services of Ericsson will be updated so that they will cater to the future needs of the employees of the company. It will also allow for flexible support for the global business. Outsourcing IT allows Ericsson to reduce IT spending, total costs of ownership and will help to make the IT structure more efficient (HP 2003).

Furthermore, Kodak has outsourced IT to IBM in order to reduce internal IT costs. The help-desk support for windows Server and Windows XP has been outsourced to IBM. This will help Kodak cut costs drastically and will also provide flexible pricing that will allow Kodak the ability to adjust the IT operating budget. The contract between the two companies will allow IBM to build and maintain an energy-efficient green data centre in addition to the converged IP network infrastructure for Kodak. This will help Kodak save more than $1.2 million in reduced energy costs and operational efficiency over the next five years (IBM 2005).

JP Morgan entered into a multi-sourcing, 7 year deal with 4 vendors. 45 percentage of JP Morgan’s IT employees were transferred while 600 vendor’s staff were also supplied to work together so as to achieve the targeted goals. The data-centres, mid-range computer distributed data services were outsourced to different vendors while It strategy, application development and vendor management were kept in-house. This outsourcing strategy led to an annual savings of $ 700 million for JP Morgan (Willcocks et al, 2009).

1.2 UNILEVER, THE ORGANISATION UNDER STUDY

Unilever is a global company, and a group of companies responsible for producing and marketing some of the world’s largest brands such as Persil, Knorr, and Lynx. Its major strategy is to add vitality to life by producing goods that help people live better, feel better and get the most out of life. With revenues exceeding $40 billion in 2009, Unilever employs over 200,000 individuals globally and has operations in more than 100 countries worldwide.

1.3 OUTSOURCING IN UNILEVER

Unilever has embarked on several outsourcing agreements over the past decade with a number of notable vendors such as IBM, HP, BT and Accenture. They have outsourced a number of their non-core business operations to these third party providers, and the nature of these agreements are outlined as follows:

Unilever signed a seven-year application outsourcing agreement with Accenture in 2005, which covers the development of applications, their implementation and support for Unilever across the whole of Europe. The contract cost ?500m and entails Accenture deploying a unified European IT platform and the provision of IT services to Unilever’s operations in 20 European countries (Personnel today, 2006; Accenture, 2010).
IBM in December 2005 also signed a seven-year finance transactional services outsourcing deal with Unilever across Europe. This transition affected 750 staff across 20 European countries and entailed the handling of Unilever’s Purchase to Pay, General Accounting and Bill to Cash functions (Silicon.com, 2005). In 2008, the agreement was extended to procurement outsourcing in which IBM assisted in integrating and standardising the procurement practices across all regions within Latin America (ComputerWeekly.com, 2008).
In 2006, Unilever signed an additional seven year HR BPO outsourcing deal with Accenture that covered areas such as payroll administration, reward administration, performance management, workforce reporting and core HR administration across 100 countries in more than 20 languages, delivered through centres in Bangalore, Manila, Dalian, Bucharest, Prague and Curitiba (Unilever, 2006).
In 2006, Unilever also extended a BT outsourcing contract for an additional three years, for an extra fee of ?270 million. This outsourcing contract covered areas such as voice, mobile, Internet, DSL, VPN, audio and videoconferencing solutions within Unilever Europe (Silicon.com, 2006). Later in 2006, Unilever outsourced its global firewall management systems to BT over a 6.5 years period for ?10.5 million (ComputerWeekly.com, 2006).
HP and Unilever in 2008 announced that they had signed a seven-year outsourcing contract in which HP was to manage the infrastructure of Unilever operations across the Americas, Asia, Africa, Turkey and Middle East. This arrangement included the standardizing, virtualizing and optimizing of existing enterprise infrastructure, and was predicted to enable the company work more effectively (Networkworld.com, 2008).

1.4 PROBLEM STATEMENT

These contracts were part of the “One Unilever” transformation initiative and were designed to deliver annual savings of $927 million yearly. Unilever hopes to streamline the operations of its multi-domestic franchises across Europe, whilst also implementing shared services globally, and outsourcing agreements were deemed as the most efficient and effective way of having these done, especially across procurement, finance and infrastructure management functions. However, according to InfoWorld (2006), several issues may arise with outsourcing, especially when its conducted on a multinational scale, and these may comprise:

Security vulnerability – Outsourcing firewall to external parties
Employee resentment – Cutting staff and transferring a large portion to third party clients.
Change management difficulties – Inability of retained staff to quickly recognise and blend in with newly established partners and processes.
Inability to calculate cost savings and efficiency progress, and effectively manage contractual relationships with several third parties.

All these could make it difficult for Unilever as an organisation to appropriately recognise if / where it has saved costs and achieved efficiencies, and could even result in higher cost of operations and managing, than could have otherwise occurred when it was managing these operations itself, especially if the relationships between outsourcer and outsource goes wrong, or a security vulnerability occurs (InfoWorld, 2006).

1.5 RESEARCH OBJECTIVE AND QUESTION

Based on the overview of outsourcing as discussed earlier, and the problem statement highlighting possible ways in which these arrangements could go wrong, this research would aim to:

Investigate the current progress and success of outsourcing in Unilever especially in the UK, and to a smaller extent across Europe.
Ascertain how the maintenance of supplier relationships have been instrumental in achieving better results from outsourcing projects.
Understand how outsourcing has helped contribute to overall competitive advantage in Unilever, in the UK, and also across the UK.

Based on these objectives, the following research question has been coined:

To what extent has outsourcing with single or multiple partners contributed or disrupted the drive for sustainable competitive advantage within global multinational firms, what are the potential benefits attributable to outsourcing within companies, and how could possible disadvantages be identified and subjugated?

1.6 Dissertation Structure

This study is structured in the following way:

The Literature Review chapter that follows would highlight relevant texts and reviews that have been obtained from academic theorists regarding outsourcing. The literature review would cover the theoretical definitions of outsourcing, business functions that are usually covered under outsourcing agreements, the different forms of outsourcing, the manners and processes through which organisations outsource, the benefits attributable to outsourcing and threats that could arise as a result of outsourcing. An outlook on the outsourcing industry would also be included.
The Methodology chapter would highlight the main methods through which data would be collected and analysed for the sake of answering the aforementioned research question, and accomplishing the research objectives. Additional information on the research approach and strategy would also be included.
The Results chapter that follows would include a concise response to all questions asked during the interview process, and these would be arranged according to the manner in which the results are structured. The results would be structured based on the topics covered in the literature review.
The Discussions chapter would seek to compare and contrasts findings from secondary data analysis and also from the interviews, and compare them against findings from literature review, using a deductive methodology.

2 LITERATURE REVIEW

2.1 Outsourcing

2.1.1 Theoretical definition of outsourcing

In our contemporary fast moving business world, many organisations are struggling to differentiate and crave the right competitive strategy in the market. Businesses are encountering enormous pressures in the market to improve and maximise their operational efficiency. In order to gain a sustainable competitive advantage in the market; organisations (both private and public) have turned to outsourcing as a major element in their business strategy.

Click & Duening (2005) defines outsourcing as “the movement of business processes from inside the company to an external provider”.

Businesses outsource their management practices to add specialised expertise where needed to help management run or improve the organisation and business module. The ultimate reasons that facilitate the emergence of this strategy are competition, cost reduction and the emergence of information technologies.

Outsourcing has hugely enabled many organisations to focus on strategic aspect of their business and allows third parties to deals with their non-core activities (McIvor, 2005). Firms normally embarked on outsourcing activities when their secondary-level activities started to consume more of their existing scarce resources, consuming time and hindrance investment from their core activities. Companies that intends to concentrate on their core business activities, will find outsourcing as a way of minimise the load and risk of their secondary-level activities (McIvor, 2005).

For majority of firms, outsourcing is a result of innovation (Quinn, 2000, Corbitt & Al-Qirim, 2006). Outsourcing derived from the daily changes that occurred in the environment, the emergence of new technologies, rapid changes in the market demands and shorter product life cycles are some of the crucial elements that have changed in the recent years.

Nowadays, outsourcing has been widely discussed issue in terms of business strategy, and has become a regular topic in the academics literature. Most successful organisation in the world use it, and it essence seems to be ever interesting. The major highlight about this topic is the offshore possibilities; where significant markets like India and China competing with the West. In the case more and more businesses are looking to East for cheap labour, efficiencies and market opportunities. Theoretically, outsourcing can tremendously leads to short-term profits.

While businesses outsource, they targeted few core activities and try to gain substantially from outsourcing their non-core activities. Such strategy would ultimately improve performance through scope economies and reduces costs through scale of economies (Harland et al., 20005). When strategic alliances are formed, the core business skills and competence are hardly maintained and can be easily lost. This may not be a potential threat to some firms because outsourcing can enormously allow them to learn quickly new skills and competences from third party. However, it is essential for outsourcing firm to maintain its most crucial part within the organisation and retain developments and manufacturing of essential parts. The manufacturing is the most crucial element in terms of how customers perceived the firm product (Brandes, Lilliecreutz & Brege, 1997).

Many researchers believed that business non-core activities should be outsourced and the core activities remain in house (Kakabadse and Kakabadse 2000a). Core activities are corporate skills that impact numbers of activities within the organisation, but it is not that simple to define a core competence.

As per Willcocks, et al 2002, the firms which have decided to outsource will need to spend considerable time on carefully choosing those processes which need to be outsourced and those which should be retained within the firm. Much time need to be spent on evaluating and distinguishing between the core processes which should be controlled in-house and commodity processes which can be outsourced. The authors argue that the processes which lead to value creation should never be outsourced. It is therefore required that the top level executives spend considerable time in ranking the various organizational processes according to “their potential for value creation and their potential of value capture”.

This ranking can help in creating a value hierarchy which provides further clarity on which processes can be safely outsourced. Willlcocks et al. 2002 suggest that the business processes should be carefully evaluated or compared with the concept of value creation as described above along with their “contribution to competitive positioning”. This leads to the following grid which can be used in choosing those processes which can be outsourced.

Fig1. Decision making Matrix on Outsourcing

2.1.2Core Competencies

Activities that firm continuously engaged on such as; functions that are performed in-house, that create huge competitive advantages, critical to business success, and activities that drives growth and innovation (Kakabadse and Kakabadse 2000a). Quinn and Hilmer (1994) added that core competencies are not only products or functions, but are also skills or knowledge sets. Competencies are sets of skills stretching across all functional borders. Managers should pinpoint on aspect where the firm dominates, instead of stretching their over the entire value chain. Competencies are limited in number, therefore, managers must be able to understand the strategic fit that directly relate to understanding of serving and meeting with the customers’ requirements (Quinn & Hilmer, 1994).

2.1.3Non-core competencies

For organisation to outsource its non-core activities or non-essential activities is a vital way of thinking. Reason had been that, such strategy enables the organisation to redirect its people towards performing activities in accordance with the firm core competences. (Brooks, 2006). Many researchers believed that, a firm strategy to outsource it non-core activities can free its human resources from undertaking low level jobs, and build a platform wherein the people can work on more highly knowledge intensive project that may be beneficial to the organisation and its people (Lacity et al. 1995). This concept was also supported by McKinsey Global Institute (2003) about the benefits of outsourcing on a national level. The report claimed that outsourcing low-level jobs mainly to developing countries would release the burden in the human resource, and also allowing the developed countries to create a higher value adding activities.

The combined effort to focus on organisations core activities and releasing human resources enables an optimisation of the organisational capital investments (Quelin & Duhamel, 2003), which ultimately maximises the returns on internal resources (Bailey et al. 2002).

2.2 Different forms of outsourcing

2.2.1Technological outsourcing

Technology has been one of the most crucial components in terms of outsourcing. Getting access to technology or competence outside the organisation may be a motive to engage in outsourcing as a solution of shortcoming. The situation when this approach may be favourable is when suppliers prove to be more advanced (Harland et al. 2005) or have protected their own technology through patents, which render access impossible. Then the only cost-effective way for the organisation to access this technology may be to engage in an outsourcing agreement with the supplier. To get access to the specific technology needed outsourcing also give firm the opportunity to reduced potential risk of investing in research and development associated with large and often irreversible investments (Quelin & Duhamel, 2003). The technology example may also be applied to the search for relevant competence when companies may perceive a gap within their own organisation compared to knowledge and competence found outside the organisation (Quelin & Duhamel, 2003). Couple of years back, IBM Business consulting services signed a seven-year outsourcing contact with Unilever which covered significant parts of Unilever’s financial transactional `services, including its Purchase to Pay, General Accounting, and Bill to Cash functions. Furthermore, when accessing to a new technology the host organisation may find themselves in a situation where they end up rediscovering their old technology. This may occur in the adaptation process between the host organisations technology systems and the systems used by the third party supplier (Weigelt, 2009).

2.2.2 Business process outsourcing (BPO)

Business process outsourcing is relatively new business phenomenon. BPO is an outsourcing phenomenon where much responsibility has been given to third parties to undertake and perform the entire business functions on behalf of the client organisation (Dibbern et al., 2004). Incredibly, there are vast number of industries that are embarking on business processes outsourcing such as; the financial sectors (Banks, insurance companies) the government services, financial services, logistics, transportation, health care etc.

BPO initially started with non-core activities and is now moving towards core activities. Mainly targeted areas were; call centres, help desks/customer support, hotlines claims management, document processing etc., and its gradually booming core areas like software development, Finance and Accounting, Human Resource etc. The trend at which these activities are moving is beyond the speculations outlined on the above literatures. Due to the trend and pace of competition, outsourcing of typical back-office functions are now and shifting into middle-office functions (Millar, 2004). Recent research showed that, India, China or the Philippines are not the only nations that have benefited with BPO, but also Eastern and Central Europe’s markets are also chasing near shore outsourcing from Europe.

Many outsourcing organisations are beginning to think that BPO is drastically moving from efficiency to effectiveness. Another research done by Terra (2005) concluded that 73 per cent of BPO customer’s survey shows that BPO is enhancing their outsourcing processes.

For the host organisation to deliver outstanding and quality service, it must have the requisites service methodology, people/expertise, technology, infrastructure, metrics capabilities etc. All these requisite plays major roles in helping the outsourcing party by reducing “investment” risks, increase transparency, improve the overall process quality and above all lowering costs.

2.2.3 Applications Outsourcing

This practice is concerned with maintaining client applications, which may include Enterprise Resource Planning (ERP) systems, legacy systems, portals and middleware (Deloitte, 2010). The service provider is responsible for maintaining and developing the applications, delivering technical and end-user support, and providing technological infrastructure support as covered in the outsourcing legal agreement (InfoWorld, 2006).

2.2.4 Infrastructure Outsourcing

This practice is concerned with managing all relevant IT related infrastructure that enable the technological processes of the organisation function effectively. Infrastructure such as data centres, servers, desktop management systems, and hosting services are outsourced to competent third parties, with the aim of reducing the cost associated with managing these infrastructure internally, as it could be found cumbersome for a non-technical organisation.

2.3 How organisations outsource?

As described earlier, the general rule for all outsourcing is to outsource the more commodity-like activities to one or more external suppliers in hope that they can provide the service equally or even better for less money (Lacity et al., 1995). There many critique against this approach since it tends to over-simplify the complexity around the outsourcing decision, which easily can lead to disappointment (Lacity et al., 1995).

To outline in a simple format on how organisation outsourcing is a daunting task. Let assumed when Unilever decided to outsource its IT to third parties. The question all managers need to answer when outsourcing the IT function of the organisation is which aspect of the activity should performed internally, and what other aspect should be managed by an external vendor (Willcocks & Lacity, 1998)In recent scenario where Unilever found out that its in-house calls centres were incapable to respond to its increasing business needs, they outsourced this activity to external parties. Over a period of time, Unilever team shortlisted and scrutinised 11 call centres companies and choose a particular vendor on the basis on its below industry attrition rate and the way it managed its staff. On a daily basis, staff members from Unilever supervise their operation and report back to the firm. The crucial aspects of this partnership demonstrate that Unilever succeeded in maintaining the right level of control with its operations without getting involved in the technical aspect of the operations. A strategic measure employed by Unilever to ensure outsourcing a viable long-term solution was the way the firm utilises and combined its own in-house product knowledge to specialist resources gained from its vendor.

But since every organisation is different and faces different challenges, it is impossible to give a simple answer. IT is today a highly important and integrated part of most businesses and can therefore be said to affect and shape most processes within an organisation. More research on this aspect concluded that the following activities are unwise to outsource; activities that require enormous knowledge of business needs, IT strategy, IT architecture and activities that are perceived as a problem (Lacity and Hirschheim, 1994).

The degree of outsourcing is a quantitative measure of categorising different outsourcing options. Different types of outsourcing models can be developed on the basis of the total IT resources (Lacity et al, 1997).

Total outsourcing – simplifies that mostly 80 per cent of the IT budget is outsourced, on the other hand;
Total in sourcing – simplifies that 80 per cent of IT budget is kept in-house after outsourcing alternatives has been evaluated.
Selective outsourcing – a mix of outsourced and in-sourced functions, neither reaching 80 per cent of IT total budgets.
De facto in sourcing – the internal IT department is used without any evaluation of external alternatives.

Generally, large scaled outsourcing deals (total outsourcing) is often a part of a bigger and more lasting change involving the way in which the organisation need to be structured, focused and managed (Willcocks & Lacity, 1998). Applying total outsourcing while using one or a few vendors can put the client at risk since it tends to increase costs and decrease flexibility over time. An alternative to total outsourcing is to use selective outsourcing. This approach assigns specific functions or services to the vendors that are best suited for the job. However, many believed that selective outsourcing is a successful form of outsourcing since it incorporates the fact that the information technology span includes a wide spectrums of activities that are different in terms of the levels of technical of maturity, integration with existing processes and the business contribution (Lacity et al. (1997).

Arguably, there is no one internal IT department or suppliers that has the experience and economies of scale to perform all the required IT activities effectively. By using selective outsourcing, the organisation should be able to increase its flexibility and control and also minimise risks by spreading it onto different vendors and time horizons. This approach also takes into consideration that IT activities, depending on their characteristics, require different amount of management attention, security and consideration to be successful IT outsourcing objects (Lacity & Willcocks, 2000). The authors also stress that selective sourcing works most effectively within the context of business strategic concerns and an overall IT-sourcing strategy that retains both flexibility and control.

Other benefits of using selective outsourcing are for example motivated in-house personnel competing with external suppliers, reduced risk since it is spread over a number of vendors and a learning process that can be incorporated more swiftly. Possible downsides with selective outsourcing are increased costs while managing multiple contracts and vendors, problems with the integration and cooperation among the different vendors and finally a risk of losing sight of the overall strategic issues while focusing on maximising the operational possibilities (Lacity & Willcocks, 2001).

2.4 Benefits OF outsourcing

2.4.1 Cost Saving

The reduction of operational costs is still one of the main goals of outsourcing. Significant savings in capital and operational costs have been reported from organisations that outsource parts of their in-house operations (Harland et al., 2005).

To reduce costs, the organisation needs to start by locating and subsequently divide the organisation into core and non-core activities. After the organisation core and non-core activities have been identified, the non-core activities/competences may be outsourced to a third party contractor/vendor. The idea is thus to remove a part of the organisation that the organisation don’t have adequate resources, time or strategic interest to accommodate in-house.

The reason why the third party contractor can produce the same product at a lower cost is generally through achieving a production of greater scale (Kakabadse & Kakabadse 2005). The larger volume is maintained by taking on many small volumes from a variety of different clients. The larger scale also enable the supplier to further specialise in its field which leads to higher plant efficiency and hence, lower costs per item or service produced (Weigelt 2009).

Furthermore, one of the catalytic factors that have hugely driven and enabled the implementation of cost effective outsourcing possible is the increased globalisation over the last 50 years. The focus has moved towards outsourcing low level jobs to developing countries where the wages and labour costs are significantly lower than in the developed countries (Farrell, 2006). The low level jobs are hypothetically characterised by a low need on experience level and prior knowledge. The transfer of these jobs have also been facilitated when they have been regarded as unattractive in the developed countries but considered attractive in low wage countries (McKinsey Global Institute, 2003).

Thus, implementing outsourcing can be seen as a management technique that creates radical changes by step-by-step improvements. These are aimed to lower overall costs within the organisation (Bailey et al. 2002) as well as creating a price competitive advantage over competitors. Though, when engaging in outsourcing activities to reduce costs in one part of the organisation other parts will often require increased investment and higher management attention. Areas concerned are primarily related to the management of increased interactions with the buyer and supplier network. This as well as an increased level of outsourcing demands needs to acquire and to maintain a higher level of logistic excellence within the organisation. Further on, savings gained by outsourcing is weighed against costs due to the need to monitor the performance of the supplier. This to ensure that for example; quality, service and timing of delivery remain on a high level (Quelin & Duhamel, 2003). These are negative aspects that may lower the motive of outsourcing an activity with the sole goal of achieving cost reduction within the organisation. However, hiring expertise from host country has not been proving to be an effective cost saving strategy.

For example, to hire skilful personnel from another country especially outside the host country region can be burdensome and frustrating tasks as there are many protocols involved like visa processing time, immigration rules and settlement.

The concepts about cheap local labour are gone, a Chinese operating firm in the UK may finds it extreme difficult and expensive to hire expatriate’s from China, in that case outsourcing can sometimes be the right strategy. On the contrary, empirical researched show that in India, $10,000 or less can hire a highly qualified software engineer’s for an entire year (annual basis). This figure may not be enough to hire UK a software engineers US or UK, therefore in a country where work permits and other restrictions are not essential, then companies may finds this strategy as cost effective one.

2.4.2 Flexibility

Besides the aim of cost reduction, the strategic goal of sustaining a higher level of flexibility within organisation has forward as one of the strategic motives in implementing outsourcing activities. Acquiring higher levels of flexibility becomes essential for the firm, in an approach to handle the uncertainty parameter connected with increased volatility in the global market (Buckley, 2009). This was further emphasised by another researchers who revealed that companies’ intention to outsource application services was positively related to environmental uncertainty (Verwaal et al. 2009). By engaging in outsourcing activities the organisation acquire flexibility in the sense that it is easier to change purchasing requirements for a contracted service then to change in-house activities. This, due to in-house, the needs of different stakeholders perspective’s such as employees and trade unions needs to be taken into account (Hendry, 1995). Outsourcing in this sense also presents a mean to downsize the organisation to render it more flexible (Bailey et al. 2002). This enables large static and vertical organisations to move towards smaller and more horizontally structured organisation where the focus has moved towards increased flexibility and control over the organisations network. This enables the possibility to change, when needed, the direction of the organisation to pursue new opportunities and openings in a fast and shifting market (Lacity et al. 1995).

When relevance is concerned, Bengtsson and Dabhilkar (2009) found in their survey that the motive to gain flexibility was judged nearly equally important as the number one motive, to reduce costs. This is as well as Quelin and Duhamel (2003), whom showed that the motive to establish flexible may be considered as the third most crucial aspect after the aim to lower operational costs and focus on core activities.

In outsourcing, for a firm to be able to change conditions to a third party organisation, the ethical aspect of the arrangement particularly between the supplier and the host is highly essential. A good contract between the two parts should contain a certain degree of flexibility and to maximise flexibility the host organisation should aim towards establishing short-term contracts (Kakabadse & Kakabadse, 2005) that enables renegotiations of conditions with suppliers in accordance with changes in the market.

This may specially be vital for organisations that find themselves in a fast moving field like information technology. Here, a long-term contract may turn out to be costly when price changes and technology improvements occur rapidly. Thus the organisation may risk to be stuck with old technology over the contract length whereas the rest of the market may benefit from better technology at a lower price. To avoid this problem, shorter contract length is a good method where flexibility is gained through maximising competition between different suppliers at each renegotiation process (Lacity et al. 1995).

Further, flexibility and competitiveness may be gained by dividing the organisations activities and outsource them to different suppliers. This lowers the dependence of one specific supplier just as it lowers potential switching costs if it proves to be necessary to change supplier (Lacity et al. 1995).

2.4.3 Knowledge and Expertise

Skills, knowledge and expertise are the core competences of a firm, and are likely to develop to a cost for the organisation should outsourcing decreases. In a situation where the business core competences decline in the market, the organisation may be force to look elsewhere for an alternative outsourcing as a means of compensating the cost for staying competitive in the short-term. This may have a tremendous effect on the firm competitiveness (Arbaugh, 2003). Many organisation have suffered enormous consequences when attempting outsourcing, often they might have little knowledge about the market. Therefore, strategic capabilities and market knowledge must be embedded and integrate within the firm.

In that regard, the phenomenon of outsourcing business activities is regarded by some, as a learning dilemma (Bengtsson, & Dabhilkar (2009). There are many resisting forces within a firm trying to outsource, particularly “offshore outsourcing”, employees may restrain the process, when realised that the motive of outsourcing is not to gain new opportunities but to lose to exist ones (Corbett, 2004). Many outsourcing company these days are trying to select the right supplier, reason had been that most suppliers’ actions might have a tremendous impact on the outsourcer. This often happened when businesses become dependable on their external suppliers, core business strategies, trading patterns and other crucial information’s are revealed, and it can be more crucial if the same supplier is working for other competitors.

Most activities that are outsourced are not likely to provide the firm with the same knowledge and expertise as it would have performed in-house. However, if the supplier has a more sophisticated resource base, then the outsourcer may ultimately benefit from their recent technologies (Harland, et al. 2005). Market knowledge can be a key to organisation when shaping the future of the firm and its employees.

2.4.4 Quality and Efficiency

The opposite of outsourcing with a cost reduction motive is to outsource with a quality driven motive. Maintaining efficiency and outsourcing to gain a higher quality is a strategic choice that is difficult to combine with gaining a lower cost (Varadarajan, 2009). Yet, outsourcing with the goal of improving product or service quality has, as shown by Kakabadse & Kakabadse (2005) been an important motive when implementing outsourcing. Hence, an organisation may choose to pay more to gain a higher quality to standardise it product or services efficiencies. Though, the quality aspect of outsourcing is often brought forward when the organisation reviews its internal activities and benchmarks them against external competitors (Quinn & Hilmer, 1995). This action may evoke the question to why outsourcing organisation should create a service or product internally when an external supplier may provide the same product or service within the same frequency and quality but at a lower price. Hence, outsourcing may prove useful to gain a higher quality than would not be possible to achieve internally for the same costs.

2.4.5 Innovation

Innovation is mostly the primary reason why businesses outsource their activities, so that they can acquire competence and establish a platform within the firm that may enable innovation in the future (Verwaal et al. 2009). This may enhanced the organisation to develop and improve their products or services, business processes or reduces the time products stay in the market.

Hence the organisation motive are different from getting access to new technologies and competences that aim to reach a short term goal to fill up current or temporary knowledge and technology gaps within the organisation. Consequently, innovation motives are a part of the possibilities connected to strategic outsourcing (Harland et al. 2005) where the goal is to ensure the organisations future position and survival in the global market. What makes strategic outsourcing with the motive to create future innovation possible is the increased level of expertise on the supplier level. Outsourcing of activities has shifted from low level jobs to include outsourcing of high level and more problem resolving tasks. Thereby providing the sourcing organisation with new and innovative solutions (Varadarajan, 2009), (Bengtsson and Dabhilkar, 2009).

2.4.6 Competitive advantage:

Innovation is a motive to gain a competitive advantage and to aspire a world leading position within their field. i.e. becoming the number one choice for potential customers. The argument to focus on the organisations core business was put forward by Prahalad and Hamel (1990) and presents a vital step in this direction. Though, when focusing on the core business, non-core activities regarded as non-essential for the organisation may be selected to be outsourced (Prahalad & Hamel 1990).

Applying this, the organisation may gain an advantage compared to competitors when they, through their outsourcing network may come in contact with different/smarter solutions. These different solutions may be presented as the possibility to produce offered item or service at a lower price, which increases the price pressure on competitors acting on the same market. The price pressure may be created when production is outsourced to a supplier that may use scale driven cost efficiencies (Varadarajan, 2009), domestic or abroad. When outsourced abroad, suppliers and producers situated in developing countries possess an even greater cost competitive advantage compared to sourcing competitors situated in developed countries (Farrell, 2006). To challenge this problem, the companies situated in developing countries need to create and offer solutions with different attributes (Varadarajan, 2009) such as offering flexibility, services etc. that may benefit the customer in different ways hence putting aside the temptation of choosing a lower price alternative. Outsourcing in this perspective gives the organisation the possibility to increase responsiveness to the customer’s needs (Bailey et al. 2002).

Furthermore, a competitive advantage may also be created when outsourcing an activity from the organisation will contribute to a higher efficiency in the organisations remaining activities. This was brought forward by Verwaal et al. (2009) who showed that production efficiency advantage was positively related to organisations intent/motive to outsource application services through a third party supplier (Verwaal et al. 2009). The last motive brought up here is connected to the competitive advantage related to the latest management trends. Which is followed by a way of “if everyone else does it, we have to do it too”-thinking. Hence, at times, organisations make outsourcing decisions because it’s considered an acquirement to stay competitive and increase innovation (Brooks, 2006).

2.4.7 Business benefit contracting

Business benefit contracting is a contractual agreement or the last stage of outsourcing arrangement that outlined the vendor contribution to the client, in terms of the associated benefit to the business (Millar 2004), and the payment that the customers are willing to make based upon the vendor’s ability to deliver the services. The associated risks with business benefit contracting based on how the third party providers and the vendor can match the costs with benefits and then apportion the risks.

2.5 OUTSOURCING RISKS

Many organisations failed to evaluate the risk factors associated in outsourcing. For instance, when outsourcing activities such as IT services or capabilities, the outsourcer will assign a substantial part of its operations to the third party’s and setting unrealistic expectations for the outsourcing outcomes. To avoid the likelihood of loss as a consequence of uncertainty in the market, recent studies done by Ross and Westerman (2004) divided these risks in four major categories: strategic risks, relationships risks, vendor/technical risks and transition risks.

2.5.1 Relationship risks

When businesses formed an outsourcing relationship, both the parties should take into consideration the changing circumstances of their relationships during and at the end of the business contracts. The emergence of new technologies has changed the market drastically, and it has opened tremendous opportunities and challenges for businesses. Therefore, since these unprecedented changes and their impact are unpredictable, clients should be very technical when signing a new deal with third party’s that later might not be needed or meet future needs. Risks should be not be under estimated at all cost, especially when signing new and long-term contracts (Ross & Westerman, 2004; Lacity et al., 1995).

2.5.2 Transition risks

All IT outsourcing arrangements includes a transition phase where the organisation, the processes and the staff need to adjust to the new situation. This phase often involves great technical challenges; e.g. linking outsourced applications together with internal applications or transferring technical staff to the vendor. Other challenges are related to dealing with organisational changes, which are likely to appear as the vendor makes changes to the old IT processes. (Ross & Westerman, 2004) It is important not to underestimated the time and money needed during the transition phase. If not calculated correctly these additional costs can easily turn the positive margin of the outsourcing deal into negative. According to the Ross and Westerman (2004) it can particularly become an issue when handling new technologies since the vendor are probably selling undeveloped competencies. Dealing with new technologies can hence be particularly hard for the parties involved.

2.5.3 Strategic risks

As concluded earlier, organisations in general want to outsource what they consider to be non-strategic activities (Ross & Westerman, 2004). But using this approach solely when deciding upon which part of the IT-function to outsource can lead to problems. The risk lies in simplifying the complexity of IT and the uncertainties surrounding it. Since IT often is a highly integrated part of the business it can be hard to identify so called non-strategic activities. The rapid technical advances in this area together with the complexity and unpredictability of the global market make it possible for the commodity of today turn into a strategic advantage tomorrow (Lacity et al., 1995).

2.5.4 Vendor – Client risks

When signing an outsourcing contract the client loses some of its control over the IT function and processes, becoming dependent on the external vendor for delivering the capability needed in the way and the quality agreed upon in the contract. Therefore, the client should always be aware of the risk that the supplier goes out of business or for other reasons not be able to deliver the agreed upon service level. (Ross & Westerman, 2004) Thus it is important to choose the vendor with care in order to minimise the risk of this occurring.

Another issue concerning the vendor selection is the occurrence of a so called bidding war over attractive outsourcing contracts between different vendors. This situation, which at first can seem positive, will in worst case result in vendors making unrealistic bid offers. Sometimes the vendor already knows or discovers by hand that they are unable to recover their business results and operational costs for the near future. This situation is called the “Winner’s curse” and can lead to additional costs, poor service or considerable switching costs for the client. (Kern et al., 2002) It can particularly become an issue when handling new technologies since the vendor are selling capabilities they may not be fully developed. When dealing with new technology it is hard for both parties to weigh the potential benefits against the technical and organisational difficulties that might arise (Ross & Westerman, 2004).

2.6 Outlook in the outsourcing industry

In the some previous research, the effects of outsourcing have been evaluated in different level of performance. Theoretically, outsourcing can be a useful tool to help organisation gaining profit. It is an opportunity to companies learning from outside expertise and making benefit from it. However, in recent study, fewer firms achieved significant benefits than what they initially speculated. In some circumstances, the profitability in some firm decreased in their first year’s of outsourcing. Within the outsourcing industry, cost reduction, innovation ability, benefits from supplier, improving operational capabilities and improving risk management have one way or the other affecting the firm’s products and services. And now it is become more unpredictable for any to forecast what the future strategy hold for outsourcing firms. Incredibly, innovation and reduction of the operational costs are still the main reasons of outsourcing, but many other researchers belied that the trend will change as the importance of this argument will decrease in the next years (Kakabadse & Kakabadse, 2002).


3 METHODOLOGY

3.1 Research Philosophy

Saunders, et al. (2009) state, “a research philosophy depends on the way that a person thinks about the development of knowledge” (p. 83). When looking at knowledge development, it becomes clear that three main schools of thought exist: ontology, epistemology, and axiology. According to Saunders et al (2009) “ontology is the study of the nature of existence or being.” Epistemology, or theory of knowledge, is defined as “the branch of philosophy that studies knowledge and attempts to answer the basic question: what distinguishes true knowledge from false knowledge”. A more recent philosophical development in the study of knowledge has revealed axiology, which studies judgements about value and the role value plays within research (Saunders, et al., 2009). Within these three main research philosophies exist four dominant views regarding the research process: positivism, realism, interpretivism, and pragmatism.

3.1.1 Positivism

Positivism relates to natural sciences and can result in law-like generalizations (Remenyi et al., 1998). During the positivism process, the researcher serves as an objective observer and is independent of the research itself. Jankowicz (2005, p. 110) describes three aspects of positivism: “events exist out there”, “data pertaining to them can be found by anyone who follows the same procedure”, and “truth exists independently of the people who seek it and can be found through logical deduction or through the collection of data which result in unarguable facts.” The process of positivism utilises existing theory to develop hypotheses. These hypotheses are then tested and either confirmed or denied. The replication of such experiments is therefore paramount to the positivism process. Saunders et al. (2009) emphasize the importance of value-free research in the positivism approach. This is a result of the fundamental process of positivism in that the researcher is objective and independent of the research. However, it can be postulated that evidence of a value-free approach does in fact imply the existence of a value position.

3.1.2 Realism

The process of realism relates to social occurrences and the affects they have on individual awareness. According to Saunders et al. (2003, p. 84) “realism is based on the belief that a reality exists that is independent of human thought and beliefs.” Therefore, this philosophy suggests that reality exists outside of and independent of the mind. This view can be said to be the direct opposite of an idealist view, which suggests that the mind and its contents are the only variables that do exist.

3.1.3 Interpretivism

The research philosophy of interpretivism argues against positivism in that it suggests that the world we live in is too complex to apply law-like generalisations. Social constructionism, which is an ontological form of interpretivism, is said to “view reality as being socially constructed” and seeks to “understand the subjective reality of those being studied in order to be able to make sense of and understand their motives, actions, and intentions” (Saunders et al., 2003, p. 84). An important factor to interpretivism is that of empathy, in which the researcher seeks to enter the world of research and understand the motives and feelings of those being researched: the researcher seeks to become part of the research. As opposed to positivism, interpretivism begins with the collection of data and then compares that data to existing theory.

3.1.4 Pragmatism

The research philosophy of pragmatism argues, “the most important determinant of the epistemology, ontology, and axiology you adopt is the research question – one may be more appropriate than the other for answering particular questions” (Saunders et al., 2009, p. 109). Pragmatism suggests that the researcher does not have to be limited to one research philosophy, and that it is in fact possible to employ multiple approaches when conducting research. Tashakkori and Teddlie (1998) suggest “it is more appropriate for the researcher in a particular study to think of the philosophy adopted as a continuum rather than opposite positions.” Whereas other philosophical approaches are concerned with data collection and theoretical analysis, pragmatism is concerned with producing positive results. According to the pragmatism philosophy, this can be achieved through a mixed methods approach.

The research philosophy utilised in this research study is that of objective ontology and positivist epistemology. This research philosophy was chosen due to the fact that the researcher chose to ascertain the effectiveness of outsourcing within Unilever through objective means, rather than subjectively interpreting what was researched. Through the positivist approach the researcher was able to serve as an objective observer and independent from the research. Through this approach the researcher was also able to utilise existing theories in understanding the topic and conceptualising a research objective and question. The results from the study were then tested against the existing theory. Given the mixed method approach chosen by the researcher, it can also be stated that an element of pragmatism has been adopted within this research.

3.2 Research Approach

There are two different approaches that can be utilised when undertaking research: inductive and deductive. With an inductive approach “theory is developed from the observation of empirical reality” (Collis and Hussey, 2003, p.15). Conversely, a deductive approach starts with the relevant theory or hypothesis and focuses on developing a strategy for testing that theory or hypothesis (Saunders et al., 2009).

The research approach that was utilized during this study was that of deductive. This approach was chosen due to the fact that the research philosophy adopted was positivist epistemology, and also because the researcher aimed to compare existing theories with the findings supplied through interviews and secondary data. The deductive approach supported this research study more appropriately than would the inductive approach due to the fact that the researcher began with the theory and sought to test that theory based on data collection and analysis. A deductive approach represents the most common view between theory and research. Results obtained through this approach are developed using logical reasoning (Bryman and Bell, 2007).

According to Robson (2002), five sequences exist when undertaking a deductive approach to research:

Deduction of a testable research question regarding the connection between two or more variables,
Relation of the question to the current research study or question(s),
Thorough testing of the available data to answer research question,
Analysis of results generated through data analysis, and
Reevaluation of the theories with regard to results generated through testing.

3.3 Research Strategy

A research strategy is a general plan or road map of how the researcher intends to answer the research question(s) (Saunders et al., 2003). When looking at the research strategy, six different methods can be utilized: experiment, survey, case study, action research, grounded theory, and ethnography. The specific research strategy type used during the research will be dependent upon the specific objective(s)/question(s) of the research.

The case study strategy was adopted in this study. Case study is defined as “a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence” (Robson, 2002, cited in Saunders et al., 2003, p. 93). Morris and Wood (1991) suggest the case study strategy if the researcher “wishes to gain a rich understanding of the context of the research and the processes being enacted.” The case study strategy was chosen for this research project due to the fact that the researcher utilized both secondary and primary data when evaluating the research objective(s)/question(s). Because the research aim of this project was to ascertain the extent to which outsourcing has affected Unilever’s competitive advantage, the research strategy needed to be one that allowed the research to be “descriptive”, “illustrative”, “experimental”, and “explanatory” (Scapens, 1990). Therefore, the case study strategy was utilized.

Table 1: The different research approaches utilized in this study

StrategyAIMSAMPLEDATA COLLECTIONMETHOD OF ANALYSIS
Semi-structured interviews
Ascertain manager’s view regarding effectiveness of Unilever’s outsourcing activities2 UK relationship managers in separate departments responsible for managing outsourcing contracts (Pranab and Jamil).Semi-structured interviewsContent analysis
Secondary data analysis
Compare relationship manager’s views with existing theoriesRelevant journals, company information, websites, etc.All relevant, accessible meansContent analysis

3.4 Data Collection Methods

There are five main ways that data can be collected for research projects: observation, sampling, secondary data, questionnaires, and interviews (Saunders et al., 2009). Contained within each of these five main methods are various sub methods that can also be utilized when collecting research data. Saunders et al. (2003, p. 93) suggest that the methods of “questionnaires, interviews, observation, and documentary analysis” are best suited for a case study strategy.

3.4.1 Data Choice

The data chosen to be collected for this research project consisted of both primary and secondary data. The primary data for this project was collected through semi-structured, face-to-face interviews. Secondary data was also gathered utilizing organizational records and data, journals, web sites, industry statistics and reports. The approach of choosing to use both primary and secondary data was done in an effort to ensure triangulation throughout the research process. This approach also helped in the efforts to guarantee the aspects of reliability, validity, and generalizability.

3.4.2 Sampling Method

For the purposes of this research project, a non-probability sampling method was utilized. Due to restrictions imposed upon the researcher, it was not possible to interview all relationship managers or a random selection of managers within Unilever. Therefore, it was necessary to single out two specific managers to be interviewed. These individuals were chosen on the basis of previously existing access between the managers and the researcher. As mentioned above, the researcher also chose to use secondary data through gathering public and academic opinion regarding outsourcing activities within Unilever.

3.4.3 Data Collection

Primary data for this research project was collected through conducting semi-structured, face-to-face interviews. Interviews were conducted with two UK relationship managers within Unilever. The interview information was gathered using a voice recorder and then transcribed at a later point in time.

Secondary data for this research project was collected through extensive Internet research regarding information on Unilever and outsourcing. This information was gathered, analyzed, and collated accordingly. Two different managers were interviewed (Pranab and Jamil), and in order to be able to interview them effectively, the semi-structured questionnaire was divided into two major sections. The first one was on the background of outsourcing within Unilever, and its nature within the company. The second was on the potential benefits or threats in outsourcing. Pranab was interviewed on the nature and background of outsourcing, while Jamil was interviewed on benefits and potential threats, just so the researcher could use her time more effectively and obtain more information in the process.

3.5 Data Analysis

Content analysis was used when analyzing the primary and secondary data gathered during this research project. This technique was used due to the fact that the information being analyzed was qualitative in nature and needed to be authenticated across a large cross-section of resources (Saunders et al., 2003).

Qualitative analysis was also utilized during this study. Qualitative analysis is described as “the processes and procedures whereby we move from the qualitative data that have been collected into some form of explanation, understanding or interpretation of the people and situations being investigated” (Saunders et al, 2009). For these purposes the researcher chose to gather information from a smaller, but more focused group of individuals within Unilever. This data was then analyzed using a qualitative method for deeper and richer information. The result of such analysis was categorized into three separate groups according to background on outsourcing within Unilever: outsourcing background and nature, potential benefits and likely threats. This categorization allowed for more content rich analysis and support for the overall research objective(s)/question(s) (Saunders et al., 2003).

3.6 Access

The researcher has an existing relationship with a relationship manager employed at Unilever UK. This relationship has afforded the researcher access to two other relationship managers within Unilever UK that have been utilised for interviews. Minor access to company information and records has been granted to the student for the purposes of this research project.

3.7 Reliability, Validity and Generalisability

3.7.1 Reliability

Quinton and Smallbone (2006, p. 129) postulate, “Reliability is sometimes seen as an assessment of whether the same findings would be obtained if the research were repeated, or if someone else conducted it.” Saunders et al. (2009, p. 252-253) suggest certain reliability issues associated with semi-structured and in-depth interviews: “interviewer bias”, and “response bias.” Reliability issues associated with secondary data relate to the source of the data and the authority and reputation associated with that source.

The researcher took every precaution necessary in order to avoid issues associated with reliability, including: interview preparation, proper education of interviewees prior to interview, listening skills development, frequent tests for understanding, and proper investigation and citation for secondary sources. However, certain reliability issues can be identified in relation to this particular research project. Given the small number of individuals interviewed during the study, it could be suggested that the information produced may not be a true reflection of what the research managers actually feel in relation to the questions asked.

3.7.2 Validity

According to Bryman and Bell (2007, p. 164), “validity has to do with whether or not a measure of a concept really measures that concept.” Six major threats to validity have been identified: history, instrumentation, ambiguity, testing, maturation, and mortality (Robson (2002, cited in Saunders et al., 2009). When considering interviews, Sykes (1991, cited in Saunders et al., 2009, p. 253) suggests “the flexible and responsive interaction which is possible between interviewer and respondent(s) allows meanings to be probed, topics to be covered from a variety of angles, and questions made clear to respondents.” Validity issues associated with secondary data are mainly concerned with the information being provided actually relating to the research objective(s)/question(s). Given these issues, it is the intention of the researcher to utilise only pertinent and up-to-date information in relation to this research project.

3.7.3 Generalisability

Saunders et al. (2009, p. 102) describe generalizability, as “whether findings may be equally applicable to other research settings.” Generalizability is a concern of the researcher due to the fact that only a small number of relationship managers have been interviewed for this research project. It is unknown whether the information gained during the interview process can be generalised across all Unilever relationship managers. To this end Marshall and Rossman (1999) argue that during case study research “the ability to relate the research project to existing theory will allow the researcher to demonstrate that the findings will have a broader significance than the case or cases that form the basis of the research.”

3.8 Ethical Issues

Ethics is concerned with a researcher’s behaviour and how that behaviour affects those involved in the research process. Diener and Crandall (1978) have divided research ethics into four main areas: “whether there is harm to participants”, “whether there is a lack of informed consent”, “whether there is an invasion of privacy”, and “whether deception is involved.” Although previous access had been granted to the researcher to conduct this body of research, certain ethical issues may arise as follows:

Organisational reservations regarding the publication of findings, and
Concerns of relationship managers regarding personal information.

To this end, the researcher has taken every precaution to protect the confidentiality of the persons involved in the research process. The researcher has also agreed to adhere to the specific ethical guidelines outlined by the University.

3.9 Limitations of Research

The fact that the researcher had access to, and was only able to interview two UK relationship managers may prove to be a limitation for this research project. Given the time frame for the project, and the limited access granted to the researcher, it was not possible to interview more relationship managers. More interviews would have resulted in a greater amount of data. This increase in data would have only added to the validity of the researcher’s findings and conclusions.

Another limitation recognised by the researcher is the lack of available primary data from Unilever’s outsourcing partners. Whilst these partners do exist, it was not possible for the researcher to gain access to these individuals given the time frame of the research project and general issues regarding company access. Although extensive secondary data has been reviewed and provided in relation to these outsourcing partners, the research would have been greatly enhanced with access to primary data in the form of semi-structured, face-to-face interviews with some of these outsourcing partners.

Although extensive secondary data was reviewed and presented for this research project, there were certain secondary data requests made by the researcher that had not been received by the time this dissertation project was to be completed. It is the researcher’s belief that this information would have proven valuable to the project and enhanced conclusions and findings.


4 RESULTS

4.1 INTRODUCTION

The following chapter outlines the results that have been gathered from semi structured interviews with 2 relationship managers within Unilever, that are responsible, or partially responsible for managing outsourcing contracts, especially within UK and Ireland. Additional results are also included from secondary data gathered through journals and news articles regarding the effects and progress of outsourcing within Unilever, with the aim of answering the research questions and accomplishing the research objectives.

The results chapter would be subdivided according to the three major objectives of the research, which are to ascertain the nature of outsourcing within Unilever, the potential benefits that have accrued as a result of these contracts, and finally, the likely threats attributable to such contracts. Information for all three sections would be sourced mainly from the semi-structured interviews, including several quotes directly from the interviewees. Additional information from secondary data would also be included to add authenticity and / or depth to the findings.

4.2 OUTSOURCING BACKGROUND

4.2.1 Outsourcing in Unilever

Unilever began its outsourcing strategy in 2005 as part of a “transformative one Unilever strategy”. Unilever companies in different European countries had different organisational processes, infrastructure, financial systems and HR policies. “On our own, these countries cost a lot of money to run, and a number of our services were overlapping. We had several enterprise resource planning (ERP) systems, about 80 of them, all conducting the same processes in different ways” – Pranab

Implementing shared services across the European subsidiaries was seen as a way of driving down cost and streamlining business processes. Significant cost savings of up to ?600 million yearly across Europe was forecasted.

“Outsourcing works just the way outsourcing is meant to work elsewhere. We see our service providers as partners, and not as third party suppliers, because we believe we should work together with them if we are to achieve the sort of results we need to achieve. We have drawn extensive contracts, trained them appropriately, have regular meetings, and ensure that we have liaison managers at every level of the outsourcing relationship, so as issues arise, we fix it. We try not to allow anything creep up unwanted that could disrupt our operations.” – Pranab

4.2.2 Core and Non Core Functions

Core functions have been identified as:

Supply Chain
Marketing
Manufacturing
Sales
Research and Development.

According to Pranab, “…these are the services that are crucial to the profit line of the business, they determine how we manufacture our products, market them to the end users, sell them to wholesalers and retailers, and innovate on existing products. Unilever has to perform these functions; we cannot give them to an external party. They contribute to what we really are.”

Non-core functions have also been identified as:

Finance
Human Resources
Procurement
Technology

These functions are usually uniform across most FMCG (Fast Moving Consumer Goods) companies. “…Finance is mostly about purchase to pay and general accounting. Human Resource is about payroll administration, recruitment amongst others. Procurement is how we source our goods from suppliers, and Technology refers to how we manage our IT infrastructure. These are support functions for our business, and we need them to work well, however, we do not necessarily have to do them ourselves.”

Third party companies that specialise in these services are seen as being better capable of performing these services than Unilever. Outsourcing has also been seen as a method through which Unilever could implement shared services across its entire sister companies in Europe. Before the outsourcing agreements started, Unilever was largely decentralised, however by signing up a single partner to undertake all these tasks, these functions can now be handled by a single service supplier, which supposedly promotes streamlined processes.

4.2.3 Managing Relationships

Unilever manages supplier relationships by liaising closely with partners. Outsourcing suppliers are called partners not service providers, and regular meetings are held with each supplier at every level of management including ground level with individuals that actually do the work. Meetings are still held when there is no significant news. “…We believe this has helped deepen our relationship with our partners and also helped create a working environment where problems don’t just creep up behind us when we are not looking.” – Pranab

Relationships are monitored closely by following due process, conducting regular meetings, and by considering service providers as partners not suppliers. “…That way, I believe we are able to constructively work together. Identify problems and tackle them before they become an issue.” – Pranab

4.2.4 Processes and Due Diligence

A number of top organisations bid for the outsourcing contract when Unilever initially set out to outsource their non-core functions. Unilever set out the following criteria for companies aiming to win the outsourcing contract:

Experience
Reputation
Previous relationships.

These were used in ascertaining what contractors to use.

Accenture was used for Applications and Infrastructure outsourcing, and also for Human Resources, because both companies had a relationship spanning over 10 years, and Accenture had previously assisted Unilever with services such as Management and Technology Consulting.

IBM and HP were also chosen in other regions due to their track record, strong reputation and their size relative to Unilever.

Guidelines are present on managing supplier contracts, however a hands-on approach is preferred and utilised in ensuring that each guideline works. Multiple weekly meetings at all levels of the outsourcing agreement are conducted, from supervisors to management.

Half year and yearly review are also conducted on outsourcing contracts, where partners are expected to present how they have assisted Unilever in efficiency and cost reduction. The partners assist the organisation in evaluating whether or not contracts or contract terms should be modified, and also on how the company could achieve more going forward.

4.3 OUTSOURCING BENEFITS

This subchapter outlines the extent to which Unilever has achieved the following benefits from outsourcing.

4.3.1 Cost Savings

“Well, from what I can think back to, the main aim of the outsourcing contracts in the first place was to save cost. We felt that if we shared these common services in just one centre across Europe, we would be able to reduce overlapping cost. The estimated cost savings back then were about $900 million or so, and I believe we have made steps towards achieving those goals…” – Jamil

Outsourcing partners are much cheaper cost wise than when these services were done in house. Most of these functions have also been moved to lower cost bases in South East Asia and Latin America.

Computerworlduk.com (2008) in their article on the same of Unilever’s Shared Services centre to Cap Gemini cite that Unilever announced the programme had saved them ?740m over the last 12 months.

Outsourcing consultancy TPI found that the projected 60% savings that Unilever aimed to achieve may be highly inflated. Professional fees, severance pay and government costs could reduce the costs significantly to 15%. – InfoWorld (2006)

4.3.2 EFFICIENCY

Prior to the outsourcing agreements, Purchase to pay processes that usually took about 3 – 4 weeks from inception to completion is now much faster. “…This meant that we usually had to wait long times before these were done, and these processes were much different in different European countries. In some countries, processes could take up to 6 weeks, while some others like the UK were more efficient. These affected the whole group as a whole, Unilever as a whole could not be efficient on one part and inefficient in others…”

“…Now that we have one partner handling the finance functions across the whole group, I can say these functions are now more efficient, there is no wastage, and we can derive more from them.” – Jamil

4.3.3 INNOVATION AND QUALITY IMPROVEMENTS

Prior to outsourcing agreements, the systems that ran Finance, HR, Procurement and Infrastructure operations were based on recommendations from the technology department, and the business case presented to senior managers. This process usually followed due process, which saw some vital technology never being implemented. Updates usually occurred once in several years, because the business never thought they needed rapid updates.

“But now that we have external parties handling our infrastructure, technology, finance, HR and procurement systems. Accenture has the best in class practices for these services and they are much more improved than what we could have done ourselves. Since this is their core function, this is what they do best, and they do it for several other clients, we know that they are in the right hands. For instance, they have partnerships with SAP and Oracle and through that they can deliver the best updates for the services. The manner in which they conduct our businesses is far better than we could have done ourselves. We believe this partnership has brought results that are far broader than what we anticipated.” – Jamil

4.3.4 FOCUS ON CORE BUSINESS

“Oh well, I cannot say without a doubt, the way in which outsourcing has enabled us focus on core businesses. But what I do know is that we do not have to worry about the finance, technology, human resources and procurement functions as much as we did initially. Now all we have to do is have an outsourcing department that deals with our service providers across all levels, and ensures they are conducting their business appropriately, and whatever issue we have is resolved. By not having extensive non-core departments as such, we are indeed able to focus our strategic activities on those functions that matter most, which are supply chain, marketing, sales amongst others.” – Jamil

4.3.5 OPERATIONAL EXPERTISE

“Well from what I have learnt, since our service providers have taken the time to learn much about our business, they are much better than us at performing these functions now. They have much more experience and resources at their disposal to conduct the same functions. In a situation whereby we would have had to send a couple of workers on training to learn a new practice, now all that is covered in our contract agreements, and the service provider sends their people on training so they could deliver better to us.” – Jamil

4.3.6 SCALE

“Since we have adopted a shared services centre in the Europe, we have been able to extend these services to other European countries that were part of the initial agreement. Because our outsourcing partners have been able to understand our business and conduct these functions in a way that is uniform across all businesses, it is now much easier for them to extent it to a new country. All they need to do is just transfer relevant staff from there, and have their infrastructure transferred. With outsourcing, we are able to conduct the same service on a larger scale.” – Jamil

When asked if there were any other potential benefits, Jamil stated that “You have identified most of them, I would just like to state that it was a strategic move that was crucial to our one Unilever project, and even without cost benefits, it still helps all parts of Unilever Europe work together, and that is something we are happy about. We have been able to derive substantial benefits from outsourcing.”

The Unilever EMEA_IBM Finance and Accounting Outsourcing deal secured the top position in “2008 FAO Research Awards of Distinction”, which is awarded by FAO Research, a research firm that focuses on Finance and Accounting outsourcing agreements. According to the firm, the FAO contract is “a ground-breaking success thus far, with the potential to expand significantly within the entire Unilever organization.” – Globalservicesmedia.com (2008)

4.4 OUTSOURCING RISKS

This subchapter outlines the risks and threats that have arisen as a result of outsourcing in Unilever.

Labour and work disruption is a considerable factor when Unilever decides on whether they are going to outsource to service providers. The agreement with IBM affected about 800 workers, while the Human Resource BPO affected about 1,500 workers across Europe. Unilever found alternative employment and proposed early retirement for these individuals, without which they may have had significant labour disruptions.

“We also ensure that every part affected is informed once we have agreed on any outsourcing agreement, so they are catered for immediately and without any sort of disruptions. We conduct change management operations within the company, we do not consult with anyone else for that because we have learnt from our mistakes and ensured that we cater for staff appropriately to prevent any such things from happening again. In 2005 we did have some staff disruptions, but not now that we have learnt from our previous mistakes.” – Jamil

According to Reg Bull, Group Senior VP of Global HR transformation in Unilever, stated that most line managers did not want Unilever to outsource its HR. Apparently, there was a wide consultation before the group signed its Accenture HR BPO, “We did personal interviews with all board members and executives and went to our clients, asking them what they wanted… But most of our line managers didn’t want to do this. If you have a ratio of 1:67 and a tame HR person just outside the room, why would you want to?” – www.hroaeurope.com (2006)

The Accenture HR BPO contract impacted about 3,300 Unilever HR employees globally, and up to 40% were directly impacted, with a considerable amount losing their jobs (Unilever Global Media Relations Vice President – Time Johns) – physorg.com (2006)

Contract management is also a very serious risk while outsourcing “…because if we do not maintain our contracts appropriately, then it is possible that a conflict of interest may arise between our partners and us and we do not want that. I always participate in weekly meetings between our team and their team to ensure that they are functioning well, they have everything they need, and adopting the right processes to ensure everything is done.” – Jamil

Contract reviews are conducted twice yearly to ensure everything goes smoothly. “At first when we first started these outsourcing contracts, it was difficult because we had to learn a lot of things fast, but now, we have built extensive relationships with our partners and used that in making things work good.” – Jamil

No significant security threats have been recorded so far, or were known by Jamil. Every supplier staff is vetted, and information that is provided to them is low level security information. The only significant issue is that employee information could be lost or mishandled. In the event where that happens, procedures have been established to manage them.

The outsourcing relationship team is always in contact with their suppliers so communication issues do not arise. With respect to lack of innovation, Jamil states “That is not an issue we suffer from here. On the contrary, due to our outsourcing agreements, our partners adopt a much better process than we could have adopted on our own.”

4.5 FUTURE OUTSOURCING IN UNILEVER

The functions that are outsourced are non-core functions that do not contribute directly to improving market share against competitors, however they may contribute indirectly. “Looking at the wider picture, we believe that outsourcing would help us work better together across the whole of Europe. By doing that, we believe we can achieve better results, reduce cost significantly, and that to me is the main definition of competitive advantage. So in terms of cost reduction, outsourcing is great.” – Jamil


5 DISCUSSION

5.1 Research design

The objective of this research was focused on answering the research question:

“To what extent has outsourcing with single or multiple partners contributed or disrupted the drive for sustainable competitive advantage within global multinational firms; what are the potential benefits attributable to outsourcing within companies, and how could possible disadvantages be identified and subjugated?”

A detailed analysis of existing literature on outsourcing was reviewed along with data being collected from the Unilever through semi-structured interviews. The semi-structured interviews with the UK relationship managers provided a background on the outsourcing in Unilever and also gave a rich insight into the benefits and risks observed while outsourcing various functions in the organisation to various service providers outside the firm.

This chapter attempts to bring to answer the research question as described above in the light of the primary findings from the interviews and the secondary research data.

5.2 Research Answer

The research question can be broken down and answered in three sub-sections as below.

5.2.1 The competitive advantage in outsourcing

Unilever realized the need for a transformative strategy due to multiple organizational processes within the same global firm. This realization led to a need to cut down on unnecessary expenses in managing multiple ERP systems and services. Outsourcing was adopted as one of the major steps taken towards achieving a unified global organization, which would help in gaining competitive advantage.

As an initial step towards outsourcing, the firm identified and separated the core and non-core functions within the organization. It is quite important to identify the critical differentiators that can help the company gain competitive advantage and those which can be safely outsourced.

As per the findings, Unilever identified the core functions that needed to be retained within the firm while non-core functions such as human resources, finance and information technology were outsourced. This is quite in line with the strategic outsourcing grid framework as outlined by Willcocks, et.al 2002. The functions that are “useful” “commodities” can be outsourced safely to third party service providers.

After separating the core and non-core functions, Unilever proceeded to outsource the services to multiple service providers rather than relying on a single provider. This choice of selective outsourcing has its own advantages and risks associated with it. Accenture was the preferred vendor for Applications and Infrastructure Outsourcing due to its experience and reputation in the industry while IBM and HP were also chosen in other regions. This provides significant competitive advantage, as the vendors are able to provide their best in their specialized areas due to their skilled resources. Lacity and Willcocks (2001) advocated the advantage of a reduced risk as it is spread over multiple vendors.

The IT vendors have their development centres in offshore locations which lead to reduced costs and also provide access to skilled workforce which provide a high quality of service. As per Harland (2005), the supplier’s highly sophisticated resource base acts to the advantage of the outsourcer, which is Unilever in this case. Innovation is at the core of these IT vendors as they develop smarter ways to solve complex business problems. This further helped Unilever in gaining competitive advantage over its competitors in obtaining solutions at a lower price.

Also, as seen in findings, both Application Outsourcing and Human Resources functions were outsourced to Accenture. This was based on yet another important factor – prior experience. 10 years of relationship between Unilever and Accenture has led to growth of mutual trust that is indeed a major factor towards successful outsourcing relationships.

However one of the respondents stated that as the functions being outsourced were non core, there would be no way of directly measuring its impact of sustainable competitive advantage, especially if these were calculated based on market share or profit growth. Even though cost reductions of up to $900 million were witnessed over a couple of years, that could only be seen as a significant contribution to cost advantage if it resulted in increased market share or the acquisition of valuable, rare and inimitable assets (Buckley, 2009).

Buckley further states that sustainable competitive advantage is related to the acquisition of resources and core competences, and these are related to the competency of the core functions within the organisation. Therefore, if an organisation such as Unilever were to improve on these core functions, then it could be seen as contributing directly to competitive advantage. However, since outsourcing contributes to non-core functions, then it could be seen as a way of indirectly ensuring the organisation has the manpower and resources to focus on core functions, which would then indirectly contribute the competitive advantage.

In answering the first sub question, on the extent to which outsourcing has contributed or disrupted the drive for sustainable competitive advantage, the results from the semi structured interviews and accompanying literature review, has inclined me to conclude that outsourcing has indeed contributed. This contribution is with respect to cost reduction and indirectly allowing the organisation to focus on its core functions, which are indicative, but not necessarily affirmative contributions to competitive advantage within organisations. Therefore, though the contribution is present, it is not necessarily to a large extent.

5.2.2 Benefits of outsourcing in unilever

The findings also provided a detailed account on the benefits that are evident from outsourcing its non-core processes. In line with Harland’s (2005) proposal, Unilever has significantly reduced the operational costs. In fact, running similar processes in various groups were expensive. With the introduction of outsourcing, common services to all the subsidiaries across Europe were unified into a single centre.

Another major reason for cost-reduction comes from the third party service providers. Technology firms like Accenture and IBM have a number of clients to whom they provide similar services and thus they have a larger scale of production. This enables them to provide quality services to clients at lower rate.

As described by Weigelt (2009), this in turn helps the service provider to further specialise in their domain (technology services in the case of Accenture and IBM), thereby leading to a more focussed and efficient solutions. Thus better quality solutions are obtained from the service provider than those produced in-house by the outsourcer. Moreover these firms have stronger contacts with the various experts in the industry that provide support to these technology firms in high-technology product support like SAP, Oracle. Hence while issue resolution, the partners are able to collaborate well with the product support team of these companies in providing a faster and quicker means of resolving issues. Also Unilever has chosen the experts in the field based on prior experience, which provides them the advantage of the best in the technology industry.

In fact, the Unilever managers admitted that their partners have better processes in the system, which was better than the one in-house, and hence the quality of the deliverable was of high quality. An important point in this aspect is that outsourcing can lead to disruption in the existing organisational processes in the firm. The well-defined processes of the partners helped Unilever in the transition phase where the outsourcing partners supported Unilever throughout the change management process within the organisation while helping the managers and staff at Unilever to adjust to the changes as part of implementation. These helped to reduce the impact of change management within the organisation. From the Unilever perspective they had a set of relationship managers who managed the outsourcing relationship with multiple partners, which has significantly helped in the successful management of the outsourcing. All the teams had constant and easy access to information and reporting data from the vendors, and this helped them in measuring the success of the solution delivered. Also, conducting due process helped Unilever managers to continuously monitor the performance and activities of the outsourcing partners.

Also, the impact of Globalisation has had profound impact on cost-reduction in outsourcing. Movement of development centres to lower cost bases is quite common these days. With access to superior technology infrastructure and communication facilities, co-ordinating of offshore-outsourced projects is easier. Developing countries have skilled resources that are technical expertise in developing software applications. The cost of hiring software programmers in countries like India is cheaper as compared to hiring technology worker in UK or USA.

Technology firms like Accenture have development centres based in India, which has low labour costs and high skilled resources. Thus the service providers are able to provide services at a reduced cost. This has contributed to the significant cost savings that Unilever has enjoyed while outsourcing its processes.

The study findings reveal that the though the initial cost savings were found to be 60% these were not entirely correct. This calls for proper Outsourcing evaluation techniques to assess the accurate returns obtained in outsourcing. This reveals the hidden costs in outsourcing, which must be accounted for while calculating the actual cost savings. As per InfoWorld (2006) findings, in the case of Unilever these included professional fees, government costs etc. Unilever conducted half-yearly review and other reviews on a regular manner to ensure that the entire outsourcing function was operating as expected. This is indeed is a quite an important aspect to be considered while managing outsourced relationships. However, the costs that creep up in outsourcing unknowingly need to be taken care of. The initial cost savings data released by TPI did not consider many of the hidden costs. This calls for the need for the choice a suitable evaluation technique for assessing the actual benefit of outsourcing function. Also Unilever had a dedicated outsourcing department that managed all aspects of outsourcing with multiple partners. Maintaining this department would require a significant investment and thus needs to be accounted for while calculating the cost benefits.

Efficiency is another major benefit that was evident as a result of implementing outsourcing at Unilever. The studies show that outsourcing led to a single service provider handling one process (e.g. finance) across the entire group, which improved the efficiency of the organisation as a whole. Also, this also led to another benefit, which is scalability – the entire European group worked in a unified manner that strengthened the operations of the firm globally. This in turn adds to the competitive advantage. Unilever managers were quite satisfied with the unified operations of the European countries. As per the findings, the purchase to processes which were initially quite time consuming in many countries are now quicker as the entire process across all the countries are being handled by one outsourcing partner. Thus, the outsourcing partner is able to streamline the processing times in all countries by leveraging their core capabilities and expertise in the process.

The market knowledge and expertise of suppliers in their specialisation is quite high as compared to that of the outsourcer if it chose to manage the non-core processes in-house. Since the service providers are constantly updated on the latest technologies and processes, they are able to provide a better solution that is quite innovative and efficient. Also as the study indicates, the processes followed by the partners were “top of the class” as they studied the business of the Unilever very well. Here there is an opportunity for knowledge management between the client and supplier which can strengthen the relationships between the client and supplier. The constant knowledge transfer between the client and the service provider in mutually to both parties and both of them gain from the initiative. Managing common knowledge management pools is the trend these days which help in faster resolution of issues and streamline the support processes.

Finally, Unilever was able to focus on their core competencies such as Supply Chain, Marketing, Manufacturing, Sales, Research and Development. The non-core processes were outsourced to their partners who were good at the functions like HR, IT and Finance. Of course, managing the outsourcing relationships is vital to successful outsourcing delivery. By outsourcing the necessary evils, the organisation was able to focus more on their core business areas and refine them further to their advantage. Willcocks et. al (2002) refers to this as the recommended strategy in outsourcing decision making as many firms have suffered in outsourcing many functions which are the core competency of the firm itself which can lead to adverse effects.

Another benefit of managing the core business areas in-house is that it significantly reduces the security risks. As per the relationship manager of Unilever, the information shared to the partners of Unilever are low level information and have less potential to cause harm. However, Unilever admits that some employee information does get lost or mishandled. Unilever has proper management measures in place to ensure that these are handled appropriately.

5.2.3 outsourcing disadvantages at unilever

Though outsourcing some of the processes at Unilever resulted in cost benefits and other advantages, there were also some risks involved in the process. Some of them are quite in accordance with the literature on outsourcing.

The major risk is the rise of employee discontent and labour disruption in outsourcing. At Unilever, the outsourcing led to loss of many jobs. However, the firm was quite prepared for this issue; also it had some previous learning experience which helped in decision making. The decision to provide voluntary retirement for some employment provided some pacification for a group of employees. Apart from the actions taken, the important step taken by Unilever was to communicate well in advance about the decisions to all affected personnel. Effective communication at the right time is indeed important for maintaining employee-employer relationships within the firm. Also arriving at a unanimous decision while considering all the opinions is a major task, especially in global firms like Unilever.

Hidden costs in outsourcing has been briefly mentioned above, however, these need to be analysed carefully while implementing outsourcing. Implementing new technology may disrupt existing organisational processes which can incur costs. Also, training personnel in using new IT systems, co-ordinating with offshore teams etc. are can add to costs. Apart from this managing vendors is requires effort and time. In the case of Unilever, the outsourcing to multiple suppliers increased the overhead of managing the contracts. Processes were laid down to manage the contract with each supplier and regular meetings helped in building proper client-supplier relationship. The idea of considering the suppliers as partners instead of third party service providers further strengthens the relationship. The partnership model is increasingly being recommended in major global outsourcing projects (Willcocks, 2002).

A significant point noted is that the though lack of communication is considered as a risk in most outsourcing projects, Unilever has maintained excellent communication and regular contacts with the partners which has led to successful outsourcing and timely delivery of services. This in turn has improved the trust between both the parties.


6 CONCLUSION

In this paper, an analysis has been done to investigate the positive and negative aspects of outsourcing in Unilever. An attempt has been made to analyse the core-competency and non-competencies of firms who want to outsource their work. The different types of outsourcing has also been analysed in detail. It has been concluded that the two major types of outsourcing are IT and BPO. Lots of companies including Unilever have realized the importance of outsourcing their work to multiple vendors so as not to be overly reliant on one particular vendor. Multi-sourcing has also been found to be cost effective and contributing to more benefits. Companies are selecting their vendors on the basis of the vendor’s specialised area of work and by doing this they able to control the whole work process also.

Some of the major benefits of outsourcing for Unilever are the cost savings and better work efficiency. It has also contributed to innovation and quality improvements for the company. Furthermore it has enabled the company to focus on their core business area. All these have contributed to significant competitive advantages for the company. The manner in which Unilever manages their supplier relationships and how its outsourcing strategy has contributed to its competitive strategy has been analysed and discussed in detail. While lots of companies are outsourcing their work, one of the most important lessons to be learnt from the way Unilever has outsourced their work is the way they manage their supplier relationship. If a company wants to reap maximum benefits from outsourcing then the way they manage the supplier relationship is of prime importance.

The decision making matrix has been used so as to analyse the rationale of Unilever behind going for multiple vendors for outsourcing their work. Interviewing the employees of Unilever provided a rich insight into the outsourcing strategy of the company. On the basis of the information gained from these interviews and other industry wide research an attempt has been made to analyse the benefits and risks of outsourcing strategy at Unilever. The qualitative research was of immense assistance to gain a holistic view of the outsourcing strategy of the company. The semi-structured interviews made the interviewees talk about their views and opinion in detail. It helped in gaining knowledge about the things which were not planned initially.

6.1 Recommendation for Unilever

Following are some of the recommendations for Unilever:

Method of IT evaluation needs to be reconsidered: One of the present issues in evaluating the contribution of IT is that the companies are not investigating the potential risks and costs associated with IT outsourcing. Even in the case of Unilever while one of the studies revealed that the initial cost savings for Unilever was more than 60%. While the knock-on costs associated with operations and maintenance has been ignored which needs to be incorporated while performing IT evaluation.
The intangible benefits of outsourcing need to be evaluated so as to get a complete picture.
How Unilever has managed to align their business strategy with their outsourcing strategy can be researched further. Although outsourcing has helped Unilever to gain considerable competitive advantages, in order to sustain these advantages both the organisational business strategy and outsourcing strategy needs to be aligned properly.
The time-scale of the potential benefits also need to be considered. Unilever started outsourcing their work in 2005 only while it can take many years for a company to analyse the benefits of outsourcing completely. Over a longer time-period the impact of outsourcing can go in both the positive as well as negative side. This can be another potential area of research which will require a considerable time from the side of researcher also.
Unilever should also make an attempt to take into consideration about how the employees of the company perceive the changes brought by outsourcing with regard to their work culture and its potential impact.

6.2 Research Recommendation

Following are some of the recommendations for further research on the topic:

One of the current developments that can have a potential impact on the growth of outsourcing is the issue of globalisation and protectionism. While the emerging economies like India and China are supporting globalisation, developed economies like US are taking a stance of protectionism. The current global economic situation has been one of the major influencing factors for such a difference of opinion between the major economies of the world. While there is no doubt that outsourcing is here to stay for long and companies cannot do without it, the direction in which the current debate goes which decide the future of outsourcing.
A further area of research would be to incorporate the views of the vendor side also. This will provide a complete picture about outsourcing by including the views of both the client and the vendor side.


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8 APPENDIX

8.1 Appendix 1

This section contains the questions of the semi-structured interviews of the Unilever employees.

SEMI-STRUCTURED INTERVIEW

PART A

OUTSOURCING BACKGROUND

– Could you kindly give a brief explanation of how outsourcing works within Unilever UK, and across Europe.

– What are the Core and Non Core business functions across the group, and how does Unilever choose what functions need to be outsourced, and what functions should be run internally.

– What different forms of outsourcing agreements are currently being utilised across the group, and could you kindly discuss the main use and effectiveness of these different agreements.

– In what manner has Unilever managed supplier relationships, and how do you believe these have either contributed to, or disrupted the potential effectiveness of these outsourcing agreements.

– What processes, due diligence and procedures does Unilever undergo:

Before outsourcing contracts are awarded
In managing outsourcing contracts

PART B

POTENTIAL BENEFITS AND THREATS

– To what extent has Unilever achieved the following benefits from outsourcing:

Cost savings
Efficiency
Innovating
Focus on core business
Quality improvements
Operational expertise
Scale
Any other potential benefits

– To what extent are these disadvantages possible, or occurred in the past as a result of outsourcing contracts:

Labour and work disruption
Contract management
Security threats
Communication
Lack of innovation
Any other difficulties

– What can you say about the future role of outsourcing as an enabler of competitive advantage within Unilever?

8.2 Appendix 2

This section contains the responses of the employees of Unilever.

SEMI-STRUCTURED INTERVIEW

8.2.1 PART A – PRANAB

OUTSOURCING BACKGROUND

Could you kindly give a brief explanation of how outsourcing works within Unilever UK, and across Europe.

Outsourcing within Unilever started fully in 2005, as part of our transformative “one unilever” strategy. We had different Unilever companies in different countries of Europe, all of whom had different processes, technological infrastructure, financial systems and human resource policies. On our own, these countries cost a lot of money to run, and a number of our services were overlapping. We had several enterprise resource planning (ERP) systems, about 80 of them, all conducting the same processes in different ways.

We felt that if we found a way to implement shared services across Europe, then it would be possible for us to drive down cost significantly and streamline our business. The potential cost savings of such a project was rendered at over ?600 million yearly across the whole of Europe. So we felt it was a good strategy going forward.

Outsourcing works just the way outsourcing is meant to work elsewhere. We see our service providers as partners, and not as third party suppliers, because we believe we should work together with them if we are to achieve the sort of results we need to achieve. We have drawn extensive contracts, trained them appropriately, have regular meetings, and ensure that we have liaison managers at every level of the outsourcing relationship, so as issues arise, we fix it. We try not to allow anything creep up unwanted that could disrupt our operations.

What are the Core and Non-Core business functions across the group, and how does Unilever choose what functions need to be outsourced, and what functions should be run internally.

Good question. Off the top of my head, I am going to try to distinguish the functions of Unilever between core and non-core functions. In Core functions, we have supply chain, marketing, manufacturing, sales, research and development. That’s off the top of my head. These are the services that are crucial to the profit line of the business, they determine how we manufacture our products, market them to the end users, sell them to wholesalers and retailers, and innovate on existing products. Unilever has to perform these functions; we cannot give them to an external party. They contribute to what we really are.

However, we have non-core functions. Such as Finance, Human Resources, Procurement, and Technology. These functions across most FMCG businesses are usually uniform. Finance is mostly about purchase to pay and general accounting. Human Resource is about payroll administration, recruitment amongst others. Procurement is how we source our goods from suppliers, and Technology refers to how we manage our IT infrastructure. These are support functions for our business, and we need them to work well, however, we do not necessarily have to do them ourselves. Other companies that specialise in these could do them better than we could. So we decide to outsource them because we feel it is better than if we did them ourselves. Also, outsourcing was a method through which we could implement shared services across of Europe. By outsourcing to a single partner across Europe, all the individual services in these countries, would be implemented by a single service provider, thus enabling us to have a streamlined service.

In what manner has Unilever managed supplier relationships, and how do you believe these have either contributed to, or disrupted the potential effectiveness of these outsourcing agreements.

Like I explained earlier, at Unilever, we believe in closely liaising with our partners. We consider them partners not service providers. So we have regular weekly client meetings. Not at the senior management level, but at the ground level, with those individuals that actually take part in the work. Even when we do not necessarily have anything to say or report, we still meet and ask them “how is it going”. We believe this has helped deepen our relationship with our partners and also helped create a working environment where problems don’t just creep up behind us when we are not looking.

So we have closely monitored our relationships by closely following due processes, having regular meetings, and by considering our service providers as partners and not suppliers. That way, I believe we are able to constructively work together. Identify problems and tackle them before they become an issue.

What processes, due diligence and procedures does Unilever undergo:
Before outsourcing contracts are awarded

When we first set out to outsource our processes within the organisation. We had a number of suppliers. HP, BT, Accenture, Cap Gemini, all of the big top names came out and said they could assist us.

Overwhelmed with all these bids, we needed to determine for ourselves who we wanted to work with and how we wanted to build a relationship with them. We established a set of criteria such as experience, reputation and previous relationships, and used that in determining the sort of partners we want to have. For instance we choose Accenture for our applications and infrastructure outsourcing, and also for our human resources, because we have built a relationship with them for over 10 years, and they have assisted our business in management and technology consulting, so we felt it was only logical that we extend our relationship with them. The same occurred with IBM and HP in other regions. We knew their track record, they have a strong reputation, and we believe that for a company like us that are large, we require partners of similar magnitude and reputation, who are also willing to work alongside us in doing what needs to be done.

In managing outsourcing contracts

Although we do have a set of guidelines and processes on ground for managing outsourcing relationships, we also like to take hands on approach in ensuring it works. We conduct multiple weekly meetings at all levels of the outsourcing contract, especially from supervisor to management level, so as to ensure that all issues have been identified and addressed.

We also conduct half year and yearly reviews of our outsourcing contracts, where our partners present how they have assisted us in being more efficient and reduce cost. These help us evaluate whether or not we should extend existing contracts or contractual terms, and how we expect to achieve more through outsourcing going forward.

8.2.2 PART B – JAMIL

POTENTIAL BENEFITS AND THREATS

To what extent has Unilever achieved the following benefits from outsourcing:
Cost savings

Well, from what I can think back to, the main aim of the outsourcing contracts in the first place was to save cost. We felt that if we shared these common services in just one centre across Europe, we would be able to reduce overlapping cost. The estimated cost savings back then were about $927 million, and I believe we have made steps towards achieving those goals. Though I do not know the precise figures, I do know that our outsourcing partners are much cheaper cost wise, than when we had to have these services done ourselves in house. They have also shifted these functions to lower cost bases like South East Asia and Latin America. That way we do not necessarily have to do as much to get the same work done.

Efficiency

Off the top of my head, I remember that our purchase to pay processes usually took about 3 – 4 weeks from inception to completion. This meant that we usually had to wait long times before these were done, and these processes were much different in different European countries. In some countries, processes could take up to 6 weeks, while some others like the UK were more efficient. These affected the whole group as a whole, Unilever as a whole could not be efficient on one part, and inefficient in others. So we had to find a way to ensure that all functions and processes across the group were equally efficient and streamlined.

Now that we have one partner handling the finance functions across the whole group, I can say these functions are now more efficient, there is no wastage, and we can derive more from them.

Innovation and Quality improvements

Previously, the systems we used to run our finance, HR and Procurement infrastructure were mostly based on what the technology department suggested, and the business case presented to the senior managers to justify such an expense. We only improved or innovated on current practices if we thought it was of crucial importance. For instance, we used one ERP system for several years, even when they were several updates available, all because we thought we did not necessarily need it, and that current processes were fine. The CIO could also not prove beyond reasonable doubt that it was really needed.

But now that we have external parties handling our infrastructure, technology, finance, HR and procurement systems. Accenture has the best in class practices for these services and they are much more improved than what we could have done ourselves. Since this is their core function, this is what they do best, and they do it for several other clients, we know that they are in the right hands. For instance, they have partnerships with SAP and Oracle and through that they can deliver the best updates for the services. The manner in which they conduct our businesses is far better than we could have done ourselves. We believe this partnership has brought results that are far broader than what we anticipated.

Focus on core business

Oh well, I cannot say without a doubt, the way in which outsourcing has enabled us focus on core businesses. But what I do know is that we do not have to worry about the finance, technology, human resources and procurement functions as much as we did initially. Now all we have to do is have an outsourcing department that deals with our service providers across all levels, and ensures they are conducting their business appropriately, and whatever issue we have is resolved. By not having extensive non-core departments as such, we are indeed able to focus our strategic activities on those functions that matter most, which are supply chain, marketing, sales amongst others.

Operational expertise

Well from what I have learnt, since our service providers have taken the time to learn much about our business, they are much better than us at performing these functions now. They have much more experience and resources at their disposal to conduct the same functions. In a situation whereby we would have had to send a couple of workers on training to learn a new practice, now all that is covered in our contract agreements, and the service provider sends their people on training so they could deliver better to us.

Scale

Since we have adopted a shared services centre in the Europe, we have been able to extend these services to other European countries that were part of the initial agreement. Because our outsourcing partners have been able to understand our business and conduct these functions in a way that is uniform across all businesses, it is now much easier for them to extent it to a new country. All they need to do is just transfer relevant staff from there, and have their infrastructure transferred. With outsourcing, we are able to conduct the same service on a larger scale.

Any other potential benefits

You have identified most of them, I would just like to state that it was a strategic move that was crucial to our one Unilever project, and even without cost benefits, it still helps all parts of Unilever Europe work together, and that is something we are happy about. We have been able to derive substantial benefits from outsourcing.

To what extent are these disadvantages possible, or occurred in the past as a result of outsourcing contracts:

Labour and work disruption

Well I have to note that this is always a considerable factor whenever we are contemplating how exactly we are going to outsource to service providers. For instance, the agreement we signed with IBM affected about 800 workers, while the HR BPO affected about 1,500 workers across Europe. We knew that so we had to find alternative employment and early retirement for these individuals. Without that we may have had significant labour disruptions.

We also ensure that every part affected is informed once we have agreed on any outsourcing agreement, so they are catered for immediately and without any sort of disruptions. We conduct change management operations within the company, we do not consult with anyone else for that because we have learnt from our mistakes and ensured that we cater for staff appropriately to prevent any such things from happening again. In 2005 we did have some staff disruptions, but not now that we have learnt from our previous mistakes.

Contract management

Contract management is a very serious issue, because if we do not maintain our contracts appropriately, then it is possible that a conflict of interest may arise between our partners and us and we do not want that. I always participate in weekly meetings between our team and their team to ensure that they are functioning well, they have everything they need, and adopting the right processes to ensure everything is done. We have contract reviews twice a year just to ensure everything goes smoothly. At first when we first started these outsourcing contracts, it was difficult because we had to learn a lot of things fast, but now, we have built extensive relationships with our partners and used that in making things work good.

Security threats

Not that I know of. Every staff that work with them is vetted, and the information that is provided to them is really low level security information. We do not possess a large security threat from that information, except to say that information of employees could be lost. If that does happen, we have established steps to circumvent such events.

Communication

Communication could be an issue if not handled effectively, but we ensure that we are always in contact with our service providers.

Lack of innovation

That is not an issue we suffer from here. On the contrary, due to our outsourcing agreements, our partners adopt a much better process than we could have adopted on our own.

What can you say about the future role of outsourcing as an enabler of competitive advantage within Unilever

Uhm, competitive advantage is a very broad word. We could say it in terms of improving market share against our competitors, but these functions are support functions and do not necessarily contribute directly, but they may have done something unquantifiable indirectly.

Looking at the wider picture, we believe that outsourcing would help us work better together across the whole of Europe. By doing that, we believe we can achieve better results, reduce cost significantly, and that to me is the main definition of competitive advantage. So in terms of cost reduction, outsourcing is great.

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How global outsourcing strategies impact the supply chain of a business organization?

Introduction

Global outsourcing has a number of associated risks and considerations that need to be considered in developing a strategy to mitigate the effects on the supply chain of that business. The effect that increased outsourcing has had is to increase globalization and the additional management challenges that are associated therewith. As a result there has been an increased awareness and study of the impact of these outsourcing strategies on the supply chain of a global business organization (Prassad & Babar, 2000). These challenges transcend national boundaries and impose greater responsibility on managers in these organizations to account for the impact of outsourcing on the supply chain and to design strategies that take account thereof.

The proposed research aims to explore the impact of these global outsourcing strategies on the supply chain of a business organization to the extent that national outsourcing does not present similar challenges. The central hypothesis of the research will not only account for the impact, but also on the development of strategies to mitigate the risks associated with global outsourcing. To a large extent therefore, this research will revolve around supply chain management strategies as well as relying heavily the integration of global outsourcing strategies and supply chain management strategies in a Multi-National Organisation (MNE).

Research Question

The research question associated with the proposed research can therefore be succinctly stated as follows:

To determine the impact of global outsourcing strategies on the supply chain of an organization and the development of supply chain management strategies to mitigate the negative effects thereon so as to exploit maximum benefit from these strategies with minimum risk to the organization.

Literature Review

Global business has been forced into evolution in recent years due to the increased demand for high end products at a significantly lower cost than previously associated with manufacturing and service provision (Gunasekaran et al., 2008). To a large extent the possibility of lower manufacturing costs can be attributed to the increased reliance on global outsourcing that has become a normal part of MNE supply chain processes. Strategic outsourcing as a corporate strategy is concerned with two types of activities, on one hand including the actual activities such as logistics and operations without being a distinct feature of that firm, whilst on the other hand including activities that create competitive advantage for the firm (Quelin & Duhamel, 2003). The increase in outsourcing has necessitated a parallel evolution of supply chain and outsourcing strategies within these organizations to deal with the impacts on the overall business of the organization to the extent that global outsourcing presents challenges related to risk, unpredictability and challenges associated with international supply chain management.

A significant impact on the supply chain of a business organization is the constant and recently novel demand for a supply chain strategy that is flexible in order to deliver their products and services to the global market as fast as possible in order to reduce costs associated with manufacturing and processing. The supply chain design that is required by organizations that rely on outsourcing as a strategy includes the decisions regarding the number and location of production facilities, the amount of capacity at each facility, the assignment of each market region to one or more locations, and supplier selection for sub-assemblies, components and materials (Chopra and Meindl, 2004), as well as selection of facilities at international locations, and the special globalization factors this involves (Meixell & Gargaya, 2005). The design of the supply chain will necessarily reflect the overall objectives of the global outsourcing strategy particular to the organization. Therefore, depending on the needs thereof individual manufacturing or production facilities may have specific supply chain protocols and procedures that are specific to that facility or these may be managed as part of the overall strategy of the business organization with the latter generally being the preferred method. Invariably, this may also depend on the relationship between these outsourced facilities and services, and the controlling organization to the extent that this removes a certain measure of responsibility from the MNE. As such there has been an increased use of a responsive supply chain (RSC) as a model for management of these factors, which encompasses a degree of flexibility in assessing these challenges and responding thereto (Gunasekaran et al., 2008).

There are a number of strategic production-distribution models that have been adopted by the global business organizations and in doing so the effect that these models have on the entire supply chain strategy. Case studies have revealed a number of levels of integration of production-distribution models into the overall supply chain in terms of strategic, tactical and operational integration (Vidal & Goetschalckx, 1997). Essentially, this embodies the decision making processes within an organization with regards to their supply chain with strategic planning reflecting a long-term objectives and decision making processes as one extreme, and operational planning reflecting the short-term, everyday objectives. Tactical planning falls somewhere in between these two extremes, with the overall supply chain strategy of the organization reflecting integration of all three of these planning considerations.

Theoretically, these global outsourcing strategies are formed on the basis of these production-distribution models, however there are associated academic considerations that surround the formulation of these strategies, namely supply chain management, risk management and global logistics management. The successful integration of all of these considerations is essential to the long term success of outsourcing strategies, as the international supply chain presents a certain volatility that is often beyond the immediate control of these organizations particularly with regards to predictability. This is so because there is a dissociation between the corporate headquarters of the organizations and the production facilities, where issues such as labour disputes, disruption of supply chain, political stability and disaster management become key considerations in the development supply chain models (Peck, 2005). As a corporate strategy therefore, strategic outsourcing must consider the impact on the supply chain of that organization in order to optimize performance and as a result there has been complete evolution of the supply chain models, strategy and management in terms of these broader corporate objectives.

Research Design

The current research will be primarily based on qualitative content analysis of current academic literature and reported empirical studies (Neuendorf, 2002). The purpose of this method will be to determine current practice in the global market in order to accurately reflect the role played by global outsourcing strategy in the development of supply chain models and corporate strategies . This will necessarily take account of quantitative research factors, however this speaks more to a certain measure of pragmatism that is required by the researcher in conducting this research rather than a shift towards quantifiable research methods. These research methods are justified in terms of the current research objectives to the extent that these measure the current state of global outsourcing strategies on business organizations representing a shift in global strategy rather than focusing on the impact on a specific organization.

Reliability and validity are central concerns for this research, however through the extraction of repeated themes and practices, concerns thereof will be mitigated (Joppe, 2000). The research however is limited to the extent that it relies on secondary sources that are not base accounts of the current practices, but rather contexts that have been analysed and subsequently reported on by a line of academics. The availability of reliable sources is a secondary concern for this research and may present a significant challenge for this research due to the fact that the validity hereof relies on reporting of the actual activities of corporations globally. This is further limited by the availability of sources as being industry specific. The limitation that this presents is that it makes it difficult to present a cohesive model of supply chain design and management to the extent that the literature available on the subject is often industry specific. This means that when collecting data, one must ensure that this is drawn from a variety of sources representing a cross section of industries, both manufacturing and processing, and service-related.

Data collection will be undertaken in a purposive manner, where the data collected representing the current practices and underlying theoretical considerations will be the foundation of generalisations used by the researcher as the basis for the academic opinion presented therein. Purposive sampling is the sampling method that is used for qualitative content analysis, because the purposively selected texts inform the research questions being examined (Neyman, 1934). By selection of data in this way, it will be possible to answer the research question in a manner that is both relevant and directed, ensuring that concerns about validity and reliability are met. Furthermore, this method of data collection will ensure that only relevant information is included in the study rather than focusing on subsidiary issues that may not reflect the relevance of these strategies in terms of global motivations. Coupled with the methodology of analysis being qualitative, purposive sampling further ensures relevant inclusion and therefore speaks to the validity of the research as representative of global business phenomena and does not limit this application to a region, organisation or sector.

Conclusion

Outsourcing is a corporate decision that lies in the policy and business strategy of an organisation, as it modifies the firm’s boundaries as a legal entity and generally involves corporate decision makers at different levels of the supply chain both locally and internationally. It affects company-wide resource allocation policies and asset management practices, as these outsourcing decisions often involve several divisions in large, diversified companies. The understanding and development of these strategies and the effect that these strategies have on the supply chain of a company, both at the level of design and implementation thereof, but also in the management strategies of the associated risks and operational requirements that global outsourcing presents to these companies, is an integral part of the operations of business organizations for without these considerations the benefits associated with strategic outsourcing will be lost. Careful management of these objectives and the supply chain of these companies is essential to the success of these operations and the overall success of the organization.

References

Chopra, S. & Meindl, P. (2004) Supply Chain Management: Strategy, Planning and Operations (2ed) Prentice Hall: NJ

Gunasekaran, A., Lai, K. & Cheng, T. (2008) “Responsive supply chain: A competitive strategy in a networked economy” The International Journal of Management Science, 36, pp 549 – 564

Joppe, M. (2000) The Research Process [published online] Available on: http://www.ryerson.ca/~mjoppe/rp.htm [Accessed 13 October 2012]

Meixell, M. & Gargeya, V. (2005) “Global supply chain design: A literature review and critique” Transportation Research Part E, 41, pp. 531 – 550

Neyman, J. (1934) “On the two different aspects of the representative method: the method of stratified sampling and the method of purposive selection” Journal of the Royal Statistical Society, 97(4), pp. 558-625

Neuendorf, K. A. (2002) The Content Analysis Guidebook. US: Sage

Helen Peck, (2005) “Drivers of supply chain vulnerability: an integrated framework”, International Journal of Physical Distribution & Logistics Management, 35(4), pp.210 – 232

Prasad, S. & Babbar, S. (2000) “International operations management research” Journal of Operations Management, 18, pp 209–247

Quelin, B. & Duhamel, F. (2003) “Bringing Together Strategic Outsourcing and Corporate Strategy: Outsourcing Motives and Risks” Journal European Management Journal, 21(5), pp 647-661

Vidal, C. & Goetschalckx, M. (1997) “Strategic Production-Distribution Models: A Critical Review with Emphasis on Global Supply Chain Models” European Journal of Operational Research, 98, pp 1- 18

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Bharti Airtel Outsourcing

* Bharti Airtel aimed to be a low cost provider in the highly capital intensive telecom industry. They needed to keep pace with the rapid growth of their customer base, which was growing at almost 100 percent per year. Their strategy was to acquire new customers and achieve low cost per minute, but it required huge capital investments. * They outsourced everything and concentrated only on marketing, sales and distribution. They redefined the core activities in telecom industry and concentrated all their resources in acquiring and retaining customers. There were two parts to the Outsourcing deal between Bharti and telecom vendors. First was build up, maintenance, and servicing of the telecom network to equipment vendors Nokia, Siemens and Ericson. Then there was the deal with IBM to provide all in all IT solutions. 1) Advantages of Outsourcing their Network management to Ericsson, Nokia, & Siemens: * Keeping pace with network expansion due to faster installations. * Freed the management of time consuming budgeting, tendering, financing, purchasing and installing process.

They could now focus on core competencies of the company. * Shift from short-term agreements with equipment vendors to long term commitments to get better bargains and service. * Bharti will pay for network capacity (erlangs) only when it up and running. No need to pay for unused capacity. This solved the problem of conflict of interest between Bharti and the network suppliers. * Increased flexibility, no need to make huge capital investments will enable transferring of the risk to the network supplier. No Production costs( no capital investments, no labor costs), reduced Transaction costs as no need for new tenders every six months( reduced search & contract costs, reduced enforcement costs because of implementation of relational governance, lower adaptation costs because of pay for use model) * They were able to achieve Predictable Cost Model, no unplanned expenditures. Use the savings in capital expenditure in focusing on new customer acquisition, building new services etc. Disadvantages of deal with Ericsson, Nokia, & Siemens: The project might be difficult to manage and become increasingly complex because of the involvement of 3 vendors to provide the network management. * There might be resistance from the existing employees to get transferred to vendor companies because of the cultural barriers that may arise. * There is a chance of developing rivalries among the 3 vendors if the margins and competition starts getting stiff. * Wastage of installed capacity. * It will increase their dependence on vendors. After a period of time they may move on the back foot in negotiation meetings with vendors. No previous deals of such outsourcing has happened and hence risk is high Advantages of end to end IT management Outsourcing deal with IBM: * Airtel can now concentrate on their core business activities of marketing and sales. * Revenue sharing agreement thus there was big incentive for IBM to make the outsourcing deal a success. Reduced opportunism by the vendor. * Solved the scalability issue. * Avoid major increases in capital expenditures in IT. * Gain access to IBM’s rich talent pool, IBM’s expertise in IT. They can work together to create new products and services. (Value added services). * No Production costs ( no capital investments, no labor costs), reduced Transaction costs (reduced search & contract costs, reduced enforcement costs because of implementation of relational governance, lower adaptation costs because of revenue sharing model). Disadvantages of deal with IBM: * Excessive dependence on IBM and if they are not able to provide many innovative solutions, then Airtel won’t be having any option to go with a new vendor. There was a concern that the applications not supported by IBM may become obsolete * Revenue sharing was a new model which Airtel and IBM were trying for payments. As both of them didn’t have any experience in it, there was a considerable risk because of the unforeseen uncertainties. 2) How would you structure the agreements to address your concerns and capture any advantages you have identified? Structure of Agreement with IBM * There should be some provision of fixed and minimum costs for the revenue share in the agreement. IT applications not supported by IBM should be available to ensure they don’t get obsolete. * The terms and conditions in the contract should be flexible enough to cover the changing environment dynamics over the period of 10 years. * Furthermore not all the details of the partnership can be written in the agreement. So a joint governing body should be formed to manage the arrangement and resolve the issues. * Agreed metrics to measure the quality of IT services provided by IBM. Structure of Agreement with Ericsson, Nokia, & Siemens: Network and Operations Management should be transitioned to the vendors in a phased and planned manner under constant observation. * To tackle the concern of cultural barriers while working for the vendors, the Airtel employees should be absorbed on the same TnCs as they were working in Airtel. * Further recruitment of new employees should be the responsibility of vendor. * The expectations and duties of all the 3 vendors should be properly outlined and explained to prevent development of unnecessary tensions and unhealthy competition among them. The vendors should be continuously monitoring the networks and provide rapid response once the issue has been identified by them. * To be fair with the vendors if the network capacity remain unused for a major period of time, some part of payment should be done to them or it can be redeployed at other sectors. What measurements, rewards and penalties, and other governance mechanisms would you design for these two different agreements? With IBM * Strategic Alignment Measurements Process Performance Metrics – % of orders not delivered within the promised date, % of inaccurate and incomplete orders, Percentage of escalated cases, Through output. * Metrics to measure innovation – No of innovative ideas provided over a period of time. Ericsson, Nokia and Siemens * Performance Measurement and Quality Metrics – Call drop rate in the peak hours, Call drop rate over a cellular circle, Average Issue Resolve time, amount of time (measured in milliseconds) taken by data to travel from one location to another across a network etc.

Penalties on the vendor if the performance of a cellular circle is not good over a period of time due to high call drops. * Customer Experience and Satisfaction Measurements -Network Availability, Call Accessibility measure eg. how many customers fail to make a call in the first attempt , Call Retainability, voice quality etc. * Management of Resources – Utilization of resources, Amount of time taken to meet request or demand, Capacity of the resource etc. Reward and appreciation for the employees who are able to solve the issues in minimum time. * Risk assessment – Security over the network etc.

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Does Outsourcing by Multinational Companies Cost Jobs?

Does outsourcing by multinational companies cost jobs and lower wages in Europe? Does outsourcing by multinational companies cost jobs and lower wages in Europe? ABSTRACT Outsourcing as a method of trade has been an increasing phenomenon throughout the last decade particularly by multinational companies of developed countries such as Europe to outsource their business operations to developing countries such as India, Bangladesh etc.

However, this outsourcing by multinational companies raise a question regarding cost jobs and lower wages in Europe. Moreover, the latest style enduring, and there is a shift also towards additional complicated and high end methods to be outsourced. One of the appearing market areas for multinational companies of Europe is India, which is attracting decisions of outsourcing and some extent becoming a reason of cost jobs and lower wages in Europe.

However, it is not justifiable to only say that outsourcing by multinational companies do cost jobs and lower wages in Europe, therefore it can also state that outsourcing by multinational companies of Europe have some advantages as well, therefore, there is also an explanation of ideas and present check-list for European trades, which are searching for chances to incorporate into markets of India. INTRODUCTION The issues of globalization and the outsourcing of high-skilled jobs are central to the recent innovation policy debate (Farrell, 54-59).

Corporate decisions are increasingly being made with little regard to how it affects workers. In multinational companies of Europe outsourcing is not a new practice. However, outsourcing jobs are more or less new to people of Europe. Now days, in political debates it is a hot issues. According to different economist of European Union certain types of benefits to outsourcing by multinational companies and some jobs will be created in Europe by outsourcing.

On the other hand, many debates that due to outsourcing many people have lost their jobs and many small businesses have been closed. Overseas market is a place where many European jobs are being sent therefore, outsourcing by multinational companies cost jobs and lower wages in Europe (Farrell, 54-59). Many aspects jobs have been moved to overseas, for example shoe producers, telemarketing jobs, jean manufactures, Software Corporation etc. Many European multinational companies are outsourcing for their future financial system.

Through facilitating companies to save expenses, produce as well as possess entry to a great available group of capacity, outsourcing is basically protecting the steadiness of European multinational companies’ financial system through protecting the strength of European industries. Outsourcing has brought benefits to economical sector but on the other hand many employees have lost their jobs due to it. DISCUSSION It is a considerable reality that in the contemporary competitive international business arena there is has been much concentration paid to international outsourcing and its impacts on various markets in the world.

Different contrasting views are there on the issue and this research will attempt to explain different hypes and demonstrate what the truths actually are. People have supported a protectionist manner to outsourcing and forcing corporations to keep jobs in Europe. Profits of business have led great businesses to outsource work to Asian countries and they have been great supporters of outsourcing and the competence it permits them. A large amount of researches are there on the issue of outsourcing and it is complicated to cover all the views surrounding it.

This research will define some of views and controversies surrounding outsourcing. The objective of this research is to present an in depth look at outsourcing to Asian countries particularly India which is attractive market for multinational companies of Europe. Especially the research will describe the requirement for European multinational companies outsourcing, outsourcing to developing Asian countries like India and the advantages and dangers such as cost jobs and lower wages in Europe connected with outsourcing. Outsourcing is just contracting out little work that was completed in house to an outside corporation.

This permits corporations to concentrate on one part of a difficult aim. The advocates of outsourcing describe that this specialization permits corporations to be additional competent. This method could be applied in different businesses where technology has created manufacturing very complicated. Automobiles and Electronics are two items which have different parts that could be produced in various nations and gathered wherever the corporation decides to. This suppleness permits corporations to manage with the increasing difficulty of present manufactured items. Outsourcing is a main issue in the world which is related to cost jobs and lower wages in Europe, moreover individuals are concerned with the works of white collar that are being outsourced by European multinational companies to developing nations” (Peter, 2006 pp 77-79). Evolution of Outsourcing Before 10 years people use to imagine video conference in their thoughts. Today everything has been changed, anyone who has Smartphone or even a PC can sit back in sofa and have meeting around the world (Ijioui, et al, 171-176). Through technology vast distance has been shorten and has lots of money on business travelling.

Outsourcing is shaped by two factors known as globalization and technology. Through advance technology outsourcing is most common thing for multinational companies of Europe (Contractor, et al, 67-72). Through electronic sending several jobs are performed at one place and reported to another place where it is needed. Many countries economics is affected tremendously through outsourcing. In late 1900s, through technology transportation revolution was driven, and the whole scenario of transporting good from place to place was changed. Raw material was transported through steamboats and trains.

Due to transportation revolution the whole businesses functions was changed and nations started importing and exporting of goods (Contractor, et al, 67-72). In similar way, today business is changed through the accessibility of high-speed data access and the internet. Now many employees are able to work from home through virtual office for some companies. The only necessary tools for this are telephone and a computer with Internet access. Through same technology now people have opportunities to work for countries (Ijioui, et al, 171-176).

Outsourcing is decision of multinational companies of Europe to employ an outside company to manage the computer operations of organization, operations of network, and IT function to a vendor for a particular time. This strategic move is decided by excellent administration when they identify that the managing of these performances through another group will decrease expenses and prices. The decision to outsource by European multinational companies should focus the important role of knowledge and methods in corporations.

If complete roll is to be outsourced, adequate terms must be created between the two companies to deal with the company’s needs. Furthermore, focus must be presented to the possible requirement for modern solutions to be presented through the outsourcer, with the timing of these performances. India is the seventh-biggest nation through area of geography and situated in South Asia as well as presently it is considerably attractive by European multinational companies. It is the second most crowded nation in the world, and the biggest democratic country in the world. The financial system of India is the fourth biggest in the world as calculated through purchasing power parity (PPP), with an increasing trend of GDP (Adrian, 2008 pp 321-327)”. India has been increasing at a rate of 8 per cent since Prime Minister Man Mohan Singh took charge in early 2004. India has a wealthy and exclusive tradition of culture, and the different sub continental population that has controlled to keep the 5000 years older customs, where as absorbing traditions, ideas and traditions from local people, invaders and migrants.

Different practices of culture, monuments, languages and traditions are models of this combination over centuries. Great English speaking middle-class in INDIA has participated to the development in outsourcing. “It is becoming a main part for European multinational companies for future focused study and improvement, comprising the likes of telecommunication companies, etc” (Adrian, 2008 pp 321-327), all this has supported the sector of services to enhance its portion of the market to about fifty percent. Developing countries like India is ongoing to move ahead with financial modifications of market-focused that started in 1991.

Current modifications contain liberalized overseas investment and regimes of exchange, decontrol of industry, and important decrease in charges and other business obstacles, modernization and modification of the fiscal sector, important adjustments in monetary and financial strategies of government, and securing intellectual rights of property. India’s Business Process Outsourcing (BPO) is growing at an exponential rate in the last decade. This form of revenue is greatly helping the Indian economy and it will continue in the future. There are many reasons for why India has the ideal situation for outsourcing.

First of all, basic salary in India for computer experts is one of the lowest in the entire world. Through having this low basic salary, India attracts different organizations from nations with a stronger dollar. A multinational company of Europe could achieve the similar project completed in India for 1/10th the cost it would cost in Europe. This translates to great income for multinational companies, which creates outsourcing extremely smart to them. Secondly, the cultural differences between India and the Europe are not as great compared to other countries like China.

If people look back to over 60 years ago, India was under British rule. Under British rule, learning English was mandatory in all schools across India. Today, English is still mandatory in most schools across India and as a result, the communication gap between India and the European world is much smaller than with countries like China, which also have equally qualified software professionals (Kobitzsch et al, 2001). Additionally, most educated people in India know English. This knowledge of the English language allows for western influence with respect to media such as movies, music and entertainment.

This social acclimation decreases the culture gap between India and the Western world as compared to China. Thirdly, as the Gulf of Persia has its resources in oil and South Africa in diamonds, natural resources of India depend in its rich technically expert workforce. India makes approximately 75, 500 software experts every year and these figures persist to enhance. Different nations do not have the workforce with the abilities that are required and have no option but to outsource to nations like India. India has had a lot of development in the field of IT.

There were about 6,800 staffs in the IT business in 1985-1986 and this figure increased to 522,000 staffs from 2001-2002 (Vincent, 2006 pp 22-24). International human resource management (IHRM) is gradually more being identified as a main determinant of achievement or disappointment in international trade (Michael, 2002 pp 459-471). Features of production like technology, capital, raw materials and knowledge can be simply copied, apart from for the individuals or human resources of the company, which is major source of aggressive benefit for different organizations.

Corporations must give close concentration to administration of its human resources in India. Presented the reality that it is mostly a flight development and training centre in India, it would produce logic to use a polycentric staffing method, where domestic supervisors – host nation supervisors; are employed to fill main positions in their personal nation. Human resources in India are the compulsory element because the operation, design and administration the other remaining resource of science and technology is a purpose of how excellent individuals do their work.

In the area of human resource improvement, which is important and has been getting main concern since the starting of improvement strategies, the nation has added a large number of supporting and encouraging staffs and has been capable to enhance rates of literacy of both women and men, with in the numbers of technology, science and research people. In spite of the enhancement in human resources, the nation has not been capable to successfully employ it due to the immigration of expert people to get works in developed nations. Benefit/Risk Analysis

Analysis of the benefits and risks of outsourcing customer service to India will entail analyzing customer service skills, appropriateness of online services of consumer support, infrastructure, and trust and security. Customer Service Skills The value of consumer service is extremely imperative to a multinational company of Europe. Consumer experts must be capable to manage a collection of troubles where as reducing irritation of consumer. India has a rich source of extremely aggressive universities and institutions of technology, with a concentration on trouble solving.

With this information, they are capable to manage with troubles in an efficient and appropriate approach. India is supposed to be the second biggest country with European that speaks English. Moreover to this, different great extent suppliers of consumer service in India instruct their staffs to speak English without pronunciation. Consumer service presenter 24/7 Customer. com in India presents staffs this knowledge in a two week course (Michael, 2002 pp 459-471). They also give training to identify the culture of Europe.

Although offshore outsourcers provide these types of training, some specialists believe that the European customer support specialists have a distinct inherent cultural benefit and the capability to become accustomed to alter more rapidly. As a result, they are able to more frequently relate to the customer, and provide empathy towards his or her needs (Bharat, 2007 pp 77-79). Appropriateness of Online Customer Support Services The appropriateness of online services of consumer support is extremely important since the customers understand technological capabilities and have higher expectations.

Currently, Jupiter Research has found that a little more than 50% of e-mails could be answered within a day (Ashlyn, 2005 pp 69-73). Research done by the same research group stated that outsourcing customer services to India is recommended for companies seeking to a response time of less than six hours. In addition to timely service, all customer support suppliers offer twenty-four hours of service, seven days a week. Outsourcing is becoming a heavy cost reducing system these days in order to endure with the tough periods in the financial system.

With outsourcing requirements, it permits the organization to emphasize on entire services and products. It also permits the outsourcers to keep durable connections with their consumers. India has become one of the most positive places for outsourcing. The major motives for this comprise cost efficacy, plenty of ability and timeliness of online services of consumer support. Additionally, India has excellent rate of literacy in English in the educated people contrasted to other nations. Dangers are concerned there when outsourcing to India.

Different features observed at were infrastructure, protection and trust. Every organization should do their individual researches to decide if outsourcing will advantage their organization, but additional so their consumers. Possible Risks of Outsourcing * Outsourcing with a vendor can also cut down the work rate of the employees * The comfort level that the employees once had in the work place can decrease * When the vendors are not going by the contract and getting the computers fixed in a timely manner, the forced labour will be put onto the IT team to get the job done. Also the laid off process will increase that means more people without jobs. The ones that will be laid off are usual the ones that have the experience to do the job right, the first time. Risk mitigation strategy If the company is going to go with vendors the best policy is to make sure there are no loop holes and that the risk manager stays in control of any changes that may or may not happen. By doing this is to discuss and keep the communication line open. The contract is the source of everything that has to do with the vendor and company policy.

By reading over the contract and making sure that the company’s lawyers also look over it is the key to stopping the loop holes before they happen. Another method is to install trouble ticket software to monitor any changes to the system and to prevent any downtime when trying to tackle all those trouble tickets. Venders to provide network support Here are a few examples of the different support that can be provided from a vender when dealing with networks; * patches, * firewalls, * routers, * switches, * Intrusion detection system and * Intrusion prevention system.

Here is a risk example that can be involved when letting an outside vendor support the network within the company; * The risk that someone that is not working for the company and that will have the access to the network through the admin login can have direct access to all the data in that network of systems. Also that you cannot ask any questions about their risk assessment methods. This can be a major risk that can cost the company a fortune if the vendor is not chosen the right way. Risk mitigation strategy If the company would install a service for the network security like for an example is DELL’s IPS iSensor.

This can load the company up with a security bundle that will protect the network as a whole. “The Intrusion Prevention Service is designed to not only provide technology, but also supply the expertise and processes you need to actively protect your organization — at a fraction of the cost of doing it yourself. The Intrusion Prevention Service is a comprehensive solution that includes all components needed to provide exceptional protection against cyber-attacks, including: * Dell SecureWorks iSensor IPS appliance and deployment * Online security and compliance portal Expert administration, tuning and maintenance * 24×7 expert monitoring and response * On-call certified security experts This solution is a turnkey service bundle to help organizations gain 24×7 security and satisfy compliance requirements” (DELL, 2011). Advantages of Outsourcing With lower staff cost, save money: this turns out to be most attractive and beneficial reason for outsourcing. For example, in Europe typical graphic designer have a salary around €6,250 per month, but if this job is outsourced then company can hired a senior overseas graphic designers for € 2500, which will save €3750 per month.

So now one can estimate that how much saving will be done yearly (Contractor, et al, 67-72). No extra cost on employment: for traditional onshore employments there are usually extra costs involved but there are no extra costs for outsource staff. In many countries including Europe many employers have to pay some extra percentage to employees for superannuation, when they lease staff. But in outsource it is employers pay nothings to their overseas employees. Through this many employers save these amounts.

No need of extra equipment and office space: through outsourcing different employers have lavishing offices without increased staff. As their staff is busy in doing their work overseas and customers who walk in these office have good impression about the company. In this way employers save a lot of money on equipment and office space (Contractor, et al, 67-72). There are no extra electricity bills that employers have to pay. Some of the other advantages of outsourcing are: * Outsource employees are assemble much faster as there is already people with skills and there is no need of long interviews and it save lot of time. Employers can focus more on core business process by outsourcing all no-core activities. * Business operations can be streamlined through outsourcing. * Through outsourcing employers can encounter an improved power of their business. * Capital expenditures can be saved by the organization through outsourcing. * By outsourcing organizations get more profits and this end up in creating higher jobs in homeland. * Through outsourcing companies save a lot of money, through which can develop more products. Disadvantages of Outsourcing

Delivery Problems: in outsourcing the first problem occurs is delivery consistency, most companies experience delivery problems due to a lot of reasons. Delivery overseas on time is usually affected due to material storage, weather problems, manufacturing delay etc. therefore customers are upset and companies have to invest extra on additional stock in order to compensate their customers (Neelankavil and Rai, 221-226). These extra stocks cost the saving money of the companies. Quality issues: usually the samples which companies receive overseas are of good quality.

But when it comes to stock poor quality is witness by the companies on their order to different products. Due to outsourcing many companies’ hires poorly paid employees and they don’t seem to have knowledge regarding products. Due to this many organization fails to satisfy their customer overseas and end up in losing them (Neelankavil and Rai, 221-226). Jeopardy of revealing private information: outsourcing involves risk of revealing private information about company such as payroll, Human Resources and employment services to captive unit in other country. CONCLUSIONS & RECOMMENDATION

In conclusion, it can say that outsourcing by multinational companies cost jobs and lower wages in Europe, but there is another aspect as well that is favourable. Therefore recommendation is here to use the outsourcing in appropriate manner. Many multinational companies and European businesses layoff their employees or have been closed due to outsourcing by them. Many jobs have been taken away from European employees and major sector which was highly affected by outsourcing is Information Technology. Due to outsourcing many college students of Europe has decreased in majors of engineering & computers.

These college students step back from majors in these subjects as they are afraid that after completing their education they would victim of cost jobs and lower wages in Europe and they believe that they would not be able to find jobs in respective fields due to sourcing. Outsourcing is no doubt beneficial for companies but what about the talent and skill people living in the country? Multinational companies of Europe should come out with a proper strategic plan in order to save the future of upcoming youth along with other talent people of world.

Multinational companies of Europe should outsource limited job and keep rest for European people. As this was the country who gave these companies ground to start and flourish their businesses, so first right goes to citizens of Europe. The objective of every business is to build a profit and grow and it should base for both i. e. company and people of the country. If outsourcing in Europe keep on growing rapidly as the way it is now a days by multinational companies, then future not far away when people will drop out from schools due to lower wages within Europe.

It’s high time for European government and successful multinational companies to understand that skillful and youth people of the Europe is losing hope in successful future and facing threat of cost jobs and lower wages in Europe. Europe’s multinational companies that use outsourcing correctly can take advantage of its benefits and return higher profits, meaning higher retained earnings. These earnings can then be pumped into other parts of the business for improvement, innovation and expansion. Expansion thus creates more jobs and a better national economy. References Contractor, J.

Farok, Kumar, Vikas , Kundu, K, Sumit; 2010; Global Outsourcing and Offshoring: An Integrated Approach to Theory and Corporate Strategy; Published by Cambridge University Press; ISBN 0521193532, 9780521193535; 67-72 Farrell, Diana; 2007; Offshoring: understanding the emerging global labor market; published by Harvard Business Press; ISBN 1422110079, 9781422110072; 54-59 Hira, Ron, Hira, Anil; 2008; Outsourcing Europe: the true cost of shipping jobs overseas and what can be done about it; Published by AMACOM Div European Mgmt Assn; ISBN 081440989X, 9780814409893; 135-140 Ijioui, Raschid, Emmerich, Heike, Ceyp, Michael; 009; Globalization 2. 0: A Roadmap to the Future from Leading Minds; Published by Springer; ISBN 3642011772, 9783642011771; 171- 176 Mastrianna, V. Frank; 2009; Basic Economics; published by Cengage Learning; ISBN 032459917X, 9780324599176. 177-182 Neelankavil, P. James, Rai, Anoop; 2009; Basics of International Business; published by M. E. Sharpe; ISBN 0765623927, 9780765623928; 221-226 Bharat, Vagadia. (2007). Outsourcing to India. A Legal Handbook. ISBN 354072219X, 9783540722199. pp 77-79. Vincent, Jacques. 2006). International outsourcing strategy and competitiveness. Publisher Editions Publi book. ISBN2748333187, 9782748333183. 22-24. Michael, A. (2002). Drafting License Agreements, Fourth Edition. Publisher Aspen Publishers Online. ISBN 0735533792, 9780735533790. pp 459-471. Ashlyn, M. (2005). Outsourcing and in sourcing in an international context. Publisher M. E. Sharpe. ISBN076561586X, 9780765615862. pp 69-73. Adrian, Haberberg. (2008). Strategic Management: Theory and Application. Publisher Oxford University Press.

ISBN 0199216460, 9780199216468. pp 321-327. Peter, Barrar. (2006). Global outsourcing strategies. An international reference on effective outsourcing relationships. Publisher Gower Publishing, Ltd. ISBN 0566086247, 9780566086243. pp 77-79. Kobitzsch et al. , “Outsourcing to India,” IEEE Computer Society Press. http://csdl. computer. org/comp/mags/so/2001/02/s2078abs. htm. Deresky, H. (2002). International management: managing across borders and cultures, 4th edn, Pearson Education Inc, New Jersey.

Pp 12-14. UniBul Merchant Services. (2011). Using the Address Verification Service (AVS). Retrieved from https://www. unibulmerchantservices. com/using-the-address-verification-service-avs   DELL. (2011). Robust Protection Against Threats. Retrieved from http://content. dell. com/us/en/business/security-network. aspx? ST=network%20security%20management&dgc=ST&cid=64824&lid=1626112&acd=116803,8,0,109252536,780369516,1303776129,,33261467,9455936

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Outsourcing and on-Demand Computing

Outsourcing and on-demand computing are two of the fastest emerging business tactics in the industry today. In outsourcing, businesses contract out certain services to an outside provider or manufacturer, often overseas. On-demand computing is similar to outsourcing only here businesses contract out their computing resources, such as computation and storage, rather than an actual business services. The computing is tracked as a metered service, similar to physical public utility such as electricity, water, natural gas, or telephone network. In either case, some piece of the company is broken off and run by an outside source.

Organizations can outsource any aspect of their information system, including hardware maintenance and management, software development, database systems, networks and telecommunications, Internet and intranet operations, hiring and staffing, and the development of procedures and rules regarding the information system” (Stair, 348). For the most part, outsourcing and on-demand computing have had a positive financial impact on US businesses. They are able to “reduce costs, obtain state-of-the art technology, eliminate staffing and personnel problems, and increase technological flexibility” (Stair, 348).

However, from a consumer standpoint, there has been much controversy over these tactics. For example, many believe that by outsourcing services to foreign companies for cheaper rates, businesses are damaging the local labor markets. Often times there are language barriers making communication difficult between consumers and foreign workers conducting companies’ services. Staff “turnover is higher under an outsourcer and key company skills may be lost with retention outside of the control of the company” (http://en. wikipedia. org/wiki/Outsourcing).

Qualifications of outsourced staff are often well under those of actual business employees and because they haven’t been trained under the original company, they also often lack company knowledge and fail to realize the business’s values. All of these factors can be very frustrating for a consumer trying to conduct unfinished business with a company whom they have already finalized a purchase with. I speak from experience when I say this as well. I purchased a laptop computer from Dell in December of 2006 and was sent a defective mouse.

I have YET to be issued a correctly working, adaptable piece of equipment and have spent hours on the phone with their ‘customer service’ representatives who are based in India and barely speak English. The connections are horrible, we can’t understand each other, I have never spoken with the same representative, and have been told something different every time I have called. Because of this experience alone, I will never again purchase anything from Dell and have started asking companies if their services are outsourced before making purchases from them.

So in discussing the impact outsourcing and on-demand computing are having on the economy, I think the effects are positive for the businesses up front, but I think if this trend continues, organizations may start to lose clients who, like myself, have become extremely frustrated in dealing with outsourced services. On the flip side of that, if the trend continues and more companies get on board with these tactics, this may be the way of business in the future. I certainly hope not though!

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Outsourcing is a business model

Outsourcing is a business model in which one organization enters into a contract with another to manage and operate its business processes.  India has turned out to be one of the largest offshore outsourcing hubs for the IT sector and IT enabled services and processes.  About 44 % of all the outsourcing in the IT and the BPO industry is done to India.  There may be several reasons as to why India has turned out to be an IT hub (Schaaf, 2005 & Sharma, 2004).

The human resources available in India are well trained, skilled, not very expensive to hire, and are basically English speaking.  The population of India is young and can be utilized in almost any field.  The human resources available in India (especially in the IT sector) have been high.  These resources are increasing in number tremendously and are becoming more and more available for the IT sector.  The cost of hiring human resources in India is much lower than several developed countries in which the MNC’s originate.  Companies have to pay about 10 times more if they want to hire a professional in their home nation.  Hence, investing in India could be a huge benefit (Schaaf, 2005).

India does belief in the social upliftment and offering policies that would help women to become more independent and free.  As the IT and the KPO industry is not labor oriented, it is officering a good opportunity for women to work.  Slowly the situation of women has improved in the country, and people would basically thank the booming outsourcing business (Burzi, 2005).  Personally I feel that women are more suited to do jobs in which meticulous concentration is required and the BPO industry is offering a huge opportunity for women.

The Indian government has setup policies that do favor outsourcing and building the country into a global outsourcing hub.  India is very much interested in creating international relationships and establishing international business with several nations in the world.  As the BPO industry is offering a huge benefit for the society and upliftment of the people, the government is continuously encouraging foreign companies to setup shop in India (Schaaf, 2005).

India has been growing at a tremendous rate in the last ten years.  The growth annually has been about 6 %.  India may even be able to grow at a faster rate.  One of the mains causes for such a high growth rate is the booming outsourcing and the knowledge-processing units available in India.  India has been especially been open to the field of IT and software, and application of Information technology has expanded into various other sectors.  Effectively, many companies are having their back-end office in India, which offers back-end support (Schaaf, 2005).

There may be a few issues that need to be considered for foreign companies whilst investing in India for outsourcing.  India has a large number of universities and a huge number of graduates are produced every year.  However, several of these universities may not meet international standards, and only about 10 to 20 % of those who graduate out every year are able to meet international standards.  The cost of hiring these individuals may become very difficult in the future due to a shortage of human resources.  Many people still consider the outsourcing business as unattractive and it may be difficult in certain instances to actually acquire the staff for such businesses.  Foreign companies may have to consider investing in the education system so that the quality of education is improved (Schaaf, 2005).

India may be available to offer specialized services in certain fields.  However, in several other fields expertise may not be available.  The international investors who want to setup back-end support offices in India may not know this.  The investors have to conduct a detailed research so as to know the resources available and accordingly plan to utilize them, before actually investing (Schaaf, 2005).

Another problem, which exists in India, is that it may be very costly to setup telecommunication links with the parent company in the US.  If due to some reason this telecommunication links are lost, life may be virtually be shut down completely in another part of the world.  Outsourcing businesses are usually conducted in developed cities of India, and several far-flung areas are unable to offer any support to the BPO’s.  Land is very costly such places, and companies would have to pay a huge price to actually setup infrastructure (Burzi, 2005).

It may be very difficult for Indian professionals to work as per the convenience of US or European timings.  Many firms, which have been outsourcing their business processes to India, need to take several issues into considerations before actually conducting work.  They would have to take care of the conveyance and security of the employees (especially females) before having them work as per the US and European timings.  Socially, an Indian woman may not like to venture out of her home at night and work during night shifts.  This may be one of the major issues.  However, several of the MNC’s have guaranteed proper security, conveyance and flexible work timings to ensure that they have the staff to work according to the US and European timings.

Hence, although India does offer a huge amount of opportunities for foreign investors, several issues need to be taken into consideration before actually investing.  It may actually be a challenge, but finally if these issues are sorted out, the companies could bear true fruits for their investment.  Besides, it has really become a trend for a company to setup a business in India that would offer backend support.

References:

Burzi, F. (2005), Outsourcing in India Gets Cultural Backlash, Retrieved on September 10, 2007, from Impact Lab Web site: http://www.impactlab.com/modules.php?name=News&file=article&sid=12101

Schaaf, J. (2005), Outsourcing to India: Crouching tiger set to pounce, Retrieved on September 10, 2007, from Deutsche Bank Research Web site: http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000192125.pdf

 Sharma, S. (2004), BPO Industry in India- A Report, Retrieved on September 10, 2007, from BPO India Web site: http://www.bpoindia.org/research/bpo-in-india.shtml

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Information Technology Outsourcing/Off shoring

Introduction

The activities of outsourcing are not new for the businesses. The difference is only that the name ‘outsourcing’ was not given in back 20 years but now it has properly given its name and implementing by almost all the businesses worldwide. The practice of outsourcing is going on from last 20 years in the business environment. And now it is very well shaped. The base of the research paper is to flourish the challenges and negative side of the outsourcing which are facing by every business of the US economy in the department of Information Technology.

Outsourcing/Off Shoring

Outsourcing refers to the assistance that the companies take from the other companies. This assistance in terms of IT can be installing of software, managing the database etc. In the field of IT, it requires high performance, maintenance, and should be updated with the coming technologies. With the emerging trend of IT, the competition between the companies arises. So to cope up with this situation most of the companies are catering towards outsourcing. “The performance demands of the e-economy, and pressure to deliver competitive IT functionality. To meet these challenges, organizations are increasingly considering outsourcing of their information systems activities as an attractive option.” (Canadian Institute of Chartered Accountants)

The IT companies hire the people from outside sources on contract basis to perform the IT functions. “Allotting work to suppliers and distributors to provide needed services and materials and to perform those processes that the organization does not perform itself.” (Hormozi 2003). Instead of performing the IT function itself the companies hires professionals. Those professionals are the service providers related to another entity. The companies tries to adopt outsourcing because it saves time and cost. “Rather than devoting time, energy and capital to the creation of IT processing services, organizations feel they can minimize the start-up time required to enter new markets by contracting a third party to provide those services immediately.”  (Canadian Institute of Chartered Accountants)

Challenges to IT Outsourcing

Outsourcing has created many challenges to the businesses. There are also some drawbacks. “A study of 85 outsourcing deals over the period 1992 – 2000 showed that, while in 60% of these deals the client benefited, nearly 36% of clients experienced problems.” (Canadian Institute of Chartered Accountants) Following are the problems which are facing by the organizations while IT outsourcing.

Operational Problems

A company can be strong when all of its information should be in its own hand and operating by the company itself. If there would be lack of data integrity, the system can be fail easily or the information of the inside company can be access by the others, then the company can bear the losses. Every company have there own secrets inside the company if they will be whistle blow by any one then the reputation of the company can be effected or lawsuits. “In an outsourcing arrangement, an organization’s processing is performed by different personnel, with different management, using different techniques and methods, in a changed operating environment.” (Canadian Institute of Chartered Accountants) Another problem which occurs during outsourcing is that the companies are not acknowledge with operational problem and are not able to know the ruthlessness of the problem.

Companies can loss its competencies by outsourcing. The service provider can easily access the information or data but this can be compensated by the working of effective functions of IT. “An organization therefore risks losing its competencies or its otherwise deep knowledge of its systems and operations in relevant domains. This loss could, in turn, compromise its ability to operate and manage effectively.” (Canadian Institute of Chartered Accountants) The outsourcing team should be effective. There is lack of competencies, so the companies don’t have direct control over them. To create the direct control the companies should hire effective team that can effectively and efficiently solve the IT problems. “Lack of these competencies may compromise its ability to make decisions on changes to the IT services, manage the governance relationship or liaise with the customer base inside the organization.”  (Canadian Institute of Chartered Accountants)

Service Problems

Mostly, the problem faced by the companies is the difference in the work which the company wanted and the service which service providers supplied. Always there is different between these two pints. Both the parties take time to get to know each others point of view. “The organization may be accustomed to a certain standard and style of performance that was provided by its internal IT department prior to outsourcing. This same standard and style may not, however, be continued by the service provider.” (Canadian Institute of Chartered Accountants)

Cost problems

“Research shows that lack of clarity and understanding of the costs related to the many aspects of outsourcing service delivery are the biggest problems of outsourcing.” (Canadian Institute of Chartered Accountants) When a company does not properly plan outsources then the unusual cost could incur after sometime that can effect the efficiency of the outsource program.

Work Cited

 Amir Hormozi, Erin Hostetler, Cynthia Middleton; Outsourcing Information Technology: Assessing Your Options SAM Advanced Management Journal, Vol. 68, 2003 Accessed on November 7, 2006

 itmWEB: Outsourcing Information Technology
http://www.itmweb.com/essay528.htm Accessed on November 7, 2006

 Eric Krapf; Outsourcing: Doing It More, Liking It less Business Communications Review, Vol. 29, November 1999 Accessed on November 7, 2006

The Canadian Institute of Chartered Accountants, Information Technology Advisory Committee. Information Technology Outsourcing, Insights for a changing world.  Copyright ©2003 the Canadian Institute of Chartered Accountants, 277 Wellington Street West,

Toronto, Canada

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Business Process Outsourcing in the Philippines

CHAPTER 1 THE PROBLEM AND ITS SCOPE INTRODUCTION Rationale of the Study Paternalistic management approach is a father-like treatment but gives a certain amount of freedom. It is a type of leadership style that focuses more on the welfare of patients but gives a firm decision for everyone. It is a modification of an autocratic management yet it provides patients feedback. A typical paternalistic management approach gives exact details as to why there are certain actions to be taken in managing patients in a certain way.

It has been practiced for so many years by many medical professions. Although, this approach still finds an opposition, it continued to thrive as an effective approach in dealing with some difficult patients. Most Filipino workers find a Business Process Outsourcing (BPO) company as a source of income in today’s century. The Business Process Outsourcing (BPO) company hires call center agents in the local area. The nature of their work is taking calls from the clients and providing information to the consumers. It is a high paying job with health insurance and benefits.

Some people chose this kind of work even though it has some disadvantages. Call center agents encountered health problems while working in their designated area. A clinic break is a privilege in some Business Process Outsourcing (BPO) companies. Some call center agents use this clinic break when they are not feeling well. But some of them abuse this privilege just to avoid taking calls or even to avoid going to work. These patients usually complained of being sick or any other illnesses just to be excused from their own work. Company nurses find it quite difficult in handling this kind of condition in the clinic.

As a nurse working in a company, one has to do something in making decision for the best interest of the patient and for the productivity of the company. A company nurse must be able to understand the line of work especially in dealing with difficult patients. For instance, in a company, some call center agents are just malingering. Malingering is trying to escape from their work and has to use some means for their own personal benefit. A company nurse must be able to distinguish and find an effective solution to deal with this kind of situation.

At times, it is difficult to comprehend the nature of such illness every time a patient complained of being sick. The company nurse has an authority to send home call center agents when they are actually ill. The problem arises when some call center agents pretended they are sick. Thus, a company nurse must assess the patient before the call center agent will be sent home. The researcher chose to conduct a study about paternalistic management approach of company nurses in a Business Process Outsourcing (BPO) Company. This to determine on how it will help the company nurses in dealing with these patients.

The researcher has personal experiences in dealing with malingering patients. The researcher is inquisitive and is willing to learn for the betterment of the welfare of others. Also, the researcher is competent to gather the needed data since she has been working for two consecutive years in a Business Process Outsourcing (BPO) company. Furthermore, the researcher believed that it is a good thing to cater the needs of everyone regardless if it’s true or not. A good company nurse is willing to serve for whatever purpose it will lead. Malingering is just a tactical method of a patient that is needed to be understood.

The need of the patient should be provided since service is the key in nursing. Theoretical Background This study is anchored on the paternalistic management approach of company nurses in Business Process Outsourcing (BPO) Company. Paternalistic management style In a nutshell this management style tells the people what is best for them. This may sound the same as the autocratic style, but with the Paternalistic style of management, the business leaders are looking for the input of their employees. The business leader will make the final decision but not without careful consideration of the feedback.

This gives the employees the opportunity to voice their opinions and ideas. This also allows for more awareness of the employees needs, as people rather than just plain business (Montana, 2008). Paternalistic management style has the same authoritarian dynamic. It is a bit more warm and fuzzy in its approach. It is like being at home with parents that are involved in every aspect of your life. Higher likelihood that employees will be motivated or feel some loyalty based on the concern shown towards them by management (www. universitydissertations. com).

Paternalism is the interference of a state or an individual with another person, against their will, and defended or motivated by a claim that the person interfered with will be better off or protected from harm. The issue of paternalism arises with respect to restrictions by the law such as anti-drug legislation, the compulsory wearing of seatbelts, and in medical contexts by the withholding of relevant information concerning a patient’s condition by physicians. At the theoretical level it raises questions of how persons should be treated when they are less than fully rational (Husak, 2003).

If one believes that sometimes paternalism is justifiable one may do so for various kinds of theoretical reasons. The broadest is simply consequentialist, i. e. more good than harm is produced. A narrower justification is that sometimes the individuals (long-run) autonomy is advanced by restricting his autonomy (short-run). So one might prevent people from taking mind-destroying drugs on the grounds that allowing them to do so destroys their autonomy and preventing them from doing so preserves it. This is essentially Mill’s argument against allowing people to contract into slavery.

Note that if the theory of the good associated with a particular consequentialism is broad enough, i. e. , includes autonomy as one of the goods, it can be equivalent to the autonomy theory (assuming that the structure of the autonomy view is a maximizing one). A different theoretical basis is (moral) contractualism. On this view if there are cases of justified paternalism they are justified on the basis that we (all of us) would agree to such interference, given suitable knowledge and suitable motivation.

So, for instance, it might be argued that since we know we are subject to depression we all would agree, at least, to short-term anti-suicide interventions, to determine whether we are suffering from such a condition, and to attempt to cure it. More generally, we might accept what Feinberg called “soft paternalism. ” This is the view that when we are not acting fully voluntarily it is permissible to intervene to provide information, or to point out defects in our rationality, but that if we then do make a voluntary choice it must be respected.

Or we might agree to being forced to wear seat-belts knowing our disposition to discount future benefits for present ones. The justification here is neither consequentialist nor based simply on the preservation of autonomy. Rather either kind of consideration may be taken into account, as well as others, in determining what we would reasonably agree to (Sunstein, 2003). When managers try to act as father figures to their employees, they are practicing paternalistic management approach. These managers often give attention to their employees’ social needs to maintain engagement and productivity.

Paternalistic management training style also involves decision making without employee consultation. The only difference it has with authoritarian style is that decisions are made considering the employee’s best interests. Although employees did not have decision making participation, their welfare was considered, thus increasing employee motivation. Most of the time, surveys and investigations are conducted to know how employees will take a certain decision especially when changes are implemented (www. ehow. com). Paternalistic managers give more attention to the social needs and views of their workers.

Managers are interested in how happy workers feel and in many ways they act as a father figure (pater means father in Latin). They consult employees over issues and listen to their feedback or opinions. The manager will however make the actual decisions (in the best interests of the workers) as they believe the staff still need direction and in this way it is still somewhat of an autocratic approach. The style is closely linked with Mayo’s Human Relation view of motivation and also the social needs of Maslow (www. tutor2u. net). However, there’s more to influencing than just passing along orders.

The example you set is just as important as the words you utter. And you set an example – either good or bad – with every action you take and word you speak, on or off duty. By using your words and example, you must communicate purpose, direction, and motivation to them. Whilst “paternalism” is defined as a kind of system under which an authority undertakes to supply necessities or regulate conduct of those under its control in matters of affecting them as individuals as well as in their relationships to authority and to each other.

Thus paternalism is to supply needs for those under its protection or command, while leadership is to get things done. Paternalism is directed inwards, while leadership is directed outwards (www. ed-leadership. com). In its paternal aspect, it harkens in the line of a father being firm though has good intentions in the life of one’s children and in the business limelight, the employees. The typical paternalistic manager most of the time explains the specific reason as to why he has taken certain actions in management and for his employees (Sullivan, 2005).

Two-factor theory distinguishes between: Motivators (e. g. , challenging work, recognition, responsibility) that give positive satisfaction, arising from intrinsic conditions of the job itself, such as recognition, achievement, or personal growth, and Hygiene factors (e. g. status, job security, salary, fringe benefits, work conditions) that do not give positive satisfaction, though dissatisfaction results from their absence. These are extrinsic to the work itself, and include aspects such as company policies, supervisory practices, or wages/salary.

Essentially, hygiene factors are needed to ensure an employee is not dissatisfied. Motivation factors are needed to motivate an employee to higher performance. Herzberg also further classified our actions and how and why we do them, for example, if you perform a work related action because you have to then that is classed as movement, but if you perform a work related action because you want to then that is classed as motivation (www. netmba. com).

Health promotion is defined as behavior motivated by the desire to increase well-being and actualize human health potential. It is an approach to wellness. On the other hand, health protection or illness prevention is described as behavior motivated desire to actively avoid illness, detect it early, or maintain functioning within the constraints of illness (Kozier, 2004). Health promotion services are essential for improving the health of populations everywhere.

It is noted that people of all ages can benefit from the health promotion care, which should be delivered at sites where people spend much of their time (eg schools and workplaces). Nurses can develop and execute health promoting interventions to individuals, groups, and families in schools, nursing centers, occupational health settings and the community at large. Nurses should work toward empowerment for self care and enhancing the client’s capacity for self care through education and development (Wills,2007).

Business process outsourcing or BPO is one of the fastest growing industries worldwide and this is especially true in the Philippines where offshore call center outsourcing services have led the business process outsourcing industry into tremendous growth. The Philippines is has proven to be an excellent venue for offshore call center outsourcing services for three important reasons: the country’s low labor costs, presence of reliable technology and availability of college graduates who posses high level of English and IT skills.

Call centers in the Philippines operate 24 hours a day, 7 days a week. They handle inbound and outbound calls and are able to offer multilingual offshore call center outsourcing services in different fields of business to include customer care, marketing, sales, technical support, among others. Offshore call center outsourcing services in the Philippines cater to various industries such as retail, financial services, technology, travel and hospitality and telecommunications, among others (www. piton-global. com).

The Filipino call center industry has helped the country move up the ladders of technological advancement and living standards, leaving its fellow developing countries behind. In the rat race of development, the arrival of the Filipino call center has made such an impact to the once laid-back, culturally torn, and politically chaotic nation. It is therefore right to say that the Filipino call center and BPO industry is a breakthrough for Philippine society and a blessing to its people. What basically makes the industry a breakthrough is its ability to address unemployment in significant percentages.

Although it is true that several turnovers occur, the number of hired Filipino call center workers, along with the growing number of call centers that are launching mass recruitment campaigns, are big enough to overshadow turnover incidences. The Filipino call center and BPO industry has been the undisputed number 1 employer for years now and, in view of its current position as the leading BPO hub in the world, it will continue to do so for many years to come. That in itself will make Filipino call center agents proud to be part of this breakthrough undertaking.

As for being blessed, anyone who has worked in the Filipino call center industry and stayed there longer would attest to that. Many in the Filipino call center labor force are very grateful that their work is able to pay their monthly bills, send their children to school, or support their families living somewhere in the provinces. Work in Filipino call centers is also a favorable set up for the young and dynamic, who can keep up with the latest gigs as well as maintain their upbeat lifestyle.

One of the problems faced by the Filipino call center industry is the fast turnover of its agents. At a distance, this seems like an uncontrollable problem. The real deal is that attrition in the industry can be prevented, if not solved. What management has to do is to assess the important fact surrounding the Filipino call center workforce: majority of them are young. The youth has a set of common traits that make them prone to employment dilemmas. Being young is always accompanied by a sense of dynamism and adventure.

Working in a Filipino call center company may frustrate them in the long run. For one thing, Filipino call center agents just stay in one place for the whole of eight hours. The routinary tasks of reading scripts daily, updating call leads, and filling information in the call log, and other repetitive speech and duties make young people working for Filipino call centers feel as if their life is being compromised. Thus, they would once more search for jobs that will afford them utmost freedom or at least provide them with enough motivation to work.

Furthermore, there is a growing trend of materialism among them because the industry they belong to pays higher than the rest – even the government for that matter. Most Filipino call center firms are also situated at highly commercialized areas or economic zones, through which famous restaurants and coffee shops, top brands, and dusk-‘til-dawn bars plough their trade. One of the challenges of employers is to divert the attention of these young workers from such a worldly culture and bring back their purpose-driven and career-oriented idealism (www. filipinocallcenter. om). The above theories and literature served as the backbone of this study and this will serve as a basis for conducting a study to determine the paternalistic management approach of company nurses in a Business Process Outsourcing (BPO) company. THE PROBLEM Statement of the Problem This study will determine paternalistic management approach of company nurses in a Business Process Outsourcing (BPO) company. Specifically, this study will seek answers to the following inquiries: 1. What is the background characteristics of the respondents in terms of: 2. age; 2. 2 gender; 2. 3 civil status; 2. 4 years of formal education? 2. What is the level of knowledge of the respondents on Paternalistic Approach of Management? 3. What is the level of Paternalistic Approach Practices of the respondents? 4. Is there a significant relationship between the following: 5. 5 Profile and Level of Knowledge 5. 6 Profile and Level of Practice 5. 7 Level of Knowledge and Level of Practice? 5. How has the Paternalistic approach influenced the working relationship between the respondents and the call center agents? 6.

How has the call-center agents responded to the Paternalistic Approach of the respondents? Statement of the Null Hypothesis Ho1. There is no significant relationship between the following: 1. 1 Profile and Level of Knowledge; 1. 2 Profile and Level of Practice; 1. 3 Level of Knowledge and Level of Practice. Significance of the Study Paternalistic management approach can be a great help in terms of dealing in a difficult situation. Thus, a nurse must be able to comprehend the needs of every patient visiting the clinic. The result of the study would benefit the following:

The Company Nurses. They will find some methods or approaches in treating and caring for their patients. They will also be able to facilitate on improving some of the clinic policies regarding health issues of their patients. The Call Center Agents/Workers. This study will be able for them to appreciate the importance of health and its benefits when given proper treatment and proper evaluation. The Team Leaders of each Operation. They will give awareness in dealing with their agents who frequently visited the clinic The Administrators of Business Process Outsourcing (BPO) Company.

They will find ways and means to cater the needs of their employees regarding health issues and health problems. The Researcher. Through this study the researcher will be able to give some insights about health management and approaches. Future Researchers. This study will serve as future reference for further research study in the future. RESEARCH METHODOLOGY Research Design This study will utilize the descriptive-correlational survey method using qualitative and quantitative approaches to determine the paternalistic management approach of company nurses in a Business Process Outsourcing company.

Research Environment This study will be conducted at Wipro BPO Phils. , located at Cebu Business Park in Cebu City and headed by its country head Mr. Gupta Romit (an Indian citizen). Mr. Rex Bispo is the senior manager of Wipro BPO Phils. Branch of Cebu. Since there are Wipro companies situated all over the world. The company started its operation in January 2008 with 400-500 employees at that time. The company occupied the ground floor, 9th floor, 10th floor, 11th floor and 12th floor in the building. The clinic is located at the 11th floor and is manned by a registered nurse.

The clinic schedule is 24/7, from Monday to Sunday and it is even open during holidays. The employees ask some over the counter medicines in the clinic to aid their condition. Since they are allowed to have an hour rest for the day, they will have to ask permission from their team leaders or supervisors to do so. Now, there are 700-1000 employees working at Wipro BPO Phils. And even have another branch in Manila which started their operation on 2010. Research Respondents This study included 3 company nurses as key informants.

They will answer the Part I-IV of the questionnaire. There will be 8 selective call-center agents as the respondents for the Part V of the research tool. This study used a universal sampling in gathering data. Research Instrument The study will use a researcher-made questionnaire to be used as an interview guide. The questionnaire will be divided into 5 different sets. The Part I is the profile of the key informants. The Part II is for the Level of Knowledge with its parameter limit. The Part III is the Level of Practice with its parameter limit.

The Part IV is based on the Influenced of paternalistic management approach using qualitative questions. The Part V is the response of the Call Center agents regarding the paternalistic management approach using qualitative questions. Research Procedures Data Gathering The researcher will make transmittal letters in allowing a research study. These letters of requests are for asking permission to conduct a survey. Pre-testing will be done. After the pre-testing, the questionnaire will be then revised to fit for the actual study.

The questionnaire included important queries to relate to the study of Paternalistic Management Approach of Company Nurses in Business Process Outsourcing Company. The questionnaire will be then distributed to company nurses and selective call center agents. Each respondent will be given 20-25 minutes to answer the researcher-made questionnaire. The researcher will be visiting everyday for data gathering. After the retrieval of the questionnaire, it will be tallied, tabulated, analyzed and then interpreted as based on the gathered data. Data Analysis

To get the result of demographic profile of the company nurses, Simple Percentage will be used. To determine the responses rating of company nurses in the Level of Knowledge and the Level of Practice, Weighted Mean will be used. It will be then categorized and given weight using a “Likert’s Four Point Rating Scale” The assigned equivalent weights of the responses will be: Level of KnowledgeLevel of Practice 4= Very Important4= Often 3= Important3= Sometimes 2= Unimportant2= Seldom 1=Very Unimportant1= Never The parameter of every response category will be defined through these limits: Level of Knowledge

Lower Limit| Upper Limit| Response Category| Interpretation| 3. 26| 4. 00| Very Important| Very Good| 2. 51| 3. 25| Important| Good| 1. 76| 2. 50| Unimportant| Fair| 1. 00| 1. 75| Very Unimportant| Poor| level of Practice Lower Limit| Upper Limit| Response Category| Interpretation| 3. 26| 4. 00| Often| Very Good| 2. 51| 3. 25| Sometimes| Good| 1. 76| 2. 50| Seldom| Fair| 1. 00| 1. 75| Never| Poor| The Chi-Square will be utilized to determine the relationship between the Profile and Level of Knowledge, and Profile and Level of Practice.

To determine the relationship between the Level of Knowledge and Level of Practice of company nurses, the Pearson-r will be used. The Thematic Content Analysis will be utilized to get the result of the responses of Part IV and Part V of the research tool. DEFINITON OF TERMS For a clear understanding of the thesis, the following terms are defined operationally. Background Characteristics-is the description of the key informants who are being studied. It is use to identify age, gender, civil status and years of formal education.

Call Center Agents – means people that are hired in a Business Process Outsourcing (BPO) company. Their opinions and views are being studied regarding the Paternalistic Management Approach. Company Nurses-emphasizes the key informants of this study. They are registered nurses working in a Business Process Outsourcing (BPO) company. Influence –refers to the outcome of Paternalistic Management Approach between the working relationship of Company Nurses and the Call Center Agents. Knowledge on Paternalistic Approach- implies on the understanding of Paternalistic Management Approach.

Level of Knowledge- means the degree of understanding about Paternalistic Management Approach of Company Nurses working in a Business Process Outsourcing (BPO). Having variables of very important, important, unimportant, and very unimportant. Level of Paternalistic Approach Practice- refers to the degree of a repeated action of Paternalistic Management Approach of Company Nurses working in a Business Process Outsourcing (BPO) company. Paternalistic Approach- means a father-figure kind of a method which has a softer side when company nurses are dealing with patients who are working in a Business Process Outsourcing (BPO) company.

Paternalistic Approach Practice- implies on the repeated action of the Company Nurses using Paternalistic Management Approach in a Business Process Outsourcing (BPO) company. Respondents- are the key informants of this study. The Company nurses are the one who are being studied. Response-refers to the reaction of the Call Center Agents regarding the Paternalistic Management Approach as practiced by Company Nurses in a Business Process Outsourcing (BPO) company.

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Pros and Cons for Outsourcing

The Pros and Cons of Outsourcing services in the US By Berend Schoute (1713035), student of the VU university Amsterdam. INTRODUCTION Hillary Clinton, “I don’t know what reality the Bush administration is living in, but it’s certainly not the reality I represent, from one end of New York to the other. ” This response came on the statement of the head of U. S. President George W. Bush’s Council of Economic Advisers, Gregory Mankiw. He said: “outsourcing is just a new way of doing international trade,” which makes it “a good thing. ” In the last decade most economists are a proponents of offshoring services outside of the US.

They say that the benefits of outsourcing exceed the disadvantages. The main discussion is more likely a political one. It shows that a lot of citizens are pursuing protectionism to prevent any problems for American workers. THEORY Outsourcing occurs when a company fragmentizes a production process and sends this to another outside company. When companies are outsourcing to other countries/continents, it is also known as offshoring. A survey held by Lewin and Peeters (2006) showed that 90 of the 650 companies that are listed on the US Forbes Global 2000 are offshoring major business functions at that time.

This outcome says that many major companies are interested in outsourcing jobs. Further outcomes mentioned that overall IT-functions (66% of the survey participants) are mostly shipped elsewhere, followed by Finance/accounting functions (60%). The most attractive destination for offshoring is India, where 60% of the functions of companies participated in the survey is to be offshored to. (Lewin and Peeters,2006) There are multiple arguments for offshoring jobs to another country. Some of these reasons can be examined by simply looking at the numbers, but most of them are abstract and difficult to catch.

We speak of an omitted variable bias when a model that you create misses some important causal variables. The model can give you some positive results, but it isn’t reliable. This problem can occur in every survey, so the investigators need to be careful with the outcomes. The main argument for outsourcing is clearly labor cost reduction. The differences in wages are very large between the developing countries and the US. For example, an IT-specialist is paid $ 60 per hour on average in the US, where India pays this worker only $ 6 per hour.

Although these cost benefits trough labor are substantial, extra costs incur when setting up the new offshore location. After taking all costs in account, there still is a cost reduction of 45 to 55 % (Mckinsey Global institute,2003). This cost reduction can cause a higher productivity because the domestic firm can focus on other important operations. Drezner (2003) said: ‘Thanks to outsourcing, U. S. firms save money and become more profitable, benefiting shareholders and increasing returns on investment. Foreign facilities boost demand for U. S. roducts, such as computers and telecommunications equipment, necessary for their outsourced function. And U. S. labor can be reallocated to more competitive, better-paying jobs’. This statement is fully supported by most economists. The commodification process allows the spread of the benefits of IT-outsourcing even further, making the growth and the competitive advantage even greater (Drezner, 2003). A simple explanation of the advantage can be given by looking at the Heckscher-Ohlin model. This model simply suggests that countries that are capital abundant will export capital intensive products vice versa.

For example it explains the fact that India focuses on labor intensive products because this abundance causes a competitive advantage caused by relatively low wages. In reality it’s off course more difficult, because the underlying assumptions are hardly realistic: 1. factors of production are perfectly mobile and 2. no difference in level of technology across countries. Drezner(2003) explained this by the following statement: ‘The logic underlying an open economy is that if the economy sheds jobs in uncompetitive sectors, employment in competitive sectors will grow.

If hitech industries are no longer competitive, where will new jobs be created? ’ This previous theoretical introduction didn’t made the discussion between the pros and cons yet clear. It simply shoes some arguments of a proponent and a opponent. We still need hard evidence from both parties to give a good view on the truth. PROS VIEW Opponents of outsourcing are talking about the fact that American workers are losing their jobs cause of the labor movements. This is off course a fact, but what are the actual numbers ? The Mckinsey Global institute (2003) notes that in the upcoming 5 years , the growth was going to be around 30-40%.

Forrester Research predicts that the total outsourced jobs will be around 3,3 million in 2015. According to projections, the hardest hit sectors will be financial services and information technology (IT). In one May 2003 survey of chief information officers, 68 percent of IT executives said that their offshore contracts would grow in the subsequent year (Mckinsey Global institute,2003). Therefore, at first sight the perception of the opponents is really sustainable. The total growth in the last two years (2002-2003) was really good, the productivity growth was even greater.

The overall job growth have been really alarming. This indicates that the opponents are right in their perception. Controversially, if you unpack the numbers, you will find that 90% of all jobs in the US require geographic proximity. So these jobs were untouched anyway. The Forrester prediction of 3,3 million is spread over 15 years which means 220 thousand extra outsources jobs per year. Nowadays employment in the United States is about 130 million, and with approximately 22 million new jobs to be added till 2010, means that the effect of offshoring is less than 0,2% of American workers (Drezner,2003).

Another argument of the proponents is that the net change in the outflow of workers against the inflow is negative. So the difference between insourcing workers because of foreign companies coming to the US and outsourcing is getting smaller. An important argument pro outsourcing is the fact that it increases the productivity of a company. The question we need to ask ourselves is can we confirm this increase with empirical evidence. Amiti & Wei (2006) investigated this question and have found some nice figures. In their survey hey tried to analyze whether there are any benefits of outsourcing in the productivity of a company. To prevent an omitted variable bias, they needed to find a valid instrument for service offshoring. In their regression model they used the number of internet hosts in the countries that supply the largest shares of services to the US. These outcomes reflect the changes in new technologies that would only affect US productivity through their effect on offshoring. Their empirical outcome was that there is a positive effect on productivity through outsourcing. CONS

The American citizens who are pursuing protectionism to prevent any problems for American workers. They say that they lose jobs because of outsourcing. This off course is true, but it’s important to look at the percentage that is reemployed. This number is provided by the Bureau of Labor Statistics, which tells us that 69% of the workers that lost their job due to offshoring, eventually is reemployed. In the previous, I only talked about low-skilled jobs outsourced to other countries. Nowadays a new trend is unfolding with the outsourcing of high value added jobs to ‘developing’ countries.

For example radiologists who can be replaced by cheaper Indian radiologists that constantly are able to screen material that was send to them by US hospitals. The exact numbers aren’t clear because this trend recently came up. The debate about the high skilled outsourcing should focus on consolidating strength of the US in higher value added knowledge services where investment in human capital will be decisive. Until there is no empirical evidence of a negative effect of this kind of outsourcing, the US must focus on the quality of their higher value added knowledge services (Rudiger, K. 2007). There are also a couple of other disadvantages that come up when outsourcing services overseas. These disadvantages have been used by the opponents of outsourcing. A first struggle can be that a newcomer can find itself a unreliable supplier, which puts his work aside when finding a better paying partner or a supplier loses the workers who finds better paying jobs. In reality a supplier loses around 15 to 20 % of it’s workers each year (Weidenbaum, 2003). Other hidden costs or disruptions can be for example bad infrastructure, a lot of power blackouts and extra transportation costs.

Weidenbaum also states ‘overseas managers often do not understand the American business environment: our customers, lingo, traditions, and high-quality control and expectations for prompt delivery of goods and performance of services’. These disadvantages can be prevented by good outsourcing preparation. CONCLUSION In the beginning of this essay I discussed the US protectionism to offshoring jobs. When looking at all the studies it came clear that offshoring brings substantially benefits to the economy of the US (and the world).

In this essay we saw that firms can reduce costs up to 55 % of the particular department. Because of the cost reduction and productivity growth, the US can improve its output and competitive advantages against other countries. The disadvantages do not outweigh all the advantages of outsourcing discussed in this essay. When the politicians focus on the flexibility and quality of the economy they can create a win-win situation for the US. In the upcoming years next studies need to be about whether any skill group (high value added services in particular) is relatively more affected. REFERENCES Amiti & Wei. 2006). Service Offshoring and Productivity: Evidence from the United States. NBER Working Paper no. 11926. Drezner, D. (2004). The outsourcing bogeyman. Foreign Affairs. Mckinsey Global institute. (2003). Offshoring: Is It a Win-Win Game? ” Weidenbaum. (2003). Outsourcing: Pros and cons. Business Horizons (2005) 48, 311—315 Lewin and Peeters (2006). “Offshoring work: Business hype or the onset of fundamental transformation? ” Long Range Planning, 39(3): 221–239. Rudiger, K. (2007). Offshoring, a threat for the UK’s knowledge jobs? A working paper prepared for the Knowledge Economy Programme.

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Information Technology Outsourcing Management

What is IT outsourcing? IT outsourcing is an arrangement in which a company subcontracts its information technology related activities to be executed by a different company. In the past several decades, as the role of information technology grew in the performance of a company, the fixed cost of maintaining up and running IT facilities and staffs was increasing as well.

Therefore outsourcing solution was derived from companies’ need to achieve superior performance of IT functions with minimum amount of cost. Major classifications of IT functions that companies outsource are infrastructure and applications. Infrastructure outsourcing refers to a company resolving its entire IT activities handled by a contracted vendor company on the company’s behalf.

Application outsourcing stands for a company subcontracting only its core IT applications such as ERP systems, document management systems or Business intelligence applications with service provider. Benefits and Risks Although it is obvious that primary cause of increasing trend of outsourcing is a cost factor, many other benefits come along with outsourcing. Outsourcing allows companies to shift their whole attention on the quality of their core activities without facing the vulnerability of poor level of IT performance.

Because no matter what industry a company is in, cost and pressure of having in-house IT solutions require the company to be an expert in IT industry which is difficult to achieve for any size organizations especially for entrepreneurs and small businesses, slowing down their productivity as well as slowing down the economy. Subcontracting IT activities to a specialized vendor company is indeed a win-win situation for the both end, enabling the organization to upgrade its IT performance and providing business to the vendor company.

Moreover, with outsourcing, organizations can get access to variable IT skills and knowledge which potentially can improve their efficiency, and outsourcing makes accommodating any new IT innovations or changes in any industry easier to handle for organizations. Needless to mention the benefits of savings on investments in IT related infrastructure which can be spent towards organizations’ business expansion or something equally important. The benefits mentioned above can be substantial only if outsourcing is practiced arefully with good management. Otherwise, oversights of important issues can bring significant complications to the organizations. Based on the stories of unsuccessful outsourcing practices, the most considerable problems the organizations encounter are the lack of integration between vendor and client, hidden costs of training, miscalculation of proficiency of the vendor company, and sometimes differentiation of the client company can be compromised since the vendor company could be serving the competitor company as well.

In terms of a company outsourcing its entire IT department from a service provider company, implementation of good collaboration and communication with each other often requires some time and patience from both sides due to the differences of cultural, geographical and preferred business practices. The fact that knowledge transfer is the most important term in IT outsourcing implies the integration process of vendor and client companies is more virtual than physical.

That is why the people problems such as different interpretations of the contract, conflicts of two cultures and lack of preparation for integrated operation occur very often and if ignored, they could result negative impacts on both companies. Legal, economic, geographical and political environments of the country in which the client company outsources its IT activities are the most important but often ignored factors. When the host countries face civil war or natural disaster happens, the recovery costs the companies encounter are usually incalculable. IT outsourcing best practices

Through weighting the positive and negative impacts of outsourcing carefully and planning the shifting process step by step, companies can successfully implement outsourcing to its daily business practices and convert it to one of its competitive advantages easily. Recommended best practices of IT outsourcing usually focus on good management and good assessment of choosing the partner. Maintaining good communication with your service provider before and after signing on the contract is also an essential part of setting up a sustainable IT solution for any company.

Every company and every project has its own uniqueness therefore the service provider understands the detailed requirement is necessary. And the difficulties both side face due to the cultural and geographical differences can be resolved by committing to good communication. For example leaders of both sides should agree on set, clear objectives and stay committed to them when circumstances change. Although the cost reduction is the primary motive of outsourcing, overdoing it can compromise the organizations’ core activities.

In today’s globalizing world, importance of maintaining good IT performance is greater than ever to the organizations’ wellbeing so that pursuing the lowest cost can have its own price. The reason why is that the vendor companies are also business institutions depending on their profits therefore in order to meet the client’s cost requirement they sometimes cut corners such as hiring under qualified staffs which consequently affect the quality of the client companies’ operation.

In order to make the integration process easier, the outsourcers should put effort into finding compatible service providers. It is important to make sure that your service provider has organization cultures and preferred business practices similar to yours since they will become a part of the organization. Another essential outsourcing practice is to consider the service providers’ experience and capacities to assess whether they are skilled enough to maintain your company’s operation at all times.

In terms of choosing their partner, organizations also should consider any expected future changes in the market and their future expansion plans as well as their competitors’ IT performance level. Political and social environments of the countries in which the vendor companies operate, should not be out of concern. Outsourcers should always be aware of the political situation of their host countries as well as social factors that could influence the quality of employees’ job performance.

It is recommended to outsourcers to keep presence of representative on-site as a middle man so that they can have some kind of coordination over the execution of the IT activities. Representatives also work as a communication bridge between partners making sure each side understand their roles and responsibilities. Legal aspects Legal aspects of IT outsourcing might be the most complicated issues the enterprises encounter since it involves various types of laws such as international and domestic.

International common laws such as Intellectual Property, Copyrights, Patent, Trade Secret, Privacy and Information security all need to be considered when a company makes an outsourcing related decision. Any outsourcing contract addresses the tangible and intangible issues and their legal implications as well as procedures in order to avoid lack of clarity. For example pricing is very important aspect of IT outsourcing contract and any possible uncertainty related to the pricing of service should be stated on the contract.

Inflation, delays, manpower and material shortages and insolvency all must be concerned and put on the contract to regulate when situations mentioned above happens. Also outsourcing contract should be flexible to adjust any changes in performance, quality, and suitable to host country’s tax law, pension laws to solve staff related matters. Intangible issues on the other hand should be carefully thought through because they pose the highest risks on the organizations’ domestic and international operation.

When companies outsource their entire or partial IT function, the risk of their customers’ valuable information such as social security numbers, medical history, credit card information to be exposed gets higher as well as their own internal secret information. A company must do risk assessment of the host country’s security environment by measuring how effective the laws referred to intellectual property, copyright, digital hacking and violation of privacy are. Unfortunately laws pertaining to privacy protection are not so effective in today’s most popular IT service provider countries such as China, India and Philippine.

Therefore offshore IT centers and outsourcing companies must establish strong system together to protect themselves as well as their customers. Intellectual Property and Patent laws have strong presence in USA and European countries but they differ in host countries. Illegal use of one’s IT innovation such as software, source and know-how are not the front line concerns of governments of foreign countries right now, so outsourcers usually face tremendous risk of their intellectual property stolen and used against their products in the market.

US companies’ trade secrets are also totally dependent on mutual trust and written agreements between two parts. There is no law enforcement system in the host countries to back up such written agreements. Basically, US companies pursuing offshore outsourcing as an IT strategy must consider domestic and international laws extremely and craft their outsourcing contracts focused on to minimize any risks they may encounter in unfamiliar legal environment. Sources: http://www. infoworld. com/d/adventures-in-it/13-best-practices-it-outsourcing-034? age=0,0 http://blog. everythingcu. com/2006/02/12/the-many-downsides-of-outsourcing/ http://www. cio. com/article/40380/Outsourcing_Definition_and_Solutions A Legal Perspective on Outsourcing and Offshoring, Sam Ramanujan; Sandhya Jane Journal of American Academy of Business, Cambridge; Mar 2006; 8, 2; ABI/INFORM Global Outsourcing best practices Outsourcing and Offshoring: The New IS Paradigm? , William R King Journal of Global Information Technology Management; 2005; 8, 2; ABI/INFORM Global www. wikipedia. com

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Top 10 Risks of Offshore Outsourcing

Top 10 Risks of Offshore Outsourcing Summary: Offshore outsourcing is growing 20%-25% per annum, with little evidence of slowing. Indeed, while most enterprises experience initial resistance, most technical issues are readily resolved and geopolitical risk is deemed insignificant after careful evaluation. By Dean Davison | December 9, 2003 — 00:00 GMT (16:00 PST) Offshore outsourcing is growing 20%-25% per annum, with little evidence of slowing. Indeed, while most enterprises experience initial resistance, most technical issues are readily resolved and geopolitical risk is deemed insignificant after careful evaluation.

Even the current political fervor about jobs being moved offshore via outsourcing is not impacting the demand or strategy of IT organizations. Offshore outsourcing will continue to grow as a “labor arbitrage” model until 2008/09. META Trend: During 2004/05, outsourcing will divide into commodity and transformational services. Infrastructure services will mirror grid-computing structures and develop consumption-based pricing (a. k. a. , “utility services”). Through 2006/07, transformational services (e. g. application development maintenance and business process outsourcing) will segment along horizontal (function commonality) and vertical (specialized) business process/services outsourcing functions. Although vendors will attempt to bundle infrastructure with “value” services, clients will demand “line item” pricing by 2008/09. Through 2004/05, IT organizations will outsource discrete projects/functions offshore (e. g. , from application development projects to specific call center support). Growth will continue at 20%+.

Offshore strategies by domestic vendors will shift business from large, integrated outsourcing contracts, but most IT organizations will still develop strategies that focus on pure-play offshore vendors. The top 10 risks of offshore outsourcing are as follows. 1. Cost-Reduction Expectations The biggest risk with offshore outsourcing has nothing to do with outsourcing – it involves the expectations the internal organization has about how much the savings from offshore will be. Unfortunately, many executives assume that labor arbitrage will yield savings comparable to person-to-person comparison (e. . , a full-time equivalent in India will cost 40% less) without regard for the hidden costs and differences in operating models. In reality, most IT organizations save 15%-25% during the first year; by the third year, cost savings often reach 35%-40% as companies “go up the learning curve” for offshore outsourcing and modify operations to align to an offshore model. 2. Data Security/Protection IT organizations evaluating any kind of outsourcing question whether vendors have sufficiently robust security practices and if vendors can meet the security requirements they have internally.

While most IT organizations find offshore vendor security practices impressive (often exceeding internal practices), the risk of security breaks or intellectual property protection is inherently raised when working in international business. Privacy concerns must be completely addressed. Although these issues rarely pose major impediments to outsourcing, the requirements must be documented and the methods and integration with vendors defined. 3. Process Discipline (CMM) The Capability Maturity Model (CMM) becomes an important measure of a company’s readiness to adopt an offshore model.

Offshore vendors require a standardized and repeatable model, which is why CMM Level 5 is a common characteristic. META Group observes that approximately 70% of IT organizations are at CMM Level 1 – creating a gap that is compensated for by additional vendor resources on-site (see Figure 1). Companies lacking internal process model maturity will undermine potential cost savings. 4. Loss of Business Knowledge Most IT organizations have business knowledge that resides within the developers of applications. In some cases, this expertise may be a proprietary or competitive advantage.

Companies must carefully assess business knowledge and determine if moving it either outside the company or to an offshore location will compromise company practices. 5. Vendor Failure to Deliver A common oversight for IT organizations is a contingency plan – what happens if the vendor, all best intentions and contracts aside, simply fails to deliver. Although such failures are exceptions, they do occur, even with the superb quality methodologies of offshore vendors. When considering outsourcing, IT organizations should assess the implications of vendor failure (i. . , does failure have significant business performance implications? ). High risk or exposure might deter the organization from outsourcing, it might shift the outsourcing strategy (e. g. , from a single vendor to multiple vendors), or it might drive the company toward outsourcing (if the vendor has specific skills to reduce risks). The results of risk analysis vary between companies; it is the process of risk analysis that is paramount. 6. Scope Creep There is no such thing as a fixed-price contract.

All outsourcing contracts contain baselines and assumptions. If the actual work varies from estimates, the client will pay the difference. This simple fact has become a major obstacle for IT organizations that are surprised that the price was not “fixed” or that the vendor expects to be paid for incremental scope changes. Most projects change by 10%-15% during the development cycle. 7. Government Oversight/Regulation Utilities, financial services institutions, and healthcare organizations, among others, face various degrees of government oversight.

These IT organizations must ensure that the offshore vendor is sensitive to industry-specific requirements and the vendor’s ability to: 1) comply with government regulations; and 2) provide sufficient “transparency” showing that it does comply and is thus accountable during audits. The issue of transparency is becoming more significant as requirements such as the USA PATRIOT Act and the Sarbanes-Oxley Act place greater burdens of accountability on all American corporations. 8. Culture A representative example: although English is one official language in India, pronunciation and accents can vary tremendously.

Many vendors put call center employees through accent training. In addition, cultural differences include religions, modes of dress, social activities, and even the way a question is answered. Most leading vendors have cultural education programs, but executives should not assume that cultural alignment will be insignificant or trivial. 9. Turnover of Key Personnel Rapid growth among outsourcing vendors has created a dynamic labor market, especially in Bangalore, India. Key personnel are usually in demand for new, high-profile projects, or even at risk of being recruited by other offshore vendors.

While offshore vendors will often quote overall turnover statistics that appear relatively low, the more important statistic to manage is the turnover of key personnel on an account. Common turnover levels are in the 15%-20% range, and creating contractual terms around those levels is a reasonable request. Indeed, META Group has seen recent contracts that place a “liability” on the vendor for any personnel that must be replaced. The impact of high turnover has an indirect cost on the IT organization, which must increase time spend on knowledge transfer and training new individuals. 0. Knowledge Transfer The time and effort to transfer knowledge to the vendor is a cost rarely accounted for by IT organizations. Indeed, we observe that most IT organizations experience a 20% decline in productivity during the first year of an agreement, largely due to time spent transferring both technical and business knowledge to the vendor. Many offshore vendors are deploying video conferencing (avoiding travel) and classroom settings (creating one-to-many transfer) to improve the efficacy of knowledge transfer.

In addition, employee turnover often places a burden on the IT organization to provide additional information for new team members. Business Impact: Offshore outsourcing can reduce IT expenditures by 15%-25% within the first year. Longer term, process improvements often make great impacts on both cost savings and the quality of IT services delivered. Bottom Line: As IT organizations consider the vast benefits and allure of offshore outsourcing, they must balance the risks and uncertainties with the potential for labor arbitrage.

Strategic Decision Challenges Researchers have applied different perspectives to understand sourcing decision, the key among them being production and transaction cost economics (Ang & Straub, 1998), resource-based views (RBV), and resource-dependence views (Teng et al. , 1995). The Resource-Based View (RBV) argues that a firm’s competitive advantage depends heavily on its resources, as well as how these are used. Resources that are valuable and rare can lead to the creation of competitive advantage (Wade & Hulland, 2004).

Competitive advantage can be sustained over longer time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution. The knowledge-based theory (KBV) of the firm considers knowledge as the most strategically significant resource of the firm. Its proponents argue that, because knowledge-based resources are usually difficult to imitate and socially complex, heterogeneous knowledge bases and capabilities among firms are the major determinants of sustained competitive advantage and superior corporate performance.

There is certain level of paradox in outsourcing when viewed from RBV or KBV prisms. Proponents of outsourcing have often used RBV to justify outsourcing decisions. The lack of resources, or resource gaps, that a firm has can also be rectified by acquiring resources from outside the firm boundaries by souring arrangement (Teng et al. , 1995). Outsourcing has been considered as a part of the way that firms assemble knowledge from suppliers (Shi et al. , 2005). Thus, information systems (IS) outsourcing can be seen as a mechanism to integrate IS knowledge from IS vendors.

Knowledge sharing by both, client and supplier sides, is considered to be a success factor in outsourcing (Lee, 2001). However, some researchers have raised concerns regarding the potential loss of internal know-how through IS outsourcing (Willcocks et al. , 2004) and the potential loss of intellectual property (Chen et al. ,2002; Evaristo et al. , 2005). Outsourcing involves the inherent risk of forgoing the development of the knowledge base of the firm. Hoecht and Trott (2006) argues that innovative capability of the firm is largely dependent on cumulative knowledge built up over many years of experience.

Innovative ability cannot be simply bought and sold. Earl (1996) argues that innovation needs slack resources, organic and fluid organizational processes, and experimental and entrepreneurial competences – all attributes that external sourcing does not guarantee. Aron (2005) describes these risks as the long-term intrinsic risks of atrophy. These risks are an inevitable byproduct of the process of outsourcing. Over time, if a company outsources an activity completely, it loses the core group of people who were familiar with it. They retire, they leave for employment where their skills are more alued, or they simply become less technically competent and out of date. Reliance on outsourcing is problematic, not only because key areas of expertise may be gradually lost to the outsourcing organization but also because outside providers may not have the desired leading edge expertise over the long-term (Earl, 1996) or may spread their expertise among many clients so that it degrades from core competency to mere industry standard. Hoecht & Trott (2006) remind senior managers of the harm that may be inflicted on the ability of the organization to survive in the long term if its core competencies are slowly eroded through outsourcing.

A related issue is that of the strategic intent (DiRomualdo & Gurbaxani, 1998) behind the offshore outsourcing decision by organizations. Strategic intent in this context can range from an improvement in the IS unit of the organization (which generally provides the lowest degree of benefits), an improvement in the business processes of the overall organization, or a commercial intent to generate profits by developing core expertise in the domain of outsourced IT service (Kishore et al. , 2004–2005).

The commercial intent is exemplified in the oft-cited case of American Airlines who established a new subsidiary to sell airline reservation related services commercially to other airlines and travel agents using Sabre, its airline reservation system, and to generate new revenues and profits from this line of business. Strategic intent behind outsourcing is an important challenge as it has been shown that stock market reacts favorably and rewards companies when they outsource with an intent of creating the maximum returns for the firm (Agrawal et al. 2006). On the vendor side, vendors can develop their expertise through building knowledge from experiences and holding the knowledge for competitive advantage. Szulanski (Szulanski, 1996) identifies lack of incentives, lack of confidence, turf protection, and the “not invented here” syndrome as motivational factors potentially influencing knowledge transfer in outsourcing arrangements.

This two-sided nature of knowledge transfer is expected to create asymmetric information leading to outsourcing failures. From a client’s view several challenges then arise including deciding what is the right proportion of IT function insourced or outsourced, and what IT application should be outsourced or kept within for strategic reasons.

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Hbr Cases Csr Outsourcing in Tangers 2 P

CASE STUDY: Multinational Outsourcing and CSR. Inditex: The worldwide outsourcing garment industry and social community development in Morocco Intermon claims that pressures on foreign clothing suppliers are smothering employees. […] In Morocco, where Cortefiel, Inditex Zara), Mango and Induyco El Corte Ingles)manufacture their products, a Tangier based textile factory sold a pair of slacks to large Spanish retailers for 3.3 euros three years ago; today, the same item sells for 2 euros. Female factory workers work 12 to 16 hours a day during the high season, because orders from Spain demand six ? ay delivery terms in order to suit shop window change schedules. ” (El Pais Newspaper, “Mujeres en Aprietos”, 10 ? 02 ? 2004) towards process outsourcing that responded to its characteristic labor ? intensive production and current competitive pressures for cost reduction and flexibility. Sector companies had been forced to redesign their business strategies, focusing on performance measurement, new competence and skill development, product quality improvements and more strategically oriented human resources management.

Yet, this new strategic focus entailed unprecedented  risks,  especially  as  regards  labor  practices,  environmental  care  and  unfair  competition. As  multinational companies embarked on this process, multilateral agencies and global NGOs had  begun to look into and report on wrongful practices by large corporations, significantly calling  the attention of increasingly sensitive and aware consumers and customers. Global society was  urging apparel industry players to adopt a more responsible attitude to be embraced by their  entire business value chain, including vendors and outsourced suppliers.

Thus, Inditex was held  responsible for what went on at outsourcing shop s owned by Moroccan, Peruvian, Chinese or Indian businessmen. This was precisely why Javier Chercoles, Social Responsibility Department  director  at  Inditex,  was  losing  sleep:  how  could  they  know  for  sure  what  happened  in  over  1,800 outsourcing shops scattered all around the world? Introduction It  was  early  in  October  2005,  and  the  date  set  for  the  next  Social  Council  meeting  was  fast  approaching. This  advisory  body  provided  counsel  to  Inditex  Group  on  corporate  social  responsibility  (hence  CSR)  issues.

The  upcoming  meeting  would  assess  the  CSR  policies  and  programs the Group was developing. The textile industry in general and Inditex ? as an industry  leader ? in particular were facing complex social challenges that affected not only their image  and  reputation  but  their  operations  as  well. Inditex  CSR  strategy  had  emerged  largely  in  response  to  these  challenging  issues. The  time  had  come  to  evaluate  this  strategy’s  impact,  especially  focusing  on  outsourced  shops,  in  order  to  outline  a  future  course  of  action.

Specifically,  Inditex  had  launched  a  program  in  Tangier  and  needed  to  assess  this  experience  and  find  a  way  to  incorporate  it  into  the  Group’s  global  strategy. At  the  same  time,  Javier  Chercoles wondered what options were available for social intervention in developing nations. What were the limits to the company’s social responsibility? Should Inditex strive to ensure the  wellbeing of its suppliers’ workers? He also pondered the visibility issue : Should the company  communicate  its  CSR  efforts  openly,  or  should  it  pursue  a  more  “  subtle”,  low  ? profile  approach?

In recent years, the textile industry had become highly globalized as a result of a strong trend  1 Inditex Group Evolution By late 2005, Spain’s Inditex (Industria de Diseno Textil) Group, owner of several retail brands  including  Zara,  Pull  and  Bear,  Massimo  Dutti, Bershka,  Stradivarius,  Oysho,  Zara  Home  and  Kiddy’s Class, was a world leader in its sector, with more than 2,600 stores in 62 countries. The  first  Zara  store  was  inaugurated  in  La  Coruna,  Spain,  in  1975. Since  then,  the  company  had  opened stores in over 400 cities in Europe, the Americas, Asia and Africa.

Inditex engulfed eight retail chains with broad international presence. The group also included  other  companies  associated  with  apparel  business  design,  manufacturing  and  distribution  operations. Group figures show that Zara, its oldest and most internationally expanded chain,  accounted for 70% of its overall business, with 724 stores located in 54 countries. Europe was  Inditex’s core business focus, featuring 1,945 stores that grossed over 80% of its total sales. In  2005,  the  more  than  1,000  stores  located  outside  Spain  accounted  for  57. %  of  the  group’s  sales,  and  stores  were  opened  in  four  new  markets:  Slovenia,  Slovakia,  Russia  and  Malaysia. Most Inditex stores were wholly ? owned and managed by the company; franchises were only  2 used for 12% of the group’s points of sale, contributing 10% to total store sales from all chains. Inditex had experienced significant growth over the past few years, posting a net income of €  628 million on consolidated revenues of € 5. 67 billion in 2004. As of December 31, 2005, the  group had an overall headcount of 58,190 employees.

Amancio  Ortega  Gaona,  founder  of  Inditex,  started  his  first  apparel  manufacturing  factory,  Confecciones  Goa,  in  1963. Soon  he  developed  an  interest  for  retailing  and  opened  the  first  Zara  S. A. store,  which  became  his  first  retail  and  distribution  company. Since  inception,  Zara  was  positioned  as  a  store  selling  quality  fashion  clothing  at  reasonable  prices. By  the  end  of  the  1970s,  there  were  half  a  dozen  Zara  stores  in  Galicia,  Spain. In  1985,  Inditex  S. A. was  established  as  a  holding  company  atop  Zara.

Since  then,  its  expansion  gathered  momentum: the first store outside Spain was opened in 1988 (in Portugal), and, between 1989 and 1998,  the  company  expanded  to  18  additional  countries,  developing  or  acquiring  other  fashion  brands, such as Pull and Bear and Massimo Dutti. Throughout this process, the Group underwent deep structural changes and went from being  an exclusively Spain ? based producing chain in 1980 to deploying, by 2005, company audited  and certified production centers and providers in the Americas, Africa, Europe and Asia.

This  new  scheme  posed  new  challenges  for  Inditex,  especially  in  terms  of  labor,  social  and  economic  concerns  regarding  its  employees,  its  suppliers  and  outsourcing  shops,  as  the  company  struggled  to  uphold  the  values  and  principles  inspiring  the  Group’s  CSR  strategies. Zara was a successful store, and success brings visibility. For several, reasons, both the media  and the NGO community had their eyes set on Zara, a fact the company could not ignore. culture based on ethics and respect and translate into more than just aesthetic moves.

So, is  Inditex really and globally committed to CSR? (Press release by SETEM NGO, June 15, 2004)    In 1992, Levi’s, a U. S. apparel company, was accused of selling jeans manufactured by Chinese  immigrants working in slavery ? like conditions. In 1994, Kukdong, a Nike and Reebok supplier,  was charged for violating labor standards by hiring minors to work up to 10 hours a day and  allowing verbal and physical employee abuses. In 1998, charges were brought against Adidas  for forcing prison inmates in China to work in despicable conditions.

These  precedents  had  driven  large  textile  companies  all  over  the  world  to  adopt  socially  responsible  strategies  and  policies. Industry  leaders,  like  Nike,  H&M,  Benetton  and  Gap,  had  developed  and  published  codes  of  conduct  that  included  their commitment  to  observe  and  enforce  legal  labor  practices  and  the  principles  contained  in  the  Universal  Declaration  of  Human Rights both at their own production plants as well as their suppliers’. This implied the  adoption  of  specific  practices,  such  as  inspection,  audit  and  evaluation  mechanisms  for  outsourcing shops.

However,  many  NGOs  were  still  quite  skeptical  when  it  came  to  textile  industry  practices. Especially  noteworthy  in  this  regard  was  the  Clean  Clothes  Campaign,1  an  organization  that  originated  in  Holland  in  1984  and,  by  2004,  had  already  turned  into  an  informal  NGO  and  union  network  spanning  throughout  the  world. It  was  devoted  to  pressing  apparel  multinationals to ensure all their products and services were produced in accordance with fair  labor policies, as well as to raising consumer awareness on industry abuses.

The Clean Clothes  Campaign had such a vast impact in Europe that, in 1997, the European Parliament praised its  work and recommended the European Commission to explicitly support this organization. In Spain, the Clean Clothes Campaign had been initially led by Setem, a Spanish development  NGO, and later by Intermon Oxfam, a larger, more established organization. Both had adopted  differing  strategies  in  their  dealings  with  the  industry:  while  Setem  pursued  an  ongoing  and  outspoken  advocacy  strategy,  especially  in  the  case  of  Inditex,  Intermon  ?

Oxfam  preferred  a  more  collaborative  approach  to  both  the  entire  industry  and  Inditex  in  particular. In  2001,  4 Stakeholders’ Reaction to Inditex CSR Strategy “Arteixo. ? SETEM, NGO that coordinates the Clean Clothes Campaign, will attend the textile  Inditex Group’s General Shareholders’ Meeting, to be held tomorrow at Arteixo in La Coruna, in  order to question company officials on primary issues, such as its Code of Co duct’s failure to  refer to International Labor Organization (ILO) standards and the right to a fair wage. Since the  creation  of  the  Inditex  Corporate  Social  Responsibility  Department,  SETEM  ? Clean  Clothes  Campaign  has  monitored  the  company’s  commitment  to  labor  rights,  purchasing  practices,  management  transparence,  etc. ?  in  short,  all  the  aspects  that  truly  determine  a  business  3 Setem purchased Inditex stock in order to join the company’s annual Shareholders’ Meetings.

Setem’s July 2004 press release clearly expressed its position on the company: “Inditex ’s social  responsibility  plan  is  a  deceitful  front  that  has  enabled  the  company  to  portray  itself  in  the  media  as  a  pioneer  in  social  responsibility  issues  in  Spain. ”  Instead,  Intermon  Oxfam,  a  development  NGO  used  to  working  with  business  companies,  published  a  report,  Moda  que  Aprieta (February 2004), that referred specifically to Inditex in the following terms: “This is the  Spanish apparel group that has made more progress in CSR issues.

Its key weakness lies in its  difficulty to match its aggressive marketing policy, based on stringent order fulfillment terms,  and its demand for suppliers to comply with its ethical code. ”    Currently,  Clean  Clothes  Campaign  platforms  were  approaching  several  sector  multinationals  to  formulate  a  proposal  for  good  practices  in  the  textile  industry.   In  other  words,  some  companies  and  NGOs  were  trying  to  analyze  market  pressures  forcing  harsh  productivity,  flexibility  and  low  cost  strategies  on  sector  players  in  an  attempt  to  minimize  their  negative  impacts, such as labor instability and unsafe working conditions. A  group  of  Inditex  top  executives  recognized  the  need  to  approach  company  stakeholders  meaningfully and to develop sound CSR strategies. They believed that it was crucial for Inditex  to  set  in  place  suitable  mechanisms  to  approach  its  stakeholders. The  company  had  already  moved  in  this  direction