1
A STUDY ON HOW OUTSOURCING CREATES CHALLENGES AND ISSUES TO
THE HUMAN RESOURCE IN AN ORGANISATION, A CASE STUDY ON DELL
IRELAND
Dissertation submitted in part fulfillment of the requirements for the degree of
M.B.A Human Resources Management at Dublin Business School
ZEESHAN ABDULKADER
STUDENT NO: 10197747
M.B.A in Human Resource Management 2016
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Declaration
Declaration: I, Zeeshan Abdulkader, declare that this research is my original work and that it has
never been presented to any institution or university for the award of Degree or Diploma. In
addition, I have referenced correctly all literature and sources used in this work and this work is
fully compliant with the Dublin Business School’s academic honesty policy.
Signed: ZEESHAN ABDULKADER
Date: 22/08/2016
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Acknowledgement
I would like to take this opportunity to thank for those who have contributed in any way to
complete my dissertation. I would like to thank the entire DBS faculty, especially to Mr. Eddie
Mcconnon for the help and encouragement to complete my dissertation successfully.
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Table of Contents
List of figures and tables
………………………………………………………………………………………………….. 7
Abstract …………………………………………………………………………………………………………………………. 9
Chapter 1 ……………………………………………………………………………………………………………………… 10
Introduction
………………………………………………………………………………………………………………….. 10
1.1)
Types of outsourcing ………………………………………………………………………………………… 10
a)
BPO (Business Process Outsourcing ……………………………………………………………….. 10
1.2) Reasons for Outsourcing ……………………………………………………………………………………… 11
a)
Financial aspects of the outsourcing
………………………………………………………………… 12
b)
Access to the Technological advancements ……………………………………………………… 12
c)
Could focus on Core competency
……………………………………………………………………. 12
d)
Access to the global talent ……………………………………………………………………………… 13
1.3) Background of the study
………………………………………………………………………………………. 13
1.4) Rationale of the study ………………………………………………………………………………………….. 13
1.5) Organizational back ground
………………………………………………………………………………….. 13
1.6) Scope of the study……………………………………………………………………………………………….. 14
1.7) Aim of the study ………………………………………………………………………………………………… 14
1.8) SPECIFIC OBJECTIVES…………………………………………………………………………………….. 14
1.9) Description about the operational terms …………………………………………………………………. 15
1.10) Structure of dissertation
……………………………………………………………………………………… 15
2.1) Characteristics of an effective literature review ………………………………………………………….. 17
2.2) Meaning and scope of outsourcing ……………………………………………………………………………. 17
2.2 .1 Definitions of outsourcing …………………………………………………………………………………. 18
2.2.2) Background of outsourcing ……………………………………………………………………………….. 20
2.2.3) Factors Leading to Outsourcing …………………………………………………………………………. 20
2.2.6) Core Competence and Outsourcing ……………………………………………………………………. 25
2.3) Theoretical underpinning of current outsourcing research
………………………………………… 26
2.3.1) Theoretical frame work …………………………………………………………………………………….. 26
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2.3.3) Person environment fit theory ……………………………………………………………………………. 27
2.4) ROLE OF CULTURE ON OUTSOURCING
…………………………………………………………. 27
2.5)Employees’ attitudes towards outsourcing ………………………………………………………………. 28
2.6) Role of outsourcing in creates or increases stress, anxiety and inter-personal conflicts in
employees. ……………………………………………………………………………………………………………….. 31
2.7) Role of outsourcing in Change Management Process of the organization
………………….. 32
2.8) Outsourcing affects the safe keeping of official secrets and technical knowhow. ………… 33
CHAPTER 3 ………………………………………………………………………………………………………………… 35
RESEARCH METHODOLOGY…………………………………………………………………………………….. 35
3.1) Introduction …………………………………………………………………………………………………………… 35
3.2) Research Process ……………………………………………………………………………………………………. 35
3.3) Research Onion………………………………………………………………………………………………………. 35
3.3a) Research Philosophy
………………………………………………………………………………………….. 36
i)
Positivism ……………………………………………………………………………………………………….. 37
ii)Realism ……………………………………………………………………………………………………………… 37
iii) Interpretivism …………………………………………………………………………………………………… 37
iv) Pragmatism ………………………………………………………………………………………………………. 38
v) Chosen philosophy …………………………………………………………………………………………….. 38
3.3b) Research approach …………………………………………………………………………………………….. 38
i)Deductive approach ……………………………………………………………………………………………… 38
ii)Inductive approach ……………………………………………………………………………………………… 38
iii) Adopted approach for the study ………………………………………………………………………….. 39
3.3c) Research strategy ……………………………………………………………………………………………… 39
i)
Action research:……………………………………………………………………………………………….. 40
ii)
Experimental Research: …………………………………………………………………………………. 40
iii)
Survey:
………………………………………………………………………………………………………… 40
iv)
Case study:
…………………………………………………………………………………………………… 40
v)
Grounded theory: ………………………………………………………………………………………….. 41
vi)
Ethnography…………………………………………………………………………………………………. 41
vii)
Archival research strategy: …………………………………………………………………………….. 41
viii)
Chosen strategy …………………………………………………………………………………………. 41
3.3d) Research choice ………………………………………………………………………………………………… 42
i)
Mono method ………………………………………………………………………………………………….. 42
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ii)
Multiple method …………………………………………………………………………………………… 42
iii)
Mixed method
………………………………………………………………………………………………. 42
3.3e) Time horizon
…………………………………………………………………………………………………….. 42
3.3f) Data collection and analysis technique …………………………………………………………………. 43
3.3g) Type of data ……………………………………………………………………………………………………… 43
i) Primary data……………………………………………………………………………………………………….. 43
ii)
Secondary data
……………………………………………………………………………………………… 43
i)
Observation …………………………………………………………………………………………………….. 44
ii)
Interview ……………………………………………………………………………………………………… 44
iii) Questionnaire method ……………………………………………………………………………………….. 44
iv) Focus group discussion………………………………………………………………………………………. 45
v) Method chosen for the study ……………………………………………………………………………….. 45
3.3i) Research Ethics …………………………………………………………………………………………………. 45
3.3. j) Data analysis and interpretation …………………………………………………………………………. 46
3.3k) Research Limitations …………………………………………………………………………………………. 46
Chapter 4 ……………………………………………………………………………………………………………………… 47
Data Analysis / Findings ………………………………………………………………………………………………… 47
Chapter 5 ……………………………………………………………………………………………………………………… 66
Discussion and Conclusion …………………………………………………………………………………………….. 66
5.1) Conclusion and Recommendation …………………………………………………………………………….. 78
Chapter 6 ……………………………………………………………………………………………………………………… 80
Reflection …………………………………………………………………………………………………………………….. 80
Reference …………………………………………………………………………………………………………………….. 83
Appendix
……………………………………………………………………………………………………………………… 88
Questionnaire ……………………………………………………………………………………………………………….. 88
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List of figures and tables
Figure 1 Research Onion ……………………………………………………………………………………………….. 36
Figure 2 Research approach
……………………………………………………………………………………………. 39
Figure 3 Communication difficulty and stress at work
……………………………………………………….. 48
Figure 4 Recurrence of wrong reply from outsourced team-
……………………………………………….. 49
Figure 5Recurrence of dispute with the Outsourcing Team counterpart related with work
……… 50
Figure 6 Level of stress increase when work with outsourcing team ……………………………………. 51
Figure 7 Cultural differences induced conflict between in house staff and outsource team …….. 53
Figure 8Cultural differences between Home Team and Outsourcing Team could affect the team
work?…………………………………………………………………………………………………………………………… 54
Figure 9 Lack of awareness of outsourced team about home work culture creates problems in
organization………………………………………………………………………………………………………………….. 55
Figure 10 Recurrence of complaints from customers regarding the services delivered by the
outsourcing Team………………………………………………………………………………………………………….. 57
Figure 11 Nature of complaints from customers regarding outsourced services…………………….. 58
Figure 12 Dell’s staff recurrence of uncomfortable feel while working with Outsourcing Team
Member ……………………………………………………………………………………………………………………….. 60
Figure 13 Outsourcing Team is flexible and quickly adaptive to the changes made by the
Company Management ………………………………………………………………………………………………….. 62
Figure 14 Opinion about Outsourcing raises a potential threat to the company safe keeping of
the official secret
…………………………………………………………………………………………………………… 63
Figure 15 Opinion about Business Process Outsourcing as a threat to their job security ………… 64
Figure 16 Business outsourcing will affect the internal labour market and economy of the
country. ……………………………………………………………………………………………………………………….. 65
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Table 1 Communication difficulty and stress at work ……………………………………………………….. 47
Table 2 Recurrence of wrong reply from outsourced team- ………………………………………………… 49
Table 3 Recurrence of dispute with the Outsourcing Team counterpart related with work ……… 50
Table 4 Level of stress increase when work with outsourcing team …………………………………….. 51
Table 5 Cultural differences induced conflict between in house staff and outsource team
………. 52
Table 6Cultural differences between Home Team and Outsourcing Team could affect the team
work?…………………………………………………………………………………………………………………………… 53
Table 7 Lack of awareness of outsourced team about home work culture creates problems in
organization………………………………………………………………………………………………………………….. 55
Table 8 Recurrence of complaints from customers regarding the services delivered by the
outsourcing Team………………………………………………………………………………………………………….. 56
Table 9 Nature of complaints from customers regarding outsourced services ……………………….. 58
Table 10 Major identified problems of Outsourcing Team working as a team ………………………. 59
Table 11 Dell’s staff recurrence of uncomfortable feel while working with Outsourcing Team
Member ……………………………………………………………………………………………………………………….. 60
Table 12 Outsourcing Team is flexible and quickly adaptive to the changes made by the
Company Management ………………………………………………………………………………………………….. 61
Table 13 Opinion about Outsourcing raises a potential threat to the company safe keeping of the
official secret
………………………………………………………………………………………………………………… 62
Table 14 Opinion about Business Process Outsourcing as a threat to their job security
………….. 63
Table 15Business outsourcing will affect the internal labour market and economy of the country.
……………………………………………………………………………………………………………………………………. 64
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Abstract
Since 1990s the outsourcing has become a hot discussed topic around the world. It has attracted
the business organizations across the globe, those includes large to small sized organizations.
With the benefit like cost reduction, access to new technology and innovations helps the
organizations to improve their financial matrices and business growth. This force and encourage
the organizations to outsource its variety of business process to sustain in the market. In this
study the leaner has analyzed the issues and the challenge faced by the employees that caused
from outsourcing process. The respondents of this study were 900 employees of Dell Ireland.
Issues and complexities faced from outsourcing has been studied and analyzed from the
perspective of employees. Issues and stresses which came from difference in the general culture ,
work culture, communication barriers and other inter personal problems between the In-house
and ‘Outsourced team’ were studied in this research. The concerns and worries of the
respondents about outsourcing and its possible impacts on their job and internal labor market
have also been studied in relation with other issues and concerns.
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Chapter 1
Introduction
In this modern era of rat race, the organizations especially those are in business nature, obligated
to take rigorous measures to ensure the growth and value in the organization. Outsourcing is
defined by Elmuti and Kathawala (2000), as an effort to make the result oriented partnership
with an external agency or service provider, to perform the activities which were conducted in
the organization in a traditional way. According to Mclvor (2010) the business world and the
organizations adopt the principle of outsourcing to expand their market beyond their national
boundaries. So outsourcing can utilize as a new strategy for the business organization to run their
ventures more effectively. Oshri, Kotlarsky, &Willcocks,( 2011) also states that management
view outsourcing as an effective and powerful tool in the strategic management aspect.
According to Elmuti and Kathawala (2000) the private organizations engaged to deliver a wide
range of product and service to maximize the profit is a common practice. For organizations
those are searching for new competitive measures to ensure the growth and to maintain the
competitive edge, outsourcing is a powerful strategy. Outsourcing helps the organization to
achieve its goal through a more effective way with a minimal usage of the resources.
The other important factor which helps the outsourcing to attain its global popularity is, most of
the time the organizations cannot perform all the business process internally. Sometimes these
process are needed in a temporary basis, to tackle all these kind of issues outsourcing does help
the organization in a great extent. Once the business process outsourced to an external agency, it
become their responsibility to carry out the task. Outsourcing can categorize in to two different
types as BPO and KPO. BPO in other words Business processing outsourcing and the KPO is the
Knowledge process outsourcing.
1.1)
Types of outsourcing
a) BPO (Business Process Outsourcing): In BPO service the organization can outsource a
particular process task those are either front office or back office in nature. The front
office functions means those are customer oriented in nature for example answering
phone call, marketing and technical supporting etc. The other business functions like
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purchasing, billing; payroll is fall under the category of the back office functions. Some
of the common businesses outsourcing functions are Call centers, multimedia and
animation related work, book keeping, data entry, medical billing and transcriptions etc.
b) KPO (Knowledge process outsourcing)
Unlike BPO services, those are carried out standardized business process for their
clients, KPO or knowledge process outsourcing deals with the work those are need high
level of the involvement from their employees. In the KPO outsourcing the employees
need to show more advanced level of the analytical and technological skills and
techniques in order to make the decisions. The example for the KPO outsourcings are the
research and development in the pharmaceutical fields, intellectual and patent related
research, animation related work, research and analysis of the data, content writing and
legal series.
c) ITO(Information Technology Outsourcing)
The other type of outsourcing apart from the BPO and the KPO are the ITO or
Information Technology outsourcing. The Information Technology Outsourcing can
describe as the process of seeking the resources outside of the organizations structure to
carry out all or part of the information technology function. The IT outsourcing functions
can range from infrastructure for the software development to the maintenance and the
support of the software functions includes. The main reason for the IT outsourcing is the
cheaper to outsource these functions to the third party rather than develop and maintain
an in-house system for the IT management.
1.2) Reasons for Outsourcing
According to the survey conducted by the Bajpai and Nirupam from the Earth Institute Columbia
in 2006, describes that the 70% of the organization prefer the outsourcing to reduce the cost. The
other key factors those are contributing for the off shore outsourcing are access to the global
talent pool, access to the global market, give focus to the core competency, access to the specific
advantages of the countries, improve the quality of the service provided by the
organization.(Ghodeswar &Vaidyanathan 2008; Sharma and Loh, 2009; Aird and Sappenfield
2009). From a study conducted by Kumar and Eickhof (2006) points towards how outsourcing
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helps the organization to gain its desired financial performance. This explained with the help of
dell case, Dell earned $28 from every one dollar it’s invested in the outsourcing.
a) Financial aspects of the outsourcing
One of the main factors which attract the organizations towards outsourcing is its financial
metrics and cost reduction features. Kakabadse and Kakabadse (2005) also agree that the cost
reduction and financial gain even it is for a short term, is the prime motive for the Western
organizations. The other factors or drivers those are mentioned by the researchers the
achievement of the cost efficiency is the most attracted factor so far. The other commercial
factor of the outsourcing is considered it is the employee related cost. The US banking sector
has saved around $8 billion from outsourcing since 2003. (Pai and Basu, 2007). The
American business organizations those are outsourced to India especially the information
system, prime motto are to keep the development and maintenance cost down. Around 79%
of the organizations benefitted from the lower cost of the outsourcing facilities.
b) Access to the Technological advancements
According to Sahgal and Malhotra (2005) point out that, through the globalization and the
technological advancement the business world could create a global work force blend with
the different cultures working towards a common goal. Through outsourcing the organization
could access the global technological advancement in a cheaper way which is not available
onshore.
c) Could focus on Core competency
Outsourcing the non core functions of an organization helps the organization to focus on its
core competency business. But the core competency of an organization is hard to find and if
the organization to fail to define its core business function has a negative effect through
outsource. Windru et al. (2009) argue that the organizations like Dell and Tesco was
successful to identify and outsourced their core competency business. Dell recognized the
research and development department as its core competency, where as the Tesco’s core
competency function was online business. While Tesco outsourced its internet banking
service, Dell outsourced its buying process.
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d) Access to the global talent
Through the outsourcing the organizations can access to skills and the techniques from the
global talent pool without making huge investment. So outsourcing helps the small start up
business to attract more business through outsource their business process to the service
providers those who have more secure and advanced technologies.
1.3) Background of the study
Since 1990s the outsourcing has become a hot discussed topic around the world. It has attracted
the business organizations across the globe, those includes large to small sized organizations.
With the benefit like cost reduction, access to new technology and innovations helps the
organizations to improve their financial matrices and business growth. This force and encourage
the organizations outsourced its variety of business process to sustain in the market. As a
multinational corporate giant Dell computers also outsourced some of its core and noncore
competency functions, like customer care, supply chain etc and succeed to make some positive
changes as well. Even though the outsourcing is a boon to the business organization it makes
some indifference in the organizational environment. Through this study the leaner is trying to
analyze the issues and the challenges faced by the employees in the organization from
outsourcing and how the employees perceive the process of outsourcing.
1.4) Rationale of the study
The study is focused on outsourcing and how it brings challenges and issues for the human
resource in Dell Ireland. Dell is well known for its outsourcing strategies and outsourcing a
variety of its functions which include the supply chain and after sales services. In this
dissertation leaner has analyzed issues and complexities of outsourcing from the perspective of
human recourse of Dell. The data is collected from the employees of Dell Ireland through
Questionnaire which includes both open end and closed end questions.
1.5) Organizational back ground
Dell, corporate giant managed to maintain its place in the computer system sales for more than a
decade. Dell attained top 50 ranks in the fortune 500. Dell IT products and services range from
hardware, software, support services and consulting services. Dell offers job for more than
100,000 employees around the world through its services, manufacturing, and design sections.
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Dell’s distinctive strategy of direct selling computers to its customers attracts customers around
the world and it helps to attain success in the computer sales and service business. Founder of
Dell is Michael Dell, he was 19 year old when he start the firm with the name PC’s limited. In
1984 with a capital of $1000, he started the business aiming to sell IBM PC –compatible
computers. Within a year Michael managed to make a remarkable gain in the profit revenue. In
1985 Dell could introduced their branded design computer Turbo- PC in to the market. In 1988
Dell entered in to the share market by offering $8.50 per share and renamed as Dell Computer
Corporation. (UK Essays. November 2013)
Dell Ireland is employing around 2500 employees, in its different department like sales, service,
finance and marketing.
1.6) Scope of the study
In this study as discussed earlier the leaner is going to analyze the issues and the challenge faced
by the employees that caused from outsourcing process. If the leaner could identify any issues
and challenges or stress due to outsourcing the organization can find the solutions to rectify it.
The leaner can understand outsourcing and its complexities very clearly.
1.7) Aim of the study
The purpose of this study to find out the major challenges and issues faced by the employees in
Dell Ireland, due to the outsourcing of job to overseas agencies
1.8) SPECIFIC OBJECTIVES
To analyze whether the cultural differences resulted from outsourcing, lead to conflicts in the
working environment of the organization
To find out, does outsourcing create difficulties or reduce quality in delivering service to the
customers.
To understand whether outsourcing creates or increases stress, anxiety and inter-personal
conflicts in employees.
To find out major concern of the in- house staff, regarding overseas business outsourcing
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1.9) Description about the operational terms
The important terms that are used in this study and its operational meaning are explained in this
section. The following terms may hold a different meaning in this study from the regular usage.
Outsourcing
Outsourcing can be defined as the effort to obtain either finished or semi finished product or
service from external agencies, those were previously performed in the organization (Simchi-
Levi et al., 2004).
Human resource:
According to Leon C. Megginson “From the national point of view human resources are
knowledge, skills, creative abilities, talents, and attitudes obtained in the population; whereas
from the view-point of the individual enterprise, they represent the total of the inherent abilities,
acquired knowledge and skills as exemplified in the talents and aptitude of its employees”.
Challenges:
Challenge can explain as the effort that needs great extent of mental and physical activity which
define a person’s ability
Issue:
The term issue discuss in this chapter as the problems which affect the employees, and make
negative impacts upon the employees and business as whole.
(http://www.businessdictionary.com/definition/key-business-issue-KBI.html)
1.10) Structure of dissertation
The structure of the dissertation, mainly consist of six main chapters, those are introduction,
review of literature, research methodology, data analysis and findings. Each chapter constructed
with a logical followed by one after another. The title of the page, declaration,
acknowledgement, followed by table of content with list of tables and figures are also included in
the first part of the dissertation. The abstract which is a brief description about the study included
in the first part of the part of the study.
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Chapter 1: Introduction
In this section, aim and the specific objectives of the study, back ground of the study and scope
of the study is included. A brief description about the topic and the terms are also explained in
this section.
Chapter 2 Review of literature
In review of the previously published literature section, of the study included the outsourcing the
theories associated with it. The issues related with outsourcing also included in this section. This
section the previously published data arranged the in a systematic way as part of the secondary
data analysis.
Chapter 3 Research methodology
In this section of the study, the methodology adopted for the study, explained with the help of the
research onion. Through the methodology chapter the leaner illustrates the way the study
conducted, a detailed explanation of the tools and the techniques used in the study included. The
reasons for chosen methodology are also included in this section.
Chapter 4 Data analysis and findings
In this section of the study, the primary data collected from the respondents analyzed. The brief
description about the findings of the study is incorporated in this part. The tables and the graphs
(pie, bar chart) used to pictures the findings.
Chapter 5 discussion and conclusion
In this part of the study, the leaner explained the findings of the study in a descriptive manner,
and discuss about the outcome of the study, through the data analysis of the primary and the
secondary data. The conclusion of the study is also included as the last part of the discussion
part.
Chapter 6 Reflection
In the reflective part of the study the leaner explained about the learning outcome gained
through conducting this studying.
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CHAPTER 2
LITERATURE REVIEW
A review of literature means an evaluative summary of studies related to selected topic
from the particular subject literature. The review should explain, precise, appraise and
simplify this literature. Literature review helps the reader to determine nature of the
study, more over it gives theoretical foundation for the study. A review of literature helps
the researcher to go beyond the boundary of search to explore maximum information that
is relevant and close to the research topic in order to explain the importance of specific
research topic. Though the type of studies that includes in the literature review may vary
but the basic purpose remains constant.
2.1) Characteristics of an effective literature review
An effective literature review gives an outline of previous research studies by
highlighting significant research trends; Assessing the weakness and strength of existing
researches; Determination of inconsistencies in the body of knowledge; Establishing the
importance of current or future studies.
Focus: the review of literature helps to describe what are research problem, research
question and specific theses?
Type: what type review the scholar follows? Will it stress theory, policy, methodology or
qualitative /quantitative study?
Scope: what are the resources or materials could I use to collect literature and its scope?
Discipline: which academic discipline would be included (nursing, sociology,
psychology, medicine).
2.2) Meaning and scope of outsourcing
Outsourcing in academic literatures is varied and rapidly growing in nature. It touches
various aspects from discussions on traditional theoretical basis e.g. economics of
18
transaction cost (Williamson, 1981) to hand book of practitioners’ on when and how to
outsource. Particularly, in recent years out sourcing and it burst out (for example
Hirscheim and Lacity, 1993, 1995; Minoli, 1995; Lacity and Willocks, 1998,
Venketaraman and Loh, 1992; Bain and Tailor, 1999; Crone, Carey, et al, 2001; Belt
2001; Korczynski, 2001; Walsh and Deery, 2001; Houlihan, Korczynski, and Frenkel,
2001). But the area of research is not clear and well defined by any means. Since the
evolution of outsourcing process, various authors has been tried to define the term
outsourcing throughout the years. Most of these were underwent research and discussion.
2.2 .1 Definitions of outsourcing
Outsourcing is defined by Elmuti and Kathawala (2000), as an effort to make the result
oriented partnership with an external agency or service provider, to perform the activities
which were conducted in the organization in a traditional way. The outsourcing can be
explained as, operating through one or more activities give out to the external agency.
(Lacity and Hischheim (1993). Another definition which explains about outsourcing is
points out that “the act of turning to an external organization to perform a function
previously performed in-house. It entails the transfer of the planning, administration and
development of activity to an independent third party.”( Rothery and Roberson 1996)
The other definition put forward by Sacristan(1999), argues that the it is a mutual
agreement between the organizations, in which one firm is well versed with the
technology and makes the contribution to the other agency based on the agreed terms and
condition for a period of time, by providing the physical and human resources. The other
definition is “the substitution of activities performed in-house by acquiring them
externally, although the firm has the necessary management and financial capabilities to
develop them internally. It is also an abstention from performing activities in-house.”(
Gilley and Rasheed ,2000).
While other authors tries to define outsourcing in a simple way by stating that the
outsourcing can defined as a process of handling over a specific activity partially or fully,
to a third party management to get the desired result (Bailey et al 2002). “The operation
of shifting a transaction previously governed internally to an external supplier through a
19
long-term contract, and involving the transfer to the vendor” (Quelin and Duhamel 2003).
In other definition the outsourcing explained, outsourcing more than merely buying
products and the service from the external firms, it is rather the transfer of more
responsibility like, business function and the associated knowledge.( McCathy and
Anagnostou 2004)
.
It would be clear from the above definitions that, many schools of thoughts unveil that
outsourcing means to acquire predetermined result the process going outside instead of
processed internally. Though, these all definitions express various aspects in partial level,
because these all definitions were put forward by each authors based on the purpose of
their research. Thus, it can be categorized in to three: consist of, outsourcing needs a
long-term, stable collaboration agreement with firms, in which the strategic partner role
enacted by the supplier and where there the independent firms are exchanged relations (
Duhamel and Quelin 2003; Sacristan 1999). Above definitions point out the type of
service or activity could be outsourced, i.e. the services and activities are not categorized
for a firm ( Campos 2001; Hilmer and Quinn 1994; ). From these definitions, outsourcing
consider as an action that transfers responsibility, knowledge, planning, and activity’s
administration through contracts (Anagnostou and McCarthy2004; Roberson and Rothery
1996). Based on the above definitions, an incorporated definition that includes all
features of outsourcing and provides a structure of orientation for this study as given
below: – outsourcing, a planned decision includes the contracting of activities or business
that are non strategic and predetermined process that are essential for providing services
and production of goods by way of contracts and agreements with other companies that
have higher capabilities to do these activities with the focus of betterment in the
competitive advantage. One of the popularly accepted definitions of BPO is proposed by
Gartner- Dataquest- (Godheswar and Vaidyanadhan, 2008).
20
2.2.2) Background of outsourcing
For the last few decades outsourcing has been used by companies in various industries as
an important business strategy. The business processes have looked by the companies
critically and objectively owing to the competitive pressure. In the present scenario
companies are outsourcing business lines, manufacturing operations and entire business
services successfully for the long period of time. The root of outsourcing can be rule out
from the Competitive Advantage Theory propagated by Adam Smith in his book – ‘The
Wealth of Nations (1776)’. Year after year the outsourcing has undergone a lot of
changes. The term outsourcing set off during the time of industrial revolution in the
means to shift raw materials to various locations and countries which demands cheaper
labor coast, in present situation it read on new connotation. Presently advancements in
information technology play a pivotal role in business transactions and definitely it
became the back bone of business sector. With the help of outsourcing, companies hand
over one section or whole business process of one company to another to design and
implement the business according to the needs and requirements of the outsourcing
company, this trend helps companies globally to work in a partnership manner.
Outsourcing service providers take more and more responsibilities in domain that
remained as in-house in the past, such as information management, internal quality
initiatives, corporate strategy, and business investments (Sinderman, 1995).
2.2.3) Factors Leading to Outsourcing
In 1970s, outsourcing gained momentum, when the performance of large companies were
below average, this tendency became more and more prominent with the set out global
recession during 1980s, (Kakabadse and Kakabadse, 2000). In actual fact, a change in
direction was witnessed by the 1980s in the thinking of business strategy- namely,
focusing on fewer activities (Waterman and Peters 1982). The corporate companies were
forced by the changes that are mentioned prior to brush up the concept, self-sufficiency
and vertical integration (Mullin,1996). By the influence of these changes in the outlook,
corporation paves the way for many changes in business. They dissociate from the
supplementary or peripheral business for the core business and de-integrated by
outsourcing requirements for the benefit of non-critical and non-core components and
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services (Grant, 1995, p.381). They were set out an agenda with the belief that great and
quick achievements could be possible by chasing –core strategies (Hamel and
Prahalad,1990). Many companies started to re-engineer their business process; as a result
they wide spread their search for new thoughts and ideas to organize the business
elements. Such beginning encouraged firms to redesign and rethink about business
strategies so as to achieve drastic changes in the important areas, includes service, speed,
quality and cost (Gamble, 1995). These changes categorized below three factors by
Pederson and Jenster, 2000. Each factor is interrelated and difficult to separate one
another.
Globalization: companies have extended their wings beyond their national markets to
contend in global level owing to increasing the product competition with global
companies and also due to short life period of products, business firms forced to access
global markets so as to gain beneficial return from the investment prior to decline the
demand of the product in market.
IT and Production technology: in the present scenario deep and through knowledge in the
related field of work is essential but updating the knowledge will get prime importance
than the fore group in order to compete with the counter parts especially in the business
sector. At present technological advancements help to split-up production process in
place and time, which enhance integration and coordination.
Rapidly changing customer need and preference: today’s customers have wide range
availability of products and services to select from. With the availability of more products
and attractive offerings would lead to divert trust of customers to single product.
By the influence of these changes, today’s business firms ready to take more duties and
responsibilities that were performed in-house previously. Outsourcing became an
ordinary practice for firms, which are functioning globally and domestically. Some
factors, includes advantages of production cost, quality, supplies dependability are
influencing the outsourcing decisions, which were discussed in the management and
economic literature (e.g., Sappington and Demski 1993; Spiegel 1993; Prahalad and
Hamel, 1994 ). Nowadays, multinational companies considering global outsourcing as a
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tool to reduce the effect of fluctuations in the foreign exchange (Shapiro, 1996). From
various studies we can trace out the increasing demand of outsourcing as a gate way to
make link with the overseas markets over conventional way through fully owned
subsidiaries (Lybrand and Cooper, 1996).
2.2.4) Drivers of Outsourcing
In a place where socio-techno-economic components are changing rapidly, it is
impossible to an organization to be competitive and sustain as same in all levels of value chain
(Voleti and Ramachandran, 2004). The outsourcing drivers of a company can be either internal
or external, in the past this had been main focus of researches. The keys to drive outsourcing
vary, that includes, financial reasons, technical reasons and strategic reasons. Financial reasons
are, coast reduction, profits generating additionally and provision for periodical payment by
reducing capital expenditure (Bhattacharya et al, 2003). Technical reasons include
acquaintance with new technology and talents, quality improvement, easy availability of expert
vendors and scale economies. Reasons include in strategic reasons are, focus on core-
competencies and innovations, cost-reduction opportunities and scarcity of skilled workers are
the important problems among practical drivers (Wilson and Brown, 2005; Greaver 2, 1999).
Vaidyanathan and Ghodeswar (2008) outsourcing drivers classified under four category, viz.
improvement, organizational, cost and financial, and revenue. Organizational drivers are
mainly focus and flexibility to compete with fluctuating business conditions. By assigning
concern related to operation to an expert who is from outside the firm to gain access services,
products and emerging technologies. For improving thrust on maintaining the position in
market and development of new products the firm should redirect the resources to serve the
customers from non core activities. Improvement drivers, mainly focus to improve
productivity, quality, operating performance, and timeliness by improving technologies and
skills by obtaining expertise and innovative ideas. For the improvement of operational process
by means of control and management by the collaboration of superior providers, include
improving the credibility and risk management. By eliminating the cost of internal staff and
transferring function to suppliers, the firms would be dynamic and flexible to acquire the
opportunities. Cost and financial driver’s function is the reduction in investments in property
and capital funds in the business other than core business. To control or reduce the functional
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cost, the firm has to accept structure of lower cost function from the outside providers and also
has to move to regions that have new geography. By handling changing needs or demands
more effectively through scale economies the firms can achieve reduction of cost with better
performance. Revenue drivers achieve objectives in a better way by influencing service
provider’s system, capacity and process and also through acquiring better market access.
Revenue drivers are essential to expand its capacity for the services and to design, test and for
the production of new products. To meet the increasing demands of the business and to manage
the activities of the business according to its growth effectively by expand its limits with the
help of outsider’s automation, latest technology, and through process maturity, to concentrate
on enabler’s strategies and growth of business to meet them.
2.2.5) Strategic Reasons for Outsourcing
According the institute of outsourcing, UK, outsourcing may demand important assets transfer,
major organizational disturbance, people’s dislocation, and long term relationship with the
outside partner on the basis of contracts. No one of these make any logic if the benefits are not
to be gained and the risks involved clearly understood and handle by the outset. Outsourcing, it is
a management tool on the basis of long-term strategies. The most important reasons to accept the
outsourcing by the managers (Bragg, 1998) are given below: Helps to develop new skills: If the
staffs in a firm have no adequate skills to meet the new business demands, the organization
consider outsourcing suppliers one who specialized in this field. These outsourcing services not
only solve the problem but also help to acquire good result.
a)
Helps to acquire better management: When the functions are no longer efficient and
effective owing to the poor management, the firms are forced to outsource the in-house
functions to that are expertise in this area.
b)
To focus on strategy: Outsourcing helps the managers to concentrate more on the
strategic problems through handover the tactical issues to outsourcing agents.
c)
To focus on core functions: in certain situations company wants to utilize all
resources and energies fort the core functions and all peripheral functions would be outsourced.
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d)
To avoid major investments: lack of investments in a firm leads to ineffective
functions of a firm by outsourcing such functions the firm permanently escaped from such
investments.
e)
To assist fast growth situations: with the aim of market expansion the management of
the company wants to focus on the total volume of the business equally. If certain functions
handover to an outsourcer will help the management team to concentrate on initiatives for the
growth of the business.
f)
To handle overflow situation: maintain a supplier is effective to reduce the expense by
transferring the functions when tasks are overloaded.
g)
To improve flexibility: when the large swings affect the functions of a firm, it is better
to give payment for the outsourcing agents for the work done by them by transferring the
functions to the supplier group instead of giving fixed cost for the internal staff .
h)
To improve financial ratios: for the better improvement in the return assets, most of
the companies outsourcing its functions which are driven by the ratios of performance.
i)
To launch new strategic initiatives: to bring changes in the overall structure of the
organizations most of the companies utilize outsourcing services by the management team in
the reorganization of the company functions.
j)
To improve overall performance: invitation of bids from the outside source with the
offer of significant levels of service and specific expectation of cost will help to sharpen the
competitive mentality in in-house staff who are working in the same section.
k)
To reduce costs: outsourcing not a cost reduction measure, but the cost can reduce by
the suppliers. If outsourcing services centralizes several companies work will lead to scale
economies.
l)
To enhance credibility: a firm can sharpen its credibility by maintain a contact with
well reputed and recognizable outsourcing servicers simultaneously they will assure quality
services.
m)
To jump to the outsourcing bandwagon: nowadays more and more companies enter in
to outsourcing services, as usual now it also become a business, thus, it becomes one of the
main trends, that is lends credence in a company’s decision.
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2.2.6) Core Competence and Outsourcing
The literature of management argued that the activities shall be outsourced which are out
of firm’s core competencies (Hilmer and Quinn, 1994; Prahalad and Hamel, 1990; 1994,
Venkidesan, 1992). The full focus of a firm should be on the core competence, by
deriving cost benefits, utilizing monopolistic advantage, and through outsourcing other
product’s manufacturing. There are lots of illustrations to prove the handover of vital
functions or core functions to outsourcing; for instance, instead of noncore and harmless
functions includes catering and cleaning outsourcing handling most important or vital
functions of a company such as finance and product development. One of the important
questions is arises in this situation that is, ‘what, is an organization’s core competence?’
.There will not be a clear answer. This is interesting, in 1990s since managerial strategy
accepted core competence concept is an essential thing, and companies could focused on
core competence, and let outsourcing the rest (Pederson and Jenster, 2000).
Core competencies can be defined as a firm’s fundamental business (Teece et al., 1997).
The fact is that some of the companies know how to function well and uniquely and that
is the strength of those companies to get better result than an average grade of success
over long period of time (Gallon et al., 1995). Total learning in an organization
particularly means how to diverse, co-ordinate production skills and to integrate various
aspects of technologies (Phamel and Prahalad, 1990). The definitions that are mentioned
above give a vague idea of core competence; simultaneously it put forth a vivid picture
that it is unique to each organization. It also determines, all competencies are not equally
important. The key determinant of a firm is decided while outsourcing the function or
process. Core competency is vibrant in nature over the years undergoes various changes
and updating the core competency is essential to draw the competitive advantage. To
precise, core competency includes:
Resources: comprises technical human and financial assets;
Processes: includes activities and strategies through which the resources are utilized for.
Capabilities: maximum potential of the company consist of learning, skills, and
experience of a company.
