Outsourcing, ERP implementation, and business continuity plan
Outsourcing is the act of contracting an outside party to business to perform the business processes that could have been done by the outsourcing firm. A firm purchases a service or an activity from outside to fulfill its needs (Elitzur, Gavious, & Wensley, 2012). It is a make-or-buy activity that can be done domestically or overseas. The propensity of companies deciding to outsource is based on the intangibility of a product or service.
The advantages of outsourcing include strategic optimization of company core mission, goals, and strategies, financial benefits, market discipline, better utilization of technology, better focus on the market, reduced operational and recruitment costs, risk sharing, and better management of outsourced activities (Feeny, Lacity, & Willcocks, 2012). On the other hand, the disadvantages include loss of expertise, loss of vision, security control, loss of control over costs, and dependence on external expertise. Other issues include legal constraints, lack of customer focus, taxes, and inability to use new technology.
The key challenges in offshore outsourcing include legal and regulatory frameworks; technology can be stolen, changing workforce and job loss, political issues, societal factors, culture, technical capability and certification of the offshore company, security control, licenses, related work experience, loss of vision, language barriers, government interventions, labor flexibility, qualifications, economic conditions, quality of labor force, and ethical concerns. However, the best five practices in outsourcing include:
Creation of a formal governance process
Accountability
Insourcing
Expediency
Plan for installing upgrades
SaaS is known as a Software-as-a-Service model where services are offered on a pay as you use basis. It is considered as an outsourced option because the software is offered, used, and paid for or rented as one consumes the services. The user enjoys various benefits such as universal access, reliability due to web access, global market, and use of standardized applications.
An auditors presence is important when implementing ERP because it requires that the implementation be done with accuracy besides ensuring that the business process reengineering is done to meet the business goals and objectives of the company on the question (Monk & Wagner, 2012). Here, the auditor makes sure that various factors such as the inclusion of accounting tools are implemented appropriately. That is in addition to careful planning, addressing risk assessment issues as well as analyzing them, ensuring that the technical structures satisfy the accounting and financial requirements of the firm, and providing a complete evaluation of each of the internal controls of the firm.
Studies point out that auditing is necessary to assess the internal access controls because the data in ERPS are pooled together into a single database and the privileges of modifying materials, financial information, and human resources must be secured at the application level, network, database, and operating systems levels. Also, auditing enables user IDs to be scrutinized properly, evaluation and verification of the companys business processes configurations can reveal those business processes that are faulty and the right corrections to be done to make sure they are up to standard. Other factors that make auditing of the ERPS implementation necessary include ensuring that there is the effective implementation of change management strategies, the use of best practices to assure users of their privacy, provision of effective user-friendly interfaces, and the ability to secure personnel information.
The Sarbanes-Oxley Act is a critical component for investors because it provides managers and those on the corporate ladder to take responsibility for their actions and decisions concerning how they handle the finance of those corporate entities they head (Monk & Wagner, 2012). The act requires that managers provide accurate financial reporting of corporate financial statements because it binds them with the mandatory responsibility of certifying that a companys reports reflect a true financial position the company operates on.
Disaster recovery and plan and business continuity include the level of risk exposure, the personnel and financial commitment to ensure that business continues after a disaster has occurred. Other components include insurance, site designation, documentation, data backup, communication channels, emergency procedures, and backup of key personnel. Those who should be involved include the manager, all departments that use the ERP, an ethics guru, auditor, information systems technicians, and Medicare providers.
Components to system security and ERP implementation
The five top security questions to ask include:
Which hardware, software, and hardware technologies are in use?
What approaches were applied to address organizational security objectives?
Which is the mission statement of the organization?
How does the organization assure confidentiality, integrity, and availability of data?
How does the organization assure authenticity and accountability of information?
Who is responsible for the planning and implementation of the security of information systems?
Security must be planned, tested, and ready by the time the ERP implementation to ensure that the system security strategies are consistent with the required standards and requirements for compliance.
Software as a Service
According to Wu, Garg, and Buyya (2012), SaaS is a model that depicts software that is used as a utility and paid for as long as the user has maintained access. On the other hand, traditional outsourcing is based on having the services done by another party where the outsourcing company agrees with the outside firm. Here, the customer, vendor, and outsourcer establish a triangular relationship. Software-asa-Service is an on-demand-software. Software On-Demand (SOD) and Application Service Provider (ASP) constitute the two models on which SaaS services are offered. The vendor takes the responsibility of maintenance, support, and technical operations of the software from a central location.
In comparison, traditional outsourcing is done at a cost without caring who does the work, while SaaS is charged on a monthly or annual basis and usage patterns and the user of the service are from within the company that uses the SaaS. Unlike the ability to use SaaS in a multi-tenant environment and offer some services for free, traditional outsourcing models restrict the availability of services to the full ownership of the software (Wu, Garg, & Buyya, 2012). The vendor has exclusive access to their software products while SaaS enables the user to access the software. Both are time and cost-saving strategies. The circumstances under which companies choose SaaS as opposed to traditional software include when there are enough expertise and employees have experience.
Expert employees can use available technology and that could save the company additional costs of outsourcing besides saving the knowledge in-house that could be used for the future. Also, a company with a focused strategy and that requires improved compliance is bound to for SaaS because its employees are responsible for strategy implementation. Enhanced accuracy in the part of the user necessitates a company to opt for SaaS as opposed to outsourcing. Additional factors include technology advances, risk mitigation, and the need to comply with the recommended software standards and regulations.
References
Elitzur, R., Gavious, A., & Wensley, A. K. (2012). Information systems outsourcing projects as a double moral hazard problem. Omega, 40(3), 379-389.
Feeny, D., Lacity, M., & Willcocks, L. (2012). Taking the measure of outsourcing providers. MIT Sloan management review, 46(3).
Monk, E., & Wagner, B. (2012). Concepts in enterprise resource planning. New York: Cengage Learning.
Wu, L., Garg, S. K., & Buyya, R. (2012). SLA-based admission control for a Software-as-a-Service provider in Cloud computing environments. Journal of Computer and System Sciences, 78(5), 1280-1299.
Outsourcing is increasingly becoming popular among firms in the Gulf Cooperation Council. Companies in major cities such as Dubai, Abu Dhabi, and Riyadh have realized that one of the best ways of achieving success in the current competitive market is to outsource some of the activities from experts (Elsheshtawy 22). According to Yomogida and Zhao, one of the most commonly outsourced services in this region is accountancy solutions (167). In the past, a firm would prepare its books of accounts and present them to all the relevant parties. This meant that they had to hire a team of accounting experts to do this job, especially during the end of the accounting period.
However, many firms have realized that the best way of preparing books of accounts is to hire external experts to do the audit. This comes with a number of benefits. When books of account are audited by an independent authority, then it will give a true image of the financial position of the firm, including any pilferages and misuse of funds. The board of directors can determine how to act on such a revelation to avoid loss of the firms funds. When books are audited by third parties, they are considered reliable by the financial institutions and government authorities. That is why firms offering accounting solutions such as Price Water House Coopers, KPMG, and Ernst & Young among others are currently operating in major cities in this region.
According to Blake and Broschak, one of the reasons why outsourcing has become very popular in the Gulf Cooperation Council is the increasing competition in the market (333). Firms are under a lot of pressure to deliver high-quality products at relatively low prices in order to manage the competition. This will demand a high degree of efficiency. For these reasons, many firms in this region are keen on concentrating on what they have the best capacity to do. Firms are outsourcing some of their functions that were previously done in-house to other companies that have the capacity to do them better.
Wouter and Hall note that another major reason why many firms are outsourcing many activities is the need to have a lean workforce that can deliver high-quality products (329). Inasmuch as industrial actions have not been common in this region, especially in the city of Dubai, Balasubramanian notes that employees have increasingly become very demanding (11). On the other hand, firms are keen on improving their profitability in the market. They cannot achieve the desired target if their employees become increasingly demanding. That is why many firms in Dubai, Abu Dhabi, and other major cities in the region are outsourcing the entire human resource department. This way, the firm will be assured that the demands of the employees will not directly affect its profitability because another firm will have the responsibility of handling such demands.
Some firms in the Gulf Cooperation Council have embraced outsourcing as a way of avoiding the increased cost of operations in the local market. A good example is the partnership between Qatar-based Silatech and Dubai-based Babbesh. These two companies realized that the cost of operating in Dubai and Qatar had been on the rise majorly because of high cost of labor and rental fees. To continue offering their products at the low price that the market desires, the management had to come up with effective ways of reducing the cost of producing a unit product. The solution came in outsourcing some of its production tasks to firms in Palestine where the cost of production is relatively low.
Impact of Outsourcing on Company Projects
According to Yomogida and Zhao, when properly designed, outsourcing can have positive impact on a companys projects (163). This is so because the project manager will have the opportunity to identify project activities that are likely to cost more or those that the firm lacks specialized skills to undertake. Such tasks will be outsourced to firms that have the needed skills and capacity to undertake them at relatively low price. This will improve efficiency in addressing individual tasks in the project. This will increase chances of achieving success in the project. As Blake and Broschak say, outsourcing makes it easy for the project manager to identify individuals who will take part in addressing specific activities within the project (329).
The outcome in such clearly structured setting is always improved product quality and low cost of production. Blake and Broschak warn that the impact of outsourcing may be negative if proper care is not taken when outsourcing (338). This strategy is not a golden bullet that can solve all the operational problems that a firm may have. It is important to determine what should be outsourced and the firm that will be outsourced. Some activities may be too sensitive to be outsourced. The firm that is assigned specific tasks must also have the needed skills in its workforce to undertake the assigned duties. These are some of the factors that if a firm fails to consider, then the strategy of outsourcing may have negative consequences.
Determining Whether Outsourcing Is Preferable
Outsourcing is one of the best strategic options that a firm may have as it seeks to reduce operations expenses and increase its profitability. However, Yomogida and Zhao say that there are a number of factors to be considered before outsourcing some activities (171). The management must determine whether or not outsourcing may be appropriate in various circumstances. Some sensitive tasks cannot be assigned to firms that can easily use them against the success of the outsourcing firm. This means that sensitivity of the task and its relevance to the specialization of the firm is the first factor that determines whether or not a task should be outsourced. The second factor is the associated cost of outsourcing the services.
One of the major aims of outsourcing is to lower the overall cost of operations within the firm. Outsourcing should be seen to achieve this objective. It means that if the overall cost of the project will be higher if some tasks are outsourced, then the management may need to reevaluate the need for outsourcing. The prevailing needs of the firm may make it relevant for the firm to outsource some services. This is very common among firms that operate in the industry that have high and low seasons (Meland and Straume 320). For instance, the hospitality industry in Dubai always receives a lot of visitors during major holidays, especially in December. When this happens, it is common to find the workforce of these hotels overwhelmed by the demands of the customers. At such moments, these hotels may be forced to outsource some services to ensure that the demands of the clients are met satisfactorily.
Reasons of Outsourcing Projects Failure
According to a research by Blake and Broschak, cases of outsourcing project failures have been common in a number of companies within Gulf Cooperation Council (330). A good example of terrific outsourcing failures has been witnessed in the financial sector. Two of the leading financial institutions in the region, Bank Muscat of Oman and National Bank of Ras Al-Khaimah outsourced IT services to boost their service delivery due to their increasing number of online clients in 2012. Less than one year later, the two financial institutions suffered serious cyber attacks that led to massive loss of money and sensitive data of clients (Balasubramanian 11). This was a case where these institutions failed to understand the sensitivity of the information that was released to the third parties. It took time and a lot of financial resources to address this issue.
The Strategy Required To Avoid Outsourcing Project Failure
Outsourcing is an emerging trend in operations management and it is less likely that it will become less popular in our modern society. Firms all over the world are already using this strategy to achieve success in the market. As such, it will be important for companies within Gulf Cooperation Council to understand how this concept can be embraced to achieve the desired result. According to Munch and Skaksen, the first and most important thing is to determine what should or should not be outsourced (65). Sensitive tasks should be done in-house. The next factor is the issue of cost. The management should ensure that the ultimate outcome of the strategy is reduced cost of operations. Another important factor is increased efficiency. The strategy should help the firm in producing high quality products in the market.
Outsourcing is defined as the process through which an organization contracts a function that already exists in the organization to an institute that is independent. In the process, the company ceases to carry out the outsourced function. In the modern business unit, contrary to the earlier ones in which organizations were in-house, many use outsourcing nowadays. Nevertheless, as usual, every outstanding feature must have its own weaknesses which, when ignored, may cost the business a lot. The paper discusses outsourcing, the factors, as well as criteria that are considered preceding an outsourcing deal.
Discussion
To outsource or not to outsource is the question that many businesses in the world contemplate. The answer to if the process is put in place is usually dependent on the details of a project, expertise, and future benefits. In order to engage in the practice of outsourcing, one of the factors that are keenly considered is the role of the product or service in the business. It would be infantile to carry out an investment that is not positive in terms of income to the business (Tallman, 2010, p. 12). Another factor that should be taken into consideration is the specialized skills. Companies carry out the process of analysis to find out to what extent they may seek help in the business, and this is the point that cannot be simply ignored. Additionally, organizations also focus on time. Duration in terms of time is crucial to any business as every businessperson knows that time is money. With regard to this, it is essential to know how long, considering the aspects of the product or service produced, a project that is being outsourced will take, in order to pass the budget that is set forth to meet the period requirements. Furthermore, another factor that is of concern is the confidentiality of the information that is to be disclosed for the development of the product or service since, through this, the lifeline of the business is usually at risk.
Another factor that is rarely considered is the results that the outsourcing project brings forth. It is not wise for any business to ignore this fact since it would be improper to carry out a plan from which the business does not benefit. Therefore, with careful consideration in the life span of the business, it is appropriate to know the skills that the outsourcing endeavor will present to the ongoing business. Furthermore, a business also focuses on whether the project is going to be terminated early due to the lack of adequate resources, and hence through this, the business then knows how it should budget itself so that it may ensure that it does not venture in incomplete projects. The next area of focus is the staff (Tallman, 2010, p. 37). If a company does not have adequate staffing, then the proprietors or managers of the organization usually need to know how they should mange the situation and counter the deficit.
Another issue of concern the business usually focuses on is management. Subsequently, the organizers usually involve in the process of managing the service or product that they outsource. If there are no adequate management procedures, then it means that the outsourcing endeavor failed.
In-house ventures are not quite widespread in the modern world as they were in the past. Businesses usually consider the activity that is outsourced. If the outsourcing project is the core, then there is the need to ignore the prospect since it is a lifeline issue. Additionally, the businesses also focus on whether the service is long or short term, and then it decides as to whether it may develop specialized skills. If, in the event of the execution of the project, there is the process of giving out information that the business considers private, then the organization usually opts out from taking part in that. The final aspect that is considered by businesses is if the employees who are involved in the project will be needed after the completion is over (Tallman, 2010, p. 9). This means that if they are needed, it would be appropriate to outsource, and if not, it would be unwise to employ them. New labor means that if there are new skills, then the company will remain in the business, and that is a positive factor. Additionally, if a project ends with the labor force in the business not acquiring some skills, then it is not wise to partake in it.
Conclusion
To sum everything up, it is worth mentioning that a lot of factors are considered when there is a need to outsource by a company. This is because this process uses the resources of the business, and additionally, it leads to a great employment of the workforce. Therefore, this makes the management focus on either positive, or negative sides before starting the project. Nevertheless, businesses still outsource across the globe after a careful analysis of the aspects aforementioned.
Reference
Tallman, S. (2010). Global Strategy. West Sussex: John Wiley & Sons.
Infosys is a multinational enterprise that is a major market player in the information technology (IT) sector. It focuses on providing a variety of IT, independent validation, and outsourcing services. The company develops software value chains with an emphasis on technological support and program creation. Meanwhile, Infosys Consulting is a subsidiary division of the Infosys corporation. It focuses on consultation within the spheres of IT, management, and business analytics. Infosys Consulting has a global client base which it offers advisory services to help develop and execute strategies, particularly within management and digital transformation realms, that are critical to innovative growth.
PESTEL
P Political
Government oversight and legislative control
Tax code reforms
H1b visa legislation
Investigations into dependence on foreign workers
E Economic
The demand for consulting services
Infrastructure quality and costs
Wage growth, inflation rates, and interest rates
Stability and efficiency of financial markets
Currency volatility
S Social
Demographics of the workforce
Availability and education-level of highly-skilled workers
Cultural and linguistic compatibility
T Technological
Technological developments and innovation by Infosys and competitors
IT product offerings by Infosys
Technological diffusion rate
Value chain structures in the sector
E Environmental
Climate change
Waste management and recycling of old electronics
Energy efficient and environmentally friendly technology
Availability of renewable energy
L Legal
Anti-trust laws
Intellectual property disputes
Employment legislation
Consumer data protection
Outsourcing
Outsourcing has become an appealing notion in the information technology sector due to a variety of benefits that using foreign labor provides. Outsourcing helps to achieve better financial and productivity outcomes with significantly fewer costs, mainly due to lower salaries for foreign workers, both inside and outside the United States. Outsourcing helps to gain access to a market of highly talented individuals that are striving to achieve a career, thus dedicating time and effort to the companys project. Foreign workers often have significantly more skill in specialty sectors like software development.
Outsourcing is appealing from a technological perspective since projects can be completed by teams without the need to be present at a specific location. India is a particularly attractive market due to its emergence in the global marketplace with high-profile investors while maintaining low human capital and infrastructure costs. Culture and language rarely serve as barriers since many foreign experts are fluent in English. Outsourcing helps a company to efficiently maneuver its financial assets to avoid high tax rates and other expenses that may arise through legal means in any given country.
Sustainability
The strategy of IT offshoring is not sustainable in the long run as India becomes a prominent player in the global market, thus resulting in the growth of wages and legal pressures from both India and the US to end the practice of tax avoidance. Cost-effectiveness is a factor which is eroded over time, especially for companies striving to achieve global and innovative growth. As wages in India grow and infrastructure costs become relatively similar to the United States, the savings become insignificant. Outsourcing is a highly controversial practice which creates political pressures as well as potential risks that are unacceptable from an investors point of view.
Recent changes to the United States tax code and significant crackdowns on offshore accounts in major industrial nations have contributed to companies shifting tactics. More emphasis is put upon value-adding to a companys services and assets rather than cost-effectiveness.
The use of international outsourcing is primarily intended to forward knowledge processing assignments to international partners/agencies, in order to attain sustainable cost and efficiency advantages. Besides the marketing advantages, such outsourcing entails, it is also possible to effect cost savings and reduction in workload of the outsourcing due to use of the international outsourcing techniques. The competitive advantages of international outsourcing could be seen in terms of quicker and speedier responding to market changes, resource planning and allocations, budgetary controls and more efficient and resourceful utilization of human assets. Thinking strategically,
Irrespective of the size of a company, the ability to be able to manage the internal flow or trend of expenses and revenue is key to success. Eseyin Kehinde: MAC in SAP Business One.
The need for international outsourcing may also occur due to shortage of skilled and specialized professionals in the host country, thereby leading to the need for meeting these shortages, by the use of specialists knowledge and talents from other countries.
Mierau, Alexander: 2007: Strategic importance of Knowledge Process Outsourcing.
Besides budgetary constraints and need for efficient outsourcing, this also results in competitive advantages in terms of better output and skill utilization in the countries in which such international outsourcing is conducted.
Role of the Management Accountant in international outsourcing
The Institute of Chartered Accountants of England and Wales has defined management accounting as any form of accounting which enables a business to be conducted more efficiently can be regarded as management accounting. Any service rendered by the accounting department of a business which increases the efficiency can be regarded as Management Accounting. Thus any service rendered by the accouting department of a business which goes on to increase the income generating capacity of a business enterprise, is known as operational efficiency of management accouting.
The battle for financial statement integrity and reliability depends on balancing the pressures of multiple stakeholders, including management, regulators, investors and the public interest. We present the guidance and tools to make audit committee best practices actionable. The American Institute of Certified Public Accountants (2006)
In the year 1987, the International Federation of Accountants has issued a very detailed and illustrative definition of Management Accountant. According to the IFA, Management Accountancy, Management Accounting is the process of:
Identification and Measurement: The recognition and valuation of business transactions or other economic events that have occurred or may occur in the future :
Accumulation: the disciplined and consistent approval to recording and classifying appropriate business transactions and the economic events.
Analysis: the determination of the reasons for and the relationships of the reported activities with other economic events and situations.
Preparation and interpretations: the meaningful co-ordination of accounting and or the planning of data to satisfy the need for use of the information prescribed in a logical format and if appropriate, the inclusion of the conclusions, drawn from the data.
Therefore, it could be reasonably said, that the rules of the management accounting principles and precepts, in the business building role of management accounting, and in the context of international outsourcing, could envisage the following aspects:
(Advancing the profession 1997): Institute of Management Accountants :
Providing Accounting information: This is based on the accounting information provided by the outsourcer to the various outsourced companies in specified destinations of the world. The generation of the management accounting data to be used for outsourcing is basically derived from the accouting department. These raw data needs to be processed and refined before being used for outsourcing purposes.
The cause and effect theories also come into play in the case of international outsourcing of accouting information. Companies make losses or profits, depending upon many factors, like costs, incomes, use of assets, control of costs, etc. It is necessary for the management accountant to not only record profits or losses, but also, analyze how and why, such profits or losses have been established. Through this method, it is possible to maximize the incidence of profits, and also, minimize the occurrence of losses.
The use of accounting tools that are known as financial planning tools, standard costing and marginal costing tools, budgetary controls and formulation of budgets and application of standard costing methods and techniques for maximum results, and the core management competencies include accounting knowledge, business analysis, solution development, planning and communication. (Management Training & Development : Management Accounting Course Objectives.
Management accounting helps in taking important decisions since it would be based on important decisions, and through the use of management accouting philosophies, it would be possible to render the maximum outsourcing services, both in terms of cost savings and enhancement of operations efficiencies.
In the context of international outsourcing, it is necessary for management accounting, to lay emphasis on the formulation of actions programmes, and its implementation, in order to get the maximum output from the outsourcing procedures. As has been earlier mentioned, the main objectives of outsourcing are to attain efficiencies in work outputs while reducing costs to the minimum. In the context of international outsourcing, it is seen that it also makes the best utilization of manpower and intellectual resource mobilization by making it focus more on strategic and important goals of the company, instead of it being frittered away in not very significant ways and means.
Outsourcing is an excellent method of downloading urgent work pertaining to the organization to the team of specialists, thereby the top management and covenanted officers are free to purse critical planning and managerial decision making functions; it also helps in planning, organization and controlling the work output and costs more effectively, since it is less process, and more result oriented functioning.
The tools and techniques that are used by the management accountant could be said to be as follows:
Financial policy and accounting: Every company need to take strategic decisions regarding the sources of raising funds. The funds can either be internally generated, or externally sourced. Again, there is a choice of the type of capital to be used, either equity or preferential capital. Although preferential capital could be of different types, their uses would be subject to the discretion of the Board of directors of the company.
Tax Planning : The various tax implications of the outsourcing procedures need to be looked into, including the best tax planning methods to be adopted, considering the overall budgets for taxes and duties of the Company.
Analysis of the financial statements: Classifications of the data has to be presented in such ways that would serve useful purposes to the management. Outsourcing provides the tool for using external sources for managerial decision making, and making the optimum use of own staff and personnel, for critical and important, though not urgent work, of the company. This way, it is ensures that the maximum productivity of the employees are maintained and the market efficiencies of outside outsourcing are also gained. The principle gains of outsourcing would be in terms of time, efficiencies and costs, all of which stand to be beneficial to the Companys operations and future profitability.
Historical costing methods which could be used in the outsourcing, in terms of comparisons of the actual costs with the predetermined, or budgeted costs, and the reasons for the differences being analysed. By constantly comparing the budgeted costs with the actuals, the variances are analysed and determined. In future, necessary safeguards are implemented in order to ensure that costs agree, as much as possible with budgeted ones, in order to achieve the desired levels of profitability. It also needs to consider aspects of cost behavior, cost management systems, and activity-based costing. (Amazon.com :Introduction to Management Accounting : Ch 1-14 (13th Edition : Editorial Review : Book Description :
Marginal Costing concerns itself with the aspects of costs incurred for increased level of activities or production. Under Marginal costing there are basically three types of costs, fixed, variable and semi-variable. Fixed costs tend to remain fixed over a period of time, variable costs vary with change in unit of output and semi-variable costs change over levels of activities, over a period of time. In the context of outsourcing costing, the desired levels of activites, most profitable for the company could be determined, and also, whether certain outsourcing medias need to be non-operationalised due to losses, also the profit comparisons between different outsourcing firms could be compared and contrasted, using marginal costing principles and techniques.
Decision Accounting: This plays a determinant part in the outsourcing of goods and services since it is now possibly to base strategic decision regarding outsourcing by using decision accounting. In this connection, it is seen that the top management of companies need to critically evaluate the aspects of outsourcing on an international basis, and make decisions based on the substantiation of facts and figures derived from the different outsourcing
Another aspect of outsourcing accounting deals with the control accouting wherein different systems have control devices, in the form of internal checks, internal audits and control mechanisms which help to control the various functioning of outsourcing management accounting functions in the best and most efficient methods.
Last, but not least, the management Information systems should concern itself with the recording and classification of data and also the feedbacks received from the outsourcing partners and agencies situate in different parts of the globe.
Conclusion
Thus it is seen that application of the principles and practices of a well documented Management Accouting plan is essential for competing in the international business arena and it is crucial for international outsourcing.Therefore, it is imperative that the accouting departments of outsourcing companies gear themselves for meeting the challenges and growth that avenues that could emanate from the strategic and purposeful use of international outsourcing practices.
Cited Works
Eseyin Kehinde Eseyin : MAC in SAP Business One. Web.
Alexander Mierau, 2007: Strategic importance of Knowledge Process Outsourcing. Web.
Amazon.com :Introduction to Management Accounting : Ch 1-14 (13th Edition : Editorial Review : Book Description. Web.
Management Training & Development : Management Accounting Course Objectives. Web.
Advancing the profession (1997): Institute of Management Accountants. Web.
The American Institute of Certified Public Accountants (2006). Web.
The topic of payroll outsourcing directly fits the given module of performance management as the former helps to power the latter by focusing on the creation of more value. In particular, the solution to apply outsourcing in the identified field is likely to lead to greater integration of the workforce and timely payroll delivery. This paper aims at addressing the following objectives:
To determine the role of payroll outsourcing in the organization;
To reveal benefits, including performance measurement tools;
To specify any drawbacks of payroll outsourcing in the workplace;
To provide recommendations on the enhancement of payroll outsourcing patterns and practices.
All of the mentioned objectives are to be accomplished based on the recent scholarly literature and other credible sources in order to provide reliable information and come up with valuable considerations regarding possible improvements.
Payroll is considered the most important action in the activity of the organizations accounting department. From the point of view of accounting and finance, the calculation of wages is the sum of benefits, deductions, and compensation from the salaries of all employees of the company (Meliyio & Moronge 2013). Speaking of operational aspects in terms of payroll outsourcing, it is essential to emphasize that the calculation of remuneration has to be carried out regularly by any company, be it a permanent or a temporary job. According to the Labor Law of the United Arab Emirates, the salary must be paid at least once a month as specified by the local legal act of the company (Labour Law Ministry of Labour 2017, para. 3).
In small firms, especially in the absence of a full-time accountant, the calculation of wages may be quite problematic. However, even in medium-sized and large organizations, accounting often works with overload, which leads to errors, conflicts, penalties, etc. In this regard, outsourcing use is beneficial to eliminate excess workload, reduce the accounting staff, and, at the same time, ensure a competent impeccable payroll in an organization (Meliyio & Moronge 2013). Therefore, the identified problem is solved quite simply by the application of the delegation of the above functions to a third-party specialized company outsourcing services. The direct and indirect economic advantages of such a decision are confirmed by practice, and more and more organizations are now switching to payroll outsourcing.
Outsourcing is performed via Software as a Service (SaaS), a model for using business applications in the format of the Internet services. SaaS applications run on the server of the SaaS-provider, and users get access to them through the Internet browser. A user does not buy a SaaS-application, but leases by paying for the use. Thus, an economic effect is achieved, which is considered one of the main advantages of SaaS. Outsourcing for payroll services includes a range of functions. First of all, it involves the payroll itself as well as the calculation of compensation for holidays, allowances, dismissal, vacation, social payments, contracts concluded with individuals, etc. (Meliyio & Moronge 2013). An organization responsible for outsourcing would also prepare and submit reports for the tax inspection and extra-budgetary funds along with payroll and pay sheets for employees. In addition, the calculation of a personal income tax and deductions to extra-budgetary funds are also under the responsibility of payroll outsourcing specialists.
Advantages Within the Workplace
Recently, many enterprises have started using outsourcing to calculate wages. Speaking of the advantages of payroll outsourcing, it seems essential to provide some examples. For instance, IKEA has almost no own production. Instead, it cooperates with 2,500 suppliers that have been tested for years, and IKEAs logistics functions along with payroll are also delegated to a third-party organization (Koniorczyk 2015). It turns out that IKEA directs all its resources to the organization of retail business, and the rest of the services and business infrastructure are outsourced. The paramount advantage of payroll outsourcing is its settlement process that can be easily distinguished from the general flow of office work, clearly describing the tasks, requirements, and their specific conditions, and then transferred to an external service (Sharma & Keswani 2013). The main task of outsourcing is to outsource non-core and highly specialized lines of business.
At the same time, all the necessary actions for the calculation of wages will be made by a specialized expert, who constantly monitors changes in labor legislation, regularly improves his or her skills and knowledge, and has significant experience in this sphere (Butler & Callahan 2014). As companies that specialize in outsourcing value their reputation and accept merely professional staff, this side of outsourcing seems to be safe. The calculation of wages will be carried out within the given timeframe without absurd mistakes and hasty alterations. Thus, the risk of making claims on the part of inspection bodies is minimized.
From the point of strategic tasks implementation, outsourcing makes it possible to concentrate resources on the primary production and also improve operational control (Sharma & Keswani 2013). In addition, the process of introducing new technological or managerial operations is facilitated, thus guaranteeing independence, a lack of personal interest, and maximum confidentiality. In this regard, from an economic point of view, outsourcing allows the company to significantly reduce costs it will not have to contain an additional structure and inflate staff. Transaction costs may also decrease since some fixed costs can be transformed into variables, depending on the needs of the firm in a particular period of time.
From a technological perspective, outsourcing opens access to modern technologies and promotes their utilization. If the staff does not have the necessary specialists, they can be attracted through an outsourcing program. The quality of payroll service in the case of outsourcing is significantly increased as a third-party company undertakes to monitor the quality of the contract work (Sharma & Keswani 2013). There will be an opportunity to pay the accrued salary on time, which will help to avoid discontent and a number of unnecessary conflicts both with individual employees and with the team as a whole. Accordingly, employee satisfaction and performance indicators would grow with the proper payroll system.
In terms of kaizen, small, gradual, and consequential changes that need to be made constantly and are to have a positive impact on the general performance may be noted as a means of advancement. Kaizen refers to actions that are aimed at eliminating losses from every operation and process, increasing the time for adding value, and promoting openness between departments and workplaces (Butler & Callahan 2014). The delegation of authority to payroll outsourcing experts as the transfer of a certain amount of authority is quite beneficial. This is possible by training in the given specialization, mastering broad skills, and collecting relevant knowledge. More to the point, standardization is required for outsourcing is essential as some common methods are needed to consolidate the success achieved. Standardization is composed of activities to establish rules and characteristics for the purpose of their voluntary reuse, targeting the achievement of orderliness in the areas of production and circulation of products and increasing the competitiveness of products along with works or services (Butler & Callahan 2014). As an integral part of outsourcing, it also adds value to the above option.
Critique of Payroll Outsourcing Use Within The Workplace
Despite the impressive list of advantages, some companies prefer not to transfer the payroll function to external suppliers for one or several reasons. The incorrectly performed task is the major disadvantage of outsourcing and, specifically, payroll outsourcing services. Work can be done correctly at first glance, but, in the end, it may turn out that it was necessary to do something completely different. This depends on the clarity of the problem statement and its understanding by the outsourcing company (Mohiuddin & Su 2013). Unfortunately, correct understanding does not always happen, and not all employees manage to properly set the tasks. As a result, a lack of a regulatory framework may lead to employee dissatisfaction based on inappropriate remuneration. Therefore, the fact that the contract concluded between the companies can be made solely illiterately, failing to take into account the specifics of the companys activities, is another problem that can cause performance management challenges.
The confidentiality terms and the associated issues can be noted among the disadvantages of payroll outsourcing. In any contract, one can include conditions on the confidentiality of information, involving the contract of outsourcing, yet, in, the reality it is rather difficult to prove the leakage of information and collect some data, if not to say that it is impossible (Mohiuddin & Su 2013). Therefore, by transferring information to an outsourcing company, the core company is at risk to some extent. The threat of disclosure of the trade secrets of the organization and distortion of data exist since along with the transfer of information the company connects the outsourcer to the management of several functions and processes.
For an outsourcing company, there is always less control than for regular employees. The difficulty of bringing the outsourcer to account for the violations committed is one of the disadvantages in this case (Mohiuddin & Su 2013). It should be emphasized that it is impossible to accurately predict the success of the companys development, and, consequently, to determine the volume of the load. The discrepancy between the quality of the services provided by the outsourcer to the customer and non-transparency of payment for services of outsourcing companies may also be noted as drawbacks. In addition, the impossibility of timely decision-making in force majeure cases also should be considered while addressing payroll outsourcing. The novelty of outsourcing services and the immaturity of this market, in general, create situations that are still difficult to anticipate and prevent. In addition, often outsourcing is a guaranteed failure for companies that have not yet established or developed business processes. There is a risk of default by an outsourcing company; for example, in case of bankruptcy.
Problems with the transfer of information may also occur in the course of payroll outsourcing. In order to ensure that employees continue receiving their checks with properly calculated wages and tax deductions, it is necessary to transfer a large amount of information to the suppliers database in an appropriate way. If problems arise during the transfer of information to the vendors database, the company may become so disappointed with the supplier that it will decide to return to the in-house accounting. To send information for the calculation of taxes, the company organizes the collection and transfer to the supplier of the corresponding data.
The function of tax accounting should be delegated to suppliers in the event that the company is not large enough to ensure the full employment of its own tax department. This function is often divided into two parts such as reporting on taxes to the state budget and the federal budget assigned to the external executor, and local tax reporting is conducted on its own. The reason for the above separation is that many firms providing tax accounting services specialize in state taxation and federal taxation because they have their own expert groups advising them on these issues. Thus, information gathering and transition may also be regarded as challenges.
Consideration of Possible Improvements
With this aforementioned information in mind, it becomes clear that there are several recommendations, the implementation of which can significantly enhance the effectiveness of payroll outsourcing. First of all, while concluding a contract for outsourcing services, it is necessary to thoroughly ponder over a number of essential points such as the definition of goals and objectives along with a clear formulation of procedures and organizational regulations (Yadav, Sushil & Sagar 2014). The next step refers to determining the criteria for evaluating the results of work they are to be unambiguous. It is also possible to claim that one should pay special attention to the delineation of responsibilities and their limits. The above statement means that payroll outsourcing specialists should clearly understand their tasks and responsibilities.
In order to evaluate the effectiveness of payroll outsourcing, it is possible to use a performance pyramid suggested by Lynch and Cross (Yadav, Sushil & Sagar 2014). It is a pivotal idea to focus on a customer (in this case, an outsourcing firm) and identify the relationships between the companys overall strategy and its financial performance supplemented by several more non-financial factors, while, in the traditional model of management control, such information is provided only to managers of higher levels. The performance pyramid is based on the concepts of total quality management (TQM) and industrial development, as well as cost accounting by activities in the companys value chain (Dale 2015). The specified tool contains four levels of the companys organizational structure and characterizes the two-way communication system necessary to spread the ideas of the corporate mission and strategy at different levels of the organizational hierarchy.
A fundamental shift in focus from quality control (checking whether the work has already been done according to the necessary standards) for quality assurance (when quality is embedded in production processes in such a way that only operations corresponding to acceptable standards are performed). In this regard, an employee-oriented approach may be implemented. According to TQM, every decision starts with what a consumer (an employee) wants and what the organization needs to do for this (Goetsch & Davis 2014). The concept of an employee-orientation extends to internal factors as every department and team has its own set of tasks and responsibilities. The recognition of the fact that evaluation and improvement of performance can only be found by the appropriate ways of measuring is a paramount step towards success. Indeed, the prevention of errors is much more effective than their correction as well as the overall transition from traditional management to management systems based on the principles of TQM.
More specifically, the main factor to measure if payroll outsourcing is effective is goals and indicators and their consistency with the companys strategy and its activities (Dale 2015). In other words, the companys goals are to extend from the higher levels of the hierarchy to the lower ones, adapting, at the same time, to the peculiarities of each level, and the performance evaluation indicators are to be transferred from the bottom up, creating a holistic picture. As noted by Goetsch and Davis (2014), the evaluation should be based on an integrated system of indicators, in which the operating performance at the lower levels would be linked to the financial indicators at the upper levels. This would allow the top managers of the company to determine which particular values of financial indicators are achieved and which factors play a decisive role.
Benchmarking is another significant tool to measure and improve performance that is, as a rule, utilized by companies targeting continuous improvement. Typically, benchmarking is used by an organization that wants to improve its operations (Goetsch & Davis 2014). In order to compare its processes or products, a company chooses a competitor that occupies a leading position in one or another field. However, it is not necessary to select direct competitors to conduct benchmarking. For comparison, a company from another field of activity can be chosen or the one working with another group of customers.
Specifically, for payroll outsourcing, benchmarking is likely to promote the application of the best practices of other companies by comparing the work of different outsourcing services. In this connection, one needs to get a full understanding of own processes, because it is impossible to make an adequate comparison without having an idea of ones own activity. To do this, one should know the boundaries of the processes under consideration, the operations being performed, the current level of process execution, and other parameters that characterize the business. In addition, payroll outsourcing allows hiring a benchmarking consultant who, at a professional level, is engaged in researching the experience of companies in a certain sphere of the economy and adapting it to the customers company. If the permanent and temporary staff of the firm does not have such an employee who could deal with the above issues, then outsourcing the personnel from the outside is the best decision.
Conclusion
To conclude, it should be emphasized that outsourcing of payroll for employees allows enriching business processes with new knowledge as for the third-party observers, it is easier to identify the current problems of the company and pinpoint beneficial sides. Nowadays, outsourcing is one of the most popular options for companies that need to delegate some part of their business. Along with advantages, payroll outsourcing presents some drawbacks, including potential risks with confidentiality, accuracy, and timeliness. With the aim of measuring performance quality in terms of the given processes, it is possible to apply kaizen and a performance pyramid. In order to enhance payroll outsourcing, one may consider TQM principles and benchmark.
Reference List
Butler, MG & Callahan, CM 2014, Human resource outsourcing: market and operating performance effects of administrative HR functions, Journal of Business Research, vol. 67, no. 2, pp. 218-224.
Dale, B 2015, Total quality management, John Wiley & Sons, New York, NY.
Goetsch, DL & Davis, SB 2014, Quality management for organizational excellence: introduction to total quality management, Pearson, Upper Saddle River, NJ.
Koniorczyk, G 2015, Customer knowledge in (co) creation of product. A case study of IKEA, Journal of Economics & Management, vol. 22, no. 4, pp. 107-120.
Labour Law Ministry of Labour 2017, Web.
Meliyio, SE & Moronge, M 2013, Determinants of outsourcing accounting services on growth of small businesses in Kiambu County, International Journal of Social Sciences and Entrepreneurship, vol. 1, no. 7, pp. 1-18.
Mohiuddin, M & Su, Z 2013, Manufacturing small and medium size enterprises offshore outsourcing and competitive advantage: an exploratory study on Canadian offshoring manufacturing SMEs, Journal of Applied Business Research, vol. 29, no. 4, pp. 1111-1130.
Sharma, R & Keswani, B 2013, Study & analysis of cloud based ERP services, International Journal of Mechatronics, Electrical and Computer Technology, vol. 3, no. 9, pp. 375-396.
Yadav, N, Sushil, A & Sagar, M 2014, Revisiting performance measurement and management: deriving linkages with strategic management theories. International Journal of Business Performance Management, vol. 15, no. 2, pp. 87-105.
There is no agreed definition of outsourcing. The term usually refers to businesses contracting out their business functions. The functions contracted out may be within the same geographical region or be in other nations. When services are contracted to other firms in different nations, the term is referred to as offshoring.
Business Outsourcing
This refers to handing out business responsibilities of ones company to another company. Initially, the business activities handed over to a third party firm were mainly payroll. Today the concept of BPO includes more business activities otherwise considered secondary to the business, such as management of employee benefits (Sourcingmag.com, n.d.). Business outsourcing falls under outsourcing. Large manufacturing companies who possess large supply chains first embraced the concept.
Information Technology (IT)
Information technology includes use of processing, storage and dissemination of data using computers and telecommunication equipment. The data involved may be vocal, textual or numerical information. Information technology will include computer software, information systems and computer hardware.
Offshoring
In offshoring, a firm moves an entire unit of operation to a different nation. The off-shored unit may be manufacturing or a supporting process. The difference between offshoring and outsourcing lies in the fact that offshoring concerns the movement of the business operations to another nation. In offshoring, the firm still maintains the ownership and management of the business process. Offshoring may encompass the substitution of a given service with another service from a foreign nation. In this case, the substitute becomes the offshored service. Offshoring serves as a solution to reduce business costs or to escape tax liabilities within the home country. The main offshoring destinations of the world are China and India. Offshoring includes Production offshoring and IT services offshoring.
IT Services Offshoring
IT services offshoring is a specific category of offshoring. Digitization of business processes made it possible to geographically separate the given services from other business processes. A firm moves its IT service operations to another nation that has the skilled labor necessary to accomplish the task. IT services offshoring is as a result of the availability of affordable and reliable communication (Couto et al., 2007).
Business to Business
Business to business refers to the exchange of products and services between businesses. In this setting, a firm is the client of another firm and may become its supplier. In outsourcing, the outsourcer and the firm that gets the contract to conduct the business activities on its behalf form a business-to-business relationship. Almost all cases of outsourcing are business-to-business contracts (SearchCIO.com, n.d.).
Front office
Front office refers to a firms business activities that involve a direct interaction with its clients. This includes the marketing and sales departments of the firm. Automated systems such as customer care systems can carry out front office services and eliminate the need for staff to interact with the client physically. When the front office operation includes automated systems, firms can outsource or offshore the automated systems part of the service as an IT service.
Back office
A back office refers to the department or unit within a firm that handles the activities concerning the running of the firm. Activities put into the back office do not need the interaction of the customer, and facilitate a smooth relationship between the sales and other customer facing departments with the customer. An IT department is an example of a back office because its main task is to maintain computer systems within the firm so that the operations of other departments are efficient and reliable (Mergers & Inquisitions, n.d.).
Contracting
A contract refers to the legal agreement between two companies that binds them to follow the specifics of the agreement. Contracting is the process of establishing a contract between two or more firms or parties. In outsourcing, the contracting firm initiates the contract agreement. The two or more parties then negotiate on the terms and conditions of the contract before signing a law binding agreement. Normally, contracts will have specifications on early termination or resolution of disputes (McKendrick, 2005).
Core business
The core business of an organization refers to its intended essential activity. When referring to core business, we consider the success of the firm. Thus, the core business of a firm will include a reference to how individual business units within the firm do their work to realize the objectives of the firm. In addition, coordination of the activities of each individual unit to achieve the common objective of the firm will form the core business.
Liability
It refers to the obligations that a firm undertakes when it carries out a specific business activity. When the business activity is outsourced, the firm frees itself from the obligations. Different countries have different tax policies, quality standards, and labor requirements. Outsourcing allows a firm to avoid these obligations but increases the quality risks of the business activities. In offshoring, a firm retains the control of the business practices, while avoiding some liabilities, and is able to monitor quality.
References
Couto, V., Mani, M., Sehgal, V., Lewin, A. Y., Manning, S. & Rusell, J. W. (2007). Offshoring 2.0: Contracting knowledge and innovation to expand global capabilities. Web.
McKendrick, E. (2005). Contract law -text, cases and materials. Oxford, UK: Oxford University Press.
From the reign of Jack Welch to Jeff Immelt as CEOs at GE, the firm has been in pursuit of being a truly global company (Murray, 2016). GE has over 420 manufacturing plants spread all over the planet resulting in immense firm flexibility (Murray, 2016). The firms policies are what has received a tremendous impact from the globalization trends at GE. Specifically, GE has had to outsource its manufacturing plants to developing nations, establish research and development centers outside US borders, shifting company divisions and head offices to foreign lands, as well as focusing more on exports (Mullock, 2016).
It is also inarguable then that most of these developments and turns at the firm have come by as a result of the significant impact and inducement provided by technology changes. In order to take advantage of the human resource and other resources in the developing world, GE has outsourced manufacturing plants as well as Research and Development (R&D) to these countries.
The recent developments and policy changes in China and India have encouraged great foreign direct investments by giant multinationals of GEs threshold, and GE has moved into these markets to capitalize on that (Mullock, 2016). The reasoning behind these moves has been to remain cost-effective in pursuit of global expansion. The offshoring of GEs plants, however, has not been easy for GE. Other multinationals in these countries have grown in the capital muscle to pose a considerable threat and competition to GE (Ruinan, 2018).
For instance, GE produces Magnetic Resonance Imaging (MRI) scanners in London and sells them at $1.5 million while the same scanners produced by a GE-affiliated R&D center in China, the China Technology Center in Shanghai, is tagged at $0.5 million (Mullock, 2016; Ruinan, 2018). Such price disparities manifest the paradox that is orchestrated by macroeconomic factors in developing nations.
Offshoring and outsourcing have a significant impact on GEs quality and supply chain. GE has seemingly performed well with the diversification strategy especially in the 2008/2009 global economic crises and despite the pile-up of inventory of small and replacement power generating machines, GEs equipment is known to be responsible for over 30% of all power generated worldwide (Pino, 2014).
This focused diversification together with the desire to get leaner in terms of the portfolio size implies that GE can channel its core competencies to the power infrastructure and technology businesses. Technology changes, especially in IT and the overdependence of transactions on the Internet as well as the automation of production have featured dramatically in GEs outsourcing and supply chain decisions. From the companys annual reports, in 2011 alone GE achieved an 18% international growth with a cumulative revenue totaling $147 billion and over 13,000 new jobs created in the US alone (Mullock, 2016).
Within decentralized and distributed R&D centers, engineers, scientists, and researchers work in collaboration as unified virtual teams courtesy of technology (Mullock, 2016). These collaborations have been seen to advance productions in the areas of power electronics and composite material design amongst other fields. Furthermore, technology changes have significantly bolstered crucial knowledge functions, for example, the non-standard software development in India (Murray, 2016).
Technology changes have also been the force that has facilitated the establishment of new divisions and head offices in foreign countries by GE. For instance, London is the favorite of a majority of GE care executives as the city fosters easy air travel to whichever destination in the world (Mullock, 2016). Pragmatically, GE has had undergo globalization and technology changes amid very protectionist government policies.
Since the early 1990s, liberalization of the Indian Economy had lead to remarkable growth in the Business Processes Outsourcing (BPO) sector of which Call Centers are an integral part. Multinational companies in the developed world prefer India as its back office because the overall cost of employing a call center employee in India works out to just about $500 per month which includes a salary of $200, free food, transportation, life insurance, and medical insurance. India scores over other countries because of its large English-speaking workforce with college degrees and a willingness to work for low wages.
According to Friedman (2006), There are currently about 245,000 Indians answering phones from all over the world (24). In 2008 that number has swelled to 704,000 and is slated to grow further. These call centers are spread all over India encompassing big cities, small towns, and now even the villages. Call centers with their peculiar job requirements, odd working hours, and lifestyle imperatives have had a profound effect on the social fabric of the Indian community. This essay attempts to encapsulate the influence of call centers on Indian culture along with the moral and ethical dilemmas facing the corporate world and their responses thus far.
Call centers have been likened to Electronic Sweatshops where employees put in grueling 10 to 12-hour shifts in a 24-hour cycle under the watchful eye of their supervisors and an array of closed-circuit cameras. Punishing working conditions, lack of sleep, and ever-watchful supervisory control result in stress, early burnout, and high attrition rates in the Industry. To counter this attrition rate, companies have evolved differing methodologies.
According to Raman & Balsubramanian (2006), in some BPO companies a lot of employee involvement techniques, including suggestion schemes, quality circles, newsletters, and videos, were used to counteract the negative effects of strict control and monitoring (320). Goel & Thakur (2007), suggest that BPO companies should Institute the concept of pay for complexity, which recognizes that functions and processes vary in complexity and hence should be compensated differently (6).
India has a traditional patriarchal society in which women have traditionally played a passive role and are considered as a liability. Call centers prefer to hire women as employees because they are perceived to be more polite, have pleasing voices, and are more sincere in their jobs than men. This perception has translated into empowerment for women across India. However, exposure to western culture, a differing lifestyle, and disposable income has also had concomitant effects on the psyche of the women working in call centers.
The adoption of western styles of clothing and mannerisms by women has become a source of friction with their families and the traditional society. Late-night shifts and odd working hours are also looked upon as dishonorable in a society used to seeing their women back at home by sunset. Indeed, a few cases of call center employees being raped and murdered by their pick-up drivers were reported in the Indian media over the last few years. Corporate companies responded by incorporating more stringent security systems, better driver verification processes, and ensuring that the women employees always had some male colleagues as escorts during pick and drops.
Call center work requires the employees to don a foreign personality, complete with a foreign name and accent while attending calls. The employees then have to drop this make-believe personality on completion of their shift and revert to their normal selves. This has lead to multiple personality disorders, schizoid episodes, panic attacks, and depression among the call center workforce as also increasing incidents of alcoholism and drug-taking. Larger BPO companies have responded proactively to this malaise. According to a Los Angeles Times article (January 01, 2008), Infosys Technologies Ltd. has established 24-hour helplines for psychological counseling. HCL Technologies Ltd. has built day-care centers for children and sponsors group outings for employees .
As part of training, Call centers hold parties, dances, eat out at Mc Donalds, and generally encourage their employees to imitate the Western culture. While such an approach helps the employees drop their Indian accents and orient quickly to their jobs, a sudden change of social mores, close proximity at the workplace have to lead to increased incidences of promiscuity, shattered hopes, and the fear of social stigma.
As more and more educated youth join the call center business, a new social division is taking place across urban India which is also spreading to rural India. The youth come from small families with modest incomes, enter a new world of western ideas, work shifts of 10 to 12 hours, and thus have no time for their families or friends. This is leading to a degree of social alienation, isolationism, and a more sedentary lifestyle with all its ill effects on the general health, moral and ethical values of the society.
Addressing this problem at the national level is indeed a daunting task as the government has to balance the needs of a growing economy and the preservation of the social fabric at the same time. While the BPO industry has tried to address some of the problems, regulation of employee conditions is weak on account of lax labor laws and the imperatives of business profitability. As it stands today, the moral and ethical stance of BPO employers can be considered ambivalent except for a few shining examples.
References
Friedman, Thomas L. (2006). The World is Flat: The Globalized World in the Twenty-First Century . Penguin Group. London, England.
Goel, Dinesh & Thakur, Prabash. (2007). India: An Attractive BPO Destination Marred By Alarming Attrition Insights into the Causes, Impact and Mitigation Actions. Web.
Los Angeles Times. (2008). Cry For Help From Indias Call Centers . Web.
Raman Raghu S & Balasubramanian, G.(2006) Managing People in a New Industry: A Case Study of a High-end BPO Organization . Web.
This report presents a business case for outsourcing the cleaning services of Abu Dhabi National Oil Company (ADNOC), which is a leading energy conglomerate based in Abu Dhabi. Founded in the 1970s, the firm primarily operates in the exploitation, refinement, and distribution of petroleum products on behalf of the Abu Dhabi Government. Based on the rising cost of doing business and the increased pressure to enhance the companys performance, ADNOC is struggling to get vital services, while at the same time reducing its overheads. Cleaning is an essential service and there is no clear understanding regarding whether to provide it in-house or through outsourcing. This report presents a business case for outsourcing this service, from a procurement and supply perspective.
Key sections of this report show that a well-designed procurement plan would help ADNOC to minimize the cost of cleaning by identifying the right third parties to provide this service. It would also help the organization to develop the best supply chain policies to follow in the outsourcing plan and assist the companys managers to identify the right type of relationship to be developed between the company and its outsourcing partners. The importance of outsourcing cleaning services is also discussed, including the impact that such a strategy would have on the firm.
In the last section of this report, recommendations are made to develop long-term relationships with partners who have the same vision for the organization and respect the three bottom-line factors guiding procurement processes people, environment, and price. ADNOC is also encouraged to design the outsourcing process by carefully balancing the needs of the organization and those of the cleaning service providers. These recommendations broadly underscore the need for the conglomerate to have a well-functioning procurement department to oversee the outsourcing plan.
Outsourcing Abu Dhabi National Oil Companys Activities from a Procurement Perspective
Introduction
Abu Dhabi National Oil Company (ADNOC) is a conglomerate of energy firms located in the United Arab Emirates (UAE). The state-owned corporation is listed as an energy company, which comprises 17 entities (Abu Dhabi National Oil Company Inc., 2017). The firm is in the oil exploitation business and has interests in the entire hydrocarbon value chain (Abu Dhabi National Oil Company Inc., 2017). In line with this market positioning, the conglomerate has a network of fully integrated enterprises that span across a selection of business spheres, which include exploration, production, storage, refining, distribution, and development of a wide range of petrochemical products (Abu Dhabi National Oil Company Inc., 2017, p. 1). Currently, ADNOC is looking for new and innovative ways of reducing its overheads but at the same time maintaining vital operations, such as cleaning services. Underpinning this goal is a quest by the company to be more efficient to meet the demands of a dynamic, volatile, and robust energy industry through outsourcing.
This document outlines key parts of the companys outsourcing plan for cleaning services with a special focus on explaining why the model is important to the companys operations. The scope of this report includes an investigation of the potential impact of the business process outsourcing plan on the organizations operations and an examination of the role of procurement and supply chain management in supporting the outsourcing process through efforts to reduce associated costs of cleaning services.
In this review, information about outsourcing and ADNOCs internal processes will be reviewed to understand how the strategy would help it to improve its efficiency. To support this position, the companys database will provide information, which will be used to understand the benefits of outsourcing, as opposed to an in-house cleaning program. Comparatively, the findings will be linked to both current academic and professional reviews surrounding the topic of investigation by identifying the strengths and potential limitations of outsourcing.
This report excludes aspects of the companys operations that do not relate to procurement processes. A key assumption of the study is that the findings of this review will help ADNOC to harness existing opportunities associated with outsourcing. However, before delving into the details of this analysis, it is essential to understand the importance and impact of outsourcing to ADNOC.
Importance and Impact of Outsourcing to ADNOC
According to the APICS Supply Chain Council (2016), outsourcing refers to the engagement of a third party to provide specific services to a business. The adoption of prudent procurement and supply chain management processes at ADNOC could help in managing the price and cost of outsourcing cleaning services by reviewing suppliers financial information to make sure that they have adequate resources to do the work. Such a requirement minimizes the risk of insolvency when an outsourcing arrangement fails (Khushlani, 2017). Procurement and supply processes, if implemented well by ADNOC, could also lower the risks and costs associated with confidentiality breaches because the cleaning staff at ADNOC is usually granted access to secure areas within the company.
In line with the above aim, outsourcing ADNOCs cleaning services would help to improve the companys efficiency by minimizing its operating costs and maximizing its effectiveness. In the context of this analysis, outsourcing would help the company to utilize category management techniques to promote inter-firm value creation through the integration of third-party cleaning services into the companys value chain. Relying on third-party vendors to provide cleaning services would help the company to accomplish more goals within a shorter period and with fewer resources. For example, at an inter-firm level, ADNOCs managers rarely dedicate enough time to improve the cost-effectiveness of the companys cleaning services. Consequently, there are instances of incompetence associated with in-house cleaning services. Outsourcing a professional cleaning service company to do the job would instill the seriousness needed for the job. Therefore, management could divert more resources into other aspects of operational performance.
Outsourcing should make the firm more efficient and capable of meeting its shareholders needs. Stated differently, outsourcing is a tool for serving its customers needs and generating enough cost savings to not only meet its operational requirements but also support its growth. Broadly, the potential benefits of procurement, if effectively adopted, could help ADNOC to meet its shareholders needs through the triple-bottom-line approach practiced in procurement, which emphasizes the need for companies to be mindful of people, the planet, and profits. Figure 1 below represents it.
Figure 1. Triple-Bottom-Line Approach in Procurement (Adapted from CIPS Study Materials).
It is important to understand how outsourcing ADNOCs cleaning services could improve its efficiency because several researchers have demonstrated its efficiency in improving corporate operations (Chartered Institute of Procurement and Supply 2014; Spiller, 2015). The potential benefits of outsourcing cleaning services come from a paradigm shift in procurement and supply chain management. Professor Richard Lamming defines the change as a willingness to rethink procurement as an important part of a wider organizational ecosystem (Spiller, 2015). In other words, suppliers are not only an offshoot of the organization but integral parts of it. However, the decision regarding whether to outsource the firms cleaning services or provide them in-house depends on a few selected considerations. For example, there should be a proper understanding of the core importance of cleaning services to ADNOCs managers and a good comprehension of whether there are enough contractors with the competence to carry them out, relative to the size and scope of the firms operations. The matrix outlined in figure 2 below could be an assessment tool for understanding these considerations.
Figure 2. The Outsourcing Matrix (Adapted from CIPS Study Materials).
As highlighted above, the decision regarding whether to outsource ADNOCs cleaning operations or provide them in-house requires a careful balance between promoting the core importance of the organizations operations and merging it with the competence of a contractor. Similarly, as highlighted in figure 2 above, when the core importance of the cleaning services to be outsourced is high and there is a low competence of contractors to provide the same service, the outsourcing process should occur in-house. At the same time, the model suggests that outsourcing should occur if cleaning is not an essential service and existing contractors have a high competence to provide it.
Based on the above analysis, the decision regarding whether ADNOC should outsource its cleaning services depends on its ability to determine the importance of its cleaning services and to understand whether there are enough contractors with the competence to provide them without compromising on quality. If these considerations are assessed in the matrix mentioned above, ADNOCs outsourcing plan falls in the outsource/buy-in category. This decision is premised on the fact that cleaning services are non-core in nature and there is a high competence of contractors who can provide them. The matrix highlighted above also suggests that non-core activities, which competent contractors can provide, should be outsourced. Based on these findings, ADNOC needs to recognize that the process of achieving a perfect balance between its core competencies and maintaining the importance of the activities to be outsourced requires an appreciation of the role of procurement and supply chain management in its processes.
Role of Procurement and Supply Chain Management in ADNOCs Operations
Although outsourcing is the current focus for ADNOC, associated risks, such as cost overruns and compromised quality standards, are linked with the strategy. ADNOCs outsourcing proposal is susceptible to such areas of vulnerability because the companys operations are vast. Therefore, low-quality cleaning standards could negatively affect its image. For example, on one occasion, the company suffered reputational damage after a journalist who was interviewing one of the employees took photos of dirty equipment in one of the companys warehouses. The incident forced the managers to fire the floor supervisor for incompetence.
The initial stages of outsourcing come with various costs, such as those associated with choosing a vendor, relationship building, overcoming cultural differences, eliminating productivity lags, improving internal processes, and managing outsourcing relationships (Spiller, 2015). These expenses are often unavoidable because outsourcing will make ADNOC dependent on the quality of third-party relationships, thereby increasing its exposure to the operational weaknesses of vendors.
The above-mentioned issues often exist because of movements in market forces. These forces are in two categories: microeconomic and macroeconomic groups. Macroeconomic forces are those that are outside of the companys control but still affect its productivity. Comparatively, microeconomic forces are those within the companys locus of control and affect its productivity as well. These two forces have the potential to influence the success of ADNOCs outsourcing plan. Notably, they could impact the price and cost of the strategy (Spiller, 2015). The purchasing environment, which is described in figure 3 below influences this price and cost model.
Figure 3. The Purchasing Environment (Adapted from CIPS Study Materials).
Based on the model described above, ADNOCs purchasing function could affect its microenvironment. Similarly, it could influence the companys purchasing activities. All these factors should be contextualized within the larger framework of the macro-environment. At the same time, they need to be reviewed within the broader procurement framework that most organizations follow when trying to achieve their goals. Doing so requires a careful understanding of the procurement lifecycle, which typically guides firms through their outsourcing plans.
The first step in the procurement lifecycle involves an understanding of the companys outsourcing needs and the development of a high-level specification to undertake its outsourcing functions (Chartered Institute of Procurement and Supply, 2014). Broadly, there are 13 stages in the procurement lifecycle, which could characterize the process of outsourcing ADNOCs cleaning services. At the center of the procurement process is the integration or use of e-commerce systems, stakeholder engagement processes, sustainability reports, risk assessment and mitigation processes, continuous improvement activities, people, and skills needed to achieve procurement goals (Chartered Institute of Procurement and Supply, 2014). Sustainability and continuous improvement are key processes that have been supported by the companys new management in light of growing global concerns about the impact of the energy industry on the environment and the role that technology could play in addressing this problem.
Impact of Markets in Securing Cost Savings
In line with the above views, experts suggest that companies should analyze to understand the segmentation of variables, which affect the outsourcing process (APICS Supply Chain Council, 2016). Relative to this suggestion, their recommendations highlight the need to understand situational factors, demographic variables, operating variables, and purchasing organization variables affecting company processes (APICS Supply Chain Council, 2016). These factors need to be taken into consideration because market forces are not the only ones that could affect outsourcing; national and global forces have the same impact. This analogy points to the need for a comprehensive analysis of factors that would influence ADNOCs outsourcing plan in the end. These influences can be analyzed using the SWOT analysis below.
Strengths
Outsourcing ADNOCs cleaning services would allow the company to better focus on the economic, social, and political development of Abu Dhabi and the wider UAE region (Abu Dhabi National Oil Company Inc., 2017). Its economic contribution to the emirate is profound because it has played an instrumental role in exploiting and preserving its hydrocarbon reserves on behalf of the Abu Dhabi government. By outsourcing a non-core function, such as cleaning, the company would better achieve this goal by redirecting its resources to its core functions.
Weaknesses
Although the importance of outsourcing to ADNOC is clear, the company has to meet the needs of different stakeholders, including the local community, its neighbors, customers, and the environment (Abu Dhabi National Oil Company Inc., 2017). In other words, the company has to balance the interests of all these stakeholders. These interests are enshrined in the companys vision, which is to create a diverse, knowledge-based economy in the UAE and improving the quality of life for local and international stakeholders (Abu Dhabi National Oil Company Inc., 2017). Through these insights, it is difficult to be successful if the interests of all stakeholders are unaddressed.
Opportunities
Outsourcing provides an opportunity for ADNOC to align its operational processes with its five key values, which are progression, collaboration, respect, responsibility, and efficiency (Abu Dhabi National Oil Company Inc., 2017). Therefore, the recruitment of third-party vendors in the companys operational process would make sure that its managers only partner with service providers who share the same vision as the company.
ADNOC should also focus on understanding purchasing organization variables, regardless of whether they fall in the market, national, or global categories. At the same time, the procurement function of ADNOC should follow a centralized structure because the company intends to leverage its group positioning to get optimum value from the outsourcing process. If the managers select a decentralized structure, it would be difficult to realize the full benefits of outsourcing because the organization would be unable to leverage its group competencies, as each subdivision of the conglomerate would be outsourcing its functions. The impact of such a strategy is that the third-party vendor in the outsourcing plan should provide cleaning services to all of the companys subsidiaries.
Threats
Since ADNOC engages in the exploitation, production, refinement, and distribution of energy products, it can be reasonably assumed that the firm and third-party vendors would incur costs related to production overheads and setting up the outsourcing relationship in the first place. Prime costs may involve direct expenses, materials, and labor costs, while production overheads may include indirect expenses (such as administrative costs), materials, and labor costs. Collectively, these expenses amount to the overall production overheads for setting up the outsourcing relationship between ADNOC and companies that could potentially provide cleaning services. Prudent procurement and supply chain management could help to manage such risks. Table 1 below summarizes the findings of the SWOT analysis.
Table 1. SWOT Analysis (Source: Developed by Author).
Strengths
Directing resources to core functions
Weaknesses A delicate balance of shareholder needs Conflicting interests of shareholders
Opportunities Centralization of the procurement function Align processes with values
Threats High Costs
Conclusion and Recommendations
Conclusion
This document demonstrates that outsourcing is a function that combines different aspects of ADNOCs performance and operations. At the firm level, the outsourcing process involves complexities that revolve around logistics planning, investing in third-party relationships and contract management. These factors emerge at a time that the organization is seeking to improve its efficiency by seeking the services of third-party vendors to provide cleaning services. Based on the insights highlighted in this document, the organization must outsource its cleaning services because it could enjoy immense benefits from implementing them.
Doing so would make it possible for ADNOC to send invitations to bidders or outsourcing partners who meet their specifications. Those who pass the pre-qualification or shortlisting process should be formally considered as partners in the outsourcing model, based on the tender specification criteria. Using best practice tendering processes, the best contractor should also be identified and engaged in a post-tender notification meeting. Here, discussions may address several issues, but matters relating to contract terms, key performance indicators (KPIs), and service level agreements need to be prioritized. Subject to the successful completion of these deliberations, the best applicant should be awarded the contract. Thereafter, a working relationship could be established with the chosen supplier.
Overall, if ADNOC properly implements its outsourcing function, it would not only improve the outcomes of the companys cleaning services but also meet the needs of all its shareholders. This view is in line with the triple-bottom-line approach in procurement management, which emphasizes the need for companies to be mindful of people, the planet, and profits. This model would also improve the odds of the firm getting maximum cost savings from its outsourcing operations because the savings made from the plan could finance core activities. Such financial gains could also translate to increased profitability for ADNOC because outsourcing its cleaning services would mean that the company gets the service at a lower cost than it would have otherwise paid for. In line with this goal, the subsection below recommends ways in which the firm should implement this strategy.
Recommendations
Understand All Variables That Would Affect the Outsourcing Plan
ADNOC should conduct a feasibility study that generates materials for developing a case for outsourcing cleaning services. Here, a cross-functional team could be developed to understand the impact of integrating a third-party vendor on the companys value chain process. Doing so could help in developing a requirements list describing the performance or technical expertise needed to gain approval to provide cleaning services. Draft contracts, key performance indicators could also be identified in the same manner and so is the process of developing a statement of resource requirements (SRR), which could be instrumental in-market testing.
Develop Purchasing Policies
Employing prudent purchasing and supply chain management techniques would also help ADNOC to select the right kind of purchasing policies to follow in the outsourcing plan. By deciding which procedures to follow, the firm will be in a powerful position to determine whether to collaborate with cleaning companies that prefer long-term contracts, or those that only provide short-term services. Similarly, by doing so, it would be easy for the conglomerate to choose whether to partner with companies that have a flexible working relationship or a rigid one. The decision should be anchored on a succinct understanding of ADNOCs business processes. This way, it would be easier to establish the criteria for seeking outsourcing partnerships based on an assessment of whether the company is seeking quality, availability, or low price when choosing to outsource its cleaning services.
Select the Most Qualified Supplier
ADNOC should establish a rigorous supplier selection process to make sure that the right vendors are singled out. Relative to this need, Khushlani (2017) says it is important for organizations to solicit bids from a variety of potential third-party planners and choose one whose products and requirements align with those of the organization. The selection process could involve different stages, such as reference call selection and on-site presentation (among others). Potential suppliers that could be integrated into the organizations outsourcing plan could also be chosen from those who responded to the SRR. Appraisal and prequalification could also be done using dialogue, reference checking, and site visits (among other techniques).
Reference List
Abu Dhabi National Oil Company Inc. (2017) About UsAbu Dhabi, United Arab Emirates. Web.
