In a competitive business environment, companies need to minimize the cost of production so that they can offer products or services at a lower price and can attract customers. Every company has limited resources to meet the business’s operational requirements. For better business operations, companies apply different strategies. Outsourcing is also a strategy that is used if a firm is not able to meet the operational requirement to produce a product. Outsourcing is a strategy used by different companies to reduce production costs by transferring some part of the work to an external supplier rather than producing it internally (Ellram & Billington, 2001). It’s a cost-saving technique if used properly. Sometimes, it is more affordable to purchase a product or semi-product from outside. Outsourcing allows a firm to free up its resources which can be used in more important issues and invest in high return opportunities. Pharmaceutical companies are increasingly outsourcing research activities to academic and private contract research organizations (CROs) as a strategy to stay competitive and flexible in a world of exponentially growing knowledge, increasingly sophisticated technologies and an unstable economic environment. The decision of outsourcing in pharmaceutical companies is a bit hard because, in such companies, a lot of confidentiality is involved. Concerning the decision about either in house production or outsourcing, companies have to be very careful by considering all those factors which can affect the firms’ future growth and competitive position.
Problem Statement
To reduce production or other business operational cost, companies choose outsourcing strategy. But in pharmaceutical companies, it is not simple to decide whether to outsource operations or not. Formulas, patents and other intangibles are the key assets for pharmaceutical companies. Outsourcing of business operations can involve a risk of disclosure of secrets to the competitors. And it can remove the competitive advantage of a certain firm which is looking for outsourcing.
The third party to whom operations have been outsourced can disclose secrets of the firm to competitors. Also, some government departments have completely lost control over preparation, development, and realization of projects, which consequently results in weak control over increasing costs. To respond to the growing pressure on prices, it was usual for the pharmaceutical industry to correspondingly increase its expenditure on R&D, to boost profitability with the introduction of innovative treatments. Thus, the cost of conducting research and development started doubling every year.
Outsourcing lead to negative effects when used only as a cost-reducing strategy to improve short-term performance. The consequence may be the loss of internal know-how and expertise as well as higher total costs in the long term. Outsourcing research also bears potential risks due to project complexity and loss of flexibility. The industry is facing a lot of challenges due to rising costs accompanied by longer development time of drugs, fewer replacement drugs, changing technology and higher litigation and patent costs.
Questions:
Question 1. What are the factors to consider when deciding on outsourcing?
Factors like timeline, total cost (including licensing/royalty fees, payment schedules, rush charge, location of supplier, intellectual property issues, reputation, methods, and more. Trade-offs are often required between time, quality, and price.
Question 2. What is the relationship between competitive strategy and outsourcing?
This question deals with the strategies than marketers take to gain competitive advantage over other drugs in the market. Does outsourcing leads to a competitive advantage or addition of unnecessary costs. The relationship is influenced by various factors like limited financial budgets and skills to manage reallocation of resources. Added complexity of managing and monitoring an outsourcing process and vendor can easily overshadow the cost reduction of R&D work.
Question 3. What will happen in the long term?
Outsourcing is been advantageous in short term as there are
Literature Review
The history of outsourcing is deeply embedded in the history of the growth of the Modern Business Enterprise, which sprang up in the latter half of the 19th Century. The use of external suppliers for these essential but ancillary services might be termed the baseline stage in the evolution of outsourcing.
The study indicated that there is no significant direct relationship between outsourcing and performance but there is a difference in the impact depending on the firm strategies. Firms following cost-based strategies benefited more from outsourcing than firms following differentiation strategies. The results of the study showed that clinical trials were the most area of outsourcing. Clinical trials that were outsourced within the home country were completed faster. However clinical trials that were outsourced to vendors in foreign countries had a decline in the performance. These trials cost more which implies that the country differences may increase the transaction and production costs.
The inconsistent findings in the literature on the offshoring outsourcing performance relationship could be because most of the prior studies were done only with the firm as the unit of analysis and performance was measured as total sales or profits of the firm (Bhala et al. 2006; Gorzig and Andreas, 2002; Gilley and Rasheed, 2000). For instance, Mol et al. (2005) distinguished between global and regional outsourcing and measured the performance effects at the firm level but did not find any significant relationship. The authors recommend the use of better measures of outsourcing performance such as reliability, quality, and innovation. These studies show that further research is required to examine this relationship between performance and offshoring and outsourcing at the project level (Gilley and Rasheed, 2000; Mol et al., 2005).
Muyang Hu studied some hidden costs involved in outsourcing in pharma. With an increase in chronic diseases like cancer, there is pressure on healthcare budgets. It is not possible to provide supervision during the research of some drug leading to misunderstanding between parties and cost increase may occur. This occur because vendors do not have same standards and mission. The hidden cost issue might get more serious when dealing with foreign companies across international boundaries. The hidden costs discussed in the study were related to extensive training required to provide in-depth knowledge and specifications of a particular drug. There are also many government and political regulations that may lead to delays and hence increased costs. This increased cost might reduce or even eliminate the savings by having an offshore outsourcing vendor in some cases. Hence in-house research is needed to control the increasing costs and control. She also stated that in 2010 development costs of new drugs were between $4 billion to $11billion per drug and can be reduced if produced in home country.
A research done by Anu Gummerus on what kind of regulatory tasks are outsourced in the pharmaceutical industry and what are its consequences. She conducted the study through email surveys in various countries like Finland, Germany and Sweden. The survey received 71 responses out of 147 completed surveys. The most outsourced task was related to research and development and was given to Contract Research Organization (CRO) and it was one of the expensive tasks. The CRO has to assure uniform quality of its personnel knowledge and skills. Conclusion of the study was that outsourcing will prevail but the companies should plan the outsourcing carefully and compare possible CROs or it will lead to addition to costs with no result.
Aims and Objectives:
This research aims to identify the impact of outsourcing of production in the pharmaceutical industry. The research will focus on the following points.
Reduction in production cost of 10% or more by outsourcing business operations
A company is operating overseas and it is outsourcing its operations, what kind of risks are involved
The firm has a competitive edge over its competitors, what risk is involved with that core competency.
Justification of the project, significance and practical value
With the increase in competition in the market, companies have to offer better services at reasonable prices. For that purpose, they have to put their best to achieve market share and growth (Chaturvedi, S. 2005). On the other hand, economies or companies have limited resources to meet unlimited desires. To overcome this deficiency, companies have to opt for a different set of innovative strategies, through which they can achieve maximum output with minimum resources.
One company can’t perform a hundred percent in all its business operations. To minimize the cost, they prefer to get services from experts in relevant business activity. The concept of outsourcing is very common nowadays in the business world. Pharmaceutical industries are also using this strategy to minimize their operational costs.
But pharmaceutical industries have confidentiality in their work. Their actual assets are patents and formulas. By sharing this stuff with the third party for production purposes, they can lose market share and competitive position in the market. This study will elaborate on all the impacts of outsourcing on such companies. The pharmaceutical industry is suffering through a challenging period in its evolution with the traditional methods of drug development continuously expanding. Successful pharmaceutical companies have considered the need to leverage resources, and in result, they have come to rely on specialist external sources provider who are expert in certain business activities (Piachaud, B. S. 2002)
Three types of costs are involved in outsourcing or in-house production (Vining, A.1999). Production cost, bargaining cost, and opportunity cost. Production cost is the cost involved in producing the product in house or by third party through outsourcing. Bargaining costs may involve the contractual cost at present and any change in future time due to uneven circumstances.
It also includes the cost of monitoring either the third party is working as per the requirement. Bargaining cost increases when both or either of the party is working for self-interest, not for mutual interest. Opportunity cost is a cost that includes choosing an alternative by sacrificing the other one. So, companies have to be very careful while making decisions regarding outsourcing the business processes by keeping in mind all the issues and risks. This research will try to clarify all the hidden aspects behind this kind of decision making
The outcome of this research will help pharmaceutical companies to make a decision either in house production or outsourcing. This study will consider all those factors which can be important in decision making. Managers can make a clear projection of how much can they save by using this strategy. Companies always try to minimize their expenses and maximize their profit so that they can increase the wealth of shareholders. Though different companies follow different cost-cutting strategies but most of them can be unsuitable for major stakeholders for example employees.
The selection of a good strategy for the company is an important decision by considering the benefit of all stakeholders. All the research questions/objectives as identified in the proposal will be answered based on the data collection, finding, and analysis. This research will benefit in the future to the companies to decide on outsourcing by considering all the factors which will be presented in the study.
References
Boulaksil, Y., & Fransoo, J. C. (2010). Implications of outsourcing on operations planning: findings from the pharmaceutical industry. International Journal of Operations & Production Management, 30(10), 1059-1079.
Cooper, D. R., Schindler, P. S., & Sun, J. (2003). Business research methods.
Ellram and Billington, purchasing leverage considerations in the outsourcing decision, Permagon, European Journal of Purchasing & Supply Management 7, 2001.
Piachaud, B. S. (2002). Outsourcing in the pharmaceutical manufacturing process: an examination of the CRO experience. Technovation, 22(2), 81-90.
Pharmaceutical Research and Manufacturers of America (PhRMA), 1998. R&D — the key to innovation. Pharmaceutical Research and Manufacturers of America (PhRMA), Washington, DC.
Reitsperger, W. D., Daniel, S. J., Tallman, S. B., & Chismar, W. G. (1993). Product quality and cost leadership: compatible strategies? MIR: Management International Review, 7-21.
Quinn, J. B., & Hilmer, F. G. (1994). Strategic outsourcing. Sloan management review, 35(4), 43.
Chaturvedi, S. (2005). Outsourcing in the pharmaceutical industry. Bionity. com, White paper.
Vining, A. (1999). A conceptual framework for understanding the outsourcing decision. European Management Journal, 17(6), 645-654.
Outsourcing is when companies obtain a good or service from a foreign supplier, instead of using internal suppliers. There is much controversy about whether job outsourcing is beneficial or detrimental to the US economy. Some people argue, that job outsourcing is detrimental to the US economy because it causes job loss, however job outsourcing is actually beneficial to the US economy, because it creates jobs and boosts economic growth in foreign countries, it allows for product specialization and monopolization, it lets the US get goods and services at cheap prices, and provides US companies with a larger talent pool to select from.
People who argue against outsourcing claim that outsourcing enables other countries to “steal” blue-collar (industrial) jobs from US citizens. They claim that job loss causes economic hindrance because unemployed people become a handicap in the US economy. And lastly, some people claim, that outsourcing causes US economies to remain stagnant and underdeveloped because there is no more “activity” in outsourced industries.
However, outsourcing is actually beneficial to the US economy because it boosts economic growth in the US, and in other parts of the world, by providing both white (professional) and blue collar jobs to people who need them. Madison Correnti, a Financial Analyst at Applied Materials, explains how different parts of the world, including the US, benefit from outsourcing. She explains, “Outsourcing by U.S. companies to foreign countries stimulates investment by these foreign countries. This investment helps boost those countries’ economies by improving their standards of living and providing jobs for the unemployed. With these economic improvements in foreign countries, this allows them to be a part of the global market by enabling them to buy more exports from the U.S” (Correnti). What looked like a loss of US jobs was actually a boost in revenue and economic growth. By stimulating other economies, the US is actually stimulating its own growth. Mark J. Perry, a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan Flint, explains the misconception about stolen jobs. He reveals, “Just like it makes economic and business sense for thousands of foreign companies to outsource jobs and production from their countries to every US state (perhaps because the US is one of their major retail markets), it also makes economic and business sense for thousands of US companies to outsource jobs and production from the US to foreign countries, perhaps also because overseas markets now represent more than 50% of retail sales for many US-based companies” (Perry). US jobs aren’t being stolen by other countries; they are being recycled throughout the world. Mark explains why the partial win-lose concept of outsourcing is not applicable in today’s dynamic and interconnected world. Outsourcing is an elaborate process and isn’t simply a situation in which America either wins or loses. Multiple countries are being benefited in varying amounts. In the case of the US, retailers are able to make much greater profits, and the economy is able to prosper. The US is able to provide jobs to other countries which are in dire need of them. In the end, the US gains a financial advancement and the other countries gain a fluid economy. The long term benefit is that the US is able to build a relationship with other parts of the world, and is able to make lasting trade agreements. Business between the US and other countries will stimulate other businesses to grow, and thus will provide more jobs for the individuals who need them.
Secondly, outsourcing is favorable to the US economy, because it allows for product specialization and monopolization. George Coontz, a senior analyst at State Farm explains the concept of comparative advantage, and how this method of product making is the best for producing high-quality goods. He explains, “Comparative advantage means that if a certain country can produce a good or service more efficiently than another country, then this country possesses the comparative advantage. This country should elect to produce this good or service, while the other country should produce goods for which they have a comparative advantage. Both countries trade with each other to obtain the goods for which they have a comparative disadvantage. This promotes economic growth and prosperity.” Competition between countries in one area of expertise hinders the progress of innovation. It hurts the overall world economy because now, companies are losing valuable time and money while competing with one another. By using comparative advantage as a tool for economic prosperity, companies are able to fail fast and use their valuable resources to create quality products that can be desired by the whole world. Madison Correnti, puts the situation into simple words when stating, ‘The other part of outsourcing is this: it simply says where work can be done outside better than it can be done inside, we should do it,’ said by Alphonso Jackson, former U.S. Secretary of Housing and Urban Development.” Through outsourcing, specialization can spur innovation and development in technologies. Comparative advantage allows countries to specialize and gain mastery in a specific industrial sector. Comparative advantage is a win-win situation for both the US as well as other countries. Hungry US consumers can get products at cheaper prices, and countries with a large labor pool can invest in developing detailed manufacturing processes.
Furthermore, outsourcing is beneficial to the US economy, because it allows the US to get goods and services at cheap prices. With the US’s growing demand for cheap goods, outsourcing can be a major benefit for companies looking to make huge profits. George Coontz further, explains the phenomena of comparative advantage, and how it ties in with outsourcing. He explains, “Outsourcing is an example of a real-life application of comparative advantage. Many developing countries have a surplus of labor, and therefore, the cost of this labor is low. Consequently, companies elect to utilize this low-cost labor by outsourcing labor-intensive jobs, such as call centers, to these countries.” The US is able to acquire goods at cheaper prices and other areas of the world benefit from employment (Coontz). But how much benefit does the US actually receive? Satwik Seshasai, a the Chief Technology Officer for NextDocs, and Amar Gupta, a Professor of Entrepreneurship/MIS and Senior Director for Research and Business Development reveal that “Of the approximately $1.45-$1.47 of value derived from every dollar spent offshore, U.S. firms receive $1.12-$1.14, while foreign firms receive only 33 cents of the value. Further, … Outsourcing provides an aggregate benefit to the U.S. economy of $16.8 billion” (Seshai and Gupta). Through an economic lense, companies are able to get value for money. By outsourcing US jobs, companies are able to spend less on wages, and more on innovation. They are able to lower the costs of their products because they don’t have to include the labor costs in their retail prices. Because they can offer goods at cheaper prices, US companies can be more competitive in the world economy. Overall, the US economy is able to stand self-sustained and is able to provide jobs and quality products to its citizens’.
Lastly, outsourcing is advantageous to the US economy because it lets US companies have access to a larger talent pool. As Elizabeth G. Chambers et. al, Board Director and Advisor of C-Level Marketing Strategy, and Growth Leader at Financial Services and Digital Businesses, explains, “Better talent is worth fighting for. At senior levels of an organization, the ability to adapt, to make decisions quickly in situations of high uncertainty, and to steer through wrenching change is critical. But at a time when the need for superior talent is increasing, big US companies are finding it difficult to attract and retain good people. Executives and experts point to a severe and worsening shortage of the people needed to run divisions and manage critical functions, let alone lead companies.” Outsourcing white-collar jobs don’t cause a loss of blue collar jobs in the US, so this type of outsourcing does not directly hurt the US economy. But where can US companies find these white-collar specialists? Zafar Iqbal and Aasim Munir Dad who is Faculty in Administrative Sciences, and have Ph.D.’s at the School of Business & Management at the University of Gloucestershire, point us in the right direction. They explain that “ ‘Global Talent’ motivates firms to gain and maintain competitive advantage and offshore talent is cost effective as well… There are 22 million graduates available in India for both public and private companies including 1.2 million engineering graduates, 600,000 doctors and the number of graduates produced in India are about 200,000 every year” (Iqbal and Munir Dad). By outsourcing white-collar jobs, US companies get talented and hardworking individuals. Not only are these talented workers hired at lower prices, but they also are not causing blue collar jobs to be lost, (jobs which the US is in need of). Outsourcing white collar jobs benefits the US because allows for diversity and growth in companies. US multinational companies (companies which function in multiple nations) are not only able to provide for the US but for the entire world’s needs’.
In conclusion, the US should continue to promote and allow outsourcing. Not only does the US get huge financial benefits, but other countries economies’ are stimulated during the process. The US gets access to cheap labor and cheap manufactured goods, while people in need of blue-collar jobs, get jobs. Outsourcing is a win-win situation for both the US as well as other countries. It is a tool which enables US companies to access larger talent pools and it lets the US specialize and monopolize certain sectors of the industries. Because US blue-collared jobs are being lost due to outsourcing, US multinational companies should limit the number of jobs they outsource, so American individuals can be employed. US companies should also try to prioritize the employment of US citizens so that the local US economy can flourish in conjunction with the larger world economy. The next time you hear the title, “US jobs Being Stolen,” take a moment to consider the other positive benefits that outsourcing provides to the US.
Works Cited
Coontz ’04, George. ‘Opinion: The Benefits and Costs of Outsourcing Jobs.’ digitalcommons.iwu.edu. The Park Place Economist: 2008.
Correnti, Madison. “Outsourcing Overseas and its Effect on the US. Economy.” ncbfaa.org. National Custom Brokers and Forwarders Association of America, Inc.
G. Chambers, Elizabeth. Foulon, Mark. Handfield-Jones, Helen. M. Hankin, Steven. G Michaels III, Edward. “The war for talent.” mckinseyquarterly.com. The Online Journal of McKinsey & Co: 29 Aug. 2007.
Iqbal, Zafar. Munir Dad, Aasim. “Outsourcing: A Review of Trends, Winners & Losers and Future Directions.” ijbssnet.com. International Journal of Business and Social Science: July 2013.
Perry, Mark. “We hear about US jobs outsourced overseas (‘stolen’) but what about the 7.1M insourced jobs we ‘steal’ from abroad?” aei.org. AEIdeas: 9 Nov. 2018 .
Seshasai, Satwik. Gupta, Amar. “Global Outsourcing of Professional Services.” ebusiness.mit.edu Mit Sloan: January 2004.
Lately, the U.S. has seen an immense development in outsourcing links and it is the first individual to seek advice before settling up an offshore agreement confessed by experts, is an attorney. Most businessmen can’t rely upon legal advisors to skill up their levels that is essential to consider all the authorized issues included. As a result, the fundamental legal issues for offshore outsourcing, organizations ought to ground in themselves so as to evade any disagreeable growth later on. This paper will present a high-level overview of offshore outsourcing and its legal considerations.
Introduction
Outsourcing can be described as the key usage of 3rd parties to complete out their occupations that are newly dealt. It can give various focal points. Among these are bringing down of costs for the outsourcing party, compensation for nonappearance of internal abilities, releasing of managerial and supervising work power to focus on their core skills and critical level issues, and availability of recent technologies.
A portion of the upsides of outsourcing incorporate decreased expenses for the outsourcing party, more prominent upper hands, expanded productivity, and accessibility of best practices. Then again, it likewise has drawbacks like decreased in-house experts, contrasts in administrations given, trouble in the executives, and security threats.
Outsourcing has its disadvantages too, such as reduction of in-house competence, complete dependence on 3rd party, decrease in staff resolve, sudden contrasts in level of administration gave, the incurrence of greater expenses when an organization is constrained to utilize its own time and assets to prepare the supplier, incurrence of greater expenses because of the supplier’s consistency with local laws, unpredicted challenges because of social contrasts.
Following are the genuine issues with regard to the services that are most famously outsourced: stock control, innovative work administrations, information preparing administrations, interpretation administrations, client call focuses, innovation administrations, programming improvement, and business forms.
Terms of outsourcing Agreement
The Agreement is the essence of the outsourcing game plan as it will be the managing contract by which the merchant and the client seek after their particular commitments. Here are the different terms of the agreement that pulls off the outsourcing-
The Agreement Terms
The Services to be Provided
Intellectual Property’s Ownership
Confidentiality of Data and Trade Secrets that includes Ownership duties of the representatives
Guarantees and assurance
Refusals
Force Majeure
The Choice of Law and Jurisdiction
The Wrap-Up.
The Agreement Terms:
As to the Agreement Terms, the client ought to consult for a brief period with restoration choices, giving it more prominent adaptability in proceeding with or ending the re-appropriating relationship.
The Services to be Provided
With respect to the Services to be given, it is essential that the client put forward its desires as explicitly as could reasonably be expected because of the way that without them, there are no target criteria for dealing with the outsourcing relationship. The Service Level Agreement (SLA) can be seen as a record that spreads out the performance standards The SLA will present the base assistance levels as indicated by a quantifiable measurement, and furthermore put forward the sentence for inability to meet the basic assistantship.
Guarantees
A Guarantee is basically, a confirmation that the client ought to anticipate from the merchant which is the vow that the seller can and will give the services as characterized in the agreement. On the off chance that the Guarantee is broken, the merchant will, as a rule, be answerable for all legitimate risk and the client may end the agreement on the off chance that he so wishes.
Force Majeure
Force Majeure truly signifies ‘more prominent power’. Force Majeure provisos pardon a gathering from risks if some unanticipated event outside the ability to control that gathering keeps it from playing out its commitments under the agreement. Remember that Force Majeure statements are proposed to pardon a party in particular if the blunder performed couldn’t be maintained a strategic distance from by the activity of due care by that association. When arranging Force Majeure provisos, ensure that condition presents some particular instances of acts that will justify the execution under the statement, for example, wars, cataclysmic events, and other significant occasions that are distinctly outside a party’s control.
Refusals
Refusals are legally binding arrangements that ceil the point of risk. The most well-known refusal in an outsourcing relationship is typically the assertion that the seller won’t be subject for any accidental, uncommon, or subsidiary harms emerging out of the utilization of third-party programming or benefits. The Customer ought to acknowledge that refusals will be a piece of the agreement, all things considered, the Customer should ensure that the disclaimers or refusals don’t revoke the Guarantee and Indemnity areas.
Ownership Issues
The assurance of ownership for IP existing before the execution of the outsourcing organizing the plan is essential, especially with respect to the end of the relationship. The agreement ought to determine which party claimed which IP resources before the outsourcing was executed. There are a few ways to deal with sharing ownership rights in regards to IP that is improved during the outsourcing arrangement :
The client claims all the IP, with the merchant having the plausibility of utilizing the IP through a permit understanding
The vendor possesses all the IP, with the client taking a permit
Sharing of responsibility for IP resources
Joint ownership for IP.
Conflictingly, joint ownership is one of the least comprehended and most confounded sorts of ownership conceivable as joint ownership laws separate licenses, copyrights, and trademarks. Concerning the licenses, each joint owner may make, use, sell, and import the patent/licensed formulation without the assent of different owners. Be that as it may, all co-creators must participate in legal action. With respect to copyrights, every co-owner is qualified to permit non-restrictive licenses in order to convey and duplicate the copyrighted work.
In the matter of trademarks, joint ownership is feasible just in conditions where the co-owners have set up, a structure to guarantee joint power over the nature of merchandise and enterprises to be sold under the imprints. Without this structure, the trademark might be legitimately articulated as having been part of it.
Privacy Issues
The U.S. has never portrayed a thorough privacy law. Yet, to keep up sensible security the laws do exist that force commitment. The Agreement must indicate that the client holds ownership of the information it submits to the vendor or merchant with respect to these laws and that the information is to be kept carefully private.
With reference to the client’s employees, clients, vendors, or accomplices, a commonly satisfactory convention for dealing with and preparing this data must be in place on the off chance that the seller will have direct or indirect access to the data.
Moreover, to the stretch that the client has posted or circulated protection proclamations, the client will be relied upon to be in full consistence with these announcements concerning ownership and privacy of information.
Jurisdictional Issues
The agreement should put down the following decision of law and jurisdictional issues
Which nation will have authority over the discussions?
Which nation’s tangible law will apply to debates?
These points are frequently difficult for evident reasons, each party needs its very own area to have control and it’s very own region’s laws to be applied. Frequently, the gatherings will consent to the sovereignty and substantive law of the district where the rupture has happened. Nevertheless, with the approach of the Internet, this arrangement is significantly less effective as a geological assurance of an unlawful act happening in the internet is almost incomprehensible. Whether the parties want elective question goals systems or not is another question that emerges like an intervention. The client must comprehend that specific courts will not hesitate to overrule legally lawful provisions as to locale and administering the law.
Termination Issues
The Termination provision is immensely significant as it precedes the conditions under which the client may leave the outsourcing relationship. Next is the list of basic reasons whereby the client may practice termination rights:
Termination for accommodation
Termination for a material break
Termination for money-related emergency
Termination for change of control of the merchant
Loss of permit
Termination for inability to meet services and execution levels
The client will consistently need the privilege to terminate benefits. The issue with this methodology is that the merchant will typically demand a comparable right. The client will need the privilege to terminate the merchant’s, Material Breach. The party’s meaning of Material breach isn’t straightforward and may require extensive arrangements as the parties contend over what set of conditions establish materiality.
To spread out in the agreement is the potential solution for the client as well as the explicit occurrences that comprise material break. The threat of this methodology is that it might possibly miss some situations. Another conceivable legally authorized solution is to allocate an expansive definition to material break.
However, the issue with this methodology is that it frequently prompts differences concerning whether the situation at issue fall under the definition. A feasible contractual path is for the client to authoritatively give itself the privilege to decide materiality be that as it may, this arrangement will quite often be vigorously challenged by the vendor.
The client may likewise need the capacity to terminate for different responsibilities for the merchant. For the most part, the client abuses this privilege in those circumstances where the responsibility for the merchant is significantly critical to the client. The client will likewise need termination rights for those conditions whereby the seller loses a permit that is important to give services.
At last, the client will need the capacity to terminate the agreement when the seller neglects to meet services and execution levels. So as to stay away from contention regarding what establishes disappointment, the agreement should spread out with particularity, the careful measurements as per which, failure can be estimated.
Statutory Issues
In conclusion, the client must know about a few resolutions to which it might be subject. The first is the Sarbanes Oxley Act. This demonstration was passed so as to reestablish financial specialist trust in the commercial center after a few emergencies of respectability, for example, the Enron failure. The demonstration applies to open organizations that get ready or issue review reports for other open organizations. For reasons for this paper, this demonstration pronounces that associations are liable for -making such review reports for their seaward sellers, and guaranteeing that they have set up, sufficient powers over financial reporting by their coastal vendors.
Outsourcing types and services
As said before, organizations primarily outsource non-substantive responsibilities for different reasons. The service providers are relied upon to offer productive help that doesn’t require a lot of further customization. A portion of the responsibilities that are as of now outsourced are :
1. Infrastructure Outsourcing
It incorporates tasks like overseeing data centers, systems, and applications. To set up the tasks with best practices in the infrastructure it requires operational brilliance.
2. Transaction-Oriented outsourcing :
This kind of outsourcing includes contracting that organizes the security of information and security insurance. The roles of the transactions are accounts handling, charging, finance, outsourcing, transaction preparing, etc.
3. Strategic Business Process Outsourcing
This needs calculated concerns such as mastery in selecting, yet the competitive contrasts happen regarding the client relations and legitimate comprehension of the customer prerequisites. Operational administration, executions, HR enrolling, and so on are a few instances of outsourcing.
4. Programming and IT applications
The advancement of IT applications requires lateral thinking and remarkable ways to deal to take care of an issue where an answer doesn’t exist right now. It is additionally critical to have the option to recognize future prerequisites and current updates effectively.
5. Business system meeting:
Requires the executive’s characteristics like initiative, task aptitude, an appropriate comprehension of the advancements bound by the future-driven developments that can be applied to different customers during interviews.
Perspectives on adopting outsourcing
Strategic perspective
In terms of outsourcing models and business roles, the fast increment in the IT business has rolled out an improvement. Organizations have ended up using this training as a hotspot for operational greatness and business advancement despite the fact that the significant explanation behind outsourcing has at first been the mission for a decrease in costs. This has changed outsourcing from a transitory purpose of answer for a long-haul business technique.
Presently, associations are separating the core tasks of their business from non-center perspectives to reassess the key standpoint. Reports propose that around 66% of huge associations have been engaged with outsourcing. The estimation of outsourcing contracts has expanded by 44 percent all through the world from 2003-2004. Organizations like Intel and Apple have their assembling procedures taken up by overseas producers.
Economic perspective
Financial constraint The significant test for the associations has been to control the degree of accounts without settling down with the advantages of progressions in innovation as there is a persistent increment in business pressures as for spending budget. Since the associations face consistent weights to adapt up to their rivals, they wind up depending on complex frameworks. Thus, interest in innovation consistently has gotten unavoidable.
Reduce investments in assets Outsourcing improves the re-engineering procedure as well as benefits the utilization of accounts in the inside administration of assets. It encompasses making an interest for current advancements and improving proficient and specialized abilities.
Convert fixed costs to variable costs The products that drive the business parts of an organization that are generally fixed is by the employee-related expenses and their related interests or investments. During times of defeat in deals, this can now and again be of greater expense. The way toward outsourcing can change these fixed expenses as the specialist’s co-ops have bigger sizes of economies and can cost as needs are based on the request.
Organizations will, in general, outsource fundamentally as a result of the accompanying reasons.
Cost
Organizations at times overlook a slight distinction in the nature of the product as it empowers remarkable inner cost reserve funds. There can be items that can be carried at lower costs somewhere else with similar quality.
Specialization
Numerous organizations that have providers for assembling, by and large, decide to outsource their items. Businesses look for outsourced items to accomplish a higher caliber. For instance, a PC fabricating organization can redistribute for improving smaller-scale chips, rather than making it all alone. It is additionally a bit of leeway when organizations need more gifted representatives in-house.
Flexibility
In the event that a business needs a minor contribution to assembling an item, it is pointless to fabricate the entire manufacturing unit for themselves. Outsourcing has the upside of paying just for what you need instead of paying for representatives in any event, during personal times.
Focus on core activities
While there are a lot of business tasks in the organization, it is the center exercises that offer an upper hand over others and run them into benefits. Thus, there can be an expanded spotlight on the center exercises when different angles are redistributed.
Conclusion
To sum up, offshore outsourcing can possibly give remarkable cost investment funds and time. Although, as mentioned above, there exist numerous lawful contemplations that an organization must consider before and during the outsourcing course of action. In regard to the multiplication of offshore outsourcing, case laws and statutory law are as yet being created and tried. In this unique circumstance, legitimate direction can’t be depended upon, to be completely sided by side of these changes. Therefore, it is fundamental that business elements teach themselves, in any event on a simple premise, with the major legal subjects attendant with offshore outsourcing.
References
Colson, Randall. HIPAA and Outsourcing: The Impact of Business Associate Rules Under the Final Privacy and Security Standards, Haynes and Boone, LLP (2003).
Covaleski, John. (2004) ―Outsourcing of Work Means Influx of Legal Issues.‖ Referenced on September 24, 2006, from Law.com, www.law.com/jsp.law.
Covered Entities as Employers—How Does HIPAA Apply? (2005) Pepper Hamilton LLP. Fanning, Ellen. (2004).
Legal Tips to Help avoid MSP Pitfalls. Referenced on September 24, 2006, from Computerworld, www.computerworld.com/managementtopics/outsourcing.
Finance and Accounting Outsourcing: Does Outsourcing Reduce Risk? (2004). Bierce & Kenerson, P.C. Fox, Stephen. ―HIPAA and Foreign Outsourcing.‖ (2004). Pepper Hamilton LLP. Gareis, Robert. (2004).
Business Process Outsourcing under Sarbanes Oxley: Challenges and Complexities,‖ Baker and McKenzie. Gliedman, John. (2005).
Legal Issues: Offshore Outsourcing. (2005). Referenced on November 13, 2006, from Offshore Outsourcing, www.offshoreoutsourcing.org/legal.
―Legal Issues – Offshore Software Outsourcing,‖ (2003). Referenced on October 20, 2006, from Indiasoftware.com, www.indiasoftware.com/legal-issue. Melby, Barbara. (2005). ―Technology Outsourcing: Retaining Control in an Outsourced Environment,‖ Morgan Lewis and Bockius, LLP. Mensick, Michael. ―Outsourcing Essentials – Innovations in Outsourcing,‖ (2004). Referenced on October 16, 2006, from Outsourcing.com, www.outsourcing.com/content.
Many manufacturing firms entrust partners to provide manufacturing services on their behalf. However, it is not clear whether and when firms can capture the potential value advantages of outsourcing business services. The purpose of this project is to investigate the suitable manufacturing approach for Generators that is not in the main core business of the firm.
The question regarding whether to produce in-house or to purchase from an external supplier is nowadays very common, it is highlighted as a central and strategic decision for manufacturing firms. Furthermore, the importance of creating a competitive and consistent make-or-buy strategy that is adapted to the context of the firm as well as to today’s dynamic business environment cannot be underestimated. Today the company where I’m employed lacks a standardized and holistic process to support this decision-making. Consequently, this study aims to, in line with the company’s business strategy, develop a decision model to facilitate the company’s make-or-buy decision.
To be able to fulfill the purpose, a thorough cost study examination for a selected generator will be conducted Furthermore, a survey questionnaire filled by production managers from different factories will be developed. As a result of this, an initial list of parameters potentially affecting the make-or-buy decision will be generated. Consequently, the decision model will be developed and presented.
Introduction
Over the past decades, especially in the second industrial revolution after world war 2, firms and companies started disintegrating their production, becoming more and more specialized along with the trend of globalization. Nowadays, outsourcing is increasing in more companies due to open borders between countries, open markets and high competitiveness, in addition to fast and easy communication. Due to these challenges, firms are looking on decreasing their costs while maintaining the quality level of their products or services.
In the literature review, we will describe from previous articles the pros and cons of outsourcing and in-house productions for different products and how they weigh the suitable model for each firm and product.
This will be analyzed in the methodology through quotations received from different suppliers and from surveys filled by factory managers in the same domain. The analysis will be made for full outsourcing, partial outsourcing and complete in-house production. A comparative analysis will be then conducted to compare the received quotations, followed by statistical analysis for the filled surveys. The latter will allow us to determine the suitable production model for the generators.
The problem statement, research questions, and research objectives
Nowadays, most of manufacturing companies are facing challenges in selling their products in markets due to the high competition and worldwide open markets.
Industrial companies tend to create innovative ideas in production to reduce their production costs while maintaining the quality of the product. Therefore, companies are looking to transform production methods and techniques by outsourcing it to sub-contractors or by producing it in-house. In the project study, we will look at the pros and cons of both models and find which one is more profitable for the companies to use depending on the industry sector.
The importance of changing the production model in the industry is lowering the costs of production to increase the selling and reach more consumers. In our case study, we will be discussing the electrical generator industry and studying the best model of production. We consider an outsourcing model in which the supplier makes the effort decision, and an in-house production model in which the manufacturer decides the effort level, then we compare these two models with each other. The following research questions need to be addressed:
Which production model is better for the generator industry?
Which model has a better-quality control and testing?
Which model is the cheapest?
The objective of this study is to provide the best way for generator production taking into consideration the following factors; cost, quality, delivery time, and expertise.
A preliminary literature review shows that most of the past studies are primarily focused on the production model in general; only a few of them were tackling specific types. In our research, we will focus on the generator’s production and assembly and what to outsource precisely.
The research will be based on quotations for raw materials, availability and delivery time from suppliers, taking into consideration the assembly charges and the internal costs for in-house production. Whereas for outsourcing, we will ask different manufacturers to quote finished products.
Literature review
Every way of production has its pros and cons, the success is in evaluating the best approach for each industry and its circumstances. Globalization imposed outsourcing as the main factor for production activities, it is a type of “make-buy” decision.
(Hamada, 2010) discusses product differentiation with cost uncertainty between Outsourcing and In-house production, he stresses on choosing to outsource if the degree of cost efficiency exceeds certain thresholds. In addition to production activities, outsourcing can include human resource management and research development. Moreover, technological efficiency is the main reason for choosing to outsource over in-house production. When the outsourcer possesses advanced technology, the manufacturer will share more profit with the outsourcer even if it cannot monopolize profit. The author says that outsourcing is a key aspect of modern industrial production. Therefore, he presented a model that allows each manufacturer to choose its organizational form of production when faced with cost uncertainty and competition with a rival manufacturer in a differentiated goods market. The calculations show that if the degree of cost uncertainty of outsourcing is identical to that of in-house production, then outsourcing is never chosen. In addition, partial outsourcing has been analyzed as well and can be used in organizations. The authors demonstrated that the product selection should be purely scientific and based on calculations for the management to decide on whether to outsource or not, it should distinguish between technological and competitive advantages. The decision to outsource is affected only by a technological factors such as cost efficiency.
(Teng & Hsu, 2017) supports Hamada by discussing the trade-off between in-house production and outsourcing in a two-echelon supply chain to optimize the total profit per unit time of the system. The authors start by describing the benefits of outsourcing and created a development model to choose the optimal solution. It was illustrated by numerical examples and sensitivity analysis. The figures and results show that outsourcing plays a critical role in improving a firm’s overall competitiveness due to limited resources. Therefore, the firm must distribute its resources on its core tasks and reduce its total operating cost to generate a greater value. The results obtained from sensitivity analysis will provide managerial insights to administrative personnel in decision-making.
(Lu, et al., 2011), discusses outsourcing in correlation with product quality and contract enforcement. The article emphasizes the importance of product quality and how to maintain it during the outsourcing process, supporting it with theoretical and empirical analysis. The study was based on surveys from 2400 firms across China, the survey consisted of two parts; the first part was a questionnaire directed to the senior management seeking information, whereas the second questionnaire was directed to the accountant and personnel managers. The choice to outsource was the trend of globalization and the increase in competition to reduce the costs; which led to quality issues. The results showed that outsourcing compromises product quality, but the negative impact of outsourcing on product quality is mitigated by the effectiveness of contract enforcement. (Jingxian Chen, 2015) emphasize as well on the importance of the quality investment strategy in outsourcing, they derive the rather simple analytical equilibrium results and analyze the effects of sharing the coefficient on the quality improvement and the member’s profits as well as the whole supply chain profit.
(Haidar, et al., 2016); presents a comparative analysis of in-house and outsourced development in the Software Industry, the paper discusses the variety of positive and negative aspects of outsourcing from a political, economic, and organizational view. It also demonstrates when and where outsourcing is useful for an organization and where it is not. According to the authors, the main reasons to outsource are quality improvements, core focusing, increase speed to usage, fostering innovation, conserving capital, cost reduction, and saving of valuable time. The disadvantages of outsourcing are mainly cultural and lingual differences. Outsourcing plays a vital role in completing the task in time and transferring the risks. However, the authors acknowledge the risks associated with data privacy and goodwill, loss of potential employees, and loss of potential customers.
(Griffis, et al., 2013); discusses the best projects to undertake in the public sector, illustrating the overhead of direct and indirect expenses for in-house employees to reflect them within the costs of the outsourced services. A number of factors other than cost become key drivers for outsourcing design, the decision should be based on policy, staffing capacity, schedule constraints, lack of special expertise, need for innovation, better management of risks, improving quality, and on cost-effectiveness. A comparative methodology used in the study by the authors on real data collected from the NYS showed the total costs occurred for projects when done in-house or outsourced. It was noticed that the employees in the public sector usually get generous benefits packages compared to the private state due to a large amount of paid time off, and the inefficiency of public employees.
(Dogerlioglu, 2012); state that not only the quality and cost considerations drive the organizations to outsource their production. Organizations review their business model, size and industry characteristics, culture, and external environment for a successful outsourcing project. The author lists the following main factors that influence the success of outsourcing; flexibility, delivery, employees’ career support, employees job satisfaction, and communication problems.
Figure 1: Research model
The studied model was based on these five factors (fig.1):
flexibility is the ability to respond and adapt to changing conditions. Firms running in harsh competitive environments focus on their strong aspects and try to find support from other firms to strengthen their weaknesses to keep their competitive edge. The increase in the flexibility level allows the firms to respond quickly to market demands. The important components of flexibility are robustness, modifiability, the potential for new capability, and ease of exit.
During the delivery process, firms have to pay attention to the quality and timing of delivery since the main challenges of many outsourcing projects are the project deadline and the quality, noting the monetary penalties that apply when exceeding the promised delivery time. This term will mainly be added in the project contract.
Employee satisfaction development is his career path and its expected from every company. Usually, outsourcing firms invest in their workers to meet the expectations of their customers. Moreover, the employees improve their skills and capabilities willingly since it is also an investment for their own careers. To conclude that companies outsource their tasks, they expect professional service from high-skilled workers.
Job satisfaction is an important factor in firms and can be caused by outsourcing contracts. The loyalty of the employees decreases when project involvement is low. It causes a loss of confidence in management, decreased morale, lack of direction, risk avoidance, and loss of control.
Communication plays a major role in organizations since every firm has a unique corporate culture consisting of shared values, attitudes, and behavioral patterns.
When two different cultures start to cooperate, there may be some difficulties until they agree on shared meanings, especially in multinational projects, different languages may strengthen barriers of communication.
The research model was based on collected data through surveys to compare outsourcing firms and internal departments. The enclosed departments in this study were logistics, finance and accounting, human resources, and information technology. The results show that the advantages of outsourcing are true only for some areas of activity. The competitive advantage is valid only for logistics outsourcing between the listed departments.
(Taheri, 2013) states that in the last two decades, outsourcing dramatically increased due to globalization. He emphasizes the importance of outsourcing abroad to less developed countries where the labor cost is cheaper, this act needs a strategic decision from the firm to move its production completely to another country. (Dolgui & Proth, 2013) evaluated to what extent production should be performed internally and what could be entrusted as an external supplier, always arise when a firm face an implementation of the new product. In addition, they explain that outsourcing is defined as an act of obtaining semi-finished products, finished products or services from an outside company if these activities were traditionally performed internally. In other words, transferring the existing activities to an external third party. Add to this terminology, the transfer of any activity includes the transference of the control of this activity as well. Moreover, (Kumar, et al., 2010) stress on the importance of regular re-evaluation of the present make-or-buy strategy in order to make it fit the current situation of the firm.
(Ashe-Edmunds, 2017); advises that usually small businesses start to weigh the benefits of transforming their manufacturing from outsourcing to in-house when their sales level becomes high enough. The owners will start thinking of increasing their profit by cutting the middleman. However, other factors need to be considered before jumping to this step.
He emphasizes on the quality control enhancement when in-house production is applicable, considering that in outsourcing there will be no quality control on every production step unless a site engineer from the client side is reserved for this task. Moreover, ceasing the profit gained by the outsourcer can save considerable money, Hence, when making the product, not only the profit charges are eliminated, there are as well the delivery expenses and credit fees that the outsourcer charges. The disadvantage of transferring the production in-house is that the factory needs to produce enough units to generate enough profit to cover the manufacturing facility, equipment, workers, insurance, property taxes, utilities, and other production costs. In all businesses, suppliers often make products for more than one company, allowing them to spread the overhead costs among multiple customers and to increase the volume of raw materials purchased from the source to get better prices based on larger quantities. The location of in-house production needs to be carefully studied since government rules and regulations in some areas can exempt the manufacturer from inventory taxes, even more, they can offer tax credits for manufacturers that create new jobs. Another disadvantage point for outsourcing is sometimes, the customer thinks that the goods are produced in-house, therefore the supplier cannot ship them directly to the customer from the outsourcer factory, this may cause conflicts and trust impacts between the supplier and the customer. Therefore, an indirect cost will be added to deliver the goods from the outsourcer factory to the supplier or to a warehouse before shipping them to the customer. Nevertheless, outsourcing production can shrink the labor cost when manufacturing is outside the country in a less developed area, but this might irritate patriotic consumers and give the competitors a marketing tool.
As Premji once said: “The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles” (Premji, 2010), on the other side Selznick said: “The success of a production depends on the attention paid to details” (Selznick, 2010). Consequently, some studies support Premji in his overview of outsourcing and its benefits. Whereas, others illustrate a comparative study between in-house and outsourced manufacturing based on mathematical equations. The outsourcing could be related to materials production or services provided, in addition to human resources. The authors agree that in-house production provides better quality control, but this can be managed in some outsourcing cases. It’s very important to overtake a regular re-evaluation of the present make-or-buy strategy in order to make fit the current situation of the firm.
According to the studied articles, a comparative study demonstrates the advantages of manufacturing, be it in-house or outsourced.
Advantages of in-house production:
Higher quality control
Product knowledge conducting an enhanced after-sales support
Design privacy and confidentiality
Advantages of outsourcing production:
Inexpensive labor when outsourcing is in less developed countries
Advanced technology
Production capacity
Production Reliability
Skilled labor when needed
Less investment cost, reduce assets.
Foster Innovation
Lower costs when the economy of scale is considered
Allow the manufacturer to focus on other tasks
A lot of discussions have been focused on the steep rise in offshoring. The more general notion of outsourcing manufacturing resources is not new. Contract manufacturers have long been performing manufacturing for companies that have chosen to no longer perform some or all of their manufacturing in-house. An example is Samsung cell phones, it is very known that some of its main components such as the screen is outsourced. The growth in the use of contract manufacturers has occurred for some rational reasons.
Technology has made the management of remote operations easier.
Strong and competitive supplier bases have been created in many industries.
Increased product variety and technological volatility have made it more difficult for a single entity to master all of the technology required to produce its product.
All the same in many sectors, there are some restrictions that oblige the manufacturers to produce in-house such as military items, even software, and web applications. In addition, there are also plenty of benefits with keeping the manufacturing process in-house. The flexibility is an added value for in-house, if the customer would like to change in the design, the communication between the different departments can be very smooth and easy to do. In-house manufacturing allows a business to react to the market quickly and change its products suitably. Even more, the company can test prototype products in-house, discuss issues with engineering and design departments in-house and then change what need to be changed. Instead of having to ship prototypes across the world, it can all be done quickly and easily within the business. This speeds up the whole process and cuts out what can often be weeks in between prototype creation and testing. Another point can be added which is customization. If a customer wants a customized product, this can be easily done in-house, in a fast and easy way. Whereas if it is to be outsourced, it has to go through a range of channels and processes and there is a higher likelihood of an error. (Doradus, 2012)
What these authors, among others, agree upon is the importance of creating a competitive and consistent make-or-buy strategy that is possible to adapt to today’s dynamic business environment.
We can conclude that in-house and outsourced practices have been in use for the last few decades with all their advantages, disadvantages, and risks associated with them. Every industry and situation plays a vital role, i.e. when projects are highly complex, the production cost is too high, in-house technology is not sufficient, and a lack of expertise exists; outsourcing is the perfect choice to acquire. However, for a successful decision concerning outsourcing, the firm needs to accomplish some foundational tasks:
The choice of outsourcing should be consistent with the overall strategic goals of the firm.
The firm’s core competencies need to be identified.
Determining the appropriate suppliers by identifying the market.
Assign a specific team for outsourcing implementation.
Moreover, according to the discussed literature, we can say that outsourcing has disadvantages that need to be taken into consideration such as:
Product qualities that cannot be guaranteed unless contract enforcement is used with close follow-up.
Privacy and confidentiality risk can lead to stealing product design and selling it directly to the vendors.
Maintenance issue when any trouble appeared in the product after delivery
All these points must be taken in consideration before proceeding in an outsourcing choice.
Methodology
In the research methodology, we will be working on qualitative data more than quantitative. The nature of data will be descriptive and classified into categories.
For the qualitative data, the One Generator rating will be selected with standard specifications to determine its cost when manufactured in-house or outsourced. Therefore, the secondary data will be reckoned.
When manufactured in-house, a lot of elements will be taken into consideration starting by the raw materials costs Ex-works factory, shipping charges including customs and clearance fees, employees’ overheads with their health insurance, and pension fees.
When outsourced to a contractor, two models will be studied, the first model will be complete outsourcing, the outsourcer will source the raw materials and assemble them together to deliver us a complete generator. Whereas in the second model, it consists of partial outsourcing, in which the client supplies the raw materials and the outsourcer will only be responsible for the assembly, in addition to the testing and quality control.
This will be followed by comparative analysis to determine which approach is less expensive. However, this result will not be final and cannot be adopted since it doesn’t include the impacts of each manufacturing. Therefore, quantitative data is essential to analyze the advantages and disadvantages of in-house and outsourced manufacturing. This will be calculated using surveys to collect the required data from the manufacturers and the outsourcers. The survey questionnaire will be constructed based on the literature and will be built on primary data. This will express the point of view of factory managers, the questionnaire will be self-administered and will be shared by email with the concerned people for filling.
The questionnaire will be composed of the following topics:
Margin status
Delivery time
New product introduction
Inventory liability
Product Quality
Product life cycle
Design Privacy
Potential customers
The secondary data for the study will be sourced from official quotations received from several contractors for the outsourced manufacturing, and from factories and suppliers in addition to internal documents for the in-house production.
The primary data for the study will be the opinions of production managers of firms. These will be obtained through questionnaires and surveys covering the above.
Conclusion
In reference to the competition in markets is due to globalization and open markets, manufacturers are facing a lot of challenges in selling their products, therefore partial or complete outsourcing may be the best option.
The focus in the literature was on the benefits and drawbacks of in-house and outsourcing choices. The selection between them depends on the product or service acquired. This project will help us to determine the best approach for generator production when this product is not a core business to the company.
A framework will be developed, which provides strategic guidance in choosing between outsourcing and in-house approaches. This ensures taking into consideration a wider range of key variables underpinning value-adding selection, not only concentrating on financial factors but as well on other equally important variables that add value.
The main factors that can affect the product and will be analyzed in the project are the product cost, quality which will be monitored during the manufacturing, testing after manufacturing, packing, the lead time needed to deliver the product in addition to the inventory for the on-shelf products and forecasting, life cycle of the product, design privacy and the possibility of losing potential customers.
This study will help us in the company to understand and select the suitable option for generator production.
Outsourcing is ‘the process of arranging for somebody outside a company to do work or provide goods for that company’ (Oxford Dictionary, 2019) and it has three main advantages including the cheap cost, no full-time employee and the latest development from outsourcing firm (The Economist Magazine, 2008). Currently, worldwide organizations including Thailand have changed their structural foundations by using the outsourcing model. Outsourcing has various type of operation for collaboration companies such as service, IT, finance, logistics or manufacturing. Though there are significant positive impacts for owner and investor of organizations, there are still much negative impacts on the customer, specifically local service by outsourcing. Chakrabortty (2014) states that UK citizens use local public services which are served by third parties in Barnet, and they do not know anything about the local information or area. For example, salary statement for the local council staff member is made in Ireland, library customer services are first routed to Coventry, parking services are handled in Croydon, Benefits of the city are managed in Blackburn, and also deaths, births, and marriages are still organized in other cities. It can be seen that this situation is one of the problems of local services by outside firms who know nothing about local information. This essay suggests that service outsourcing is the cause of the problems for the customers therefore some solutions for service outsourcing must be in the place. The aim of this essay is to analyse the difficulties of service outsourcing and seek solutions to service outsourcing in Thailand.
It has been widely accepted that operation with outside companies has a positive impact. Service outsourcing makes the local customers that have incurred inconvenience situations, especially local service, for local customers. Thailand also has several functions which have been operated by outside companies such as logistic service from Hong Kong, IT service from China or travel platform from Singapore. There are two main problems in service outsourcing in Thailand. Firstly, it is difficultly to communicate with outside service firms who do not know about local information for operation or provide service. To illustrate, the woman who wanted to buy a bench and install it on a local mountain which named as her family’s name as well as that make call centre employee who did not know about either the mountain or how to handle such presents to confuse for serving her (Chakrabortty, 2014). It is obvious that the outside call centre have not had effectively enough to serve the local customer. Secondly, it is quite difficult to contact customer service, which has been managed by the outsourcer. According to Chakrabortty (2014), callers in the local area have to wait in the line all the time, and they have possible opportunity to be thrown off the line by call centre when things get too busy. As can be seen that the residents have awkward contact with the call centre increasingly depend on their quantity of service outsourcing councillors. The local people in Thailand have suffered these problems with their service outsourcing.
There are problems to local customer from service outsourcers. Thus, this essay suggests some solutions to these problems. Firstly, service outsourcing in Thailand has no enough local information to serve Thai customers efficiently. The study of Williams (2017) indicates that positive performance can increase by supporting of locally hired managers because local managers have accumulated local social capital information, which can help them to successfully improve a locally responsive strategy and reduce the negative effects of performance including in the case of China. It is clear that the solution to this problem is hiring which must engage local managers in each vital city in Thailand. The local managers provide the local information to service outsourcing firms for serving high service performance, which is supported by Williams et al. (2017). Secondly, almost service outsourcing in Thailand always busy and the callers also challenging to contact them. The way to improve this problem is a collaboration with another service outsourcing. Reference to Gurvich (2012) reveals that he considered the call centre operated under an overflow mechanism from customers. Callers are first directed to in-house service of service outsourcing. Then, when the waiting room is full, another outside service will open the other stations for callers who do not still gain serving. This solution can reduce the time of customers who access to contact with local customer service by service outsourcing and also decrease the risk of throwing off their line by a call centre in the heavy-traffic period. As can be seen from the report that these solutions can solve the problem of service outsourcing. Service outsourcing in Thailand should apply these solutions to their service organizations for increasing positive service performance.
To sum up, this essay has explored the problems of service outsourcing in Thailand and suggested some solutions to the problems. The problems of service outsourcing include the confusion of service outsourcing serves some services or operations to the local customers in Thailand that causes poorly service performance, the difficulty to contact the customer service which is provided by service outsourcing. And the solutions to improve these problems includes the employment for local managers in Thailand might increase service performance by suggestion from local managers who know local strategy, information and culture in each city of Thailand as well as the collaboration with another outside providers will probably open enough server for serving all customers who want to contact call centre in Thailand. Therefore, service outsourcing in Thailand has some problems while it has some solutions to improve.
The idea of outsourcing has been around for hundreds of years, but it did not become a prevalent practice in the United States until the seventies. The term outsourcing, however, did not appear in science until the 1990s (Trocki, 2001). The functions that are outsourced varies greatly based on the needs of the individual business but the most frequently outsourced functions are human resources, facilities management, IT, accounting and finance and procurement with IT being done the most.
While outsourcing may be necessary for most businesses to remain competitive in today’s market, it still maintains an air of controversy and is surrounded by negative connotations to many employees of the same businesses. From the management’s perspective, it is a cost saving tool that can greatly impact their bottom line and keep the shareholders content. In stark contrast, from the perspective of the workers that potential layoffs and job reassignments would directly affect, they only see years of hard work and loyalty going overseas and their quality of life at risk. It is imperative that business executives are cognizant of all potential consequences of a decision to outsource. This paper will explore the benefits and risks of outsourcing and the impact that it plays on the U.S. job market.
The Benefits
The potential benefits of outsourcing a portion of a business’s functions are too numerous to not at least be considered in any business model. The most popular sectors that utilize outsourcing are health and pharmaceuticals, defence and government, IT, retail, telecommunications and media (Krosse, 2020). Even school districts have followed the trend as positions like bus drivers, custodians, cooks and substitute teachers are often contracted to outside agencies (Hux and Nichols, 2016). The big question is why? The reasons provided in Figure 1 provide some insight into this ever growing phenomenon.
Cost Savings and Access to Intellectual Capital
Not surprisingly, cost savings is the number one reason reported for outsourcing in Deloitte’s 2016 Global Outsourcing Survey. When implemented correctly, a company could see a savings of 30% – 40% within the first year as a direct result of outsourcing (Engardio, Arndt, & Foust, 2006). These savings primarily are attributed to labor costs which also includes having no training and recruitment expenses as offshore agencies carry those costs as well. Similarly, by utilizing outsourcing, an organization has access to an unlimited pool of talent. This in turn allows companies to accelerate innovating products and the ability to fund development projects that were unaffordable previously (Engardio, Arndt, & Foust, 2006). Further, outsourcing talent allows for a shorter lead time. This is true for CEO Bob Miller of OnStor Inc. who has partnered with HCL Technologies Ltd. for engineering services. He says “If we want to recruit a great engineer in Silicon alley, our lead time is three months,’ whereas ‘With HCL, we can pick up the phone and get somebody in two or three days.’ (Engardio, Arndt, & Foust, 2006).
Enhanced Service Quality and Efficiency
Another reason many companies choose to outsource certain functions to a BPO company is to improve their customer service. By using outsourced contractors, many customer service actions are performed quicker. Likewise, the difference in time zones allows for live customer service centers to be available around the clock for a fraction of the costs. The improved customer service often leads to large gains in efficiency as well. For example, the CFO of Penske Truck Leasing, Frank Cocuzza, says “the $15 million in direct labor-cost savings are small compared with the gains in efficiency and customer service” (Engardio, Arndt, & Foust, 2006).
The Negatives
As with any innovative strategy, there are always trade offs to the perceived positives. It is no different for the practice of outsourcing. There are potentially devastating risks that must be surveyed when making a decision to outsource. The risks are so great that a new business paradigm was created in the U.S. and abroad called Enterprise Risk Management (ERM) in which the “ framework provides guidance for boards of directors and senior management for analyzing all core business strategy decisions from an ERM perspective” as detailed in Figure 2 (Beasley, Bradford & Pagach, 2004).
Human Capital Risks
Employee displacement is the first downside most people think of when discussing outsourcing. Wisconsin-based manufacturer Paper Converting Machine Co. (PCMC) cut its US employees from 2000 to 1100 in a combined effort to compete and remain profitable (Engardio, Arndt, & Foust, 2006). With the layoffs also comes demoralization of the employees that remain and the possibility of subsequent operational slowdowns, employee turnovers, and even employee strikes if their sentiments are not given appropriate consideration (Beasley, Bradford & Pagach, 2004). Fortunately, employee backlash has encouraged some legislation aimed at curbing the increase of offshore agreements. For example, efforts in California and New Jersey had led to a bill (Senate No. 494) proposing a mandate that American wages be paid for state government work no matter where the work is performed (Beasley, Bradford & Pagach, 2004). Similarly, displaced workers required to train their replacements will be owed severance pay and possibly retention bonuses which would add costs for the company. Further, additional costs may occur for a global business process outsourcing company to hire a legal team if unionized laborers file a class action lawsuit.
Legislation/Regulatory Risks and Privacy Risks
An important consideration that must be addressed when discussing a decision to outsource is what regulations need to be followed in the home country and in the country hosting the work being performed. This includes but is not limited to, differing tax and labor laws. Privacy, security, and confidentiality must also be factored in. A data breach by an outsourcing partner that results in damages from unsecured transactions could lead the parent company open to legal and regulatory actions (Beasley, Bradford & Pagach, 2004).
Strategic/Market and Financial Risk
The strategic/market risks associated with outsourcing can be considerable and are often unpredictable. They stem from unanticipated travel required to effectively manage and develop infrastructure to support off-site operations, costs from IT software and hardware requirements, and costs from monitoring the outsourced performance of quality, security, and availability metrics (Beasley, Bradford & Pagach, 2004). Financial risks also arise from proposed federal legislation that could restrict an organization from accessing financial assistance and/or other federal grants (Beasley, Bradford & Pagach, 2004).
Operations Risks
The potential operational risk surrounding outsourcing is another key component in the decision to move functions offsite. The top 3 locations for outsourcing are India, China, and Malaysia with India outranking them all (Davis and Davis, 2012). For U.S. firms this creates an issue of language barriers and time zone differences. Further, the quality of the work being done by the contractors may be subpar and damage the reputation of the parent company. This is especially true for outsourced customer service call centers that often employ workers with heavy accents which may be a turn-off for U.S. consumers who find it difficult to understand them.
Implications to the U.S. Job Market
The implications that outsourcing provides to the U.S. job market are great. While the growth that each organization achieves by offshoring some of its functions is a positive for the job market, employee layoffs can be detrimental. By taking away gainful employment domestically, U.S. workers are left to settle for lower-paying positions that can lower their quality of life. On the other hand, when properly implemented, the growth from an organization’s decision to outsource could aid in creating new and more specialized jobs in the U.S. that will make the previously displaced workers more well-rounded and highly sought after. With continued pushback against offshoring, some employers are moving their operations back to the U.S. Starbucks, for example, announced plans to relocate some of their production of coffee mugs back to a dormant plant in Ohio after they had been moved to China (Davis and Davis, 2012).
Conclusion
The decision of whether or not to outsource is a major decision for every organization. Thorough analysis and planning on the part of the management team is necessary for it to actually achieve any of the potential positives. Overall, however, it can be a highly profitable venture for the company and a catalyst to enhance the growth of the U.S. job market. A good balance of investing in human capital while outsourcing some specific functions, considering all factors would ultimately benefit us all.
References
Beasley, M., Bradford, M., & Pagach, D. (2004, July). Outsourcing? At your own risk: before outsourcing any process or function, it’s essential to assess the risks enterprise-wide. Strategic Finance, 22+. https://link.gale.com/apps/doc/A118890706/PPBE?u=jack26672&sid=PPBE&xid=010dc2ebSalopek,
Davis, C. E., & Davis, E. (2012). A Potential Resurgence of Outsourcing. CPA Journal, 82(10), 56–61.
Deloitte’s 2016 Global Outsourcing Survey (Rep.). (2016, May). Retrieved December 5, 2020, from https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/operations/deloitte-nl-s&o-global-outsourcing-survey.pdf
Engardio, P., Arndt, M., & Foust, D. (2006, January 30). BusinessWeek Online. Retrieved December 5, 2020, from novella.mhhe.com website: http://novella.mhhe.com/sites/0078685435/student_view0/unit5/chapter14/businessweek_online.html
Hux, Annette R., and Joseph R. Nichols. ‘The financial and political impacts of labor-outsourcing in rural school districts.’ Education, vol. 136, no. 3, 2016, p. 275+. Gale OneFile: Economics and Theory, https://link.gale.com/apps/doc/A447178150/PPBE?u=jack26672&sid=PPBE&xid=75244cf1. Accessed 16 Nov. 2020.
Krosse, S. “(2020). The Ultimate List of Outsourcing Statistics.” MicroSourcing, MicroSourcing International Ltd., 16 Aug. 2020, www.microsourcing.com/learn/blog/the-ultimate-list-of-outsourcing-statistics/.
Słoniec, J. (2016). NEWS IN THE IT OUTSOURCING AND TRENDS IN ITS DEVELOPMENT. Journal of Positive Management, 7(4), 3-18. doi:http://dx.doi.org.lib-proxy.jsu.edu/10.12775/JPM.2016.019
Trocki, M. (2001), Outsourcing. Metoda restrukturyzacji działalności gospodarczej, Państwowe Wydawnictwo Ekonomiczne, Warszawa.
In the recent years the cost of sustaining and expanding of business entities globally has gone up significantly. For examples, the cost building of new houses, buying new automobiles, hiring new and retraining the existing staffs have almost doubled in the last 20 years according (Curran, 2001).This have been escalated by the recent global economic downturn which affected most businesses recently. As a result, most companies including, banking institutions, hotels, construction firms among others started to outsource services in an effort to reduce on the operation costs. Outsourcing is the act of involving outsiders to perform a certain duty which would otherwise been done by company own employees. This paper emphasizes ways in which problems arising from service outsourcing may be trounced in the hotel industry.
Hotels have been the leading service outsourcing institutions followed by banks and construction firms (Beer and Eisenstat, 2000). One major reason why hotels have started to outsource their services is to cut the overall operating overheads. For example, it is cheaper for them to hire a computer technician for some few days to perform a task and pay him as a casual rather than having a full time information technician demanding a monthly salary among other benefits from the hotel. Through service outsourcing, hotels have reduced their operating costs during this hard economic times hence improving on their profitability (French et al, 2004). On the other hand the act of service outsourcing has come at a cost to many hotels. It can be noted that once a contract has been given to an outsider to perform a certain duty, a lot of time is taken before he or she understands how certain activities are done by the contracting hotel (Hodges and Kent, 2007). This is propagated by the fact that the contracted persons are not aware of the environments they are operating in hence doing a substandard job which might end up being costly for the hotel after sometimes (Gibson and Cassar, 2005). These among others are some of the problems associated with outsourcing. However the problems may be overcomed so as to improve on overall hotels profitability.
Ways of mitigating service outsourcing problems in hotels
First the contracting hotel should ensure that prior to awarding a tender to a specific company to perform a certain task, their staffs should be aware of the role before them, if not, a pre training of should be considered in conjunction with the contracting hotel. The other important thing that the contracted company should do is to carry out a pilot survey which would make its members of staff be familiar with the environment which they are intended to work in (Bracker and Pearson, 1986). Consequently, this makes the workers to carry out the contracted duty effectively and within the stipulated time.
The second problem associated with service outsourcing by hotels is that any changes occurring in the outsourced company affects the hotel. These changes include staff turn over, change of rules regarding relationship between the outsourced company and the outsiders among others. According to Jocumsen (2004), changes occurring in the outsourced company may have fatal consequences to the outsourcing hotel if not mitigated in time. To avoid this, an agreement between the hotel and the contracted company should be put in place clearly stating how any change should be dealt with in a win situation for both parties (Bolton, 1971).
Thirdly, since the major role of any viable business is to maximize on profits, the contracted company tends to cut on their overheads and maximize profits. As a result, substandard jobs are done in areas where a large sum of money is required for example when buying materials required to perform the given task. In the long run, the hotels end up spending a lot of money which would otherwise have been saved if its employees undertook the task. To avert this problem, the hotels should ensure that their estimated budget for the work to be carried out concurs with that of the service provider before commencement of the work (Thorpe, 2008).
The other challenge facing hotel outsourcing services is the lack of skilled labour within its work force. Although it may be cost effective for the hotels to outsource in short run, it ends up being costly in the long run since the hotels ends up with no homegrown expert in certain fields, due to dependence on outside experts (Hodgetts, 2001). The act of developing internal talents is very important in a hotel based on the facts that when emergencies arise the employees are able to step in time and rectify the problem. This makes the company overheads go down as the employee will not ask for an extra pay compared to the external emergency problem solver who would have charged exorbitantly (Griggs, 2002).
Conclusion
In conclusion, it is clear that the cost implication arising from outsourcing of services may be small in short run but immense in long run for hotels. This is brought about by the many problems surrounding the quality of work done by the contractors since most of them don’t uphold the vision and the mission of the hotels (Jones, 2003). In my view, it is prudent for hotels to make sure that when outsourcing for services they do so cautiously and following the above given remedies in order for them to achieve the required results.
References
Beer, M and Eisenstat, A 2000, The silent killers of strategy implementation and learning Sloan Management Review. Vol. 41 No. 4, p.29.
Bolton, J 1971, Small firms: the Report of the Committee of inquiry into Small Firms, London, HSMO.
Bracker, S and Pearson, N 1986, Planning and financial performance of small mature firms Strategic Management Journal, Vol 6, pp. 503-22.
Curran, B 2001, Researching the Small Enterprise London, Sage Publications.
French, S Kelly, S and Harrison, J 2004, The role of strategic planning in the performance of small, professional service firms – a research note Journal of Management Development, Vol. 23 No. 9, pp. 765-76.
Gibson, B and Cassar, G 2005, Longitudinal analysis of relationships between planning and performance in small firms, Small Business Economics, Vol. 25 No. 3, pp. 207-22.
Griggs, H 2002, Strategic planning system characteristics and organisational effectiveness in Australian small-scale firms, Irish Journal of Management, Vol. 23 No. 1, pp. 23-53.
Hodges, E & Kent, W 2007, Impact of planning and control sophistication in small business” Journal of Small Business Strategy; Vol. 17, No. 2; pg. 75.
Hodgetts, R 2001, Effective Small Business Management, London, Sage publication.
Jocumsen, G 2004, How do Small Business Managers Make Strategic Marketing Decisions? A Model of Process, European Journal of Marketing, Vol. 38 No.5/6, pp
Jones, P 2003, Introduction to Hospitality Management, London, Cassell.
Thorpe, R 2008, Management Research, 3rd Edt. London, Sage publication.
Today the reference to outsourcing is considered to be a significant business strategy that allows the organizations to show up in the local and global markets by dint of additional services. In the perspective of the hotels, it also gives a chance to focus on lodging and pay less attention to such basic thing as cleaning (Zhou & Ren 2010). Still, some units believe that it is enough to utilize in-house sources and control the situation totally, which proves that the disagreement exists and the problem requires a thorough investigation that can conclude which path to follow. When researching this issue, we try to find out whether it is really advantageous for the hospitality industry to utilize outsourcing. For the study to be more precise, we consider how Nitenite Hotel Birmingham can use this opportunity.
Aim
The aim of the research can be seen as the determination to define if it is more beneficial for Nitenite to outsource the housekeeping department.
Objectives
Taking in consideration the aim of the research, its objectives can be determined. They include:
Overview of outsourcing
Overview of Nitenite Hotel Birmingham
Housekeeping department in Nitenite Birmingham
Benefits of outsourcing housekeeping
Disadvantages of outsourcing
Rationale
As a rule, the majority of the services (even though they are non-core ones) are managed by the in-house staff of the hotel. However, recently numerous unities started referring to private service providers because they allow the hotel to maintain excellent services even if one does not have its own personnel (Wilson 2011). A decent work of the housekeeping department is significant for the hotel, so it is critical to define in what way it should be managed to bring success to Nitenite.
Literature Review
Hospitality industry operates in various sectors that are mainly connected with leisure time and includes different units, among which the hotels can be found. As a rule, they provide lodging for a particular period of time, but their operations contain a rather broad range of various services (Mackenzie & Chan 2009). In many cases, they are limited and delivered by the personnel of the hotel. However, some units find it more beneficial to refer to the third parties, which provides the hotels with the opportunity to refer to the outside providers and make the customers more satisfied. It is called outsourcing and can be seen as a great chance to enhance performance, be more productive and flexible, as additional services are maintained by the experienced professionals. Outsourcing can relate to different things; these may be food, security, cleaning, etc. The housekeeping department can also consist of the employees from the other organizations even though it deals with keeping hotels clean and rooms stocked, which is one of the most critical things for these units (Munroe n.d.). Outsourcing is said to be advantageous because it allows a particular service to be managed by the professionals from a specialist, which presupposes that the results are more efficient than those that can be obtained if the services are delivered by the organization itself (Quinn 2000). Thus, the inherent advantage of the specialist organization in the production of particular services is considered. Agyemang–Duah et al. (2014) defined outsourcing as “the process of establishing and managing a contractual relationship with an external supplier or service provider for the provision of capacity that has previously been provided in-house” (p. 27). Still, if the company uses help from the outside, it does not mean that its existing employees are to be fired, as they can have the same duties and cooperate to improve performance.
It is rather difficult to find the personnel that perfectly meets the superior’s expectations. To streamline this process, the hotel often refers to outsourcing. In the sphere of the hospitality industry, this solution is commonly used, as it has a range of advantages. As the third party looks for employees and hires them, the hotel superior does not need to do this and can save some time required for interviewing, paperwork, etc. Outsourcing is also a good way to save money. Calbone (n.d.) mentions that “while some additional costs are included in the hourly rate remitted to the third party than the hotel would pay directly to its own associates, this amount will still be less than the overall costs of a full-service hotel’s benefit system and the expense to administer it” (p. 1). It is also advantageous because the hotel shares the responsibilities with another company. Thus, if the employee gets injured, one gains money from that firm but not the hotel. It also works with particular benefits that are to be paid to the workers on the basis of the peculiarities of geographic locales. Moreover, outsourcing can provide the hotel with the employees who are not available in the local market. It occurs to be possible to find people from the outside if such option is needed. Still, the main benefit seems to be the quality of work, as the personnel is experienced in the sphere and is concentrated on the particular range of duties. Simon (2010) also notices that the hotel has a chance to test the personnel and terminate the contract within a limited period of time if the employees do not fit. There is also no necessity to buy expensive specialized equipment that is needed for some services, as they are likely to be owned by the third party. Moreover, there is no necessity to train the workers. One obtains an opportunity to hire people who are already aware of all peculiarities of their job and are able to do everything by themselves. The staff turnover can be reduced so that the operations become more consistent.
Even though outsourcing has a range of advantages, its negative aspects cannot be ignored and should be considered before utilizing this approach. It is essential to make sure that the outsourced employees are equal to the in-house ones. It means that the hotel is to maintain decent communication with the company it refers to in order to ensure that the staff understands its mission and the goals. Jaume (2015) presents the idea opposite to the one that Simons (2010) has and stands that it is also critical to maintain training, as one is to make sure that the personnel is able to provide the services on the expected level and according to the accepted standards. Moreover, there is a possibility that the workers will have bad English, which is likely to cause communication issues with other members of the staff and guests and require language training. One of the main problems that are commonly seen is the creation of two separate teams. In-house and outsourced personnel are to be treated as a whole for them to work as one team and have shared views and values. Otherwise, a range of misunderstandings is likely to occur. One more disadvantage is that the third-party is in charge of defining the way, in which the tasks set by the hotel should be accomplished. In other words, housekeeping managers can tell the personnel only what to do, but all peculiarities concerned with how the things should be done are to be transferred to the third-party beforehand. It means that the hotel is losing control over its affairs, and the quality of work cannot be ensured. Except for that, there is a possibility of security problems, as the hotel provides critical data to the other company (Jaume 2015).
Methodology
The objective of this section of the paper is to show and explain the methods that have been used while searching for information in the framework of current research.
The documentary research design was chosen because it involved a range of steps that allowed gathering all needed information. In particular, such thing were maintained: a search, retrieval, analysis, criticism and interpretation of secondary data (namely those obtained and recorded by other researchers in documentary sources, the purpose of which included the contribution of new knowledge) (Saunders, Lewis & Thornhill 2009). However, the study was not limited to documentary research design. The field research design was also used, as some data was collected directly from the research subjects.
As it was briefly mentioned in the previous section, the administration in Nitenite hotel has a hierarchical structure. It presupposes that the employees who have junior positions are less knowledgeable and can provide a rather limited range of information. For the study to be thorough and based on accurate data, we referred to the person who is highly aware of all operations managed in the hotel. As a result, the sample of the research included the General Manager of Nitenite. All other sources of information connected to the topic were different pieces of writing, which are discussed further.
The method chosen to perform the research about the hotel outsourcing was a combination of secondary and primary research, as it allowed to receive the most accurate data. The secondary research was the first step made in the very beginning of this study because it provided the most basic information about the topic. In the framework of the secondary research, we made use of material that has been previously investigated and published (Saunders, Lewis & Thornhill 2009). In addition, this method is considered to be a helpful tool, which provided an opportunity to extract valid information for this research. It has been obtained through documentary written material that has been gathered from several articles, journals, books and reports through online sources such as Athens, Emeral and Usearch. In other words, the data was gained from the existing third-party sources of information. Stewart and Kamins (1993) state that researchers who use secondary data have the advantage over those who use primary data, due to the fact that they firstly refer to the information that already exists for some period of time. It can be analysed, compared with other sources and checked for accuracy to prove that it can be utilized as a source of information. Different works have been carefully explored in order to select related information and manage secondary research. A range of qualitative research data is provided by the professionals of the hospitality sector as empirical evidence that should support the presented topic (Saunders, Lewis & Thornhill 2009).
In order to obtain accurate information about the subject, the criteria of inclusion/ exclusion have been used (Saunders, Lewis & Thornhill 2009). In this particular case, the date when the sources were published was one of the key criteria to exclude some of the materials. Although, in principle, the date was not a relevant criterion of exclusion/inclusion, because the secondary research was conducted as a qualitative one. The fact that that a lot of materials about this topic were obtained, allowed to reject the information, which was not relevant for the nowadays. Another criterion of inclusion/exclusion included our personal objectives regarding this research. There was a large amount of information about outsourcing; however, not all of it matched with the topic. Some also did not come from reliable research sources such as those mentioned before, for instance: Athens, Usearch, Emeral, and Google Scholar. As the secondary research was not specific to the research question, the primary research was needed.
The primary research was focused on the structured interview. According to Kahn and Cannell, an interview is “a purposeful discussion between two or more people” (1957). It was performed with the aim to collect specific information related to the research question and objectives of the study. It is known as a semi-structured interview that is not standardized. Moreover, it is also called “qualitative research interviews” (King 2004), because they provide us with the data that is not statistical. In this particular case, it had some traits of in-depth interviews, because they were conducted face-to-face, and there were no witnesses of the communication between the researcher and the interviewee. Such kind of the interview was managed with General Manager of Nitenite Hotel Birmingham. Its purpose was to obtain the answers to a small group of questions about the subject. The use of interview helped us to “gather the most reliable data that is relevant to the research question(s) and objectives” (Saunders, Lewis & Thornhill 2009, p. 242). Some of the mentioned earlier objectives presented in this research were: benefits of outsourcing housekeeping and disadvantages of outsourcing and overview of Nitenite Hotel Birmingham. In addition, the interviewer had a number of relevant questions to acquire the information related to the aims of the researched topic such as an overview of outsourcing, an overview of Nitenite Hotel Birmingham, housekeeping department in Nitenite Birmingham, benefits of outsourcing housekeeping, and disadvantages of outsourcing. Before the interview was arranged, a range of various questions was created and transferred to the General Manager not only with the purpose to let her know what to expect during it but also with the intention to obtain suitable data about the matter. In this case, it was necessary to gather two meetings to expose concepts and control the reliability of the information. Furthermore, some points were considered in order to elaborate this questionnaire. They included such things as:
How long will the questionnaire last?
Which type of questions should be asked (i.e. opened or closed)?
In spite the fact that the interview was something between semi-structured and depth interview, primary research was focused on it as a method of collection of the most valuable information for the research. The questions that the participants were asked to answer included:
Why are the food and beverage department outsourced?
Why has the laundry service been outsourcing?
Are there any other departments or facilities outsourced?
What do you think about outsourcing housekeeping department?
A total of four questions were performed for the interview. They were designed according to Wilson (2006), who identifies three types of questions (open questions, closed questions and scaling). As a result, all questions were performed in regard to the opened style with the intention to obtain the most in-depth answer. The data that the questionnaire was aimed to gain expanded the information gathered during the secondary research. Except for that, it helped to address some more specific points directly related to the outsourcing of some services and departments within the Nitenite hotel.
Needless to say that the information gained by dint of this interview provides suitable to the topic answers and should be sufficiently analysed. The methodology of the analysis of data was an essential phase in this research procedure. The analysis implicated the separation of the basic elements of information, and it examined them in order to respond to the issues raised during the investigation. Different levels of analysis were used manage this investigation, such as exploratory, descriptive, interpretive and explanatory.
Considering ethics, the part of the research connected with the interview was conducted only when the superiors got to know its peculiarities, and the permission was gained. The aim of the study and the way it was conducted were explained to the sample so that no issues occurred with the course of time. The research does not disclose any personal information about the participants. All data was gained on a voluntary basis. The interviewer got a permission to name the positions of the personnel.
Analysis of Findings
To present the findings of the interview as well as their analysis, we will consider each question separately from the very beginning. In this way, it is possible to perform the most detailed data and omit the issues related to the mishmash of information.
Nitenite is an independent hotel that does not belong to any hotel company. It is owned by two partners who share fall to 49% and 51%. About four months ago the hotel got a supplier called Then Hospitality. It provides integrated solution into the intangible aspects of the service. In the heart of Birmingham´s vibrant centre, Nitenite is a simple but brilliant budget boutique hotel. It is a distinctive alternative in the marketplace that is financially accessible and can be an innovative experience for the guest. In terms of advantages, the hotel has a convenient location in the centre of the city with the Birmingham New Street Railway Station only to 10-minute walk away. Furthermore, this hotel has 104 rooms and 11 apartments. It has a 24-hour front desk and free Wi-Fi. The hotel’s high-quality interior as well as windowless, which allows Nitenite to distinguish itself among the other hotels of the same standard.
Nitenite is viewed as affordable, stylish and comfortable city centre overnight accommodation for late arrival, early start meeting or a convenient base for shopping and entertainment.
Among the most frequent outsources items is beverage and food that is why the attention was firstly paid to them (Simon 2010). Answering the question “why is food and beverage outsourced at Nitenite?”, the General Manager underlined that the beverage offering is not outsourced at the hotel (2016, pers. comm., 2 January). It was claimed that Nitenite is not very large, and it does not present itself as a set of luxury apartments, so the demand for this service is minimal. The majority of the guests are satisfied with the things they have, and a limited variety that is offered and sold from the lobby area is enough for them. As a result, the products are kept relatively simple and include no draught beers or bottled wines. In regard to the same reasons, the food offering is also minimal at the hotel. The majority of the products that are present are snack items, supplied by breaks to be sold internally via reception or the vending machines. The stock in the vending machines is also limited. There is only one item and it is in-house (not outsourced). Still, the General Manager admitted that there is one product related to food that is outsourced. These are sandwiches. These are produced by a local supplier and delivered to the hotel every couple of days (2016, pers. comm., 2 January).
The approach that is used by Nitenite hotel allows it to receive a range of advantages:
There is no necessity for the personnel to get occupied with additional duties. They do not need to receive any training and can manage only basic activities. It is also advantageous for the hotel itself. In other words, as there are no members of staff handling food, a food handling qualification is not required. As the result, Nitenite gains an opportunity to save their money, time and effort needed for the personnel to receive decent skills and be legally accepted.
No additional staff members are needed to produce the food. If the hotel did not refer to outsourced employees, one would have to meet all obligations and hire people who well-educated and can work efficiently in their sphere. It would be impossible to communicate new duties to one of the employees, as one’s skills will not be good enough unless this person really has needed education. So it occurs to be rather convenient for Nitenite to outsource a very limited range of products.
Moreover, the advantage can be seen when considering the hotel as a building. To provide the guests with the food using in-house sources, one needs to work in a particular place. It means that there would be a necessity to make a substantial repair, create a kitchen and supply it with numerous items including machinery and utensil. Thus, as there is no kitchen required, rental or purchase of machinery is not needed, in addition, PAT testing, servicing & extraction (use & cleaning) is not required. As a result, Nitenite gains an opportunity to spend the money they would leave for the kitchen, can be used for other purposes.
No wastage is faced by the hotel. When making a decision to outsource, the organization has a chance to make sure that that third party operates as they expect. They have an opportunity to base their contract on sale and return basis, which was done in the particular case of Nitenite.
However, such an approach of providing the guests with the food is not totally positive and beneficial. Some disadvantages of limited food outsourcing can be found:
The hotel receives a particular amount of sandwiches from the local producer according to the contract with the third party. It means that the food is delivered several times a week, and no additional products can be purchased and brought to Nitenite. In other words, if the number of clients increases unexpectedly or they just buy more products than usually, the hotel will run out or sandwiches and have nothing to sell instead of them. Unfortunately, according to the contract and the hotel’s abilities, there is no option of producing more food. As a result, Nitenite may miss out on potential revenue. Moreover, the customers who did not receive sandwiches as they were sold to other people, as well as those who just want to receive more food, will be dissatisfied and not willing to stay in this hotel another time they visit the town.
One more disadvantage is the lack of control regarding the operations that are conducted by the supplier. As Nitenite sells food to the clients, they tend to address its quality to the hotel but not to the company that produces it. As a result, when some issue occurs, they blame Nitenite. The hotel turns out to be not able to control the way the sandwiches are made so it also cannot ensure the clients that their quality is really high.
In this perspective, it is vital for the hotel to share its understanding of quality with the third party (Hemmington & King 2000). It can also be advantageous if they refer to the supplier that is known at least in the local town so that people feel confident in the products they refer as well as the hotel. If there were a demand for food of good quality, the personnel would refer to the local restaurant. Still, in the current situation, it seems to be more advantageous to limit this service and control all maintained operations (Lamminmaki 2011). Such approach allows the hotel to remain competitive in the market and attractive for the customers.
The next thing that was discussed with the General Manager of Nitenite in the framework of outsourcing was laundry. She was asked to tell if the laundry is outsourced in the hotel and to provide several reasons for the decision. As it turned out, Nitenite really refers to outsourced staff when dealing with laundry. These services are delivered at a distance but remain advantageous for the hotel. As the General Manager mentioned, laundry is outsourced because in this way they can receive such benefits:
Consistency. The partner that is in charge of the mentioned services is always available. It is one of the most competitive organizations in the local market, which is advantageous. Moreover, the firm provides services of good quality, which makes clients satisfied.
Space to launder, dry & press. Nitenite hotel is not very big, and it would be rather difficult to find enough space for various services. Outsourcing at distance allows the hotel to save space and utilize all needed devices that they do not have in-house.
Staffing. The manager is well aware of how the personnel that looks in the hotel should look and what skills one should have. However, one is not a professional in laundering and cannot be sure that selected employees are really good professionals. Still, in the perspective of outsourcing, the third party is in charge of staffing. Having enough experience, it can ensure the hotel that the workers are able to cope with their duties.
Keeps up with technology. It would be too expensive for Nitenite to buy various devices needed for laundry. However, the professional organization manages its operations due to them and changes them trying to utilise the best products, which also allows Nitenite to achieve success.
Replace damaged items. According to the contract that was signed by both parties, the firm that deals with laundry is in charge of the quality of services. Thus, if something is damaged in the process, it is to be replaced by the company (2016, pers. comm., 2 January).
Such reasons are also considered to be positive for the hotel by Promsivapallop, Jones, and Roper (2009). They claim that laundry is among the frequently outsourced services, so it is not a surprise that Nitenite revered to it. Still, they mention that the hotel is no pay much attention to the transportation, in this case, as the items are to be constantly delivered and taken away. The General Manager also pointed out that they would like to have more control over the operations. Except for that, this service turns out to be not very flexible, as the last minute pick-up may result in lack of linen (2016, pers. comm., 2 January).
When speaking about the other departments and facilities that are outsourced, the General Manager mentioned:
Maintenance.
Maintenance contracts (air conditioning, drainage, and water services).
IT.
Accounts.
Payroll.
Pest control.
These departments and facilities require specialist skills that cannot be obtained by one person. Leeman and Reynolds (2012) support such actions and claim that it is better to refer to the professionals than to look for employees, as the superiors are likely to have problems when evaluating professional skills and making decision. Moreover, this can save money in the long run by reducing call-out fees for one-off jobs.
The biggest area outsourced in Nitenite is the management department, so the General Manager paid more attention to it. The hotel has a contract with Then Hospitality, the advantages of which include:
Creation of a brand effect being part of a portfolio as opposed to an independent hotel.
Support structure with both management and staffing requirements.
Giving the buying power for large suppliers (if they supply throughout the portfolio) reducing costs.
Assistance with the practical, day to day requirements of a highly competitive industry.
Offer of key skills with HR and internal training.
Internal Health and Safety consultancy.
Assistance with brand development (2016).
When speaking about outsourcing housekeeping, the General Manager mentioned that is it better for Nitenite to keep this department in-house (2016, pers. comm., 2 January). She said that a key benefit of outsourcing housekeeping is the ability to reduce the staff turnover, as statistically this department has the highest turnover rates in the whole hospitality industry. But, fortunately, Nitenite is not the case, and the hotel does not have such problems.
The housekeeping department is vital for the hotel. In the case of Nitenite, it is hierarchically integrated by the head of housekeeping, followed by the housekeeping supervisor and, finally, the housekeepers. Among the duties of the head of housekeeping are the tasks to: select and train staff, develop schedules, including holidays and days off. Also, one is to refer to the maintenance department of the execution if any damage in the areas of their responsibility is found; periodically address to the manager and check with one his department expenditures; and monitor monthly inventories and request the finished stuff general manager. The supervisor of housekeeping has similar duties as he is replacing the head of housekeeping in his absence. In this way, he is in charge of controlling linen, cleaning the public areas and supporting the head housekeeping as well as carrying out any reasonable duty when it is requested by the manager team. Lastly, the housekeepers’ team should be considered. It is not the least important unit, and it plays a vital role in the life of the hotel. This group is constituted by 7 women.
Even though the General Manager admitted that there are good arguments for outsourcing housekeeping, she believes the advantages of keeping the department in-house to be more valuable:
Dedicated team. When the same people work together daily, they got to know each other better it is easier for them to stick to the shared vision. It also allows them to maintain consistency and high standards.
Control. As the employment is direct, the General Manager gains an opportunity to select the personnel and receive control over the department.
Cost control. All expenditures can be evaluated by and controlled by the superiors so that financial issues are less likely to occur (2016, pers. comm., 2 January).
Still, it would be wrong not to mention the disadvantages of in-house housekeeping:
Equipment is to be supplied in-house. It requires not only money but also some space in the hotel.
Training costs. Without outsourcing, the staff is to be recruited by the manager, and the hotel needs to pay for training, which is rather costly.
Conclusion
On the basis of everything mentioned in the research, it can be concluded that outsourcing can be very beneficial for the hospitality industry and Nitenite Hotel Birmingham, in particular. However, it is more advantageous to outsource the facilities that require special skills (such as IT or management) than to use this approach when dealing with basic things. The research also showed that it is beneficial for big hotels to outsource the housekeeping department because of the adverse influence of the high staff turnover. Still, Nitenite does not face such problem right now, which proves that it is better for this hotel to keep the housekeeping department in-house. Such a decision allows the hotel to have a dedicated team with the shared views and standards of quality and to control all related operations. Of course, it does not mean that other departments should not be outsourced. It is critical to evaluate the situation and define where the reference to the third party will be beneficial, as it is very important for the organization to decide how much to outsource (Harland et al. 2005). Nitenite should evaluate their work and start outsourcing the housekeeping department only if the quality of its services worsens or the staff turnover becomes too high. In this case, it would be advantageous to consider “strategic analysis, selecting the providers, and managing the relationship” as the keys of successful outsourcing (Embleton & Wright 1998, p. 97). Still, for now, this research proved that Nitenite manages this department in the right way and that the changes are not necessary.
Reference List
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The Emirates Airways is the leading airline company in the entire Middle East region. This firm was started on October 25, 1985 by the government of United Arab Emirates. The government was keen on transforming this country into a business hub, and a tourist’s destination. The government had improved the infrastructure of the country and the city of Dubai was first turning into a global business hub.
The government was therefore concerned that there was no national airline that would travel from this city directly to other parts of the world (Sandhusen, 2008). The leadership of this country decided to start this company to take care of the national interests. The government therefore, funded this firm and offered it an enabling environment to prosper in this industry.
The Emirates Airways has made a lot of effort to ensure that it meets the expectation of the government and that of the customers. With the increasing market competition, the management of this firm realized that the only way it could prosper in this market would be through coming up with ways through which it could emerge as the preferred firm.
The management therefore, developed various strategies that would meet the expectations of customers. In its quest to attract customers, the firm became the first airline to install entertainment facilities in all its planes in the entire Middle East region (Liew, 2009). Most of these technical activities were initially outsourced.
However, the firm changed this strategy to in-sourcing after the realization that it had the capacity to build its own workforce. This has seen the firm become the leading airline in this region, and the fourth in the entire world.
Specific Business Unit and Component to be outsourced
In every project, there must be a clear schedule that should be followed to ensure that it achieves its objectives. Emirates Airline was concerned of the state of the IT within the firm. Some of the delays were experienced in the process of booking, and there was need to improve the system in order to enhance efficiency of the firm.
The management therefore, developed a project that would ensure that it improves its internal communication and the inter-departmental connectivity within the firm (Lamb, 2012). This was the reason why the management decided to outsource external labor to work on this project as it was apparent that the available labor force lacked the capacity to perform this activity.
However, the firm acted prudently by making their employees work alongside the hired technicians. The firm soon developed a workforce with the capacity to handle this activity. This allowed it to revert to in-sourcing of the activities internally. The Gantt chart below specifies the activities that were carried out in this project
Gantt chart
Time: 2012
January
February
March
April
Project Activity: Improving IT of the Firm
Project Planning
Project proposal development (Outsourcing)
Project proposal approval
Selecting an appropriate external workforce to undertake the project
Implementation and Internal Learning
Detailing requirements of the components of IT to be improved within the firm.
Development of prototype by the outsourced firm.
Approval of the prototype by the top management of Emirates Airline.
Development of a version by the outsourced firm
Test the version by both the outsourced firm and employees of Emirates Airline in the It department.
Apply the correction on the version
Approve and implement the final version
In-sourcing
Train all the users
Using the internal workforce to improve this project.
The above Gantt chart demonstrates all the activities that were accomplished within a specified duration. The firm started out by outsourcing the services, and when its workforce had developed understanding of the facts, the firm then tasked its employees with the duty to improve the project.
An Overview of the Business and Business Model
Emirates Airways is currently the leading airline in the Middle East. The firm has its headquarters in Dubai, at Dubai International Airport. This firm operates in to four largest destinations across the world. The firm operates in more than 100 destinations in 74 countries. The company has managed to overcome stiff competition that is in the current market.
According to Charantimath (2007), the airline industry is very competitive. This scholar notes that this competition has been rising in the past decade with the entry of new airlines into the industry. It becomes a big challenge for a firm to operate in such a competitive market if it lacks proper competitive strategies. This scholar notes that the aviation industry has been consistently on the rise in the past one decade.
The emerging technologies have brought in a lot of changes in this industry, and firms are forced to adjust their operations in order to meet the market demands. The emerging trends in the aviation industry cannot be ignored. It would force a firm to embrace these changes in order to realize the benefits that this industry has to offer. This is what the management of Emirate Airline has been keen on.
This firm has received enough financial support from the government to enable it manage the emerging trends in the aviation sector. Some of the technological inventions always demand that the firm gets experts to handle various aspects of technology. It sometimes forces the firm to look for this expertise outside the firm. Effective marketing has seen this firm become the largest airline in this region.
According to Bissoondoyal (2006), marketing has changed from what it used to be in the past. Marketing was considered as part of production about 50 years ago. By then, competition was low, and the main concern was to increase production of the firm. The market was readily available in the global world. However, this has systematically changed over the years.
Firms have come to realize that customers have various options to choose from when they want to make a purchase. Given such independence of the customers, firms have come to realize that they have to come up with strategies that would enable them attract customers. This has resulted in a scenario where every firm is struggling to come up with appealing strategies through which they can capture the attention of the customers.
This competition is very stiff in the aviation industry. Such leading airlines like the British Airways, the Virgin Atlantic, Air France among others; the Emirates Airways is forced to come up with a strategy that would enable it capture the market in the best way possible. IT plays a central role in enhancing success of the firm in the market.
Service Components Outsourced
As stated above, the aviation sector is very competitive. Firms have come to embrace technology as a way of managing this competition. The top management of Emirates Airline was concerned of the time that it takes to process details of customers while booking a flight with the firm. Other major airlines like the British Airways and even Qatar Airways had developed mechanisms that allowed them to reach out for the customers easily.
They had improved their system in a way that their customers could easily book for the plane through online means. These IT leaders of this firm appreciated the fact that its workforce had no capacity to develop a system that will enhance communication between the firm and the customers, and even within itself (Hartman, 2002). The system that was in existence was weak and could not be relied upon to deliver the expected results.
The management of this firm therefore had to outsource external skills in order to improve the IT department of the firm. The management of this firm hired expects to help improve the system to enhance booking of the plane online. The system was developed to allow all the booking offices to have instant communication amongst themselves and with the customers. The management decided to improve the internal workforce in the process of developing this system.
The Rationale for Outsourcing
Outsourcing is one of the new trends in the current world. Initially, a firm would be involved in all the activities within the firm. The management would determine all the activities that should be undertaken within the firm. The management would then assign the activities to various departments within the firm to accomplish. This was working well in those olden days, especially after the Second World War.
Firms did not have to struggle looking for the market. The global market was very large, but firms that were doing mass production for various products were very few. There was therefore no serious competition in the market (Handlechner, 2008). The main focus of most firms was to increase their production capacity because of the readily available market.
However, this was changing as the world was getting globalized. Various firms were coming into existence from various corners around the world. With the emerging technologies, the world was fast turning into a global village. Many countries also considered opening up their markets for foreign firms. This brought about serious competition as firms had to convince the market that their products are the best.
Outsourcing was first witnessed in the aviation industry. This industry still remains the leading outsourcing industry in the world. The airlines in many countries across the world realized that most of their employees did not have the capacity to offer quality service to the planes for maintenance purposes. These airline firms struggled to look for employees with the capacity to take care of the maintenance of the planes.
The process of looking for such experienced individuals was not only costly, but also very tiresome. It would take a lot f time getting an individual with enough knowledge in this area, and retaining them within the firm was another problem. This condition was worsened by the fact that such tasks would require a number of individuals to work as a team. The following are some of the justifications of outsourcing by Emirates Airline.
Increasing of the Operations Efficiency
Outsourcing is one of the best ways of increasing operations efficiency. It is common to have cases where a firm lacks proper expertise to undertake certain activities. This is very common when dealing with the emerging technologies. It may take a very long time for a firm to train its employees on certain activities within the industry (Gerber, 2008).
Outsourcing therefore comes out strongly as the best strategy that allows the firm to operate with the highest efficiency level even if it lacks expertise in some fields. Employees who have knowledge and experience will be retained in their departments to increase their efficiency. Those tasks that the firm lacks proper expertise will be assigned to other firms with enough capacity to deliver good results. This way, the operations of the firm will be very efficient.
Increasing Time to Focus in Other Core Activities
According to Ferrell (2011), it is always a strenuous and time consuming process trying to undertake a task that one has limited knowledge in. Such an individual will be performing two tasks at a time. The first task will be learning how to perform the task, while purporting to perform the task.
This takes a lot of time that would have been used to undertake other activities. When such activities are outsourced, it allows the firm more time to focus on activities that it can perform best. This way, the management, and the employees will be left with ample time to focus on other core activities of the firm.
Improving Management of Information
Information is one of the key components of a firm that always dictates success or failure in the market. A firm that is able to develop an information flow has the capacity to succeed, unlike another with disrupted information strategy. Information management is always very important.
Outsourcing enhances information flow. When a firm outsources another firm, it would mean that the firm will have a reduced number of employees. Coordinating the reduced number of employees is much easier. The management will use the leadership of the outsourced firm to ensure that its employees work within its expectations.
Reduced Cost of Operations
Firms are currently fighting to reduce costs of operations. Customers are demanding more for a lesser cost. The suppliers are demanding more money for lesser suppliers they deliver, citing increased cost of operations. Emirates Airline is pressed between these two forces.
It has to find a way of meeting the needs of the two forces. Outsourcing offers firms this opportunity. When a firm outsources another to perform certain tasks, this would mean that the firm will not need to hire individuals in these departments. This reduces the cost of labor for the firm.
Reduced Risks
The process of outsourcing reduces the risks of errors in performing certain activities. This is very common in the aviation industry. When these tasks are assigned to experienced individuals, chances that the activity will be done in a faulty way are minimized. This reduces risks that would be met if the activities were done by inexperienced employees within the firm.
Quick Implementation of New Technologies
The emerging technologies are very important in the modern world. It is important that the management of Emirates Airline ensures that it has the capacity to manage the emerging technologies. Outsourcing other firms in various departments within the organization helps in quickening the implementation of new technologies.
To implement new technologies as quick as may be desired, there is always need to ensure that there are individuals who have an understanding of such technologies (Evans, 2012). The management f this firm will only need to go for a firm with experience and knowledge of the new technologies. Outsourcing their services will enable the outsourcing firm to implement new technologies at a faster rate.
Compliance to Security
In most of the industries, there are some rules and regulations set by relevant authorities to protect the public. In the aviation sector, there are safety and security rules set up by various aviation bodies. The same case applies to various other departments.
Some sensitive industries like the aviation industry would require individuals with a deep understanding of the requirements put forth by the regulators. When a firm outsources such sensitive tasks to other firms, it makes it easy for the firm to comply with the security and safety rules. This would eliminate any possible cases of litigation.
Staffing Flexibility
One of the biggest tasks that human resource department and the IT unit have to handle is the flexibility of the staff. The staff of any given organization must be flexible. It must be able to approach the emerging trends in the market and be able to come out successful. However, this is not very easy because of specialization that comes with division of labor.
When an individual is assigned a specific task, it would be difficult to make them perform other activities that are different from their current tasks. However, there must be flexibility of the workforce to enable the firm withstand the emerging trends. Outsourcing is the best way to enhance staff flexibility.
A firm will only need to hire individuals with understanding of the emerging trends as and when needed. Employees will be given time to develop understanding of these new trends and master them, before they can start performing such tasks.
Development of the Internal Staff
It is import to develop the internal workforce. Development of the staff can come in various approaches. One of the most common ways of developing the workforce is through in-service learning. In this strategy, employees’ capacity is improved while they are at work. Outsourcing is very vital in this strategy. The management will outsource a firm with the desired skills in a particular sector.
The management will then select the workforce that should learn the desired strategy and assign them to work alongside the outsourced firms. The employees would be expected to learn how to handle certain tasks by getting involved in doing them (Ferrell, 2011). The outsourced firm will not only be helping the firm in performing that particular activity, but also in teaching and developing the local staff.
The firm will therefore develop a strong workforce that has the capacity to handle various activities within the firm. The above are factors that made the firm consider outsourcing the services of external workforce in improving the communication system of the firm.
The Decision Makers in Outsourcing
The decision of outsourcing some activities within the firm is always an involving activity. It is always important that various senior management officials get to agree on some of the factors to be considered when outsourcing. When Emirates Airline made the decision of outsourcing the services of external workforce in the IT department, the recommendation came from the head of the IT department.
Following complains that were received by customer care unit from the customers over the inefficiency of the firm, the management instructed this department to adjust the system to reflect on the emerging trends in the market. The IT department admitted that it lacked the capacity to improve the system to the levels that were expected. The department recommended hiring firms that had the capacity to improve the system to the world’s standards.
The IT management team played a major role in bridging the communication gaps between top executive. The executives had to be convinced that the firm lacked the capacity to undertake these duties by itself. The IT head therefore, had a huge responsibility of ensuring that all the officials who were responsible for giving a node to the project were convinced beyond any reasonable doubt that the best way was to outsource these services.
The Decision to In-source the Activities and Role of IT leaders in improving communication and rapport
The management of Emirates Airline was keen on ensuring that the contract for the activities lasted for about three months. The above Gantt chart clearly demonstrates this. The reason why the management was forced to outsource for these activities was due to lack of a proper expertise internally. One of the terms of the contract was that internal workforce would be working alongside the outsource workers.
It was therefore a decision of the top management that after some time, the internal workforce would assume the activities that were carried out by the outsourced labor. The internal workforce therefore, took the responsibility of maintaining the system on the run, and making improvements whenever this was necessary. The IT department has fully resumed all the activities that involve communication and coordinating information within the firm and also with customers.
Booking is now mostly done online, and customers have registered satisfaction with the services they receive from the firm. The process of moving from outsourced services to in-sourced services did not raise a lot of concern. This was because the IT department had stated initially that they only needed support from the external firm on how to adjust the system to reflect on the emerging trend.
It was agreed that the outsourced firm would only take about two and a half month, after which their contract with the airline would expire. It was therefore, not a big challenge for the IT leaders to inform other members of the department that they had decided to use the internal workforce to carry on with the activities that remained.
The Current Status of the Firm
Emirates Airline current status can be analyzed from various fronts. The move by the firm to outsource the IT services only to change the decision later on has had a number of benefits to the firm. The current status of the firm can be analyzed from a number of fronts. The following is an analysis of the current status of the firm from a number of fronts.
The Current Marketing Strategies of Emirates Airline
The move by the firm to outsource the IT services has had a massive impact on the firm’s marketing strategies. The team formulated a strategy that involved technological advancement in various departments. The firm then moved to the implementation strategy before coming up with evaluation and control procedures.
Emirates Airlines is one of the current success stories in a group of companies that have managed to be successful in the face of increasingly competitive environment. This is attributed to its strategies that have helped it manage the competition in the aviation industry. The world is getting transformed with the emerging technologies. One of the defining technologies that are transforming the world into a global village is the communication technology.
The phones and the internet have made communication very easy. The firm has made it possible for the customers to make bookings through internet irrespective of their location. This has seen this firm expand its operations to regions beyond this country. As such, this has seen this firm expand its customer base and the number of routes it takes.
The strategies are very important because in such a market, any misstep by a firm may lead to automatic fall of the firm and therefore, every step must be calculated very keenly. According to Hartman (2002), the current world market is very competitive. This scholar notes that this competition is not only created by the fact that there are several firms producing the same product, but also the fact that customers are informed.
The current customers are very knowledgeable and know exactly what they want. They have the knowledge of where to get that which they need and at what price. They know the alternatives that are available and this makes them more demanding. As such, turning these individuals into loyal customers of a firm is not easy. It forces a firm to develop a strategy that would enable it remain relevant in the market
The Current International Marketing Campaigns used by Emirates Airlines around the World
In the current market, customers are very demanding. This firm is constantly under pressure to perform exceedingly well in order to manage the competition in the market. It faces a lot of pressure from the suppliers. The jet fuel is constantly on the rise. The airline firm has to otherwise but to pay the increased price of fuel. The cost of maintenance is also high.
This increases the cost of delivering products to the customer. The firm also needs to improve on the quality of the products in order to ensure that they outmuscle other competitors. When the product is delivered to the customers, the customer will demand reduced prices simply because they have other alternatives. This would force the firm to find a way of generating profits in such a harsh environment.
The outsourced services helped a great deal in overcoming this challenge. The Emirates Airways has come to realize that it has to develop means through which it can develop promotional campaigns for its products in the global market. The Emirates Airways has developed a brand in the local market, and the entire region of Middle East.
The region appreciates the fact that this company offers the best travel services in the region. However, there is a very strong competition from another regional airline, the Qatar Airways, which is posing threat to this firm. It forces the firm to come up with strategies which can enable it attract the customers in the region. Regionally, this firm has positioned itself as a company that takes care of comfort, safety and security of the passengers.
One of the leading concerns of most passengers is the comfort of the plane. This is because the distance is always very long. This would require some comfort for the passengers in order to reduce fatigue. The passengers are also concerned with their security once on air. This is because of the rising insecurity in most cities. Terrorist attack on the airplanes has become very common in the current globalized world.
Passengers want reassurance that they will be safe when they embark on such journeys. This market proposition has seen it win trust of the local market. This firm has also made concerted effort to attract travelers of other nations. In order to reach out for the customers, this firm has tried to use both the social media and mass media to communicate their message to the customers.
The firm made the decision to use social media marketing after the management decided to outsource the IT services. Locally, the firm has actively engaged in promotional campaigns in the mass media. It has developed television commercials that help it reach the local market. The social media has been very vital in reaching out for the international community.
The YouTube has helped this firm in airing its television commercials to the international community. The Facebook and Tweeter have also been very vital in communicating to the customers in the international market. When the firm decided to stop outsourcing the services, the internal workforce has been able to manage this strategy.
The Impact of the Decision Stop Outsourcing IT Services
When the management decided to stop outsourcing the IT services, it was a little challenging for the employees of Emirates Airline to run the system on their own. They did not find it easy to take full control of the new system especially because of technicalities involved. The top management did not have issues with this change of approach because they were informed before the project was started.
The head of IT department had a little challenge filling the gap which was left by the technical team that was hired to improve the system. The head of this unit had to convince the employees in this department that they had the capacity to handle this project on their own. The employees in this department also had a big challenge trying to adjust to this new system.
It was difficult for the employees to take control of a system where most of the bookings and paying the fare was done online. The top management also exerted a lot of pressure on this department to come up with advanced strategies that would ensure that passengers are entertained while they are on air.
The Financial Status of the Firm
The decision by the firm to improve its IT system by outsourcing the services from external experts has had direct positive financial impact on the firm. There have been an increased number of bookings per day. This can be attributed to the fact that customers can now make bookings online. Online booking has made it possible for customers to book for flight irrespective of their locations. The IT department has also improved entertainment services for the customers, further attracting them to the firm.
References
Bissoondoyal, U. (2006). Total quality management: a practical approach. London: New Age International.
Charantimath, C. (2007). Total quality management. New York: Pearson Education.
Evans, D. (2012). Social media marketing an hour a day. Indianapolis: Wiley.
Ferrell, C. (2011). Marketing Strategy. New York: Cengage Learning.
Gerber, K. (2008). Marketing communication. Cape Town: Pearson Education.
Handlechner, M. (2008). Marketing Strategy. München: GRIN Verlag GmbH.
Hartman, M. (2002). Fundamental concepts of quality improvement. New York: ASQ.
Lamb, C. (2012). Marketing. Toronto: Nelson Education.
Liew, J. (2009). Employee training: a study of education and training department in various corporations. Sydney: General Books.
Sandhusen, R. (2008). Marketing. New York: Barron’s Educational Series Inc.
Workflow software refers to software that helps a computer to improve its performance. The software allows the computer to work as a multi-user inter-phase since the configured programs can run alongside others working in the back ground. Users benefit from the use of workflow software as it allows them to concurrently do other things while having other work done for them. The multi-tasking capabilities benefit the user through such functionalities as data entry, mail sorting, and mail auto-reply.
Therefore, certain jobs that would normally require the presence of the office bearer can be remotely completed. Instead, employees can overlap tasks in the absence of fellow colleagues, and still get the work done as required.
In other words work flow software provides users with an interactive system whereby members within institutions can interact and communicate effectively. For large institutions, work is made easier through the auto-response option that ensures effective communication. According to Friedman, the world is more level than it has ever been; through the reflective work done by the workflow software. Similarly, multilateral organizations can co-ordinate activities throughout their subsidiaries, thus achieving a common operation ground (Friedman). Innovation in the communication arena such as video conferencing allows companies to cut travel costs, and instead ensure holistic decision-making processes.
Importance of open source software
Open source software (OSS), also known as community developed software refers to software that is ‘open’ for the public or users. Being ‘open’, the software can be customized, improved or even distributed with ease. Because the software are not patented or trademarked, no restrictions are imposed on their use and distribution; and neither can the developers withhold or restrict their use (Benkler 367).
With effective adoption and use, the software contributes to continued improvement and development of company processes and systems. Primarily, the software is user-friendly and is originally designed to allow further adjustments. This flexibility encourages innovation as the users can freely participate in the development process. The users are also kept up to date with current technological changes; creating a sense of ownership to the innovative end users.
Globalization has an open-end to technology, according to Thomas Friedman’s , “the world is flat”. As such the users of open source software are spread across the Diasporas and the software development therefore encompasses the views across the Diasporas, resulting in efficiency in the evolution process. Additionally, companies offering open Source technology have benefited from the competitive advantage over market users of closed source software. This has enabled them to penetrate the market since the end users are attracted by the ‘free gift.’
In addition to reducing the costs of logistics and marketing, OSS has enabled companies to be in touch with technological developments, thus allowing promotion of company image and their commercial products.
Importance of Outsourcing
Outsourcing refers to sub-contracting of services to another company or individual that would otherwise be done within a company. Outsourcing is a common practice among companies because of a number of reasons. The outsourcing company may not have the capacity to do the job or feels the job can be offered professionally and affordably by another company. To the service-providing company, out sourcing encourages specialization and hence greater output is achieved (Benkler 378).
Outsourcing helps companies to cut on costs as it saves them the need to hire more staff to do the work out sourced. The service-providing company takes care of the details of arising from the work outsourced to them.
Works cited
Benkler, Yochai , “Coase’s Penguin, or, Linux and The Nature of the Firm.” Yale Law Journal 112.3 (2002): 367 – 78.
Friedman, Thomas, L. The World is Flat 3.0: A Brief History of the Twenty-First Century. New York: Picador, 2007.