Global Outsourcing and Offshoring - Report Example

GLOBAL OUTSOURCING AND OFFSHORING By Table of Contents Introduction 3 Outsourcing Project Overview 4 Client’sPerspective 5 Supplier’s Perspective 9 Recommendations 11 References 12 Introduction Business in the modern world has been characterised by increased competition that has forced many firms to come up with new techniques to ensure they obtain a competitive edge in their respective markets. Outsourcing has been a prevalent methodology that has been in practice through which organisational processes and services are outsourced from the external organisations with the aim to enable firms with non-core operations in-house staff to concentrate on their company’s core competencies and strategic objectives. Outsourcing is essentially an emerging human resource practice in the business environment that has been greatly embraced by firms across the economic divide1. The general principle behind this human resource practice is that an organisation’s non-core activities are handed over to external firms that operate at lower labour cost with increased expertise in the sector while the parent company is relieved of extra responsibility thus ensuring it concentrates on its core competency operations. Initially, the whole idea of outsourcing was mainly for saving operational cost but with time expertise from the third party firms has been a major motivation to source operations which the organisation perceives to be of less importance2. The essay mainly analyses how clients and suppliers can create value from their outsourcing activities to ensure the aftermath of their contracts are of financial gain to the outsourcing firm and at the same time enhance the business relationship among the companies involved. The analysis will be based on the congestion charging scheme project by the Transport for London that was outsourced to IBM United Kingdom as the firm is responsible for handling the back screen IT infrastructure back in 2007. The essay aims at critically analysing the underlying issues of the contract and whether it achieved its financial mandate as well as offering alternative measures that would have been taken to ensure effectiveness of the deal3. Outsourcing Project Overview The congestion charging and scheme project is one of the most lucrative contracts that the Transport for London outsources to third party companies. In 2009 Transport for London announced that the contract with IBM was the largest in that particular year given the revenues that it receives from the project as well as the overall management of emissions that the firm was tasked with. The tender for congestion charging scheme was floated in 2007 after the initial contract between the Transport for London and Capital Group Plc. came to an end. It was the second time the tender was being outsourced since the inception of the program back in 20024. The tender attracted three firms namely; IBM United Kingdom Limited, Capital Group Plc. and Thales Alliance. Given the magnitude of the tender it had to undergo due diligence processes in order to come up with the organisation that was best fit to handle the services. Ideally the tendering process took close to twelve months before IBM United Kingdom Limited was awarded the tender for the next five years. According to the contract IBM would be responsible for operating the congestion charging system and low emission zone schemes as from November 2009 for the next five years with a consideration of contract extension based on the delivery within that period. IBM would be tasked with offering technology that underpins online payments and clients’ contract schemes5. Transport for London argued that IBM was selected on the precipice that it offered the most economically advantageous bid that would enable the company maximizes its revenues and returns. Since its inception in 2002 the congestion charging scheme had aided in reducing traffic in congestion zones by approximately 22% while generating revenues amounting to $98million in the fiscal year 2006-2007 that is set to be invested back to improve the transport system of London. The low emission zone scheme was launched in 2008 under the auspice of Capital Group Plc. aimed at regulating the level of carbon discharge in the entire region of London to enhance environmental sustainability through reduced carbon emissions to the atmosphere6. The system utilises advanced technology to recognise the registration numbers of commercial vehicles thus making it easier to monitor emissions of each vehicle. Low emission zone scheme will be transferred to IBM despite being under the control of Capital Group Plc. that was behind the idea of its inception. It is prudent to note that the entire contract is a crucial project by the Transport for London and it seeks to partner with its service providers to enhance customers’ services with a long term goal of ultimately solving congestion issues in London7. Client’s Perspective Experiences of Client Created in 2000, the Transport for London was mandated to manage the overall transport system in London including; underground and over ground bus and railways services. On top of that it was expected to maintain 580 kilometres of road accessing the larger London metropolitan area. Having been in operation for seven years, Transport for London is now a new firm in the sector since it has gained considerable knowledge of the industry through public and private partnerships8. It is from that report that the firm got a go ahead to venture in outsourcing its services to a third party organisation that would manage the systems. Consequently, the company has outsourced other small tenders over the seven year period it has been in operations thus making it affirmed in the area of outsourcing9. Conversely, in 2002 Transport for London outsourced the same tender to Capital Group Plc. that had performed exemplary for the five years it has been in charge. It is thus prudent to note that the company has adequate experience and knowledge as far as outsourcing of services is concerned thus able to make informed decisions whenever it deems it necessary to outsource some of its operations10. Retained Capabilities of Client The primary objective of Transport for London outsourcing the charging scheme was to increase efficiency by handing the services to firms that specialised, in that particular sector, to enhance performance to enable it maintain its future contractual relations. It was from this notion that the company decided to select the firm that is the best fit to handle the contract through competitive tendering. The company used a single supplier strategy, which was imperative to enable it monitor the contract efficiently to safeguard its future obligations. By using the annual general reports, the company was able to assess the supplier’s progress each to determine their effectiveness in handling the project. Model for This Contract To begin with, the onshore model chosen by the company was appropriate in enhancing transparency and performance as the company would be able to monitor IMB closely and assess its internal capabilities to perform the project boosting the overall performance levels expected in the long run11. Since the contract would involve collection of a considerable amount of revenue it was prudent for the winning firm to be selected through competitive tendering to avoid issues of conflict of interest that would otherwise jeopardise the whole intention of the project. Strengths and Weakness of Client Transport for London has been involved in numerous previous contracts with other firms that involved outsourcing thus handing it an upper hand in terms of experience and knowledge in the field of outsourcing12. That notwithstanding, the firm has partnered with other consultancy firms that advise it on the viable processes to follow as far as outsourcing is concerned. Thus, the business is well-equipped knowledge wise to handle any magnitude of outsourcing operations as it has relevant capacity for the same processes. Furthermore, the company has previously dealt with Capital Group Plc. an outsourcing giant in the UK; hence, has received the experience of dealing with service providers to create value for the overall project. However, it is worth noting that Transport for London has only dealt with a single firm in outsourcing crucial services, thus this enables it monitor and manage the supplier’s. However, from another perspective this is a weakness because it limits the company from gaining more experience in dealing with diverse clients due to insufficient information to make decisions in future13. Outsourcing the charging operations meant that Transport for London would focus its in-house personnel in other crucial activities aimed at increasing the performance of the firm in dealing with congestion in the city. Relatively, the firm would be training its staff to create capacity for handling the entire charging scheme internally in future14. Outsourcing Risks Outsourcing the services included the transfer of customers’ information to the third party an action that would to some extent jeopardise the privacy of clients. Since the contract was not permanent, there would be a risk of crucial information being leaked to unauthorised persons once the contract of the service provider has ended. Similarly, since the outsourced operation is critical to the company there would be issues to intellectual property infringement as the service provider may copy important concepts to deploy them elsewhere without the consent of Transport for London15. Conversely, it was risk for the company to monopolise the project by use IBM since invent of anything the project would forestall. Outsourcing Value Expectation The congestion charging scheme and low emission charging project is an ambitious initiative that expected to enhance environmental sustainability in London at the same time expected to deliver $310 million in terms of cost savings over the five years that the project is expected to run. Furthermore, the project is anticipated to enhance the performance of the initiative by increasing revenues while cutting down the level of carbon emission within the London metropolitan area16. On the other hand, Transport for London expected anticipated IBM to be accountable and deliver quality technological services to achieve the above as well as customer satisfaction and trust in terms of handling the project. Supplier’s Perspective Appropriate Supplier IBM made a perfect selection by bidding for this particular contract; this is because the company is an elite information technology supplier that has been in business for a considerable amount of time. Venturing into transport monitoring system technology would come in handy with its experience and the intense competition that has characterised the mainstream IT industry17. The congestion charging scheme for Transport for London will hand it the much needed technical experience to enable it rolls out similar services in other cities across the world. To begin with IBM is a renowned company in the in the IT industry having operated close to a decade with cutting edge technologies emerging from its incubation hubs18. Strengths and Weakness of Supplier It is a favourite brand and the numerous operations that it has managed in the industry earn it an upper hand to any client in need of services similar to those that it offers. Based on the particulars of the congestion charging and low emission charging scheme contract the company combined its expertise and financial muscle in offering an impeccable bid that was too good to be rejected by the client. Similarly, it had promised to overhaul the entire system and replace it with more advanced infrastructure that would enable auto pay by customers among other innovative services aimed at increasing the efficiency of the project. Technological solutions from IBM are commonplace, especially in the United Kingdom market thus integrating IBM services with the system for congestion charging scheme would be easier since a significant percentage of the customers would find it convenient to synchronise the services19. IBM is a multinational enterprise running operations in entirely all nations of the world; this fact makes it enjoy economies of scale in that it would implement the contract with ease due to availability of a large pool of resources and skilled manpower that will ensure quality performance in offering its services. However, IBM is new to this particular sector of transport management thus it is prudent that it will face some challenges as it will be providing the services in the initial stage20. Relatively, given the company’s inexperience in the sector in the event that it fails to deliver on this particular project the rapport of the firm will be tarnished since the contract by Transport for London is under global watch as various cities are currently benchmarking on it hence making it loose potential clients in future21. Outsourcing Risks That notwithstanding, there are some risks involved in outsourcing the deal. To ensure it performs to the required levels, IBM will likely invest a significant amount of revenues and technological know-how to the project to ensure it is a success because it took over the project from another company. Thus, this implies the initial plans would need to be overhauled before the start of the project to match IMB’s business model and objectives. Moreover, its patents would be utilised in the systems manning the project and other aspects of the entire scheme22. The move possess a business risk to the company since after the contract expires the new supplier who will take over will likely have access to IBM’s intellectual property and maybe copy it to their systems thus reducing the competitiveness of IBM in the market. Despite the risks involved IBM sets to sell itself a premier provider of transport management solutions hence attract potential clients in cities where similar operations ought to be launched. Currently, there are prospects that the same concept will be implemented in Singapore and Stockholm hence presenting an opportunity for IBM to venture in future23. Recommendations The client has immense expectations in the project in terms of performance given the fact that Transport for London has not dealt with IBM in the past it is prudent that it engages other parties to affirm on the suitability of the supplier in delivering the expected results. Similarly, all firms that participate in the tendering process have to undergo a feasibility study that seeks to ascertain their capabilities and unveil history of success in similar projects. On the other hand, since the project involves the implementation of technological ideas IBM needs to patent all of its innovations that will be implemented in this particular project to safeguard it from illegal copying of intellectual property. That notwithstanding, the congestion charging and low emission charging scheme is a massive project that is under international watch, thus IBM should invest both technological and managerial resources to the contract to guarantee success so as to raise the general rapport of the firm in transport management to increase its competitive advantage in future ventures. Successful outsourcing operations are based on a good relationship between the parties involved, thus to ensure Transport for London gets value and at the same time IBM benefits from the deal the two organisations need to discuss all aspects of the contract and make trade-offs that are meant to ensure at least all the parties benefit equally without infringing either24. References Barrar, W., & Gervais, R., 2006. Global outsourcing strategies: an international reference on effective outsourcing relationships. Aldershot, England, Gower. Contractor, F. J., 2011. Global outsourcing and offshoring an integrated approach to theory and corporate strategy. Cambridge, U.K., Cambridge University Press. Available at: http://www.books24x7.com/marc.asp?bookid=38001. [Accessed 19 Mar. 15] Global Sourcing Workshop, Kotlarsky, J., Oshri, I., & Willcocks, L. P., 2012. The dynamics of global sourcing perspectives and practices: 6th Global Sourcing Workshop 2012, Courchevel, France, March 12-15, 2012, revised selected papers. Berlin, Springer. Available at: http://dx.doi.org/10.1007/978-3-642-33920-2. [Accessed 19 Mar. 15] Halvey, J. K., & Melby, B. M., 2007. Business process outsourcing process, strategies, and contracts. Hoboken, N.J., John Wiley & Sons. Available at: http://www.books24x7.com/marc.asp?bookid=20407. [Accessed 19 Mar. 15] Lasserre, P., 2012. Global strategic management. Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. Oshri, I., 2010. Global sourcing of information technology and business processes: revised selected papers. Berlin, Springer. Oshri, I., Kotlarsky, J., & Willcocks, L., 2015. The handbook of global outsourcing and offshoring. Basingstoke, Palgrave Macmillan. Power, M. J., DE Souza, K. C., & Bonifazi, C., 2006. The outsourcing handbook how to implement a successful outsourcing process. London, Kogan Page. Available at: http://www.books24x7.com/marc.asp?bookid=13034. [Accessed 19 Mar. 15] Willcocks, L., & Lacity, M. C., 2006. Global sourcing of business and IT services. Basingstoke [England], Palgrave Macmillan. Read More