GlobShops Management of Outsourcing to Date - Case Study Example

Abstract This paper mainly highlights the concept of outsourcing. Outsourcing is a process of contracting the business process of an organization to a third party concern in order to increase its operating income, revenue and profitability. So, an international travel retail player, Globshop also decided to outsource a specific portion of its information technology activities to an Indian vendor so as to save cost, economies of scale and international enterprise. Thus, the benefits of outsourcing are also discussed with the help of theoretical concepts such as transactional as well as agency. Other than this, the risk or challenges associated with such type of outsourcing concept is also discussed in this paper. Finally the paper is concluded with some recommendations to improve the process of outsourcing in long run. Table of Contents Introduction 3 Discussions 4 Definition of off shoring 4 Evaluation of the decision of off-shoring by the management of Globshop with the help of theories 4 Importance of Location in an outsourcing process 7 Importance of relationship management in an outsourcing process 8 Analysis 10 The benefits and challenges of outsourcing or off-shoring 10 Findings 12 Conclusion and recommendation 13 References 15 Bibliography 18 Introduction In this age, globalization and introduction of internet facilities enhanced the pace of outsourcing. In order to amplify the productivity and profitability of an organization, the concept of outsourcing of informational technology is recognised as one of the most important business strategy so as to improve the position and ranking of the organizations in the market among many other rival players. The prime aim behind such type of outsourcing or offshore mergers is to reduce the amount of cost that may amplify the total revenue and operating income of the organization. Keeping this aspect in mind, the global travel retail organization, Globshop also decided to outsource, the activities of information technology. Such a tactical and strategic decision is taken by the CEO of the organization, Mr. Roger Deen in order to mitigate the challenges aroused due to terrorist attract in the year 2001 in 11th September. In addition to this, Mr. Deen implemented such type of decisions, in order to amplify the competitive advantage and reliability of the business by outsourcing, informational technology activities to Indian firms at a quite cheap cost and easy shipping facilities. The prime aim of this paper is to evaluate the perspective of management of Globshop in regard to the process of outsourcing varied services of information technology. Along with this, it also highlights, the benefits and risks associated with such type of corporate strategies, rather than cost savings. Along with this, the pros and cons of the concept of outsourcing are also described with the help of various theories so as to analyse its effectiveness as a corporate strategy. The entire paper is divided into five segments such as introduction, discussion, analysis, findings and conclusion and recommendations. Discussions Definition of off shoring The concept of off-shoring is described as transferring of varied types of services of information technology from one country or nation to another nation. Such type of activities or strategies are implemented by the management of the organization in order to develop their business, penetrate new markets, increase customer bases, improvement of revenues and profitability and to attain varied types of inventive ideas and suggestions that may help to retain the target customers for longer period of time. In addition to this, off-shoring of varied types of services of an organization helps in amplification of its brand image and reputation in diverse markets that may improve its sustainability and loyalty. Thus, as per Aron & Singh (2005), off-shoring is a strategy to amplify the position and market demand of the services of a business with the assistance of a third party. However, in such a strategy, two parties need to maintain a very good corporate relationship among one –another. Only then, both the parties might get benefited by implementing such type of corporate strategies within the organizations that may improve its portfolio and reputation in the market among others. Evaluation of the decision of off-shoring by the management of Globshop with the help of theories The CEO of Globshop, Mr. Deen always aimed to amplify the competitive position and brand image of the organization in global markets among many other rival contenders. In order to fulfil this aim, He desired to offer more concentration over the corporate strategy of off-shoring the activities or services of informational technology to an Indian Vendor, named Indo-Systems Solutions (ISS) in order to amplify its support services, retail systems, application developments and merchandising maintenances. It is done in order to save costs and improve the brand value and market share of the organization of Globshop in global perspectives among others (Aron & Singh, 2005, pp. 543-555). However, the idea of off-storing did not proved effective for the organization of Globshop as its CEO failed to review the policies and strategies of the organization or the country with which, outsourcing deal is finalised. It is essential in order to maintain the operations of the off-shoring effectively with the help of the third party thereby tackling any sort of legal or cost related issues. The multi-billion organization, Globshop also tried to improve its performance and dependency in the market, by implementing the strategy of off-shoring so as to reduce the negative impacts of terrorism. However, by doing so, the organization of Globshop tried to reduce its total cost that may amplify its returns and profit margins. But before finalising the concept, the management or the CEO of Globshop need to analyse the market position and reputation of the organization of ISS in Indian market among others. Moreover, the management of Globshop need to perform vigorous market research over the deals and activities of the organization of ISS so as to evaluate its reliability and ranking in the market (Carmel & Agarwal, 2001, pp.22-29). Apart from this, it also need to judge the relationships of ISS with all its other business vendors so as to analyse its policies, activities, quality of work, any mentionable discrepancies etc. Only then, the management or CEO of Globshop might attain a clear view about the organization of ISS, prior finalising the agreement. Thus, it might be stated that, it’s extremely essential for any organization to research vividly about the policies of the third party organization before making dealing as stated by transactional theory of outsourcing. Transactional theory: as per Carmel & Agarwal (2001), the prime essence of outsourcing is to hand over the entire activities of support and new development to any third party organization (Carmel & Abbott, 2007, pp. 40-46). However prior taking such type of decision, it’s extremely essential to maintain an effective relationship with the management of that third party organization, so that they might delegate the responsibilities in an accurate way. So that, any sort of discrepancy may not arise among the original organization as well as the third party concern. Moreover, by maintaining effective relationship, the organization (Globshop) might also become able to analyse, whether the selected third party organization is appropriate for its dealings or not. However, Mr. Deen finalised the deal with ISS, without analysing or evaluating its statistical background. As a result, it failed to accomplish its objectives in an effective way that declined its image and position in the global market among many other existing contenders. Agency theory: according to agency theory as stated by Carmel & Tija (2006), the objectives and interests of both the companies and employees need to be balanced with one-another. Only then, the employees of the third party organization might become motivated to the assigned tasks and duties that may amplify the performance of the organization. However, if the objectives or goals of the companies differ from one-another, then it may be fruitful to make a deal with such a third party organization (Carmel & Tija, 2006, pp. 424-434). Without balancing or tallying all these above mentioned facts, the CEO of Globshop, Mr. Deen prepared the deal with ISS for off shoring its information technology activities (Feeny & et. al. 2005, pp. 41-48). Therefore, due to these above mentioned facts, the off-shore merger of Globshop with ISS did-not prove effective for the organization that reduced its fame and consistency in the market. Moreover, due to bad quality of support services and maintenance services, the inner trust and confidence of the customers over the organization of Globshop declined that hindered its growth and image in the market (Farok & et. al. 2010, pp.110-189). Importance of Location in an outsourcing process As per Farrell (2006), location acts as the most important element for an off-shoring organization desiring to outsource its services. This is because; the success of the organizational initiative of off-shoring is entirely dependent over the selection of the specific country or nation. The selected country should comprise of high quantity of resources or individual at a quite low cost as the prime objective of outsourcing is cost reduction (Farrell, 2006, pp. 167-178). Other than this, the selected country might also comprise of required language or educational skills and talents, essential to fulfil the services of an IT outsourcing firm. Moreover, the employees or individual of the country might include high command over the subject of English as compared to others (Gereffi, 2006, pp. 280-290). As the employees need to offer support or maintenance service to the international customers of varying religions and cultures. However, their point of contact with these customers might be only English and so the capability of pronouncing may be of high-quality (Heeks & et. al. 2001, pp. 54-61). In addition to this, the selected location might include the facilities of infrastructure such as telecommunication, power supply, internet connections etc. So that, it might effectively offer its support services to its clients as quickly as possible in order to retain their reliability and trust (Kern & et. al. 2002, pp.47-69). Only then, the third party organization might become successful in fulfilling its objectives in an effective way. Keeping these facts in mind, the CEO of Globshop finalised India as its final outsourcing countries as compared to United Kingdom or other Asian countries. Moreover, Mr, Deen also selected India due to its favourable legal as well as political rules and regulations. (Source: Kotlarsky & Oshri, 2008, p.281). Thus, the location for outsourcing an activity needs to be selected so as to attain low waged labour and quality of services. So that the outsourcing organization might become successful in amplifying its revenues and profitability by reducing its total cost. Importance of relationship management in an outsourcing process In this age, relationship management is offered high concentration by each and every organization. This is because; it’s the relationship that helps an organization to retain its customers for longer period of time. By doings so, the level of sustainability and competitive advantage of the organization enhances to a significant extent in the market as compared to many other rival players. Other than this the relationship management encourages the employees of an organization to offer high level of dedication and commitment towards their assigned goals and tasks (Lacity & S Willcocks, 2009, pp. 130-146). By doing so, their level of performance enhances to a significant extent that may improve the productivity and profitability of the organization as a whole. Similarly, it’s the relationship that motivates a third party firm to deliver its duties and responsibilities in an accurate way so as to amplify its prosperity an image in the market among others, as well as to retain its agreement with the outsourcing firm for a long run so as to maintain its operations and functions effectively (Lewin & Peeters, 2006, pp. 221-239). Similarly, relationship management acts as the cornerstone in outsourcing business in this age of aggressiveness and economic turmoil. It is the relationship that helps to understand the policies and strategies of management of the client organization as well as the supplier. By knowing the policies and strategies, both of them might strengthen their partnerships in long run. This is because; if both the management policies of both the organization are at par, then their level of dedication or commitment over the responsibilities might be equal and it would surely preset positive results (Oshri & et. al. 2009, pp. 334-345). Other than this, the status of firms might be equal. This means, both the firms need to comprise of overseas operations (Mani & et. al. 2006, pp. 423-434). Only then, the operations of any overseas organization like Globshop might be easily maintained by an Indian firm ISS in an effective way. However, the CEO of Globshop failed to analyse or evaluate all these above mentioned facts, prior preparing the agreement. Thus, it might be stated that relationship among an organization and its outsourcing firm helps to enhance its performance and devotion over the assigned tasks thereby reducing any sort of discrepancies arising due to quality or commitment over the tasks. However, the downfall of Globshop took place as it finalised the deal on the basis of minimised operation cost in order to improve its service qualities. So that, the organization of Globshop might increase its portfolio and customer base in the market as compared to many other rivals. Analysis The benefits and challenges of outsourcing or off-shoring The management of Globshop decided to implement the decision of outsourcing or off-shoring with an Indian organization so as to amplify its popularity and loyalty in the market. Other than this, it also implemented this corporate strategy in order to amplify the below stated benefits: Cost saving: Globshop implemented this strategy in order to enhance its profitability by reducing the cost used in resources such as labour, infrastructure, resources. By doing so, the organization of Globshop desired to amplify their competitiveness and position in the market among others. However, in order to fulfil the desired objectives, the selected third party organization needs to include extremely experienced and skilled employees as well as effective infrastructures. Only then, the outsourcing organization might become able to fulfil its objectives in an effective way (Pyndt & Pedersen, 2006, pp. 210-221). Quality service: implementation of the process of outsourcing or off-shoring, the organization of Globshop desired to present quality services to its customers. The prime aim behind this aim is to amplify the range of customers and loyalty in the market among others (Ranganathan & Balaji, 2007, pp. 147-164). Economies of Scale: by implementing the strategy of off-shoring, the organization of Globshop became successful in presenting its services at a quite lower price. As a result of which, the consistency and reliability of the customers amplified to a significant extent. This acted positively for the organization thereby amplifying its prosperity and brand value. Improved customer base: due to the presentation of better quality of services, the customer base of the organization might get enhanced. This might prove effective in amplifying the competitive position and equity of the organization in this aggressive market among others. Only then, the operating income and net income of the organization might get amplified that might improve its prosperity and uniqueness (Rottman & Lacity, 2006, pp. 56-63). International experience: by outsourcing or off-shoring the activities, the organization of Globshop became successful in attaining varied types of skilled and experienced employees. As a result of which, the organization of Globshop become successful in solving all sort of problems of the customers by offering best quality of services. By doing so, the uniqueness of the services of the organization of Globshop enhanced within its customers that may increase its reputation in the market (Rottman & Lacity, 2008, pp. 259-275). Good infrastructure with the help of outsourcing, the organization might get the facility of attaining good infrastructure such as telecommunication, computers, advanced machineries such as headsets, headphones etc so as to simplify the process of communication. As a result, the inner trust and confidence of the customers might get satisfied that may amplify their reliance over the organization and its services among others (Vitasek & Manrodt, 2012, pp. 4-14). Other than benefits, the process of outsourcing also comprises of varied types of challenges or risks. These are mentioned below: Lack of communication: due to lack of communication among the employees of the outsourcing organization and third party organization, the level of performance reduces. Moreover, the level of dedication and motivation among the employees also reduces thereby declining its productivity and profit margin to a considerable extent. However, due to improper communication, the organization of Globshop failed to maintain its agreement with ISS. Inappropriate relationship: if the level of communication among both the organizations is not appropriate, then the level of motivation and commitment of the employees might get declined. As a result of which, the level of performance of the employees declined significantly that hindered its image in the market (Whitten & Leidner, 2006, pp. 605-621). Thus, in order to maintain effective the operation of outsourcing of Globshop, it needs to mitigate the above mentioned challenges. Findings After analysing and evaluating the above mentioned facts, it might be stated, that in order to maintain the operations of Globshop in an effective way, appropriate balance of the policies and strategies is essential (Willcocks & Lacity, 2006, pp. 123-134) Then the employees of the organizations might not become satisfied in offering high dedication and commitment towards their responsibilities. As a result of lack of effective dedication, their quality of services might get reduced significantly that may hinder the confidence of the customers. Moreover, due to lack of trust and loyalty of the customers, the reputation and brand value of the organization might get reduced significantly that may hamper its portfolio. Apart from this, due to improper relationship, the performance and prosperity among the organizations might not be maintained for long run and so the sustainability and position might get hampered (Willcocks & Lacity, 2009, pp. 156-167). So, proper relationship and communication is extremely essential for the organization of Globshop with ISS in order to maintain its operations. Conclusion and recommendation Conclusively it might be depicted that in this age, relationship management is the most essential element. This is because; it is the relationship that helps an organization to enhance its reputation and reliability by amplifying its customer base. Not only this, it is the relationship that helps an organization to retain its customers for longer time thereby reducing its switchover costs to a significant extent. By retaining the customers, the organization might amplify its profit margin and market value. Similarly, the organization of Globshop needs to offer higher concentration over relationship management. Only then, it might easily attain varied types of knowledge and policies of the third party organization, prior finalising any deal. Moreover, with the help of relationship management, the motivation and inner confidence of the employees might get enhanced that may also enhance their performance level. Other than this, the CEO of Globshop needs to make more research over the country or nation, prior selecting the third party. So that, the requisite skills, resources, talents of the employees as well as the infrastructural facilities might be analysed. Only then, the selected third party might become successful for the organization of Globshop. In addition, in order to enhance the reputation and image of the organization of Globshop, Mr. Deen needs to implement the technique of multiple sourcing instead of back-sourcing. This is because; such a strategy might prove effective in reducing the dependency over a single third party. As varied types of risks might arise due to the presence of a single source such as cheating, shirking, distortion of information or facts, lack of effective performance etc. However, due to the presence of these underlining risks, the organization of Globshop might use multi-sourcing in order to offer satisfactory solution to its customers (Krishna, 2007). This might prove effective for the organization of Globshop to amplify its brand value and position in the market among many other rival contenders. Thus, the technique of multi-sourcing is quite effective as compared to captive off shoring and in-sourcing. This is because in captive off-shoring as well as in-sourcing a part of IT services such as research and development department might be entirely controlled by the internal staffs of the organization (Pyndt and Pedersen, 2006). 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