Free Technology Essay: JIT Outsourcing Case Study
1). Analysis of JIT Outsourcing Case Study
There are scores of empirical outcomes which shows that outsourcing decision brings enormous advantages to an organisation (See e.g.
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Mann and Borga, 2004; Yeaple, 2006). As the authors note, while outsourcing brings enormous cost advantages, it also allows firms to focus on other important strategic areas of their business, thus improving their strategic capability and strength in other areas. McCray (2008) on the other hand argues that the problem with outsourcing is that very often, there tends to be poor change management and effective governance structure. In his in-depth qualitative examination of the problems with outsourcing, McCray further identified that the following problems arise from outsourcing processes.
Post contract processes and decisions not understood
Poor mutual understanding of the Contract
Loss of key talent or poor knowledge transfers
Cultural Clash between the Client and the Service provider
In another delineation of the outsourcing process by Adams (2009) he suggests that many issues emerge from outsourcing because potential service providers are wrongly identified or selected. The author therefore laid emphasis on the identification process and how credible partners or service providers can be selected. Applying some of the authors thought to the present context, it appears that JIT outsourcing suffers from the same challenges identified by the authors quoted above. However, given the company’s ongoing difficulty in managing its helpdesk to meet staff’s expectations, outsourcing can be considered to be a good strategic decision for JIT though, lacking in the appropriate elements and process.
More importantly, decision to outsource at JIT did not consider some important elements of successful operations in the post outsourcing process, therefore subjecting the outsourcing motive to questioning. According to Fitzsimmons and Fitzsimons (2008) to achieve cost advantage and operational effectiveness for superior performance, it is very important to consider the 5 elements of operations performance which are “quality, speed, dependability, flexibility and cost. Rather, the decision of JIT to outsource seemed to only focus solely on cost in the performance hierarchy.
While the improvement of service quality was part of the motive for outsourcing the company’s PC helpdesk and data centre as John Smith made clear to the senior management in his presentation, the seriousness and motivation attached to obtaining quality of service after the outsourcing process was absent because much focus was concentrated on cost reduction and less on quality of service. Generally, many authors agree that it is natural for managers to think that outsourcing would mean that the quality of service would improve because they can have more time to monitor quality and achieve better efficiency. But that perception is wrong because outcomes of outsourcing in numerous organisations have consistently shown that quality of service drops after it has been outsourced to an outside party and this could happen for several reasons. Part of the reasons why it dropped in JIT however was because of gaps in the change management process and the governance structure in the post outsourcing regime. In organisational decisions, there must be a learning process especially when it has to deal with change management – in order to avoid disappointment and disasters which may arise as a result (Hammon, 2005).
In consonance with existing theories on outsourcing Cullen (2009) a senior consultant who consults for outsourcing projects at Cutter Consortium suggests that the achieve success in any IT outsourcing process. The outsourcing lifecycle in the framework which is in (figure 1) below must be followed reliably by an organisation.
Using this framework as an audit of John Smith’s decisions, it is notable that his and the management decision to outsource did not consider the implementation of some stages of the framework such as negotiation, transition and refreshing.
While basic negotiation was done, such negotiation was not properly conducted to ensure that it would strictly deliver the requirements of JIT objectively in other service terms which may be outside of the contractual agreement.
Lack of sufficient management of the transition stage was also responsible for the problems encountered in the first three months of the data centre off-shoring. Because, if a transition or change management process was properly managed, the loss made by JIT would have been avoided. Secondly, the management concerns governance of the post outsourcing regime. According to Walsh (2003) a good governance structure in the post outsourcing period must include cultural synergy, embodiment of effective communication systems into the two organisational cross communication into and continuous learning through the continuous exchange of information. These suggestions also appear to be missing in the governance structure of JIT during its post outsourcing period.
Source: Cullen (2008)
Finally, the last building block which concerns refreshing was also missed out by JIT with CPMI because no regular or interval checks are done with the organisation to ensure that everything is fine and it is not going through any problem as a result of the outsourcing management. This only happened on occasions when complaints are made to John Smith and he attempts to speak to the director of CPMI.
In addition, the strategic decision of JIT’s senior management did not consider the very important aspect of culture considering that both Japanese and English speakers are within its vertical operations and needed to man the PC helpdesk in order to support the rotational staff at any point in time. Inspite of this requirement, the senior management decided to force English on its business process and still went on to outsource its PC helpdesk to CPMI who did not provide a Japanese speaker that would make it account for rotational staff at every point.
Given the choice between CPMI and (the latter) Outsourcing Solution who would provide a fluent Japanese speaker who is also fluent in English, the decision to outsource to CPMI was taken quite wrongfully by senior management because Outsourcing solution would have been of more advantage in terms of meeting JIT’s cultural need.
More so, such cultural consideration would have offered a better interaction between JIT which is the outsourcing company and Outsourcing Solutions which is the service provider, such interaction would be useful in avoiding what McCray (2008) described as poor cultural clash between the client and the service provider, the cultural clash which arises from the outsourcing decision to CPMI is not only limited to language barriers and interaction, but the fact that CPMI staff did not understand Japanese protocol of behaviour.
To a certain extent, understanding Japanese protocol of behaviour by JIT’s service provider would have helped in avoiding some of the interaction problems which arises between PC helpdesk and members of staff of JIT. In a white paper by the Outsourcing factory (2008), it was suggested that outsourcing companies should concentrate on their corporate culture: i.e. the way business gets done in the company, the values they share and the way people interact. In another poll conducted by Accenture (2007) of 200 U.S. business executives, it was found that adopting cross-cultural communication problems and bridging cultural barriers through the implementation of cross cultural values and programs could increase productivity by an average of 26%.
Applying the same to JIT means that taking adequate care of Japanese protocol, language and behaviour in the outsourcing decision would have improved performance of its outsourcing by 26%.
To further demonstrate that some of the major problems in the outsourcing process of JIT is a result of the cultural gap between CPMI helpdesk and JIT staff, we may take a lesson from the research work of Gislen et al (2006) who find that between an outsourcing company in Sweden and a service provider in India, there was cultural gap because Indian staff were often scared of conflicts with their partners in Sweden and therefore could not communicate their dissatisfaction and emerging issues succinctly to their Swedish counterpart. Both employees in India and Sweden therefore lacked feedback which would make them be carried along and avoid potential problems in cross business interaction.
This evidence suggests possibly that, some of the problems encountered by JIT staff like Bob could not be solved because CPMI staffs were not confident enough to communicate because of the cultural differences or perhaps the gaps in culture or communication styles.
Another area where management could have optimised outcome from its outsourcing strategy would have been by having more than two potential service providers for the PC helpdesk that is to be outsourced. Having up five different service vendors would have allowed for better negotiation, comparison and consideration of strength of potential service providers. This would have also allowed for a better cost/benefit analysis and help management to determine the best quality that can be derived from the overall process.
Choosing from two service providers is not a smart management decision because it limits management’s view and exposure about the benefits of its potential outsourcing and off shoring especially since it would last for a long period of time. Therefore, following John Smith’s suggestion to outsource, management could have requested for more competitors experienced competitors who have more credence in the industry so as to allow for prudent and good strategic decision which would make the outsourcing process and decision more promising.
In addition, the outsourcing process does not reflect the critical show of prudence as much negotiation was not conducted by John Smith and Management before outsourcing and off shoring to CPMI and DR solutions to take over. Some show of prudence, negotiation and conscientiousness could have been displayed by John Smith through the contract initiation process to suit his own company and his outsourcing objective rather than the service provider. For example, John Smith could have negotiated a constant two way communication process and flexibility of service by the provider wherein, he can demand better service from the service provider even when such agreement is not stipulated in the contract agreement.
Also to be noted is the fact that John Smith and management decision to outsource to CPMI in particular did not emphasize on experience, strength and deliverability of the service provider. This would have simply helped to avoid the drawbacks and problems faced in the post outsourcing era. Infact, considering cost savings, management would have still been able to save considerable cost if it had outsourced its PC helpdesk to Outsourcing Solutions which would have perhaps provided better service more efficiently because of its experience in the industry. Hosting a long list of fortune 500 companies’ processes is simply a proposition that would have been considered at least to test the waters of outsourcing.
2). Summary of Key Problems
Given the outlined analysis of issues emerging from JIT’s outsourcing process, the main problems of JIT’s sourcing strategy could be summarized as thus:
The company did not place adequate emphasis on operations performance which are the core of any successful process or project – whether outsourced or retained within the organisation. The performance measures are: “quality, speed, dependability, flexibility and cost. Rather more emphasis was placed on cost savings and reduction rather than on these overall performance measures. This poor decision reflects in the decision to outsource to CPMI rather than Outsourcing Solutions who has better track record, reference and experience to deliver than CPMI who is only a small company and whose capability cannot be sufficiently proven. The problem with the outsourcing strategy also concerns the fact that less regard was given to cultural gaps.
Fixing the Helpdesk problem: Recommendations to John Smith
Considering the consequences of the company’s decisions and the problems faced by John Smith, it is recommended that to address the helpdesk problems John Smith should immediately negotiate with the management of CPMI outside the contract for issues of communication and cultural gaps to be addressed. This is very important as pointed out by Radoff (2006) who argues that communication gap can lead to big disaster for the outsourcing firm. For the remaining terms of the contract if more than 6 months, John Smith can partner with the management of CPMI to arrange a short course where staff will be trained and given the knowledge of Japanese Protocol Behaviour so as to immediately address the problems faced by helpdesk staff and Japanese Executives. Quelin and Duhamel (2003) consider this as organisational learning and a way of synchronising partners’ needs with each other for effective performance.
The Short course would be short term solution. However on the longer term, John Smith should consider other service providers by reviewing the offers of up to five different potential outsourcing partners. He should therefore decide based on their deliverability, flexibility and experience as well as capability, while considering the quality they can deliver and their ability to make his cost savings objectives achievable. More importantly, a well articulated explanation to management about the dangers of forcing English on rotational staffs would be necessary for John Smith so as to ensure that future service providers have the capability to understand Japanese Protocol Behaviour and bridge cross cultural gaps in outsourcing operations.
John Smith must also importantly focus on ensuring that the rest of the helpdesk staff are properly trained and motivated through flexible working hours so as to reduce the instance of less motivation and less performance which can still occur after major processes have been outsourced. Finally, it would be pertinent to state that all of the recommendations are important. However, it is advised that for optimum and effective performance to be achieved with immediate effect, he should place emphasis on renegotiating with CPMI management and arrange possible short term courses on Japanese protocol behaviours and business ethics as well as service delivery and performance.
This is only recommended as quick short term solution to last within the remaining period of the contract. However, to find lasting solution, it is recommended that the option of new potential service providers should be considered while emphasis should be placed on the 5 elements of operations performance mentioned earlier. With the new service provider, flexibility and quality of service should be given high priority so as to ensure that cost savings is not the only advantage derived from the company’s outsourcing process. Finally, on an ongoing basis, John Smith should implement a continuous training program where remaining employees will be given up to date skills so as to ensure that they are in line with new developments from their service partners to whom they have outsourced their helpdesk.
On the long list as to whether off-shoring should be considered or not for both data centre and the PC helpdesk, it can be argued that off-shoring is a perfect decision for the data centre because of its nature and structure and particularly because of the operational risks involved in managing a data centre which is becoming high in the growing technological world of today. More so, many off-shoring firms have more competence and professional capability in managing IT systems than companies like JIT whose primary activities are in other areas. Off-shoring the data centre will indeed allow management to bear less secondary operational risks and challenges that is associated with data management. For a certain fee, management can cut down costs while improving the quality of its data management when handled by a third party.
In considering the off-shoring decision however, management must place emphasis on the quality and past performance of vendors who will be given the data centre operation to manage. Furthermore, according to best business practice – it is advised that up to five vendors should be selected and weighted according to their service offers, flexibility and closeness to the objectives of JIT. It is also advised that the off-shoring process should be conducted in a systematic and gradual approach. A recommended approach would be for John Smith or a chosen manager of JIT to spend at close to two weeks or better still one month in the offshore location so as to understand their working practices and know what the potential challenges might be.
In addition, only a once year contract should be first signed by JIT to understand the vendor and learn if the off-shoring process is of benefit to the organisation or has to be relinquished for certain reasons.
For the PC helpdesk on the other hand, it is recommended that off-shoring is not the best process because of the need for staff’s personal computers to be checked physically in certain instances. Besides, for other business reasons offshoring the PC helpdesk could cause operational problems and problems which may arise from various instances. It is therefore, advised that PC helpdesk should be retained for outsourcing rather than offshoring.
In outsourcing the PC helpdesk, the same care and consciousness advised for data centre offshoring should be exercised because of the risks that might be involved. Also, five outsourcing service providers should be invited to tender their quotes and offers. Such offers, should be gauged to determine whose service best suits JIT’s objectives. During the process, it is very important as recommended to John Smith initially that the five operational performance elements should be included and not only the cost should be considered.
The quality of service that will be provided by the vendor should be given utmost priority, followed by cost, flexibility and dependability and speed. For these elements to be found in a potential vendor, the importance of experience and past performance must be emphasized in the sourcing process. In addition, the company who can blend with JIT’s operations and give tailored service should be given better scrutiny and attention.
Lastly, it must be taken into consideration that JIT’s vertical operation comprises Japanese and English speaking staff. Therefore, it must be ensured that all the company’s internal processes, rotational staff and outsourcing partners have capability in Japanese and English behaviour protocol.
Outsourcing to vendors who have no understanding of the cultural ethics and behavioural protocols of service users will further leave cultural gaps and communication problems for management to deal with. Indeed, it is a counter productive process when one learns from other past experiences of outsourcing and the cultural problems involved.
Additionally, to be educated of the potential risks and dangers involved in the outsourcing process – both in transition and in the proper regime. A learning process is recommended whereby, John Smith spends time in the offshoring company to understand their mode of operation and how it works so as to take the lessons back home into his company’s final contract before performing the final outsourcing.
An ongoing governance structure should also be given proper attention such that: in the post outsourcing regime such that communication and other important facets of operations are constantly reviewed from time to time, the performance of the vendor, weaknesses and strengths should also be reviewed so as to constantly ensure that the service offered meets JIT’s objectives and the expectations of all its staff.
Conclusion is drawn on the note of the outsourcing factory (2008) which suggests that:
“Whilst price is very important, productivity is even more important, which is why you companies must factor this non tangible aspects, related to outsourcing, into their purchase decisions. They must ensure that the company they are dealing with are mature enough to overcome the cultural barriers as well as the communication/organizational ones. Then, when the deal is signed they should not forget that relationships have to be managed as it will not manage itself”.
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