Can Business Process Outsourcing Provide a Competitive Advantage to Businesses - Research Proposal Example

Proposed Title Can Business Process Outsourcing Provide a Competitive Advantage to Businesses? Background to the Context The present appearance of globalized, business functions and other resourcing strategies are prominently known as the ‘outsourcing’, representing several changes for organizations operating worldwide. In modern times, the desire of businesses to reduce costs, refocus their efforts onto their core competencies and improve efficiency has lead to the growth of IT-based outsourcing of business processes to offshore outsourcing service providers. Mainly, the potential to use the resources of enhancing, low-priced economies to alternate the service delivery, expensive countries are the main reasons for services globalization. Different organizational components are present in this change phenomenon like process, people and knowledge required to be handled carefully in order to avoid any effects on the businesses and organizations. These effects can comprise dissatisfaction of customers, business problems and other issues. If these are not managed carefully, the IT outsourcing strategy might not give up the expected enhanced organizational efficiencies or cost savings. Objective The objective of this research is to determine whether or not outsourcing some business processes to offshore outsourcing service providers provides businesses with a competitive advantage or not. Project Aim The aim of the project is to enumerate and objectively assess important factors a business needs to weigh before committing to offshore outsourcing and to come up with a holistic answer as to whether outsourcing is in the best interest of a business or not. This research will use examples from the corporate sector to build a case for offshore outsourcing by evaluating its costs and benefits to businesses engaging services of companies from other countries. Quantitative data for different evaluation factors including firms’ financial performance including revenues, costs and profits, company size in terms of operation and employees will be used for this study. These factors will form the basis of analysis whether companies engaging in offshore outsourcing are actually able to operate efficiently and directs their resources well to achieve competitive advantage. Significance of Research This research would better enable businesses to decide whether or not it would be advantageous for them to outsource some of their work to offshore service providers, it would also pave the way for further research into this area. In addition in contrast to the plethora of opinion based writings on the issue of outsourcing, the conclusions of this research will provide recommendation based on solid facts. Research Hypotheses The study proposed in this report will investigate different elements of offshore outsourcing to test out the following research hypothesis. H0: Offshore outsourcing assists businesses to achieve operational and managerial efficiencies that help them to achieve competitive advantage. H1: Businesses engaging in offshore outsourcing are able to generate better financial results and growth in the company size. Research Questions 1- Why companies engage in offshore outsourcing? 2- Does offshore outsourcing assist businesses in achieving higher financial performance? 3- Do the operational costs of a business decline as a result of outsourcing? 4- Do companies achieve savings by reducing the size of their work force? 5- Does offshore outsourcing allow businesses to achieve competitive advantage? Literature Review Theoretical Framework Transaction Cost Theory Transaction cost theory is one of the commonest frameworks used to discuss the issue of outsourcing. According to the transaction theory firms and other complex organizations are established in order to offset the costs of making transactions. In case of outsourcing, the cost of hiring in-house experts in order to perform certain process may exceed the cost of hiring a third party to handle all the issues related to those processes (Aubert, Rivard, & Patry, 2004). Agency Theory The Agency Dilemma is the name given to the problems of interest that arise when a principal hires an agent to act on their behalf. In the context of outsourcing, the principal is the client and the outsourcing service provider is the agent. The interests of the client and the outsourcing service provider may or may not match (Tsoukas & Knudsen, 2003). Typically, the client would be interested in reducing costs while the outsourcing service provider on the other hand would be interested in maximizing their profits while minimizing their workload. The client may be interested in receiving a high quality of service while the outsourcing service provider would be interested in minimizing their operational costs. The client may also be interested in monitoring and regulating or supervising the outsourced work to some degree, while the agent may be interested in gaining more autonomy and having less oversight. Resolving the Agency dilemma depends upon instituting conditions that would result in perfect or near alignment of the interests of the client and the outsourcing service provider (Logan, 2000). Advantages of Outsourcing Lower Costs The main benefit to a company from outsourcing their work to an agency based in a region with a lower cost of living is that the cost of labour is cheaper in those regions and more work gets done for a lesser amount of money. Outsourcing any process leads to a reduction in the number of employees a business needs to house within their corporate offices and in equipment needs etc. By outsourcing a process to a third party, the managers of a business no longer have to supervise all the employees that they would have to supervise in case they chose to have the task done in-house (Lacity & Rottman, 2008). Specialty and Expertise The core competency of the outsourcing service provider is in the area in which they provide outsourcing services; often this area is not included in the core competency of the client. This may allow for a more efficient and high quality service (Lacity & Rottman, 2008). Reduction in Lead Time Since outsourcing involves the use of people across different time zones, the use of pipelining may result in considerable reductions in lead times as one group of workers works on a project as the other group sleeps (Greaver, 1999). Disadvantages of Outsourcing Unfavourable Political Environment The loss of jobs as a result of outsourcing has lead to a severe backlash among some sections of the public and some politicians in the United States. Businesses that engage in business process outsourcing can expect to be demonized in the media by anti-outsourcing activists and may experience a drop in business because of this. Businesses must also look toward the future, if the political climate in the United States turns further against offshore outsourcing, business that engage in it may face punitive measures from the government (Hira & Hira, 2008). Loss of Control With an in-house team working on a task, managers are able to direct them with precision, but with offshore outsourcing, due to the distance and the fact that all communications have to take place through text or audio/video links, it is difficult for a client to supervise the work of the outsourcing service provider (Lacity & Rottman, 2008). Miscommunications Communicating with people from a different region often involves cross-cultural misunderstandings. Misunderstanding based on the different connotations of words and phrases and the cultural between the client and the outsourcing service provider may lead to radically different assumptions about the nature of the work, resulting in delays and failures (Jacob, 2003). Research Methodology Quantitative vs. Qualitative Research Quantitative research is an object approach that requires the objective weighing of measurable quantities. This method involves use of a mathematical or statistical model to quantify responses or information collected from different sources. The outcome of the study is definite and its interpretation is straightforward. Qualitative research, on the other hand focuses on human behaviour and motivations and the factors which influence a human to adopt a particular position, perform a particular act or to make a particular decision (Thomas, 2003). Data Collection Primary Sources Information collected from these sources is first hand information that is specifically aimed at the objectives set out for the study. This data collection is done through means such as surveys, questionnaires, interviews etcetera (Groves, Fowler, Couper, Lepkowski, Singer, & Tourangeau, 2009). Secondary Sources These sources are available in the form of previously published researches, studies, articles, journals, web pages, thesis etc. The use of such material should be given careful consideration for issues of plagiarism and copyright. Proposed Research Methodology The proposed research methodology is based on positivistic paradigm that involves a quantitative research into the issue of outsourcing where each of the most important factors related to the pros and cons of outsourcing are evaluated through directly measurable factors and suitable measurable proxy indicators of non-measurable factors. The proposed approach is inductive that is suitable for a study where the research initiates from a consideration of a specific scope. This implies that research will be conducted on specific businesses operating in the information technology industry that are engaged in acquiring outsourcing services from offshore companies. Once analysis of findings is completed the results and patterns can then be generalize to a larger group of companies that have similar outsourcing arrangement (Kumar, 2008). Since overseas outsourcing is a widespread phenomenon and we wish to draw generalized conclusions regarding this phenomenon, we need to conduct quantitative research. For the proposed study no primary research will be collected as there are due considerations of impossibility of acquiring such data from companies. Therefore, only information from secondary sources will be used for performing quantitative analysis. Sampling On the website for CNN’s Lou Dobbs Tonight, a list of 789 major companies who outsource jobs overseas is given (Dobbs, 2004). From this list 50 companies will be selected from information technology industry. Similarly, 50 companies from the same industry will be selected that are not engaged in outsourcing activities. Factors to be analyzed There are several factors that could be identified as follows: 1. Companies Financial Performance: Data from companies’ annual reports will be collected for their sale revenue, cost of operations, and net profit. 2. Company Size: Data from companies’ annual reports will collected for number of employees working in these organizations. Basis for Analysis Information collected from secondary sources will be used to provide quantified results from outsourcing decisions made by companies that are either engaging in offshore outsourcing or not. This would be carried out by extracting values for different factors identified in the previous section to identify percentage changes over the years. In this way a comparison can be made between companies that are actively engaged in offshore outsourcing and those that are not involved in any type of outsourcing activity. This basis for analysis is similar to that used in a research by Beaumont & Costa (2003) where they conducted a survey of Australian companies engaged in IT outsourcing and presented findings on the basis of factors such as revenue, company size, and cost differential. The quantitative analysis of these figures will allow the research to assess any trend reflected in the reported figures of these companies on the basis of their outsourcing activities. The researcher will be able to draw important conclusions regarding outsourcing decisions made by these companies whether offshore outsourcing have actually helped these companies to achieve higher operational, tactical and strategic improvements in their business that in turn have assisted these companies to gain competitive advantage in their industry. Limitations The research conclusions have to take in account the limitations of the research methodology. The sample size is restricted to companies that have relevant information available in their annual reports. In addition, while determining the scope of the research, we have to keep in mind the two important variables of cost and time, since the funds and the time available to us is severely constrained, out of necessity, the sample size has to be small. The smallness of the sample size results in a low confidence level and a high confidence interval. The generalization of the conclusions of the study is therefore put into doubt (Groves, Fowler, Couper, Lepkowski, Singer, & Tourangeau, 2009). Secondary sources that will be used for the proposed report also have certain limitations that need to be incorporated as a part of limitations for the proposed study. Structure of Report Chapter 1: Introduction This chapter will provide the background to context, objectives, project aim and its significance. Additionally it will include research hypotheses, research questions and scope of the study to be carried out. Chapter 2: Literature Review This chapter entails important definitions and concepts of outsourcing encompassing theories that are important for understanding outsourcing process and respective responsibilities of clients and service providers. Moreover, this will include information from previous studies and other secondary sources to understand how outsourcing can yield benefits or cause problems for businesses. Thus, it will provide a theoretical framework for testing out the research hypotheses set out for the research. Chapter 3: Research Methodology This chapter will provide literature on available research methodologies and approaches suitable for the proposed study. Upon evaluation of different methods adopted research methodology will be elaborated and basis for analysis will be set out in this chapter along with limitations of the approach to study. Chapter 4: Findings and Analysis This chapter will include findings from data collected for 20 companies selected for the research. Information collected from secondary sources will be presented to form an opinion on the impact of outsourcing on companies and their ability to achieve competitive advantage. Chapter 5: Conclusions and Recommendations This final chapter will provide important conclusions from the quantitative research to be conducted for the study and research hypotheses will be elaborated. Furthermore, recommendations for both companies to further improve their approach to outsourcing their business functions and also for future possible studies will be presented. Time Schedule July 2010 August 2010 September 2010 10th 20th 30th 10th 20th 30th 2nd 5th 8th Conducting preliminary research on the selected Topic Deciding upon project aim, scope of research & research questions Setting up the research hypothesis to be tested in the study Collecting useful information for literature review and background to study Formulating basis for quantitative research Gathering secondary data for companies selected on the basis of variables identified Performing quantitative testing and preparing findings Analysing findings and drawing conclusions from the research Writing up the research report Reference List Aubert, B. A., Rivard, S., & Patry, M. (2004). A transaction cost model of IT outsourcing. Information and Management, 41 (7), 921-932. Beaumont, N., & Costa, C. (2003). Information technology outsourcing in Australia. In M. Khosrowpour, Advanced topics in information resources management (pp. 192-219). New Dehli: Idea Group Inc (IGI). Dobbs, L. (2004, June 10). Exporting America. Retrieved June 17, 2010, from cnn.com: http://edition.cnn.com/CNN/Programs/lou.dobbs.tonight/popups/exporting.america/content.html Greaver, M. F. (1999). Strategic outsourcing: a structured approach to outsourcing decisions and initiatives. New York, NY: AMACOM. Groves, R. M., Fowler, F. J., Couper, M. P., Lepkowski, J. M., Singer, E., & Tourangeau, R. (2009). Survey Methodology (2nd Edition ed.). Hoboken, NJ: John Wiley and Sons. Hira, R., & Hira, A. (2008). Outsourcing America: the true cost of shipping jobs overseas and what can be done about it. New York, NY: AMACOM. Jacob, N. (2003). Intercultural management. London, UK: Kogan Page. Kumar, R. (2005). Research Methodology: A Step-by-Step Guide for Beginners. New York: Sage Publications Ltd. Lacity, M. C., & Rottman, J. W. (2008). Offshore outsourcing of IT work: client and supplier perspectives. Basingstoke, UK: Palgrave Macmillan. Logan, M. S. (2000). Using agency theory to design successful outsourcing relationships. The international journal of logistics management, 11 (2), 21-32. Thomas, R. M. (2003). Blending qualitative & quantitative research methods in theses and dissertations. Thousand Oaks, CA: Corwin Press. Tsoukas, H., & Knudsen, C. (2003). The Oxford handbook of organization theory. London, UK: Oxford University Press. Read More