IT and E-Commerce Outsourcing Approach in Walmart - Coursework Example

Table of Contents Introduction 2 2. Relevance of IT-Outsourcing Approach of Organizations 3 2 IT Outsourcing and Management Decision Making 3 2.2. Factors Leading to Innovation in Information Technology Systems 4 2.3. IT Outsourcing Support in Management Functions and Organizational Performance 4 2.4. Reasons for Which Walmart Outsource IT 5 3. Relevance of E-commerce Outsourcing Approach of Organizations 6 3.1. Reasons for Which Walmart Outsource e-commerce 8 4. Critical Issues in Managing Outsourced Relationships 9 4.1. Issues Faced by Walmart in Managing Outsourced Relationships 12 5. Conclusion 14 6. Recommendations 14 Reference List 16 1. Introduction In this extreme competitive global environment several manufacturers all over the world react to such scenario by constructing outsourcing relationships for their firms and finished products with low-cost approach (Rivard and Aubert, 2015). E-commerce in recent era of globalization is considered to be essential aspect of business strategy for sales as well as consumer service. Though e-commerce an online existence enhances an organizations creditability if the website is capable o communicate and distribute messages and services that organizations desires to convey its online consumers (Chang and Gurbaxini, 2015). Management information and communications outsourcing facilitates efficient management decision making, supports management functions and helps enhancing organizational performance. Increasing global competition and an urge of organizations to gain sustainability has resulted in innovation in information technology systems (Li, Stephen and Gormon, 2014). An information technology (IT) outsourcing strategy is an approach that is derived from evaluating which IT functions are efficiently performed by an IT outsourcing service providers than that firms own IT department. Outsourcing IT and e-commerce can provide organizations with excellent technological support at a low cost (Han and Mithas, 2013). The speedy growth of Information Technology and e-commerce initiatives globally focuses on its compelling advantages namely, business having low cost structure, increased flexibility wider scope and scale of services, increased transparency, accountability as well as speedier transactions. Also there are certain factors that result to continuous innovation in information and communications systems that will be described in this report. This paper explains how organizations appreciate the relevance of IT and e-commerce outsourcing by considering Walmart as an example. Walmart is renowned as the largest retailer globally. The organization’s tremendous growth has facilitated the store to tap growth opportunities in the global market. Walmart’s strategies of IT and e-commerce strategies has been efficient in supporting the managerial and organizational operations and performance of the company. The purpose of this report is to elaborate how and why global organizations in this case Walmart outsource IT and e-commerce for gaining a competitive advantage. 2. Relevance of IT-Outsourcing Approach of Organizations Outsourcing is the technique of delegating organizations business operations to external agencies that helps organizations in leveraging advantages such as low cost labour, enhanced product quality and service innovation (Susarla, 2012). IT outsourcing helps organizations to leverage international knowledge base that increases their accessibility to world class capabilities. Organizations outsource IT for reducing certain business risks. Staying updated with the recent technology and for developing innovative strategies is an expensive as well as time consuming process (Qu, Pinnsonwalt and Omar, 2011). As a professional outsourced IT provider works with several customers and require keeping up on best practices of industry, they have full knowledge of what is appropriate and what not. Such knowledge and experience of outsourced IT professionals dramatically decreases organizations risks of implementing expensive wrong management decisions (Li, Stephen and Gormon, 2014). 2.1. IT Outsourcing and Management Decision Making IT outsourcing decision making trends to be a complex process that ideally deals with issues within a broad area namely financial feasibility and technological for instance, performance metrics. Huge outsourcings decisions are taken by are taken by the management of the organizations that includes several stakeholders with multiple interests (Susarla and Mukhopadhay, 2013). Deficiency of organizational resources and business expertise results to ineffective management decision making those results to disappointed organizational performance. Decision making is an integral aspect of nay business and majority of the organizational decision making is id done by management along major stakeholders of the organization, IT outsourcing can help improving organizational decision making (Li, Stephen and Gormon, 2014). IT outsourcing can help obtain the best decision support systems in market that through use of special software can help management in solving complex issues. IT outsourcing in addition to save costs can help avail developments in information systems namely, artificial intelligence, expert systems, decision support systems that will be used by third party service providers (Li, Stephen and Gormon, 2014). Consequently, the information gained from outsourced IT specialists will be extremely accurate that will support effective and decision making process of organizations. 2.2. Factors Leading to Innovation in Information Technology Systems In the current era of revolutionary new developments in basic information technology, innovation in its implementation is extremely vital for competitive survival and growth (Mithas, Tafti, Bardhan and Goh, 2012). Outsourcing IT related business operations any organizing can effectively address this challenge. Information System is observed to be three types: Type 1 innovations that are limited to IS activities Type 2 innovations that supports administration of business, and Type 3 innovations that are incorporated in the central technology of the business. IT innovations can take several forms, for instance, it is used by organizations to transform their business processes into automated IT functions, advance business applications that helps to tap new markets (Li, Stephen and Gormon, 2014). IT outsourcing can help organizations attain latest innovative IT functions such as desktop virtualizations that increase manageability and reduce hardware costs (Quinn and Strategy, 2013). The challenge to stay competitive in the modern era of globalization, changing consumer needs and an urge of organizations to improve business operations through new IT systems has resulted in IT innovations (Li, Stephen and Gormon, 2014). 2.3. IT Outsourcing Support in Management Functions and Organizational Performance IT outsourcing helps improving organizations performance from multiple dimensions such as changes in employee productivity, enhancements in operational as well as financial performance. Through IT outsourcing organizations attain increased production flexibility, can expand its capacity, can focus on its core competencies and can reduce costs by enhancing product quality by leveraging the expertise of IT expert suppliers. It outsourcing improves all such managerial functions (Galliers, Leidner and Fox, 2014). IT outsourcing improves organizations supply chain capabilities For instance, Microsoft was capable in rolling out Xbox 360 video game by spending on its channel of suppliers to deliver elements of main IT services that are vital to its product. To improve business performance several organizations requited outsourced IT infrastructure that offers real time visibility to manufacturing process (Li, Stephen and Gormon, 2014). Also IT outsourcing ensures business integration and intelligence solution that supports organizations performance monitoring and increases information exchange aligning management functions (Galliers, Leidner and Fox, 2014). Through IT outsourcing organizations also establish an ERP platform that manages their financial processes for product manufacturing. IT outsourcing in this way improves vital managerial functions and helps organizations in focussing on its main operations that in turn ensures improved organizational performance (Li, Stephen and Gormon, 2014). 2.4. Reasons for Which Walmart Outsource IT Walmart has initiated IT outsourcing strategy to cope with growth and to increase its global expansion initiative (Li, Stephen and Gormon, 2014). Distrust of computers did not keep Walmart away from developing itself into an international leader of information technology innovation. Along with more than 125 stores and dollar 340.3 million in sales, the organization hired IBM as its IT outsourcing partner and employed its expert IT services to maintain inventory control for all products and distribution centres (Quinn and Strategy, 2013). Moreover, IT outsourcing services from IBM helped Walmart in preparing income statements for all its stores. Walmart maintained electronic cash registers that are an excellent IT innovation through IT outsourcing in all its stores that helped the organization in recording Point-of-Sale (POS) information to maintain inventory (Li, Stephen and Gormon, 2014). With the support of IT outsourcing Walmart launched site to store service that enabled its internet consumers pick up products in store. Through IT outsourcing, Walmart redesigned its e-commerce platform and implemented web 2.0 and social networking tools and contracts with Oracle and Hewlett-Packard to utilize their price optimization and BI retail applications (Galliers, Leidner and Fox, 2014). Through IT outsourcing Walmart focussed largely on modernising its data centres and software for the reason that it can add new features to its product WebPages. IT outsourcing supported the organization to avail latest IT innovations, for instance Walmart entered cloud computing market along Simple Storage Service (S3) and Later Elastic Compute Cloud (EC2). Through IT outsourcing Walmart utilised S3 data storage services tat was developed to make web-scale computing simpler and easily affordable for developers (Galliers, Leidner and Fox, 2014). This expert service offered fast, easy and inexpensive process that was reliable and scalable. Also, this service came with fault tolerance that fixed failures by not experiencing any downtime. By outsourcing EC2 Walmart was able to reduce its information backup costs to great extent. IT outsourcing has therefore improved its business operations through costs reductions and business innovations that in turn improved its business performance and profitability (Quinn and Strategy, 2013). Walmart desires to share its information and outsource this aspect of business to improve its inventory expenses and consumer service levels. Such IT service outsourcing regarding inventory management has helped Walmart in managing its consumer relationship as well as sustaining competitive advantages. Besides gaining operational and performance excellent another purpose of the organization for IT outsourcing is to reduce labour costs (Mithas, Tafti, Bardhan and Goh, 2012). Hiring and training IT staff can turn out to quite expensive and temporary employees was not living up to the expectations of the organizational performance standards. Through IT outsourcing Walmart turned its focus on human resources where they require them the most. Though outsourcing IT the organization made sure that it utilises new technology in its business. Walmart outsourced quality IT service organizations such as IBM to commence its new projects, which if they started in-house could take months to hire personnel, train them (Li, Stephen and Gormon, 2014). IT outsourcing organizations brings years of experience with them that helped saving time and training costs of Walmart. 3. Relevance of E-commerce Outsourcing Approach of Organizations Several companies to sustain the increased competition are now outsourcing their businesses for several advantages that can be derived from such outsourcing (Mithas, Tafti, Bardhan and Goh, 2012). In the modern era business is not confined to motor shops and has turned to be in internet and computerised systems namely, e-commerce that are currently being outsourced. Several established companies such as Amazon and Ebay are outsourcing companies that help their e-commerce operations and enable them to cut costs gaining operational efficiency (Li, Stephen and Gormon, 2014). There are several ways in which outsourcing firms can serve as great help to such e-commerce businesses (Mithas, Tafti, Bardhan and Goh, 2012). Ecommerce outsourcing firms can offer other organizations with web design, development and management as well as business operation services. Promotion of a company’s business along with its services can also be completed by outsourcing firms. The benefits that can be extracted from outsourcing are the cause why the organizational practice of e-commerce outsourcing is increasing globally. Cost Effectiveness- Outsourcing e-commerce is cost effective. Numerous organizations are entrusting their online business operations into care of e-commerce outsourcing firms as this is cost effective (Quinn and Strategy, 2013). The requirement to eliminate costs particularly, in hiring staff has brought e-commerce outsourcing firms into existence. Organizations through e-commerce outsourcing can gain labour and several functions to organizations at a less price. Consequently, e-commerce outsourcing can help save labour along with operational expenses of organizations. Business Promotion- E-commerce outsourcing supports organizations in promoting its business on internet (Quinn and Strategy, 2013). Online business is increasingly competitive and all companies desires to be visible on the internet platform and attempts to capture prominent situation on first page of search engines for which high expertise is essential. Through e-commerce outsourcing organizations can hire experts who are skilful and knowledgeable on ways to popularize an online business (Li, Stephen and Gormon, 2014). Business Proficiency- E-commerce outsourcing firms keep competing among themselves and therefore they execute their activities with increased level of proficiency in order to gain referrals and good reviews (Qu, Pinnsonwalt and Omar, 2011). For this reason an organization that hires an e-commerce outsourcing firm turns to become successful and visible on internet. E-commerce comes with expertise that surely helps organizations on generating considerable traffic on its online business platform. Skilled Workforce with Experience, Accessibility to Skilled Resources and Training Processes- Huge projects of organizations necessitates skills that are not possessed by the company’s in-house staff. E-commerce outsourcing is an excellent way of expanding skilled team that organizations look for which is devoid of arduous recruitment and large expense on training of new employees (Qu, Pinnsonwalt and Omar, 2011). Outsourcing of e-commerce is generally absolved by the debate that is surrounded by a renowned belief that that organizations information systems is not its main business and its applications is not that suitable for arriving at e-commerce outsourcing decisions. Establishing an extensive and efficient internet existence is vital for any business now-a-days. Though e-commerce development has attained extreme rise and turned to be among the most powerful as well as lucrative markets (Qu, Pinnsonwalt and Omar, 2011). In this modern era, numerous global organizations decide to outsource their e-commerce platform building projects as they believe that leaving online store in professional hands through outsourcing they can generate high-quality finished product by eliminating excessive time and financial investments on editing and online shop fine tuning activities. Numerous online businesses confessed that by outsourcing their e-commerce development requirements they spend significantly less without sacrificing online store design and functionality. 3.1. Reasons for Which Walmart Outsource e-commerce Walmart that is world’s largest retailer embraces e-commerce outsourcing strategies to compete against its largest business rivals like Amazon (Galliers, Leidner and Fox, 2014). To make its business cost effective and gain business success Walmart implemented e-commerce outsourcing strategies with its customers such as America Online, Target as well as Virgin Mega stores. With the speedy increase in internet and mobile usage retailers such as Walmart outsourced new back office e-commerce services such as across border payments, customer product order management and chat services. E-commerce service firms generally have a technology heritage and are well known for social, mobile, cloud as well as analytics and decision making solutions. Several ecommerce support centres of excellence helps Walmart by providing unified consumer experience across several brands ad stores (Galliers, Leidner and Fox, 2014). Moreover, Walmart has announced that was implementing SAP’s Enterprise Resource Planning (ERP) package through e-commerce outsourcing for enhancing its global operations. The company has in addition sought to support its Web 2.0 e-commerce outsourcing efforts that was desperately needed by the company in enhancing its online business operations (Li, Stephen and Gormon, 2014). Walmart’s e-commerce outsourcing strategies also include its business process outsourcing deals. E-commerce outsourcing has supported its management decision making regarding outsourcing its non-core processes such as procurement, finance, merchandising, accounting and payroll. Leading IT companies such as IBM, TCS, WNS and Wipro are among the firms that offers e-commerce outsourcing services to Walmart (Li, Stephen and Gormon, 2014). Walmart outsourced its e-commerce operations to gain benefits for its effective business operations as mentioned below: Outsourcing e-commerce operations helped Walmart’s management team to defer to details to a specialized organization. Eradicating all the details facilitated Walmart to focus on major organizational issues (Li, Stephen and Gormon, 2014). Typically, Walmart handles the outsourced e-commerce activities that boost its technological capabilities that is necessary to the business. Walmart viewed e-commerce outsourcing as a cost-effective manner for expanding into other nations and new market segments. 4. Critical Issues in Managing Outsourced Relationships Certain critical issues are associated with managing outsourced relationships tat requires to be dealt with in order manage outsourced relationships efficiently. In IT outsourcing the most common and fatal risks associated with it are those that effects an organizations business operation transactions, organizations information confidentiality, business sustainability as well as regulatory compliance (Susarla and Mukhopadhay, 2013). Such risks are elaborated and the strategies that can help in eliminating such risks that in turn will help in managing outsourced relationships are mentioned under: Possibility of poor management- After outsourcing the IT operations the organizations still face the complex risks associated with it. Organizations outsource its IT operations when its in-house IT activities are not that efficient in fetching then competitive advantage bit if the third party is not that better then the organization will have to its own management of vendor skills (Susarla and Mukhopadhay, 2013). If the outsourced party’s service providing technique is different than that of the organization, it will incur expenses in building new relationships and appreciating how things are accomplished in new regime. To eliminate such initial risks organizations need to be capable of managing the IT services. Lack of expertise- Issues in managing outsourced relationship arises when it becomes difficult in finding third parties having proven team of experts those are both knowledgeable and experienced in proving IT services to organizations. To manage outsourced relationships by eliminating such issues organizations require being aware of bait-and –switch tactics. Vendors require proving list of their staff as element of outsourcers’ proposal (Qu, Pinnsonwalt and Omar, 2011). Issue of Trust- The issue of trust has occupied a central stage in several companies those outsource their IT business operations. It has turned to be very necessary to make sure that third parties who gain access to confidential information are safeguarding such information from inappropriate disclosure as well as from misuse. Another issue emerges when distinct laws and regulations rule customer along with third party, specifically when situated in distinct jurisdictions. Hence, organizations require ensuring that the outsourcing parties comply on their behalf as well as on behalf of their customers with appropriate regulations and laws that they apply to their customers (Qu, Pinnsonwalt and Omar, 2011). Dubious accessibility-Organizations that rely on an outside service IT firm encounters the issues of downtime at the time of critical system breakdowns that results top possible loss of productivity (Qu, Pinnsonwalt and Omar, 2011). It might take days before a busy IT service provider can bring to its notice on the organizations issues and resolve them. This might leave employees remain idle and cause several dollars in lost revenue. Hidden costs- When cost reduction is the purpose of outsourcing and therefore it needs to compare its vendor costs with recent costs and building technology into future expense schedules. In opposition, organizations might be unaware of future possible cost savings or overlook technological discontinuities. Such issues are maters of judgement (Rivard and Aubert, 2015). Loss of innovative capacity- An organization decides to maintain innovative capability through IT outsourcing then the organizations ability to innovate might be impaired (Chang and Gurbaxini, 2015). If the outsourcing party cannot offer innovative services then the web of relationships among organizations and third party IT outsourcing companies becomes complex (Rivard and Aubert, 2015). Such complications are quite difficult to deal with and they increase the risks of management costs, more precisely search expenses of innovation. Can affect employee morale- Risks exists regarding IT outsourcing impact on employee morale. If organizations are releasing employees to replace their IT job responsibilities the remaining employees might feel that their jobs are at risk also (Rivard and Aubert, 2015). Cultural differences- Cultural differences take in religion, social conducts and even the manner questions are asked and replied. Although numerous leading vendors undergo cultural education programs, the issues and expenses that are related with cultural alignment might not remain insignificant or trivial. Certain IT functions cannot be easily outsourced- IT impacts the whole organization that ranges from simple to complex tasks. Risks of inefficient business operations and management decision makings can arise if the third party vendors are not enough qualified to take care of vital organizational needs (Chang and Gurbaxini, 2015). Mitigation of Issues: It outsourcing relationships are exemplified by trust along with proximity that is opposed to mistrust and distance and possess the highest chance of success (Han and Mithas, 2013). Aforementioned issues in managing outsourced relationships can be mitigated in accordance with- Cultural similarity- This can be because of historical factors like pattern of business and even colonization, recent migration among both countries and a common language. Such principle can be illustrated with the increased reliance of Fillipino organizations on US consumers and the preference of UK organizations for Indian vendors (Chang and Gurbaxini, 2015). Industrial relatedness- Arrangements of IT outsourcing among organizations in identical industries constantly attain huger success ratings. Vendors and customer organizations share a technical language and are needed to stay familiar with each others business practices (Han and Mithas, 2013). 4.1. Issues Faced by Walmart in Managing Outsourced Relationships Walmart is a retail organization that is actively engaged in online marketing and sale of products and services. The company is recently facing issues in managing e-commerce and IT outsourcing relationships, mainly in its customer support serve outsourcing. Among the greatest issue that Walmart was dealing with is the competition from several online advertising firms namely, Yahoo, Microsoft and Google (Han and Mithas, 2013). In this era of increased globalization the use of internet and e-commerce outsourcing is expanding and accordingly Walmart has sought to enhance its online business performance through outsourcing its e-commerce and IT support services to overseas countries. Such off-shoring was an initiative to efficiently utilize its available resources and capabilities somewhere else getting other expert people to perform their consumer support services quite cheaply than it costs to carry out same in-house (Susarla and Mukhopadhay, 2013). IT and e-commerce outsourcing strategy was carefully implemented by Walmart to improve its competitive edge but the organization is facing issues of fierce competition from several other outsourced online marketing agencies those are hired by the competitor organizations namely, Amazon.com (Susarla and Mukhopadhay, 2013). One major issue that this competition presented was both sellers as well as buyers were keen to advertise with organizations those were able to afford them good value for money. For doing this Walmart required an increased access to buyers and sellers that was possible through outsourcing. In this initiative, an issue raised that the company’s employees did not feel pleased to have work they can do given over to someone else (Susarla and Mukhopadhay, 2013). This resulted in por service quality that was a major concern for Walmart in e-commerce outsourcing. Another issue in managing outsourced relationships faced by Walmart was when the organization’s outsourcing expanded to Philippines, challenges emerged and its decision of IT outsourcing expansion needed reconsideration. Email and text consumer services in its e-commerce wee easier to outsource but they still required e-commerce customer support staff to deal with correspondences over phone as this was their popular means of communication (Mithas, Tafti, Bardhan and Goh, 2012). Maintaining these staffs in-house was very costly for Walmart An issue them emerged regarding how to keep their customer support standards up-to-date with outsourcing IT facilities that would minimize cost and increase business growth through increased base. Through IT outsourcing, Walmart faced certain security issues in their customer support services. The hired professionals that provided consumer support services were unequipped to deal with consumer queries and security of consumer accounts with Walmart were at stake (Mithas, Tafti, Bardhan and Goh, 2012). To deal with such issues related to trust the company had to bear costs of changing their IT service provider and also ensured that the outsourcing party comply on their behalf as well as on behalf of their customers with appropriate regulations and laws that they apply to their customers and safeguard their confidential information (Mithas, Tafti, Bardhan and Goh, 2012). 5. Conclusion This report set out to illustrate how Walmart effectively used IT and e-commerce outsourcing strategy to reduce excess costs, to gain business proficiency by effectively competing, for gaining skilled workforce with experience and accessibility to skilled resources. This report on Walmart evidenced that IT outsourcing helps improving Walmart’s performance from multiple dimensions such as changes in employee productivity, enhancements in operational as well as financial performance. Through IT outsourcing Walmart utilizes IT innovations and attains increased production flexibility, expands its capacity, focuses on its core competencies and reduces costs by enhancing product quality by leveraging the expertise of IT expert suppliers. It is worth repeating that IT and e-commerce outsourcing can help organizations in gaining competitive edge and can support managerial decision making that will in turn improve organizational performance. On the other hand, organizations require considering certain critical issues that they might face in managing outsourced relationships such as issue of trust, hidden costs, lack of expertise, etc that if not addressed can result organizations to bear increased costs and face business operational ineffectiveness. Walmart faced certain security issues in IT outsourcing that was effectively managed by the organization to remain competitive. Walmart can increase its IT outsourcing that will help it focus solely on its core business operations and marketing strategies saving excess time, training costs as well as valuable resources. This will in turn enhance its operational efficiency and market performance. 6. Recommendations E-commerce and Information Technology comes with several advantages with it. To sustain its competitive position in the dynamic global business market certain recommendations are provided to Walmart so that it can reap benefits from innovative approaches aligned with e-commerce and information technology. Walmart can increase its e-commerce outsourcing as by doing this it will be able to focus on developing its products and marketing initiatives rather than investing excess time, training, money as well as resources in maintaining its trade platform (Mithas, Tafti, Bardhan and Goh, 2012). Walmart can make use of valuable third party marketing techniques such as Google Analytics for website traffic and conversion evaluation, Google Ad words online advertisement campaign tracking programs which are efficient innovations in area of Information Technology and Communication Systems. These will help the company to increase associate marketing revenues (Li, Stephen and Gormon, 2014). Walmart can gain benefits from outsourcing its information technology operations that encompasses accessibility to state to art technology, new resources, cost savings, job security, business operation flexibility and increased business focus along with shared risks. Walmart is recommended not to solely depend on its internal IT operations as it has initiated a strategy of globalization (Li, Stephen and Gormon, 2014). As the company has initiated globalization strategy that includes entrance into developing markets it has to plan an IT outsourcing strategy for actively growing is business. By outsourcing IT operations Walmart can enable new business opportunities, rationalize processes and replace its outdated systems with its capabilities (Li, Stephen and Gormon, 2014). IT outsourcing will help Walmart in redirecting its resources from non-core business operations to operations that will have increased return on serving consumers and increasing employee productivity. 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