Download - Supervisor: Eng Martin Manuhwa
AN EVALUATION OF OUTSOURCING AS A SOURCE OF
COMPETITVE ADVANTAGE IN THE ZIMBABWE
TELECOMMUNICATIONS INDUSTRY: THE CASE OF LIQUID
TELECOM (2009 TO 2012)
STANLEY MAGEDE (REG NO R0021928)
A dissertation submitted in partial fulfilment for the requirements of the Degree of
Masters of Business Administration (MBA)
Graduate School of Management
University of Zimbabwe
P.O. Box MP167
Mount Pleasant
Harare
July 2012
Supervisor: Eng Martin Manuhwa
ii
Declaration
I, Stanley Magede, do hereby declare that this dissertation is the result of my own
investigation and research, except to the extent indicated in the Acknowledgements,
References and by comments included in the body of the report, and that it has not
been submitted in part or in full for any other degree to any other university.
______________ Date_________
Student signature
_______________ Name:_____________ Date:_________
Supervisor’s Signature
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Dedication
To the important people in my life, my wife Pretty, my son Tatenda and my
brothers and their families.
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Acknowledgements
I would like to thank Liquid Telecommunications for affording me the opportunity to
conduct this dissertation with their employees and also I would like to thank all the
participants who returned the survey questionnaires.
I am also thankful to my dissertation supervisor, Eng. Manhuwa, for giving me
valuable inputs. I am grateful for the guidance that the Engineer provided at every
stage of my dissertation.
I would also like to thank my family for helping me enjoy (rather than endure) the
MBA journey. Thank you to my classmates for assistance on how to analyse the
data and present the results.
Unto Him who is able to exceedingly, abundantly, beyond what we think or ask,
according to the power that works in us. I love you Jesus.
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Abstract
Outsourcing is one of the most researched and commonly used business practices.
Most scholars agree that outsourcing can be harnessed to achieve competitive
advantage. But is it all outsourcing approaches that give competitive advantage? Is
the current outsourcing approach at Liquid Telecom bringing any strategic benefits?
This paper explores how Liquid Telecommunications employees view the current
outsourcing model employed by Liquid Telecom, with a primary focus on whether it’s
a source of sustainable competitive advantage or not.
Questionnaireswere distributed among Liquid Telecom employees using stratified
and convenient sampling.Interviews were also carried out especially amongst senior
managers to bring out the strategic thrust of the outsourcing model.
The research highlighted five major reasons why the current outsourcing approach
cannot be regarded as a source of competitive advantage. Interviewees specifically
reported that themajor problem is the small, immature market.
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TABLE OF CONTENTS
DECLARATION.................................................................................................................... II
DEDICATION....................................................................................................................... III
ACKNOWLEDGEMENTS ................................................................................................. IV
ABSTRACT ............................................................................................................................ V
TABLE OF CONTENTS ..................................................................................................... VI
LIST OF TABLES ................................................................................................................ XI
TABLE OF FIGURES ........................................................................................................ XII
LIST OF ABBREVIATIONS ........................................................................................... XIV
CHAPTER 1 INTRODUCTION ......................................................................................... 1
INTRODUCTION ................................................................................................................................................ 1
INTRODUCTION TO THE STUDY.................................................................................................................. 1
BACKGROUND TO THE STUDY .................................................................................................................... 2
1.1.1 Telecommmunications Industry in Zimbabwe ........................................................................................ 2
1.1.2 Licensed Operators .................................................................................................................................. 2
1.1.3 Environment/Situational Analysis ........................................................................................................... 3
1.1.4 Liquid Telecommunications (Pvt) Limited............................................................................................ 11
RESEARCH PROBLEM ................................................................................................................................... 23
RESEARCH OBJECTIVES .............................................................................................................................. 23
RESEARCH QUESTIONS ................................................................................................................................ 24
1.1.5 Overall research question ...................................................................................................................... 24
1.1.6 Specific Reserch Questions ................................................................................................................... 24
RESEARCH HYPOTHESIS ............................................................................................................................. 25
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JUSTIFICATION ............................................................................................................................................... 25
SCOPE OF RESEARCH ................................................................................................................................... 26
ETHICAL ISSUES ............................................................................................................................................. 27
ASSUMPTIONS OF THE STUDY ................................................................................................................... 27
DISSERTATION STRUCTURE ...................................................................................................................... 28
CHAPTER SUMMARY .................................................................................................................................... 29
CHAPTER 2 LITERATURE REVIEW ........................................................................... 30
INTRODUCTION .............................................................................................................................................. 30
THE OUTSOURCING CONCEPT .................................................................................................................. 30
2.1.1 Definitions of outsourcing ..................................................................................................................... 30
2.1.2 The Theories behind outsourcing .......................................................................................................... 31
2.1.3 Types of outsourcing ............................................................................................................................. 35
2.1.4 Benefits of Outsourcing ......................................................................................................................... 39
2.1.5 Disadvantages and/or risks of outsourcing ............................................................................................ 41
TRENDS IN THE TELECOMMUNICATIONS INDUSTY .......................................................................... 42
OUTSOURCING OPTIONS IN TELECOMMUNICATIONS ..................................................................... 43
2.1.6 Staff Augmentation Model .................................................................................................................... 43
2.1.7 Out-Tasking Model ............................................................................................................................... 44
2.1.8 Project Based Outsourcing .................................................................................................................... 44
2.1.9 Managed services Model ....................................................................................................................... 44
2.1.10 Selecting Appropriate Sourcing Model ............................................................................................... 45
2.1.11 The concept of relationships in outsourcing ........................................................................................ 48
2.1.12 Telecommunications value chain dynamics ........................................................................................ 50
2.1.13 Telecommunications Business Processes (eTOM Model) .................................................................. 52
FIGURE 2-4: ETOM LEVEL 0 MODEL. ....................................................................................................... 54
SOURCE: TMFORUM, (2008) ......................................................................................................................... 54
COMPETITIVE ADVANTAGE ....................................................................................................................... 54
2.1.14 The Position/Environmental View ...................................................................................................... 55
CONCEPTUAL FRAMEWORK ..................................................................................................................... 57
CHAPTER SUMMARY .................................................................................................................................... 58
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CHAPTER 3 RESEARCH METHODOLOGY .............................................................. 59
INTRODUCTION .............................................................................................................................................. 59
RESEARCH DESIGN ........................................................................................................................................ 59
RESEARCH PHILOSOPHY ............................................................................................................................ 60
3.1.1 Phenomenology ..................................................................................................................................... 60
3.1.2 Interpretivism ........................................................................................................................................ 60
3.1.3 Positivism .............................................................................................................................................. 61
3.1.4 Post-Positivism ...................................................................................................................................... 61
RESEACH APPROACH ................................................................................................................................... 62
3.1.5 Quantitative Research ............................................................................................................................ 63
3.1.6 Qualitative Research .............................................................................................................................. 63
3.1.7 Triangulation ......................................................................................................................................... 63
RESEARCH STRATEGIES ............................................................................................................................. 64
3.1.8 Survey .................................................................................................................................................... 65
3.1.9 Case Study ............................................................................................................................................. 65
3.1.10 Experiment .......................................................................................................................................... 67
3.1.11 Grounded Theory ................................................................................................................................ 67
DATA COLLECTION ....................................................................................................................................... 68
3.1.12 Primary data ........................................................................................................................................ 68
3.1.13 Secondary data .................................................................................................................................... 69
3.1.14 Population of Study ............................................................................................................................. 69
3.1.15 Sampling ............................................................................................................................................. 70
3.1.16 Sample Size ......................................................................................................................................... 72
CONTROL OF VALIDITY AND RELIABILITY ......................................................................................... 74
RESEARCH LIMITATIONS ........................................................................................................................... 74
CHAPTER CONCLUSIONS ............................................................................................................................ 75
CHAPTER 4 RESULTS, ANALYSIS AND DISCUSSION ........................................... 76
INTRODUCTION .............................................................................................................................................. 76
RESPONSE RATE ............................................................................................................................................. 77
DEMOGRAPHIC ANALYSIS .......................................................................................................................... 78
4.1.1 Gender and Age of Respondent ............................................................................................................. 78
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4.1.2 Employee Category ............................................................................................................................... 79
4.1.3 Respondents by department ................................................................................................................... 80
4.1.4 Crosstabulation of number of years with organization and time in current position cross tabulation. .. 81
4.1.5 Training on managing relationship with Vendor ................................................................................... 83
OBJECTIVE RELATED FINDINGS .............................................................................................................. 85
4.1.6 Reasons for Outsourcing ....................................................................................................................... 85
4.1.7 In-house performance of currently outsourced activities would lead to a lack of strategic focus? ........ 88
4.1.8 Alignment between organization outsourcing and strategy ................................................................... 90
4.1.9 Outsourcing has improved service delivery timelines ........................................................................... 92
4.1.10 Contractors have expertise in their area of work ................................................................................. 93
4.1.11 Cotractors handle Liquid customers with due care .............................................................................. 94
4.1.12 Contractors understand standard telecommunications business processes (eTOM)? ......................... 95
4.1.13 Outsourcing reduced costs? ................................................................................................................. 97
4.1.14 Contractors require ongoing supervision? ........................................................................................... 99
4.1.15 Market demands are forcing contractors to improve performance at same cost ............................... 100
4.1.16 Relationship with Contractors is strong............................................................................................. 102
4.1.17 Type of outsourcing employed by Liquid ......................................................................................... 103
4.1.18 Outsourcing is supported by management ......................................................................................... 104
4.1.19 Relationship between Liquid Telecom and Outsourcing patners ...................................................... 105
4.1.20 Corporate culture clashes between contractors and Liquid Telecom are an ongoing issue ............... 107
4.1.21 Outsourcing has improved the quality of work ................................................................................. 109
4.1.22 Choosing wrong contractors has caused ongoing quality problems .................................................. 110
4.1.23 Insourced work (using internal staff) is of better quality than outsourced work ............................... 111
4.1.24 Liquid Telecom has more experienced staff who do a better job than contractors............................ 112
TESTING THE HYPOTHESIS ...................................................................................................................... 113
4.1.25 Current Outsourcing helped Liquid Telecom to achieve sustainable competitive advantage (direct
hypothesis testing question) .......................................................................................................................... 113
FINDINGS OF THE RESEARCH STUDY ................................................................................................... 117
CHAPTER SUMMARY .................................................................................................................................. 118
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS .................................. 119
INTRODUCTION ............................................................................................................................................ 119
CONCLUSIONS ............................................................................................................................................... 119
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DECLARATION ON RESEARCH HYPOTHESIS ..................................................................................... 122
RECOMMENDATIONS ................................................................................................................................. 122
REFERENCES ......................................................................................................................... I
APPENDICES .................................................................................................................... XIII
APPENDIX 1: QUESTIONNAIRE.................................................................................. XIV
APPENDIX 2: STATISTICAL FORMULAE AND CALCULATIONS ..................... XXI
APPENDIX 3: INTERVIEW WITH SENIOR MANAGEMENT .............................. XXII
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LIST OF TABLES
Table 1-1: Zimbabwe Licensed Telecommunications Service Providers .................................. 2
Table 1-2 : Liquid Telecom SWOT.............................................................................................. 18
Table 2-1 Benefits of Outsourcing .............................................................................................. 40
Table 2-2: Sourcing Maturity Model. .......................................................................................... 46
Table 4-1: Response rate ............................................................................................................ 77
Table 4-2: Crosstabulation of Gender and Age of Respondents ............................................. 78
Table 4-3: Reasons for outsourcing ............................................................................................ 85
Table 4-4: Outsourcing and Organizational strategy ................................................................. 90
Table 4-5:Type of outsourcing employed by Liquid Telecom ................................................. 103
Table 4-6: Relationship between Liquid Telecom and Outsourcing partners ....................... 105
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TABLE OF FIGURES
Figure 1-4 PORTER’s FIVE FORCES MODEL. .......................................................................... 7
Figure 1-1 Source: Liquid Telecom HR Report (2012). ............................................................ 12
Figure 1-2: Liquid Telecom Value Chain .................................................................................... 16
Figure 1-3: Source: Management Accounts Annual Report (2011).) ....................................... 18
Figure 2-1:Sourcing Maturity Model ............................................................................................ 47
Figure 2-2:Linkage Map for Outsourcing. ................................................................................... 50
Figure 2-3: The Firm’s value chain. ............................................................................................ 51
Figure 2-4: eTOM Level 0 Model. ................................................................................................... 54
Figure 2-5: Linkage Map for Outsourcing. .................................................................................. 57
Figure 3-1: Sampling .................................................................................................................... 70
Figure 3-2: Determining the Size of a Random Sample ........................................................... 73
Figure 4-1: Employee Categories ............................................................................................... 79
Figure 4-2: Respondents by Department ................................................................................... 80
Figure 4-3:Respondents’ duration with Liquid ........................................................................... 81
Figure 4-4: Responses to involvement in decision to outsource by department .................... 82
Figure 4-5: Training on managing relationship with contractors. ............................................. 83
Figure 4-6: In-house performance of currently outsourced activities would lead to lack of
strategic focus?............................................................................................................................. 88
Figure 4-7: Outsourcing has improved service delivery timelines ............................................ 92
Figure 4-8: Contractors have expertise in their work. ............................................................... 93
Figure 4-9: Contractors handle Liquid customers with due care .............................................. 94
Figure 4-10:Contractors understand telecommunications processes? ................................... 95
Figure 4-11: Outsourcing reduced costs? .................................................................................. 97
Figure 4-12:Contractors require ongoing supervision? ............................................................. 99
Figure 4-13:Contractors' performance improving due to market demands? ......................... 100
Figure 4-14:Relationship with Contractors is strong? ............................................................. 102
Figure 4-15: Outsourcing is supported by management? ....................................................... 104
Figure 4-16: Corporate Culture Clashes? ................................................................................ 107
Figure 4-17:Performance feedback measures ........................................................................ 108
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Figure 4-18:Outsourcing has improved the quality of work .................................................... 109
Figure 4-19: Choosing wrong contractors has caused ongoing quality problems. ............... 110
Figure 4-20: Quality of internal work is higher than outsourced work .................................... 111
Figure 4-21:Liquid Telecom has more experienced staff who do a better job than
contractors. ................................................................................................................................. 112
Figure 4-22: Outsourcing as a source of competitive advantage ........................................... 113
Figure 4-23:Outsurcing as a source of competitive advantage for Liquid Telecom ............. 114
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List of Abbreviations
POTRAZ Postal and Regulatory Authority of Zimbabwe
VPN Virtual Private Network
MPLS Multiple Label Protocol Label Switching
SDH Synchronous Digital Hierarchy
CAFP Central Africa Fibre Project
ZINX Zimbabwe Internet Exchange
JINX Johannesburg Internet Exchange
LINX London Internet Exchange
ISP Internet Service Provider
NOC Network Operations Centre
VPLS Virtual Private LAN service
Mbps Mega Bits per second
ARPU Average Revenue per User
VOIP Voice over Internet Protocol
IP Internet protocol
IAP Internet Access provider
RBV Resource Based View
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1
CHAPTER 1 INTRODUCTION
Introduction
Introduction to the study
A growing trend in the global telecommunications industry is for operators to
outsource certain jobs to Managed Services Providers, where work, responsibilities
and decision rights are transferred to an external expert entity that may be located
within or outside the country. Although nothing much has been written about this
concept in the Zimbabwe Telecommunications industry, the concept has had a great
impact on the telecommunications industry value chain and competitive strategy
globally. For example, British Telecom recently outsourced the support of its global
customers and its own internal systems to Tech Mahindra at a cost of over $1 billion
for a five-year period (Tijun, Sandel, Li and Chang, 2012). The driving force in these
outsourcing initiatives is the perceived fast clockspeed in the telecommunications
industry, which ultimately drives the architectural innovations of telecommunications
service providers in order to gain or maintain competitive advantage. The concept of
outsourcing or “outside resource using” (Arnold, 2000) can be defined as the
strategic reliance on external, specialized, efficient service providers for major, non-
core functions (The Outsourcing Institute, 2001).
The research analyses the current outsourcing approach in an effort to suggest the
best form of outsourcing for Liquid Telecom Zimbabwe to achieve competitive
advantage. The primary focus of the study is to recommend good outsourcing
strategy and highlight issues to consider in coming up with a workable outsourcing
strategy for a telecommunications organisation in Zimbabwe.The role played by the
outsourcing startegy in ensuring successful service deployment, improving the
quality of work and reducing costs is also explored with the view of recommending
how an organisation can assess and evaluate the strategic benefits of outsourcing.
2
Background to the study
1.1.1 Telecommmunications Industry in Zimbabwe
It can be argued that the Zimbabwean telecommunications industry is at the heart of
development of all the industries in the economy. Although the Zimbabwean
economy is traditionally driven by agro-based industries, it would not be wayward to
claim that telecommunications provides the “nervous system” that integrates all the
economic industries and helps focus their contribution towards economic growth.
This section gives an overview of the business environment within which Liquid
Telecommunications operates focusing on Zimbabwe’s macroeconomic environment
and micro-environments.
1.1.2 Licensed Operators
According to POTRAZ (2012) the industry has several players falling into the
categories shown in Table 1-1 ;
Table 1-1: Zimbabwe Licensed Telecommunications Ser vice Providers
Market Segment Licenced Players
Fixed telephony TelOne and *TeleAccess (Suspended)
Mobile Telephony Net One, Econet and Telecel
Internet Access Providers (Class A) Ecoweb (Liquid Telecom ), Powertel,
Africom, Telecontract, TelOne, Aptics,Valley
Technologies, Acquiva Wireless,
Dandemutande, Pecus Enterprises, BlueSat
Technologies, Transmedia Corporation;
Internet Access Providers (Class B) CommIT and Net One
Public Data Network Operators Broadlands and Qualtime Investments
Source: POTRAZ), (2012).
3
1.1.3 Environment/Situational Analysis
1.1.3.1 Macro environmental/PESTELEG analysis
Allen (1999) defines the external environment as consisting of all the outside
institutions and forces that have an actual or potential interest or impact on the
organisation's ability to achieve its objectives: competitive, economic, technological,
political, legal, demographic, cultural, and ecosystem.
1.1.3.1.1 Political, Legal and Regulatory environment
The telecommunications industry in Zimbabwe is regulated by the Postal and
Telecommunications Regulatory Authority of Zimbabwe (POTRAZ). POTRAZ was
established by an Act of Parliament, The Postal and Telecommunications Act
(Chapter 12:05), and falls under the Ministry of Transport and Communication. The
major regulations require companies to be licenced in order to operate within this
industry. Licenced operators can only offer services that are specifically stipulated in
their licence documents even though they might wish to offer additional services. As
an example, Liquid Telecommunications cannot offer mobile voice services since
they are only licenced to offer data and voice over internet protocol (VOIP) services.
POTRAZ also regulates the quality of service offered to customers and the pricing of
telecommunications products. Prior to the multi-currencies era, the price regulation
made it very difficult for players to operate profitably, since prices would be reviewed
quarterly, yet inflation rate was changing hourly. Historically therefore, the
political/legal framework has always been a critical source of risk in the
telecommunications industry.
4
1.1.3.1.2 Technological environment
The technological environment refers to new technologies, which create new product
and market opportunities. Global technological developments are a critical force in
the ICT industry as the industry is technology driven. The ICT industry is arguably
one of the fast-clockspeed industries and as such survival in the industry requires a
company to always update its technology and architectural design to match the
times. Of critical importance is for the company to recoup its initial investment from a
given product before it becomes obsolete. As an example, all the three licenced
mobile voice companies have invested in third generation (3G) technology to offer
mobile data services. However, there already exists newer technology (Long Term
Evolution (4G)) which offers much better download speeds and better mobility.
However, the mobile operators cannot migrate to this new technology before getting
returns from the investment in 3G, given the low, and dwindling Average Revenue
per User (ARPU) from data and voice services.
The fast-clockspeed in the technology industry forces many organisations in the ICT
industry to quickly adapt in terms of how they develop, price, distribute, and promote
their products. Failure to do this may result in a company having redundant products
that no longer meet the technological requirements of the consumers. To counter
this, there is a global trend towards outsourcing the research and development
(R&D) portion of the value chain to specialized telecommunications vendors.
1.1.3.1.3 Socio-cultural environment
The need for social substitute goods such as computers and television that allow
people who are alone to feel as if they are not has opened up new markets in the
ICT industry in Zimbabwe. Liquid Telecommunications has tried to capitalise on this
market by providing fiber to the home which will provide a digital home, where voice,
video and internet will be available via one connection at affordable rates. In addition
to this, the changes in the demographic environment have proved beneficial to the
5
ICT industry in Zimbabwe. The major change of interest is the increase in the
literacy rate, where Zimbabwe is ranked number one in Africa. This has led to a
higher appreciation of data communication especially by urban dwellers and has
resulted in Zimbabwe being ranked as the second most cloud-computing-ready
country on the continent (Laverty, 2011). This has resulted in the influx of third
generation (3G) mobile wireless and fibre data networks that are aimed at individual
home users and small offices.
1.1.3.1.4 Economic factors
The Zimbabwean decade of economic stagnation is well documented and did not
spare the telecommunications industry. The period of hyperinflation affected the
capacity of telecommunications players to expand their networks as most of the
equipment required for this expansion is purchased in foreign currency. This was a
scarce commodity during the era. Similarly, the level of disposable income amongst
customers was so low that it adversely impacted on the demand for ICT products.
The situation for ICT companies was also exacerbated by the regulatory authority
which reviewed the prices quarterly while the inflation rate was changing hourly.
When the multicurrency system was incepted, consumers could readily spend on
ICT products and service providers could expand on their capacity. However, even
after dollarization, the cost of money continues to be very expensive in Zimbabwe,
limiting the amount of expansion that service providers can embark on. Currently,
Zimbabwe has no control on interest rates since the reserve bank of Zimbabwe has
no control on the United States dollar, which is the major currency in use. The
liquidity crunch means that lending rates continue to be relatively high (10%-25%),
and mostly on a short term basis. Most of the projects in the telecommunications ar
long term in nature and capital intensive and cannot be funded using short term
borrowing.
6
1.1.3.2 Telecomunications industry anaysis
The competitors in the internet access provision business are TelOne, PowerTel,
Africom, Dandemutande, Telco, Aptics, Acquiva Wireless, Valley Technologies,
Broadlands and Gigatel. These can be divided into two broad categories; those
providing international connectivity, intercity connectivity and last mile solutions and
those that only provide last mile solutions. Of Liquid’s competitors TelOne,
PowerTel, Dandemutande and Africom can be classified in the first category while
the rest are in the last category.
Powertel is Liquid’s biggest competitor in the fibre based products, followed by
Africom. These two also have connections to international fibre links both via
Mozambique. All the other players have no backbone to offer to the market but offer
last mile solutions through wireless connections and copper and fibre. Of these
companies Aptics, Gigatel, Valley and Africom all get their intercity bandwidth (and
Internet bandwidth) from Liquid Telecom. Telco is a licenced Internet Access
Provider (IAP) but does not have intercity fiber links, choosing to concentrate on
metro fiber links. Other competitors are the Internet service providers which until
recently did not require licencing. However, after some disputes between IAPs and
ISPs (for example ZOL and Telecontract), the regulatory body now seeks to define
licencing for the ISPs (www.zimbabwesituation.com, 23 April 2013).
1.1.3.3 Business Outlook
Since the multicurrency regime, and subsequent licencing of many other players in
the field, the industry has been one of the fastest growing sectors in the
Zimbabwean economy. There has been significant investment into new
infrastructure and technology upgrades. For example, before 2009, Powertel had the
largest stretch of fibre backbone (1000km) but this has since changed after Liquid
Telecom laid a total of 4500km of fibre in Zimbabwe. The issuing of new licenses,
coupled with the converging technologies implies that there will be more competitive
rivalry as boundaries between mobile operators for example and internet access
providers becomes blurred. This has been the case as voice operators or even
mobile phone operators have
based products. The average revenue per user (ARPU) continues to dwindle
globally and is expected to continue in this trend as more and more players are
offering more or less similar products. It is such
Telecommunications companies to seek new ways of gaining
advantage.
1.1.3.4 PORTER’S FIVE FORCES ANALYSIS OF THE INDUSTRY
Figure 1-1 PORTER’s FIVE FORCES MODEL.
Adapted from Porter, (1985)
Porter (1985) provided a framework that models an industry as being influenced by
five forces. The five forces analysis will zero in on the internet access providers
7
rivalry as boundaries between mobile operators for example and internet access
providers becomes blurred. This has been the case as voice operators or even
mobile phone operators have begun offering mobile data connectivity as well as fibre
based products. The average revenue per user (ARPU) continues to dwindle
globally and is expected to continue in this trend as more and more players are
offering more or less similar products. It is such trends that put pressure on
Telecommunications companies to seek new ways of gaining
PORTER’S FIVE FORCES ANALYSIS OF THE INDUSTRY
PORTER’s FIVE FORCES MODEL.
from Porter, (1985)
Porter (1985) provided a framework that models an industry as being influenced by
five forces. The five forces analysis will zero in on the internet access providers
rivalry as boundaries between mobile operators for example and internet access
providers becomes blurred. This has been the case as voice operators or even
offering mobile data connectivity as well as fibre
based products. The average revenue per user (ARPU) continues to dwindle
globally and is expected to continue in this trend as more and more players are
trends that put pressure on
Telecommunications companies to seek new ways of gaining competitive
PORTER’S FIVE FORCES ANALYSIS OF THE INDUSTRY
Porter (1985) provided a framework that models an industry as being influenced by
five forces. The five forces analysis will zero in on the internet access providers
8
(IAP) industry within Zimbabwe and not on the telecommunications industry as a
whole. According to POTRAZ, companies in this sector are licenced to “construct,
operate, develop, extend, and maintain a public data and internet access network.
The data and internet backbone that shall comprise of the national data and internet
service, the international data and internet service, the local access data and
internet service, the internet content service as well as Voice over Internet Protocol
(VOIP) services”. The core business of this industry is to provide local, national and
international links between two points, as well as gateways to internet access. The
media for providing data links to customers include optical fibre cable, copper wires,
and radio systems. Optical fibre cable provides the best quality and reliable link with
the highest availability time. The data communications industry is generally
characterised by high competition for the large customers who constitute the bulk of
business for any data services company.
1.1.3.4.1 Rivalry
Rivalry among existing competitors takes the familiar form of jockeying for position;
using tactics like price competition, product introduction, and advertising slugfest.
Data communications industry growth has been on the increase after the
introduction of the multi-currency. Major buyers in the industry are the large
corporate organisations and the competitors in the market jostle for these large
buyers.
The four biggest competitors in this industry are Liquid, Tel One, Africom and
Powertel but the customer base is equally smaller thereby intensifying rivalries
between the few competitors. The fibre based products have high switching costs
due to the substantial initial investment in the civil works to bring fibre to the client’s
premises. The two biggest competitors, Liquid Telecom and Powertel have roughly
similar market shares and strategic stakes are high because the existing service
providers have a potential for great gains by innovatively introducing new value
added services on the network. These potential gains ride on the current service
9
provision performance and this increases the jockeying for market positions among
the players.
High exit barrier exist in the industry and these place a high cost on abandoning the
service. The intensity of rivalry is also manifested by the way competitors’ counter-
respond to any actions by rival firms. Any advert run by a competitor is answered by
a counter advert from the competitor. Market stability and changes in supply and
demand affect rivalry. Demand for communications services is relatively stable (as
opposed to cyclic).
1.1.3.4.2 Threat of New Entrants
There is no serious threat of entry in the industry due to the existing barriers to entry.
Barriers to entry reduce the rate of entry of new firms, thus maintaining a level of
profits for those already in the industry. These include;
Capital requirements: Telecommunications infrastructure is generally expensive to
setup and any aspirant will have to invest equally or surpass them lest the entrant
depend on the existing competitor thereby becoming a buyer of the service.
Product differentiation: In the business of data provisioning, the reliability and
quality of data links is of uttermost importance. Most of the customers like banks are
very sensitive to disruptions. A company seeking to carve a market niche will aim to
differentiate its offered service by providing highly reliable data links which are way
above the market values.
Government Policy: The Zimbabwean government limits entry into the
telecommunications industry through the licence control requirements.
Cost disadvantage independent of size: Most of the industry players enjoy huge
cost advantage stemming from the effects of the learning curve (experience curve),
proprietary technology, assets purchased at pre-inflation prices and favourable
locations.
10
Economies of scale: The most cost efficient level of production is termed minimum
efficient scale (MES). This is the point at which unit cost for production are at a
minimum. In the data communications industry, a certain percentage of the market
(large buyers) is necessary for MES.
1.1.3.4.3 Power of Suppliers
Suppliers can exert bargaining power on participants in an industry by raising prices
or reducing the quality of purchased goods and services. Powerful suppliers can
squeeze profitability out of an industry. The supplier market, which for long was
dominated by two Chinese suppliers, is now flooded by would be suppliers from
around the globe. The buyers (operators) are numerous, Liquid, Powertel, TelOne,
Africom, Net One, Telecel and Econet. The buyers have some power over the
suppliers due to the current Global Economy downturn. The bargaining power of
suppliers is limited as they are desperate to make a sale, yet at the same time
cannot advance long-term repayment solutions. This is where the Chinese suppliers
have an edge as China continues to record surpluses and has backing of an
economically sound government. The intensity of competition among equipment
vendors works out to be good for the operators.
1.1.3.4.4 Power of Buyers
Major buyers of the service are large corporates and ISPs who purchase a sizable
percentage of industry’s product. The high end buyers are by and large insensitive to
price, paying more attention rather to quality. This is particularly so for customers
like banks where there is zero tolerance for errors.
The new individual user market wields no power over the suppliers or operators
because their service expectations can be met and there is no danger of group think.
It is the large buyers mentioned above who have some degree of influence over the
11
suppliers. In the end user market, switching costs are slowly approaching zero, and
hence the bargaining powers are increasing as number of service providers
targeting that market has increased. The buyers cannot integrate backwards due to
the barriers to entry highlighted above which tends to dilute some of the large
buyers’ power.
1.1.3.4.5 Substitute products
By placing a ceiling on the prices a company can charge, substitute products or
services limit the potential of an industry. Substitute products that deserve the most
attention strategically are those that are subject to trends improving their price-
performance trade-off with the industry’s product or are produced by industries
earning high profits. Substitute products include individual point to point radios and
3G mobile data access (from mobile operators) and this has become a real threat to
fibre based products.
1.1.4 Liquid Telecommunications (Pvt) Limited
Liquid Telecom Zimbabwe is a subsidiary of the Liquid Telecom Group of companies
which in turn is owned by the Econet Wireless Global Group. The Liquid Telecom
Group was founded in 2001, then as Econet Carrier Services, with the aim of
providing a complete range of wholesale international carrier services to Econet and
other African operators as well as cost-effectively servicing the needs of African
operators wishing to establish multiple links to the rest of the world via a convenient
central point in Europe. After the installation of a number of submarine cables to
most of the coastal landing points in Africa, Liquid Telecom identified a gap where
most landlocked countries did not have a reliable, sufficiently redudant fibre network
to link them to the undersea cables. This led to the Central Africa Fibre Project
(CAFP), which targeted installation of over 8500km of optic fibre cable in cental and
southern Africa. The project began in Zimbabwe and has ex
Africa and the Democratic Republic of Congo.
1.1.4.1 The Company’s Vision, Mission and Strategic Intent
Liquid Telecommunications is unique in that it has no documented vision or mission.
The company chooses to operate on what can be termed
titled, “Winning the Race”
1.1.4.2 Structure/Organogram
Figure 1-2 Source: Liquid Telecom HR R
1.1.4.3 Liquid Telecom Business Model
A business model is a conceptual tool that
relationships and allows expressing the business logic of a specific firm
(Osterwalder, Pigneur and Tucci, 2005).
Chief Operating Officer
Head FinanceHead Planning and
12
southern Africa. The project began in Zimbabwe and has extended to Zambia, South
Africa and the Democratic Republic of Congo.
The Company’s Vision, Mission and Strategic Intent
Liquid Telecommunications is unique in that it has no documented vision or mission.
The company chooses to operate on what can be termed its strategic intent simply
titled, “Winning the Race”
Structure/Organogram
Source: Liquid Telecom HR R eport (2012).
Liquid Telecom Business Model
A business model is a conceptual tool that contains a set of elements and their
relationships and allows expressing the business logic of a specific firm
(Osterwalder, Pigneur and Tucci, 2005). Slywotzky (1995) terms it business design
Managing Director
Chief technical Officer
Head Planning and
BuildHead Operations and IS Head of Engineering
Head Human
Resources
tended to Zambia, South
The Company’s Vision, Mission and Strategic Intent
Liquid Telecommunications is unique in that it has no documented vision or mission.
its strategic intent simply
contains a set of elements and their
relationships and allows expressing the business logic of a specific firm
Slywotzky (1995) terms it business design
Head of Engineering
Head Human
Head Risk and Audit
13
and posits that it is the totality of how a company selects its customers, defines and
differentiates its offerings, defines the tasks it will perform itself and those it will
outsource, configures its resources, goes to market, creates utility for customers,
and captures profit.A synthesis of literature shows that there are mainly nine building
blocks to help describe a business model.
1.1.4.3.1 Value Proposition
According to Osterwalder & Pigneur (2010), value proposition is part of product
innovation and describes a bundle of products and services that together form a
coherent value proposition. This attribute captures the reasoning on why the firm
thinks its products or services could be valuable to the customer. Liqud Telecom’s
value proposition can be summarized as;
a) Design and Usability
Liquid’s network has been designed to make customer connectivity simple but
easy to use. The use of the Multiprotocol Label Switching (MPLS) technolgy
(a mechanism in high-performance telecommunication networks which directs
and carries data from one network node to the next) makes it easy to create
"virtual links" between customer branches. It gives customers a lot of flexibilty
that they cannot get on other networks.
b) Reliability
The Liquid Multi-Protocol Label Switching (MPLS) network which extends
from Lusaka through Harare to London, rides upon a Synchronous Digital
Hierarchy (SDH) network that is robust and has full redudancy to London. If
one link is disturbed, traffic is automatically rerouted to the backup link without
customers noticing.
c) Superior Performance
14
Liquid is able to offer fast, low latency internet connection to various Internet
exchanges and the rest of the world because it connects directly (peers) with
various internet content providers at the Zimbabwe Internet Exchange (ZINX),
Johannesburg Internet Exchange (JINX) as well as the London Internet
Exchange (LINX). LINX is one of the top three Internet Exchanges in the
world, thus giving customers fast access to international websites..
1.1.4.3.2 Target Customer Segments
The target customers can be divided into three groups, namely the telecom service
providers, corporates and small (consumer) markets. The telecom service providers
are mostly looking for reliable intercity and intracity links to connect the equipment
that they use to offer service back to their control equipment in their data centres.
Others like Internet Service Providers (ISPs) will mostly be focusing on getting
reliable, fast internet at wholesale pricing. The corporates are mostly looking for
reliable unified, interbranch communication, while the consumer market’s focus is
affordable internet products.
1.1.4.3.3 Distribution Channels
Currently, Liquid Telecom has two branches in Zimbabwe, one in Harare and one in
Bulawayo. Service is brought to the customer via a team of Account managers
tasked with bringing awareness of Liquid’s products to the market. Since Liquid
Telecom is selling a service, the most critical factor is to bring the cable within the
customer’s reach. Of late, this has been achieved by an aggressive approach in the
market where civil works are subsidized to expand the fibre footprint. Liquid also
uses its website for customers to order service.
1.1.4.3.4 Customer Relationships
These refer to the types of relationships that the business entertains with each
customer segment (Osterwalder & Pigneur (2010). For Liquid Telecom, each
15
customer is handled by an account manager. The account manager is responsible
for maintaining a relationship with the customer on behalf of the business.
Wholesale accounts are managed by a senior “Key Account Manager” as they are
critical to Liquid telecom’s financial performance. Liquid Telecom also offers
customer support through a 24-hour Network Operations Center (NOC), where
customer problems are usually identified and addressed well before the customer
notices. Any changes on the network that may affect the client are communicated to
the client via a maintenance window application.
1.1.4.3.5 Core Capabilities
From the value proposition description, it is clear that Liquid’s core capabilities
centre on the skills within the organization. Liquid Telecom has managed to attract
most of the good engineers in Zimbabwe and has managed to retain them so far.
Liquid’s global reach has also helped in ensuring that the technical team has
exposure to the latest technologies and practices.
1.1.4.3.6 Configuration of activities (Value Chain)
The value chain is as shown in Figure 1.2 below;
16
Figure 1-3:Liquid Telecom Value Chain
Adapted from International Telecommunications Union (ITU) (2012)
1.1.4.3.7 Partners
Liquid’s partners can be described according to the value chain shown above. In the
research and design, and manufacturing, Liquid depends on the vendors who supply
telecom equipment and these include Huawei, ZTE as well as Cisco. In the Network
Build section, Liquid Telecom depends mostly on contractors who include Sanyathi
Construction, KST construction, Huawei, Eastlight technologies as well as Amazing
Ville technologies. This is the focus of this study as it has implications to the quality
of the network that is produced, service delivery as well as the cost of providing
service.
Also in the build section other Liquid’s partners include the local authorities (for way-
leaves to trench), Generator and back up power solution providers such as Tendo
17
and AC Controls.In the Network and field operations, the partners include Huawei,
Genesis Office systems as well as Frolgate.
1.1.4.3.8 Revenue Streams
Liquid telecom currently offers a number of services that differentiates it from any
other player in the internet access provision sector. The products/services include;
• Managed MPLS Based Virtual Private Networks (VPN) which are divided into
a) Layer 3 VPN services
b) Layer 2 VPN services
c) Layer 2 Virtual Private LAN services (VPLS)
• Fibre Based Internet Access
a) Retail Internet with burst capabilities
b) Wholesale internet (also with burst capability)
The bandwidth links are offered through a combination of an optical Synchronous
Digital Hierarchy (SDH) network and last mile access networks that comprise of fibre
access equipment.The revenue streams are broken down according to the products
and customer segments as below;
1.1.4.3.9 Cost Structure
Liquid’s costs mostly comprise of the costs to build network, to maintain it and to
manage the customer relationship. The pie chart below show Liquid’s cost
distribution as of March 2012.
18
Figure 1-4:Source: Management Accounts Annual Report (2011).)
1.1.4.4 Profitability
An analysis of Liquid Telecom financials shows that the company is operating
profitably. The major concern though is on the cost structure of the organization as
presented in the business model discussion above.
1.1.4.5 SWOT Analysis
The Liquid Telecom Strengths, Weaknesses, Opportunities and Threats are
summarized in Table 1.3 below;
Table 1-2 : Liquid Telecom SWOT
10%
13%
77%
Liquid Telecom Cost Structure
Operatios Other Build
19
STRENGTHS
Strong unique backbone
infrastructure
Highly skilled staff
Permission to use of power line
infrastructure
State of the art technology
Lean focused structure
Deep pockets
Exposure to world class practices
Major
√
√
√
√
√
√
Minor
OPPORTUNITIES
Deregulation of the
telecommunication sector
Low Tele-density
Internet explosion
Increasing bandwidth
requirements
Convergence in ICT industry
Rural electrification
Economic empowerment
High Literacy rate
Government shareholding
Additional licensing
High demand for telecoms
services
Econet’s growing data
subscriber base
Major
√
√
√
√
√
√
√
√
√
Minor
√
THREATS
Harsh economic environment
Country risk perception
Regulatory framework
High input costs
HIV/AIDS pandemic
Brain drain
Technology changes
Major
√
√
√
√
√
Minor
√
WEAKNESSES
High input cost
Expensive last mile solution
High Turnaround time (customer
connection)
Multicultural organisational
clashes
Major
√
√
√
Minor
√
1.1.4.5.1 Strengths
One of the major strengths of Liquid Telecom is the largest stretch of fibre that has
been laid in a very short time to overcome Powertel as the largest fibre network
20
operator in Zimbabwe. Another inherent strength of the organisation is its origins
from Econet which gave it a ready market for the intercity and inter-base station
bandwidth provision. Liquid’s relationship with Econet provides it with a ready market
for backhaul bandwidth as well as international internet and voice traffic. The
company recently struck a deal with ZESA where it will use the power utility’s
infrastructure to quickly roll out a fibre backbone to areas that had not been covered.
This gives the company an edge over competitors because Optical Ground Wire
(OPGW) is both cheaper to string and more reliable (less prone to vandalism).
Liquid’s most noticeable strength is the deep pockets. The company has proven to
be highly liquid in a market that is facing liquidity and funding challenges. This has
allowed the company to overtake incumbent operators in terms of fibre footprint as
well as market share.
1.1.4.5.2 Weaknesses
One of Liquid’s weaknesses has been its relationship with the Ecoweb brand. Most
customers in the market express their reservations whenever they hear of this
relationship. Other weaknesses of the company include:
• The lack of records or documentation. This has resulted in faults taking longer
than expected and this has been slowly eating away on the company’s good
reputation.
• Liquid is a relatively young company, where organizational culture and processes
are still being perfected. This obviously results in poor customer satisfaction in
some cases and frequent restructuring exercises.
• Cultural differences in a multi-cultural, international organization is also another
weakness that sometimes results in poor communication within the company,
information asymmetry and some level of infighting.
21
1.1.4.5.3 Opportunities
Opportunities are many in the Zimbabwean telecommunications industry. The
market is huge with high demand for telecommunications services due to low
teledensity. The changes in the regulatory environment present an opportunity for
Liquid to grow its product portfolio. The increasing shift towards more data, with
machine to machine (m2m) communication increasing, as well as exploding internet
usage in Sub-Saharan Africa presents an opportunity for regional business for the
company. Due to high costs associated with satellite communications, terrestrial
fibre will offer cheaper, reliable and huge bandwidth for interconnection. Similarly
growth in cloud-computing solutions indicates growing bandwidth requirements in
the future, thus presenting more opportunities. The prospect of 4G technologies
(LTE and WIMAX) means that more and more backhaul capacity will be required by
mobile communications companies, representing strong opportunities for Liquid
Telecom.
1.1.4.5.4 Threats
The regulatory authority also presents a threat to the company as this introduces
new dimensions to the competitive environment. The regulator, which came out of
TelOne, and has strong links with the government owned operator has for long been
accused of being partisan in its dealings. For example, although other operators
were not granted authority by Ministry of Transport to trench and lay fibre to Mutare
because Tel One had already done so, the same ministry did not stop Tel One from
trenching to Bulawayo although two other players had already laid fibre to Bulawayo.
The unreliable power network also affects the service quality and this has worked
against the good reputation built by the company.
22
1.1.4.6 Challenges Faced by Liquid Telecommunications
Although Liquid Telecom is currently enjoying phenomenal growth, and is operating
profitably as discussed above, the following challenges have started to affect the
organization;
• Long Customer connection turnaround time – Most customers complain that
once they sign up for service with Liquid Telecom, it takes long to be finally
connected.
• Dwindling Average Revenue per User (ARPU) for data products - The world
over, the internet and data prices are going down, and the same pressures
are evident in the Zimbabwe telecommunications industry.
• Switching Costs are high – costs to lure customers captured by first movers
such as Powertel and Tel One are high in a world where prices for data
products are generally going down. The major challenge is to reduce
operational costs and optimize capital expenditure in order to maintain or
grow profits. Liquid Telecom made a late entry into the fibre based
telecommunications market, and has to win customers that had already been
captured by incumbents.
• Unmet Orders (Poor service delivery timelines) – Liquid Telecom currently
has a backlog to connect over 400 customers who have signed up for service,
some have been on the waiting list for more than three months. Customers
are normally promised connection within six weeks of signing up, but this has
rarely been achieved.
• Stakeholder complaints on the quality of work- Complaints have been
received from some of the stakeholders (such as residents, Ministry of
transport and local authorities (city/town/rural councils)) on the quality of work
done by Liquid Telecommunications. Cases such as when a road is trenched
to lay optic fibre ducts and has had to be reinstated several times after initial
works are not rare.
23
Research Problem
Liquid Telecom made a late entry into the fibre based networks market and as such
most clients had been captured by incumbent operators. The fibre based data
communications products, however have high switching costs and as such, to win
market share, costs have to be kept to a minimum to ensure viability. Additionally,
the Average Revenue per User in the data communications industry is dwindling
globally and hence the need for telecommunications organizations to relook at their
strategies. As evidenced by the cost structure in the Liquid Telecom business model
discussion above, the bulk of Liquid’s costs come from the network build portion of
the value chain. Outsourcing and offshoring, which began as cost-cutting measures
in the developed world, have been proposed as some of the ways companies can
create real sustained value, by gaining capabilities that they don't have in-house,
and strengthening capabilities they do have (Heric and Singh, 2012). Although
outsourcing has been presented as having various benefits, it is not evident if this
has been the case at Liquid Telecom. In pursuit of cost cutting through outsourcing,
the organisation might actually have introduced other variables that have affected
network quality, service delivery and cost of providing service. In a forward looking
organization that is looking to wrest market share from existing players, it is
therefore critical to analyse the benefits accrued from the current outsourcing
approach (if any), assess the competitive gains that it is bringing (if any) and
establish ways of improving gains obtained from the outsourcing model.
Research Objectives
The major objective is to establish the degree to which the current outsourcing
approach has helped in achieving sustainable competitive advantage for Liquid
Telecom Zimbabwe in the period 2009 to 2012. The research seeks to identify the
role played by outsourcing in the growth that has been enjoyed by Liquid Telecom
24
during this period (2009-2012). The research sub-objectives derived from the
research topic and major objective are listed below:
1. To evaluate the impact of outsourcing on Liquid Telecom service delivery in
the period 2009 to 2012.
2. To determine the level of cost reduction achieved by using contractors in
Liquid Telecom.
3. To establish the impact of using contractors on the quality of the Liquid
Telecom Network.
4. To establish the effectiveness and/or maturity of the Liquid Telecom
outsourcing approach with the view of recommending best practices.
Research Questions
The following research questions have been designed to complement research
objectives and form the basis for the questionnaire design:
1.1.5 Overall research question
• Has the current Liquid Telecom outsourcing approach been of strategic
benefit to the organization?
1.1.6 Specific Research Questions
• What has been the impact of Liquid’s outsourcing approach on service
delivery?
• Does Liquid Telecom’s sourcing maturity level match the type of outsourcing
employed by Liquid Telecom?
• Has outsourcing resulted in significant cost reduction?
25
• Has outsourcing resulted in operational efficiency?
• Has the current outsourcing approach improved the quality of work in the
Liquid Telecom Network?
• What are the reasons behind the success or otherwise of Liquid Telecom’s
outsourcing approach?
Research Hypothesis
In this research, the null hypothesis (H0) and the alternative hypothesis (H1) were
formulated as follows;
H0: Liquid Telecom approach to outsourcing has result ed in sustainable
competitive advantage for the organization.
H1: There is no sufficent evidence to show that Liqui d’s approach to
outsourcing has resulted in sustainable competitve advantage for Liquid
Telecom Zimbabwe.
A Z test based on the assumption that the data is normally distributed shall be used
to test the research hypothesis statistically in chapter four.
JUSTIFICATION
There are three major stakeholders in a research process namely, the academia, the
researcher and the organisation under investigation. This section seeks to clearly
outline how these stakeholders benefit from the research process or research output
practically and academically. It is in this section that the capacity of the researcher to
handle the research portfolio shall be demonstrated as part of research justification.
Benefits that are directly related to academia are as follows : Results of this
research are expected to assist new and future researchers by exploiting related
important theoretical constructs. This would assist the academia in building new
bodies of knowledge and add value to the existing corperate strategies for
26
telecommunications organizations. The primary focus in this research is to build on
existing literature on outsourcing by identifying issues specific to Zimbabwean
telecommunications outsourcers and give an academic analysis of outsourcing in
the telecommunication industry.
Importance to the firm and the country (Zimbabwe) a re as follows : The
recommendations, which will be made, based on the research findings are expected
to facilitate the adoption of outsourcing strategies for the 21st century by firms in the
telecommunications sector in Zimbabwe. Liquid Telecom, as relatively new player on
the Zimbabwean market, is aiming to grow the market share. The research will
identify the outsourcing philosophy at liquid Telecom, investigate how this is being
used to enhance the company’s competitiveness, investigate Liquid’s relationship
with contractors as well as assess the contractors’ capabilities with the aim of
providing recommendations on areas of outsourcing that might need to be
addressed within the organisation as a whole. Identifying holes in the outsourcing
model will enhance the efficiency and hence reduce costs in the network build, thus
representing a possible downstream effect in the entire economy.
This research is important to the researcher indivi dually in two ways : Firstly
this falls in the researcher’s scope of professional work and it will enhance and fortify
the researcher’s business understanding and appreciation of the business
operations. Secondly it gives the researcher a sense of self-worth and self-
contentment as a scholar.
SCOPE OF RESEARCH
The primary target for this research is the 85 employees in Liquid Telecom
Zimbabwe. The population will cover both the management and non-managerial
staff. The study has been limited to the period 2009 to 2012, the period in which
Liquid Telecom has been fully operational. The dominant theoretical concepts
27
applied in research are strategic management theories, supply chain management
theories, telecommunications management theories as well as economic theories.
Ethical Issues
Ethical considerations integrated into this research to protect the rights of research
participants are as follows:
1. The principle of voluntary participation was followed: This requires that in this
research people are not coerced into participating. No “captive audiences” were
used in this research. The covering letter accompanied each questionnaire
clarifying all ethical issues.
2. Informed consent concept: The research participants were fully informed about
the procedures, objectives, stakeholders and risks involved in the research.
3. Risk of harm: Closely associated to 2, care was taken not to expose the
participants to harm which may be physical or psychological as a result of their
participation.
4. Principle of privacy: This was observed in two dimensions;
(i) Confidentiality: respondents were assured that identified information
was not going to be made available to anyone not directly involved in
the research.
(ii) Anonymity: All participants were assured of anonymity throughout the
study.
ASSUMPTIONS OF THE STUDY
The study assumes that:
28
• Respondents are going to be co-operative and sincere in
responding to the needs and requirements of the study.
• No changes will be made to the current outsourcing practices
at Liquid Telecom until the end of study.
• The tools and instruments used were valid and reliable.
• The sample is representative of the population
Dissertation Structure
This research document comprises of five chapters whose composition is as follows:
Chapter 1: Gives an overview of the research by providing an introduction,
background material and justifications for carrying out this research;
Chapter 2: Explores literature that is relevant to this study and the theoretical
framework within which this study will be carried;
Chapter 3: Describes the research methodology used in the study. The philosophies
used will be discussed in detail as well as the information on the data collection
methods. The chapter also tackles data presentation and analysis tools used in the
study;
Chapter 4: Analyses the results obtained from the study in detail and discusses
their significance in relation to other research findings;
Chapter 5: Gives a conclusion on the research finding. Recommendations are given
based on the finding. Areas of possible future researches are also outlined.
29
Chapter Summary
This chapter has introduced the study and explored the background to the problem
as well as the objectives of the study. The research questions, which derive from the
research objectives were also listed. The chapter discussed the problem statement,
leading to the justification of the study. These discussions form the basis of the next
chapter which reviews existing literature on the subject under investigation.
30
CHAPTER 2 LITERATURE REVIEW
Introduction
This section seeks to demystify the pivotal technical issues in outsourcing
associated with this research and present an awareness of the relevant concepts.
The section explores and reviews literature on the strategic importance of
outsourcing in the telecommunications industry. This entails a review of the
theoretical and empirical literature that specifically underpins the study in line with
the research objectives with a view to identifying any gaps in literature. The section
will assess the context in which outsourcing is being discussed and identify key
elements of the concept, and its linkage to an organization’s competitive advantage.
An examination of the case for outsourcing in the telecommunications industry will
be made. Contributions and arguments from other researchers will be explored and
summarised.
The Outsourcing concept
2.1.1 Definitions of outsourcing
A plethora of literature on outsourcing exists, and most authors seem to agree that
outsourcing is one of the most important management practices in the 21st century
and that the practice is on the increase. Whereas Greaver (1999) defines
outsourcing as the act of transferring some of an organization's recurring internal
activities and decision rights to outside providers, as set forth in a contract,
Domberger (1998) defines it as the transfer of the production of goods and services
that have been carried out internally to an external provider. Of note in Domberger’s
definition is that it excludes any goods and services that have not been produced
internally. Brown and Wilson (2005) on the other hand define outsourcing as the act
of obtaining services from an external source. Linder (2004) provides a broader
31
dimension of outsourcing by defining it as the purchasing of ongoing services from
an outside company that a company currently provides, or most organizations
normally provide, for themselves. Lei and Hitt (1995) broaden it further by stating
that outsourcing is the reliance on external sources for the manufacturing of
components and other value-adding activities. McIvor (2003) argues that the term
outsourcing can cover many areas, including the outsourcing of manufacturing as
well as services. For the purposes of this research, a combination of the last two
definitions will be used to define outsourcing as the reliance on external sources for
ongoing services and other value-adding activities that a company currently
provides, or most organizations normally provide, for themselves. The opposite of
outsourcing could be defined as vertical integration or insourcing which entails the
production of goods or services within the firm.
Other terms similar to outsourcing are contracting, contracting out (Domberger,
1998) and farming out (Doig, Ritter, Speckhals and Woolson, 2001). Friedman
(2006) uses the term “out-tasking” to refer to hiring an external provider on a limited
basis for a particular project. In this research out-tasking is treated as another form
of outsourcing. The difference between outsourcing and out-tasking is that
outsourcing is long term in nature (and hence strategic), whereas out-tasking may
be a one-time deal. However, when discussed in terms of outsourcing, out-tasking is
simply another type of outsourcing, which is tactical in nature rather than strategic.
2.1.2 The Theories behind outsourcing
The conceptual basis for outsourcing can be traced from Williamson’s (1975)
transaction cost analysis theory, which is essentially a combination of economic
theory and management theory used to determine the optimal relationships an
organization should develop in the marketplace (McIvor, 2005). The driving principle
in transaction cost theory is “achieving efficiency depends on balancing the risks and
benefits” (Lee, Huynh, Kwok & Pi, 2003 p.95). Williamson (1985) concludes that the
32
organization should consider outsourcing those activities that would require
excessive investment to get lower unit cost when produced internally. Modern day
outsourcing can aslo be traced to the work of Porter (1985) who suggested that firms
should manage their resources by optimizing transaction cost involved in
outsourcing. From the evidence above, it is can be concluded that outsourcing exists
to create value (Samuel, 2004)
Outsourcing can be directly linked to the Core Competence theory, Resource-based
theory, Transaction cost theory, Network theory, Contractual Theory, and
Contingency theory.
2.1.2.1 Core Competence theory
Hamel and Prahalad (1994, p.4) define core competencies as “the collective skills
and learning inside an organization that create competitive advantage.” However,
there seems to be disagreement amongst many scholars as to what really
constitutes a core competence. Quinn and Hilmer (1994) contend that core
competencies are neither products nor those things an organization does well, but
are in fact those things that the company is very good at, especially those that
require mental reasoning. Alvarenga and Manmiera (n.d., p.6) on the other hand
observe that some executives think of their companies’ core competencies as the
things we need to get right, others describe them as “the things we do best” and
some executives define a core competency as “the basic skills required to compete
in our industry” while, interestingly, some leaders simply ignore the concept
altogether. However, other authors argue that the simple dichotomy core — non-
core is weak in that there are several circumstances when outsourcing of core
competencies can be very beneficial (Baden-Fuller, Targett, & Hunt, 2000). The
difference between core and non-core arguably builds on a static view of the world,
where “managers can place big bets about their markets, future technologies, and
33
suppliers’ capabilities and motives with a great deal of certainty. The real world is
however too turbulent, too unpredictable and complex” (Lacity & Willcocks, 1995).
McIvor (2003) found it very difficult to distinguish the core in practice from the non-
core.
2.1.2.2 Resource-Based Theory
This theory views organisations as a collection of productive resources and
considers company resources, whether physical or not, as a source of competitive
advantage. It is premised on the assumption that organisations gain competitive
advantage by their internal resources. According to Barney (1991), the Resource
Based View (RBV) can be seen as a substitute of Porter’s (1985) five forces model
in analysing sources of competitive advantage. A company should be able to
leverage on its resources to differentiate itself from competitors. Outsourcing brings
another perspective where, if a company does not have sufficient physical and/or
intangible assets, it uses outside resources for competitive advantage. Thus a firm
can co-operate with partners, so that the firm’s knowledge is enriched by the
partners’ knowledge and capability (Barney, 1991) to create sustained competitive
advantage. As such, a firm with strategic outsourcing capability is likely to achieve
success by leveraging on partners' capabilities and competencies (Khwanruedee et
al., 2010).
2.1.2.3 Transaction Cost Theory
According to Williamson (1981, p.552), a transaction cost occurs “when a good or a
service is transferred across a technologically separable interface”. The theory is a
framework for analysing the “comparative costs of planning, adapting, and
monitoring task completion under alternative governance structures” (Williamson
34
1985, p. 2). Henisz and Williamson (1999) argue that transaction cost economics is
a relative legal advancement to economic organization where the focus is on
information of transaction and governance activities. According to Logan (2000) the
theory helps companies to identify non-core activities that could be outsourced.
2.1.2.4 Network Theory and Agglomeration
According to the Industrial Network Theory, any market can be described as a kind
of macro network (Axelsson and Easton 1992). A business network may be defined
as a set of connected exchange relationships between firms (Forsgren and
Johanson, 1992). The Network theory explains how firms' cooperation can be
affected by viewing business as a network of relationships among communities or
industry and among organizations or firms (Wilkinson and Young, 2002). The
business network view seems to suggest that a company cannot develop strategic
outsourcing and implement it in isolation, without a strong understanding of the
embeddedness of individual relationships within wider networks (Gadde and
Håkansson, 2001).Therefore, firms with strategic relationships gain competitive
advantage, due to access to information and opportunities, over those firms that do
not have.
Closely linked to the network theory is the concept of Spatial Agglomeration ,
Spatial Agglomeration could be defined as the location of firms within a dense
industrial area, increasing the probability of finding specialised suppliers (Antonietti &
Cainelli, 2009) According to Quigley (2004), the concept of agglomeration, (which is
not new but appeared in writings as old as 1849), is closely linked to the network
theory. Hawkins (2011) notes that there are 3 main drivers of agglomeration
economies;
• Externalities arising from the presence of a large number of firms in the same
industry in a specific location
35
• Externalities arising from the presence of a large number of closely related
industries, including suppliers and buyers, in a specific location, and
• Those that arise from the presence of a large number of firmsin unrelated
industries in the same location.
Additionally, the sources of agglomeration economies and their relative importance
differ with the degree of sophistication of the product manufactured. Adretech (2003)
observe that the influence of agglomeration externalities on a firm’s profits depends
on the efficiency benefits it derives from collocating and on the contributions it
makes to its competitors’, suppliers’ and buyers’ production processes.
2.1.2.5 Contractual Theory
Gurbaxani (2007) defines an outsourcing arrangement as a long-term contractual
arrangement in which one or more service providers are assigned the responsibility
of managing all or part of a client’s infrastructure and operations. Solli-Saether and
Petter (2009) observe that the outsourcing contract provides a legal framework that
binds the right, roles and responsibilities of the parties in the contract and the
inherent goals, policies and strategies of the arrangement. The contractual theory is
the basis upon which the outsourcing relationship is based and is usually
accompanied by Service Level Agreements which clearly spell out the
responsibilities and benchmarks for performance measurement.
2.1.3 Types of outsourcing
A search of the Emerald research database with the key word outsourcing, (as at
February 26, 2012) yields 6281 journals and 466 books. It is therefore clear that the
topic of outsourcing is by no means a new area. As such, a number of classifications
36
of outsourcing exist, and those that are relevant to this research will be reviewed
here.
Hillary (2005) identifies three high level “flavours” of strategic outsourcing, namely;
2.1.3.1 Tactical Outsourcing
Tactical outsourcing is the practice of outsourcing a very specific problem or task
which is usually applied where in-house resources cannot immediately deliver what
is required. It can be mixed with in-house services creating a blend of in-house and
outsourced services and is thus essentially a short-term approach.
2.1.3.2 Strategic Outsourcing
In strategic outsourcing, the overall corporate 'big picture' has to be considered,
rather than individual projects or required skill-sets. As the cut-throat global
competition increases, the scope of outsourcing and managed services changes
from the traditional concept to strategy (Quinn & Hilmer, 1994). According to
(Mazzawi, 2002) strategic outsourcing is concerned with creating value to align the
business processes with the strategic goals. In this case the organization ceases to
focus on whether to outsource or not and begins to consider what it does best and
how. Strategic outsourcing can be an opportunity for the senior management of a
company to do some serious re-engineering on the products and services offered.
According to Hillary (2004), Haveckin (2012), the main reasons for choosing a
strategic outsourcing solution are:
• To provide access to the best resources in the business by ensuring
that only leading experts work on your projects.
37
• Internal resources can be freed from non-core activities and allowed to
focus on revenue generation.
• It allows the business to focus on its core competencies rather than
reinventing the wheel.
• It allows the company to save costs
• As a response to industry competitive forces
• To provide staff versatility
• To introduce new technology and,
• To gain competitive advantage.
2.1.3.3 Transformational Outsourcing
This goes beyond strategic considerations and works on the basis of how the
business might be run if there was an opportunity to start over again. This complete
business redesign would use outsourcing as a strategic tool to ensure that the
benefits of strategic outsourcing are achieved as a new way of doing business is
created. This is a complete corporate overhaul and has far-reaching long-term
consequences.
According to Gilley, McGee, & Rasheed (2000) there are two broad types of
outsourcing which are discussed below;
2.1.3.4 Substitution
This is outsourcing that arises from the substitution of internal activities by external
purchases. In this case, an internal supplier is discontinued in preference of an
external supplier and may be viewed as vertical disintegration.
38
2.1.3.5 Abstention
This type of outsourcing is not limited to activities shifted to external suppliers, but
may also arise when a firm purchases goods or services not provided in-house
previously. Abstention-based outsourcing differs from basic procurement because
provision of the good or service outsourced is within the acquiring firm’s managerial
capacity.
Gewald and Rouse (2012) on the other hand identify two major classes of
outsourcing as;
2.1.3.6 Information Technology outsourcing (ITO)
IT outsourcing, is contracting for delivery of IT services and/or equipment by an
external party. Closely linked to IT outsourcing is the concept of Cloud Computing.
• Cloud Computing: In essence, cloud computing is a new way of delivering
and using IT services “on demand” and in a manner in which the services are
flexible, scalable and cost effective (Borts, 2012). It allows users to access
and store information and use software functionality on remote servers owned
and/or operated by third parties as and when they are needed. Some of the
benefits of such an outsourced service include;
Cost saving: allows organisation to easily respond to fluctuations in
demand
Capex reduced : no longer extensive expenditure on IT infrastructure
(people, software, hardware)
Ease of integration and use: can access services/data/files anytime
and from anywhere
39
2.1.3.7 Business Process outsourcing (BPO)
They define Business process outsourcing as outsourcing one or more specific
business processes together with the IT that supports them, where business process
is defined as a set of logically related tasks performed to achieve a defined business
outcome.
Since the focus of this research is competitiveness, which is strategic in nature, the
classification by Hilary (2000) will be adopted. However, the classification by Gilley,
et al., (2000) will also be used in order to provide the broad picture where
outsourcing is not limited to activities that are transferred to external suppliers, but
also include those not provided in-house previously.
2.1.4 Benefits of Outsourcing
Cost-cutting is often cited as the major advantage of outsourcing, though it can
sometimes lead to disappointment, since outsourcing does not always produce a
cost benefit (Lankford and Parsa, 1999). They further argue that outsourcing works
best when it is an outgrowth of reengineering. A much better reason is the
specialized knowledge that the contractor can provide (Davies, 1995). Domberger
(1998) and Hendry (1995) identified five advantages of outsourcing: namely; lower
production costs, strategic focus, cost avoidance, relational rents and flexibility.
Admittedly, outsourcing has a number of benefits which include enabling a company
to redirect energy to its core competencies by making more efficient use of
worldwide labour, capital and technology for non-core work, and allowing for the
purchase of intellectual capital that would not otherwise be available. Gerwald and
Rouse (2000) observe that, although there is a lot of literature that examines the
benefits and risks of outsourcing, the majority of research was published on the
benefits of outsourcing, and this may be due to the fact that the primary research
40
objects – managers responsible for outsourcing – are much more focused on the
benefits than the risks of outsourcing. This is turn may explain the seemingly
increasing advantages of outsourcing that are being discovered in literature. The
table below, summarises this trend.
Table 2-1Benefits of Outsourcing
Burkholder(2006) Outsourcing Institute
(1998)
Elliot and
Terke(1996)
Ciandella (1996) Carter (1995)
Acceleration of reengineering
benefits
Focus on core
Business
Focus on core
Business
Focus on core
business
Focus on
core
Business
Access to world-class
capabilities
Access to leading
practices/
technology
Access to leading
practices/
technology
Access to
leading
practices/
technology
Access to
leading
practices/
technology
Cash infusion Flexibility Flexibility Lack of internal
resources
Reduce costs
Freeing up resources for other
purposes
Reduce costs New skills/culture Flexibility
Function difficult to manage or
out of control
Lack of internal
Resources
Customer/supplier
orientation
Improved company focus
Free internal
Resources
Reduce costs
Reducing operating costs
Function out of
Control
Reducing risk Access capital
Resources not available
internally
Share risks
41
Adapted from McDonagh and Hayward, (2000)
2.1.5 Disadvantages and/or risks of outsourcing
Academic work has been done to identify the drawbacks of outsourcing and the
ones that stand out include hollowing out, opportunistic behaviour, transaction costs,
reduced learning and innovation (Domberger, 1998; Hendry, 1995). McDonagh and
Hayward (2000) identify the most common problem areas reported in academic
studies as
• Outsourced workers less in tune with organisational needs or culture
• A time-consuming bid or management process;
• Failure by service providers to deliver promised service;
• Slower response times;
• Lack of control; and
• Poor communication.
As enterprises continue to adopt varying operating models for outsourcing
agreements, Pai & Basu (2007) assert that they must evaluate and weigh the
importance of four key factors:
• cost savings;
• service quality/delivery;
• level of control/governance; and
• risk tolerance
These provide a key measure of the benefits outsourcing. These measures will also
be adopted in measuring the success of Liquid Telecom outsourcing.
42
Trends in the telecommunications industry
Unlike general outsourcing, there has not been much academic work done on
outsourcing in the telecommunications industry. In fact most of the work in this field
has either been done on, or by, original equipment manufacturers (OEMs) (for
example, McIvor, 2000). Such studies have two limitations in relation to the focus of
this research. Firstly, studies by telecommunications equipment vendors are likely to
be biased and present outsourcing as a competitive advantage as the vendors seek
to forward integrate by providing managed services to telecommunications service
providers. Secondly, the value chain of the vendors is essentially different from that
of service providers, thus studies on these organizations cannot be extrapolated to
telecommunications service providers. Most of the other studies on outsourcing have
focused on IT outsourcing, which is also essentially different from the outsourcing in
telecommunications organizations. As such, most of the available documentation on
outsourcing by telecommunications service providers is by telecommunications
research organizations, International Telecommunications Union (ITU) publications
and by individual industry commentators. This lack of academic research on the
subject of outsourcing in telecommunications service providers forms the basic
motivating factor for embarking on this research work.
According to a Technology Forecasters Inc.'s (www.tfi.com, 27/04/2012) consultant
“countries including Japan, Finland, and Sweden are looking at 100 percent
penetration in cell phone ownership”. Given this high penetration rate and advancing
technology, outsourcing is a necessity." Another management consulting firm,
Authur D Little, claims that outsourcing and infrastructure sharing can increase the
telecommunications carrier’s operating free cash flow by up to 10 %
(www.adlittle.com, 27/04/2012). In 2004, an American research company, Booz&Co
in a research on the outsourcing trends in North America, found out that more than
75% of the telecommunications industry executives consider outsourcing as a key
business lever that allows their business to better respond to market challenges
(Jaruzelski, Katz, Ribeiro, & Bordia,2004). The same research concluded that, the
number one reason telecommunications Service Providers give for outsourcing is
43
Operational expenditure (OPEX) reduction and Capital Expenditure (CAPEX) opti-
mization.Most of the industry experts, and vendor presentations, site the pace of
technology change as the greatest influence for the trend toward more outsourcing
and managed services for operators.
Outsourcing options in telecommunications
Within the Telecommunications industry, there are a number of options for
outsourcing, where the operators can decide to outsource a part or the whole
process. The options can be listed as;
• Staff Augmentation
• Out-Tasking
• Project Based Outsourcing
• Managed Services
2.1.6 Staff Augmentation Model
Staff Augmentation is whereby a company takes on contract employees to meet
temporary or short term increase in demand for their products or services (Tapscot &
Ticoll, 2003). The challenge with such an approach is on how quickly the temporary
workers can understand a company’s processes, strategy, culture and policies as
such an understanding is a crucial variable in employee productivity. In this model,
the contract workers can be supplied by an outsourcing vendor, but the vendor does
not take full accountability.
44
2.1.7 Out-Tasking Model
According to Chambers (2003), out-tasking is a modified version of outsourcing
where the client maintains control over the strategy and implementation, and their
out-tasking partner executes on it. The observation in this model is that the vendors
are responsible for specific functions in the company while the client controls and
manages all internal activities. In such an arrangement the service providers do not
have ownership of any project as they only perform certain tasks from the project
and are responsible for their activities. Crucially, the out-taskingclient remains
completely in control of the overall strategic systems architecture andthe data
architecture.
2.1.8 Project Based Outsourcing
Project-based outsourcing is whereby the outsourcing service provider is given
responsibility for a project. A popular example of this model in the
Telecommunications industry are the turn-key projects that are normally carried out
by Telecommunications Equipment Vendors. In this type of setup, the client hands
over overall project control and management to the vendor, but constantly monitors
progress against specific deliverables and benchmarks.
2.1.9 Managed services Model
According to an Erricsson white paper, the managed services model “typically
include establishing, operating and managing day-to-day operations of a telecom
operator’s network, services and business support systems (www.erricsson.com, 27
April 2012). The term also covers the case where a provider takes responsibility for
providing the required network capacity to an operator, when and where needed, as
well as hosting of content, applications and enablers.” Manish and Rohini (2007), on
45
the other hand define managed service model as one in which the service provider
has complete ownership for the delivery of services. The service provider
responsibilities include design, building, operating and improving processes,
applications, and infrastructure.
Of these models out-tasking, staff augmentation and project-based outsourcing are
the most widely used in Zimbabwe. Although Managed services model is on the
increase globally, no telecom company in Zimbabwe has embraced this model yet.
2.1.10 Selecting Appropriate Sourcing Model
According to Manish & Rohini (2007), the appropriate sourcing model for an
organization is determined by its existing sourcing maturity level and its willingness
to improve on it. He further argues that there is no one perfect sourcing maturity
level, it depends on the business dynamics and strategic thrust of the organization
as far as sourcing is concerned. Critical to the success of any model adopted is the
willingness of the organization to actually support the partnership structures required
at a given level of outsourcing. The two propose a sourcing maturity model that
organizations can use to evaluate their readiness to use a given sourcing model.
46
Table 2-2:Sourcing Maturity Model.
Sourcing
Considerations
Goals
SOURCING MATURITY LEVEL
Low Medium High
Short to Medium term
tactical focus
Long-term thinking in
some selected areas
Comprehensive,
enterprise-wide focus on
long term goals
Return Prospects Immediate-short-term
gain
Willing to accept a
model that requires
initial investment with
returns over a longer
horizon
Balanced portfolio
approach with mix of
short-term initiatives
yielding immediate returns
and long-term initiatives
requiring initial investment
Impact Localized to individual
groups or projects
Starting to realize some
benefits
Impact at business unit
level
Pockets of excellence
beginning to emerge
Organization-wide impact
Global sourcing
incorporated into
company’s business
model, leading to
enterprise-wide
transformation.
Awareness Low levels of
awareness, mostly in
Growing awareness
across divisional
Significance of Global
Delivery Model well
47
“silos” that are “testing
the waters” on
offshoring
boundaries
Knowledge being
managed, organization
is learning valuable
lessons from previous
experience.
understood across the
organization
Organization develops
sourcing expertise, and is
able to adapt sourcing
strategy to various
situations.
Source: Manish & Rohini, ( 2007).
It is thus clear that organizations that can take the strategic, enterprise wide
approach to outsourcing are those that are highly mature in their sourcing models.
An organization that has low sourcing maturity has limited options in their sourcing
models and thus it is critical for management to assess current sourcing maturity
level and take a strategic decision to move up the sourcing maturity curve in order to
derive more benefits from outsourcing. The diagram below summarizes this model.
Figure 2-1:Sourcing Maturity Model
Source: Manish & Rohini, (2007)
48
2.1.11 The concept of relationships in outsourcing
Closely linked to the sourcing maturity analysis model by Manish and Rohini (2007)
is the concept of relationships. This is closely linked to the Network Theory
discusssed in section 2.1.2.4 above. Various researchers have added additional
dimensions to include a ‘relationship’ which is based on trust, commitment, culture,
interdependence and communication (Goles & Chin, 2005).
These key terms are defined as follows:
• trust: exchange relationships among participants;
• commitment: keep promises and perform as per specified agreements;
• culture: vendor and company communicate well and understand business
rules and etiquette;
• interdependence: balanced interdependence between entities in the service
partnership;
• communication: quality, accuracy, timeliness and credibility (Haveckin,
2012)
These “relationship” measures are key to the success of any outsourcing
arrangement.
Haveckin (2012) further proposes the linkage map below to explain the key issues in
outsourcing. Although the map was used in the analysis of IT outsourcing, the
concepts that are pertinent to telecommunications organizations, which will be
analysed among others include;
1) Benefits
Competitve Advantage and Bottom line costs
2) Drivers
49
Competitve advantage, Profits, Globalization, Technology and Versatility
3) Success Factors
Management support, User/provider relationship and internal controls.
4) Major Reasons
Cost control, increased service levels, Access to technical expertise and
freeing up internal resources.
50
Figure 2-2:Linkage Map for Outsourcing.
Source: Haveckin, (2012).
2.1.12 Telecommunications value chain dynamics
Value chain analysis views the organisation as a sequential process of value
creating activities (Dess and Lumpkin, 2002). Porter (1985) argues that competitive
51
advantage cannot be understood by looking at a firm as a whole. He further argues
that competitive advantage stems from many discrete activities a firm performs in
designing, producing, marketing, delivering and supporting its products. Each of
these activities can contribute to a firm’s relative cost position and create a basis for
differentiation. The value chain disaggregates a firm into its strategically relevant
activities in order to understand the behaviour of costs and the existing and potential
sources of differentiation.
Figure 2-3:The Firm’s value chain.
Source: Turban,McLean& Wetherbe,(2004).)
The goal of these activities is to offer customers a level of value that exceeds the
cost of the activities thereby resulting in a profit margin. The value chain enables a
firm to implement a generic strategy of their choice by monitoring closely the value
activities.
The telecommunications industry value chain is one characterised by an array of
competitive dynamics, rapid innovation, and continuous re-alignment. In analysing
52
outsourcing in the telecommunications, it is crucial to look at the fundamental
principles of value chain analysis and the value it adds to assessing relationships. All
the activities that form the telecommunications value chain have the potential of
being outsourced. However, which activities are outsourced in a
Telecommunications environment will depend on the position of the organization on
the sourcing maturity curve (Manish and Rohini, 2007)
2.1.13 Telecommunications Business Processes (eTOM Model)
As discussed in section 2.1.5 (drawbacks of outsourcing) one of the major problems
of outcourcing is that the outsourced workers are less in tune with organisational
needs, culture and processes. In the telecommunications industry however, there is
a model (the Enhanced Telecommunications Operations Map (eToM)) which is a
Business Process Framework that describes and analyses different levels of
enterprise processes according to their significance and priority for the service
provider business (eToM, Release 8.0, 2008). The enhanced Telecom Operations
Map (eTOM) is a guidebook built on TeleManagement Forum’s Telecom Operations
Map (TOM) and is currently one of the most widely used and accepted standards for
business processes in the telecommunications industry. The framework is defined
as generically as possible so that it remains organization-, technology-, and service-
independent. The Business Process Framework serves as the blueprint for
telecommunications service provider process direction, and provides a neutral
reference point for;
• internal process reengineering needs,
• partnerships, alliances, and
• general working agreements with other companies.
The eTOM model attempts to describe the whole scope of business processes key
to a telecom service provider and defines critical elements and how they interact
53
with each other.Such a framework will therefore be useful in analysing the
relationship between Liquid Telecommunications and its outsourcing patners.
1.5.1 Enhanced Telecommunications Operations Map Brief
Background
The Business Process Framework is an ongoing initiative of the TeleManagement
Forum (TM Forum) and can be viewed as having the following three major process
areas:
• Strategy, Infrastructure, and Product (SIP) covering planning and lifecycle
management
• Operations covering the core of day-to-day operational management
• Enterprise Management covering corporate or business support management
54
Figure 2-4: eTOM Level 0 Model.
Source: TMForum, (2008)
CompetitiveAdvantage
A competitive advantage exists when the firm is able to deliver the same benefits as
a competitor but at a lower cost or delivering benefits that exceed those of
55
competing products (Porter, 1985). Barney (1991) says competitive advantage is
attained when a firm is implementing a value creating strategy not simultaneously
being implemented by any current or potential competitors. He differentiates this
from sustained competitive advantage by defining sustained competitive advantage
as implementing a value creating strategy not simultaneously being implemented by
any current or potential competitors and when those other firms are unable to
duplicate the benefits of this strategy. A competitive advantage is only sustained if it
continues to exist after efforts to duplicate that advantage have ceased; sustained
competitive advantage is an equilibrium position (Barney, 1991). A firm enjoying
sustained competitive advantage may experience major shifts in the structure of the
competition and may see its competitive advantage nullified by such changes. He
further argues that, a sustained competitive advantage is not nullifies through
competing firms duplicating the benefits of that competitive advantage. There are
two major views of competitive advantage:
1. The Position or Environmental model
2. The Resource Based View
2.1.14 The Position/Environmental View
This view is mainly based on models put forward by Michael Porter (1980): the value
chain analysis and the generic strategies. The strategies focus on advantages
derived from industry and competitive positioning.
2.1.14.1 Generic Strategies
Michael Porter presented three generic strategies that a firm can use to overcome
the five forces in a competitive environment and achieve competitive advantage. The
generic strategies are “approaches to outperforming competitors in an industry”
(Porter, 1980 p. 35)
1. Overall Cost Leadership
Using this strategy, a firm aims at creating a low-cost-position relative to their peers
(Dess and Lumpkin, 2002).With such a strategy, a firm must manage the
56
relationships throughout the entire value chain and be devoted to lowering costs
throughout the chain.
2. Differentiation
This strategy requires the creation of products and services that are viewed industry
wide as unique (Porter, 1980) and valued. The emphasis is on “non price” attributes
for which customers will gladly pay a premium (Dess and Lumpkin, 2002). It should
however be noted that differentiation strategy does not allow the firm to ignore costs,
but rather they are not the primary strategic target (Porter, 1980 p. 37)
3. Focus
A firm must direct its attention towards narrow product lines, buyer groups or target
geographic markets. The entire focus strategy is built around serving a particular
target very well, and each functional policy is developed with this in mind (Porter,
1980 p. 38).The strategy rests on the premise that the firm is thus able to serve its
narrow strategic target more effectively or efficiently than competitors who are
competing more broadly
The notion underlying the concept of generic strategies is that competitive
advantage is at the heart of any strategy, and achieving competitive advantage
requires a firm to make a choice - about the type of competitive advantage it seeks
to attain and the scope within which it will attain it (Porter, 1985 p.12)
Porter (1980 p. 40) cites two major risks in pursuing the generic strategies in
general:
• Failing to attain or sustain the generic strategy;
• The value of the strategic advantage provided by the strategy being eroded
by industry revolution.
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Conceptual Framework
Outsourcing for competitive advantage in the telecommunications industry in
Zimbabwe can best be analysed by using the outsourcing linkage map adopted from
the one proposed by Havenick, (2012). Although Havenick’s map was drawn up for
analysing IT outsourcing in Australia, the issues pertinent to telecommunications
organizations in Zimbabwe were adopted and used in the study.
Issues tackled and discussed in the study were therefore derived from the objectives
and from the map as follows;
Figure 2-5: Linkage Map for Outsourcing.
Adapted From: Haveckin, (2012).
58
ChapterSummary
The chapter looked that the outsourcing concepts and the theory behind outsourcing
as given by theorists. It was established that although there is not much literature on
outsourcing by Telecommunications companies in Zimbabwe, the concepts used in
analysing outsourcing in other industries and in other nations could be used in
Zimbabwe with some level of conceptualization. The next chapter looks at the
methodology that was used to carry out the research study.
59
CHAPTER 3 RESEARCH METHODOLOGY
Introduction
This chapter looks at the research methodology employed in the study. Dawson
(2002) defines the research methodology as the philosophy or general principle
which will guide the research. It is the overall approach to studying the topic under
investigation and includes issues to be tackled such as the constraints, dilemmas
and ethical choices within your research. The research methodology provides the
rationale for the particular methods utilized in investigating outsourcing at Liquid
Telecom Zimbabwe. Methodology is the bridge that brings theory and method,
perspective and tool together (Hesse-Biber & Leavy, 2006 p 36-40). Dawson (2002)
distinguishes the methodology from the research methods by defining the research
methods as the tools used for gathering data such as questionnaires or interviews.
The research methodology adopted has arisen because the researcher wants to
solve the problems as stated in Chapter 1.
Research Design
Cooper& Schindler, (2003) argues that research methodology involves the
systematic procedures by which the researcher starts from the initial identification of
the problem to its final conclusions. Buckingham & Saunders (2004), go on to say
that the role of the methodology is to carry out the research work in a scientific valid
manner.
60
Research philosophy
All research is based on assumptions about how the world is perceived and how we
can best come to understand it. These assumptions form the basis of different
research philosophies. Research philosophy can be divided into two: epistemology
and methodology. Epistemology involves the philosophy of how we come to know
and methodology involves the practice of knowing. In choosing research philosophy
the researcher took into consideration the following philosophies:
3.1.1 Phenomenology
Hussey and Hussey (1997 p. 53) define phenomenology as being, “concerned with
understanding human behaviour from the participant’s own frame of reference…” It
has been established that phenomenological approach includes considerations of
multiple realities, different actors’ perspectives, and the contextual interpretation of
data (ibid). Phenomenology analyses phenomena (that which appears), as they are
perceived from a first person perspective in the natural attitude. According to
Saunders et al (2000 p. 86), phenomenology facilitates understanding of how and
why and enables the researcher to be alive to changes that occur during the
research. Phenomenology is not only a philosophy, but also a research method for
capturing the lived experiences of individuals. For the phenomenologist there is no
“one reality” to how each of these events is experienced; experience is perceived
along a variety of dimensions (Hesse-Biber and Leavy 2006 p. 36-40)).
3.1.2 Interpretivism
This is a phenomenological approach based on the argument that “…the social
world of business and management is far too complex to lend itself to theorising by
definite ‘laws’ in the same way as the physical sciences” (Saunders et al, 2000 p
102). Saunders et al further argue that this is a result of the complexity and
uniqueness of business situations. Interpretivism is often associated with
constructionism or social constructionism. This is a view that reality is socially
construed. The insights generated are not seen as being universally applicable but
of use to individuals in a similar situation (Bhattacharjee and Paul, 2002). Each
61
situation is viewed as essentially unique, but having subjectively-interpreted
elements in common with other situations.
The interpretive approach was selected as the most appropriate philosophy for the
research as the research sought to establish some fundamental truth about a
situation as viewed by those concerned in the organisation under investigation.
However to some extent triangulation of philosophies was used to draw from the
positivist view.
3.1.3 Positivism
Polit and Hungler as cited in Shepard et al, (1993) define positivism as the process
whereby evidence rooted in objective reality and gathered directly or indirectly
through the human senses is used as a basis for generating knowledge. Hussey and
Hussey (1997 p. 52) are of the opinion that a researcher should remain distant when
conducting their research, and not allow values and bias to distort their objective
views. This is called the positivistic view which seeks the facts or causes of social
phenomenon, with little regard to the subjective state of the individual. Logical
thinking is applied in this case so that precision, objectivity and rigor replace
launches, experience and intuition as the means of investigating research problems.
3.1.4 Post-Positivism
Post-positivism to some extend holds similarities to positivism – the difference being
that in the study of social reality, post-positivism recognises that researchers cannot
be absolutely certain about the knowledge claims. Post-positivists build evidence to
support pre-existing theory. In other words, relying on deductive logic and
hypothesis testing, post positivism attempts to create evidence that will confirm or
refute a theory, though no in absolute terms (Hesse-Biber & Leavy, 2006 p 36-40)
62
Research approach
The research approaches draw their meaning from the research philosophies. On
deciding on the research approach theresearcher looked at deductive and inductive
approaches respectively in order to build a case for triangulation of research data.
The deductive approach associated with positivism is when the researcher develops
a theory and hypothesis and designs a research strategy to test the hypothesis. The
deduction approach emphasises scientific principles, the need to explain causal
relationships between variables, the collection of quantitative data and the
researcher’s independence with what is being researched. This approach involves
the development of a theory that is subjected to a rigorous test. It is the dominant
research in the natural sciences where, “laws provide the basis of explanation,
permit the anticipation of phenomena, predict their occurrence and therefore allow
them to be controlled”, (Hussey and Hussey 1997 p 52). The inductive approach
associated with Interpretivism is when the researcher collects data and develops
theory as a result of data analysis. The induction approach emphasises on the
collection of qualitative data, a realisation that the researcher is part of the research
process and less concern with the need to generalise.
To a large extent this study found the inductive approach appropriate, but however
borrowed from the deductive approach to a lesser extent in a bid to draw
comparison between the approaches. The research approach is important to the
research project in three ways. Firstly it enables the researcher to take a more
informed decision about the research design; secondly it helps the researcher to
think about those research approaches that work and those that will not work; and
thirdly the knowledge of the different research approaches enables the researcher to
adapt the research design to cater for constraints.
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3.1.5 Quantitative Research
This approach mainly involves the collection of quantitative data which are put to
rigorous quantitative analysis in a formal structured manner. These studies are
concerned with measurement and quantification of data to answer research
questions. Eastrerby-Smith et al (1996 p 16) has established that “to be useful data
needs to be analysed and interpreted using quantitative analysis techniques. With
quantitative work, the process of data collection becomes distinct from analysis”.
The weight the researcher attaches to responses in the study helps to generalize the
findings and allow the researcher to make value judgments’ on the findings.
Quantitative research excels at summarizing large amounts of data and reaching
generalizations based on statistical projections. The advantage of the quantitative
research approach is that it places emphasis on numerical analyses and objectivity,
reliability and replication of findings. On the down side the approach may not always
suit social science and validity of findings is reduced since social phenomena cannot
be reliably measured.
3.1.6 Qualitative Research
The approach involves the subjective assessment of opinions, behaviour and
attitudes. Qualitative research puts emphasis on individual interpretation of
behaviour and their environment, (Marchington and Wilkinson; 2005). The emphasis
is on understanding what is going on in an organisation in participants’ own terms
rather than those of the researcher. As Fineman and Mangham (1983 p 296)
observe, “If behaviour is viewed as situationally specific, idiosyncratic multivariate or
holistic, then a richer more descriptive analysis may well be taken to be worthwhile”.
3.1.7 Triangulation
Gil and Johnson (1997) believe that there is no one best method but many methods
contingent on the issue being studied. Each method has its advantages and
disadvantages in the kind of data it generates and its vulnerability to particular kinds
of error. Like Saunders et al, (2000) they claim that one way of overcoming each
64
method’s weaknesses and limitations is to deliberately combine different methods
within the same investigation.
In triangulating the data, the researcher uses a comparison of findings from the
qualitative and quantitative methods. Denzil (1970 p 13) posits that,” if each method
leads to different features of empirical reality, then no single method can ever
completely capture all the relevant features of that reality; hence, there is need to,
“learn to employ multiple methods in the analysis of the same empirical events”.
Using a number of approaches is termed triangulation.
Triangulation was the research approach of choice for this study. The quantitative
approach to research was instrumental in analysing and summarising different
results obtained from respondents. The qualitative approach helped in assessing
answers to open ended questions as well as the results from face to face interviews.
Robson (1993) as cited in Hussey and Hussey (1997 p. 248) says that the challenge
to qualitative data analysis is that,” there is no clear accepted set of conventions for
analysis corresponding to those observed with quantitative data”. The observed
challenges included reducing the data, structuring the data and detextualizing it.
Research strategies
Saunders et al. (2000 p. 90) defines the research strategy as the general plan of
how the research answers the research questions. The research strategy contains
clear objectives, specifies the sources from which data intends to be collected and
highlights the constraints that the researcher will inevitably have. Available strategies
in the field of research include experiments, survey, case study, grounded theory,
ethnography, action research, cross-sectional and longitudinal studies. In
consideration of the research method used, the researcher looked at complimentary
research strategies in a bid to meet research objectives.
65
3.1.8 Survey
Surveys involve selecting a representative and unbiased sample of subjects drawn
from the group you wish to study. This is usually associated with the deductive
approach. It is a popular and common strategy in business and management
research, (Saunders 2000 p. 93). The strategy is less costly, quick to administer,
and provide a much wider coverage than other strategies say an experiment. The
use of this research strategy is adequately amplified in the primary design of the
primary data collection methods that is the questionnaire. The main aim of the
survey is to collect information from, or about, a defined group or population,
(Eastrerby-Smith et al 1996). Saunders et al (2000 p. 94) note that the data is less
wide ranging than that collected by qualitative methods, as there is limit to the
number of questions that can be asked.
There are two main types of survey: a descriptive survey: concerned with identifying
& counting the frequency of a particular response among the survey group, or an
analytical survey: to analyse the relationship between different elements (variables)
in a sample group. The researcher made use of both the descriptive and analytical
surveys to collect data from the participants.
3.1.9 Case Study
Liquid Telecom is here used as a case study to try and establish whether
outsourcing is a source of competitive advantage in the telecommunications industry
in Zimbabwe. Robson (1993) as cited in Saunders (2000) defines case study as the
development of detailed, intensive knowledge about a single case or a small number
of related cases. On the other hand Mitchell (1983 p 191) describes the case study
as ‘a detailed examination of an event which the analyst believes exhibit the
operation of some identified general theoretical principle”. According to Morris and
Wood (1991) this strategy will be of interest if the researcher wishes to gain a rich
66
understanding of the context of the research and the processes being enacted. The
case study strategy also has considerable ability to generate answers to the
question “why?” as well as the “how?” questions. Rather than using large samples
and following a rigid protocol to examine a limited number of variables, case study
methods involve an in-depth, longitudinal examination of a single instance or event:
a case. They provide a systematic way of looking at events, collecting data,
analysing information, and reporting the results. As a result the researcher may gain
a sharpened understanding of why the instance happened as it did, and what might
become important to look at more extensively in future research. Limitations to the
case study method have been noted, with theorists arguing that there can be a bias
in results, either via the inherent limitations of any single method, (Saunders, et al
2000) or due to the effect of the researcher on the situation itself.
3.1.9.1 Applications of the Case study method
Case study procedures have been used extensively in the fields of law and juvenile
delinquency, psychiatry, psychology, education, business administration and
journalism among others. Normally, the case study is supplementary to or related to
other investigational procedures. The life history of an individual or an institution or a
community resembles historical research in sources and techniques. Case
investigation uses many of the data gathering instruments as used in descriptive
survey studies (Teti, 2005). Such a method, which has direct relationship with the
descriptive method as well as traceable application in organizations and
communities, will work well for the study focusing on Liquid Telecom as a
telecommunications organization.
A comparison of case studies and other methods
Case studies resemble survey studies in that they are concerned with the present
status phenomena. In this study, a combination of survey and case was used in
order to get the most out of the two. This is because, while survey studies
67
determines the present status, case goes beyond this and answers the more
fundamental question of how it got that way. Case study differs from experimentation
in that they display a greater element of subjectivity. Although case studies
constitute the most comprehensive means of studying the whole situation, a
distinction needs to be made between their guidance and their research functions
(Singh, 2006)
3.1.9.2 Why the case study method was used
Since the research sought to find understand the circumstance surrounding
outsourcing in telecommunications, the case study method was deemed appropriate
to answer the qualitative part of the research problem. A combined approach of
quantitative and qualitative was considered adequate to fully explore the reasons
behind success or otherwise of outsourcing at Liquid Telecom, and to improve the
validity and reliability of the results and findings. The research sought to contribute to
the existing body of knowledge on outsourcing by suggesting the best way of
implementing outsourcing for telecommunications companies in Zimbabwe.
3.1.10 Experiment
The researcher sets up a project in the lab and conducts the experiment by altering
one variable at a time so they can study the relationship between different variables,
(Bryman and Bell, 2003 p. 39). The researcher controls the independent variables
while measuring the effect on the dependent variables and keeping intervening
factors constant.
3.1.11 Grounded Theory
To generate or discover a theory, the investigator needs to set aside as much as
possible, theoretical ideas or notions so that the analytic, substantive theory can
emerge. The researcher must still keep in mind that this form of inquiry is laden with
68
specific steps in data analysis. The deductive approach was used because the
research seeks to establish relationships through the use of analysis of relationships
and collected data.
DATA COLLECTION
In carrying out research there are two major types of data used: primary data and
secondary data. Primary data is data that is being collected for the first time for the
purpose of the research being undertaken. Secondary data is data that has been
already collected and used earlier for something other than the research at
hand.Primary Data was mainly used in this study.
3.1.12 Primary data
Primary sources of data include observation and interviews gathered in the field by
the researcher.
3.1.12.1 Observation
Direct observation occurs when a field visit is conducted during the case study. It
could be as simple as casual data collection activities, or formal protocols to
measure and record behaviours. This technique is useful for providing additional
information about the topic being studied. The reliability is enhanced when more
than one observer is involved in the task.
3.1.12.2 Questionnaires
Questionnaires were found attractive in this study as they require minimal resources,
do not cost much but can provide a large sample, (Marchington and Wilkinson,
2005). The types of questionnaire used included self-administered questionnaires
such questionnaires where hand delivered to respondents. The researcher took into
consideration the fact that the type of questionnaire chosen will affect the number of
people who responded to questionnaires (Saunders 2000 p. 281).
69
Marchington and Wilkinson (2005) advise that the questionnaire be pilot tested to
check that respondents are able to understand all the questions and they make
sense. The researcher pilot tested the questionnaire with a view to edit all grey
areas.
3.1.12.3 Interviews
The structured interview method of data collection was applied. A questionnaire was
designed with four broad areas that were addressing the research questions.
The advantage of structured interviews to the management group is that it increased
the response rate because managers are generally busy and may not respond to
self-administered questionnaires. In the personal interview, the interviewer worked
directly with the respondent and the interviewer had the opportunity to probe or ask
follow-up questions.
3.1.13 Secondary data
Marchington and Wilkinson (2005) have established that data can be collected via
the inspection of documentary information produced by individuals within the
organisation involved. Very little secondary data was made use of in the study.
3.1.14 Population of Study
The population for this study shall be defined as composed of the directors
(executive and non-executive), managerial and non-managerial employees of Liquid
Telecommunications Zimbabwe at the time of the study.
Table 3-1:Liquid Telecom Staff complement and sample size for study
Description Count Sample Size Required
Directors and Senior Management 10
Middle Management 12
First Level Supervisors 14
70
Junior Staff 49
Total 85
3.1.15 Sampling
Factors such as expense, time and accessibility usually prevent researchers from
gaining information from the whole population. Smaller groups or subsets of the
total population are thus used in such a way that the knowledge gained is
representative of the total population (however defined) under study (Dowdy et al,
1990). A sample thus constitutes a certain portion of the population or universe
under study. Sampling design refers to the technique or procedure the researcher
adopts for selecting items for the sample from the population or universe. A sample
design helps to decide the number of items to be included in the sample; that is the
size of the sample. A sample design must be reliable and suitable for the research
study being undertaken.
Figure 3-1:Sampling
Source: Dowdy et al, (1990)
71
3.1.15.1 Sampling techniques
Sampling techniques enable a researcher to reduce the amount of data he needs to
collect by considering only data from a sub group rather than all possible cases,
(Saunders et al, 2000). Sampling techniques can be broadly classified into two as
probability and non-probability sampling.
3.1.15.1.1 Probability Sampling/ Random Sampling
In probability sampling every item of the universe has an equal chance of being
included in the sample. Only chance determines whether an item or the other would
be included in the sample or not. The results obtained from probability sampling
would be assured in terms of probability. The researcher can measure the errors of
estimation or the significance of results obtained from the random sample.
Probability sampling satisfies the law of statistical regularity, according to which if on
an average the sample chosen is random, then it would have the same composition
and characteristics of the population.
With probability samples the chances or probability of each case being selected from
the population is known and is usually equal for all cases, (ibid). Examples of
methods falling under probability sampling are simple random sampling; systematic
sampling; stratified random sampling; cluster sampling and multistage sampling.
According to Saunders et al (2000 p. 177), “statistical analysis usually require a
minimum sample size of 30”
The population was divided into strata as directors and senior management, middle
management and professional, and skilled and semi-skilled employees. The
stratified sampling method is a modification of simple random sampling in which you
divide the population into strata based on a number of attributes. Stratified sampling
is useful when the population from which the sample is to be selected does not
comprise a homogenous group.
72
3.1.15.1.2 Non-Probability Sampling
This is sampling that does not afford any basis for estimating the probability that
each item in the population would have an equal chance of being included in the
sample. The items for the sample are deliberately chosen by the researcher. Non-
probability sampling is often the approach used in qualitative data collection and for
case studies. It was employed in this study in determining the number of people to
be interviewed per strata. Saunders et al (2000 p. 152) advise that using non-
probability sampling may still allow the researcher to generalize from non-probability
samples about the population, but not on statistical grounds. In this study,
convenience sampling was relied upon in selecting those respondents which were
easiest to reach for the research sample per strata. The researcher went around
people’s working areas and distributed questionnaires to those that were available
until the required sample size was reached.
3.1.16 Sample Size
Sample size refers to the number of items to be chosen from the population to form
a sample. An optimum sample is one that satisfies the requirements of
representativeness, flexibility, efficiency, and reliability. When deciding sample size,
there is need to take into consideration the desired precision and the acceptable
confidence level for the estimates. Sample size is also determined to some extent by
the style of the research. For example, a survey style usually requires a large
sample, particularly if inferential statistics are to be calculated (Cohen et al, 2000).
The size of a probability (random) sample can be determined in two ways, either by
the researcher exercising prudence and ensuring that the sample represents the
wider features of the population with the minimum number of cases or by using a
table which, from a mathematical formula, indicates the appropriate size of a random
sample for a given number of the wider population (Morrison, 1993 p. 117). One
such example is provided by Krejcie and Morgan (1970) in Figure 3.4 below
73
Figure 3-2:Determining the Size of a Random Sample
74
Control of validity and reliability
According to Wegner, (2010) data are valid if they provide a true picture of what is
being studied. A researcher instrument is said to be valid if it measures what it is
supposed to measure. In this study primary and secondary data was employed in
order to ensure that one form of data checks on the other’s validity especially where
conclusions are similar.
Reliability is the extent to which a test or procedure produces similar results under
constant conditions on all occasions, (Wegner 2010). Data can be reliable without
being valid .In this study pretesting or pilot studying was one way to ascertain
feasibility, validity and reliability of self-administered questionnaires.
Research Limitations
The research limitations of this study are as follows:
• The research is confined to Harare. The sample built in this study is expected to
be representative of the population; however the sample could have covered
Bulawayo where Liquid Telecom has its second office. Other constituent
stakeholders in the Liquid Telecom group of companies were not approached.
• Contractors’ sentiments or external views on the outsourcing approach by Liquid
Telecom were not sought. This may result in a bias depending on the
organisational culture.
• The results obtained can only be generalised with certain limitation as the
research was carried out with a focus on a single company whose environment
can be different from other companies. This means the results can be true of a
situation in Zimbabwe but are not universally applicable
75
Chapter Conclusions
This chapter has discussed the research methodology adopted by the study and the
associated justifications. The chapter also discussed concepts such as the research
methodology, population of study, sampling, research instruments and data
processing, analysis and presentation. The results of the study were viable to
answer research questions and meet the laid down objectives. The next chapter
presents research findings and discussion thereof.
76
CHAPTER 4 RESULTS, ANALYSIS AND DISCUSSION
Introduction
This chapter presents and analyses research findings from the research in relation
to the research objectives as outlined in Chapter 1. The chapter presents facts that
were discovered by the researcher and discusses and interprets research results
using references from relevant literature as discussed in Chapter 2, and making
relevant inferences. Excel spreadsheets and SPSS were used in the compilation,
validation and analysis of results. Findings were presented using tables, graphs,
charts and narratives.
The responses were presented on pie-charts, histograms and bar graphs. All
percentages were calculated to two decimal places but rounded down to whole
numbers for presentation. The notation (x,y%) was used where x is the number of
responses and y% is the number of responses expressed as a percentage of the
total number of received responses. Only close ended and Likert scale rating
questions were analysed using SPSS. The use of SPSS entailed first codifying
questions and expected responses into numerical representations. The responses
from the questionnaires were then captured for each question according to the
codes assigned to each question and response. All objective-related questions were
coded according to Likert scale ratings used in the research instrument (1=strongly
disagree: 2=disagree: 3=not sure: 4=agree: 5=strongly agree).
77
Response Rate
Table 4.1 below, shows the breakdown of the responses received according to
position within the company, which was the basis of the stratified sampling used.
Table 4-1:Response rate
Executive
Manageme
nt
Senior
Management
Middle
Managers
First Level
Supervisors
Support
Staff
Total
s
Questionnaires
administered
5 5 10 5 29 54
Responses
Received
4 3 9 5 22 43
Response Rate 80% 60% 90% 100% 76% 79.6%
A total of fifty-four (54) structured questionnaires were sent out (invited sample size)
and of these, fourty-three (43) were returned to give an overall response rate of
79.6%. The highest response rate was from executive and senior managers given
their small number. This was critical in that these are clear about the company’s
strategic focus. The response rate was overally high as expected due to the small
size of the organisation. At the time of the research, Liquid Telecom had a staff
compliment of 85. The sample was chosen from candidates who best provide an
insight into the issue under investigation through mainly experience thus the
population was made up of 75 employees. The sample size selected was 93% of the
population and the actual sample of respondents was 57% of the population. The
sample size is in agreement with the recommendations of Bartlett, Kotrlik, & Higgins
(2001) who recommended a sample size of at least 46 (for continuous data) and 74
(for categorical data) for a population of 100. The overall response rate as well as
the response rate within each employee category is high enough to enable the
researcher to generalise the results to the whole organisation, based on Bartlett’s et
78
al. (2007) recommended response rate of at least 50% for a research to be
considered valid.
Demographic Analysis
The demographic factors that the researcher considered to be of major significance
to the study are discussed below:
4.1.1 Gender and Age of Respondent
Respondents were mostly (41.2% of all respondents) middle-aged males between
31 and 40 years while females were mostly (62.5% of all females) in the 20 to 30
years age group. The age and gender was of interest to derive possible patterns
within different age-groups since the study was for an ICT company, and ICT
technologies are normally for the young. The finding is shown in Table 4-2 below,
which is a cross tabulation of the gender and the age of the respondents.
Table 4-2:Cross-tabulation of Gender and Age of Respondents
Gender * Age of respondent Cross tabulation
Count
Age of respondent Total
20-30 31-40 41-50 51-60
Gender Male 12 18 4 1 35
Female 5 2 0 1 8
Total 17 20 4 2 43
The percentage distribution of the population is representative of the employees at
Liquid Telecom, and the relatively young age of the workforce is as expected in a
technology company.
4.1.2 Employee Category
The findings as shown in
Managers) of the respondents fall in the senior management category, 21% are
middle management, 12% are first level supervisors while the remainder (51%) are
the junior staff.
Figure 4-1: Employee Categories
12
21
7
79
percentage distribution of the population is representative of the employees at
Liquid Telecom, and the relatively young age of the workforce is as expected in a
Employee Category
The findings as shown in Figure 4.1 , show that 12% (9% Directors plus 7% Senior
Managers) of the respondents fall in the senior management category, 21% are
middle management, 12% are first level supervisors while the remainder (51%) are
Employee Categories
51
12
9
percentage distribution of the population is representative of the employees at
Liquid Telecom, and the relatively young age of the workforce is as expected in a
irectors plus 7% Senior
Managers) of the respondents fall in the senior management category, 21% are
middle management, 12% are first level supervisors while the remainder (51%) are
Junior Staff
First Level Supervisor
Middle Manager
Senior Manager
Director
All employee categories within Liquid Telecom are represented. This reduces biases
associated with any single employee category and enables views that are diverse to
be collected. The directors have the
staff are the ones who deal with the contractors on a frequent basis.
4.1.3 Respondents by department
Thirty-seven percent (37%) of the respondents are from the Planning and Build
department while 28% of these
and Commercial each have 9% while Audit and Risk and Human Resources
constitute 2% of the respondents.
respondents amongst the Liquid Telecom departments.
Figure 4-2: Respondents by Department
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
37%
80
All employee categories within Liquid Telecom are represented. This reduces biases
associated with any single employee category and enables views that are diverse to
be collected. The directors have the strategic view, while the supervisors and junior
staff are the ones who deal with the contractors on a frequent basis.
Respondents by department
seven percent (37%) of the respondents are from the Planning and Build
department while 28% of these are from the Operations department. Engineering
and Commercial each have 9% while Audit and Risk and Human Resources
constitute 2% of the respondents. Figure 4.3 shows the distribution of the
respondents amongst the Liquid Telecom departments.
Respondents by Department
9%
2%12%
28%
9%
2%
All employee categories within Liquid Telecom are represented. This reduces biases
associated with any single employee category and enables views that are diverse to
strategic view, while the supervisors and junior
staff are the ones who deal with the contractors on a frequent basis.
seven percent (37%) of the respondents are from the Planning and Build
are from the Operations department. Engineering
and Commercial each have 9% while Audit and Risk and Human Resources
shows the distribution of the
Series1
81
The two biggest departments are Planning and Build and Operations. This
information is vital in that these are the core departments involved daily in the core
business of the organization and mostly deal directly with contractors. This shows
that the sample was highly representative in order to capture views from both the
core, operational as well as the support departments (such as Finance and HR).
4.1.4 Crosstabulation of number of years with organization and time
in current position cross tabulation.
Figure 4-3:Respondents’ duration with Liquid
The majority of the respondents (41.86%) had been with the organization between
one and two years and had been in these positions for an average of 1-2 years. The
questions were asked to check on the consistency of the respondents as time in
current position could only be less or equal to the number of years with organization.
The respondents’ duration in service is important as it has a major influence on the
quality of responses received as well as on the analysis on the company’s sourcing
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
<1 Years 1-2 Years >2 Years
Number of years within the organisation
Time in current position <1
Year
Time in current position 1-2
Years
Time in current position >2
Years
82
maturity level. In order to reduce bias due to time in service a range of respondents
were chosen with differing durations of service within the organisation. Respondents
with less than one year experience have the ability to look at the situation with fresh
eyes and offer an unbiased view and were thus included in the sample. On the other
hand respondents who have served a very long time have a detailed understanding
of the history of events up to the present and might have a strong appreciation of the
organisation’s needs but they might also have a strong bias towards the status quo
and might not provide very valuable insights. Being in service for a very long time
might also mean that the respondent does not have proper reference to be able to
offer opinions.
4.1.4.1 Were you involved in decision to outsource by position in firm
Figure 4-4:Responses to involvement in decision to outsource b y department
The results show that 70% of the respondents were not involved in the decision to
outsource. None of the senior managers indicated that they were involved in the
decision to outsource although 50% of the directors indicated that they had a part to
play in the decision to outsource. This question was asked in order to bring out the
level of involvement of the strategy-defining directors in the decision to outsource,
35
7
16
75
70
16
5 50
5
30
0
10
20
30
40
50
60
70
80
Junior Staff First Level
Supervisor
Middle
Manager
Senior
Manager
Executive Total
No
Yes
and whether outsourcing was an
indicated that they were involved in the decision to outsource, although the majority
indicated that they were not consulted in this decision. This brings out the fact tha
the decision to outsource was a deliberate, strategic move made by the directors
without consulting the junior staff. One of the key success factors for outsourcing
success is for the outsourcing philosophy to be understood by all involved with the
outsourcing partner (Manish & Rohini, 2007). As such, this finding has a bearing on
the success or failure of outsourcing at Liquid Telecom.
4.1.5 Training on managing relationship with Vendor
Figure 4-5:Training on m
From the questionnaire results over 86% of the respondents had not received formal
training on managing contractors and were thus not educated regarding outsourcing.
Only 15% of those who deal daily with contractors i
formal training on managing outsourcing relationships (translating to 14% of the
sample). The findings show that the level of understanding of outsourcing
relationships is generally low amongst Liquid Telecom employees. While it
mandatory that one should have a clear understanding of the outsourcing
75
80
85
90
95
100
Daily Weekly
Your involvement with contractor's work
85
100
15
83
and whether outsourcing was an enterprise-wide approach. Some of the junior staff
indicated that they were involved in the decision to outsource, although the majority
indicated that they were not consulted in this decision. This brings out the fact tha
the decision to outsource was a deliberate, strategic move made by the directors
without consulting the junior staff. One of the key success factors for outsourcing
success is for the outsourcing philosophy to be understood by all involved with the
urcing partner (Manish & Rohini, 2007). As such, this finding has a bearing on
the success or failure of outsourcing at Liquid Telecom.
Training on managing relationship with Vendor
Training on m anaging relationship with contractors.
From the questionnaire results over 86% of the respondents had not received formal
training on managing contractors and were thus not educated regarding outsourcing.
Only 15% of those who deal daily with contractors indicated they had received
formal training on managing outsourcing relationships (translating to 14% of the
sample). The findings show that the level of understanding of outsourcing
relationships is generally low amongst Liquid Telecom employees. While it
mandatory that one should have a clear understanding of the outsourcing
Weekly Monthly Total
Your involvement with contractor's work
100 100
86
0 0
14
Have you received formal training
on managing relationship with
contractors? Yes
Have you received formal training
on managing relationship with
contractors? No
approach. Some of the junior staff
indicated that they were involved in the decision to outsource, although the majority
indicated that they were not consulted in this decision. This brings out the fact that
the decision to outsource was a deliberate, strategic move made by the directors
without consulting the junior staff. One of the key success factors for outsourcing
success is for the outsourcing philosophy to be understood by all involved with the
urcing partner (Manish & Rohini, 2007). As such, this finding has a bearing on
Training on managing relationship with Vendor
anaging relationship with contractors.
From the questionnaire results over 86% of the respondents had not received formal
training on managing contractors and were thus not educated regarding outsourcing.
ndicated they had received
formal training on managing outsourcing relationships (translating to 14% of the
sample). The findings show that the level of understanding of outsourcing
relationships is generally low amongst Liquid Telecom employees. While it was not
mandatory that one should have a clear understanding of the outsourcing
Have you received formal training
on managing relationship with
contractors? Yes
Have you received formal training
on managing relationship with
contractors? No
84
relationships, such knowledge and training is key in order to provide useful insight
since it implies that the respondents are aware of what the researcher is
investigating. The question also has implications on the organization’s sourcing
maturity. An organization with a large number of people with an understanding of
managing contractor relationship implies that the organization has a long term view
of its outsourcing relationships and is willing to improve its sourcing maturity (Manish
& Rohini, 2007).
An understanding of the area of the subject under investigation was also deemed
crucial as failure to do so might have led to inappropriate answers. The responses to
the questionnaire overall however shows that all respondents could easily
understand the key issues that the researcher was looking for and answered the
questions appropriately.
85
Objective Related Findings
4.1.6 Reasons for Outsourcing
Table 3-3 below shows the mean response for each possible reason and the
ranking obtained from the results, with 1 being the highest ranked reason and 9 the
lowest ranked.
Table 4-3: Reasons for outsourcing
Reason for Outsourcing
Mean
Response (2
decimal
places)
Standard
Deviation Ranking
To save costs 2.35 1.38 9
Organization’s long term strategy 3.44 0.67 6
Improved service levels 3.65 0.95 4
Access to technical expertise 3.74 1.18 3
To free up internal resources 3.86 1.08 2
Response to industry competitive
forces 3.51 1.05 5
To provide staff versatility 2.77 1.13 8
To introduce new technology 3.21 1.12 7
To gain competitive advantage 3.88 0.98 1
86
The respondents identified gaining competitive advantage, freeing up internal
resources, access to technical expertise and improved service levels as the top four
reasons for outsourcing at Liquid Telecom. The other five possible reasons had
mean responses in the not-sure/disagree regions and hence were lowly ranked. The
reasons were ranked in the following order of decreasing importance;
Highly Ranked reasons for outsourcing (in the order of importance)
• To gain competitive advantage
• To free internal resources
• To gain access to technical expertise
• Improved service levels
Lowly ranked reasons
• Response to industry competitive forces
• Organization’s long term strategy
• To introduce new technology
• To provide staff versatility
• To save costs
The identified reasons agree to a certain extent with the findings of Lacity, Willcocks
& Feeny (1996) who summarized the major drivers for outsourcing as
• contracting specialisation,
• market discipline,
• flexibility, and
• Cost saving.
However the ranking obtained from this research seems to be diametrically opposite
to the one established by Burdon and Bhala (2005) as the benefits of IT outsourcing.
The two grouped the benefits into three categories, with cost-saving being the highly
ranked benefit of outsourcing and the nice-to-have as the least;
Primary Benefits
87
Reducing costs
Increasing reliability
Access to best practices
Secondary benefits
Flexibility to changes
Focus on core competencies
Achieving innovation and continual change
Being the catalyst for transformational change
Nice to Have
Understanding of business objectives
Conserving capital
Increasing speed to market
4.1.7 In-house performance of currently outsourced activities would
lead to a lack of strategic focus?
Figure 4-6:In-house performance of currently outsourced activities woul d lead
to lack of strategic focus?
A total of 35% of the respondents were of the opinion that
the currently outsourced activities would lead to lack of strategic focus. The mean
response 2.37 is sufficiently in the disagreement region to conclude that the
currently outsourced activities would not affect strategic focus if performed
0
5
10
15
20
25
30
35
Strongly
Disagree
Disagree
35
88
house performance of currently outsourced activities would
lead to a lack of strategic focus?
performance of currently outsourced activities woul d lead
to lack of strategic focus?
A total of 35% of the respondents were of the opinion that in-house
the currently outsourced activities would lead to lack of strategic focus. The mean
sponse 2.37 is sufficiently in the disagreement region to conclude that the
currently outsourced activities would not affect strategic focus if performed
Disagree Neutral Agree Strongly
Agree
23
14
26
2
house performance of currently outsourced activities would
performance of currently outsourced activities woul d lead
house performance of
the currently outsourced activities would lead to lack of strategic focus. The mean
sponse 2.37 is sufficiently in the disagreement region to conclude that the
currently outsourced activities would not affect strategic focus if performed in-house.
Strongly
Series1
89
This was followed up with interview questions, and again, it was realized that it is
mostly the senior management (directors) who believe in the outsourcing
philosophy. These strongly agree with the statement that in-house performance of
currently outsourced activities would lead to lack of strategic focus. One of the
directors (Mr Kinnear, Executive Director Fibre Projects Southern Africa) specifically
mentioned the British Telecom HR outsourcing initiative (BT started outsourcing its
HR to Accenture is 2003). The senior management’s line of thinking is supported by
DiRomualdo and Gurbaxani (1998) who argued that outsourcing allows
organisations to add value to products by allowing them to focus on critical business
processes, thus gaining a competitive advantage that forces other companies to
follow the leader.
90
4.1.8 Alignment between organization outsourcing and strategy
Table 4.4 below shows the responses to questions tyo measure the alignment
between current outsourcing approach and overall business strategy.
.
Table 4-4: Outsourcing and Organizational strategy
Question
Strongly
Disagree
and
Disagree
Non
Committa
l
Strongly
Agree and
Agree
Mean
Response
a) Organization is
planning additional
outsourcing in the
future
20.90% 41.90% 37.20% 3.14
b) Outsourced
activities are of high
strategic importance.
25.60% 46.50% 27.90% 3.14
c) Organization’s
outsourcing is aligned
to the company’s
business strategy
7.00% 55.80% 37.20% 3.44
d) Organization’s
outsourcing is aligned
to the company’s
technology strategy
18.60% 39.50% 41.90% 3.26
91
Forty-one percent (41%) of the respondents were neutral about whether
organization is planning additional outsourcing in the near future. Similarly, 46.5%
were neutral in their response to the question on the strategic importance of the
outsourced activities. 37.2% respondents believed that outsourcing is aligned to the
company’s business strategy. However, most of the respondents were not sure
about the strategic alignment between outsourcing and the business and technology
strategies (all mean responses were in the non-committal region (2.5<mean<3.5). In
an interview, one of the respondents indicated that the major problem is that Liquid
Telecom’s strategy is not clearly documented and thus employees infer the strategy
from day to day activities. Most were also not sure of the organizational plans
regarding outsourcing. This is to be expected since most of the respondents were
junior staff.
Strata analysis however shows that there is general agreement (50%) that
outsourcing is aligned to Liquid’s business and technology strategy amongst the
senior management and executives. This can be attributed to the fact that the
executives do understand the company strategy and have a long term view of the
business. This finding is in harmony with Gulla and Gupta (2011) who noted, in their
paper on IS outsourcing, that in analysing the strategic values of outsourcing, the
company should consider the likely impact of outsourcing on the strategic interests
of the business organization as well as its effect on the routine operations of the
organization in the form of short, medium and long-term effects. The two encourage
that such analysis should include having clarity of business strategic versus IS
strategy orientation which provides an insight into the level of IS strategic alignment
(ibid). The same argument could be extended to outsourcing in the
telecommunications industry, where there should be a clear alignmentbetween the
outsourcing goals and the strategic direction of the company.
4.1.9 Outsourcing has improved
Figure 4-7: Outsourcing has improved service delivery timelines
Findings: According to 49% of the respondents the organisation’s outsourcing has
not improved the service delivery timelines in any way. 26% of the respondents were
neutral and 26% believed outsourcing had a positive impact on service delivery
timelines. The mean response for this question was 2.74 with a skewness of 0.408
(positive). This implies that there is general
employees about the fact that outsourcing improved service delivery timelines.
A conclusion can be made based on
that the organisation’s outsourcing has not aided in improving service delivery
timelines.
0
5
10
15
20
25
30
35
40
45
Strongly
Disagree
Disagree
7
42
Oursourcing has improved service delivery
92
Outsourcing has improved service delivery timelines
Outsourcing has improved service delivery timelines
According to 49% of the respondents the organisation’s outsourcing has
not improved the service delivery timelines in any way. 26% of the respondents were
neutral and 26% believed outsourcing had a positive impact on service delivery
response for this question was 2.74 with a skewness of 0.408
(positive). This implies that there is general disagreement amongst Liquid Telecom
employees about the fact that outsourcing improved service delivery timelines.
A conclusion can be made based on the finding from the majority of the respondents
that the organisation’s outsourcing has not aided in improving service delivery
Disagree Neutral Agree Strongly
Agree
2621
5
Oursourcing has improved service delivery
timelines
Oursourcing has improved
service delivery timelines
service delivery timelines
Outsourcing has improved service delivery timelines
According to 49% of the respondents the organisation’s outsourcing has
not improved the service delivery timelines in any way. 26% of the respondents were
neutral and 26% believed outsourcing had a positive impact on service delivery
response for this question was 2.74 with a skewness of 0.408
amongst Liquid Telecom
employees about the fact that outsourcing improved service delivery timelines.
the finding from the majority of the respondents
that the organisation’s outsourcing has not aided in improving service delivery
Oursourcing has improved service delivery
Oursourcing has improved
service delivery timelines
93
4.1.10 Contractors have expertise in their area of work
Figure 4-8:Contractors have expertise in their work.
47% of the respondents disagreed with the statement, while 49% were neutral. The
important observation is that only 5% had confidence in the expertise of the
contractors. Further analysis by the frequency of interactions with the contractors
shows that over 93 % of those that deal daily with the contractor did not have
confidence in the expertise of the contractors, while only 7% agreed that the
contractors have expertise in their area of work. This is in harmony with the
observation made in the interviews that some of the contractors only sprouted up to
take advantage of Liquid’s outsourcing philosophy, but had not had prior
specialization in the area before. This again brings in the concept of spatial
agglomeration, where, as argued before, there was no existent market for
specialized telecommunications network build prior to Liquid telecom outsourcing.
14%
33%49%
5%
Strongly Disagree
Disagree
Neutral
Agree
94
In interviews with the Head of Network Planning and Build, another question asked
was whether they had considered looking beyond Zimbabwe’s borders for the
expertise. His response is quoted herein “The problem with South African
contractors is that most of them come with the wrong attitude. Some of the
contractors we tried misrepresented facts, and were not experts at all in the fibre
network build field”
4.1.11 Contractors handle Liquid customers with due care
Figure 4-9: Contractors handle Liquid customers with due care
There was general feeling that contractors do not handle Liquid customers with due
care where agreement based on a Likert score of 4 and 5 only got 5%. This has a
strong bearing on the quality of service delivered to the customers and customer
satisfaction. This correlates with the findings in question 4.3.5 above that contractors
7%
49%
40%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Strongly Disagree Disagree Neutral Agree
Series1
do not have expertise in their area of work. According to The Economist (2011) there
are a variety and colourful
that sometimes vendors overpromise in order to win a contract and then fail to
deliver. This has been prevalent at Liquid Telecom, where service delivery timelines
have been promised to customers based on contractor promises, yet customers
have been disappointed
another article in Haveckin, (2012), the most valuable commodity a business has,
and the most difficult one to come by, is positive word of mouth. It is therefore critical
that whoever does work on b
customers.
4.1.12 Contractors understand standard telecommunications
business processes (
Figure 4-10:Contractors understand telecommunications processes ?
0%
Strongly Disagree
Disagree
Neutral
Agree
95
do not have expertise in their area of work. According to The Economist (2011) there
colourful ways in which outsourcing can go wrong, one of which is
imes vendors overpromise in order to win a contract and then fail to
deliver. This has been prevalent at Liquid Telecom, where service delivery timelines
have been promised to customers based on contractor promises, yet customers
disappointed after failure to meet the delivery timelines. According to
another article in Haveckin, (2012), the most valuable commodity a business has,
and the most difficult one to come by, is positive word of mouth. It is therefore critical
that whoever does work on behalf of an organization understands how to handle
Contractors understand standard telecommunications
processes (eTOM)?
Contractors understand telecommunications processes ?
20% 40% 60% 80% 100%
9%
56%
19%
16%
do not have expertise in their area of work. According to The Economist (2011) there
ways in which outsourcing can go wrong, one of which is
imes vendors overpromise in order to win a contract and then fail to
deliver. This has been prevalent at Liquid Telecom, where service delivery timelines
have been promised to customers based on contractor promises, yet customers
er failure to meet the delivery timelines. According to
another article in Haveckin, (2012), the most valuable commodity a business has,
and the most difficult one to come by, is positive word of mouth. It is therefore critical
ehalf of an organization understands how to handle
Contractors understand standard telecommunications
Contractors understand telecommunications processes ?
100%
Series1
96
Research Findings: 65% of the respondent’s disagreed with the statement implying
serious doubts by Liuid Telecom on whether contractors understand
telecommunications business processes. This has serious implications on how
smooth the outsourcing arrangement operates. According to The Enhanced
Telecom Operator (eTOM), the Business Process Framework discussed in chapter 2
serves as a blueprint for telecommunications service provider process direction, and
provides a neutral reference point for internal process reengineering needs,
partnerships, alliances, and general working agreements with other companies. The
research finding shows a discrepancy on the part of the contractors as failure to
understand the business processes is one of the reasons for failure of outsourcing
partnerships. As noted by Haveckin (2012), outsourcing results in more complexity
in the business processes, and it is thus important that both partners have an
understanding of the processes involved. Otherwise operational efficiency will not be
achieved.
4.1.13 Outsourcing reduced costs?
Figure 4.11 shows the percentage responses to the question on cost reduction.
Figure 4-11: Outsourcing reduced costs?
56% of the respondent did not
reduce costs of Network Build, while 30% of the respondents agreed with the
statement. The mean response of 2.6 shows that overally; Liquid Telecom
employees disagree with the view that outsourcing reduces ope
coefficient of variation {(STD dev)/ (Mean)} is 54.5% (As shown in the response
analysis spread sheet (Appendix A). This gives the range of the mean within (
4.017) showing that there is sufficient level of disagreement with the s
outsourcing and operational costs.
This finding is in harmony with the earlier finding
advantage, where the majority of the respondents were not sure if outsourcing had
helped the Liquid to gain
model, network build, which is currently outsourced, constitutes a huge chunk of the
costs for the company. Any cost savings in this portion of the value chain, will
14
16
97
Outsourcing reduced costs?
shows the percentage responses to the question on cost reduction.
Outsourcing reduced costs?
56% of the respondent did not believe that outsourcing helped Liquid Telecom
reduce costs of Network Build, while 30% of the respondents agreed with the
statement. The mean response of 2.6 shows that overally; Liquid Telecom
employees disagree with the view that outsourcing reduces ope
coefficient of variation {(STD dev)/ (Mean)} is 54.5% (As shown in the response
analysis spread sheet (Appendix A). This gives the range of the mean within (
showing that there is sufficient level of disagreement with the s
outsourcing and operational costs.
This finding is in harmony with the earlier finding on outsourcing
advantage, where the majority of the respondents were not sure if outsourcing had
helped the Liquid to gain competitive advantage. As discussed in the business
model, network build, which is currently outsourced, constitutes a huge chunk of the
costs for the company. Any cost savings in this portion of the value chain, will
28
28
14
shows the percentage responses to the question on cost reduction.
believe that outsourcing helped Liquid Telecom
reduce costs of Network Build, while 30% of the respondents agreed with the
statement. The mean response of 2.6 shows that overally; Liquid Telecom
employees disagree with the view that outsourcing reduces operational costs. The
coefficient of variation {(STD dev)/ (Mean)} is 54.5% (As shown in the response
analysis spread sheet (Appendix A). This gives the range of the mean within (1.183,
showing that there is sufficient level of disagreement with the statement on
on outsourcing and competitive
advantage, where the majority of the respondents were not sure if outsourcing had
age. As discussed in the business
model, network build, which is currently outsourced, constitutes a huge chunk of the
costs for the company. Any cost savings in this portion of the value chain, will
Strongly Disagree
Disagree
Not Sure
Agree
Strongly Agree
98
translate to a huge saving by the company, hence leading to competitive advantage.
The research finding is in line with the observation that “vendors and outsourcing
partners have diametrically opposite requirements in outsourcing arrangement (Pai
& Basu, 2007). This is because contractors are naturally looking to increase profits
but the sourcing partner is looking for lower costs. Therefore in as far as cost
reduction is concerned; contractors and client are not partners, because profit
motives are not shared.
However, many researchers have argued that the overall amount of cost savings
(mostly from IT outsourcing) can range between 20% and 60% (Greene, 2006).
However, some of the claims are made by outsourcing vendors and may not be
trustworthy.
99
4.1.14 Contractors require ongoing supervision?
Figure 4-12:Contractors require ongoing supervision?
The majority (72%) of the respondents strongly agreed with the statement that
contractors require ongoing supervision in the field. The mean response (4.67) is
well within the affirmative region and none of the respondents disagreed with the
statement. This is in harmony with the research findings by Hijazi (2005), who
concluded that outsourcing requires ongoing supervision.
Such findings mean that Liquid has to invest in personnel to constantly supervise the
contractors hence reducing the likelihood of reducing costs by outsourcing. A
possible explanation of this finding is what Havenick (2012), termed self-defeating
prophecy, which can be explained as a fear of some consequence that drives people
in a given firm to find a solution before the problem actually occurs and hence the
5%
23%
72%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Neutral
Agree
Strongly Agree
Series1
non-occurrence of the problem is unanticipated. In Liquid Telecom’s case, it could
be the fear of outsourcing partners not performing to
them performing to standard is not anticipated). In this case Liquid ends up
employing unnecessary supervisory staff (hence increasing costs).
4.1.15 Market demands are forcing contractors to improve
performance at same cost
Figure 4-13: Contractors’
Most (63%) of the respondents were in the agreement region (agree and strongly
agree), implying that on average Liquid Telecom acknowledges that market
demands are forcing contractors to improve their performance at the same cost. The
mean response of 3.72
contractors to result in possible reduction of costs in the future.
40%
23%
100
occurrence of the problem is unanticipated. In Liquid Telecom’s case, it could
be the fear of outsourcing partners not performing to standard (thus the possibility of
them performing to standard is not anticipated). In this case Liquid ends up
employing unnecessary supervisory staff (hence increasing costs).
Market demands are forcing contractors to improve
performance at same cost
Contractors’ performance improving due to market demands?
Most (63%) of the respondents were in the agreement region (agree and strongly
agree), implying that on average Liquid Telecom acknowledges that market
demands are forcing contractors to improve their performance at the same cost. The
mean response of 3.72 shows that in general there is competition among the
contractors to result in possible reduction of costs in the future.
14%
23%
40%
23%
occurrence of the problem is unanticipated. In Liquid Telecom’s case, it could
standard (thus the possibility of
them performing to standard is not anticipated). In this case Liquid ends up
employing unnecessary supervisory staff (hence increasing costs).
Market demands are forcing contractors to improve
performance improving due to market demands?
Most (63%) of the respondents were in the agreement region (agree and strongly
agree), implying that on average Liquid Telecom acknowledges that market
demands are forcing contractors to improve their performance at the same cost. The
shows that in general there is competition among the
Disagree
Neutral
Agree
Strongly Agree
101
Closely linked to this observation is the concept of spatial agglomeration or, more
specifically, the location of firms within a dense industrial area, increasing the
probability of finding specialised suppliers (Antonietti & Cainelli, 2009).
On interviewing senior management, these views were supported by observations
that most of the contractorscontracted by Liquid Telecom actually started operations
as a way of taking advantage of Liquid Telecom’s outsourcing philosophy. Thus,
prior to Liquid Telecom, there was no market to have these specialized suppliers in
Zimbabwe. However, as Liquid maintains its outsourcing philosophy, some of the
companies have started becoming specialized in this market and hence competition
is forcing them to produce better results at the same cost. Thus there are scale
economies to be gained as the numbers of closely related industries begin to
increase in Zimbabwe.
4.1.16 Relationship with Contractors is strong
Figure 4-14:Relationship with Contractors is strong?
The compacted results shown in
are non-committal about the relationship between the business and the outsourcing
vendor. The mean response is 2.93 showing that in general, the respondents neither
agree nor disagree with the statement that the relationship with contractors is strong.
This correlates with the finding in the major objective, that there is no sufficient
evidence to conclude that outsourcing has improved the
business. A plethora of researchers have concluded that relationship between the
outsourcing partners is key for success, and can be used as a proxy for a company’s
sourcing maturity as discussed in
(2007), “business value from outsourcing is increasingly dependent on how well the
relationship between the client and i
0 20
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
5
21
19
2
102
Relationship with Contractors is strong
Relationship with Contractors is strong?
The compacted results shown in Figure 4.14 indicate that 53% of the respondents
about the relationship between the business and the outsourcing
vendor. The mean response is 2.93 showing that in general, the respondents neither
agree nor disagree with the statement that the relationship with contractors is strong.
ates with the finding in the major objective, that there is no sufficient
evidence to conclude that outsourcing has improved the competitiveness
business. A plethora of researchers have concluded that relationship between the
key for success, and can be used as a proxy for a company’s
sourcing maturity as discussed in Chapter 2. According to Han, Lee and Seo
(2007), “business value from outsourcing is increasingly dependent on how well the
relationship between the client and its service provider(s) is managed”. Without
20 40 60 80 100
53 Relationship with contractors is
strong
indicate that 53% of the respondents
about the relationship between the business and the outsourcing
vendor. The mean response is 2.93 showing that in general, the respondents neither
agree nor disagree with the statement that the relationship with contractors is strong.
ates with the finding in the major objective, that there is no sufficient
competitiveness of the
business. A plethora of researchers have concluded that relationship between the
key for success, and can be used as a proxy for a company’s
According to Han, Lee and Seo
(2007), “business value from outsourcing is increasingly dependent on how well the
ts service provider(s) is managed”. Without
Relationship with contractors is
103
strong relationship between Liquid and its outsourcing partners, it would be difficult
to gain competitive advantage from outsourcing. To further analyse the relationship
between Liquid Telecom and its partners, as well as bring out the sourcing maturity
of the former, the following questions were also asked and are analysed below.
4.1.17 Type of outsourcing employed by Liquid
Table 4-5:Type of outsourcing employed by Liquid Telecom
Mean Response
(2d.p) Ranking
Staff Augmentation 3.40 3
Out-tasking 4.30 1
Project Based
Outsourcing 3.63 2
Managed Services
Model 2.40 4
The mean response for out-tasking was highest, showing that most of Liquid’s
outsourcing is whereby the company contracts out specific tasks but maintains
control over the strategy and implementation. The second ranked type of
outsourcing was Project-based outsourcing where the outsourcing partner is given
total responsibility for a project (turn key projects). Staff augmentation and Managed
services are not normally employed from the mean responses (3.4 and 2.4
respectively) which are in the rejection region.
According to Manish and Rohini (2007), out-tasking and project based outsourcing
should be employed by companies whose sourcing maturity level is in the medium
region, and are also willing to improve the sourcing maturity.
4.1.18 Outsourcing is supported by
Figure 4-15: Outsourcing is supported by management?
Over 96% of the respondents agreed (agree and strongly agree) that there is
management support for outsourcing. This
continues even though there are serious doubts to whether it’s giving Liquid
Telecom a competitive advantage or not. This finding also points to Liquid Telecom’s
outsourcing maturity being in the medium region. Thi
Manish (2007), in this region;
• There is long term thinking in some selected areas (The fact that
Management supports outsourcing shows that they are focusing on the long
term gains instead of short term tactical focus.
0%
Neutral
Agree
Strongly Agree
5%
104
Outsourcing is supported by management
Outsourcing is supported by management?
Over 96% of the respondents agreed (agree and strongly agree) that there is
management support for outsourcing. This also explains the reason why outsourcing
continues even though there are serious doubts to whether it’s giving Liquid
advantage or not. This finding also points to Liquid Telecom’s
outsourcing maturity being in the medium region. This is because according to
Manish (2007), in this region;
There is long term thinking in some selected areas (The fact that
Management supports outsourcing shows that they are focusing on the long
term gains instead of short term tactical focus.
20%40%
60%80%
100%
5%
70%
26%
Over 96% of the respondents agreed (agree and strongly agree) that there is
also explains the reason why outsourcing
continues even though there are serious doubts to whether it’s giving Liquid
advantage or not. This finding also points to Liquid Telecom’s
s is because according to
There is long term thinking in some selected areas (The fact that
Management supports outsourcing shows that they are focusing on the long
Series1
105
• There is willingness to accept a model that requires initial investment with
returns over a longer horizon. (Management has continued to invest in the
outsourcing arrangement and is probably looking on a longer horizon)
4.1.19 Relationship between Liquid Telecom and Outsourcing
partners
Table 4-6:Relationship between Liquid Telecom and Outsourcing partners
Relationship Measure Disagree Neutral Agree Mean
response
Relationship with contractors is
based on trust 35% 23% 42% 3.02
Relationship with contractors is
based on contract only 14% 63% 23% 3.09
Liquid Telecom business units are
committed to relationship with
contractors
9% 58% 33% 3.23
Contractors are committed to the
relationship 44% 47% 9% 2.63
Liquid Telecom commits resources
to sustain relationship 12% 58% 31% 3.23
Outsourcing partner commits
resources to sustain relationship 14% 53% 33% 3.19
Overall Mean Response
3.065
106
Forty-two percent (42%) of the respondents agreed that the outsourcing relationship
was based on trust, while 35% of the respondents were disagreeable. As a follow up
question, respondents were asked if relationship was based on contract only, and
63% were non-committal. The other 33% of the respondents felt that Liquid Telecom
is committed to the relationship with contractors. This compares well to the 31% who
agreed that Liquid Telecom commits resources to sustain the relationship. Overally,
there is evidence to support that indeed Liquid Telecom is committed to sustaining
the relationship, although this is contradicted by 86% of the respondents who
indicated that they had not received any formal training on best practices for
managing contractor relationship. Only 9% of the respondents felt that contractors
were committed to the relationship, although 33% felt contractors commits resources
to sustain the relationship. The overall mean response to the relationship questions
shows that the relationship still requires investment from both sides to get to the
strong rating. This confirms the findings to Question 4.2.6.1 that there is no sufficient
evidence to regard the relationship as strong. This again points to a sourcing
maturity level in the medium region.
The findings correlate well with the discussion on sourcing maturity level at Liquid
Telecom. According to Havenick (2012), trust in the relationship is very important as
it allows realistic relationship between both parties and establishes equal
partnerships between the outsourcing client and service providers with the aim of
attaining strategic management outcomes for both parties i.e. a win-win strategy. In
an interview with the former Chief Operations Officer for Liquid Telecom ZImbabwe
(Johan Engelbrecht), one of the issues highlighted was that there should be trust
and intimacy between the outsourcer and the contractor. He gave an equation to
express the basis of this trust as;
Trust = (IntimacyXCredibility)/Risk. Equation 4.1
His argument was that trust allows the contractor and Liquid Telecom to share the
risks. However, this can only grow once there is a good relationship (intimacy) as
well as credibility. This is in agreement with Havenick’s (2012) who conclusion that
integrity and trust should be the basis of the outsourcing relationships. The
outsourcing arrangement would effectively be a failure if the partners involved were
required to stick to the letter of the contract under any circumstances and this means
that trust and professional conduct are the basis for outsourcing relationships.
4.1.20 Corporate culture clashes between contractors and Liquid
Telecom are an ongoing issue
Figure 4-16: Corporate Culture Clashes?
The respondents generally (60%) agreed that there were differences in business
processes between Liquid Telecom and contractors. This is also supported by a
question on corporate culture differences which yielded almost similar results, where
0% 20%
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
0%
5%
7%
7%
107
. This is in agreement with Havenick’s (2012) who conclusion that
ity and trust should be the basis of the outsourcing relationships. The
outsourcing arrangement would effectively be a failure if the partners involved were
required to stick to the letter of the contract under any circumstances and this means
nd professional conduct are the basis for outsourcing relationships.
Corporate culture clashes between contractors and Liquid
Telecom are an ongoing issue
Corporate Culture Clashes?
The respondents generally (60%) agreed that there were differences in business
processes between Liquid Telecom and contractors. This is also supported by a
question on corporate culture differences which yielded almost similar results, where
20% 40% 60% 80% 100%
16%
30%
49%
7%
14%
19%
53%
7%
Differenet Business processes
between Liquid and contractors
causes disagreements
Corporate culture clashes
between contractors and Liquid
Telecom are an ongoing issue
. This is in agreement with Havenick’s (2012) who conclusion that
ity and trust should be the basis of the outsourcing relationships. The
outsourcing arrangement would effectively be a failure if the partners involved were
required to stick to the letter of the contract under any circumstances and this means
nd professional conduct are the basis for outsourcing relationships.
Corporate culture clashes between contractors and Liquid
The respondents generally (60%) agreed that there were differences in business
processes between Liquid Telecom and contractors. This is also supported by a
question on corporate culture differences which yielded almost similar results, where
Differenet Business processes
between Liquid and contractors
causes disagreements
Corporate culture clashes
between contractors and Liquid
Telecom are an ongoing issue
108
(54%) agreed with the statement. This has implications on the success of the
outsourcing strategy as the alignment between business cultures of the outsourcing
partner and the client are critical for success. From organizational behaviour theory,
organizational culture is an important ingredient for attainment of competitive
advantage. Hirschheim, George & Wong (2004) argue that one of the problems with
outsourcing is the organizational culture gap between the business and its service
providers. Thus, it becomes very difficult for Liquid Telecom’s culture, for example to
permeate that of the contractors as they are managed and controlled elsewhere.
Such differences normally lead to failure to gain competitive advantage from the
outsourcing arrangement.
4.1.20.1 Performance Feedback and Service level Agreement
Figure 4-17:Performance feedback measures
Overally, the mean responses indicate that there are no clear systems to measure
contractor performance on a regular basis. There are no proper feedback systems
0
0.5
1
1.5
2
2.5
3
3.5
Contractor
performance is
reviewed on a
regular basis
Feedback is
provided to
contractors
following a review
Problem solving is
a joint exercise
between Liquid
Telecom and
contractor
Contractor
communications
are credible
Contractors
communications
are timely
Performance is
measured against
clearely defined
SLAs
Series1
109
while there is no sufficient evidence from the research to prove collaboration in
solving problems. These results point to a weak relationship between the contractors
and Liquid Telecom as discussed in 4.2.6.1 above. The mean response to whether
performance measures are based on clearly defined SLA targets was 2.7 signifying
that the majority of Liquid employees either do not know about the SLA, or feel there
are no SLA targets for contractors. Additionally, it is clear that contractor
communications are regarded as neither credible nor timely by Liquid Telecom. This
is in harmony with the earlier discussion that the Liquid Telecom sourcing maturity is
in the medium region according to Manish (2007) model.
4.1.21 Outsourcing has improved the quality of work
Figure 4-18:Outsourcing has improved the quality of work
Fifty one 51% of the respondents were non-committal while interestingly none (0%)
of the respondents strongly agreed with the statement. The mean response to this
question also shows that the quality of the contactors is on average not much better
than insourced work. This is in agreement with Haveckin (2012) who hypothesizes
16%
23%
51%
10%
Strongly Disagree Disagree Neutral Agree
that quality may deteriorate when service and su
outsourced.
4.1.22 Choosing wrong contractors has caused ongoing quality
problems
Figure 4-19: Choosing wrong contractors has caused ongoing quali ty
problems.
Forty-seven percent (47%) of the respondents strongly agreed with the statement
that wrong choice of contractors has caused ongoing quality problems at Liquid
telecom. In total 73% of the respondents agreed with this observation.
0%
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
5%
110
that quality may deteriorate when service and support are transferred and
Choosing wrong contractors has caused ongoing quality
Choosing wrong contractors has caused ongoing quali ty
seven percent (47%) of the respondents strongly agreed with the statement
that wrong choice of contractors has caused ongoing quality problems at Liquid
telecom. In total 73% of the respondents agreed with this observation.
20% 40% 60% 80% 100%
9%
5%
14%
26%
47%
pport are transferred and
Choosing wrong contractors has caused ongoing quality
Choosing wrong contractors has caused ongoing quali ty
seven percent (47%) of the respondents strongly agreed with the statement
that wrong choice of contractors has caused ongoing quality problems at Liquid
telecom. In total 73% of the respondents agreed with this observation.
100%
Series1
This supports the finding that
quality of network build. This is in line with the argument that there are no sufficiently
equipped contractors in Zimbabwe to deliver the required standards at Liquid
Telecom at a reasonable cost (spatia
4.1.23 Insourced work (using internal staff) is of better quality than
outsourced work
Figure 4-20:Quality of internal work is higher than outsourced work
This follow up question yielded 53% res
with the statement that insourced work is of better quality than outsourced work. This
was asked as a way of confirming responses to the earlier question on whether
outsourcing had impacted positively on the quality
Telecom.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Strongly
Disagree
2%
111
This supports the finding that in general outsourcing has not helped improved the
quality of network build. This is in line with the argument that there are no sufficiently
contractors in Zimbabwe to deliver the required standards at Liquid
Telecom at a reasonable cost (spatial agglomeration).
Insourced work (using internal staff) is of better quality than
outsourced work
Quality of internal work is higher than outsourced work
This follow up question yielded 53% respondents who indicated that they agreed
with the statement that insourced work is of better quality than outsourced work. This
was asked as a way of confirming responses to the earlier question on whether
outsourcing had impacted positively on the quality of network build at Liquid
Disagree Neutral Agree Strongly
Agree
5%
21% 19%
53%
in general outsourcing has not helped improved the
quality of network build. This is in line with the argument that there are no sufficiently
contractors in Zimbabwe to deliver the required standards at Liquid
Insourced work (using internal staff) is of better quality than
Quality of internal work is higher than outsourced work
pondents who indicated that they agreed
with the statement that insourced work is of better quality than outsourced work. This
was asked as a way of confirming responses to the earlier question on whether
of network build at Liquid
Strongly
Agree
53%
Series1
The finding again points to the earlier observation in the
sufficient spatial agglomeration in the Telecommunications Build industry for Liquid
to have access to expertise in this area. The
results obtained in the analysis of the main question on competitive advantage.
4.1.24 Liquid Telecom has more experienced staff who do a better job
than contractors
Figure 4-21:Liquid Telecom has more experienced staff who do a better job
than contractors.
Thirty-seven percent (37%) of the respondent’s strongly agreed with this statement,
while 49% were in agreement. In total 86% agreed that Liquid Telecom has more
experienced staff that does a better job. The mean response (4.19) shows that on
average Liquid Telecom employees believe that they produce better quality work
than contractors. Although there is room for bias in that the employees asked would
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Disagree
5%
112
The finding again points to the earlier observation in the interviews
sufficient spatial agglomeration in the Telecommunications Build industry for Liquid
to expertise in this area. The finding is also in agreement with the
results obtained in the analysis of the main question on competitive advantage.
Liquid Telecom has more experienced staff who do a better job
than contractors
Liquid Telecom has more experienced staff who do a better job
37%) of the respondent’s strongly agreed with this statement,
while 49% were in agreement. In total 86% agreed that Liquid Telecom has more
nced staff that does a better job. The mean response (4.19) shows that on
average Liquid Telecom employees believe that they produce better quality work
than contractors. Although there is room for bias in that the employees asked would
Neutral Agree Strongly Agree
9%
49%
37%
interviews that there is no
sufficient spatial agglomeration in the Telecommunications Build industry for Liquid
finding is also in agreement with the
results obtained in the analysis of the main question on competitive advantage.
Liquid Telecom has more experienced staff who do a better job
Liquid Telecom has more experienced staff who do a better job
37%) of the respondent’s strongly agreed with this statement,
while 49% were in agreement. In total 86% agreed that Liquid Telecom has more
nced staff that does a better job. The mean response (4.19) shows that on
average Liquid Telecom employees believe that they produce better quality work
than contractors. Although there is room for bias in that the employees asked would
Series1
obviously rank their work than that of contractors, the observations consistently
support the view that there is no sufficient evidence to show that outsourcing had
improved the quality of work.
Testing the Hypothesis
4.1.25 Current Outsourcing helped Liquid Telecom to achieve
sustainable competitive advantage (direct hypothesis testing
question)
Figure 4-22: Outsourcing as a source of competitive advantage
Forty percent (40%) of the respondents were neutral, while 35% of the respondents
agreed that outsourcing has increased the
mean response of 3.47 shows that overally; Liquid Telecom employees are not
decided on whether outsourcing has had a positive impact on the competitiveness of
the business or not. Although the mean is slightly on the agreement side, the
35%
113
r work than that of contractors, the observations consistently
support the view that there is no sufficient evidence to show that outsourcing had
improved the quality of work.
Testing the Hypothesis
Current Outsourcing helped Liquid Telecom to achieve
sustainable competitive advantage (direct hypothesis testing
Outsourcing as a source of competitive advantage
Forty percent (40%) of the respondents were neutral, while 35% of the respondents
agreed that outsourcing has increased the competitiveness of Liquid Telecom. The
mean response of 3.47 shows that overally; Liquid Telecom employees are not
r outsourcing has had a positive impact on the competitiveness of
the business or not. Although the mean is slightly on the agreement side, the
5% 7%
40%
14%
r work than that of contractors, the observations consistently
support the view that there is no sufficient evidence to show that outsourcing had
Current Outsourcing helped Liquid Telecom to achieve
sustainable competitive advantage (direct hypothesis testing
Outsourcing as a source of competitive advantage
Forty percent (40%) of the respondents were neutral, while 35% of the respondents
of Liquid Telecom. The
mean response of 3.47 shows that overally; Liquid Telecom employees are not
r outsourcing has had a positive impact on the competitiveness of
the business or not. Although the mean is slightly on the agreement side, the
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
114
coefficient of variation is 29% (As shown in the response analysis spread sheet
(Appendix A). This gives the range of the mean within (2.4637, 4.511) showing
neither agreement nor disagreement with the statement on outsourcing and
business competitiveness.
Direct Hypothesis Testing: For the purposes of testing the hypothesis, the data is
presented in Figure 4.17 with the responses summarized to give two categories as
shown.
Figure 4-23:Outsurcing as a source of competitive advantage for Liquid
Telecom
The Z-Test Statistical Method: The Z-test statistical method was used to test the
hypothesis as presented in chapter one.
Assumptions:
The test was conducted based on the following assumptions;
• Responses are normally distributed
51%
49%
Strongly Disagree +Disagree+
Not Sure
Strongly Agree+ Agree
115
• Level of significance (L.O.S) =5% (As stated in chapter one)
Null Hypothesis: H0: Current Outsourcing approach is a source of
sustainable competitive advantage for Liquid
Telecom.
Alternative Hypothesis: H1: Current Outsourcing approach is not a source of
competitve advantage for Liquid Telecom
Step 1: Critical Value: The CV is given by equation 4.1 as;
Step 2 : Pr (0≤Z≤Cv) +0.05=0.5 Equation 0-1
Step 3 : The research hypothesis is given as equation 4.2-2 and 4.2-3 as;
H0:µ0≤3 Equation 0-2
H1:µ0>3 Equation 0-3
Step 4 : Decision Rule: Accept H 0 if Z calc ≤1.645
: Reject H 0 if Z calc >1.645
Step 5: Calculating Z calc Zcalc: =√n*(×- µ0)/s Equation 0-4
Where; Zcalc is the calculated Z value
n is the sample size,
x is the mean response
s is the standard deviation.
Using equation 4.2-4 we get ;
Zcalc = √43*(3.47- 3)/0.984
= 3.132109864
116
The calculated value of Zcalc show that Zcalc > 3 , thus showing that according to
Liquid Telecom employees, we reject the hypothesis that the current
outsourcing approach has resulted in sustained comp etitive advantage.
Discussion of The Hypothesis
From the research, at 5% Level of Significance , according to Liquid Telecom
employees, there is no sufficient evidence to support the hypothesis that the current
outsourcing approach is a source of sustainable competitive advantage for Liquid
Telecom Zimbabwe. A deeper analysis of the various respondents groups shows
that most of those that agreed with the statement were either junior staff or first level
supervisors. Interestingly, amongst the senior management and executives, none
was convinced that outsourcing increased the competitiveness of the business.
This major finding is in harmony with the results obtained by Wang (2008) who
concludes that there is limited direct or positive effect of outsourcing IT on company
performance and competitive advantage. Similarly, Hall (2000), in a similar study
fails to find any link between outsourcing and competitive advantage. The research
findings also agree with Bourbeau (2004) who observes that although the trend to
outsource continues to grow, the amount of evidence regarding the effectiveness of
outsourcing is minimal, confusing, and highly subjective. He argues that at best,
outsourcing saves money but at the expense of quality, or at least without improving
it.
On the other hand, research by vendors, for example IBM Global Services, claim
that using ‘robust statistical methods’ they proved that ‘outsourcing IT is a strategic
business decision that is likely to boost a firm’s performance’ (IBM Global Services
p.10 2006). In an interesting outcome, George & Wong (2004) found loss of
competitive advantage as one of the drawbacks of outsourcing. Quin and Hilmer
(1994) introduced the term “strategic outsourcing” which advocated for the
outsourcing of non-core activities for the attainment of strategic goals. In this regard,
117
Willock (1995) argued that the main question on management’s mind should not be
whether to outsource or not, but a more useful question is “how do we use, if at all,
the opportunity that is available on the market, to leverage business advantage?”
Thus the question should be “rightsourcing” rather than outsourcing.
This finding is also in line with the responses to the other questions analysed above.
A summary of all findings is presented herein at a glance.
Findings of the Research Study
It was found out that:
• There was a general belief that the current outsourcing approach has had no
major impact on Liquid Telecommunications’ competitiveness.
• There was a general belief among the senior managers that outsourcing was
aligned to the company’s strategy. The rest of the interviewees expressed
ignorance of the company’s strategy, and hence responses to questionnaires
were non-conclusive.
• The most important reasons for outsourcing were listed as 1) to gain
competitive advantage 2) to free up internal resources 3) to gain access to
expertise.
• Most of the Liquid Telecom employees were not convinced that in-house
performance of currently outsourced activities would lead to lack of strategic
focus. Interviews with strategy making personnel however revealed that this
was the general feeling amongst senior management.
• Outsourcing had not achieved any meaningful cost-reduction
• There was a general agreement that contactors require ongoing supervision
amongst Liquid Telecom employees
• Most of Liquid Telecom employees felt market forces were resulting in
contractors doing better work at the same cost.
118
• Liquid Telecom employees generally disagreed with the notion that
outsourcing had improved service delivery timelines.
• There was general belief that contractors did not have expertise in their area
of work
• The relationship between Liquid Telecom and contractors is weak
• There was general feeling that management support for outsourcing is high
• Liquid Telecom’s sourcing maturity is in the medium region, on the sourcing
maturity curve.
• Outsourcing has not improved the quality of work done
• Most of the Liquid Telecom employees believed that internal work is of better
quality than that of contractors
Chapter Summary
The chapter has presented and analysed the research results. The data revealed
that Liquid Telecom has not gained competitive advantage from its current
outsourcing approach. It also revealed that none of cost reduction, quality
improvement or service delivery improvement had been achieved due to
outsourcing. The analysis of the sourcing maturity and relationship with contractors
revealed that the relationship is weak and the sourcing maturity medium. The
analysis took cognisance of the fact that organisations are complex, with multi-
dimensional variables such as different personnel and groups which have complex
relationships and different agendas and drives. So, while management supports
outsourcing, for example, there seems to be general dismissal of the performance of
the contractors by most of the staff at Liquid Telecom. Such a scenario helps explain
the apparent failure of outsourcing at Liquid Telecom and forms the basis of the
recommendations and conclusions in the next chapter
119
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS
Introduction
This chapter provides a brief summary of the salient issues of the study and also
draws some conclusions from the analyzed results. Appropriate recommendations
are then given based on the study findings. Areas of possible future research are
also highlighted
Conclusions
Theory has revealed that outsourcing is a powerful tool that can be used by an
organisation to help change the value proposition that it offers its customers if
properly used. In the telecommunications, field which is characterised by high
clockspeed and ultra-dynamic changes, organizations in emerging markets like
Zimbabwe could gain competitive advantage by embracing this strategic tool.
However, if wrongly planned for and executed, outsourcing can be a major drain on
the organisation’s resources.
The conclusions drawn from the analysis of results as highlighted in Chapter 4 are:
120
5.1.1 Liquid Telecommunications is currently not gaining sustainable
competitive advantage from its outsourcing approach. Ability to
manage the outsourcing relationship is low and hence the
organization shows characteristics of an organization in the medium
level of the sourcing maturity level.
5.1.2 The current outsourcing approach has not improved Liquid Telecom
service delivery and this was heavily impacted by the lack of
expertise amongst the crop of contractors engaged by Liquid
Telecom.
5.1.3 The current outsourcing approach at Liquid Telecom is not based on
mutual trust between the outsourcer and the provider. This is
exacerbated by the lack of formal training to manage contractors
within the Liquid Telecom workforce, and a poor understanding of
Telecommunications business processes by the contractors.
5.1.4 There has been no evident cost reduction achieved by using
contractors in Liquid Telecom. The absence of a strong relationship
between Liquid Telecom and its contractors means Liquid Telecom
continues to employ additional supervisory staff to constantly
monitor the contractors.
121
5.1.5 Liquid Telecommunication employees are not happy with quality of
work done by the contractors and are of the feeling that insourced
work is of better quality. Most of the contractors are ill-equipped and
do not have the necessary skills to match the quality of work done by
Liquid Telecom Zimbabwe.
5.1.6 The nature of work outsourced by Liquid Telecom (Network Build) is
not suitable for off-shoring as it requires physical presence. The
current crop of contractors engaged by Liquid Telecom do not have
the specialized equipment and skills for fibre network build since
there was no ready market for such skills in Zimbabwe before.
122
Declaration on Research Hypothesis
From The findings and subsequent statistical calculations, it can be concluded, at
5% Level of Significance, according to Liquid Telecom employees, there is no
sufficient evidence to support the hypothesis that the current outsourcing approach
at Liquid Telecom is a source of sustainable competitive advantage.
Recommendations
It is recommended that:
5.1.7 Liquid Telecommunications employees at all levels be formally trained on
managing outsourcing relationship.
5.1.8 Liquid Telecom adopts a strategic approach to outsourcing by choosing to
move up the sourcing maturity level. This can be achieved by focusing on long term,
enterprise-wide goals and building enterprise-wide awareness of the sourcing
strategies.
5.1.9 Liquid Telecommunications continues to engage the contractors as a way of
not only building their capacity, but also as a way of building long term relationships
that are strategic in nature so as to build capabilities that will not be easily copied by
competitors, hence achieving sustainable competitive advantage.
5.1.10 Adopt a common business processes framework (eTOM) in dealings with
contractors to reduce processes incongruence.
5.1.11 Liquid Telecom (and the contractors) commits resources to sustain the
relationship. Liquid Telecom should not base contractor dealings on contract only,
but should go the extra mile as a way of showing commitment to the relationship.
i
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APPENDICES
xiv
APPENDIX 1: QUESTIONNAIRE
STRUCTURED QUESTIONNAIRE: Cover Letter.
Dear Respondent,
My name is Stanley Magede. I am an MBA student at the University of Zimbabwe’s Graduate School of Management.
I hereby kindly request you to respond to the statements in the attached questionnaire relating to the research entitled Outsourcing for Competitiveness in the Telecommunications industry in Zimbabwe, The Case of Liquid Telecom. In light of the fact that your accurate and honest responses are pivotal in this research, I urge you to be as truthful and sincere in completing this questionnaire.
There is no right or wrong answer. Please express your personal opinions. You are assured of anonymity and confidentiality and your responses will be treated in strict confidence and will only be used for research purposes. Your participation in this research is voluntary, there is no coercion whatsoever.
Please ensure that your name does not appear anywhere on this document. Your cooperation will be most appreciated.
Thank You
Stanley Magede
…………………..
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Liquid Telecom Outsourcing Survey Questionnaire
Please read the following questions and select an appropriate answer by
selecting the most appropriate response to indicate degree of agreement. Approximate answers are welcome.
About Respondent
1.○ Male / ○ Female
2. Age of respondent
○ 20 to 30 years ○ 31 to 40 years ○ 41 to 50 years ○ 51 to 60 years ○ 61 to 70
years
3. Number of Years with Organization
○ Less than 1 year ○ 1 to 2 years ○ greater than 2 years
4. Time in Current position
○ Less than 1 year ○ 1 to 2 years ○ greater than 2 years
5. Were you involved in the decision to outsource? ○Yes / ○No
6. Your involvement with contractor's work? ○Daily / ○Weekly /○Monthly
7. Have you received formal training on managing relationship with contractors?
○Yes / ○No
8. Position within firm
○ Junior Staff ○ First level Supervisor ○ Middle Manager ○ Senior Manager ○ Director
9. Highest Qualification
○ High School ○ Certificate/Diploma ○ Bachelor’s Degree ○ Master’s Degree ○ Doctorate
9. What best describes your area in the organisation
○Planning and Build ○ Engineering ○ Human Resources ○Commercial ○ Operations ○ Accounting/Finance ○Risk/Audit ○ Other (specify)………
…………………………………………
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Assessing the degree to which outsourcing has helped in achieving sustainable competitive advantage for Liquid Telecom.
DIRECTIONS: This section deals with the perceived relationship between Liquid Telecom outsourcing and business strategy. Please show the extent to which you agree with the statements given below. Do this by picking one of the five numbers next to each statement. If you strongly agree with these statements circle
the number 5 and circle 1 if you strongly disagree. Otherwise circle any one of the numbers in the middle. There is no right or wrong answer.
Strongly Disagree Strongly Agree
1 Outsourcing increased the competitiveness of the business
1 2 3 4 5
2 Organization is planning additional outsourcing in the future
1 2 3 4 5
3 Outsourced activities are of high strategic importance.
1 2 3 4 5
4 Organization’s outsourcing is aligned to the company’s business strategy
1 2 3 4 5
5 Organization’s outsourcing is aligned to the company’s technology strategy
1 2 3 4 5
6 In house performance of currently outsourced activities would lead to a. Lack of strategic focus 1 2 3 4 5
b. Lack of rigour 1 2 3 4 5 c. Cost increases 1 2 3 4 5 d. Project timelines increase 1 2 3 4 5 e. Project scope creep 1 2 3 4 5 7 The following could be listed as the reasons for outsourcing at Liquid Telecom a To save costs 1 2 3 4 5 b Organization’s long term strategy 1 2 3 4 5 c Improved service levels 1 2 3 4 5 d Access to technical expertise 1 2 3 4 5 e To free up internal resources 1 2 3 4 5 f Response to industry competitve forces 1 2 3 4 5 g To introduce new technology 1 2 3 4 5 h To provide staff versatility 1 2 3 4 5 i To gain competitive advantage 1 2 3 4 5
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Assessing the impact of Liquid Telecom Outsourcing on Service delivery Please show the extent to which you agree with the possible reasons for outsourcing given below. Do this by picking one of the five numbers next to each possible reason. If you strongly agree with these reasons circle the number 5 and circle 1 if you disagree. Otherwise circle any one of the numbers in the middle. There
is no right or wrong answer.
Strongly Disagree
Strongly Agree
1 Oursourcing has improved service delivery
timelines 1 2 3 4 5
2 Outsourcing has increased business productivity
1 2 3 4 5
3 Cotractors handle Liquid customers with due care
1 2 3 4 5
4 Contractors understand telecommunications business processes better
1 2 3 4 5
5 Contractors have expertise in their area of work 1 2 3 4 5
Establishing the level of cost reduction achieved by using contractors DIRECTIONS: This section deals with the perceived benefits of outsourcing at Liquid Telecom. Please show the extent to which you agree with the possible benefits given below. Do this by picking one of the five numbers next to each statement. If
you strongly agree with these statements circle the number 5 and circle 1 if you disagree. Otherwise circle any one of the numbers in the middle. There is no right or wrong answer and approximate answers are welcome. Disagree Agree 1 Outsourcing has reduced operational costs 1 2 3 4 5 2 Contractors require ongoing supervision 1 2 3 4 5 3 Market demands force contractors to deliver
more at a lower cost 1 2 3 4 5
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The impact of the outsourcing policy, on the quality of Liquid Telecom network
DIRECTIONS: This section deals with the perceived problems of outsourcing at Liquid Telecom. Please show the extent to which you agree with the possible problems given below. Do
this by picking one of the five numbers next to each statement. If you strongly agree with these statements circle the number 5 and circle 1 if you disagree. Otherwise circle any one of the numbers in the middle. There is no right or wrong answer and approximate answers are welcome.
Strongly Disagree Strongly Agree 1 Outsourcing has improved quality of work 1 2 3 4 5 2 Choosing wrong contractors has caused
ongoing quality problems 1 2 3 4 5
3 Insourced work (using internal staff) is of better quality than outsourced work
1 2 3 4 5
4 Liquid has more experienced staff who do a better job
1 2 3 4 5
Quality of documentation has increased due to outsourcing
1 2 3 4 5
Objective 5: To establish the effectiveness and/or maturity of the Liquid Telecom outsourcing policy.
DIRECTIONS: This section deals with the current outsourcing policy at Liquid Telecom. Please show the extent to which you agree with the statements below. Do this by picking one of the five numbers next to each statement. If you strongly agree with the given statement circle the number 5 and circle 1 if you disagree. Otherwise circle any one of the numbers in the middle. There is no right or wrong answer and approximate answers are welcome.
Strongly Disagree Strognly Agree
1 Relationship with contractors is strong 1 2 3 4 5 2 Type of outsourcing employed by Liquid
Telecom is best described as;
a Staff Augmentation (company takes on contract employees to meet temporary or short term increase in demand for products or services)
1 2 3 4 5 5
b Out-tasking (company contracts out specific tasks but maintains control over
the strategy and implementation)
1 2 3 4 5 5
c Project Based Outsourcing (outsourcing partner is given total responsibility for a project)
1 2 3 4 5 5
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d Managed Services model (outsourcing partner establishes, operates and manages day-to-day operations of the network, services and business support system)
1 2 3 4 5 5
3 Outsourcing is supported by management 1 2 3 4 5 4 Relationship with contractors is based on
trust 1 2 3 4 5
5 Relationship with contractors is based on contract only
1 2 3 4 5
6 Liquid Telecom has clear service level agreements with contractors
1 2 3 4 5
7 Contractors are committed to the relationship
1 2 3 4 5
8 Liquid Telecom business units are commited to relationship with contractors
1 2 3 4 5
9 Outsourcing partners commit resources to sustain relationship
1 2 3 4 5
10 Liquid Telecom commits resources to sustain relationship
1 2 3 4 5
11 Corporate culture clashes between contractors and Liquid Telecom are an ongoing issue
1 2 3 4 5
12 Differenet Business processes between Liquid and contractors causes disagreements
1 2 3 4 5
13 Contractor performance is reviewed on a regular basis
1 2 3 4 5
14 Feedback is provided to contractors following a review
1 2 3 4 5
15 Problem solving is a joint exercise between Liquid Telecom and contractor
1 2 3 4 5
16 Contractor communications are credible 1 2 3 4 5 17 Contractors’ communications are timely 1 2 3 4 5 18 Rigorous internal controls between
business and contractors are in place 1 2 3 4 5
Thank you very much for your assistance. Are there any additional insights related to your outsourcing experience that you would like to express, if so please include below……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
xx
…………………………………………………………………………………………………………………….
xxi
APPENDIX 2: STATISTICAL FORMULAE
AND CALCULATIONS
Arithmetic Meanfor grouped data
�� = ∑ �����∑ ���
Equation 5: Arithmetic Mean
Variance for grouped data, small sample
� = �� − � �∑ ����� −���� ∑ ��� �
Equation 6: Variance for a small sample
Standard Deviationhamber
� = �� = � �� − � �∑ ����� −���� ∑ ��� �
Equation 7: Standard Deviation
xxii
APPENDIX 3: INTERVIEW WITH
SENIOR MANAGEMENT
Interviewees Job Title: Head of Network Planning and Build, Executive Director
Southern Africa, Chief Technical Officer.
What are the major problems currently faced with contractors.
What do you understand by strategic outsourcing?
Have you ever heard of the term sourcing maturity?
In your opinion is top management pursuing strategic outcsourcing?