outsourcing and risk associated with it

7/23/2019 Outsourcing and Risk associated with it

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RESEARCH THESIS FOR MBA PROGRAM

in CHAIN MANAGEMENT

OUTSOURCING SERVICES IN

HOUSEHOLD INDUSTRY


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Abstract

Background: Development and advancement in the technologies and world has

become a global village where ideas, technologies, and human resources are

exchanged on a regular basis which also increases the risk and competition in the

dynamic environment. At the same time where it has provided great opportunities to

business to expand and gain a high momentum to increase its market share by getting

the best out of the available resources, it also has increased certain types of risk

associated with the outsourcing activities. Specifically, the service sector enhance in

size and variety of outputs by means of outsourcing its various departments and

services. The development of the information technology segment has determined the

market environment. To be able to compete in this global market outsourcing of IT

functions can be a valuable tool if handled in the right way. Small and medium sized

enterprises can profit from service outsourcing although studies show that this type of

organizations fail in their outsourcing initiatives in an above average rate as a result of

deficits in risk management, precisely in risk identification.

Aim: The aim of this Master Thesis is to analyse the specific characteristics of small

and medium sized enterprises especially considering Reckitt Benkiser as case study in

order to find out how they impact the different stages of the service outsourcing

process. Theory and empirical data helps to spot strengths and weaknesses of the

selected organization in order to find a solution to a better risk identification process

which then might lead to increased success in outsourcing of services.

Completion and results: Specific characteristics of small and medium sizedenterprises play a significant role in the risk identification process of service

outsourcing. Economic motives are the main reasons for outsourcing and to be cost

effective as well avail qualified staff, and improve overall efficiency.

By being aware of these risks and acting according to minimize them, harm can be

prevented. Especially, a well-designed service outsourcing contract, regular and

smooth communication and personal relationships could be an advantage to overcome

the drawbacks of medium size, high dependency, need for flexibility and lack of

resources.


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CHAPTER FIVE: CONCLUSION........................................................... 35

5.0 Introduction............................................................................................. 35

5.1 Overall conclusion................................................................................... 33

5.2 Limitations............................................................................................... 37

5.4 Implications.............................................................................................

5.4.1 Implication for Managers...............................................................5.4.2 Implication for Theory...................................................................

5.4.3 Implication for future researchers.................................................. 38

REFERENCES............................................................................................ 39


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List of Tables

Table 1: Interview at Pre-Contractual Stage 24

Table 2: Outsourcing employees in three sectors of organization 27

Table 3: Interview about outsourcing after Execution Stage 30

List of Figures

Figure # 1 The Research process 12

List of Bar Diagrams

Bar Diagram 1: the main reasons for outsourcing in the organization 24

Bar Diagram 2: The insourced services by the respective organization 24

Bar Diagram 3: Most commonly outsourced by the organization 25

Bar Diagram 4: The initiatives for the outsourcing of services 25

Bar Diagram 5: The strategic assesment before outsourcing services 26

Bar Diagram 6: Types of risk assesment done by the organization 26Bar Diagram 7: Outsourcing employees in three sectors of organization 27

Bar Diagram 8: Consideration regarding various risks 28

Bar Diagram 9: Selection criteria of vendors for outsourcing 28

Bar Diagram 10: Time frame for negotiations 29

Bar Diagram 11: Measuring failures or success of outsourced sector 29

Bar Diagram 12: Essentiality of renegotiations in outsourcing process 30

Bar Diagram 13: Probable transfered knowldge through outsourcing 31

Bar Diagram 14: Monitoring assist organization in avoiding risk 31

Bar Diagram 15: Mode of communication in the process of outsourcing 32

Bar Diagram 16: Communication plays a vital role in controlling risk 32


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CHAPTER ONE: INTRODUCTION

1.0 Introduction

This chapter of research give brief introduction to the topic. It contains the overview

to the outsourcing services and inherited risk with it. Aim and objectives of research

are identified after discussion. The theoretical framework is designed by the help of

hypotheses which help us to investigate research questions.

The later part of this segment contains, scope and delimitation, significance of the

study and definitions of outsourcing services.

1.1 IntroductionWhat is Outsourcing?

Outsourcing is one of the techniques that have developed in recent era where

organizations as part of their business strategy hire other expert agency in performing

its function by allowing them legally to work on their part. It is a unorthodox method

which gives an opportunity to the organization to shift its focus on to other important

activities and letting the expert agency or agencies to execute and perform functions

on their behalf. Outsourcing is a mutual pact between two parties, respectively the

company who seeks the services from the expert and the service providers. In this the

seeker usually receives the services in-house.

The trend of outsourcing has gradually increased with the passage of time and

industries related to service providing organizations and information technology are

known for outsourcing. Such organizations are always linked with the managing

business intrinsically. Often, in medium and large size enterprises, there is a

possibility of outsourcing its whole information management, which means resource

planning, workstations, call centres and installations, management, network services,

and business analysis are outsourced. Outsourcing varies as large contracts to provide

the entire IT services to even the temporary office employees. For instance, Xerox has

outsourced its IT services and other hiring contract to IBM managers.

According to Dus et al., (2009; p. 3f) Outsourcing classify as the pact with

autonomous service provider to tackle services and functions formerly executed inside

organization A development begin with industrialized business and afterwardssustained in the early 1990s by service providers representatives in the arena of the


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international outsourcing (Bryson and Daniels, 2007). Occurrences and consequences

soon urged medium scale enterprises along with small scale enterprises (because of

shortage of financial and human resources) for the adoption of outsourcing even

though further cautiously than a solution of tactical strategies, it is viewed as a tool for

enhancement of strategic opportunities (Mac and Bhaird, 2010).

The delocalization of business functions into other countries is regarded as

offshoring (Dus et al, 2009, p.3). Regular offshoring is usually done inside firm or

at times offshore outsourcing which means third party. The financial motives such as

reduction in the labour cost, and competitive pressure and strategies related to growth

connected with the differentiation in system of taxation (Jabbour, 2010). Sequentially,

third party working abroad having a complete power to exercise the responsibilities

and executions of business function or a transfer in specific geographic boundaries is

represented by offshore outsourcing (OECD, 2004).

1.1.1 Offshoring, outsourcing and risk management:

The offshoring brings more value to the business as it assist organization in

controlling and reducing the operational cost, and provide an opportunity to shift its

focus on the other important strategies, such as core competencies to strengthen and

optimal utilization of scare resources (Bryson and Daniels, 2007; Sichtmann and Von

Selasinsky, 2010; Mei and Th, 2009). Vendor is an outsourcing company that

facilitates the other company by providing services and it is one of the two sides, the

other side is a business that seeks the services of the experts (OECD, 2004). With the

development and moderation in tools, techniques, and methods, outsourcing and

offshoring has attracted high number of researches and it has served as basic

foundation for the researchers (Mei and Th, 2009; Tafti, 2005; Tate, 2009).

In the early days, manufacturing sector was more associated with the outsourcing and

offshoring but nowadays, service sectors are also strongly connected with these terms

and trends. But it has been noticed that with every strategy that an organization

considers, there is a risk that organization has to initiate. According to Tafti (2005)

because of business relations nature, there is inherited risk with it and when there is

a contractual partnership means service providers and service beneficiary, a threat is

much more as there is risk on both side. Not only risk of general type such as


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communication barrier, limited direct control, organizational culture diversification,

misunderstandings etc, there are some other agendas (cultural conflicts, lack of

process control, communication problems due to time differences and language

asymmetries, political issues) that can increase a risk factor between vendors and

outsourcers (Dus et al, 2009). Furthermore, it is concluded by Dus et al, (2009) that

in regular outsourcing is not being affected by these types of risk especially in IT

sectors and small enterprises.

This is the main reason that increases a researchers interest to investigate that

whether the risk affects the regular outsourcing in the household industry or not.

1.2 Statement of Problem:

What are the causes for outsourcing in the household industries and how risk is

associated with outsourcing in household industry?

1.3 Research Hypotheses:

The correlation between the risk management and outsourcing is significant or not?

1.4 Aim of Research:

The research focuses on identifying the causes of outsourcing in the household

industry, respectively Reckitt and how the risk management is linked with the

outsourcing strategies in the broad spectrum.

1.5 Objectives of Research:

The goals are set to investigate the entire process of outsourcing in relation to the

previous models, past researches, and suggestions proposed by the researchers to

improvise in their business strategies. Therefore, the prime concern in this research is

to generate the information for successful outsourcing implementation process and

how to manage successfully risk involved in the entire process of outsourcing services

in the household industry.

1Elaborate the process of outsourcing in the Reckitt to find its scope, strategies and

implications in the household industries.


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2Steps involved in the successful process of outsourcing at Reckitt.

3 Identify the actual causes that move the organization towards adoption of the

outsourcing strategies.

4 Explore the correlation between the risk management and outsourcing strategies

At Reckitt.

5Conclude the impact of risk management on the entire process of outsourcing in

the business strategies at Reckitt.

1.6 Research Questions:

Q1. What are the causes for the household organization (Reckitt) to opt for the

outsourcing its services?

Q2. Is there a significant relationship between the outsourcing services and risk

involved in the process of outsourcing?

Q3. What is the impact of the risk management on the overall outsourcing business

strategies of Reckitt?

1.7 Significance of the Study:

This research provides insight for many organizations connected directly with the

household sectors which means it is beneficial for them to know about the

outsourcing procedures. The various impacts of outsourcing and its need are

examined in the selected sector which will help the sector to firm its roots. The

selected organization benefits from it as it provides a case study about it and reveal

some of the key dimensions on which Racket can capitalize and rectify where there is

need to improve their strategies. The research is serves as a management literature for

the students, employees, employers, agents, and parties associated with the

outsourcing, chain management, and household industry.

1.8 Scope and Delimitations:The present study is to increase the existing body of knowledge about outsourcing


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services in the household industries with reference to Reckitt Benckiser Pakistan. This

sector, is a significant contributor to the Pakistans economy and therefore it is to

relate the risk factors associated with the outsourcing procedures are investigated and

practical approach is undertaken to conduct descriptive study for the identification of

causes for outsourcing services in household industry.

1.9 Definitions:

Greaver, (1999) defines outsourcing as,

It a process of contracting out the functions of a business by a firm . In other

words, it is a decision made by top management to contract out the functions of their

respective business to external agencies so that the activities which were previously

carried out internally could be done through agencies.

Domberger (1988, p12) defined outsourcing;

Outsourcing as a process of traditionally activities executed by the internals

carried out are subject to contracted out to external providers.

Yadav, (2006) termed it as;

Outsourcing engages two parties that are clients and the providers respectively.

To strike a perfect balance, outsourcing involves immense expertise from client

as well the agency.

This indicates that there is a link between these two respective parties. The linkage

between the provider company through provision of its services or products to aclient in return of profit motives is regarded as outsourcing Lashley and

Morrison, (2002)


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CHAPTER TWO: RESEARCH METHODOLOGY

2.0 Introduction

This chapter discuss the methods and procedure adopted in the present research

investigation. In the first segment the process of this research is explained by

mentioning rationale behind this research followed by description, strategy, data

collection and analysis and later the reliability and validity of the data is elaborated.

2.1. Research Process

According to Blumberg (2008) to attain the final goal, the actions to be executed are

the highlight of research process. The simplest description of research process is

explained in Figure 1.

Figure 1: The Research Process

Source: Walliman, 2001, p. 194

The above mentioned figure is explained step by step below:

Situation: In the investigation we have considered that we have no clue thatwhether the risk is associated with the outsourcing in medium size enterprise

and if so to what extent?

Research topic: theoretical background concerning causes for collapse infacilitating outsourcing is limited, for small and medium sized enterprises.

Current studies demonstrate that an account may be the lack of specialized and

Situation

Research TopicConclusion

Research

MethodsData

RESEARCH

THEORYAnalysis

Collection

Selection

Application Investigation


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systematic risk recognition and in general administration (ESI International,

2010).

Research methods: to investigate risk identification in service outsourcing indepth within SMEs, a qualitative method is undertaken. Interviews from the

management, employees, and associated members of the company are taken

regarding outsourcing with special reference to risk identification.

Data: The in-depth interviews from the internal customers are the primesource in data collection but the extracts are generated from other secondary

sources also. The Deloitte offshore outsourcing life cycle model is

summarized to show he risk involve in the entire process of outsourcing

services.

Conclusion: Walliman (2001) draws the conclusion as the final stage of theresearch process. The conclusion and results are limited to the selected

organization as the data is generated only from one specific organization.

2.2. Timeframe

The time frame for the present research is from the beginning of July 2012 to the end

of September 2012. The structure, scope, definition and theoretical framework took

approximately two months.

The process of continuous editing continued to keep the relevant material in the topic.

Therefore this research is deductive in nature. Interviews with the associated

companies and members lasted in four weeks. The empirical aspect of the process

completed in two weeks. The analytical aspect of this present investigation was

comprehensively completed in early October.

2.3. Research Purpose

Blumberg (2008) explains that the ultimate success of the research rely on the purpose

that is defined in a proper and precise manner therefore, researchs aim, scope,

dilemmas and targeted audience are of great importance.

The risk identification and associated with the process of outsourcing service is one of

the prime purpose of this investigation therefore, the recommendations are suggested

to small and medium size enterprises on the basis of risk involve in outsourcing

process. Goddard et al, (2007); and Blumberg (2008) argued that the research is


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categorized on the particular types of research and this present research is descriptive

as well exploratory in nature (Goddard and Melville, 2007; Blumberg, 2008).

This is a descriptive one as it aims to provide insight to specific situation and deals

with audience (who), event that took place (what), and discuss time and place as

(when and where) (Blumberg, 2008). Our research is descriptive as it tends to discuss

how risk involves and outsourcing services have an impact on the overall process.

Other elements of exploratory type of research attempts to evaluate what is

happening; to seek new insights and to assess phenomena in new lights (Saunders et

al, 2009, p. 139).

The literature framework of our research indicates descriptive aspect as previous

empirical researches are undertaken to explain the risk involve in the outsourcing

services process. We also intent to explain why and how the process is affected which

mean this is the exploratory aspect of this present investigation.

2.4. Research Approach

The most famous two methods in literature to investigate the phenomenon are

qualitative and quantitative and it relies on the topic to be investigated. But it also

depends on the ability to access information and the researchers perspective.

Goddard and Melville (2007) stressed on the mixing of both the methods in order to

have more accurate findings and information. Blumberg, 2008; Marczyk et al., (2010)

consider quantitative approach as an approach to rely more on numbers than

variations, but where human participation is involved and the motive is to understand

the human behaviour than the qualitative method is most prcised one (Blumberg,

2008).

Our perspective is to create understanding about the decisions taken by the

management and we have considered in-depth interviews so this technique of analysis

is qualitative approach with an exploratory perspective.

Blumberg (2008) also explained two distinct approaches of research: deductive and

inductive approach. Our investigation is deductive one as we are depending on the

prevailing theoretical frameworks as data will be generated and used to examine

accordingly. In this approach we have started from underpinning basic concepts from

literature and narrowed it in the direction to reach certain specific issues.


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2.5. Research Strategy

Walliman (2001) explains research strategy as amalgamation of various research

activities to attain specific conclusion. Various researchers such as Goddard and

Melville (2007); Walliman (2001); and Mennen (2010) have considered literature as

the main ingredient to give explain and determine research in a broader perspective.

The usual summarization of the strategy is explained by Blumberg (2008) which

includes surveys, observations, case studies, secondary data and archival sources and

experimentation are the prime methods to design research strategy for collection and

processing of data.

2.5.1. Data CollectionFor the practical perspective data is gathered in this research from primary as well

secondary sources. Blumberg (2008) states that secondary data as has already been

collected and recorded by someone else (p. 315). The advantages of such data are

that it is cost effective but it is less reliable.

In this research we have collected data from secondary sources (both written and

electronic) related to outsourcing services in the small and medium side enterprises

and their data and records to underpin our interest in-to risk identification issue.

From secondary data we have developed our literature and conceptual framework as

our research is deductive approach and move towards primary method with in-depth

interviews. Through this we have opted for the qualitative analysis which assists to

achieve depth rather than breadth and helps in under-standing a whole situation

(Mennen, 2010, p. 12).

2.5.2 Sample Selection

The main focus of our research is household industry where IT services are more in

fashion to be outsourced and we have analysed the performances of IT sector of

Reckitt and the main aspects include the features of traditional services (intangibility,

heterogeneity and perishability), IT businesses, although specific, offer some general

service recommendations.

In this research we have interviewed 200 employees, experts and associated members

of the selected organization as the sample size of the research is limited Schmiemann,

(2008). In this we have considered employees working at top management, middle


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management, lower management and supervisor level.

2.6. Data Analysis

Data analysis is elaborated as Processing observations in order to draw out their

meanings (Stake, 1995, p. 170).Data analysis is a most significant part of the

research process as the aim of the research assists the researcher in the development

of future findings in both empirical data as well to some extent the theoretical

background. The research phenomena is presented to the readers from different angle

along with the displaying the data to the readers in a simple display.

The information gathered from the interviews along with the reports and records of

the company was used in the process of deductive process. Yin stated that descriptive

theoretical frameworks rely more on prior experience and what you expect to occur(Yin, 2003 in Saunders et al, 2009, p. 496) and accordingly will straight the

information study procedure.

For the examination of the specific data structure, Saunders et al (2009) propose the

mixing of the types of procedures: summarizing, grouping and structuring of

meanings. In works of the other researchers we have found classification of phases of

data analysis such as data reduction, data display and drawing and verifying

conclusions (Miles and Huberman, 1994). The data gathered from the interviews was

primarily sort of supporting material because the questions were more related to the

selected company and therefore does not opt to support the factor of generalizibility.

Although the interviews are summarized in order to give more insight about the

personal aspect on the topic of research.

The five stage model of Deloitte is a secondary source to show the empirical aspect as

well it is explaining the theoretical perspective to show the outsourcing life cycle

model and it is beneficial to explain the experiences of company from the business

perspective in the interview references and procedure.

2.7. Validity and Reliability

The two most important criteria to measure and evaluate the authenticity and

correctness of the research are validity and reliability. Jonker and Pennink (2009)

explain study as reliable when the condition is that it can provide similar results a

second time round (Jonker and Pennink, 2009, p. 103). On the other hand, the

perspective of reliability according to them is based on an integral assessment of the


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CHAPTER THREE: LITERATURE REVIEW

3.0 Introduction:

This chapter contains various theories and past empirical studies carried out on

outsourcing services. The available literature is a critical evaluation of previous

research models and theories to explore and investigate the actual causes, benefits and

risk associated with outsourcing services.

3.1 Types of Outsourcing

3.1.1 Basic types of Outsourcing:

1. Business Process Outsourcing (B.P.O.)It is a specific process that a client requires external services to accomplish task

(business-outsourcing.co.uk). Doe to the significance of accomplishment of task, a

professional expertise is required by the outsourcers and service providers assist them

by their expertise, which also turns out to save time and other resources for

outsourcers.

2. Knowledge Process Outsourcing (K.P.O.)Shanthi Kumar (2007) described (K.P.O) knowledge process outsourcing as

outsourcing of a supreme level job transferred to external service provider. It is

considered above BPO as KPO is more critical in nature and requires sensitive and

delicate approach from management perspective. In household sector, BPO and KPO

both are practiced to a great extent and sometime expert decision makers are require

to run the overall business operations.

3.1.2 Resource based theory:

Davis (2000) objectives and goals of company to be achieved are outlined by the

strategy. Davis has considered strategy as one of the corners of a triangle other two

sides are policy and resources. Similarly, Davis (2000) also viewed outsourcing as a

resource method. So it is evident from the above literature that outsourcing is not a

strategy in its own but a part of a strategy that is formed by resources, policy and

strategy of business.

In strategies, of scaling without mass, strategic repositioning and disruptive

innovation outsourcing is vital as it is supporting theses different strategies.


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3.1.3 Theory of core competencies:

Leavy (2004) states that outsourcing is a method for companies to hire experts for the

fulfilment of regular business functions and later focus on corporate resources that

will have firm impact on its customers. On the other hand, Gottschalk and Solli-

Saether (2005) prime concern was theory of core competencies, which means those

tasks that are not included in core-competencies must be outsourced to best service

providers.

3.1.4 Scaling without mass:

It this, a firm is able to retain speed and dexterity by outsourcing its functions without

bringing any change in size or bureaucracy of the firm. This also increases the

presence in the market to grow more.

3.1.5 Disruptive Innovation:

Leavy (2004) argued that most worthy example of disruptive innovation is

outsourcing. The segments are created at below par value as it runs as low cost and

provide disrupt incumbents.

3.1.6 Vertical Integration and neoclassical economic theory:

Neoclassical economic school view the cost saving as a vital strategy. Gottschalk et

al, (2005) the marketplace is essential place that if provide an opportunity to produce

at lower price than the firms internal production will attract the company to outsource

its production unit to save cost. Allen et al, (2006) proposed that cost advantage is the

main factor to urge companies for outsourcing activities.

3.2 Outsourcing:

Varetto et al (2003) explain it as approach of management to delegate non-core

functions to best service providers. Obtaining of services or goods from the

professional external agency is considered outsourcing (Embleton et al, 1998; Parsa et

al, 1999). Whereas, Zhu et al, (2001) suggest, outsourcing as a correlation between

supplier and outsourcer for long term with high degree of risk in it. Outsourcing is a

way of transformation of authority and responsibility from outsourcers to experts in

the performing of business function.


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3.2.1 Benefits of Outsourcing:

The study of Parsa and Lankord (1999) concluded that 15% cost saving is attain by

outsourcing. On the other hand, Domberger (1998) indicates competitive advantage as

an attraction that pushes organizations into direction of outsourcing. Hayward (2002;

P. 26) states except from competitive advantage everything can be copied. The

competitive advantage is depending more on outsourcing. K&K (2000) strongly

suggests defining core competencies is not easy for organisations as it is ambiguous

one (p. 674). Outsourcing is more in focus to sustain core competence Quinn and

Hilmer (1994) give more importance to intellectual skills and management to gain

competitive edge to organization.

This way outsourcing services opportunities are created as to shift a focus on core

competencies, firms usually outsource auxiliary services to best-providers

(Domberger, 1998, p. 37). K&K (2000) concluded their suggestions regarding

outsourcing The outcome of outsourcing depends on the performances being

outsourced along with the effective requirement of resources in substantial mode to

consider the required results (p. 705).

From the discussion above it is quite visible that business see specialization as one of

the key benefit when approaches to outsourcing services and it gives opportunity to

focus more on core competence. Flexibility, discipline in market, and efficiency in

cost are the important benefits of outsourcing (Domberger, 1998).

The sum of key benefits is extracted from various empirical researches. One of the

most essential benefits of outsourcing is reduction in cost indicated by various

researchers such as Hayward (2002) Smike (2000), Deans (2001), Ansley (2000),

Domberger (1998), and Syver (2001). The study of Hayward (2002) indicates 45% of

cost is saved by business through outsourcing strategies. Similarly, Dean (2001) study

shows in Australia, organization minimize their cost through outsourcing strategies.

Teresko, (1990) find outsourcing as a way to replace unsatisfactory services.

Domberger, (1998), and Mise, (2001) considers it as a tool to assist changes and

K&K, (2000) viewed it as transformation of employment terms.


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3.3Concept of Specialization:Specialization is a prime advantage in outsourcing services (Lagfield-Smith, 2001;

Ansley, 2000; Domberger, 1998). It is a shift towards important activities and further

enhance in those functions and letting the expert handle other non-core functions.

K&K (2000) view it as a main advantage of outsourcing. Their research also revealed

that it brings a more flavour to business as the core investments of suppliers are

utilized adequately. Whereas, Domberger (1998) strongly debates that outsourcing the

expert peripheral service providers are capable to accomplish the enormous level than

feasible if the responsibilities and conducts are divide among the different

organizations carrying out then internally. In addition to it, the professional supplier

has gain of magnitude of economies being obtained which may not be attained by the

internal providers (Domberger, 1998).

3.4 Controlling risk:

Domberger, (1998) identified and divided risk in two broad categories such as risk

associated with the activities and risk related to outsourcing. The previous empirical

researches have strongly suggested that a gap widens between the suppliers and

purchasers when risk increases and the control keep getting aside. Bromage (2000)

suggests strategic outsourcing is the shifting of companys risk to service providers.

The risk is divided between the both parties due to a formation of partnership and it is

beneficial for both parties (K&K, 2000; and Quinn 199).

Many fixations of components and variables in contract develop strategies to reduce

the associated risk as the risk is split down to a decided proportion. Though the risk is

different and heavily relies on the types of services offered and considered, such as

employee outsourcing is more risk oriented in the labour intensive industries therefore

contractors are to consider uncertainties in various dimensions while managing risk so

that risk is calculated (Domberger, 1998). A proper management and execution of plan

assist organization to manage and control risk (Mise, 2001).


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3.5 Managing organisational change:

The social costs are the main cause of changes and number of researchers has

considered that outsourcing decisions tackle the changes in the in-house decisions. It

is not often welcome as at times people are reluctant to change so change can cause

discomfort known as Perennial gale of creative destruction (Schumeter, 1943, p. 84,

cited by Domberger, P. 133). This indicates from outsourcing a possibility of internal

resistance and anxiety may occur.

But outsourcing is viewed as a tool to manage effective change. For example, a

company may lose a good chance to get a high quality services from labour market if

rejects to outsourcing. Changes are permanent and once outsourcings intentions are

clearly defined, organizations must have a good flow of communication to eraseemployees and departments unrest.


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CHAPTER FOUR: DATA ANALYSIS AND RESULTS

4.0 Introduction:

This chapter contains the analysis of data generated from in-depth interviews. It

explains the actual risk identification process in medium size enterprises. This chapter

also explains the interview results after categorizing it in different stages of

outsourcing process and serves a strong foundation for generating solutions to the

research questions.

4.1 Empirical Part of Research:This part of research include three vital stages of interview process in which the main

idea of researcher is to investigate the reasons attached with the risk involved in the

entire process of outsourcing.

The three stages in which interviews are conducted in this research as following:

IV. Interview at Pre-Contractual StageV. Outsourcers Interviewed in the Contractual Stage

VI. Outsourcers Interviewed in the Execution Stage

4.1.1 Interview at Pre-Contractual StageTop management Middle

Management

Lower

Management

Supervisor

What is the main

reason behind

Outsourcing

services?

Qualified

staff, costs

Qualified

staff, better

service,

costs, expanding

Qualified

staff, better

service,

costs, flexibility

Qualified

staff, better

service, costs

What type ofservices is in-

sourced?

Customer services,software

maintenance

Softwaredevelopment,

customer service.

Softwaredevelopment,

customer

service

Softwaredevelopment

and maintenance

What type of

services is mostly

outsourced?

IT development

department,

IT development, IT development, IT development,

What are initiatives

for outsourcing

services?

Management Administration and

management

Management Administration

Is any strategic

assessment done

prior to

outsourcing?

Partial Partial No Yes

How riskassessment is done

by the company?

Contractual,political, cultural &

financial risks

especially financial personalInformation references andfeedback of

clients asked


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What is the size of

outsourced activity

by particular level

of management?

50% employees in

customer services.

80% employees in

IT sector.

40% in software.

40-50% in customer

services.

Above 70% in IT.

40% in Software

maintenance

Above 50% in

customer services

and software

maintenance and

above 80% in IT

development.

Above 50% in all

three departments of

the organization.

Table 1: Interview at Pre-Contractual Stage

Chart # 1: The main reasons for outsourcing in the organization.

Chart # 2: Reveals the insourced services by the respective organization.

0

5

10

15

20

25

30

35

Top

management

Middle

Management

Lower

Management

Supervisor

Main Reasons for Outsourcing

Qualified Staff,

Better services

flexibility

costs

05

10152025303540

Insourced services

Customer Services

Software maintenance

Software development


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Char # 3: Most commonly outsourced by the organization.

Chart # 4: The initiatives for the outsourcing of services according to different level oforganization.

0

5

10

15

20

25

30

3540

45

50

IT

development

IT

development

IT

development

IT

development

Most widely outsourced

Top management

Middle Management

Lower Management

Supervisor

0

5

10

15

20

2530

35

40

45

Top

management

Middle

Management

Lower

Management

Supervisor

Inititative for outsourcing services

Manangement

Administration &

Management

Administration


25/44

Chart # 5: The strategic assesment before outsourcing services.

Chart #6: Explains the type of risk assesment done by the organization.

0

5

10

15

20

25

30

35

40

45

50

Top

management

Middle

Management

Lower

Management

Supervisor

Strategic assesment prior to outsourcing

Yes

Partial

No

0

510

15

20

25

30

35

40

Risk assesment by Organization

Top management

Middle Management

Lower Management

Supervisor


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Chart# 7: Outsourcing employees in three sectors of organization

4.1.2 Interview about outsourcing at Contractual StageTop management Middle

Management

Lower

Management

Supervisor

What is the risk

consideration?

Control over

business

processes &

knowledge,

possibility ofcontract termination

Control over

business

Processes, Keeping

project team in case

of vendorbankruptcy,

intellectual property

rights

Intellectual property

rights, constant

service quality,

accuracy

Keeping project

team in case of

vendor bankruptcy.

Accuracy

How the vendor is

selected?

Local visits &

fulfilment of

organizations CSRrequirements

Presentations at HQ

of organization,

Results of

performance in trial

tasks

Personal

impression.

What is the duration

from time of

negotiation to

signing contract?

One week At least one week

and at most two

weeks

Not more than two

weeks

One week

How failure or

success is measured

by certain

management?

Through own local

manager

The quality being

above market

average

Evaluation centre

and local manager

Through internal

system of

evaluation by

internal authorities

Is renegotiation

necessary in

outsourcing?

Yes Yes Yes Yes

Table # 2: Interview about outsourcing at Contractual Stage

Top management Middle

Management

Lower

Management

Supervisor

50% 50% 50% 50%

80%70%

80%

50%40% 40%

50% 50%

Size of outsourced employees in three

sectors

Employees in Customer service Employees in IT sector Employees in Software Sector


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Chart # 8: Consideration regarding various risks

Chart # 9: Selection criteria of vendors for outsourcing.

0%

10%

20%

30%

40%50%

60%

70%

Consideration about risk

Top management

Middle Management

Lower Management

Supervisor

05

1015202530

35404550

Local visits &

fulfilment of

organization's

CSR

requirements

Presentations

at HQ

Results of

performance

in trials

Personal

impresion

Vendor's selection

Top management

Middle Management

Lower Management

Supervisor


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Chart # 10: Time frame for negotiations.

Chart # 11: Measuring failures or success about performance of outsourced sector.

0

5

10

15

20

25

30

3540

45

50

One week 0ne week -

Two weeks

Two Weeks More than

two weeks

Time Duration for negotiation

Top management

Middle Management

Lower Management

Supervisor

05

1015

20253035404550

Through Own

Local Manager

The Quality

Above

Average

Market

Evaluation

Centre

Through

Internal

systems by

Internal

authorities

Measurement of success or failure

Top management

Middle Management

Lower Management

Supervisor


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Chart # 12: Essentiality of renegotiations in outsourcing process.

4.1.3 Interview about outsourcing after Execution StageTop management Middle

Management

Lower

Management

Supervisor

What type of

knowledge

transferred in

vendors?

IT development IT development,

software

maintenance,

customer services,

ideas

Customer base

knowledge and

services,

Software

maintenance, ideas

about IT

development

How the monitoring

help avoiding risk?

Yes, Too great

extent

Of course yes it

helps

Yes Yes

What was the

frequency of

communication?

Email, cell phone,

Skype

Email, Skype, Cell

phone

Skype, Cell phone Cell phone

How much

communications

help calculating

risk?

80% 85% 70% 65%

Table # 3:Interview about outsourcing after Execution Stage

0

5

10

15

20

25

30

35

40

45

50

Yes Yes Yes Yes

Renogotiations necessary in outsourcing

Top management

Middle Management

Lower Management

Supervisor


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Chart # 13: Probable transfered knowldge through outsourcing.

Chart # 14: Monitoring assist organization in avoiding risk and uncertainties.

0

5

10

15

20

25

30

3540

45

50

IT

development

Software

maintenance

Customer

services

Customer base

knowledge

and Ideas

Most probable transfered knowledge

Top management

Middle Management

Lower Management

Supervisor

0

5

10

15

20

25

30

35

40

45

50

Yes Yes Yes Yes

Monitoring helps avoiding risk

Top management

Middle Management

Lower Management

Supervisor


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Chart # 15: Mode of communication according to different levels of management in

the process of outsourcing.

Chart # 16: Communication plays a vital role in controlling risk.

4.2Data Finding Analysis and Discussion:

The above interviews from the employees working in the four different parts of the

organization revealed the important data required for interpretation to reach certain

specific conclusion in this research investigation. The section designed both primary

and secondary research is in accordance with the Deloitte model. The rationale is to

create a better understanding about the behaviour of medium size enterprise regarding

0

5

10

15

20

25

30

35

40

45

50

Top

management

Middle

Management

Lower

Management

Supervisor

Mode of communication

Email

Skype

Cell phone

0

5

10

15

2025

30

35

40

45

50

Risk controlled by means of communication

Top management

Middle Management

Lower Management

Supervisor


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outsourcing and to recognize risk associated with the outsourcings entire process.

Well, when it comes to the risk assessment, we make sure we do not fail individually

or collectively in identifying each and every aspect of risk attached in the process of

outsourcing, from beginning to the end. Mr Iqbal, HR manager about risk assessment

in outsourcing services.

The key notion of deliberate measurement of overall risk is to convey the approach of

organization and outsourcing plans in accordance with the current and upcoming

goals (Fersht et al, 2009). It also contains the function of risk assessment and proper

identification prior to vesting it into the hands of third party so that the outsourcing

procedure is not affected in the negative manner along with the rest of other activities

of the organization.

The results of our research reveals that the selection of vendor is done on the basis of

close recommendation, trials etc and in the literature review we have discussed that

small and medium size enterprises usually select the vendors on personal relations and

recommendations. Furthermore, our empirical research identified that cultural,

financial, and political constrains are some of the obstacles linked with the risk in

outsourcing services and it is similar to the argument posed by Dus et al, (2008). In

the in-depth interview, it is evident that these obstacles hinder the process and are due

to improper resource allocations to design clear strategies. We also found that rather

than professional assessment, top management rely on the personal experience of

local manager and CSR department to assess the attached risk which is identical to the

findings of Seth, (2008) as his study stressed that in small and medium size

enterprises the risk is assessed by the personal experiences of the top management.

The result findings also revealed that 80% of employees are working in the IT

department are through outsourcing and the study of Hahn et al (2009) revealed that

various economic motives and pressures exerting in the dynamics urges the

organizations to outsourced its key department in order to achieve qualified staff,

better resources and be cost effective. The decision to outsourced key department is

always in the best interest of the organization as it helps them in maximization of

profit. We also examined in the interview that associate members and other staff

relying heavily on top management and respects the decisions given by the top

management which is also similar to the notion of Johnson, (2010). We also found


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that in the execution stage there is huge disadvantage that organization is highly

influenced by the vendors so the bad quality of vendors negatively influence the

business negotiations. Huddle explains it as It takes years to win a customer and only

seconds to lose one are even more important (Huddle, 2011, p. 2).


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CHAPTER FIVE: CONCLUSION

5.0 Introduction:

In this chapter the research is concluded on the basis of earlier conducted primary and

secondary research. This segment of the research also contains answers to research

questions, followed by limitation and at the last part of this chapter implication of

research to manager, theory, and future researchers are discussed.

5.1 Overall Conclusion

At the start of the research, we had a problem statement that what are the causes of

outsourcing services in the household industry with special reference to ReckittBenkiser. Our findings explain that qualified staff, better services, and cost are some

of the causes that urge Reckitt to outsource its various services. Huddle also identified

the economic benefits and better competitive approach as the reasons for driving

organizations to outsource services.

On the basis of our research findings it can be concluded that there exist a strong

correlation between the risk management and outsourcing and medium size

organization consider risk at all three stages and to accommodate the risk properly

there is a renegotiation pattern so that to great extent risk is properly identified and

tackled.

We can also conclude now that the aim of the research identifying the causes of

outsourcing in the household industry, respectively Reckitt and how the risk

management is linked with the outsourcing strategies in the broad spectrum is

accomplished as we have explored and noted the important reasons for outsourcing in

the Reckitt and with each stage of outsourcing process risk is managed by the

organization according to their strategized plan and patterns. The risk is managed by

the measurement and most of the time the selection of vendor is one of the major risks

therefore local managers monitor the selection and entire process. The trial is one of

the ways to manage risk in a proper dimension and the negotiation starting from pre-

contractual to execution stage where it can be renegotiated within a week is an

organized and well thought plan to manage associated risk.

Our objectives defined at the start of research was put together to accomplish our aim


35/44

and it is clearly evident that these objectives have helped us achieve our prime aim of

research. The previous empirical researches assist us to establish a correlation

between risk and the overall process of outsourcing. The three different stages for

outsourcing were the basic steps to ensure that the entire process of outsourcing at

Reckitt is successful and at same time it is risk manageable. Risk identification is an

imperative element of organizations assessment. The intent of this notion was to have

improved perceptive of significance of this doings and how it is executed by business

in actual practice along with the theory. This directs to the synopsis of the key

conclusions and results with supportive suggestions for businesses and concerned for

upcoming researchers.

We investigated risk recognition, its significance and foremost reimbursement inside

the small and medium enterprises. The alternative of this theme was generated by

various elements. The outsourcing most widely expanding techniques and the

limitation of managerial literature regarding outsourcing on this specific topic is a

major concern. In order to develop theoretical basis for medium organizations, the

prompt adjustments are required from the future researchers. After commencement of

research investigation it is clear that resource limitations, too much dependency on

local owner management techniques, limited back up plans, solid customer linkage

and focus on cost effectiveness are main aspects of outsourcing process for medium

organization.

After identification of these elements we measured their impact on the entire process.

Based on cautious examination of the on hand literature and the commenced empirical

data, it can be concluded that each characteristic have its strong influence on the

process and on every phase of the lifecycle in a different way; and with its own

distinctive outcomes. The practical and theoretical data is contrasted by us to assist

risk management and it is evident that to major extent substitute professional risk

identification with procedures that are conveniently accessible to organization (such

as the development of personal relations). Yet, this is acceptable particularly in

outsourcing service process for the reason that proper direction and expansion of

comprehensive agreement is not all the time likely due to the temperament of the

service business, and elasticity cut-throat advantage.


36/44

Conversely without risk identification, interviewed organizations various employees

it is indentified that the action saves different types of resources in outsourcing

process. If organization in advance develops approaches to manage risk there would

be less wastage of resources and hurdles in the outsourcing process. This means that

as per our literature, in real also risk identification is not treated by organization as it

should have been.

Nevertheless, examination of accessible assumption and the departments interviewed,

confirm that such commotion saves financial, time, and human resources in more

well-organized ways than the dependence on just private know-how and in-formal

connections.

5.2 Limitations

Our findings and analysis are grounded on assessment of abstract supports with

observed data from private interviews. The outcomes would have been unlike the

current one if another assumption was included or distinct individuals were

interviewed. Our sample size (only one company) for the experiential fraction is

enough for this project. Conversely, big sample size would enhance the validity and

consistency of findings. We used current studies of risk classification in the practical

segment. This could enlarge the strength of the primary basis however we could not

substitute interviews commenced, and also could not situate interviews on the

equivalent stage as main sources. Over again, sellers enquiries were originated by

indirect source and may to some extent vary from merely other household companies

in completion with Reckitt.

However, the majority IT vendors were set up by direct personal links of owners.

Furthermore, limited availability of literature; specifically which considered for risk

classification of Small and medium size enterprises in outsourcing procedures. The

available model is based on large enterprises records and data. The other appropriate

model would have given more close and accurate findings.


37/44

5.3 Implications

The findings of our research can be used for various purposes by both researchers and

practitioners. We hope that Reckitt find it beneficial in managing its risk in

outsourcing process in its future as it has participated as case study in this study.

5.3.1. Implication for Managers

The completion in the market is getting healthy due to outsourcing services which

makes it essential for small and medium size enterprises to commit limited resources

(between 20 - 50% of all businesses) in order to be alert of the major future threats.

Our aim is the provision of recommendations about managing and identifying risk.

The decision of what and how to manage in real situation is beyond control but a

panel of professional risk analyzers should be develop to manage the risk in more

adequate manner. The professional consideration is essential as it will save time,

resources as well help organization accommodate problem in fine manner.

5.3.2. Implication for Theory

Since there is limited theory on the selected topic therefore, our research will be an

important part of the literature for the future researchers to establish more important

notions related to particular topic. Our findings are unlike the previous empirical

researches because findings revealed that qualified staff and high quality servicers in

IT are reasons for outsourcing but literature focused on cost reduction.

5.3.3. Implications for Further Research

Risk management in outsourcing process is useful as it will serve as literature for

future researchers. Since our research is not an end but a mean to reach and open new

dimensions for the researchers. These limitations of our research will serve ground for

future researcher to develop hypothesis and continue work in these blocked

dimensions. Future researchers should include more models and conduct a

comparative study to explain different steps of process. In the end, more investigation

could be made within the diverse organisational types such as micro- small- and

medium-sized enterprises including level of vendor dependence. This could bring

more accurate outcomes in analysis and theory.


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