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Executive Summary
Business process Outsourcing is a growing phenomenon in the global telecommunications sector. Many firms are embracing the process because of the cost and quality advantages associated with it. However, not all firms realise the expected benefits of outsourcing. Some companies have suffered from poor quality services, while others have not realised the cost benefits promised by service providers. This paper shows that the transaction cost theory is the main theoretical framework that explains firms behaviours in the outsourcing process. Other theories that explain the same processes include the agency theory and the resource based view. Despite the existence of this theoretical background, this paper similarly highlights the gap between the theoretical and practical understanding of the outsourcing process.
Based on this gap, this paper sought to find out the impact of outsourcing process drivers on the call centre performance of telecommunication firms. Using a quantitative research approach, this study sought to answer three main research questions that focused on understanding the influence that strategic evaluation practices have on outsourcing performance, the effect of contractual completeness on call centre outsourcing performance and the impact of relationship management on call centre outsourcing performance. The researcher collected data using online questionnaires and analysed the same using SPSS statistical techniques. The findings showed that all the three independent variables shared a strong correlation with outsourcing performance. Similarly, the study showed that the three independent variables shared a strong correlation. In this regard, this paper argues that telecommunication firms need to focus on contractual completeness, strategic evaluation, and relationship management if they want to improve their call centre outsourcing performance.
Introduction
Outsourcing is a growing global business phenomenon. Multinational companies are leading the trend in its adoption because the concept helps them to manage their huge global supply chains (McIvor 2000). Corbett (2004) and Narayanan et al. (2011) say the adoption of the outsourcing process, in the corporate scene, is a vertical integration process because it involves reshaping organisational boundaries. The process starts by identifying the need for outsourcing and later progresses to identifying the methods for implementing the process. The management of the relationship between the client and the service provider is the last step in this process (Sappington 1991).
Despite the growing prominence of BPO, anecdotal reports show that many businesses are failing to achieve their outsourcing goals. For example, a report by Deloitte Consulting shows that more than 60% of companies, which pursued offshore BPO, had to relocate the same process to the organisation (internal). Furthermore, the study showed that 44% of the sampled respondents did not realize the benefits of outsourcing (Gewald 2010). Motivated by the need to understand why this is so, this paper investigates the key drivers of the outsourcing process and their relationship to the failure of organisations to realise their BPO potential.
Problem Definition
Business Process Outsourcing (BPO) is a new business paradigm pursued by many new businesses to improve their performance. The trend towards BPO adoption has cut across different business sectors (both onshore and offshore) (Tate & Ellram 2009). As companies search beyond firm boundaries to seek performance improvements, the quest by firms to reduce their high costs of business is driving the growth towards BPO (McIvor et al. 2009). BPO is growing amid a quest by companies to outsource complete business functions, such as IT and human resource (HR) to third party organisations (Saxena & Bharadwaj 2009). This popular trend is worth more than $976 billion (Saxena & Bharadwaj 2009). Continuous improvements in the telecommunication sectors are behind the adoption of the outsourcing process. The availability of a growing skill force is also contributing to this trend because it has revolutionised the service delivery process in different value chains (Lillrank & Sa¨rkka¨ 2011).
Companies that have adopted BPO processes have had different experiences with the process. Lacity et al. (2008) and De Boer & Arroyo (2006) believe that most of these companies have had many negative experiences after outsourcing some of their services because they say most of the clients have failed to achieve the performance improvements they expected to achieve. Some of the reasons touted by analysts to explain this outcome include the failure of companies to comprehend the implications of outsourcing and their similar incompetence in managing performance (Lacity et al. 2008; Canez & Probert 2000). Interestingly, despite the identification of these problems, few studies explore the key practices that affect outsourcing performance. Furthermore, fewer studies have investigated the impact of contractual completeness on outsourcing performance. Based on this research gap, this paper strives to investigate the impact of strategic evaluation and contractual completeness on the outsourcing performance of telecommunication firms. In the same breadth of analysis, this paper explains the effect of different pricing schemes on the key performance indicators (KPI) of call centre performance. Centred on a global understanding of the research phenomenon, this paper also focuses on understanding factors that affect the call centre performance of telecommunication firms. The research questions appear below
Research Questions
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What is the influence that strategic evaluation practices have on outsourcing performance in the call centre industry?
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What is the impact of contractual completeness on call centre outsourcing performance?
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What impact does the relationship management have on call centre outsourcing performance?
Rationale of the Study
The BPO sector has lagged behind other sectors, in terms of process implementation. Many researchers who have sought to fill this research gap have done so using surveys or case studies (Busi & Mclover 2008). In this regard, they have failed to put the academic focus of BPO in practice. This failure has created a research gap that has failed to explain the implementation of the theoretical framework of BPO. Interestingly, many businesses are embracing BPO. Nonetheless, the slow development of the BPO theoretical framework has created a research gap that has left many BPO practitioners without adequate knowledge about its implementation, or how to improve its performance. Fewer studies in the telecommunication sector have helped to answer these theoretical concerns (Busi & Mclover 2008). This study seeks to fill this research gap by addressing the above issues.
Purpose of the Study
This paper already shows that some researchers have explored the impact of BPO drivers on BPO performance in the telecommunications sector. Furthermore, this paper shows there is a wide research gap concerning this research area (especially in the telecommunications sector). Based on this gap, this paper intends to point researchers in the right direction by explaining how to improve their BPO performance. Key areas of concern include strategic evaluation, contractual completeness, and relationship management practices (because these are the key performance areas of BPO). This goal aligns with the need to increase outsourcing performance in call centre services (Hasija et al. 2008). By focusing on these important research areas, the findings of this paper will be useful in providing executives, managers, and procurement teams with vital information regarding how they could get maximum benefits from outsourcing processes (Grossman & Helpman 2002; Coase 1937).
Research Objectives
The main objective of this research is to test the outsourcing process drivers that affect BPO performance in the telecommunications sector. To get an objective representation of the research objective, this paper investigates the research phenomenon from the clients point of view. Similarly, this paper pays a special focus on understanding the impact of pricing incentives on the outsourcing performance of the telecommunication sector.
Theoretical Framework
The theoretical framework of this paper emerged from the works of Handley and Benton (2009). The model appears below
Research Variables
The main research variables used in this paper stem from the different components of the theoretical framework outlined above. They include strategic evaluation, relationship management, outsourcing performance and contractual completeness.
Strategic Evaluation: The strategic evaluation process aims to investigate the main effects of the outsourcing process, before it starts.
Contractual Completeness: The contractual completeness process highlights the terms and conditions that underlie the relationship between the client and the agency. This process often shows how the two parties coordinate and assess the different risks of the contractual agreement (Ross 1973).
Relationship Management: The relationship management process outlines the outcome of the relationship between the client and the service provider (in the outsourcing process). Often, this relationship is mutual, as the clients strive to maximise their productivity, while the service providers aim to improve the quality of their services through their accumulated experience.
Outsourcing Performance: The outsourcing performance refers to the intended objectives of the outsourcing process. Usually, experts evaluate the output of the service providers based on the agreed outcomes of the relationship (during conception).
Research Hypotheses
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Strategic Evaluation practices are significant to the outsourcing process because they influence efficiency and performance expectations in the contractual relationship
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The contractual relationship defines the goals and expectations of the outsourcing process
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Relationship management affects the quality of services offered by service providers in the outsourcing process.
Research Limitations and Assumptions
This paper already shows that limited research studies have investigated the impact of BPO drivers on the outsourcing performance of telecommunication firms. Based on the lack of literature, the main limitation of this study is the lack of adequate references and theoretical frameworks to conduct the study. However, instead of accepting this limitation as an obstacle, the author took this opportunity to present this research as an important contribution to the limited wealth of knowledge regarding BPO outsourcing in the telecommunications sector. Another limitation of the study was the type of respondents who took part in the study.
Chapter three of this study shows that most of the respondents were senior executives of telecommunication firms. It was difficult to secure an appointment with them because of their limited work schedules. Therefore, I had to conduct interviews during odd times and in casual environments (where the respondents were available). Lastly, the use of Linkedn professional groups to sample the respondents limited the scope of respondents who could participate in the study because the author was only able to communicate with people who were available online. Furthermore, it was difficult to ascertain the professional credibility of the respondents beyond the information posted in the groups.
Research Methodology
This paper is an analytical study of the main outsourcing process drivers that affect the performance of call centres in the telecommunication industry. The study also uses a quantitative research approach and selects the sample of the study using a purposeful sampling technique. Using a deductive approach, this studys findings emerge from a theoretical framework developed by Handley and Benton (2009). Similarly, using a confirmatory approach, the paper explores the impact of key outsourcing process drivers on the performance of call centres in the telecommunication sector. For purposes of data analysis, this paper used the SPSS software to analyse the research questions. Key statistical processes included Pearson Correlation, ANOVA and linear regression techniques.
Thesis Structure
This thesis has only five chapters. The first chapter is the introduction section, which outlines the background of the study and sets the stage for future chapters. The second chapter is the literature review section, which reviews what other researchers have said about the research topic. It also identifies the existing research gap. The third chapter of this thesis is the methodology section, which explains how the author conducted the research. The fourth chapter is the findings and analysis section, while the last chapter is the conclusion and recommendation section.
Literature Review
Introduction
The global business environment is uncertain because of changing customer preferences, rapid changes in technology, and financial upheavals (Bahli & Rivard 2003). Based on these dynamics, companies have to cope with corporate challenges by adopting innovative and creative operational policies. However, doing so is difficult because the volatility of the global business environment affects business strategies adversely. This challenge has forced many businesses to focus on their core competencies and outsource services that are not part of their core business portfolios (Bahli & Rivard 2003; Fill & Visser 2000). This need explains why BPO has engrained itself at the core of business management processes. Particularly, companies have adopted the process as a key component of their restructuring processes. Pushed by competitive influences, companies have adopted this method to seek performance improvements. To understand this trend, it is, first, important to understand why companies outsource and how the concept became popular in the global business scene.
Why Companies Outsource and How the Concept Became Popular
Researchers have conflicting views regarding the concept of outsourcing (Boguslauskas & Kvedaraviciene 2008). However, Kremic et al. (2006) say the concept emerged during the industrial period, when companies started exploring ways of maximising their competitive advantages. Many 20th century corporations strived to manage all their organisational processes internally, but when the need to take advantage of diversification and its potential market and financial benefits arose, companies had a difficult time coping because of bloated management structures (Kremic et al. 2006). To increase their flexibility and creativity, these companies evaluated their internal organisational processes and focused on their core activities, while outsourcing non-essential organisational processes. This move led to the recognition of outsourcing as a key business strategy in the late 1980s.
The above advantages of outsourcing highlight some of the reasons identified by Wilson (2010) as the main motivations for outsourcing. The diagram below highlights his views
According to the graph above, cost reduction is the main motivation for outsourcing. Variable capacity, access to expertise, increased effectiveness, and the focus on core business activities are the main reasons for companies to outsource, in that order.
Outsourcing A Definition
To understand the key drivers of outsourcing, it is first, important to comprehend a definition of the concept. WGC (2014) says that understanding outsourcing requires an organization to evaluate which organisational processes in the companys value chain should occur internally, and which ones should be external. Therefore, outsourcing has reshaped traditional organisational boundaries. Handfield (2006) defines the concept as the strategic use of outside resources to perform activities traditionally managed by internal staff and resources (, p. 4). Other researchers refer to the concept as facilities management, but experts refer to it as a strategy where companies contract out major functions of their organisational processes to third party agents (Narayanan et al. 2011; Hertz & Alfredsson 2003). When such contractual arrangements are beneficial to both parties, the service providers become valued business partners. In line with this understanding, Handfield (2006) says, Companies have always hired contractors for particular types of work, or to level-off peaks and troughs in their workload, and have formed long-term relationships with firms whose capabilities complement or supplement their own (p. 4).
There are different categories of outsourcing (Espino-Rodrìguez & Padrón-Robaina 2004). Their distinctions mainly depend on the level of integration and degree of distinction. The table below outlines the different types of outsourcing processes
Table 2.1: Outsourcing processes.
Although the above table outlines different types of outsourcing processes, this paper focuses on call centre services as a type of operational outsourcing. Call centres play an important role in the operations of many telecommunication firms (Hasija et al. 2008). Some companies often outsource their entire call centre operations, while others deem this action too risky and only outsource parts of their operations. Here, it is important to understand the different types of outsourcing and their effects on a firms decision to outsource. For example, Grover and Malhotra (2003) say outsourcing to a shared service is one way that some companies reduce their operational costs.
Co-sourcing is a different strategy pursued by some companies because it allows them to outsource part of their services, while keeping the rest of them in-house (Ak_in et al. 2008). Many companies prefer to adopt the latter approach because they deem it as a safe approach to adopt the practice. Especially, it protects them from serious disasters and allows them to manage services that are most critical to their operations (Grover & Malhotra 2003). The global trend of outsourcing has witnessed many offshore outsourcing procedures because foreign countries provide increased opportunities for countries to get cheap labour (Banerjee & Williams 2009). This trend has further created an increase in outsourcing values around the world. For example, the US outsourcing market is worth more than $28 million (Ren & Zhou 2008). Similarly, statistics show that most companies outsource about 1/15 agency services overseas (Ren & Zhou 2008).
Theoretically, call-centre outsourcing services provide many different benefits to organisations. However, companies have had mixed reviews (Grover & Malhotra 2003; Ren & Zhou 2008). Particularly, western companies that have outsourced their call centre services to overseas countries (mainly Asian countries) have reported poor outcomes from outsourcing (Ak_in et al. 2008). For example, Americas Dell Company had to relocate its call centre back to the US after its customers complained of language barriers that prevented them from getting specialised assistance (Ren & Zhou 2008). Lehman Brothers (a big financial company in the US) had to relocate its call centre from India to the US after its customers complained of the poor quality of services offered by its Indian service provider (Ren & Zhou 2008). These cases reinforce the idea that miscommunication, poor coordination and planning failures account for most of the failures of outsourcing. Particularly, Ren and Zhou (2008) draw our attention to the poor understanding of current costs as a common cause of outsourcing failures. These failures may stem from the lack of adequate literature covering outsourcing processes and coordination (Grover & Malhotra 2003; Ren & Zhou 2008).
The Main Failures of Outsourcing
As mentioned in this paper, different companies have different experiences with outsourcing. Similarly, this paper has identified the failure of companies to understand the performance implications of outsourcing as a possible cause outsourcing failure. Some researchers have said that the rush to outsource without understanding the main reason for doing so have also contributed to the disappointments witnessed after outsourcing (WGC 2014). Lacity & Hirschheim (1993) draw our attention to the failures of service providers to provide quality services as a common reason for the failure of outsourcing, especially in the IT sector. For example, they say the low cost of labour in some Asian countries, such as China, Philippines, and India entices many companies to outsource (Lacity & Hirschheim 1993). However, they fail to recognise that the service providers who use such cheap labour are prone to providing low quality services. Mainly, experts blame these companies for poorly executing the tasks given to them, and spoiling the good name of the practice. Based on this reason, Schwartz (2008) says, Outsourcing is not for the faint-hearted or the ill-prepared. It just does not happen (p. 2).
Building on the above statement, Schwartz (2008) says understanding the outsourcing risks is a good way of preventing its negative effects. This process should save companies the problems associated with the practice. In fact, this reason explains why Schwartz (2008) says companies that have experienced the negative effects of outsourcing have only two things in common unpreparedness and poor communication when the outsourcing process starts to fail. Based on the risks associated with outsourcing, Putra (2008) developed the pyramid below to guide companies on how to outsource and when not to do so.
Based on the above model, Putra (2008) says the main factors that a company should consider before outsourcing is whether the motivation for outsourcing is critical for the organisations long-term sustainability. Similarly, he suggests that such organisations should evaluate whether the core competency pursued is relative to fulfilling the organisations core competency functions. Therefore, the above pyramid shows a model of assessing outsourcing risks by explaining when companies should outsource (low risk) and when they should outsource under tight controls.
Benefits of Outsourcing
Companies that prepare for the outsourcing process after understanding its potential pitfalls often enjoy positive outcomes from the practice. It is important to understand the potential benefits of the process because All Business (2008) found out that the failure of companies to understand such benefits account for their hesitation to adopt the process. Besides saving companies money, outsourcing could create many benefits for organisations. They appear below
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Controlling Capital Costs: Capital cost controls are often the main benefits of the outsourcing process. Companies that enjoy this benefit often do so because outsourcing changes fixed costs into variable costs. This way, companies have enough money to invest in other places. They also avoid the huge capital costs associated with starting new businesses in this manner. Collectively, this advantage increases a firms attractiveness to investors because they understand that a company has enough money to invest in revenue-generating activities (Jensen & Meckling 1976).
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Increasing Efficiency: All Business (2008) says that most companies, which prefer to undertake new business ventures, incur huge capital expenditures associated with research and development, IT service provision, human resource management, market analysis and similar organisational functions. Usually, such companies transfer these costs to their customers, thereby losing their competitive advantage, compared to similar companies that enjoy increased efficiency by outsourcing specific services, which give their companies a strong competitive advantage.
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Lower Cost of Labour: Companies that do not outsource their human resource services incur huge expenses associated with employee training and development (All Business 2008). Even when they finish doing so, there is little guarantee that such employees would be loyal to the organisation. Outsourcing helps such companies overcome these challenges by allowing them to deploy their human resources where the organisation requires them the most (All Business 2008).
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Quick startups: Starting a new business could be a dicey affair for most entrepreneurs. However, outsourcing simplifies this process because it gives new companies all the resources needed to start. Avoiding this process forces companies to take weeks (or longer periods) to seek new employees, source equipments, locate office space and such like activities to start a business. These processes slow down the business. Therefore, outsourcing simplifies the business start-up process (All Business 2008).
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Allows Businesses to Focus on Core Activities: Most businesses have limited resources to undertake their core business activities. Similarly, business managers have limited time and attention to oversee all aspects of their businesses. Outsourcing allows them to focus more on their core business activities, while delegating the function of managing peripheral activities to third parties (All Business 2008).
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Allows Small Companies to enjoy a Level Playing Field: It is difficult for small companies to compete with big companies because they lack the resources, knowledge and expertise that these big businesses have. However, outsourcing provides a solution to these businesses by allowing small firms to act big. Stated differently, it allows them to enjoy the benefits of big business, such as increased efficiency and economies of scale (All Business 2008).
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Reduces Operational Risks: Many modern businesses operate in environments that are characterised by high risks. Such risks emerge from increased competition, heightened government regulations, technological changes and similar changes (All Business 2008). Outsourcing service providers allow organisations to manage these risks by advising them on how to avoid them. This way, companies lower their operational risks (All Business 2008).
The supply chain of outsourcing processes differs from the conventional supply chain process because retailers often get the benefits of conventional outsourcing processes. However, user companies often get the benefits associated with outsourcing supply chains. Relative to this understanding, Hasija et al. (2008) says, The client uses the contract to influence the unobservable behaviour and poor contract design can lead to vendor actions that reduce client profits and supply chain performance (p. 28).
Theoretical Framework of Outsourcing
Many researchers have developed new concepts and theories to explain the outsourcing process. The transaction cost theory, resource-based view, principal agent theory, vertical integration theory, and evolutionary economics are common theories and concepts that explain the outsourcing process (Narayanan et al. 2011). Other theories include the strategic alignment theory and the core competence theory. Although some of these theories emerged from the 20th century, they have been relevant to the business world in the last two decades (Kremic et al. 2006). Interestingly, although there has been an increased interest in BPO, in the last decade, the push for developing new theories on the same has declined during the same period. Outsourcing has also been synonymously associated with make-or-buy decisions (Welch & Nayak 1992). Therefore, companies that have considered outsourcing their products have mainly focused on make or not to do decisions (Narayanan et al. 2011; Tayles & Drury 2001). Nonetheless, there is a huge gap between literature and practice of the outsourcing process.
Gap between Theory and Practice
There is a gap between the theoretical and practical application of outsourcing. As Busi & McIvor (2008) observes, most theoretical practice about the subject lags behind its application. One theoretical practice that has emerged recently is the focus on case studies, as opposed to implementing existing theoretical frameworks. Busi and McIvor (2008) say this research gap should be a wake up call to researchers because their findings do not entirely explain the real-life experiences of outsourcing. Outsourcing practitioners are victims in this regard because they lack the proper tools to implement outsourcing procedures. This is why this paper undertakes a focused research paper that aims to eliminate the confusion and equip practitio
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