Literature analysis
Due to the globalization in every industry, companies have been forced to deliver quality so as to manage fight the growing competition. In the IT sector, out sourcing is one of the leading practices and is controlled by multiple variables, through out the paper we will clearly define what this means within the business management as well as a closer analysis of the challenges facing the sector as well as the magnitude outsourcing has for the company. Outsourcing has been growing due to the changes in the vendor evaluation process over time. The changes within the global market have advocated for a more advanced market demand and delivery process. For the companies to succussed whin the industry, most of them have also adapted to concurrent sourcing which entails running both outsourcing and insourcing, this helps the company deliver quality services at a cost-effective price hence enabling the success of the company in the current market which is rapidly transforming into a global market. The integration of information technology within the company has led to all thee changes so as to enable companies cope with technological advancements in the current world. For companies to get into agreement with the vendors, and in our case the outsourcing in most cases provide services as well as products but the process of reaching the right vendor entails a number of steps which are briefly mentioned in the introduction; these include the vendor evaluation, selection and the development of an agreement contract of how to carry out business between the vendor and the company.
In the current global competition, Vendor evaluation and selection is a strategic decision not only because it enables companies to reduce costs, but also improves profits. The majority of the previous research on vendor selection considers mostly cost as the deciding factor and doesn’t reflect strategic perspective, but as the change of the world-wide environment with the consideration of market demand, including other factors like service, delivery, and productivity has become more and more necessary when it comes to vendor selection.
Vendor selection is a strategic decision with multi-criteria approach. 10 criteria are carried out to take into consideration: quality, delivery, productivity, service, costs, technological capabilities, and application of conceptual manufacturing, environmental management, human resource management and manufacturing challenges (Parthiban, Zubar and Katakar, 2013).
Outsourcing
In today’s business, a significant number of firms have decided to outsource their information technology functions and service, either some or all, depending on the rate at which the firm’s coordination knowledge depreciates, to highly skilled and experienced external vendors. According to a joint research conducted by Klynveld Peat Marwick Goerdeler (KPMG) and HfS Research, IT is among top three functions outsourced by the firms across diverse industries globally, such as insurance, banking, manufacturing, energy, entertainment, retail, and telecom.
IT outsourcing success factors
At operation level, clients and vendors should be partners-in-action, in that they should share outsourcing goals and objectives, planning and decision making, resources, history, relational governance, benefits and risks, and even transactional costs. Acting as partners-in-action, the clients and vendors improve their chances of developing a successful relationship, and in turn, a successful outsourcing partnership (Gorla and Somers, 2014).
Outsourcing
At relationship level, clients and vendors should work toward becoming partners-in-context, in other word, they should trust the long-term value and reciprocity of the partnership and should be committed to developing relational capabilities together. Doing so would not only help them capitalize on each other’s resources to develop cooperative advantage, but would also bring other tangible and intangible gains. Besides, build up a powder-balanced partnership also feeds back to strengthen key operational prerequisites (Gorla and Somers, 2014). It will also justify and sustain the relational contract between partners.
At environment level, previous research demonstrated that country-specific institutional mechanisms impacted resource-based advantages, a number of studies have highlighted the role of regulatory environment, cultural diversity, and manpower availability in outsourcing relationships. Firms assess environmental factors such as the availability of knowledge, skills, and abilities (KSA), regulatory environment, and cultural compatibility with their partners while operationalizing their outsourcing relationship.
IT outsourcing performance threats
First, project performance depends on the commitment and involvement of stakeholders beyond the control of vendor project managers, requiring the support of senior management to secure commitments from those stakeholders.
Second, vendor project managers are not members of the executive team. Therefore, they are unlikely to be familiar with their organisations’ strategic intents and oversight from senior executives on the conduct of projects is needed to ensure projects stay on track. (Liu and Yetton, 2008)
Third, projects compete with other projects and priorities for resources. Typically, project managers do not have strong organisational power bases. Therefore, with the resources required for projects subject to competing demands (Liu and Yetton, 2008)
Finally, strong and visible commitment from vendor-based sponsors is important to motivate vendor project teams and to remove potential barriers to their performance.
IT outsourcing vendors respond to demand shocks
Buffering is a strategy that is external to and bypasses an inter ?rm linkage to reduce the severity of the impact from ex post demand ?uctuations (Su, Mao and Jarvenpaa, 2013). Two distinct buffering strategies emerged from our data analysis. One was to reduce the importance of orders from a speci?c client by improving ef?ciency and cutting cost based on accumulated knowledge and other resources; the other was to seek orders from alternative clients or other markets, which required expanding the knowledge base and bringing changes to the current organization.
Bridging is another strategy refers to actions that seek to strengthen the current relationship Exploitative bridging explores new collaborative relationships with the current client that seeks new market opportunities; Explorative bridging consolidates the current relationship by more ef?ciently exploiting existing knowledge and resource bases. According to Lavie and Rosenkopf’s (2006) argument about function exploration–exploitation, explorative activities involve acquiring and generating new knowledge, while exploitation accesses and leverages existing knowledge.
A vendor’s choice of response strategy varies from client to client, based on the power relation with the client. On the one hand, the client’s power determines the vendor’s options of response to demand shocks: bridging or buffering. More speci?cally, in the case of high client power (i.e., there exists a high dependency on the client), the vendor strives to strengthen its relationship with the client and to stabilize the supply of orders. This goal results in the vendor’s adopting a bridging strategy. In contrast, when the client’s power is low, the vendor might choose not to strengthen its relationship with the client. The vendor will adopt explorative buffering by directing its resources to areas of higher return, in addition to exploitative buffering.
IT outsourcing success factors
Concurrent sourcing
Concurrent IT sourcing is also a growing trend in business. We define it as to simultaneously insource and outsource the same information technology (IT) activities by a client. This sourcing strategy allows firms to combine the advantages of in-house IT such as greater responsiveness to strategic opportunities with those of outsourcing such as cost competitiveness.
Without in-depth knowledge of the outsourced IT activities, it is difficult for a client to properly interpret information provided by inter firm monitoring mechanisms. (Tiwana and Kim, 2016) Carrying out similar IT activities in-house allows the client to better understand the outsourced activity, increasing knowledge of the transformation process. This provides the client firsthand knowledge to better interpret and evaluate vendors’ work quality and to help vendors’ model their own IT activities on how the client’s in-house IT department performs them.
However, concurrent IT sourcing by itself doesn’t enhance IT performance because it simply replicates the same set of IT activities in-house and with vendors. It acts as a catalyst for enhancing IT performance only when the vendors’ IT capabilities are complementary to the client’s in-house IT capabilities.
Literature analysis summary
You will need to provide, in the last part of your literature analysis, a summary of the key points you have discussed, or conclusions that you have arrived at based on your discussion. State also in this summary how you see this literature review can possibly help in formulating a solution to the situation in the case.
Vendors provide goods and services to Businesses. Companies can have a single vendor or multiple vendors governed by different contracts, payment rates and terms and different point of contract. These vendors are managed through a range of activities which starts by finding a vendor providing the best deal at lowest price and implementing a contract between the two businesses which are mutually beneficial to both the parties (Perkins & Wailgum, 2017). This process requires skills, resources and time. According to Markstorm (2014), it is beneficial for the Businesses to have an effective vendor management process in place to establish goals to achieve best service, quality, cost, and satisfaction and select and manage third-party suppliers that assist in achieving those business goals.
Process Evaluation and Vendor Selection
The relationship between the vendor and the business is initiated even before the contract is signed between both the parties. Selection of the vendors is not just cost-driven but also consist of several other considerations (Markstorm, 2014). Factors such as the cultural fit between the two businesses, financial stability, and similarity of work environment between the two organisations can be influential while sourcing a vendor. Hidalgo (2016) strongly suggests that in the present time, it is highly recommended to source vendors which can take proactive criticism and are able set right any unfair or undesirable situation. The vendors should be able to understand the importance of delivering the services outlined in the Service Level Agreements in order to be more effective (Overby, Greiner & Gibbons, 2017). As the sourcing advisors are working and engaging with multiple vendors at the same time, the service providers (vendors) have a limited time cap to propose a best solution for the client’s requirements (Bannister, 2018). At certain circumstances, the sourcing advisor may not have sufficient information about the provider’s capabilities with regards to the specific engagement. Therefore, it becomes important for the providers (vendors) to constantly engage with the sourcing advisors to effectively communicate and demonstrate their capability of delivering their service and highlighting past success experiences specific to the client’s needs.
IT outsourcing performance threats
Insource versus Outsource
Sourcing of goods and services remains a problematic area considering the increase in number of vendors and services available in the market place and to deal with complicated decisions of insourcing or outsourcing the goods and services (Markstorm, L., 2014). The marketplace provides more opportunities, but it is important to identify the services that can and cannot be outsourced adapting to the changing nature of business and technology. The subject of whether to insource or outsource becomes competitive and the focus of the approach should be to identify the areas in which the specialised skills have already been developed in-house and the fact that insourcing enables the organisation to retain the control over the quality of the service. The decision to outsource cannot be made lightly and should be because once it is done, it can be very time-consuming and costly effort to bring something back in-house (Mansfield, A. 2017).
Contract Development and Negotiations
Another important aspect of managing the relationship with vendors is establishing a good contract defined by performance-based incentives and SLAs (Service Level Agreement) (McGowan, 2018). These factors vary and are based upon the service being provided, but are important as they provide a foundation for incentives and penalties. According to Jacobs (2018), the best contracts are developed with the flexibility to allow enhancement of a service within mid-contract and can provide streamlined extensions if required. Popvsky (2017) argues that it is wise to use the Businesses’ own templates as opposed the vendor’s. This would standardise the agreements and would collectively create outcome-based engagement mechanisms.
As the level of service that is expected from the vendor is defined in the Service Level Agreement, it is a critical component of any outsourcing and technology vendor contract (Overby, Greiner & Gibbons, 2017). The SLA metrics can be identified by examining the operations of the Business (customer) and deciding what is important. Hence, depending on the metrics, the following types of metrics can be established to monitor the level of service expected.
Managing working relationship
Once the contract is signed, the next step is to build a collaborative partnership with the vendor (Papovsky, M. 2017). This can be done by establishing a clear and precise communication about the company goals and strategy, and by being transparent with the vendor in terms of business expectations. This can be achieved by providing a structure to the vendor to communicate directly with the internal client and at the same time the vendor can be motivated to perform by promoting them with rewards and incentives (McGowan, B. 2017). It is also vital to gain commitment from the internal staff to coordinate with the vendor and provide them with the required information. Managing the vendor is an on-going process which includes monitoring the progress, capturing the results and measuring feedback.
Evaluating the results
It is possible to evaluate a potential relationship with the vendor and decide if the business needs to outsource its relationship to a vendor based on the information gathers on a regular basis. The decision to change a vendor or bring back the process in-house is costly and time consuming and time consuming and cannot be taken lightly (Bloom, E. 2017). Hence, a constant evaluation of the results will help to utilise the maximum benefit out of the client-vendor relationship and maximise the return on investment.
IT outsourcing vendors respond to demand shocks
From the studies outsourcing has been seen to provide effective information on how businesses Products and services offered have significantly improved. This has been also identified in current practices. In most of the cases, companies opt to outsource so as to reduce the cost of production via insourcing. The literature covered helps give the research an educative deduction rom the case. It is evident that most outsourced services are less costly and are performed more effectively within the business. From the current practices, the selection of vendor entails multiple stages which reflect the literature covered. As per the literature companies ensure that their cost of production is reduced and to achieve this the vendor selection process involves the selection of the cost-effective vendor. With the changes in the market and due to the increased competition cost is usually not only the major point of concern but the quality of the product or service, this has been mapped out in the literature as well as seen also in the current practice. To achieve quality services and products, the vendor selection requires the company to select the vendor with the best qualifications not only cost effectiveness. Outsourcing has enabled the companies in the provision of high quality products and services since the vendor evaluation processes in most companies give the best out of the practice. Also, as seen in the literature concurrent sourcing has been an area of interested where businesses have opted fir both outsourcing and in sourcing, in the current practice, this has been made possible with the use of IT outsources as well as insourcing in most cases. This has increased the productivity of the IT sector in most cases and reduced the cost associated with running it. It is in order for a conclusive vie that clearly states that a comparison between the literature and the current practice happen to be accurately correct.
Conclusion
Conclusively, it is evident that vendor selection is an essential part of the business in the current business world. IT outsourcing on the other hand has played a huge ole in the growth of the IT sector within the business word. The ability of the business to carry out a concurrent sourcing on the other hand magnifies the effectiveness of the IT sector within the business. This amplifies the quality of services and products delivered by the company. At the same time checking on -a cost effective bargain. There has been a number of shortcomings regarding the IT outsourcing by companies but the cos has been overwhelmed by the pros. This has been analysed within the paper and provided an in-depth summary. A comparison between both outsourcing and insourcing has also been covered but from the study, if the company is in a position of running both insourcing and out sourcing, this significantly impacts the company’s outcome. The technological changes within the business industry calls for the need of every business to be well conversant with the new trends within the market, and as seen outsourcing give the company the chance to have a technological input from the well-situated companies in the IT field. This give the business a competitive advantage. The integration of technology within every business is one of the most important business aspects that sees the company or the business survive the changes within the technologically advancing market.
References
Bannister, J. (2018). How to build value into sourcing deals. [online] CIO.Available at: https://www.cio.com/article/3269113/business/how-to-build-value-into-sourcing-deals.html [Accessed 28 Aug. 2018].
Bloom, E. (2017). Enhanced productivity through vendor management analytics. [online] CIO. Available at: https://www.cio.com/article/3190727/analytics/enhanced-productivity-through-vendor-management-analytics.html [Accessed 28 Aug. 2018].
Perkins, B. & Wailgum, T., (2017). Supply chain management (SCM): Definition and FAQs. [online] CIO. Available at: https://www.cio.com.au/article/626511/supply-chain-management-scm-definition-faqs/ [Accessed 28 Aug. 2018].
Mansfield, A. (2017). 3 small mistakes IT vendors make during a sourcing event that are detrimental to their success. [online] CIO. Available at: https://www.cio.com/article/3234631/business/3-small-mistakes-it-vendors-make-during-a-sourcing-event-that-are-detrimental-to-their-success.html [Accessed 28 Aug. 2018].
McGowan, B. (2017). CIOs reveal how they measure vendor success. [online] CIO. Available at: https://www.cio.com/article/3246456/cio-role/cios-reveal-how-they-measure-vendor-success.html [Accessed 28 Aug. 2018].
Papovsky, M. (2017). A maturity model for vendor relationships: you can’t marry all of them. [online] CIO. Available at: https://www.cio.com/article/3230467/business/a-maturity-model-for-vendor-relationships-you-cant-marry-all-of-them.html [Accessed 28 Aug. 2018].
Staff, C. (2016). What makes a vendor relationship work?. [online] CIO. Available at: https://www.cio.com/article/3056188/leadership-management/what-makes-a-vendor-relationship-work.html [Accessed 28 Aug. 2018].
Overby, S., Greiner, L. & Paul, G., (2017). What is an SLA? Best practices for service-level agreements. [online] CIO. Available at: https://www.cio.com/article/2438284/outsourcing/outsourcing-sla-definitions-and-solutions.html [Accessed 28 Aug. 2018].
Markstorm, L., (2014). 6 essential steps for managing vendors. [online] CIO. Available at: https://www.cio.com.au/article/555629/6-essential-steps-managing-vendors/ [Accessed 28 Aug. 2018]
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