SOURCING STRATEGY
‘Factors that play a role in defining the
sourcing strategy for ‘operations’’
Master thesis Business Administration, Change Management
University of Groningen
Faculty of Management and Organization Master Change Management
DEFINING SOURCING STRATEGY: ABSTRACT
Sourcing, which is one of the latest trends in organizational strategy, can generate lower costs and higher quality. However, realizing that, good configuration and coordination too choose between the different sourcing options; offshoring, outsourcing and shared service centers (SSC), is necessary. Next to that, sourcing of ‘operations’ plays a much larger role in sourcing issues than in previous years. It will therefore be investigated; ‘how a sourcing strategy for ‘operations’ is defined and which factors play a role when formulating this strategy’. According to three interviews and respondents of two questionnaires, it can be determined that internal process characteristics, external factors and relevant change determinants, which all three are used for the research-concept, indeed play a role in the sourcing strategy for ‘operations’. From all internal process characteristics ‘volume’ plays the largest role and determines the reasons for a choice between SSC and outsourcing. Next to that, the external factors ‘legislation’ and ‘technology’ determine the reasons for the same choice. Offshoring is conversely a sourcing option that is not well known yet; more research is still necessary. Furthermore it showed that expected resistance, competencies necessary and needed expertise are not decisive, comparing these factors to the internal process characteristic and external factors. Additionally, the choice between the sourcing options has influence on ‘consultant’s role’, ‘planning’, ‘leadership’ and ‘focus’ of the change resulting from that choice. This means that outsourcing, offshoring and SCC all need another execution of the change implementation factors, however ‘planning’ can for all options be the same.
Key words: Sourcing, operations management and change management.
Research theme: Defining sourcing strategy for ‘operations’
TABLE OF CONTENT
CHAPTER 1: INTRODUCTION 6
1.1 SOURCING 6
1.2 SOURCING AND OPERATIONS MANAGEMENT 8
1.3 OPERATIONS MANAGEMENT 8 1.4 RESEARCH QUESTION 8 1.5 SOURCING OPTIONS 9 1.5.1 SSC 9 1.3.2 Offshoring 9 1.3.3 Outsourcing 10
CHAPTER 2: OPERATIONS AND DEFINING SOURCING STRATEGY 11
2.1 FACTORS RELATED TO SOURCING STRATEGY FORMULATION FOR ‘OPERATIONS’ 11 2.2 INTERNAL PROCESS CHARACTERISTICS 12
2.2.1 Volume 12 2.2.2 Variety 13 2.2.3 Variation 13 2.2.4 Visibility 13 2.3 EXTERNAL FACTORS 14 2.3.1 Competitors 15 2.3.2 Technology 15 2.3.3 Legislation 15
2.4 CHANGE MANAGEMENT ELEMENTS 16 2.4.1 Relevant change determinants 17
Expected resistance 17
Consultant’s role and expected change in competencies 18 2.4.2 Change implementation factors 19
Leadership 19
Consultant’s role 19
Focus of change 20
Planning 20
CHAPTER 3: RESEARCH METHODS 21
3.1 QUESTIONNAIRE A 21
3.2 QUESTIONNAIRE B 21
3.3 PERSONAL INTERVIEWS 22
CHAPTER 4: RESULTS 23
4.1 RESEARCH 23
4.2 INTERNAL PROCESS CHARACTERISTICS 24
4.2 EXTERNAL FACTORS 25
4.3 DECISIVE FACTORS 26
4.4 RELEVANT CHANGE DETERMINANTS 27 4.5 CHANGE IMPLEMENTATION FACTORS 28
CHAPTER 5: CONCLUSIONS 30
5.1 RESEARCH 30
5.2 INTERNAL PROCESS CHARACTERISTIC 30
5.3 EXTERNAL FACTORS 31
5.4 DECISIVE FACTORS 32
5.5 RELEVANT CHANGE DETERMINANTS (RESISTANCE, EXPERTISE AND LEADERSHIP) 32 5.6 CHANGE IMPLEMENTATION FACTORS (FOCUS, LEADING PLANNING AND CONSULTANT’S ROLE) 33
5.6.1 Outsourcing 33
5.6.2 SSC 33
5.6.2 Offshoring 33
CHAPTER 6: RECOMMENDATIONS AND LIMITATIONS 35
6.1 LIMITATIONS 35
6.2 FURTHER RESEARCH 35
LIST OF DEFINITIONS 36
LIST OF TABLES AND FIGURES Figures
Figure 1.1 Sourcing life cycle, adjusted KPMG 1, 2005 7
Figure 1.3 Overview of sourcing options - Adjusted KPMG 1, 2005 10
Figure 2.1 Framework of operations and the three relevant determinants that play a role in decision making. 12
Figure 2.2 Dimensions of operations management 14
Figure 2.3 Two different sides of change management elements that will be researched 17 Figure 4.1 Contribution of ‘operations’-sourcing to organizational objectives 23
Figure 4.2 Organizations that gave a specific sourcing strategy 24
Figure 5.1 Internal profile outsourcing 31
Figure 5.2 Internal profile SSC 31
Figure 5.3 External profile outsourcing 32
Figure 5.4 External profile SSC 32
Tables
Table 4.1 Criteria on which sourcing of ‘operations’ is determined 23
Table 4.2 Role of internal proces characteristics on the sourcing strategy 24 Table 4.3 Internal process characteristics and the choice for the three sourcing options for
‘operations’ 25
Table 4.4 External factors and the choice for the three sourcing options for ‘operations’ 26 Table 4.5 Factors important for the choice between the three sourcing options 27 Table 4.6 Role of relevant change determinants in the choice proces of a sourcing startgy for
‘operations’ 27
Table 4.7 Role of resistance, competencies and expertise in the choice between the sourcing options 28 Table 4.8 Interview quotes concerning the planning,focus leadership and consultant’s role of the main
CHAPTER 1: INTRODUCTION
In today’s competitive world, organizations are seeking for methods to stay ahead of their competitors and to reduce their costs to stay in business (Kotabe and Murray, 2004 ; Trent and Monczka, 2002). When ‘firms want to outstand they must implement strategies to achieve cost reduction, quality and delivery improvement’ (Trent and Monczka 2002). Barney (1991) partly agrees on this by saying that a firm possesses sustained competitive advantage when it adopts a strategy that is not simultaneously being implemented by any current or potential competitor and when this other firm is unable to duplicate the benefits of this strategy. This can imply that a strategy is necessary to gain competitive advantage and to reduce costs. Additionally, in today's competitive environment, more than at any other time in history, continuous improvement is necessary (Trent and Monczka, 2002). As organizations search for new ways to gain competitive advantage and are trying to continuously improve themselves, the development of new strategies and approaches becomes an increasingly attractive option (Kotabe and Murray, 2004). In other words, organizations want to enhance their performance and gain competitive advantage by using new ways. Sourcing, which is in short the reorganization of tasks and more effective management of these tasks, is seen by many organizations as a solution to improve competitive advantage by enhancing organizations’ financial and operational performance (Huibers and Schut, 2006). This because with effective sourcing organizations can generate lower costs and higher quality products or services (Roe, 2005), especially because new technological possibilities, such as data sending and telecommunication, give sourcing a new dimension. Sourcing is therefore one of the most popular trends in organizational strategy of the last decade (Roe, 2005; Strikwerda, 2005). A well known form of sourcing is sourcing applied on secondary processes. This sometimes overshadows the less-know form of sourcing; sourcing applied on primary processes, or in other words sourcing applied on organization’s ‘operations’. Next to that, not much research has been done about sourcing applied to ‘operations’. In this research, sourcing applied on organization’s operations will be expounded to enhance the understanding of this sourcing form, especially in the field of decision making and sourcing options.
1.1 Sourcing
Three of the main sourcing options that can be applicable for organizations to enhance their competitive advantage are: shared service centers (SSC), outsourcing and offshoring.
Clearly explaining sourcing, six steps can be identified, which together are the ‘sourcing life cycle’ (KPMG 1, 2005). In this way sourcing will be approached as a structured process; from formulating the sourcing strategy to evaluating the daily processes that are connected (see figure 1.1).
In the first step, sourcing approach, the possible sourcing project needs to be clearly aligned with the business strategy to aid effective decision-making throughout the project lifecycle. This strategic alignment should assist in ensuring that required sourcing benefits are achieved and that any risks, realizing outsourcing benefits, are effectively managed. The main concerns that need to be done at this stage are the development of a sourcing strategy that considers the various sourcing options; the development of a business case examining the reasons and benefits for sourcing; the consideration of other factors, such as proposed staffing models and outsourcing locations; and identification of critical success factors for the project.
In step two of the life cycle model, the sourcing
preparation phase, the detailed planning occurs. During this stage, the objectives of the sourcing project are identified; the risks and constraints are identified; plans put in place to mitigate these risks; and the business processes that are to be affected by the sourcing project are documented. In short this means that during the second step the future operating model is defined and a project plan is developed.
1 6
2 5
4 3
Figure 1.1 Sourcing life cycle, adjusted KPMG 1, 2005
Sourcing selection, which is the third step, involves detailed processes surrounding analysis; selecting the most suitable supplier. In this step also the structure-selection process is performed. This step is followed by step four, transition management, which is the process of moving from the current state to the complete implementation of the outsourcing solution. It involves transition of people, processes and technology. This step includes risk, change management and implementation plans of the project.
During the delivery management phase, step five, ongoing delivery of the sourced service occurs. The tasks performed in this step depend upon the services that have been outsourced. However, a number of key processes, like service level- , financial- , capacity-management and service continuity are generally performed.
1.2 Sourcing And Operations Management
Looking at the sourcing cycle more closely it can be seen that it is a cycle of permanent decision making. One of the most definite and critical phases in this cycle include the choice between the different sourcing options and defining the sourcing strategy (KPMG 1, 2005), which can be classified as step one and partly step two of the sourcing cycle. Sourcing strategy, in this case, can be defined as the direction, scope and timeframe an organization gives to the arrangement and grouping of tasks. This definition will be used in relation to the three main sourcing options; outsourcing, offshoring and SSC, which will be explained in the following section more extensively. The strategy gives insight in the backgrounds, objectives, what needs to be achieved and gives insight in a thorough assessment of the sourcing options. Because step one and partly step two can be marked as the most definite steps, this research will primarily focus on that part of the sourcing cycle.
Next to that, as said in the introduction, not much research has already been done in the field decision making concerning the sourcing options and strategy. Most of the recent research on ‘sourcing strategy’ deals with various managerial issues, ranging from structural complexity to international sourcing (Kotabe and Murray, 2004) all based on secondary processes. However, there is no empirical study that shows how sourcing options are selected from the viewpoint of operations management and which factors play a role in this decision making process for ‘operations’. In the following section operations management is shortly introduced and explained.
1.3 Operations Management
All types of organization must ‘do’ operations management because all organizations produce some mixture of products and services (Slack, 2001). Additionally, ‘operations’ is an important part of the organization; the decisions made in operations can have a major impact on both the cost of production and delivery, which has in turn a major impact on the revenue coming into the organization. Furthermore, operations management has strategic importance; an organization can have strategically success because of the way it manages its operations (Slack, 2001). The definition used in this research for ‘operations’ is; ‘the part (or activities) of the organization that deliver products and services. This part executes the added value activities (Huibers, 2005). Operational level is in this case the organizational layer in which operations is placed.
Note that the term ‘operations’, will be used in the following part of this research to cover that part of the organization where added value activities take place and where the operation’s strategy is defined.
1.4 Research Question
strategy, the following question will be elaborated (in figure 1.2 this question is presented graphically) to investigate which factors play a role in the sourcing strategy formulation process for ‘operations’ and to enhance the knowledge of sourcing applied on ‘operations’:
How is a sourcing strategy for ‘operations’ defined and which factors play a role when formulating this strategy?
1.5 Sourcing Options
Before the above mentioned question can be elaborated more in detail, the main sourcing options, offshoring, outsourcing and SSC, will be explained first and will be presented in the relation to ‘operations’. Although there are many forms and combinations of these sourcing options, only the main three will be used in this research.
1.5.1 SSC
A shared service center is a result responsible unit within the internal organization, which has as task to deliver services, based on a specialization, to the operational units of that organization, based on a standard price (Strikwerda, 2005). Organizations can also jointly lead SSC (for example a joint venture). Another definition of a SSC given by KPMG 2 (2005) is ‘the consolidation of common functions, systems, processes and personnel across several business units into an internal service bureau, managed as an independent organization. As Strikwerda (2005) says ‘the interest of the SSC is the interest of the group of organizations the SSC is in’. Operations mangement ‘Operations’ Sourcing strategy: • Outsourcing • Offshoring • Shared service center
Figure 1.2 Operations level and sourcing strategy.
In short it is believed that organizations make use of SSC to reduce costs and to enhance quality of internal and external services. Additionally, KPMG (2, 2005) identified that organizations choose for an SSC when, complete control of processes is desired, relevant competencies (like staff and technology) are owned and when organizations want to generate long term benefits. A risk however, is the one-sided view on cost reduction (KPMG 1, 2005). Linking SCC to ‘operations’ an example can be a unit, situated at one specific location, that is responsible for customer services for a large financial service organization spread all over the Netherlands.
1.3.2 Offshoring
an internal/external service provider at a remote location, i.e. at centers in countries outside the originating location (KPMG 2, 2005).
Cost reductions together with reason such as increasing flexibility, following customers/suppliers and entering new markets are the most important motives for organizations to offshore activities (Van Gorp, 2005). An example of offshoring, that can be given for ‘operations’, is the production of standard boat frames by a third party in another country, after which the frames will be customized in the originated country.
1.3.3 Outsourcing
Outsourcing can be defined as a ‘long-term, results-oriented relationship with an external service provider for activities traditionally performed within the organization’ (KPMG 2, 2005). Not being interested in operational control and the desire to generate short-term benefit are two reasons why organizations outsource (KPMG 2, 2005). Additionally, outsourcing is used to simplify processes and to lower, share or transfer the risk where it can best be managed. Outsourcing of local telecom networks is an example of outsourcing applied on ‘operations’.
In short an overview of the reason to outsource, offshore or to create SSC can be found in figure 1.3.
Organization wants to complete control of process
Cost reduction
Enhance quality of internal and external services Generation of long term benefits
Organization owns relevant competencies
SSC
Retain or enlarge market position Focus on core competencies Cost reduction
Off-shore services
Reduce unit costs
Focus not on core competence processes Focus management time on core business Simplify processes
Lower or share risk or transfer it where it can be best managed
Outsourcing services
CHAPTER 2: OPERATIONS AND DEFINING SOURCING STRATEGY
Defining strategy and making strategic decisions depend on a large number of factors. First of all, the vision and mission of the organization plays a role, secondly and thirdly the resources and stakeholders play a role (Johnson and Scholes, 1999). Defining a sourcing strategy also involves these factors (Huibers, 2005), but is then connected to the choice between SSC, offshoring and outsourcing. Formulating a strategy for ‘operations’ depends not only on external factors but also on stakeholders, resources and processes (Johnson and Scholes, 1999). In other words, the following three factors play a role in the strategy formulation for ‘operations’:
• Factors related to the internal process, • Factors related to external events and,
• Humans’, participating in the process the strategy involves.
Note that these three factors that play a role in the strategy formulation process for ‘operations’ will be called the ‘relevant determinants’ in the following part of this research.
That the first two are relevant determinants is also stated by Slack and Lewis (2002); they say that ‘the objective of an operations strategy is to reconcile market requirements with operational resources and internal processes’. Next to that, the operations-strategy formulation process can be market-led (Platts and Gregory, 1990) or resource-based (Barnes and Rowbotham, 2003). In other words, both internal factors related to the process and external factors are important. In the coming part of chapter two, both factors are specified and linked to sourcing strategy.
The third factor; ‘stakeholders’ involves, according to Roe et al. (2005), the human resource aspect, impact on employees, unwillingness to change and how this change, that follows from the (new) strategy, is led. Changes within the organization that occur because of operational strategy are often related to resources, culture and needed expertise (Johnston and Scholes, 1999). In other words, many of these factors are related to human resource aspect and culture, which are according to Burnes (2004) part of change management. Also in the book written by Beer and Nohria (2000) many of these issues are described and argued as ‘change’ elements. Therefore this last factor, that plays a role in formulating an ‘operations’ strategy, will be called ‘change management elements’. In the coming part of chapter two, also change elements are further specified and linked to sourcing strategy.
2.1 Factors Related To Sourcing Strategy Formulation For ‘Operations’
formulation for ‘operations’. To investigate more thoroughly if this is indeed the case, all relevant determinants, given in the previous section, are explained more extensively and will be linked to sourcing in the following sections. An overview of the mentioned relevant determinants is given in figure 2.1.
Chang ment Sourcing strategy for ‘operations’: • Outsourcing • Offshoring • Shared service e manage elements External factors Internal proces characteristics
Figure 2.1 Framework of operations and the three relevant determinants that play a role in decision making.
2.2 Internal process Characteristics
In the beginning of this chapter it is argued that internal factors related to the process, play a role in strategy formulation for ‘operations’. As explained in section 2.1 there might be a relation between these factors and sourcing strategy formulation for ‘operations’. To investigate this, the internal process characteristics, are explained more extensively.
Operations in different organizations differ on four main points; volume, variety, variation in demand and customer contact (Slack, 2001). These four main points are called the process characteristics of organizations’ processes. Only a well understanding of these processes makes an effective operations strategy possible (Barnes and Rowbotham, 2003).
Volume means how many products or services are produced by the organization. Variety can be identified as how many different types of products or services are produced. With variation, the change in the level of demand over time is meant. The last factor; customer contact or ‘visibility’ means how much of the ‘operations’ processes are ‘exposed’ to its customers, or in other words, how many contact with the customer is necessary.
2.2.1 Volume
with the volume of produced products or services. This can be one reason that volume is a factor that influences the choice between the sourcing options. Next to that, looking more closely to offshoring, which means in short ‘taking the process(es) abroad’, volume might play a role in actually remove or keep processes. Furthermore when volume is high, organizations may choose to outsource the processes because it becomes too large and extensive. However, other organizations may keep the processes when volume is high because of simplicity and economies of scale. To gain a better understanding of the influence of volume, more investigation is needed.
2.2.2 Variety
An organization can differ in variety which has to do with the flexibility (Slack, 2001) of the organization. Many different products can mean a different schedule of production and more complicated sub-processes than when fewer products are produced. This can than have an effect on the choice between the sourcing options. Next to that variety can be an important factor because this determines whether a process can be easily standardized or not. Standardization can be linked to the choice for outsourcing or SSC (figure 1.3). Moreover, variety may play a role in the choice process because the costs of producing the different types of products or services can have impact on the costs to outsource, offshore or to create a SSC.
2.2.3 Variation
Variation in demand can be linked to personnel and purchase planning. According to Slack (2001), a high variation in demand can bring difficulties with both personnel and purchase planning. This has to do with the predictability of the production. Predictability can in its turn be linked to standardization and cost reduction. These two objectives can again be found in figure 1.3, which shows the reasons for the three sourcing options. This can then imply that when it is more difficult to plan, organizations are more willing to outsource the process because they do not want to have the responsibility and costs of staff that is not needed all year long.
2.2.4 Visibility
The degree of customer contact, another word for visibility, can first of all be linked to offshoring. When no customer contact is involved it may be easier to bring the processes abroad then when your customers need to visit the production site. Next to that, visibility can also be related to cost reduction; when more sub-processes with high customer contact are performed by the same department (SSC), costs can be reduced. This can also increase the quality, which is again one of the reasons to choose between three sourcing options (figure 1.3). This can therefore imply that visibility also plays a role in the choice between the sourcing options.
In the above sections it is implied that volume, variety, variation and visibility may be relevant determinants when formulating a sourcing strategy for ‘operations’. To know if these process characteristics indeed play a role, and to know what kind of role they play, the following question is stated.
In other words, it will be investigated how the process characteristics play a role in defining the sourcing strategy. This includes which factors are more important for offshoring, outsourcing or SSC. This can then be linked to an operations profile that can be made according the four main dimensions (see figure 2.2). This profile will be used later in this research to show the different process characteristic profiles belonging to the three sourcing options.
2.3 External Factors
When formulating operations strategy, not only the internal proces characteristics are important. Slack (2001) states that ‘operations managers have some responsibilities in the organization which contribute to effective production and one of these responsibilities is to respond to the emerging challenges for the future’. This may imply that also for ‘operations’ an outside-in perspective needs to be used, which means an analysis of the external factors. Next to that, some authors state that it is dangerous when only one view, external or internal, is applied. Figure 2.2 Dimensions of operations management From an internal perspective it is difficult to see the external opportunities and correct market positioning. Therefore the danger is that ‘too much time, effort and money is wasted in the wrong areas of little importance’ (Russell, 1999). Market positioning must take place within the context of the broader resource based strategy and not contradict the main thrust of the firm. This means that the selected market positions must leverage the existing resource base and not ignore it (Wit and Meyer, 2004). Shortly stated; ‘formulating a funded strategy involves reconciling the often conflicting pressures of market requirements (external analysis) and operations resource capabilities (internal analysis)’ (Slack, 2001). This means that besides the internal process characteristics also external factors are important when defining a sourcing strategy for ‘operations’.
2.3.1 Competitors
‘Operations’ is defined as the activities of the organization that deliver products and services and executes the added value. The mix of resources that organizations use to produce this added value is never the same as their competitors (Burnes, 2004), because organizations consequently want to be different of their competitors to distinguish themselves. The core competence, which is called the process that makes the organization unique, or in other words ‘added value’, makes that real competitive advantage comes from the ability to produce at lower cost and speedily than competitors (Prahalad and Hamel, 1990). This means that what competitors do plays a role in ‘operations’. Additionally, because sourcing is one of the latest trends (Roe, 2005), it can also be important for an organization to get involved with sourcing before competitors. More and more organizations are offshoring their processes in the last decade. It is the question if these organizations are doing this because of internal whishes and strategic concerns or that they are getting involved with offshoring because all their competitors are doing it. In other words it is the question what the role of competitors is concerning the choice between the sourcing options.
2.3.2 Technology
Technology as an external factor includes Internet, transportation, speed of technology transfer and new developments (Johnson and Scholes, 2001). Linking this to the sourcing options, it can be seen that when activities that require regular contact are offshored, Internet and fast technology transfer need to exist. Next to that, high technology means a high level of computerization, which means that people might be replaced for machines and that centralization of systems is necessary. Looking at the sourcing options, centralization can be of influence for the choice process. Next to that, linking technology to ‘operations’, whole processes might change because of technological or transportation developments. This implies that technology might be an important factor for defining sourcing strategy for ‘operations’. An example might be that when Internet does not exist or is not fast enough in other parts of the world, organizations are more willing to create a SSC or to outsource their activities than to offshore their activities to places where Internet is still in development.
2.3.3 Legislation
The above mentioned external factors are expounded and linked to the relevant determinant in the sourcing strategy formulation process. However no empirical research has been done to verify if these factors actually play a role in real practice. Therefore the following question is stated:
Question (2): How do the external factors; technology, rules and regulations and competitors play a role in the choice between offshoring, outsourcing and SSC for ‘operations’?
Both external factors and internal process characteristics are explained and may play a role in the sourcing strategy formulation process. Next to that it is exactly the mix of both factors, which is important in strategy formulation (Russel, 1999 ; Slack, 2001 ; Wit and Meyer, 2004). Although it can be grounded that both internal process characteristics and external factors are important, it is not clear which are more important and which are decisive. Therefore question three is asked.
Question (3) Which factors, external or internal process characteristics, are decisive for the choice between a SSC, offshoring or outsourcing?
2.4 Change Management Elements
As explained in the beginning of this chapter, also change management elements may play a role in the strategy formulation for ‘operations’. Strikwerda (2005) agrees and states that the ‘process of sourcing involves a process of change management’ (Strikwerda, 2005). Additionally, comparing the following statement of Strikwerda (2000), who states that ‘implementing a sourcing option means a change in habits, relations and political relationships’ to the statement of Burnes (2004), who states that ‘politics, power, norms, values and habits are very important elements in change management’, it can be said that elements from change management are present in the sourcing process. In other words, when an organization is planning to source, the organization is making plans for change.
In general many different change elements can be identified. Also Beer and Nohira (2000) describe many change elements that are elaborated by different writers. They combined the views of different writers and identified leadership, focus, planning, consultant’s role, purpose and motivation as the main change management elements. Because Beer and Nohria made a thorough assessment of organizational change dimensions and combined different views (Strikwerda, 2002) the change management elements they discuss are used in this research as a guideline.
The change elements that may play a role in the sourcing strategy formulation (the choice process) are called the ‘relevant change determinants’ and are defined as the elements that may play a role in the choice between a SSC, offshoring and outsourcing for organization’s ‘operations’. Three relevant change determinants can be identified; consultant’s role, expected change in competence and expected resistance. These will be explained more extensively in the coming part.
Next to that, the way the three sourcing options may best be leaded, focused and planned are called the change implementation factors. The consultant’s role will also be part of the ‘change implementation factors’. These factors are also related to organization’s ‘operations’.
Change management elements • Leading • Focusing • Planning • Consultant’s role of the different sourcing options; SSC, offshoring and
outsourcing Influence on choice between
SSC, offshoring and outsourcing of: • Consultant’s role • Change in competencies • Expected resistance Relevant change determinants Change imple -mentation factors
Figure 2.3 Two different sides of change management elements that will be researched
2.4.1 Relevant change determinants
Expected resistance, expected change in competencies and consultant’s role are the three determinants identified.
Expected resistance
(Kreitner, 2002). Most of the time employees are less likely to resist when they perceive that the benefits of change overshadow the personal costs. However, in spite these positive statements about participation and the reduction of resistance, others criticize the tendency to treat participation as a cure-all for resistance to change. ‘A contingency approach is preferred because resistance can have many forms and because situational factors vary’ (Kreitner et al, 2002).
Implementing one of the sourcing options can include a change in personnel that includes job losses (Huibers, KPMG1, 2005) and may therefore result in resistance of the involved employees. Additionally, sourcing can include more than only economic impacts; it can include unwillingness to change, lack of commitment and impact on employees (Roe, 2005). It may be the case that organizations expect that one of the sourcing options generates more resistance than others, which may than result in the choice for the sourcing option with the lowest expected resistance. An example is that when organizations expect that offshoring results in more resistance, because it generally includes more job loses (KPMG 2, 2005), the organization will sooner choose for outsourcing or SSC.
Consultant’s role and expected change in competencies
Carefully analyzing the strategic possibilities and making the choice between the sourcing options, makes that a thorough assessment of the organization and related business know-how are necessary (KPMG 2, 2005). Consultants that give advice about strategic options and change are most likely to have that business know-how and expertise to make a thorough analysis. Miles (2000) states that, next to the role described above, consultants are concerned about the assessment and development of employee competencies to achieve the desired level of performance. Looking at the definitions of the sourcing options, it can be seen that required competencies of employees change when sourcing options are implemented. However, the magnitude of change can differ. With SSC (figure 1.3) the competencies needed for the new situation are most of the time already in-house, employees only need to expand their (special) competencies. Next to that, offshoring may imply that jobs in the organization will disappear because business processes are moved abroad. This will then imply that employees will loose their jobs or need to learn new competencies for other jobs. In other words, different sourcing options need different changes in competencies. Linking this to the above explained consultant role, the different sourcing options may need a different role of expertise. Although some situations may require an expert, some organizations may not always like the presence of a consultant because this can also result in a failure of the project (Schaffer, 2000) or because it is too expensive. Therefore also consultant’s role might play a role in the choice between the three main sourcing options.
Although it is explained above why and how the three relevant change determinants play a role in the choice between SSC, offshoring and outsourcing, no empirical research has been done to the see if these determinants actually play a role in the decision making process. To research how the different ‘relevant change determinants’ influence the choice between the sourcing options for ‘operations’, the following question is stated:
2.4.2 Change implementation factors
The four ‘change implementation factors’ identified for this research are planning, focus, leadership and consultant’s role. Beer and Nohria (2004) describe some dichotomies that exists within these factors and they position these factors in two different approaches that exist within theories about organizational change; ‘Theory O’ and ‘Theory E’ (see table 2.1). The former focuses on organizational capability driven change. Hereby development of high-commitment culture is emphasized and change initiatives are driven from bottom up, by means of high involvement. The latter approach, focuses on economic value driven change and shareholder value, whereby focusing on formal structures and systems is important. Change initiatives are driven from the top with the help of consultants and financial incentives.
Objective Theory E Theory O
Leadership Top-down Participation
Consultant’s
role Knowledge driven Process driven
Focus Structure Culture
Planning Planned Emergent
Table 2.1Dichotomy’s in change management
Looking more closely to the dichotomies (table 2.1), it can be seen that different changes may be implemented, leaded, and planned via the different theories. Although much is written about these theories and the different changes, no empirical research has been done in linking these theories to the change that one of the sourcing options can bring.
Leadership
Change can be led top-down or bottom-up (Beer and Nohria, 2000), as explained in one of the previous sections. Conger (2000) argues that, because of the nature of today‘s organizational change, effective change begins at the top. No other approach can make the change process succeed successfully, this because small departments who want to lead the change (from bottom up) cannot see the consequences for the total organization. Another explanation is that reinvention, such as sourcing, can involve a change in company strategies and organizational architectures which can only be adapted by senior leaders while they have the ‘overview of the organization’. On the other side Bennis (2000) argues that top-down leadership is unrealistic and dangerous, because there are too many problems that need to be solved and identified. Additionally, he states that changes cannot be done without willingness and commitment of lower employees. This is what Burnes (2004) refers to as ‘successful change is a bottom-up, emergent, response to change’.
Consultant’s role
no matter how high and good the expertise of a consultant is, the real success can be found in the organization’s implementation capability.
Focus of change
The focus of change can be twofold; it can be a structure approach or it can be a culture approach (Galbraith, 2000 ; Leavitt, 1965). Galbraith (2000) argues that changing formal structures is central to the success of the overall organizational process. Leavitt (1965) supports this view by saying that under some circumstances both a hard or soft approach may be more central to the success of change. This means that structure can be the driver for change when it is a key element for the organization. Hirschhorn (2000) does not agree with these statements, and believes that organizational structure is abstract and does not exist. He argues that structure is a set of interlocking relationships that people believe they have with one other; it is socially constructed. To attain increase in performance, managers have to attend the organization’s culture.
Planning
The last dichotomy used in this research is planning of change. According to Choshal and Bartlett (2000) change need to be carefully phased planned. In that way, changes in organizational hardware can be matched to the behavioral software that has to change also. Opponents of the planned change say that in this way the change cannot be aliened to the fast changing environment and propose the emergent approach (Weick, 2000 ; Lewin, 1999).
Although much is written about the above mentioned ‘change implementation factors’, also discussed by Beer and Nohria, there is not much literature on how to manage change processes that include sourcing. The different dichotomies described (figure 2.4) imply that different changes need to be implemented, leaded and planned in a different way. Because sourcing is also a form of change (Strikwerda, 2004 ; Burnes, 2004) this may imply that the different sourcing options need to be planned, leaded and focused differently. However, as said before, there is no empirical research that describes how different sourcing options need to be planned, leaded, implemented and what consultant’s role is necessary. Therefore the following question is asked:
CHAPTER 3: RESEARCH METHODS
To answer the questions stated in chapter two, data needs to be gathered. Two approaches can be used to gather primary data; communication and observation (Cooper and Schindler, 2001). Communication, in the form of personal interviews and self-administrated surveys (questionnaires), are used as methods for this research.
3.1 Questionnaire A
To generate an answer on the first two research questions, that deal with the internal process characteristics and external factors that can play a role in the strategy formulation for ‘operations’, knowledge and experiences of people that deal with sourcing, or will be dealing with sourcing on the short term, needs to be revealed. As said before, Cooper (2001) state that this can be done with questionnaires. With a questionnaire more persons can be questioned than with interviews and the answers can, depending on the questions, more easily be standardized and categorized. The questionnaire that deals with research questions one and two is called questionnaire A.
Questionnaire A was send to individuals that have a managerial function and knowledge about ‘operations’ in their organization. Next to that the organizations have to be dealing with sourcing issues (in the near future). To be able to send the questionnaire to this target group the database of KPMG business advisory services (BAS) is used. In this database 550 organizations are listed that deal with sourcing issues (in the near future). Although these organizations are from different sectors, the mix is evenly spread. All ‘for profit’ sectors that KPMG distinguish are represented; financial services, telecommunication, consumer markets and production. The organizations are mid-size to large-size organizations operating in the Netherlands and participate already in a monthly send questionnaire of KPMG. Questionnaire A is part of this monthly send questionnaire.
First of all, to know if sourcing on ‘operations’ really is an issue, the opinion of 51 employees, all coming from the above described target group, about the contribution of ‘operations’-sourcing to organizational objectives is measured. Secondly, criteria on which sourcing of ‘operations’ is determined are measured with an open question to know which factors play a role in the choice process. The last variable measured by questionnaire A is the role of the four internal process characteristics. The questions measuring this are build up from answers from ‘no role’ to ‘decisive role’ in four gradations.
3.2 Questionnaire B
send questionnaire’ if they wanted to participate in a more detailed research and secondly this group was selected on the criteria that they need to have a large affinity with ‘operations’. Additionally the group needed to be a balanced mix of the for-profit sectors.
The selected group consists of 12 employees, from these individuals the role of the internal process characteristics in relation to the choice between a SSC, offshoring and outsourcing, as perceived by them, is measured. This is done with statements about the reasons for outsourcing, offshoring and SSC. For example, there is stated ‘how larger the volume, the more reasons there are for outsourcing’. This statement can then be answered with ‘totally disagree’ to ‘totally agree’ in four gradations. Next to that the option ‘no opinion’ can be chosen. The statement mentioned in the above example is converted to every sourcing option and every internal process characteristic. Additionally, all statements are also asked in the opposite form; ‘how smaller the volume, the more reasons there are for outsourcing’, etc.
The same is also done to link the three external factors to the different sourcing options. In this case the variables ‘larger’ and ‘smaller’ are linked to the role ‘competitors’, ‘technology’ and ‘legislation’ play in the decision making process concerning the sourcing options. For example there is stated ‘how larger the role of technology, the more reasons there are for outsourcing’. This statement can be answered with ‘totally disagree’ to ‘totally agree’ in four gradations. Also the option ‘no opinion can be chosen’. Again this statement is converted to all sourcing options. Furthermore, investigating which factors are decisive, external or internal process characteristics, the answers of the 12 employees, was collected according to a closed ‘yes or no’ question.
The role of the relevant change determinants; ‘expected resistance’, ‘expected change in competencies’ and ‘consultant’s role’ (research question four) in the choice process is measured with questions that are build up from answers from ‘no role’ to ‘decisive role’ in four gradations. Furthermore it is investigated if organizations have a specific sourcing strategy for activities for ‘operations’, with a closed multi-option question.
Note that questionnaire A and B were sent in Dutch and simultaneously.
3.3 Personal interviews
CHAPTER 4: RESULTS
Results will be presented in line with the research questions. Although this is the case, before the answering of the four research questions, results are presented that can justify the total research.
4.1 Research
All research questions relate to the sourcing strategy for ‘operations’. Before knowing what factors play a role in sourcing strategy formulation, it is important to know if organizations are willing to source ‘operations’ and if it is seen as an important issue. Figure 4.1 shows that 82% of the respondents believe that sourcing of ‘operations’ contributes to the organizational objectives.
82% 18% 0% 20% 40% 60% 80% 100% No Yes
Figure 4.1 Contribution of ‘operations’-sourcing to organizational objectives (n = 51 = 100%)
Research questions 1,2 and 4 deal with the question: ‘what role do the internal processes characteristics, external factors and change management elements play in the sourcing strategy formulation?’. In the literature it is assumed that these three groups of factors or elements have influence on the sourcing strategy. To know if organizations are really considering these factors when sourcing is wanted, criteria on which sourcing for ‘operations’ is determined, can be found in table 4.1.
Criteria Responded Contribution to objective 18% External factors 22% Internal factors 31% Strategic concerns 10% Continuity 8% Other 10% Table 4.1 Criteria on which sourcing of
‘operations’ is determined (n = 51= 100%)
The research deals with ‘sourcing strategy’, which makes it useful to know if organizations actually have a specified sourcing strategy that incorporates all preferences and all factors that play a role. Figure 4.2, based on questionnaire A, shows how many organizations have a specified sourcing strategy for ‘operations’.
Figure 4.2 Organizations that gave a specific sourcing strategy (n = 51 = 100%)
37% 9%
27%
27% Yes, part of total sourcing
strategy
Yes, explicit for 'operations' No
Other
4.2 Internal Process Characteristics
The first research question deals with the role the process characteristics; volume, variety, variations in demand, and visibility play, in the choice between offshoring, outsourcing and SSC for ‘operations’. In table 4.2, based on the answers of questionnaire A, it can be found how the respondents perceived the role of these internal process characteristics. No role Small role Large role Decisive role Total Volume 22% 14% 52% 12% 100% Variety 22% 30% 46% 2% 100% Variation 40% 36% 22% 2% 100% Visibility 18% 32% 34% 16% 100%
Table 4.2 Role of internal proces characteristics on the sourcing strategy (n = 51 = 100%)
Statements about:
Outsourcing Totally disagree Disagree Agree Totally agree No opinion
How larger volume… 0% 82% 9% 9% 0%
How smaller volume… 9% 9% 64% 18% 0%
How larger variety… 10% 20% 60% 10% 0%
How smaller variety… 10% 60% 0% 20% 10%
How larger the variation… 0% 20% 30% 40% 10%
How smaller the variation… 0% 50% 30% 10% 10%
How larger visibility… 70% 30% 0% 0% 0%
How smaller visibility… 10% 10% 50% 30% 0,00%
SSC
How larger volume… 10% 0% 20% 60% 10%
How smaller volume… 20% 30% 30% 10% 10%
How larger variety… 10% 20% 30% 20% 20%
How smaller variety… 10% 30% 40% 0% 20%
How larger the variation… 10% 0% 40% 20% 30%
How smaller the variation… 0% 20% 30% 10% 40%
How larger visibility… 20% 30% 20% 10% 20%
How smaller visibility… 10% 10% 40% 20% 20%
Offshoring
How larger volume… 9% 0% 9% 9% 73%
How smaller volume… 9% 0% 9% 9% 73%
How larger variety… 0% 9% 0% 0% 91%
How smaller variety… 0% 0% 0% 9% 91%
How larger the variation… 0% 0% 0% 0% 100%
How smaller the variation… 0% 0% 0% 0% 100%
How larger visibility… 27% 0% 0% 0% 73%
How smaller visibility… 0% 0% 9% 9% 82%
Table 4.3 Internal process characteristics and the choice for the three sourcing options for ‘operations’ (n = 12 = 100%)
4.2 External Factors
Statements about:
Outsourcing Totally disagree Disagree Agree Totally agree No opinion
How larger the role of technology… 11% 22% 45% 11% 11%
How smaller the role of technology… 11% 45% 33% 0% 11%
How larger the role of legislation… 22% 22% 22% 22% 12%
How smaller the role of legislation… 11% 22% 45% 11% 11%
How larger the role of competitors… 11% 45% 0% 11% 33%
How smaller the role of competitors… 11% 22% 22% 0% 45%
SSC
How larger the role of technology… 0% 11% 11% 67% 11%
How smaller the role of technology… 11% 22% 56% 0% 11%
How larger the role of legislation… 0% 11% 22% 56% 11%
How smaller the role of legislation… 11% 45% 22% 0% 22%
How larger the role of competitors… 0% 22% 22% 45% 11%
How smaller the role of competitors… 11% 45% 11% 22% 11%
Offshoring
How larger the role of technology… 9% 0% 0% 9% 82%
How smaller the role of technology… 9% 9% 0% 0% 82%
How larger the role of legislation… 18% 0% 0% 0% 82%
How smaller the role of legislation… 0% 0% 9% 9% 82%
How larger the role of competitors… 0% 0% 9% 9% 82%
How smaller the role of competitors… 9% 9% 0% 0% 82%
Table 4.4 External factors and the choice for the three sourcing options for ‘operations’ (n = 12= 100%)
4.3 Decisive factors
Research question three; ‘which factors, external or internal, are decisive for the choice between SSC, offshoring or outsourcing’, can also be revealed with questionnaire B. In figure 4.3 it can be found how many respondents think that internal process characteristics or external factors are decisive.
11%
33%
56%
0% 10% 20% 30% 40% 50% 60%
Not applicable to our organization Extrnal opportunities and threats Internal strenghts and weaknesses
In research question 2 and 3 the role of the internal process characteristics and external factors is questioned. Table 4.5, stating interview quotes, shows which factors the respondents perceive as important for defining the sourcing strategy for ‘operations’. Additionally, table 4.5 shows the relevance of these factors.
Factors Interview quotes
Internal process
characteristics and external factors used in the
questionnaires.
‘The factors mentioned are the most valid and acceptable’ (2x), ‘these factors are definitely used, only in some cases more factors are needed’, ‘not everything can only be based on these factors, however it gives a robust fundament to base the choice on (2x)’.
Availability of high qualified partners (e.g. quality level).
‘Outsourcing and offshoring can only be done when the quality level of the third party is high or sufficient enough’, ‘you have to fully rely on the party you outsource to, this can only be the case if they have enough knowledge and a high quality level’.
Risk involved with sourcing; anticipated risk (e.g. risk).
‘Sometimes it is more risky to offshore’, ‘sometimes our organization is not willing to take the highest risk which can mean that another sourcing option will be chosen’, ‘risk, can as I see it be related to financial risk’.
Table 4.5 Factors important for the choice between the three sourcing options (n = 3)
4.4 Relevant change determinants
Research question four; ‘how do the relevant change determinants, needed expertise, change in competencies and expected resistance, play a role in the choice between offshoring, outsourcing and SSC’, can partly be revealed with table 4.6, which shows how large the role is. The figure can be interpreted as follows; 56% thinks that expected resistance of employees plays a large role in the choice between the three sourcing options.
Very large role Large role Mediocre Small role Very small role Role of expected resistance 0% 56% 11% 21% 11% Role of needed expertise 0% 34% 33% 11% 22% Role of new competencies needed 22% 56% 11% 11% 0%
Table 4.6 Role of relevant change determinants in the choice proces of a sourcing startgy for ‘operations’ (n = 12 = 100%)
Interview quotes Expected
resistance
‘With all sourcing options you can experience resistance, it is the way how you deal with it’, ‘offshoring generates most of the times more resistance, however that does not mean it will not be implemented’, ‘resistance or not, when it is better for the organization, it is eventually also better for the employees’.
Expected change in competencies
‘When employees already have the acquired skills, it is easier to create a shared service center than to outsource because you will loose these employees’, ‘when competencies need to change drastically, it is save and secure to outsource or offshore your business activity’.
Needed expertise
‘Sometimes it is too expensive to get the acquired knowledge’, ‘for offshoring more expertise is necessary, however I think this issue is more related to costs than to expertise’, ‘it is easier and cheaper to choose a sourcing option that the organization is already acquainted with, because the organization has to buy-in less knowledge’.
Table 4.7 Role of resistance, competencies and expertise in the choice between the sourcing options (n = 3)
4.5 Change implementation factors
Outsourcing SSC Offshoring Leader-
ship
‘When communicated well outsourcing does not experience much resistance’ (2x), ‘implementing outsourcing plans must be done not only by top management but also middle management’, ‘opinions of lower level employees are important and must be taken into considerations (2x), however this can only be done till a certain degree’.
‘Because activities/ processes stay within the organization, less communication to lower level
employees is necessary because less resistant will occur’, ‘not only higher management should be involved, but also lower management dealing with the future shared service center needs to be involved’, ‘although lower level employees are not always conferred, open communication is necessary’ (2x).
‘Offshoring is most of the time a real strategic consideration, which is decided by top management’, ‘because offshoring is often accompanied by job loses (3x), informing lower level employees is good, but considering all their opinions is too much work and will bring too much resistance’, ‘with offshoring you need to see the overall-picture of the organization’.
Focus ‘Structure will most of the time not change drastically’, ‘not the structure, but the role of the process will change (3x)’, ‘only the employees that join the ‘third party’ will experience culture change’ (2x).
‘Creating a shared service center includes most of the time a change in structure’ (3x), ‘like with outsourcing, cultural changes are not really an issue’.
‘Many offshoring projects involve a change in culture’, ‘the organizational-culture needs to be adapted to the culture of the country whereto the processes are offshored’, ‘with only a structural change, it will not succeed because of cultural differences’.
Consul-tant’s role
‘Consultant expertise can be necessary for market research, however the change inside the organi-zation still depends on the organiorgani-zation capabilities to change’, ‘creating the agreements, between the party that outsources and the party that insources, can best be done by consultant’s’ (2x).
‘The success of a shared service project is often related to the organization itself’ (2x).
‘Offshoring is a difficult process that acquires expertise (2x)’, ‘a thorough market analysis is necessary’, ‘expertise is necessary to analyze all rules and legislation of the country whereto the processes are offshored’ (3x).
Plan- ning
‘Planning a sourcing option always needs to be done step by step and by forehand. It does not matter if it involves, a shared service center, offshoring or
outsourcing’ (3x), ‘contingency plans are necessary, when something (un)expected happens’, ‘although plans need to be made by forehand, still some (very little) room needs to be present to adapt these to the circumstances’, ‘good planning is the keyword in successful sourcing ’ (2x).
CHAPTER 5: CONCLUSIONS 5.1 Research
Before answering the research questions separately, some conclusions can be drawn that justify the total research. First of all, looking at figure 4.1 it can be seen that the main majority thinks that sourcing of ‘operations’ contributes to the organizational objectives. This may then imply that sourcing of ‘operations’ is at least one of the sourcing possibilities that can be attractive to organizations. In other words, while sourcing of ‘operations’ can be attractive to the main majority of organizations that (are willing to) deal with sourcing, it can be said that this research can have a contribution to the knowledge about sourcing strategy for ‘operations’. Furthermore in the literature part it is assumed that internal process characteristics, external factors and change management elements all play a role in the sourcing strategy formulation for ‘operations’. From table 4.1 it can be concluded that these factors indeed play a role in sourcing topics for ‘operations’. Moreover, from the interviews (table 4.5) it can also be concluded that these factors play a role and that it is also a relatively large role in relation to the other factors mentioned; risk and quality level.
Next to the above conclusions about sourcing strategy for ‘operations, it can also be concluded (figure 4.2) that more that the majority of the organizations has a (specific) sourcing strategy for ‘operations’. This may imply that organizations are dealing with specific issues about sourcing strategy for ‘operations’, whereas, before this research, no other empirical research has been done in this specific area.
5.2 Internal Process Characteristic
L H
H L
H L
H L
Figure 5.1 Internal profile outsourcing
L H
H L
H L
H L
Volume VolumeFigure 5.2 Internal profile SSC
Looking at the choice for offshoring in combination with the process characteristics (table 4.3), it can be concluded that too many respondents had no opinion about this matter. As a result the process characteristics profile for offshoring cannot be well-founded enough. It can be concluded that organizations’ knowledge about offshoring can be improved. This because most respondents indicated that the internal process characteristics are important for the choice between outsourcing, SSC and also offshoring but only a low number of respondents answered the questions concerning offshoring.
5.3 External Factors
S L
S L
S L
Figure 5.3 External profile outsourcing
S L
S L
S L
Technology Technology
Figure 5.4 External profile SSC
Again, the main majority of the respondents gave no opinion about offshoring. Therefore no real conclusions can be founded for offshoring in relation to the external factors.
5.4 Decisive Factors
It can be concluded that internal process characteristics are decisive for the choice between SSC, offshoring and outsourcing (figure 4.3). This gives an answers on research question 3; ‘which factors, external or internal internal process characteristics, are decisive for the choice between SCC, offshoring or outsourcing’. Furthermore, based on the interviews (table 4.5) it can be concluded that next to the process characteristics and external factors, two other factors are important for sourcing strategy formulation for ‘operations’; risk and quality level. Although risk and quality level are also important, process characteristics and external factors are predominant. Furthermore, the interviewees classified quality level and risk, mainly as important factors to choose for offshoring.
5.5 Relevant change determinants (Resistance, Expertise and Leadership)
First of all it can be said that expected resistance plays a large role in the choice between SSC, offshoring and outsourcing (table 4.6). Furthermore, based on the interviews (table 4.8), it can be concluded that offshoring generates most resistance. Although resistance occurs in different magnitudes in the different sourcing options according to the respondents, it will never be a decisive factor because the need to implement the sourcing option, from management point of view, is greater than the resistance of lower level employees.
Secondly, it can be concluded that more than the majority believes that needed expertise plays a mediocre or large role (table 4.6). Furthermore, it is not really an expertise issue, but more a cost issue (table 4.8). It is easier and cheaper to choose a sourcing option the organization is already acquainted with, because the organization has to buy-in less knowledge.
Thirdly, more than the majority believes that the change needed in competencies plays a large or very large role. Based on the interviews it can be seen that when an organization already has the acquired competencies it is easier to create SSC. In contradiction to this, when competencies need to change drastically for the new situation, organization see more reasons for outsourcing or offshoring.
Legislation
Competitors Legislation
5.6 Change Implementation Factors (Focus, Leading Planning and Consultant’s Role)
Question five deals with the planning, leading, focus and consultant’s role of the three sourcing options. From table 4.8 it can be concluded that the different sourcing options can have different inferences. This means that outsourcing, offshoring and SSC actually need to be planned, leaded and focused differently.
5.6.1 Outsourcing
Outsourcing, according to the interviews, can best be led from the top. This because then, according to the interviewees, the overview of the total situation will be kept, which is in line with Conger’s (2000) view. Another conclusion that can be drawn is that besides the top-down leadership, enough communication and a slight consultation to the lower level employees is necessary to avoid resistance. Additionally, the focus of the change may best be a focus on structural change. This because outsourcing can be a key element for the organization, which can then, according to Leavitt (1965), best be classified under a structural focus. However, looking at the interview quotes (table 4.8), the change for the individuals that will join the party where the activities are outsourced to, can best be realized by a cultural focus. This is than a cultural focus from the viewpoint of the organization that takes over the employees of the organization that outsources. For outsourcing according to the interviewees, the consultant’s role needs to be an expert-role only when the arrangements between the two parties need to be settled (table 4.8). The change itself still depends on the organizational capabilities to change.
The conclusion that can be drawn for the ‘change implementation factor’ planning is for all three sourcing options the same; planning needs to be done step by step (table 4.8). Although planning needs to be done by forehand, some contingency possibilities within this planning need to be considered.
5.6.2 SSC
Leadership for SSC can be compared to outsourcing (table 4.8); SCC can best be led top-down with a little room for open communication to reduce resistance. The focus of the change for SSC can also be compared to the focus of the change for outsourcing. However, with SSC the focus of the change can best only be based on a structural change, while there is no third party to outsource to. According to the interviews (table 4.8), the success of SSC is often related to the organization itself, which can be compared to the view of Schaffer (2000). This means that the change ensuing from creating a SSC can best be linked to a model based on a continuous series of rapid-cycle projects. This rapid-cycle model means that no matter how good the expertise of consultant’s is, real success must be found in the organization’s implementation capability.
5.6.2 Offshoring
offshoring will not succeed. This because, the interviewees believe that offshoring also involves and needs some kind of cultural change. Next to that, the interviewees believe that offshoring, in contrast with outsourcing and SSC, needs an expert role during the whole process.
5.7 Sourcing strategy for ‘operations’
The main research question; ‘how is a sourcing strategy for ‘operations’ defined and which factors play a role when formulating this strategy’ can be answered based on the answered research questions. First of all, the main majority of the organizations have a specified sourcing strategy for the different activities for operations.
This sourcing strategy is firstly based on the internal process characteristics of which ‘volume’ plays the largest role and ‘variation in demand’ plays the smallest role. Looking at the internal process characteristics profile (figure 5.1 ; 5.2) it can be seen that the choice between outsourcing and SSC is mainly based on ‘volume’; when quantity of produced products is high, organizations see more reasons to create SSC.
Secondly, a sourcing strategy is based on the external factors ‘legislation’, ‘competitors’ and ‘technology’. Looking at the external factors profile (figure 5.3 ; 5.4), it can be concluded that in an environment where the role of technology is large and legislation is small, organization see more reasons for outsourcing than for SSC. Comparing internal process characteristics with external factors, process characteristics are decisive in the choice process.
Thirdly, sourcing strategy for ‘operations’, is based on change management elements. First of all, when an organization already has the acquired competencies, it is easier to create SSC. Contrary, when competencies required for the new situation need to change drastically, organizations sooner choose for outsourcing or offshoring. Additionally, sourcing strategy is sometimes based on sourcing options organizations are already acquainted with, because in that way organizations have to buy-in less knowledge. Furthermore, expected resistance will never be a decisive factor.
Two other (less important) factors where sourcing strategy for ‘operations’ is based on are risk and quality level. Both are factors mainly to choose for offshoring.
CHAPTER 6: RECOMMENDATIONS AND LIMITATIONS 6.1 Limitations
For answering the research questions, two questionnaires and three interviews were conducted. Although the respondents were selected based on strict criteria, a higher quantity of respondents creates a higher certainty degree for the conclusions drawn. Additionally, because many respondents did not answer the questions about offshoring, conclusions regarding the comparison between offshoring and the other sourcing options could have been more optimal.
6.2 Further Research
Looking at the limitations, it can be seen that more research about offshoring is necessary to compare the three main sourcing options more optimal. Furthermore, this research was not conducted with a restriction of any industry-sector. Although the organizations that co-operated represent a well-outmoded mix of all (for profit) industry sectors, it can also be interesting to see the differences between industry sectors.
