The Offshoring of the American Government - Case Study Example

OFFSHORRING Executive Summary This is a modern enterprise located in Australia that employs approximately 50 people. The company has different branches located in different parts of the country together with some key departments such as finance, Human resource, accounting, Information Technology, customer services and marketing. Due to the ever competitive business landscape, the company is seeking to offshore some of its critical services to an overseas destination in order to save on its operation costs. The services that are likely to be offshored include; customer service, Information technology and accounting. However, the organization embarks on the process by first thoroughly examining and understanding the Offshoring concept, analyzing its benefits, disadvantages, looking at its history. Afterwards they will mainly dwell on the challenges that are mainly to be encountered when managing staff from another country and analyzing key managerial areas such as leadership, diversity management, decision making, human resource development and planning on their importance before adopting the Offshoring concept. It then concludes by giving recommendation to the executive, by highlighting the executive on the Offshoring benefits from an Australian perspective versus the known disadvantages, it also attempts to address the issue of managing foreign workers with diverse background while tackling recruitment and its associated challenges and finally recommending Offshoring as an alternative overall operation cost reduction strategy for organizations. Table of Contents 1. Introduction…………………………………………………………………………3 2. Offshoring History…………………………………………………………………..4 3. Benefits of Offshoring……………………………………………………………….5 4. Disadvantages of Offshoring………………………………………………………..6 5. Managing people……………………………………………………………………..6 Diversity management………………………………………………………..7 Effective leadership…………………………………………………………...9 Decision making……………………………………………………………..10 Human Resource…………………………………………………………….11 Strategy and planning……………………………………………….……...12 6. Recommendations…………………………………………………………………..13 7. References……………………………………………………………………………14 Introduction Offshoring may be described as the relocation of an organizations business process from a certain country to another and these processes may entail operational processes such as manufacturing, accounting, I.T services, marketing and customer services among others (Michael Zuckerman, 2008). This particular scenario has prompted Australian organizations to evolve models for operating amid expanding geographies. Over the past two decades, a new approach coupled with advances in Information Technology has taken hold, this approach has managed centralize data and at the same time decentralize functions. For instance, Australian companies have the capabilities of engineering car models in China; they can perform database research in India and underwrite US land titles in the Philippines (Rutherford & Mobley, 2005). Organizations across the globe are capitalizing on the Offshoring concept in order to achieve and increase on their competitiveness. Over the last few years probably five years, Offshoring has managed to evolve and this evolution has made it assume new forms such as outsourcing business process and even Research and development (Erran & Paul, P.14, 2005) Some of Australia’s major companies have already outsourced some of their services to key destinations, for instance, Telstra one of the iconic companies in Australia has already pledged to reduce its $ 1.5 billion I.T operations bill to $ 750 million and reliable sources are estimating as much as 1500 Australian jobs are likely to be offshored with telecommunication companies estimating a saving of USD $ 20 billion per year by Offshoring its services to developing countries(Richard Grant, 2005). According to Sri Annaswamy who is the founding director of Swammy & associate an Australian based consultancy organization, he is arguing that the move to offshore processes in particular low end destinations is inevitable and business process outsourcing are now going out of Australia to countries such as India and China (Zdnet, 2006) According to GAO (p.9, 2005) Offshoring has rapidly expanded due to: Technological advances such as telecommunications and advent of the internet which has enabled workers from different locations to communicate and connect electronically and this has also facilitated the digitization and standardization of activities which are necessary in completing the business process in which these changes have enabled the different business processes to be divided into smaller components which could be performed in satellite locations. For instance, software technology has made it possible for different organizations to outsource their financial or human resource activities to a different overseas organization that performs these activities to many clients rather than handling the specific functions internally. Different countries have also increasingly opened up their national borders to the global economy. Other countries have managed to develop very highly skilled who possess the required technical skills to perform the technological and services related works. Other factors that may be taken into account include the widespread use of the English language, world class academic institutions with strong educational systems and an increasingly open and properly regulated & managed business environment (A.T-Kearney, 2007). Offshoring History Way back in the early 20th century, two economists John Keynes and Friedrich Hayek managed to come up with macroeconomic theories. Keynes who was quite popular during the period of great depression believed in economic trends that could overwhelm specific behavior of individuals and he believed that in order for a government to have a working and efficient economy, they needed to expediently assert control over certain aspects of the government. This led to the establishment of trade barriers which were made possible by tariffs which ensured protection for industries and their workers (Stanford University). In the 70s with the economic turmoil coupled with unpredictable fuel supplies, it appeared to US and British voters that Keynesian economic policies were increasingly becoming obsolete and in 1979, the Britons managed to elect Margaret Thatcher, and 1980 the U.S voters also managed to elect Ronald Reagan. These heads of states shifted their economic policies to Von Hayek whom believed in trade liberalization and free market economy which can be perceived as today’s globalization (Stanford University). These two heads of state with the rationale that free markets provided answers to the economic difficulties that had previously been experienced in the 70s, began tearing down trade barriers as soon as they were in office through legal mechanisms such as the General Agreement on Trade and tariffs (GATT) which led the US along 22 other countries agreeing to effectively lift 45,000 tariffs that existed. Other major trade agreements were North American Free Trade Agreement (NAFTA), European Union (EU) and ultimately the World Trade Organization (WTO) (Stanford University). It is this liberalization of economies that has made American jobs susceptible whereby traditionally paid workers earn more than other laborers outside North America; this scenario leads organizations into shipping jobs abroad in order to seek less expensive labor (Stanford University). And from then more and more companies have been shifting some of their jobs abroad to be done in low wage countries such as India and China and the industries that are most susceptible are the call centers and software industries where developments are done abroad. Benefits of Offshoring The Offshoring concept is primarily driven by organization leaders with a desire or rather motive of lowering the organizational operational cost and in most organizations in particular in I.T related organizations, Offshoring is being critically perceived as a strategic advantage as businesses are getting increasingly competitive and on the other hand they are being swept into faster and faster cycles of competitive responses and reactions in order for them to remain financially viable and cost competitive at the same time (Erran & Paul, p.10,2005). With cost reduction being the most strategic focus of any competitive organization, there are other benefits that may arise from the concept as well, organizations may benefit from speed, agility and flexibility which also accords them a competitive advantage over their rivals and peers. Organizations also experience increased agility due to the abundant supply of offshore labor. For instance in I.T services, the organization may experience the ability of assigning a large pool of talented engineers to a certain problem in order to forge several directions instead of one which may eventually enable the organization to expediently responding to particular business needs (Erran & Paul, pp.11, 2005). Technological organizations may also benefit from accessing talent which probably wouldn’t be available in their mother country, this is mainly because most of their success stems from innovation and their innovating prowess comes mainly from their talented work force. For instance, in the 1990s, most organizations from the U.S begun turning to Israel, India and China to seek knowledge from highly skilled workforce and by 2003, 77 global software development organization including Microsoft, IBM and Oracle managed to establish their Research & Development (R&D) subsidiaries in India (Erran & Paul, p.11, 2005). Australian based companies may also benefit from better jobs for their Australian based coders, this is mainly because their businesses are improving on their high end skills base by outsourcing their low level legacy projects to destination such as India because Australian companies have already found out that their graduates are no longer interested in traditional programming skills and they are seeking to move up the value food chain (Munir Kotadia, 2004) There is also “follow the sun” which seeks to exploit regional time differences. For instance an Australian may hand over work at the end of the day to his/her team mates in lets say India, who will continue to work while the Australian colleagues are asleep and if an organization can manage to have three teams that are correctly positioned within this particular scenario, then a theoretical threefold duration is quite possible which makes it similar to running a factory in 3 shifts (Erran & Paul, p.11, 2005). There are also the benefits of foreign exchange, for instance Australian organization Offshoring their services to India have already benefited from the appreciation of the Australian dollar from 24.8 rupees in November 2001 to 34.7 rupees in November 2007 and this has led into lower costs in terms of wages (Richard Grant, 2005). Offshoring brings significant cost saving benefits to the organization, for instance, a financial institution in Australia has already hired consultancy firm KPMG to draw for them a plan to send I.T jobs overseas which is likely to make people redundant but on the flip side, the bank has hired more branch managers to boost its physical branches which means sound management for the institution in which also Indian based companies such as Tata consultancy and Wipro have already been linked to the direction (AustralianIT, 2009) Disadvantages of Offshoring Most Australian based organizations are still nervous of the whole concept; this is so because work done by people in other countries is not as easy as work done by a local provider this is due to the additional risks, consumer dissatisfaction and hidden costs (Zdnet, 2006). Rob Durie, Australian Information Industry Association Chief Executive, continues to argue that they also cannot compromise on the security of the Australia’s system (Zdnet, 2006). And because many ICT jobs are to be offshored, Australia as a country risks losing its capacity to compete in this particular sector mainly because the capabilities of the ICT labour force is going to be dulled due to under utilization and also high unemployment is likely to reduce the attractiveness of Australia’s ICT sector to new talent with the end result being a reduced capacity for innovation (Kate Lundy) Offshoring concept also conflicts with a business Corporate Social Responsibility (CSR) because the concept erodes the local community’s confidence that they have with the business and the businesses themselves were greatly damaging their reputation by the quality of decisions they had made in regard to Offshoring (House of Common, p.51, 2005). There is also ethics and trust, offshore representatives always claim capabilities and expertise which they do not actually have at hand, and once the contract is signed, there are very high chances of it flopping which in the long run may dent the company’s reputation (Erran & Paul, pp.11, 2005). Offshoring concepts also takes away jobs from the mother country for instance, In December 2003, Telstra gave a five year contract worth $ 75 million which was offshored to an Indian company Infosys which Telstra itself estimated that it would shed up to 180 Australian jobs and also according to the Whitehorse report, 11,000 I.T jobs were lost in a span of five years (Richard Grant, 2006). According to a 2002 report by forester research, the US was set to lose approximately 500,000 jobs in ICT and mathematics by 2015, and Australia has also been cited to be vulnerable to this particular wave (Kate Lundy, 2003) According to John & Daniel (2007), Offshoring of services is beginning to have a re-distributive impact on the economies of developed countries and this particular trend has been perceived as a major threat to the hegemony of leading service producing economies and the future of their service jobs. Also according to the federal reserve bank of Boston, they estimated in the U.S alone, 250,000-500,000 business service oriented jobs were moved abroad between 2001-2004 and these shifts took place when the U.S was experiencing the weakest period of employment growth since 1945 and going by the fact that Australia is also a world class economy it is no exception. Organizations going offshore are likely to experience lags in productivity which can add as much as 20 % to the overall cost of the contract, and since a number of jobs are to be taken away, then unemployment is likely to loom in Australia (Kate Lundy, 2003) Managing people Whenever an organization offshore some of its services, there are new challenges as well, some of the most notable include managing different people probably from a different background, this calls for a Human Resource leader with skills of managing different people with diverse backgrounds. In a sharp response to the increasing demographic diversity of organizational workforce, various organizations have turned to specific policies in order to facilitate their recruitment, inclusion and retention of employees from diverse backgrounds (John Wrench, p.1, 2007) According to Edward & Hubbard (2004), by a Human resource manager being effective in managing a diverse workforce, he is likely to lift morale, improve processes, provide access to new segments of the market, enhance productivity and finally improve on the financial bottom-line of an organization. Excellent human resource managers are perceived to be proactive in the sense that they embrace a blend of techniques which might include calculated planning, proper communication and adequate monitoring of duties & support in order to ensure that the employee’s work ethics are in line with organizations mission and vision, while handling crisis and at the same time assisting his/her people move forward on a day to day basis (Jane & Chris, 1998). Diversity management According to Patricia’s (p.17, 1996), this refers to strategic organizational approach to the manpower diversity development, the organizational culture change and finally the empowerment of the human manpower available within an organization. This particular scenario attempts to shift away from activities and assumptions which are defined by affirmative action to management practices which are inclusive, that reflects on the workforce diversity together with its potential. Here the participants, who are the workforce, plan and anticipate change without fearing human differences and eventually they view the workplace as a forum for individual’s growth while enhancing their skills and performance which have direct cost benefits to the organization. Through organizational diversity, management can generate some range of individual and group reactions within an organization. Anybody who feels somehow excluded from the mainstream of the organization due to their differences may envision a new possibility for inclusion and maybe even power sharing. An organizations initiative on diversity management, in collaboration with its inclusiveness may reassure and encourage employees to become more visible and active participants in the workforce (Patricia & Patricia, p.12, 1996). With diversity in place, it is easier to empower an employee; this gives him some sense of personal power, confidence and positive self-esteem. In relation to diversity management, empowerment becomes a key ongoing process which naturally leads employees to involve themselves in various work oriented and related tasks on a diverse initiative. Diversity may be classified into primary and secondary dimension with the primary entailing age, ethnicity, gender, physical abilities, race and sexual orientation while on the other hand secondary may entail educational backgrounds, income, marital status, parental status, religious beliefs e.t.c Diversity has provided substantial benefits to most organizations mostly by: Tapping talents and skills of the workforce and ensuring the election and recruitment are always based on a rationale criterion. Trying as much as possible to avoid internal problems which involve conflicts, absenteeism and damage to staff development. Having products and services which are attractive to multi ethnic clients. Enhancing creativity within the workplace, innovation and problem solving through the inventiveness of diverse work teams. The ability to access global markets with success because a diverse workforce enables a company to draw on the skills or connections of employees in order to reach new and virgin markets. Increasing the chances of winning contracts through the positive image of a diverse sales team from clients who prioritize their partners or suppliers diversity policies. Enhance the image of the organization in the eyes of potential investors who choose to invest in an organization on the basis of its practices of corporate social responsibility. Interpersonal skills have an intrinsic importance with likely direct effects on service provision and interactions between employees & customers and they have a direct bearing on organizational success. This means organizational clients will continue to become more demanding and they will reflect on a wider range of preferences than previously, and this ultimately leads into more variation in “excellent service” which calls for employees who are capable of interacting with diverse organizational customers (John wrench, p.15, 2007). In addition, diverse employees may also provide a variety of viewpoints and approaches to unique problems that may improve on a managerial decision making, a wide range of creative ideas and they may increase the retention of valued organizational members (Edward & Edward, 2004) Because in Offshoring the human resource manger is likely to be meet workforce with diverse backgrounds, diverse views, he should try and bring them together for the sake of organizations collaboration. Employees with diverse background should be encouraged because lets say in customer service, we require all round employees from various races which is a feature very unlikely to find with a single employee, therefore when clients realize that their interest groups are represented they always feel part of the team which is indeed healthy for the organizations public image. Effective leadership This is simply the art of motivating some group of people in order for them to act towards some specific goals. The leader is the head that possesses the combination of personality and skills that make others admire and follow his/her direction. Effective leaders are those who increases their organizations bottom line and this is the main reason leadership is directly wielded to performance because the person in charge “leader” has to effectively manage the given resources at his/her disposal. It may also involve effective communication, inspiring and supervising. Organizations consume resources and operate to produce some output, this consumption makes the organizations to depend on a continuing flow of resources for their existence and survival in which they ultimately find themselves in a never ending competition with similar organizations that need the same resources. Organizations that compete more, acquire more resources and this acquisition of resources is directed by a person(s) in charge whose defining measure of duties is the extent to which he is able to enhance the competitive advantage of that particular organization, thereby enhancing its autonomy (Stephen & Richard, p.47, ) Most organizations have recognized three organizational layers and functions, there is the foundation layer which is mainly concerned with dedication of operations of one sort to another, there is the middle layer which is mainly composed of middle level managers that are mandated with establishing operational goals for a particular business unit and co-coordinating efforts that are required to achieve specific business goals then finally there is the real management mostly found in the top most layer or rather the strategic apex of the entire organization, here the leaders are mandated with establishing the corporate vision, they set strategic objectives, and they also determine broad policies for organizations operations and management development for the workers to follow(Stephen & Richard, pp.48, ) Offshoring concept requires effective leadership because the work has to be properly performed in line with the organizations expectations and also going by the fact that some of the offshored work are critical business units such as accountancy and I.T which is like the backbone of the organization. There is also the customer service division which is also likely to be offshored, this division mainly serves as the organizations face and if mismanaged it is likely to seriously dent the reputation and credibility of the organization. Decision making This may be described as the cognitive process of reaching a decision. A top business executive has to be good in decision making. Executives make proper decision when they respond to opportunities and threats by analyzing their options while at the same time deciding on heir goals and courses of action. The need for a decision occurs when an anomalous event occurs which often stems from internal or external changes. A decision maker has to frame results and use his previously acquired knowledge on what to do in formulating a new action plan; he/she will then use the events in guiding the fine tuning of responses (lee & Terry, 2005) The decision maker is always mired with potential action plans and he has to choose the best among them. There are the programmed decisions that follow the previously established guidelines and the non-routine decisions that usually occur in response to unpredictable opportunities and threats. The manager has to get complete information pertaining to a product or market in order to make sound decisions and he should always embrace the six steps in making his decisions which may entail Recognizing the need for the decision Generating alternatives Assessing alternatives Choosing among the alternatives Implementing the chosen alternative Learning from feedback. Incase of complex tasks the managers may collaborate together in coming with a better decision for the sake of the organization, this is mainly because: The choice made is very unlikely to fall victim to bias They will be able to draw from a combination of skills, competencies and group member’s knowledge They are able to generate feasible alternatives The ideas are more likely to be supported during implementation. Group collaboration may encourage creativity among group members because they will be in a position to brainstorm since there is face to face debate. In an offshore environment, executives from different branches may collaborate and share on their ideas and experiences which may be compared systematically, they should also together generate feasible alternatives , when all this is performed the organization tends to have strong offshore operations which are as good as the main office operations. Human Resource This is the strategic approach to the management or organizations employee whom individually and collectively contribute directly to the achievements of the business objectives. Managers have to design components of human resource system in such a way that they are consistent with each other, other elements of an organizational structure together with the organizations strategy and goals. This may be achieved by offering equal employment opportunity regardless of gender, age, race, country of origin, religion or disability. In order for managers to realize their human resource dream, they have to forecast on their current and future needs prior to recruitment and selection. This may be achieved by estimating the number and qualifications of employees the organization is likely to need, they should also estimate the availability and qualifications of current employees versus those in the labour market, they should outsource in situation where necessary rather than hire. In addition to this, managers should be transparent as possible in their selection and recruitment process; they should provide honest assessment of a particular job and an organization. In selecting their new staff they should only use valid & reliable tools in which a candidate if possible should be tested by using variety of tools in order to have a general overview of his/her personality. The workforce available within the organization should be constantly trained and re-trained in order to help them acquire new skills and knowledge for them to be effective performers, this training will also enable them to take new duties, responsibilities and challenges. There should also be periodic performance appraisal and employee feedback, this may be decided by various people such as supervisors, peers, self, subordinates and clients in order to have an unbiased appraisal and when the manager is giving back feedback they should mainly focus on be specific and should focus on correctable behavior while providing a suggested improvement, they should focus on problem improvement not criticism, express confidence in a workers ability to improve, embrace informal and formal feedback, set timetable for agreed changes. This is very crucial because before an organization offshore its services it has to practically look at the labour available into their proposed country, they have to look at the employability level, the wages level, education system in the country and the possibility of outsourcing in their proposed country rather than hiring which will save them money. This particular issue may be addressed by re-training the workforce at the expense of the organization because in the long run it is likely to repay. They also have to look at the country of choice work ethics in comparison to their country of origin and other similar or rather competing destination in order to properly evaluate on their choices. Strategy and planning Planning entails identifying and selecting appropriate goals and courses of action for an enterprise while on the other hand strategy is mainly a cluster of decisions on the goals to pursue, the actions to take and how to effectively use resources in order to achieve the set goals. Planning may be started by first defining the organizations mission statement which is basically a declaration of the organizations purpose that strives to identify its products, clients and distinguishes it from the competitors. Secondly, the organizations management have to careful analyze the current situation and develop effective strategies, they then move on and implement the strategy by allocating resources and responsibilities in order to achieve the laid down strategies. Finally an evaluation and a feedback have to be provided whether the plans are working. With planning it is easier to ascertain where the organization is and where it will be in future, it also Encourage group participation since all managers are involved in setting future goals of the organization. It gives sense and direction to the organization. Helps in coordination It also acts as a control tool specifying who is responsible for certain actions. The Strategy in accomplishing this goals have also to be formulated, this may be achieved by analyzing the organizations Strength, Weaknesses, Opportunities and the Threats it is being faced up with. Planning is useful when comparing an organization to its peers, for instance, when an organization realizes it has a weaker customer service division, since recruiting talent in their mother country might be slightly expensive because the organization may be located in US, UK or Australia which may also end up adding more weight on its books, then it is better for an organization to outsource these services to a cheaper destination giving them value for their money with enhanced services, this will make them save while at the same time improve on their services which enhances their image. Recommendations With the benefits of outsourcing, A country like Australia is likely to benefit on both sides, non core functions may be outsourced to save money for its enterprise while at the same time Australia due to its low average labour cost compared to western Europe and US is likely to attract high skill jobs such as high level programming and advanced accounting concepts. However, when taking away jobs from one country there are limitations as well, to begin with there is unskilled workforce in the proposed country of operation, this may be addressed by hiring an outside consultant whom may help the organization in training the workforce that they have acquired. All recruitments should be free and fair and before a third party contractor is issued with work, he should undergo some preliminary test to ascertain that he is really capable of accomplishing any work give. The organization executive is always answerable to the shareholders whom demand as much profit as possible, and with Offshoring likely to reduce an organizations entire wage gap which takes out a huge chunk every financial year, then it is wise if he may move boldly and embrace the concept since he is likely to witness drastic cost cutting measures never witnessed before in the organization, and should he do It on a long term basis, then he is likely t offer cheaper & quality products and services than his competitors which means enhanced companies image, reputation, increased market share and finally more money for the shareholders. References Rutherford, B., and Mobley, S. 2005. ‘The Next Wave: refining the future of Offshoring’ Journal of Corporate Real Estate, Vol. 1, No. 1, pp. 87-95 Michael A. Zuckerman. 2008, The Offshoring of the American Government, http://www.lawschool.cornell.edu/research/cornell-law-review/upload/Zuckerman.pdf 3rd April 2010 Erran Carmel, Paul Tjia, 2005. Offshoring Information Technology: Sourcing and Outsourcing to a global workforce, 1st edition, Cambridge university press, Cambridge. Government office accountability (GAO) 2005. Offshoring of Services an overview of the issues: report to congressional committees. Diane publishing, Pennsylvania. Stanford University. The economics behind Offshoring. http://www-cs-faculty.stanford.edu/~eroberts/cs201/projects/offshoring/history.html Accessed May 3rd 2010 AT-KEARNEY, 2007. Offshoring for long term advantages: The 2007 A.T Kearney Global Services Location Index. http://www.atkearney.com/res/shared/pdf/GSLI_2007.pdf Accessed May 2nd 2010. John R. Bryson, P.W. Daniels, 2007. The handbook of service industries. 1st edition, Edward Elgar Publishing, Cheltenham, U.K. Jane Churchouse, Chris Churchouse, 1998. Managing people, 1st edition, Gower Publishing, limited, Aldershot, United Kingdom. Patricia Arredondo, Patricia M. Arredondo, 1996. Successful diversity management initiatives: a blue print for planning and implementation. Illustrated edition, Sage publishers, London. John Wrench, 2007. Diversity management and discrimination: immigrants and ethnic minorities in the EU. Research in migration and ethnic relations series. Ashgate publishing Limited, Surrey, U.K. Edward Hubbard, Hubbard Edward, 2004. The managers guide to diversity management, Human resource development. Lee Roy Beach, Terry Connolly, 2005. The psychology of decision making: people in organizations, 2nd edition, SAGE publishers, London. Zdnet, 2006. Australian forms still nervous of Offshoring. http://www.zdnet.com.au/australian-firms-still-nervous-of-offshoring-139268247.htm May 6, 2010. Dr. Richard Grant, 2006. Offshoring Jobs: US and Australian perspectives. Parliament of Australia. http://www.aph.gov.au/library/pubs/RB/2004-05/05rb12.htm May 6, 2010. Australian IT, 2009. Westpac takes advice on Offshoring. http://www.theaustralian.com.au/australian-it/westpac-chief-gail-kelly-believes-in-offshoring-placing-jobs-in-low-cost-countries-like-india/story-e6frgakx-1225810375049 Accessed May 6, 2010. Kate Lundy, 2003. Australia VS Offshore: How can Australia win? http://www.katelundy.com.au/2003/10/10/ict-offshoring/ Accessed May 6, 2010. Munir Kotadia, 2004. AIIA: Indian outsourcing threat can help Australia. http://www.builderau.com.au/news/soa/AIIA-Indian-outsourcing-threat-can-help-Australia/0,339028227,339169701,00.htm Accessed May 6th 2010 Read More