Facilities Management - Case Study Example

Name Class Unit Contents Contents 2 Introduction 2 Outsourcing arrangements available to the MoD for the two contracts 3 Strategic outsourcing 3 Outsourcing arrangements available 4 Offshoring 4 Near-shoring 5 On-shoring/domestic outsourcing 5 Business process outsourcing 5 Outsourcing relationships 6 Legislation likely to have an impact on contractual arrangements 7 Risks that may be present in the suggested approaches and how to manage them effectively 7 Loss of core activities and vital knowledge 8 Being leveraged by the supplier 8 Loss of strategic flexibility and innovativeness 9 Confidentiality leaks and loss of intellectual property rights 9 Performance management of the services provided 10 Recommendations on the outsourcing strategy that should be adopted by the MoD 11 Conclusion 12 References 13 Introduction The ministry of defence (MoD) is a very sensitive department and services offered must be able to attain the highest level of quality possible. The premises comprises of very vital departments for the country’s security. There are several thousand civilian staff, military employees involved in strategic management of the defence affairs in UK and overseas. The building also hosts the Joint Chiefs of Staff of the Royal Navy, Army and Royal Air Force and regularly hosts government ministers. Despite the services provided by the employed cleaning and catering staff employed, the work is deteriorating in quality. There are complaints on the standard of cleaning and quality of food offered. Also, there are cases of lack of coordination among these services. Recently, there was a case of food contamination. These among other reasons make it prudent for the MoD to consider entering a contract with an external service provider with an aim of improving service standards in cleaning and catering. This report is prepared for the Head of Property Operations in the MoD. The aim of the report is to offer advice on the options for outsourcing the cleaning and catering functions. The report will look at the available outsourcing arrangements for the two contacts, legislation which will have impact on this arrangements, risk present in suggested approaches and how to manage them and how the MoD can go about performance managing the services provided. Lastly, the report makes recommendations as to the outsourcing strategy that MoD should adopt. Outsourcing arrangements available to the MoD for the two contracts Strategic outsourcing With the current challenges in the MoD cleaning and catering services, it would be highly advisable to outsource. Outsourcing involves relying on the external resources (Amiti and Wei, 2005). According to Schniederjans and Zuckweiler (2004), it involves transferring the services that were previously conducted in-house to an external supplier. Through outsourcing, it will be possible for the MoD to concentrate on core competencies and outsource the rest. MoD should just concentrate with the core competencies and strategically outsource cleaning and catering. This will allow MoD to concentrate on what they do best. Outsourcing can be divided into strategic and non-strategic outsourcing. In strategic outsourcing, the firm uses a strategic policy for outsourcing (Espino-Rodriguez and Padron-Robaina, 2005). In this case, outsourcing is seen as a strategy and source of competitive advantage. Through strategic outsourcing, the traditional thinking that all services have to be conducted internally is eliminated. The activities that are used to bring about competitive advantage are left in-house. Strategic outsourcing must involve managers and top management (Fill and Visser, 2000). The MoD main reason to outsource is to improve service and quality. This is through engaging cleaning and catering services providers who can guarantee appropriate levels of quality. MoD will be able to choose a supplier whose quality is superb in the industry. Due to fact that the suppliers have specialised in cleaning and catering services, they are capable of providing higher quality than would be achieved by MoD. It will also be possible for the suppliers to have better flexibility when hiring and rewarding their workers (Munch and Skaksen, 2009). Outsourcing arrangements available MoD has several outsourcing arrangements they can choose for the two contracts. The main types are; offshoring, near shoring, on shoring and business process outsourcing. Offshoring This involves sourcing of the services from an organisation in another country which has lower costs (Quinn, 1999). Through offshoring, it is possible for the companies to compete on a global basis through lowering costs and gaining better efficiencies. Offshoring has been criticised for the loss of local jobs since the business units are relocated into foreign countries (Schwörer, 2013). There is also loss of control on the supply chain which becomes long and complex with offshoring. Time differences make it difficult to operate business and there are also difficulties in transfer of knowledge. Language and cultural barriers acts as a major hindrance in outsourcing (Espino-Rodriguez and Padron-Robaina, 2005). In this case, it is not feasible for the MoD to offshore cleaning and catering. Near-shoring This involves investing outside the country in a neighbouring region (Quinn, 1999). This form of outsourcing is aimed at overcoming the challenges common in offshoring. It is important to note that near-shoring is likely to involve countries which share the same cultural values and mind-set. The time difference and costs is also reduced through near-shoring (Fill and Visser, 2000). On-shoring/domestic outsourcing This refers to having the services being provided by someone inside the country but on a different company. The main aim is to lower the operational costs and benefits of utilising local employees. The method is also known as domestic outsourcing (Zhu, Hsu & Lillie, 2001). In this case, MoD will have to look for suppliers who are inside the country to offer the catering and cleaning services. Business process outsourcing According to Corbett (2004), this involves having particular business activities and processes being assigned to a different firm. A firm may be assigned to prepare payrolls and recruitment. Outsourcing relationships The outsourcing agreements that can be used in this case involve limited outsourcing. This is partial or collaborative relationships which have different forms of acquisition and sharing agreements (Spencer, 2005). Collaborative outsourcing involves joint ventures and partnerships (Bardhan and Kroll, 2003). These are characterised by high level of flexibility, sharing of knowledge and risk. Limited outsourcing involves partial relationships. The outsourcing contracts can also be all inclusive, modular, or turnkey. Turnkey contracts involve a typical arrangement between the firm and the service providers. The modular and all inclusive contracts are characterised by the modern relationships. It is common to have strategic alliance with the service providers in most cases (Espino-Rodriguez and Padron-Robaina, 2005). The current trend involves the outsourcing relationships which are more of partnerships rather than subcontracting or joint ventures. MoD must understand that outsourcing is different from subcontracting and internal activities will have to be transferred to an external provider (Grossman and Helpman, 2005). Legislation likely to have an impact on contractual arrangements Collaboration between the public and private sectors is vital in service effectiveness. Despite this, the profit making aspect sets them apart (Lavallee, 2010). The MoD is a non-profit organisation while the private supplier is set to make profits. It is illegal for the outsourcing partners to take advantage of MoD in making profits. Also, MoD is not supposed to give inherent functions to the outsourcing partners. Performing inherent government functions by private firm is illegal and can compromise security (Fill and Visser, 2000). The private partner work must be limited to cleaning and catering. There are policies in the MoD that determines the procedures to be followed when outsourcing. These policies must be followed when choosing the private partnership to avoid legal battles. The MoD is required by the law to provide oversight to the private contracted employees. This is through acting as quality assurance inspectors. There is a legislation meant to regulate the industry for accountability purposes (Hartley, 2004). This ensures that the contractor engage in transparent business and is held accountable. The cleaning and catering service providers are not supposed to have any intelligence data. The law prohibits them being in the information loop. Violating the legal terms of the MoD contract may lead to the supplier contract being cancelled. This is due to the sensitive nature of MoD and need for high level of security (Lavallee, 2010). Risks that may be present in the suggested approaches and how to manage them effectively Despite the positive side of outsourcing, it is important for MoD to realise that outsourcing have several risks (Jennings, 2002). This is due to fact that outsourcing is carried out in a real world market where there are imperfections. The risks range from minor setbacks to major and catastrophic consequences (Bendor-Samuel, 2000). The risks may appear soon or even years after implementation of the outsourcing contract. In most cases, the risk overlaps (Amiti and Wei, 2005). It is thus important to be aware of the following risks which may occur. Loss of core activities and vital knowledge Losing the core activities is one of the major risks of outsourcing catering and cleaning services. This can occur if the management makes an accident and outsource a core activity (Aron, Clemons and Reddi, 2005). The management can also outsource an activity which does not seem to be core at the time of decision making but later turn out to be core. This can occur if the management focuses much on short term advantage without looking at the future competitive advantage. When a firm outsources an activity, it loses some knowledge and skills (Gilley and Rasheed, 2000). The knowledge associated with the outsourced activity simply fades away. The supplier may take advantage of the new knowledge provided and become a competitor (Tomiura, 2009). In the case of MoD, this can rarely happen. This is due to fact that catering and cleaning are not core services. The ministry can outsource cleaning and catering without losing core activities or important knowledge and skills. The risk of the supplier becoming a competitor is not there (Bendor-Samuel, 2000). Being leveraged by the supplier Leverage is closely related to dependency and can occur in different ways. This is a major risk of outsourcing (Grossman and Helpman, 2005). The supplier may pursue self-interest. The supplier can also lower the quality and limit the buyer access to current technology. Dependency and opportunism makes it worse for the buyer (Aron, Clemons and Reddi, 2005). The high dependency on the supplier increases risk of service interruptions when there is no backup. After signing the contract, chances of changing the supplier are low. This can be mitigated through reducing the level of dependency on a single supplier (Sullivan and Gershuny, 2013). The contract must ensure that the supplier is not opportunistic. Also, there is need for the MoD to have backup suppliers in case of service interruptions (Zhu, Hsu & Lillie, 2001). Loss of strategic flexibility and innovativeness Outsourcing does not always lead to greater flexibility. In some instances, outsourcing can lead to loss of flexibility (Aron, Clemons and Reddi, 2005). This is especially where there is a complex network of suppliers. Outsourcing may also reduce the level of innovativeness. If the firm outsources the critical activities, there are high chances of knowledge loss and reduced innovation. To counter this, it is important to reduce the network of suppliers when outsourcing. In this case, MoD should use a single supplier for each service (Hoecht and Trott, 2006). The ministry must also have a backup supplier in case of service interruptions. There is also need to avoid outsourcing core activities that may damage innovativeness (Bendor-Samuel, 2000). Confidentiality leaks and loss of intellectual property rights MoD has a lot of confidential information. This poses a security threat if the information is exposed to the supplier (Hartley, 2002). The more tasks the ministry outsources, the higher the risk of losing confidential information (Jennings, 2002). The intellectual rights are very vital to the MoD value. Amount of information to share with outsourcing partner should be assessed carefully. The supplier must never know any confidential information about MoD. To manage this risk, there is need for high level of mutual trust (Bhagwati, Panagariya and Srinivasan, 2004). In this case, MoD is contracting services which pose low risk of losing intellectual rights or confidentiality leaks. The management must ensure that the suppliers are never allowed into any classified information. There is need for MoD to form an outsourcing team that will be made of individuals from the MoD and experts on risk management. The team will ensure that the policies are followed when outsourcing cleaning and catering. This team will also address any risk that may occur during the implementation process (Aron, Clemons and Reddi, 2005). Performance management of the services provided MoD has a responsibility to manage the outsourcing of catering and cleaning services. There is need to ensure that outsourcing is able to meet the aims set by MoD. The process should be monitored and controlled based on MoD policies. MoD can form a team or committee to oversee and manage the performance of the services provided. The management and the selected team must be able to receive regular updates on the outsourcing activities (Jennings, 2002). Any problem experienced should be brought to the attention of the team and management. The monitoring process should include of use internal and external audit. This will ensure that the services being outsourced complies with the policies and procedures set (Mol, 2007). Communication must be encouraged throughout the process of outsourcing (Kremic, Tukel and Rom, 2006). The focus must be set on dependable and reliable cleaning and catering services. This should be done without increasing the costs incurred by the MoD through in-house catering and cleaning. The chosen service providers must have a good track record on service commitment. The quality of the supplier infrastructure and human resources must also be looked at (Mol, 2007). Outsourcing management by MoD may lead to need for new management skills. The MoD management must set the required service level that the supplier must meet. The management must monitor the adherence by supplier to the set standards. Open and collaborative relationship must be encouraged at all times (Zhu, Hsu & Lillie, 2001). MoD must engage in regular benchmarking which involves tendering the services to other providers based on performance. MoD must know that effective management of the outsourcing is an organisation imperative (Zhu, Hsu and Lillie, 2001). Recommendations on the outsourcing strategy that should be adopted by the MoD MoD should engage in on-shoring with a collaborative partner. This refers to domestic outsourcing where the services are provided by a firm in the same country (Kremic, Tukel and Rom, 2006). This move will reduce the operational costs and will also utilise local employees. This form of outsourcing will give the MoD the most benefits. Through all inclusive partnership, it will be possible for MoD to share information, risks and enhance flexibility. On-shoring decision will contribute to MoD value in the long term and hence makes more sense. This form of outsourcing strategy ensures that MoD focuses on their long term benefits on high quality cleaning and catering services (Quinn, 2000). The local partner will easily adapt to the norms at MoD. Also, the form of relationship formed will ensure that MoD works together with the cleaning and catering suppliers for improved service delivery. Through use of a domestic supplier, the total risk is greatly reduced (Leavy, 2004). At this moment, MoD knows what they want. They require high quality catering and cleaning services from a local firm. MoD will have to analyse the costs of the services from several local firms and avoid all hidden costs (Chen, 2009). An in-depth analysis of the outsourcing costs is very vital in outsourcing decision (Kremic, Tukel and Rom, 2006). The ministry operates on a tight budget which must be reflected on the costs of the suppliers chosen. Cleaning and catering are not core services at MoD. This makes it less risky to outsource cleaning and catering. The local supply market for the services is highly competitive. This makes it vital for MoD to choose the best supplier. This is due to fact that it is hard to change the supplier afterwards (Tomiura, 2009). The selection of supplier should be taken by a cross functional team to ensure only the best suppliers are awarded the contract. The supplier real motives must be known to avoid opportunism. The total risks prior to outsourcing should be compared to the total risks of different outsourcing options. The outsourcing decision taken by MoD should be a strategic decision (Quinn, 2000). Conclusion To sum up, the report recommends that MoD should enter a contract with an external service provider for catering and cleaning services. The report recommends that MoD should consider using domestic outsourcing or on-shoring. This is through engaging a local firm that has the capability to supply the required services. MoD must be ready to tackle the risks that may occur with domestic outsourcing. This includes loss of vital knowledge, being leveraged by the supplier, loss of flexibility and innovativeness, confidentiality leak and loss of intellectual property. Being non-core services, cleaning and catering outsourcing has low level of risks for MoD. This makes it easy for MoD to manage the risks. There is need for continuous monitoring to ensure that the supplier meets the MoD standards. This may include benchmarking where new supplier may be chosen when the current one fails to meet the standards. The on-shoring decision is a strategic decision that will enable MoD to meet its aim. References Amiti, M. and Wei, S.J., 2005. Fear of service outsourcing: is it justified?. Economic policy, 20(42), pp.308-347. Aron R., Clemons E., and Reddi S. 2005. Just right outsourcing: Understanding and managing risk. Journal of management information systems, Fall 2005, 22(2), pp 37-55. Bardhan, A. and Kroll, C.A., 2003. The new wave of outsourcing. 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