Outsourcing at the Ministry of Defense - Case Study Example

Name Tutor Title: Outsourcing at the Ministry of Defence Institution Contents Contents 2 Executive summary 3 1.0. Introduction 4 2.0. Outsourcing contract 4 2.1. Provider selection procedure 5 2.2. Outsourcing Benefits 6 3.0. Outsourcing Legislation issues 6 4.0. Outsourcing strategy 7 4.1.Managing performance 8 5.0. Outsourcing risks 9 5.1. Outsourcing risks management 10 6.0 Conclusion and recommendations 11 7.0.References 13 Executive summary In this report, outsourcing describes the process of sub-contracting non-core business activities to a service provider. Technology advanced and globalisation has resulted in increased outsourcing practices among the public and private sector. An organization may decide to outsource in order to reduce expenses, improve the quality of service delivery, increase flexibility, increase core competencies, and facilitate change. This report indicates the different types of outsourcing arrangements that the MoD can adopt. It’s important to conduct a thorough evaluation and planning procedure before making decisions about outsourcing. TUPE regulations are among the key laws that impact on outsourcing practices. The MoD employees have a right to transfer over to the outsourced service provider. But, the employees can decide to terminate their employment contract due to personal reasons. Decision making and selection of the suppliers is the most critical task in outsourcing. Outsourcing has several risks such as delays, reduced quality of services, reduced productivity, and service interruptions. This report gives recommendations for the best outsourcing practices. 1.0. Introduction Outsourcing is the latest trend of managing non-core organizational activities. The increased level of globalisation has compelled many corporations to adopt outsourcing practices. Technology advancement has enabled several companies to outsource business activities such as security services, research and marketing, after sales services product design and assembly (OECD 2007). The notable increase in the level of outsourcing services proves its popularity. The decision to outsource is primarily influenced by the quality of service rather than labour arbitrage. The major drive force for implementing outsourcing practices is the need to improve efficiency in the organization. Outsourcing benefits include reduced expenses, improved quality and service delivery, increased flexibility and enhanced organizational focus (OECD 2007; Olsen 2006). Also, outsourcing is a significant part of the value chain of business activities at any company or institution. Outsourcing catering and cleaning services will help to the ministry of defence to concentrate on key business processes. However, the process of outsourcing can be complicated and implementing the wrong strategies can reduce the performance of ministry of defence. Hence, the need for outsourcing risks management measures (Olsen 2006). 2.0. Outsourcing contract The MoD can consider different types of outsourcing agreements. Limited outsourcing includes partial and collaborative relationship which differs in terms of acquisition and sharing arrangements. The collaborative outsourcing partnership is often characterized by flexibility, risk as well as knowledge-sharing (Grimshaw et al 2014). The partial partnership is analytical because few people are affected by the decision process or its outcome. The MoD can select an all-inclusive outsourcing, modular, or turnkey outsourcing. The Modular and all-inclusive approaches are the modern types of outsourcing relationships. While as the Turnkey contracts characterise the traditional arrangement between the outsourcing organization and the service providers. Limited outsourcing involves fewer formalities as compared to partnerships. In limited outsourcing transactions involves formal contracts of around one year (Grimshaw et al 2014). 2.1. Provider selection procedure It’s essential to conduct thorough evaluations and planning before making decisions regarding outsourcing and catering and cleaning services (Haveckin 2012). One of the efficient management actions is to execute a thorough provider selection procedure. The first step involves identifying the best provider for the cleaning and catering service that fit the MoD profile. Then, the MoD should request for proposal and quote. This process clearly defines the services required as well as the MoD management expectations. Financial viability of the provider is essential in evaluating a long-term working relation. The provider must have the funds necessary for providing the services (Grimshaw et al 2014). In addition, consider the providers major clients, the provider’s susceptibility to loss of finances, as well as the supplier’s stability in case of such losses. Also, evaluate the ability of the vendor to offer cleaning and catering services. It’s critical to check the vendor's expertise in providing catering and cleaning services to other clients with a structure same as the ministry of defence (Grimshaw et al 2014). Normally, it’s important to identify the outsourcing contracts with the highest risks. The next task involves categorizing contracts into different sections such as high, medium, and low risk to allow easy management. High-risk contracts usually require continuous review due to high monetary value. Medium risk contracts can be frequent not necessarily continuous basis (Grimshaw et al 2014). 2.2. Outsourcing Benefits Due to globalisation, the business environment has undergone significant changes and the Ministry of Defence is under considerable pressure to maintain and increase the quality of their services. The increasing competition among institutions compels senior executives to focus on gaining a competitive edge so as to provide useful services to consumers (Grimshaw et al 2014). The main objective of outsourcing catering and cleaning services is to create flexibility, improve service delivery and adapt to new environmental conditions. Outsourcing has proven to be effective in reducing costs and increasing productivity, but it brings significant risks that must be identified and managed. Keep in mind that, in outsourcing, the Ministry of Defence is relying on another organization to run cleaning and catering functions. Failure to manage the outsourcing risks properly can negatively impact the operations of the MoD. It’s possible to outsource the service, but the risk cannot (Gilley and Rasheed 2000). 3.0. Outsourcing Legislation issues The TUPE regulation can impact on the proposed outsourcing arrangement and failure to comply results in significant penalties (Grimshaw et al 2014). Tupe regulations hold that when a company outsources a business practice, the workers performing that function transfer over to the service provider (Acas 2014). This implies that MoD cleaning and catering workers have the right to transfer their employment contract to the outsourced service provider. Employment can be based on the previous or enhanced terms and conditions. They have the right to be informed about the transfer process and consulted on the same. However, only employees with over more than one year service are protected under TUPE unfair dismissals (Grimshaw et al 2014). An exception can be made in the case of economic, technical or organisational reasons verifying a redundancy in the number of employees. The MoD should have proof of a genuine redundancy situation. The TUPE regulation recommends a minimum of 30 days consultation process with the staff concerning their transfer (Acas 2014). Employees can refuse to transfer to the service provider due to individual circumstances. Under TUPE, the service provider should comply with minimum requirements for pension provision. According to Acas (2014) “the service provider has the chance to choose between occupational defined benefits scheme,” stakeholder or “occupational money purchase scheme.” Any agreements between the Ministry of Defence and a recognised union automatically transfer to the cleaning and catering service provider. The agreements are still applicable to the transferring employees. The MoD provides the client with information regarding any employment liabilities which will be transferred. The MoD is required to provide details such as the workers' identity and age, information on any collective agreement, details of court cases, claims in the last two years, and grievances. In case the service provider gets access to personal data while working at the MoD, the service provider should contract to comply with European data protection law (Acas 2014). 4.0. Outsourcing strategy The most critical task in outsourcing involves selecting suppliers, and management of outsourcing risks. Defining objectives, responsibilities and expectations determine the efficiency of the outsourcing process (Ono 2003). To implement strategic measures, top management at the MoD must have a thorough understanding of the organization structure. Having complete knowledge of the organisation entails understanding basic aspects such as how core business activities are conducted at the MoD (Grimshaw et al 2014). Decision-making is the most important element of outsourcing strategy in addition to the other essential management functions such as planning, organising, activating and controlling. This is because decision-making determines the success or failure, profit and loss of the entire outsourcing process. In this case, decision-making will consider the present and future as well as the probabilities and uncertainties. The entire decision-making process should carefully consider the consequences of each outsourcing alternative before making the decision (Gilley and Rasheed 2000). 4.1.Managing performance Performance management is a continuous process that will comprise of elements such as provider management, the service level agreement and billing accuracy (Jones 2009). Provider management monitors statistics or background performance of the outsourcing relationship over a particular period. These statistics will be applied to improve the performance of the relationship between the MoD and the service providers. The service level agreement determines the requirements of both parties involved in the outsourcing process. The service level agreement requires regular review and updating as stated in the contract terms. The outsourcing party should frequently review billing to ensure compliance with the contract terms (Jones 2009). When managing performance, the MoD management should consider evaluating reliability, assurance, tangibles, responsiveness and empathy of the service provider. Services such as cleaning and catering are tangible (Gilley and Rasheed 2000). This implies that people can feel, taste and see the services being provided. Additionally, the MoD management can assess the quality of the services by monitoring the reliability of the service provider. Reliability involves attributes such as dependability and accountability. To properly evaluate outsourcing performance, the MoD needs to create a performance scorecard that measures costs. Also, the scorecard checks whether the primary objectives of the outsourcing process are met. The performance scorecard includes both tangible and intangible key performance indicators which should be regularly evaluated so as to measure the value for money of the entire outsourcing practice (Belcourt 2006). 5.0. Outsourcing risks On-time delivery performance and the end-user satisfaction levels may decline due to delays by third parties. Delays can be as a result of many factors which cannot be controlled by the outsourcing company (Belcourt 2006). Such delays include customs delays of products, labour disputes, and weather challenges. Service quality may be affected by outsourcing. The ministry must carefully choose qualify, and manage their outsourcing partners to prevent deterioration of quality. This will involve considerable transition time and effective cross-training. Some organization may ignore such aspects so as to cut down on expenses. Cluster (2006) states that “the number of organizations prematurely terminating an outsourcing partnership has increased by 51%." Another challenge in the outsourcing deal is the negative attitudes of staff. Some employees view outsourcing as a threat to their jobs since most organizations redeploy affected employees to other department or retrench those considered redundant. According to Belcourt et al. (2006), lack of motivation among the employees is one of the significant risks of outsourcing. The remaining employees may experience job insecurities and feel that managers do not care about their welfare. Insecurity may dominate when there is no clear pattern for outsourcing. Lack of motivation affect the productivity of the MoD and can result in skilled workers seeking new jobs. Outsourcing usually incorporates changes. Most employees are a natural change resistance tendency. Therefore, Managers will encounter resistance (Belcourt 2006). Inadequate planning and resources can result in failure of the transition phase if schedules and budgets are not attained (Belcourt 2006). It’s essential to ensure that the cleaning and catering outsourcing project is run with high-level of discipline and planning. Cleaning and catering services provider may expose the MoD to supply interruption risks due to financial issues. Research shows that lack of financial resources is the major cause of supply interruptions in outsourcing partnership. When it comes to monitoring and evaluation, the organization may lack sufficient resources to monitor contractors' performance (Belcourt 2006). 5.1. Outsourcing risks management Managing outsourcing risks can be complicated due to the changing markets and technologies environment (Jensen and Stonecash 2014). Fortunately, most of the outsourcing risks can be prevented through proper management of the process. Companies that successfully implement outsourcing strategies to improve management of their services are better equipped to cut costs and become provide better services in this challenging environment. However, implementation of outsourcing practices faces several risks and possible pitfalls. Therefore, outsourcing is a strategic decision requiring proactive decision-making and management practices (Jensen and Stonecash 2014). Risks associated with outsourcing decisions require thorough evaluation, in relation to the period of the contract, potential loss of finances, operation knowledge and flexibility (Jones 2009). MoD should respond to outsourcing risks by adopting a critical risk analysis process. The risk management tool is valuable, but it must be accompanied by continuous risk management to reduce outsourcing risks (Jensen and Stonecash 2014). Risk analysis can be described as a point-in-time evaluation. It should be conducted before the service provider is selected but also to frequently monitor the service provider's risk profile. The top management will compare potential providers using established risk criteria (Jensen and Stonecash 2014). As the MoD evaluates potential services providers, a risk ranking of providers is formulated. The management may select a high-risk provider but deploy appropriate strategies to manage the relationship (Ertel and Enlow 2012).During the supply risk analysis phase, the top management defines the provider relationship. Top management must create business polices to guide the lower management levels. When planning the outsourcing procedure, the management needs to ensure that all plans are carried out in accordance with the policies of the MoD. Policies provide a basis for management control, ease coordination across different departments and reduce the amount of time spent making decisions (Jensen and Stonecash 2014). 6.0 Conclusion and recommendations In conclusion, outsourcing provides several benefits, and some organizations consider it as risk-free. But, there are some limitations when outsourcing services. The outsourcing risks maybe as a result of the supplier, the ministry of defence, or the business environment. Setbacks can emerge immediately after implementation of outsourcing or after several years. There is the risk of overlooking policy issues when outsourcing cleaning and catering services which are considered non-core business areas. The MoD might fail to consider policy issues related to cleaning and catering simply because they are no longer managing that sector. For an efficient outsourcing process, the top management needs to make informed decisions. Therefore, management of the outsourcing relationships is essential (Ertel and Enlow 2012). When outsourcing, it’s important for MoD to cover certain key risks. These risks include; poor performance by the contractor, anticipated events or expenses, property damage, potential liability to staff, and employment liabilities (Ertel and Enlow 2012). Additionally, the MoD should clearly outline how to implement the entire project including the transition phase at the start of the outsourcing. Also, how it will manage during exit of the contractor (Jones 2009).The contract should define any penalties for delays and termination rights in case of adequate service levels. For such issues to be covered, then the MoD should enter into a legal contract with the service provider. At times, the contractor has their contractual documents. However, the MoD management should be cautious when dealing with such documents (Jones 2009). It’s essential to professionally manage issues related to workers when implementing outsourcing practices. For instance, current employees may feel vulnerable, and this can negatively affect the morale and motivation of the staff. To solve such issues, the MoD should implement efficient staff communication plans with the human resource executives. This will prevent interruptions of cleaning and catering services during the transitional period. The employees should be informed, reassured and given a chance to air their issues. The MoD should ensure that they implement procedures for regular meetings and assessments with the contractor to create a smooth working relationship (Ertel and Enlow 2012). This will increase satisfaction among both parties involved in the outsourcing project. 7.0.References Acas 2014, 2014 Changes to Tupe, Viewed on 5th February, 2016, . Andone, Ioan, et al 2010, Outsourcing the Business Services, Informatica Economică vol. 14, no. 1, University of Iasi. Belcourt M. 2006. Outsourcing, The benefits and the risks, Science direct, Human resource management review, No. 16, pp 269-279. CIPS 2013, Monitoring the Performance of Suppliers, sl. Cluster, D 2006, Global It outsourcing study, Diamond Technology & Management Consultants, Inc, viewed on 6th, February, 2016, . Ertel, D & Enlow S 2012, Relationship management for outsourcing service providers, vantage partners. Gilley, M & Rasheed, A 2000, Making more by doing less, analysis of outsourcing and its effects on firm performance, Journal of Management, 26 (4), 763-790. Grimshaw, D, et al 2014, Coming clean, contractual and procurement practices, University of Manchester, Equality and Human Rights Commission. Haveckin, B 2012, Information Technology Outsourcing By Large Australian Organisations. Faculty Of Business And Law, Victoria University, viewed on 6th February, 2016, . Jensen, P & Stonecash, R 2014, the Efficiency of Public Sector Outsourcing Contracts, A Literature Review, Melbourne Institute Working Paper No. 29/04, ISSN 1328-4991. Jones, P 2009, outsourcing, key Legal Issues and Contractual Protections, Farrer & co. OECD 2007, Offshoring and employment Trends and Impacts, viewed on 5th February, 2016, . Olsen, K 2006, Productivity Impacts of Offshoring and Outsourcing, A Review, OECD Science, Technology and Industry Working Papers, 2006/01, OECD Publishing. Ono, Y 2003, Outsourcing business services and the role of central administrative offices, Journal of Urban Economics, 53, 377-395 Zhou, Y & Ren, J 2010, service Outsourcing, Wiley & Sons, Inc. Read More