Evaluation of IBM and Telstras BPO Outsourcing Agreement - Case Study Example

Outsourcing Project Case Study Name: Course: Institution: Date: Table of Contents Table of Contents 2 Introduction 3 Project Overview 3 Client Perspective 5 Supplier Perspective 8 Recommendations 11 Develop Internal Capacity 11 IBM Reward Systems Change 12 References 13 Introduction This report analysis offers an evaluation of the IBM and Telstra’s BPO outsourcing agreement. The analysis focuses on an evaluation of the reasons, and risks for each of the players, as well as recommendations on how to improve the outsourced systems into the future. An evaluation of the client Company illustrates that the outsourcing strategy was ideal as it allowed the company develop efficient internal systems as well as customer support systems at a reasonable cost. However, the risk of reliance on a third party for customer interaction is a major future operational risk. On the other hand, the IBM company acquires a development opportunity, but faces the risk of loses due to developed systems failure. Thus, it concludes that the Telstra Company should seek to develop internal operational systems, while IBM should seek a reward system based on profitability gains obtained. Project Overview The Overall Telstra outsourcing contract with IBM was a BPO contract. The contract was generated and signed in the early 2000 period. This was a period at which both the Australian and the global communications industry was facing a number of changes. This was occasioned by two main developments in the industry. The first change was the rise of increased customer awareness and the need for customer engagement Firth and Mellor (1999, p.201). As such, it was no longer possible for the industry players to play and execute their operations in isolation of the customer. This was a break from the tradition where the customers were traditionally viewed as the end node consumer in the value chain system. In contrast, the new changes in the telecommunications industry required that the customers were actively involved in the value chain process through communication and feedback provision systems, as well as addressing their needs and wants on a timely and satisfactory basis (Roberts, 2005, p.153). The second strategic change in the industry was the rise of competition and need to maximize on available resources. As such, there was a shifting phenomenon from the use of traditional manual operational systems to the use of automated IT based systems. The use of these systems was essential to the industry in that they increased operational efficiency as well as reduced the overall operational costs in the market. On one hand, the use of the IT systems ensured that all the internal systems such as procurement, customer connection, and finance among other internal operations were coordinated and centralized to allow for efficiency (Sigala, Airey, Jones and Lockwood, 2004, p.183). On the other hand, the centralization of an organizational procurement process was expected to increased procurement efficiency and as such reduces the overall operational costs in the long run period. For Telstra, the selection of IBM as its BPO partner was hedged on the company market reputation and the partners past interactions and relationships. The key expectation and deliverable end for the outsourcing contract was the development of automated and centralized internal operational systems, as well as the development and provision of outsourced customer care services for its Australian customers and those beyond in the global market. In general, the BPO agreement could be termed as a success to data (IBM Australia, 2014). For instance, in 2014, the partnership was awarded the Excellence in Customer Service award at SSON shared services excellence award in Australia (IBM Australia, 2014) The award is a demonstration that the outsourcing shared services provision contract between the two has been successful to recognizable levels over the years. The agreement was signed as a continuous contract that has no definite end and termination data as long as the partners oblige and comply with their respective contractual agreement terms in the future (Steiner et al, 2014, p.7). Client Perspective An evaluation of the Telstra telecommunications company illustrates that the outsourcing contract for the company was a valuable step towards improving its overall operations. First, the company developed a BPO contract in the market. Although there were alternative types of outsourcing agreements that the venture would have developed, the BPO contract was the best in its scenario. On one hand, the use of the BPO contract allows a venture to advance and allocate some of the business operations that are not core to its existence in the market. This is different from other outsourcing contracts like the manufacturing contracts where the key manufacturing and production process responsibilities are outsourced form a third party partner (Gewald and Dibbern, 2009, p.252). As such, this analysis indicates that through the use of the BPO outsourcing contract, the Telstra Company was able to concentrate on its core economic activities. Its activities included the engineering of key telecommunications services as well as the marketing of its products’ in both the Australian and the market beyond in the global market contexts. The enactment of the contract allowed the company to allocate the operational efficiency functions to IBM as a partner, while its staff and resources were concentrated in mitigating the existing market competition. In terms of its outsourcing experience in outsourcing, Telstra Company has in the past outsourced some of its noncore services and especially services and areas that the company lacks enough experience. In particular, it has liaised and contracted the IBM Company in the past to develop and support its expansion strategy as well as manage its ICT systems (IBM Australia, 2014). Therefore, this implies that the venture has an average level of experience in its outsourcing strategy. This average level of experience could be identified and singled out as its main justification and cause for the selection of IBM as the main partner as well as the effective and correct adoption of a BPO outsourcing contract model. An evaluation of the company’s capability to outsource indicates a combination of both strengths that would have supported the contract as well as weakness areas that were a major drawback to its ability to outsource and effectively function and execute its contractual outsourcing obligations. On one hand, an analysis of the company indicates a changing culture. In this case, the venture had in the periods towards the 2000 year, recognized and embraced the changing telecommunications’ industry landscape. This led to a company roll out of a change in corporate and operational culture. Traditionally, as Pellicelli (2012, p.21) noted, organizations’ in the global market were oriented towards a self sufficiency approach and strategy. Under this operational model, the organizations believed that through developing and sustaining their operations internally, they were bound to create an increased market efficiency and success in the long run period. However, in the wake of increased globalization, this was changing. Telstra was one such organization that embraced alliances and collaborations with partners to actualize its strategic market goals. A change of culture is a long term goal and aspect that changes the strategic direction in a company. As such, through this approach, the Telstra Company has enough goodwill both form the executive management and the employees to collaborate and work with the IBM business services agency as a partner in developing the required internal systems operations, as well as actualization on its customer care and services delivery in the market (Scuotto, Ferraris & Bresciani, 2016, p.359). The second strategic strength for the venture in the development of the outsourcing strategy was the noted past experiences with the corporation. The past experiences ensured that the Telstra Corporation had a prior understanding and knowledge of IBM business services company . Thus, it was not a hard task for the two to align and integrate their operations and as such actualize the outsourcing partnership. However, a major weakness for the Telstra Corporation was the lack of technical staff in ICT development. As such, the venture relied on IBM partner solutions and technical support to actualize its operations. Thus, this meant that it relied wholly on IBM company developed solutions credibility (Zahra and Nambisan, 2012, p.223). This was a risk to its operations. For instance, in the event that the IBM Corporation as a partner failed to honor the outsourcing agreement needs, it would imply that the customer services offered to its global clientele, such as through the call centers and customer management systems would be disrupted. In its current state, the organization lacks the technical capacity and ability to manage its customers. This poses a major risk of disrupting all its customer services, which are fundamentally the back bone for its marketing and effectiveness strategy in the market. The second risk that the company exposed itself to in the outsourcing strategy was the risk of confidential data and information access. As such, it disclosed its details and confidential operational information to IBM with the aim of the latter developing relevant operational and functional internal systems (IBM Australia, 2014). However, this was mainly at the risk of the third party partner leaking and exposing the company information. Although the outsourcing contract detailed on the confidentiality of all shared information among the partners, the risk of such illegal leak of the confidential information was exceedingly leaked to the external stakeholders in the market. Supplier Perspective As a business consultancy agency, the IBM Business services SBU is oriented towards offering business solutions to its key clients in the global market. In this regard, the emergence of a key opportunity that enables the venture to deliver and achieve its goals is often embraced. The Telstra Company outsourcing services was one such a critical and viable opportunity for the corporation. This can be validated as a fact and true due to a number of reasons and justifications. On one hand, the timing of the outsourcing strategy was ideal. In the early 2000 tear period, the global market was essentially and slowly shifting from the use and application of manual; operational systems to the adoption of automated services and systems in the market (Cooke, 2013, p.1083). This was the ICT revolution era. As an ICT services consultant company, the IBM venture was seeking out on opportunities to actualize its creativity and innovation in the market. This was because, through its years in the ICT industry, the venture had developed a wealth of experience that could be applied and relied upon in the changing market context. Thus, through picking the outsourcing service, the venture was right through creating an opportunity to actualize its market experience in the global market. The second reason as to why the outsourcing BPO contract was viable and right for IBM to adopt was due to its operational timeline systems (IBM Australia, 2014). As already mentioned above, the contract agreement was to be implemented and applied on a continuous basis. Thus, unlike its traditional contracts that were based on a project basis with limited timelines, the Telstra contract presented a long term viability opportunity. Thus, the contract had an opportunity growth and expansion opportunity, while providing the IBM Corporation with revenues over a longer period of time (Ross, 2013, p.27). Hence, based on the above arguments and reviews, this section indicates that the choice and the agreement to provide the customer care services and internal systems enhancement services was a viable and right decision for the IBM Corporation. A critical evaluation of the corporation merits and capabilities, indicate that its vast experience in ICT systems development crated a competitive edge in its ability to automate and crate value adding internal operations for the Telstra Corporation. This could be evidenced by its ability to develop a new internal centralized system for the company in a cost effective manner. The second key merit and capability by the corporation in the contract execution was its ability and existing resource base. Through the available resources, it was possible for the corporation to develop a relevant organizational system to support the customers such as the established customer care center in the market. However, the venture provision of the services equally faced a number of challenges (Kipping and Kirkpatrick, 2013, p.779). One of the key challenges that faced the corporation outsourcing contract effectiveness in delivery was the existence of a new country culture in Australia. As already known, the venture was used to the European and the Australian a market cultures. Thus, this means that much of its ICT experience, especially with regard to customer use and adoption was hedged on the western market experience. Although the Australian market shares some characteristics with these markets, it is unique in a number of ways. For instance, Sparks, Perkins and Buckley (2013, p.7) argued that the Australian customer base is highly collective as contrasted to a majority of the European and USA customer cultures that are highly individualistic. Thus, this means that customer management systems in the western markets that focused on capitalizing on the individualistic nature of the customers would not be viable and applicable in the Australian market context. Therefore, this means that the corporation lacked the required country experience and understanding in the Australian market to effectively understand the targeted customers. In the outsourcing deal, the IBM Company undertook a number of risks in the market. One such risk was the alignment of its future market reputation to the success or failure of the Telstra Company customer care services. In this case, through the engagement of a long term market contract, IBM was commuted to adjoining its market reputation to that of Telstra. In the event that Telstra failed in its operational efficiencies as well as in customer care and management process, IBM would lose its market credibility and reputation in the long run period systems (IBM Australia, 2014). The second risk that the venture undertook was investing its key resources in developing the company customer care services. In the contractual agreement, the client Company would only compensate and reward IBM for the customer care services once all the systems were developed and operational. Therefore, a failure in the designing and the development of the proposed contract would be a liability for the IBM Company and thus would increase its overall operational costs for the contract. The venture expected to add value to its operations in a number of aspects’. The first was through extending its clients base to the telecommunications industry. The second value was to offer it the much needed experience in the Australian market. This would equip it with the right skills and profile to attract more future clients form the market, as it would be deemed to have the requisite experiment in the country. Recommendations Based on the above analysis, this review offers two strategic recommendations through which both the supplier and the client companies can obtain maximum value. The strategic role and aim in the offered recommendations is to ensure that both overcome potential risks, while creating a win-win situation for the industry. The offered recommendations are creation of supporting internal capacity by Telstra and an insurance policy for the IBM Company systems respectively. Develop Internal Capacity The first recommendation for Telstra Company is the development of a supporting internal systems capacity. In its current state, the corporation relies on the IBM support systems to manage and interact with the customers. Although the current state in the industry allows for this alliance, the overall future market landscape could change. On one hand, there is tie increased likelihood that new ventures will focus on the market and as such create their own direct contacts with the customers. The formulation of direct relationships, especially in the Australian markets us a critical consumer buying behavior influence aspects’. To this end, Grimmer and Bingham (2013, p.1945) stated that in the Australian market, the development of direct market relationships and interactions between an organization and its customers ensured increased overall market customer loyalty and satisfaction in the long ruin period. This means that the future market landscape will not favor the absolute reliance on a third party to create a customer contact for the corporation. Based on this risk, this analysis recommends that the company should focus on changing the outsourcing argument. Instead of just relying on IBM services, it should engage IBM to help in building an internal customer service management capacity. As such, in the long run period, the venture should have developed sufficient internal capacity to support and promote its customer operational and activities base. In return, the outsourcing agreement should retain IBM as the main consultant for the corporation operations. Through this system, the IBM Company should serve as a regular auditor and advisor to the corporation on how to effectively manage and advance its customer base services and systems. IBM Reward Systems Change In the current outsourcing contract system, the IBM Company is awarded a specific amount for the services offered to the corporation. Unfortunately, this reward system and strategy does not support and account for the risk of failure of the offered and developed systems. Moreover, the venture has over the years supported the client to invest and develop its systems in the industry. Thus, this analysis proposes a change on the reward systems change. In this context, the venture should seek to participate in the profit generation systems in the industry (McNeill, 2015, p.565). As such, through the development of a new reward system, the IBM Company should seek to share in the profits in the industry. Through a profit sharing system, the organization will gain in the development and gains of the industry. References Cooke, P. 2013, ‘Global production networks and global innovation networks: Stability versus growth’, European Planning Studies, 21(7), pp. 1081-1094. Firth, L., & Mellor, D. 1999, ‘The impact of regulation on innovation’, European Journal of Law and economics, 8(3), pp. 199-205. Gewald, H., & Dibbern, J. 2009, Risks and benefits of business process outsourcing: A study of transaction services in the German banking industry’, Information & Management, 46(4), pp. 249-257. 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