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Co-Sourcing/Out-Sourcing Of Internal Audit Activities Add in library

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Questions:

1. Critically evaluate methods of planning and organising efficient operations and networking.?

2. Analyse the problems of controlling component activities and of controlling quality?

3. Critically discuss methods of project evaluation and of scheduling resources ?

 

Answer:

Introduction:

In business environment, the process of outsourcing refers to the process of contracting out a part or whole of the  business process(s)  to yet another organization: the entire process also being referred to as  business process outsourcing. The American phrase 'outside resourcing' can be considered as the concept behind the terminology "outsourcing" and it is assumed to date back to 1981, if not before (Abdolmohammadi, 2012.). The word outsourcing literally refers to the usage of outside resources and/ or domain experts in order to develop, design and produce goods, thus assisting the process of growth of an organization.  Outsourcing should be viewed as the assistance that an organization accepts from an intermediary organization, which has an improved capability or is much more familiar to certain principles and/ or practices that the organization has planned to incorporate: it is just another way of referring to the experience and knowledge base of a domain expert in the organizational level (accaglobal, 2015). In this paper, the various aspects associated with the outsourcing of products and/ or services of the Shell UK have been described in details.

Outsourcing products and/ or services:

These days most of the organizations that specialize in the production of software and/ or hardware products are under the constant pressure of developing new goods and/ or services and make them available to the clients. The new products that are being developed aim at keeping the already existing products in line with the innovative technologies that are being introduced in the market. The process of matching up the existing products with the latest technologies available puts tremendous pressure on the organizations to manage the pre and post developmental phases using precise and accurate project plans. In order start the production of new service and/ or products, a reasonable and accurate project plan needs to be chartered out much before the execution and/ or development phase starts to come up with new products. The project plan being developed should also be able to provide an estimation of the delivery time of the project and the resources required to develop the product. However, most of the times the manufacturing organizations lack the various information technology supports the design, development, production, management and/ or testing of new products requires: others lack the services that are required for the procurement of services and gods that will be indirectly consumed by the production process. Under such situations, the service and/ or product manufacturing organizations plan to outsource some of their business processes to other organizations (Brege, Brehmer and Lindskog, 2010).

Since the activities related to the production of products are one of the core functionalities of nay organization, outsourcing this particular activity will inevitably lead to a huge change in the organizational level: such changes might also lead to disruptions in the relationships that the organization has with its vendors. Thus organizations in most of the cases do not go with the ideas of outsourcing their production operations to other third party organizations. However, in cases where the production company faces trouble with the procurement of goods and/ or services required for the purpose of production, they are able to outsource their entire procurement management system to other third party vendors (Bryant, 2011).

 

SHELL:

Background of the organization

The Royal Dutch Shell plc, which is famously known as Shell, is originally a Denmark based company that operates in the industry of gas and oil (Shell in UK, 2015). The organization has its headquarters in Netherlands: however the company itself has been incorporated in the United Kingdom. The company was originally established by the merging process of the United Kingdom based transport company Shell Transport and Trading and the Royal Dutch Petroleum: the Royal Dutch Shell plc thus formed has been placed at the fourth position in the list of large companies, that was released in 2014, the list being created on the basis of the revenue generated by such companies. The Royal Dutch Shell plc is also considered as one of those six companies of the gas and oil industry that are considered as "super-majors". The organization being considered is also one of those companies in this world that are immensely valuable. As released to the press in January 2013, the largest number of shares of this company are held by the Capital Research Global Investors, who hold as much as 9.85 percent of the shares of the organization. Next in line is BlackRock an organization that holds as much as in 6.89 percent of the shares of Shell. In the year 2013, the Fortune Global published a list of the top 500 largest companies of the world:  a list which was topped by Shell. In the very same year, the revenue generated by the organization was officially as much as 84% of the total GDP of Netherland, which was estimated to be $555.8 billion.

Operations of the organization

Shell operates in the oil and gas industry, its fundamental activities being concerned with the operations of exploration of oil and its production, the process of refining the crude oil and the marketing and distribution of the finished product thus produced. The organization is also involved in the petrochemical industry: which is a direct by product of petroleum. The company also operates in the industry of power generation and/ or marketing.  Shell also has a very few operations in the industry of renewable energy, where the company mainly utilizes the renewable sources like wind energy and/ or bio-fuels. The company operates in as many as 90 countries, and has a production rate of 3.1 million oil barrels. Needless to say, all the operations of this organization are entirely based on the production of oil and natural gas. In fact, the Shell Oil Company is a subsidiary company of this organization, which is located in the United States and generates the largest amount revenue of the entire organization.

Outsourcing the operations

As the core operation of the company is the drilling and production of oil from the oil wells, this is one aspect of their operations that they cannot afford to outsource. Most of the organizations that operate in the production domain outsource their procurement management systems to various vendors and/ or third party solution providers: procurement being the operation of purchasing and/ or sourcing the various materials and/ or services that are consumed by the organization for the purpose production. Shell would possibly be not able to do the same, because at the very first place the raw materials used by the company need not be procured (Gangadharan and Fielt, 2010). Secondly, as the mechanisms, tools and technologies that are used for the production purpose are highly sophisticated and the entire process of production is dependent on these machineries and technologies, the management of the organization would be unwilling to outsource the procurement of these technologies to third party vendors. Through the process of procurement outsourcing, an organization basically relinquishes its hold and control over all the business processes and/ or activities associated with the procurement process: a situation that the Royal Dutch Shell plc would no doubt indulge in, especially in case of the machineries they use, as any minor mishap in the procurement outsourcing process might jeopardize their operations (Fhinnovation, 2015).

The only set of operations that the Royal Dutch Shell plc might outsource belongs to those set of activities that are used to maintain all the data that is used by the organization on the daily basis and the various services that are required for this purpose. As the entire process of document management is carried out by various information technology processes, the organization being a production based company would require to put in a huge amount of effort in marinating the documentation process by themselves; thus they should indulge in outsourcing this portion of their operations to any such third party vendor that operates in the field of information technology (Joha and Janssen, 2012).

Almost 90,000 shell employees located in over 60 countries uses SAP based utilities to perform their assigned responsibilities. The company, by outsourcing their documentation management system to third party IT solution providers will not only be able to provide mush help to these functionalities, but should also be able to efficiently manage the various activities that are being used by these employees (University, 2015).

It is recommended that the Royal Dutch Shell plc should not only outsource their SAP based human resources and/ or payroll management systems to third party vendors, but should also outsource the various services associated with that of application maintenance, like preventative maintenance, documentation management,  data archiving and/ or  change management (Themanager, 2015).

Decision logic matrix:                             

Where, the part of the matrix shaded wit red indicates those operations that should be retained, the green area shows the operations that can be outsourced and the yellow area shows the operations which should be management using a strategic alliance (Management, Procurement and Law: Referees for 2010, 2011).

 

Performance Objectives:

The performance objectives being considered are:

Control over core operations: Since the documentation management and other IT based services are not core to the company, outsourcing them would not be present a control issue (Oduk, 2013).

Content of intellectual property: The services being outsources cannot be considered as an intellectual property of the organization, hence can be safely outsourced (Pm4id, 2015).

Technology level: The level of technology used by third party information technology solution providers is much higher than that being implemented by the Royal Dutch Shell plc; thus outsourcing these services to them should be considered as a rightful decision (Saccani, 2012).

Cost factors:  It is estimated that by outsourcing the various information technology based services to the third party vendors that operate in the Asian and/ or Eastern European countries, the company will be able to reduce as much as about 70 to 75 percent of the revenue that the company now has to spend on such purposes. Thus, the process will actually be economical towards the operational activities of the organization (Sako, 2010).

Operational or Creative: The information technology based services that are being outsourced are merely operational functionalities of the organization; these activities do not include any creative aspect of the organization. Thus the functionalities can be safely outsourced to third party IT vendors (Scm.ncsu.edu, 2015).

 

Risk Analysis And Mitigation:

Risk 1:Failure in the assessment of which system to be outsourced

Analysis of Risk Without Controls

Likelihood

Consequence

Risk Level

Unlikely

Extreme

major

Description of Controls

 

 

 

The requirements of the project should be discussed several times between the various managerial positions of the company.

 

Analysis of Risk with Existing Controls

Likelihood

Consequence

Risk Level

Rare

Extreme

Significant

Risk Acceptance

  • Accepted
  • Accepted with Existing

      Controls

Not Accepted

  • Not Accepted – Explore

      Treatment Options

    

Reasons:

Such a situation would lead to the failure of the entire project. 


Risk 2:Failure in consideringthe various objectivesthat are associated with the outsourcing decision.
 

Analysis of Risk Without Controls

Likelihood

Consequence

Risk Level

Unlikely

Extreme

major

Description of Controls

 

 

 

The requirements of the project should be discussed several times between the various managerial positions of the company.

 

Analysis of Risk with Existing Controls

Likelihood

Consequence

Risk Level

Rare

Extreme

Significant

Risk Acceptance

  • Accepted
  • Accepted with Existing

      Controls

Not Accepted

  • Not Accepted – Explore

      Treatment Options

    

Reasons:

Such a situation would lead to the failure of the entire project. 


Risk 3:Not choosing the best suited third party vendor for the outsourcing process.
 

Analysis of Risk Without Controls

Likelihood

Consequence

Risk Level

Unlikely

Extreme

major

Description of Controls

 

 

 

The profiles of the third party IT vendors being considered for outsourcing should be checked meticulously, times and again.

 

Analysis of Risk with Existing Controls

Likelihood

Consequence

Risk Level

Rare

Extreme

Significant

Risk Acceptance

  • Accepted
  • Accepted with Existing

      Controls

Not Accepted

  • Not Accepted – Explore

      Treatment Options

    

Reasons:

An inexperienced organization might not be able to deliver the solution at right time or might even deliver faulty services. 



 

Conclusion:

The various aspects that the Royal Dutch Shell plc should consider for outsourcing their operations have been discussed in this report. It has been recommended that instead of outsourcing the activities related to procurement or production, the company should outsource their IT services to third party vendors in order to efficiently support their operational activities, by concentrating on their core functionalities.

 

References:

Abdolmohammadi, M. (2012.). Correlates of Co-Sourcing/Out-Sourcing of Internal Audit Activities. SSRN Journal.

accaglobal, (2015). [online] Available at: https://www.accaglobal.com/content/dam/acca/global/pdf/sa_nov11_outsourcing.pdf [Accessed 3 Jul. 2015].

Brege, S., Brehmer, P. and Lindskog, H. (2010). Sourcing, insourcing and two times outsourcing: four phases of procurement of telecommunications services within the Swedish public sector. Strat Outs, 3(2), pp.144-162.

Bryant, R. (2011). Outsourcing and Contract Services. Journal of Biomolecular Screening, 16(10), pp.1256-1259.

Fhinnovation, (2015). Outsourcing Performance Management Strategies. [online] Fhinnovation.com. Available at: https://www.fhinnovation.com/outsourcing-performance-management-strategies/ [Accessed 3 Jul. 2015].

Gangadharan, G. and Fielt, E. (2010). Analyzing Requirements and Approaches for Sourcing Software Based Services. International Journal of Applied Logistics, 1(2), pp.53-63.

Joha, A. and Janssen, M. (2012). Transformation to Cloud Services Sourcing: Required IT Governance Capabilities. ICST Transactions on e-Business, 7-9(1), p.e4.

Management, Procurement and Law: Referees for 2010. (2011). Proceedings of the ICE - Management, Procurement and Law, 164(2), pp.108-108.

Oduk, (2013). F actors Influencing Outsourcing at Kenya Union of Savings a nd Credit Cooperatives. International Jo urnal of Business and Commerce, 3(1).

Pm4id, (2015). 9.6 Procurement Process. [online] Pm4id.org. Available at: https://pm4id.org/9/6/ [Accessed 3 Jul. 2015].

Saccani, N. (2012). Servitisation strategies and sourcing decisions for product services: an exploratory study. International Journal of Industrial and Systems Engineering, 10(3), p.336.

Sako, M. (2010). Outsourcing versus shared services. Commun. ACM, 53(7), p.27.

Scm.ncsu.edu, (2015). Role of Procurement within an Organization: Procurement : A Tutorial - SCM | Supply Chain Resource Cooperative (SCRC) | North Carolina State University. [online] Scm.ncsu.edu. Available at: https://scm.ncsu.edu/scm-articles/article/role-of-procurement-within-an-organization-procurement-a-tutorial [Accessed 3 Jul. 2015].

Shell in UK, (2015). Shell in UK. [online] Shell.co.uk. Available at: https://www.shell.co.uk/ [Accessed 3 Jul. 2015].

Themanager, (2015). Outsourcing - Operations - Management Portal. [online] Themanager.org. Available at: https://www.themanager.org/Knowledgebase/Operations/Outsourcing.htm [Accessed 3 Jul. 2015].

University, C. (2015). HSC Online - Part 4 Operations Strategies. [online] Hsc.csu.edu.au. Available at: https://hsc.csu.edu.au/business_studies/operations/4410/Part%204%20Operations%20Strategies.htm [Accessed 3 Jul. 2015].

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