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Question:

Discuss the decision logic for outsourcing, involvement of risks and risk control strategy?

 

Answer:

Introduction

The term Outsourcing can be defined as the strategy for cost-effectiveness when implemented properly into a business. It can be well explained by taking the example of a giant coffee company “Starbucks” in the following discussions. This concept is sometimes very important to consider as it provides a platform for affordability in the business by outsourcing of goods rather than producing internally. It may also include shift in the operations area that can provide growth in the economy of the business. The company Starbucks had massively used outsourcing over the years to expand the supply chain which also led to significant cost inflation.

Decision Logic for Outsourcing

The decision logic includes the analysis of relevant costs and benefits related to the outsourcing of materials, resources or products of a business organization. The decision logic are developed and explained on the basis of two factors like make & buy of a product or service by any company. The factors of deflation in costs must be excluded while decision analysis for outsourcing of a product/service by the company (Acharyya and Brady, 2014).

For instance in this case of Starbucks, the decisions for outsourcing should be made on the basis of some questions like should I outsource my customer feedback call centre? Should I outsource transport and logistics or hire in-house facilities?

Thus the proper decision making can increase the cost-effectiveness and efficiency in the business process of organization (Chen and Chen, 2014).

Outsourcing can help to introduce fresh business policies or procedures as well as it can free up time for innovation or other important tasks related to the business. However, making wrong decisions can lead to put the business into a competitive disadvantage which will lead to control loss over proper information, or product/services that does not meet the quality standards of the organization.

So in context to Scordis et al. (2014), as the Operations Manager of the giant coffee industry “Starbucks” I would like to highlight upon the detailed logic map based upon the decision logic of outsourcing. The outsourcing decision matrix is used to clearly identify the process, product/service of function which can be kept in-house and which can be safely outsourced (Dionne, 2013). 

The Outsourcing decision matrix can be developed on the basis of two factors:

1. How important is the task to our business? As strategically tasks are important resources for competitive advantage.

2. What is the impact of the task on the performance of business operations?

 

The Outsourcing Decision Matrix

 The modules of the matrix are as follows:

  • Formation of strategic alliance – The tasks in this module are of strategic importance though contributes less to the performance of the business operations. So, control over them must be retained to ensure the exact work of the tasks as we want or get good quality. These are of no significance to the costs or even running and focus on in-house operations. In this instance we can say that “Starbucks” is aligned with an advertising company to spread the message to customers but it will not affect the daily performance of the operations (Santos and Silva, 2012).
     
  • Retain – This involves tasks of high priority as well as have an adverse impact on the daily performance of the organization. These are to be kept in-house so as to retain the maximum control of the organization. In this context, the production and packaging should be kept in-house as it is strategically crucial and contributes to the smooth and successful running of the organization (Duckett and Busby, 2013).
     
  • Outsource – The tasks in this sector are important for the success of performance in the operations of the organization. So, these tasks can be safely outsourced as it would reduce the time of in-house management. For example, this coffee company can outsource its logistics operations to another specialist company that deals with logistics. How the product is delivered is definitely not a part of competitive advantage as it does not concerns the customers experience. But it has impact on operational performance as how well it is done means the timing andquality of the product.
     
  • Eliminate- This sector does not concern the total strategy or contributes to the operational performance of the business. These tasks can be totally eliminated as they are of no importance but must be well considered as to why it should be eliminated. An example of this in context can be given as removal of unnecessary raw materials used for packaging or old unusable inventories in the company (Elahi, Sheikhzadeh and Lamba, 2014).

The logic map for the company can be demonstrated as:

Performance objectives

Strategic Analysis

According to Roberts et al. (2013), the idea of strategic analysis has been presented in the business in the year 1960s, with a point of upgrading the business execution and it has been likewise raised in the business setting as a goal of guaranteeing the long haul supportability for an association.

The five performance objectives used to analyze the factors that influence the decisions to outsource or remain in-house in this context is explained below:

 

Cost

In order to analyze the operations performance objectives, it can be stated that cost is one of essential aspects, which is usually helping a company to ensure its current position as well as future prospects in an effective manner. Thus, most of the global companies usually emphasize towards manufacturing cost of its products as well as services for enhancing the ability of the company in the operating marketplace. In this context, more specifically it can be argued that Starbucks has highly emphasized towards its manufacturing/ production cost for enhancing its business competencies in the operating marketplace (Gjerald and Lyngstad, 2015).

 Quality

This plays an important role so as to attract customers at the same time it also may enhance its market share within the operating marketplace. Moreover, better quality products may enhance brand recognition for a company. In this regard, more specifically it can be stated that during the manufacturing of coffee products or services, Starbucks has highly emphasized towards the specification of the products. At the same time, Starbucks has highly concentrated towards its quality related aspects and aiming to maintain the standards. Thus, it can be stated that quality assurance related decisions help a company to gain better competitive advantage in the operating marketplace (Kazmer, 2014).

Speed

The growth of the company can be ensured by concentrating on the operation process which may enhance operational efficiency of the company. In this regard, more specifically it can be stated that Starbucks always has provided its highest attention towards the speed of the business process along with its operations, for making better strategic decisions. At the same time, quick response of the company may reduce challenges for the organization by enhancing customer demands and it also has led the company towards better success in future.

Dependability

This is an essential aspect as it helps the organization to fulfill the needs and stand up to the expectations of the customers by enhancing the ability to deliver products as well as services amid the customers. In this context, it can be mentioned that Starbucks has enhanced its dependability on the customers by extending its overall range of product and services (Lacity and Willcocks, 2014).

Flexibility

In addition to the above mentioned aspects this one is also considered as one of the essential aspects for making business decisions as it can enhance the quality of operations. In this context, more accurately, it can be argued that Starbucks has always emphasized towards its flexibility related aspects with an intention of extending its business performance in around the globe.

Thus, by analyzing the operations performance objectives, it can be evidently stated that through considering these factors BP may also identify appropriate strategic decisions for its outsourced as well as kept in-house products.

 

Involvement of Risks

The management of uncertainty lies on recognizing, measuring, and examining the factors that can influence the outcomes. This will help to identify potential risks and their impact. The types of risks involved in the decision making process include:

  • Strategic Risks – These types of risks emerge from the ventures an association makes to seek after its main goal and destinations. The risks are often involve the competition and can include various risks like macroeconomic dangers (the arrangement of purchasers and dealers steady with the standards of supply and interest), exchange chances (the operational dangers from merger and procurement action, divestitures, or organizations), and speculator relations chance (the dangers connected with corresponding adequately or incapably with the venture group) (Lacity and Willcocks, 2014).
     
  • Financial Risks – These identify with potential monetary misfortunes that can come about because of deprived distribution of assets, changes in rates of interest, shifts in move towards duty, expands or diminishes in the cost of things, or vacillations in the evaluation of cash (Lair, 2012).
     
  • Operational Risks – This type of dangers can emerge because of decisions about outline and utilization of procedures to make and convey merchandise and administrations. They can incorporate creation slips, substandard crude materials, and innovation breakdowns.
     
  • Legal Risks – These dangers stem from the risk of case or equivocalness in relevant laws and regulations (counting whether they are prone to change); these dangers make insecurity in the strides an association have to take to deliver its commitments to consumers, workers, suppliers, stakeholders, groups, and governments.
     
  • Additional types of Risks - Dangers are regularly connected with power failure or occasions outside the ability of the organization. These can incorporate climate debacles, surges, seismic tremors, and war or different dangers (Madon and Sharanappa, 2013).

Risk Control Strategy

Risk Control is focused at those dangers that were not considered as worthy. E.g. theirs quality is over the agreeableness level. Restraint comprises in proposition, tolerating and acknowledgment of measures, that can take out those dangers or their worth is influenced somehow. Choice is the last aftereffect of the danger control stage and is typically the yield of considering a few arrangement variations. As, the decision makers the risks level, size and nature must be predetermined so that proper decisions can be taken to enhance the business process of the company (Office, 2015). The risks are evaluated and can be controlled according to the principles of 4T as discussed below:  

 
  • The first step comes is to terminate the risk by evaluating the affects of the risk on the system. In this regard, to make decisions for Starbucks the threat is that the decision to outsource the logistics may affect the business standards. So, as to maintain the business, the risks are to be eliminated by taking proper actions like keep track of the performance of the logistics company (Pratap, 2014).
     
  • Next in context of risk control this step involves on how to manage and treat the risks as potential threats to the business. This is done by classifying risks into three categories as high, medium or low risks and can help to deduce the recovery option according to the risk involved in the process.
     
  • This step involves the transfer of operations that consist of the risks which could hamper the competitive nature of the business. The modules of operation that are affected can be transferred to different locations or isolated such that it cannot affect the whole process of business. This may also be achieved by outsourcing of certain services of the company like in this case it is the outsourcing of customer feedback call center to other state to continue the business process.
     
  • This step is implemented to tolerate the risks and thus controlling the risks so that the business process is not hampered due to the risks. This can be achieved by developing a tolerance strategy according to the risks predetermined in the business process of the company.

Conclusion

Decision making is the intellectual procedure prompting the determination of a course of activity among varieties. There are loads of risks in each stage. The reason for danger administration is to guarantee levels of danger and instability are appropriately overseen. All together to oversee dangers in the decision making is important to comprehend what is. The essential help for issue of danger in choice making procedure is utilizing the choice techniques for each stage. Thus, as the operations manager for the Starbucks coffee company the decision making should be done on the basis of risks and strategic analysis to continue the business process flow of the company.

 

References List

Acharyya, M. and Brady, C. (2014). Designing an Enterprise Risk Management Curriculum for Business Studies: Insights From a Pilot Program. Risk Management and Insurance Review, 17(1), pp.113-136.

Chen, Y. and Chen, Y. (2014). Strategic outsourcing under technology spillovers. Naval Research Logistics (NRL), 61(7), pp.501-514.

Dionne, G. (2013). Risk Management: History, Definition, and Critique. Risk Management and Insurance Review, 16(2), pp.147-166.

Duckett, D. and Busby, J. (2013). Risk amplification as social attribution. Risk Management, 15(2), pp.132-153.

Elahi, E., Sheikhzadeh, M. and Lamba, N. (2014). An Integrated Outsourcing Framework: Analyzing Boeing's Outsourcing Program for Dreamliner (B787). Know. Process Mgmt., 21(1), pp.13-28.

Gjerald, O. and Lyngstad, H. (2015). Service risk perceptions and risk management strategies in business-to-business tourism partnerships. Tourism Management Perspectives, 13, pp.7-17.

Kazmer, D. (2014). Manufacturing outsourcing, onshoring, and global equilibrium. Business Horizons, 57(4), pp.463-472.

Lacity, M. and Willcocks, L. (2014). Business process outsourcing and dynamic innovation. Strat Outs, 7(1), pp.66-92.

Lacity, M. and Willcocks, L. (2014). Business process outsourcing and dynamic innovation. Strat Outs, 7(1), pp.66-92.

Lair, C. (2012). Outsourcing and the Contracting of Responsibility*. Sociological Inquiry, 82(4), pp.557-577.

Madon, S. and Sharanappa, S. (2013). Social IT outsourcing and development: theorising the linkage.Information Systems Journal, 23(5), pp.381-399.

Office, J. (2015). Acknowledgement to Reviewers of the Journal of Risk and Financial Management.Journal of Risk and Financial Management, 8(1), pp.1-1.

Pratap, S. (2014). Towards a framework for performing outsourcing capability. Strat Outs, 7(3), pp.226-252.

Roberts, J., Henderson, J., Olive, L. and Obaka, D. (2013). A Review of Outsourcing of Services in Health Care Organizations. Journal of Outsourcing & Organizational Information Management, pp.1-10.

Santos, J. and Silva, M. (2012). Cost Management in IT Outsourcing Contracts: The Path to Standardization. Journal of Outsourcing & Organizational Information Management, pp.1-17.

Scordis, N., Suzawa, Y., Zwick, A. and Ruckner, L. (2014). Principles for Sustainable Insurance: Risk Management and Value. Risk Management and Insurance Review, 17(2), pp.265-276.

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