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Introduction
Introduction and background information
For the past years, retailers in the world have undergone tremendous transformation because of the market forces that direct them to adapt new business environments evolving now and then. The most influential force to the retailers is the growing competition among retailers as well as the wholesalers. As a result, businesses have ventured into different strategies and aspects likely to rise the functioning of the retailers. One of the widely adapted strategies currently is the utilization of information technology (IT) outsourcing. Most retailers have found it worth to assign third parties to carry out logistic that will make their performance to compete well in corporate world of vast competition.
Outsourcing partners are on the upper hand to strengthen their institutions for creating retailers loyalty. This has maintained the retailers loyalty to their outsourcing partners as revealed by the European IT Outsourcing Intelligence Report 2011 that based on 2010 reports, 60% of the outsourcing companies in United Kingdom were willing to continue delivering their services for another year. However, 17% found it tough hence; they were planning to terminate their contracts. This is an indication that there is high potential in IT outsourcing likely to grow over the years (Alex 2011).
The increased desire for IT outsourcing is evident in most parts of the world and UK is not an exception. Many studies have revealed the main drivers to IT outsourcing and it is evident that operational cost reduction forms the backbone for quest for IT outsourcing among the retailers in UK (Callender 2011).
Upon adoption of IT outsourcing by retailers in UK, there are many expectations in the retail market. Most IT outsourcing deals by retailers are advantageous although some retailers encounter hardships in enhancing productive outsourcing contracts. Many research studies revealed that outsourcing have more benefits than the disadvantages associated to it. Proper execution of this strategy will promote retailers to reach the global standards in terms of sales and after sale services because of the simplicity of the transaction process.
Specialisation and division of labour will improve the quality of products and services to consumers. Retailers have ample time to concentrate on their best area of business, whereas third party manages areas proving hard to them. Outsourcing improves the information efficiency that in turn maintains and validates data at high standards.
However, IT outsourcing proves a threat to workers laid off by retail business because the integration of such services leads to closure of some departments (Futurist 2011). Decision-making towards outsourcing has therefore placed some retailers in dilemma hence; wise decision-making is crucial for retailers intending to invest in IT outsourcing (Barthelemy 2003). Most of the retailers are not likely to enjoy the existing situation so as long as the strategy will maximise their profits because the main purpose for any firm or company is to maximise profitability of their business activities (Brown and Wilson 2005).
The new trend in IT outsourcing is likely to continue rising and some years to come, there will be solid outsourcing. Studies proves this situation for instance the study by Everest Group that predicts the UKs outsourcing to increase by 600% by year 2021 (Morris 2011). This study is specifically going to address the effects of information technology outsourcing, the trends, and future among retail businesses in the United Kingdom.
The introduction of the Internet contributed to the revolution with remote sites able to connect over the Internet, exchange data, information, and currency. The businesses that pioneered information technology quickly included this technology in their business processes. These developed into showcase models in information technology. The cost of implementing these technologies increased over time.
As such, an opportunity gave itself in which information technology Service Providers would offer tailored and business-oriented services to willing businesses at a fee. This option was considerably less against the rising costs of setting up an IT department. Process of outsourcing has taken the information technology age to the next level. Outsourcing has enabled businesses in need of technologically knowledgeable processes but lack the technical and human capacity to outsource such services and processes to technological experts at a stipulated cost (Pinnington and Woolcook 1999; Stakes 1995).
Outsourcing has opened up frontiers in IT standardization, especially in the business world where these businesses can acquire IT services from third party organizations and as such benchmark their processes to the global standards.
No one can ignore the dissatisfactions among the retailers attributed to poor services by the service providers, but this is just a low percentage compared with the percentage of the satisfied with the services (Taylor 2008). Such failures are associated with retailers focus on short-term saving when looking for an outsourcing partner. The advice to Retailers is for them to seek long-term relationships between them and the outsourcing partners to reduce susceptibility to such dissatisfactions. Similarly, wise selection of the outsourcing partner will determine the success of retailers seeking the services (Dekhuijzen 2006).
To understand the research problem, the dissertation highlighted a case study of British steel, and later case of Sainsbury. During this period, the British Steel turned to Cap Gemini to outsource their central management service (CMS) unit. British Steel has a workforce of about 50,000 with a turnover of more than 7000 million UK pounds (Brown and Wilson 2005; Linder, Cole and Jacobson 2002).
This company runs a central management services unit to provide exceptional IT support for the companys finance, payroll, and human resources. CMS also covers some processes within the companys operational system. The British Steel case study is indicative that IT has brought with it special organizational need to ensure facility management. On acquiring new systems through business re-engineering, organizations often realize that they are not able to optimize these systems and therefore have minimal benefit. The main cause for this situation is the resistive organizational culture that offers little room for change to take place within the organization.
Such organizations or businesses turn to outsource such processes to ensure professional implementation as well as exceptional standards because IT has a global scope. Therefore, British Steel just like many retail businesses in the United Kingdom turned to Cap Gemini a world class IT Company that the steel manufacturer outsourced about one third of its processes covered within their CMS. British Steel intention to outsource was,
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To gain competitive advantage by maintaining high quality standards with more than 99% for key indicators.
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To establish perpetual improvement programs even through the British Steel business improvement program.
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To ensure a smooth transition of IT responsibilities with minimal disruption to the existing IT system.
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To safeguard the interests of its workforce.
Several years down the line, the British Steel management stated that it is about the right IT that can help a company gain competitive advantage in the global market and to this company, outsourcing was the key.
Research questions
This dissertation seeks to address other instances in which there is successful IT outsourcing as well as instances of IT outsourcing failures. The following main research questions guided the research:
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What are the factors that lead to IT outsourcing among retail companies?
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What are the advantages and disadvantages of IT outsourcing among retail companies?
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What are the general trends and the future of IT outsourcing among retail companies in the UK?
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Who among the retailers and the outsourcing vendor should take blame on failure of IT outsourcing?
However, there is a challenge in getting cases of IT outsourcing failures because the concerned retailers are reluctant in making such reports in public. Therefore, the dissertation will vividly address most of the successful instances, and few cases of failure as cited by different researchers.
Method outline
The dissertation will reflect on previous literatures done by researchers for literature review section. This part will make a thorough comparison of the past and the latest literature to determine the future trend of IT outsourcing. Secondary data and online surveys will offer the essential data required to determine the effects, extent and future trend of IT outsourcing.
Data Collection, sampling and analysis happened methodically and with much keenness (Veal 2005). There will be application of Both Inductive and deductive approaches in this dissertation because of mutual relationship in research (Hamel 2000). To accomplish data analysis for this dissertation, both qualitative and quantitative approaches are inevitable for this case.
There will be a conclusion on the relationship between IT outsourcing and retail companies. In addition, it will elaborate on benefits achieved through IT outsourcing in establishing competitive advantage as well as shortfalls experienced by retailers because of poor IT outsourcing. There will also be recommendations on ways to improve/strengthening IT outsourcing for existing and emerging retail business in the UK to avert future shortfalls.
Scope
The heart of this dissertation centrally focuses on IT outsourcing in retail in the UK. It will look into different retail companies in UK as well as their vendors who provide this significant service. However, because of inadequacy in required IT outsourcing infrastructure in UK, the dissertation also focused on service providers not within UK such as China and India. The significance of these two countries have basis on the availability of workforce and advancement in information technology.
There is a close relationship between UK and the Unites States hence in some instances this dissertation will compare and contrast the extent of IT outsourcing in both regions. Last, it will feature retailers whose attempts to venture into outsourcing have met hostility and the measures taken in those cases.
Limitation of dissertation
In most researching and dissertation writing, there are various limitations facing these practices. Below are the expected limitations for this dissertation,
To start with, some instances in this dissertation will paraphrase or quote facts derived from either biased or outdated secondary sources. Some vital information to help answer researchers questions may lack because of limited research on the topic. Similarly, the study will heavily rely on the information collected from respondents. Therefore, selfish or biased response may affect the results of the whole project rendering it inaccurate.
Due to financial constraint coupled with limited time, not all effects of IT outsourcing on retail companies may be adequately brought to light. The research may also suffer time constraints due to delayed approval by targeted study sample population, especially organisations. As a result, the dissertation writing will have a delay because of time wastage in the process of waiting.
The complexity of the whole process of theoretical study brings with it many processes that can lead to despise of some aspects of the topics. However, it will address this by being very careful to ensure adequate reflection on every aspect in the research questions and aims.
The limitation of using a descriptive survey research method is that a large descriptive survey may give superficial results. Alternatively, a small-scale descriptive survey with an emphasis on qualitative or rich detail has the limitation as poor generalization. Such small surveys complicate the applicability of the result achieved for other areas of study.
Literature review
Introduction
This chapter of the dissertation covered literature and documents based on IT outsourcing by retailers. For objectivity purpose of this paper, the chapter had to discuss the issues related to success and popularity of outsourcing among esteemed retailers. In addition, there was discussion on factors contributing to failure, and early termination of contracts that is slowing the growth of outsourcing among retailers in the UK.
Topics on IT outsourcing have become research item for many scholars, academicians, professionals, and business experts. This has resulted in a continual expanding knowledge base focusing on outsourcing and its effects on business processes. However, a review of most of these articles reveals that even though writers differ in some instances, but IT outsourcing has had a significant impact on retail companies all over the world (Jack 2009). This situation affects countries economies in many ways.
This study focused on this issue through deep literature review from the previous researchers. However, it is clear that most of the previous writers failed to focus some important aspects of concern to my area of study. This study will incorporate the success, failure, and trend of IT outsourcing in by the retailers in the UK. Some concentrated on one aspect without considering other aspects that is, some concentrated on the success of IT outsourcing without taking into consideration on its downfall.
Very Few researchers concentrated on the failure of IT outsourcing in the UK. It was therefore significant to review both the ancient as well as the current literature to know exactly how IT outsourcing have evolved over the years and to make some predictions of the possible trends likely to be in place in future of retailing. Studies revealed that the effects of IT outsourcing attracted different feelings from retailers because as much as it has become widely embraced, some retailers are slow to embrace the development (Hassan 2008).
The context of outsourcing among retailers
It is evident that IT outsourcing have become the next big issue for retailers to venture and use fully for minimizing cost and maximize profit. Retailers have been on alert over the changing business environment because the situation demands retailers to adhere to it in order to succeed within the region of operation and outside the boundaries. Retailers are left with no alternative other than employing competitive strategy to maintain their presence in business career.
As a result, retailers have invested into management strategies that are likely to promote this competitive advantage even if it meant involving outside parties to handle some of the functions or activities within the companies. The quest for the above conditions yields the need to look for a third party to take care of some activities in the retail businesses. As a result, outsourcing of noncore has become an important aspect for most of retailers.
According to Hammer (1992), in his article outsourcing and the value chain believed that outsourcing was capable of cutting down some operating costs among other benefits. In his opinion, retailers should outsource the noncore functions to achieve a competitive advantage over other companies. Apart from cost reduction, other reasons behind outsourcing include lack of enough expertise in the IT fields, time limitation to handle all the functions, core competence, and to facilitate a smooth working environment with improved service delivery to customers.
Different forms of outsourcing
Outsourcing is the transfer of components or large segments of an organizations internal IT infrastructure, staff, processes, or applications to an external resource such as an Application Service Provider. The IT outsourcing includes the delegation of all or part of the technical, human and management responsibilities.
The IT services that can be outsourced could be the systems development, hardware, network management, software applications, training, IS support, or the management of IS strategy this could be in the form of selective outsourcing or total outsourcing. Outsourcing could be done with a single supplier, multiple suppliers or can be co-sourced this can then be taken place on-site, off-site (domestic) or offshore (global).
According to Quinn (1999), main services outsourced fall under two categories named technology and business process. In technology processes outsourced, they includes electronic commerce- termed as e-commerce, the infrastructure, software, development of websites as well as web hosting, and telecommunication services. Business process outsourcing encompasses customer contacts (customer relations management), equipment, finance / accounting, human resources, logistics, procurement/supply chain management and security (Quinn 1999, p. 19).
Information technology outsourcing (IT outsourcing) have been defined as a process in which retailers sign a contract with a third party vendors to carry out various IT activities that include data entry, application maintenance and development, data centre operations, network management and operations as well as disaster recovery (Antonucci 1998, p. 26 ). According to Antonucci, there can be different forms of the contracted vendors who ranges from individual IT experts, companies that provide employees on lease, consultants, certified public accountants, to even a well-accomplished service vendors.
The success of IT outsourcing in retailing in the UK
Since the introduction of IT outsourcing, retail companies, and other firms have developed high dependence to IT in operating their businesses as well as reaching a diverse customers. As a result, retailers have registered a high rate of IT assets, leasing, and staff transfer systems to outsourcing partners. Contrary to the past, retailers such as grocery and industrial supply chain have registered significant cost benefits associated with streamlined supply chains through consultations with the third parties. There is an increase in efficiency and response from the customers, which have saved billions of pounds for retailers with IT outsourcing (Domberger, 1998).
Requirements for a successive IT outsourcing among retailers in the UK
Fernie (1999) pinpoints some shortcomings experienced between the retailers and suppliers when the third party is not present in the supply chain activities. However, he appreciates the changes undergone in bettering the logistic networks in both UK and the United States through emergence of third-party logistics market in 1980s and early 1990s.
Fernie also insists on the requirements for successive outsourcing logistics, that is, a theoretical perspective on the outsourcing decision, broad conceptual pieces on the relationship between contractors and the users of their services, and empirical research on the users perception of logistics service providers (Fernie 1999, p. 85).
Through theoretical work, retailers increase their assets identity and integrity of their contracts through outsourcing services based on certain duration (contract-based outsourcing). In conceptual research, the purchasers and suppliers create an environment for successful long-term partnership as well as averting possibilities of conflicts between the two parties. At last, empirical work seeks to strengthen the logistic interaction between the service providers and the retailers.
It is a common phenomenon in UK researchers nowadays to shift to surveys performed by consultants or contactors. For insistence, Corporate Development Consultants and Applied Distribution that carries out surveys on Fernies exploratory activities based on buying and marketing of distribution in retail markets. The effectiveness of outsourcing have led to growth of logistic market where people have taken it as a professional and taking it to a higher level. Its services have not reflected only on minor services such as trucking but also major services such as inventory controls, warehousing, planning among others.
However, on addressing the PE international survey, Fernie (1999) explained the dissatisfaction of grocery sector toward their contractors. This is one area of interest and the failure of these contactors is likely to pull down the efforts of retailers as well as instilling fear to others planning to use the services.
Current trends in IT outsourcing
In the article, How Outsourcing Affects the U.S. Economy, Hassan (2008) agrees that indeed outsourcing has brought with it a mixture of effects. Some of the effects according to the articles have been beneficial, especially to retail business. He notes that the dynamitic advantage that outsourcing brings with it has benefited retail industry because of cheap imports and subsequently stronger exports. It has also saved money for these companies. Gordijn (2002) concurs that the outsourcing process is currently a positive contributor to any countries economy.
No one can deny the rising industrial changes in pace triggered by the consumers trends and competition, which is mounting pressure to retailers. Retailers have been on receiving end, and they are putting more efforts to recruit high skilled teams likely to deliver services required in business to cut down ambiguous spending. It has not been a smooth transition because there is division in opinions among different retailers on the cost effectiveness of IT outsourcing.
However, Callender (2011) put it clear that for achievement of any success through IT outsourcing, effortless measures should be in place as well as clarity in retailers aims and objectives. She insists that IT outsourcing should be a long-term solution that aims to strengthen the bonding between retailers and service providers.
There is fear by some retailers over the effectiveness of some IT outsourcing service providers that have led to early termination of contacts between the two parties (Taylor 2008). He reveals the current trend adopted by retailers.
Research has shown that service jobs generate less income as compared to manufacturing jobs. In fact, the latter receives support as those responsible for creating the wealth in any nation. On the contrary, service jobs consume this wealth. Research findings further indicate that more businesses are currently depending on IT to gain the needed competitive edge. However, it is also true that information technology implementation, especially for a business critical process has a high price tag. As such, IT outsourcing puts the countrys economy on the line (Stern and El-Ansary 1992). The trend is not any different with retail companies that must adhere to the state of economy.
Targeted businesses by outsourcing companies
The outsourcing practice can apply to nearly all types of business. Most business experts prefer this process because it has cost effectiveness. Statistically, outsourcing can result into reduced costs by between 50% and 60%. For instance, companies in Europe spend up to $19 trillion in outsourcing daily processes like sales and administration. Nevertheless, in Futurist (2011) review of literature, he states, despite outsourcing being cost-effective, efficient, productive and strategic, it is also condemned as evil, money-grabbing, destructive, ruthless, exploiting the poor, destroying communities and nations (Futurist 2011, p. 1).
Futurist (2011) further asserts that outsourcing has compromised low-cost nations. This is evident with the increased migration from the high-earning nations to the compromised ones. This has led to labour shortages. China and India are a perfect example in this context (Outsource mag 2011). These two nations, especially China, are experiencing close to 100% salary inflation, and India suffers an acute shortage of corporate leadership because of large-scale outsourcing.
Some of the typical business processes that qualify for outsourcing in IT-oriented companies are those involving electronic data interchange (EDI). According to Fernie (1999), sending financial information is a vital undertaking for any business. However, the process has high degree of sensitivity. Retail companies continue to focus on electronic automation of such processes as invoicing, order processing dispatch, and other routine processes.
Such processes will definitely require EDI to simplify trading cycles and accelerate transactions. However, based on the sensitive nature of the data and information handled by the EDI systems, the cost of their implementation remains high and beyond the reach of many retail companies in the UK and around the world. According to Pinnington and Woolcook (1999), e-commerce that fundamentally relies on EDI is quickly becoming standard based.
Accordingly, companies such as Microgen UK are seeing an opportunity to provide the EDI functions to small and medium enterprises who cannot afford to implement EDI full-scale. With companies such as Microgen UK, these retail companies have an opportunity to outsource their EDI processes and therefore compete effectively on the global market. Generally, there is much literature on the outsourcing process and the effect and benefits to the business or organization.
However, little is available in this domain, especially related to the effects of IT outsourcing among retail companies within the United Kingdom (Linder, Cole, and Jacobson 2002). This research focuses on this area of study and intends to draw vital important conclusions to professionals, academicians, and business people.
Geographical distribution of outsourcing services among retailers in UK and the rest of the world
The controversial instances on IT outsourcing have become rampant in North America as recorded by De Vaus (2002). This region has experienced the hard way in economy because of lack of this crucial service, and they are posing blame to IT companies based in India. Most of IT outsourcing companies contracted in North America have delivered dismal results lagging the economy of this region. With this trend, North America Region revealed diminishing interest for IT outsourcing. As a result, India has intercepted the situation as they try to invest into other neglected sectors existing globally. This move targeted service provision survival after poor performance by Indian service vendors in North America.
However, the IT outsourcing companies face challenges to venture Europe and Asia because of the dominance of Japanese IT outsourcing firms that have been very active. From the study by Pinnington and Woolcook (1999), it is evident that IT outsourcing have taken roots in UK as well as the rest of the world. Companies venturing to this field for the first time will face stiff competition from the already existing IT outsourcing service providers such as those from Japan. They further suggests possibilities of Indian IT companies to merge with IT outsourcing markets based in Japan for chances to increase their benefits.
Nowadays, there are high opportunities in Indians IT outsourcing market. The approximate total returns from IT services registered in 2009 were approximately $80-90 billion and surprisingly, an estimated $50 billion was from the exports made. This business opportunity have triggered interest by IT services provider companies as they try to invest in this growing market in exportation. High ranking of Japanese IT outsourcing market have not hindered the Indian quest to venture into the same field because they want to benefit from the same. Some companies have shown interest to work with Japanese IT companies, which is a clear indication of the tremendous competitiveness in the field.
One of the company that have benefited from such arrangements is the IBM India who have come in to execute some of the Japanese projects although it is venturing to the field at a slower speed as expected. Huge Japanese IT outsourcing is likely to be a wasted opportunity lest it undertake market analysis using tools such as Porters five forces and sushils SAP-LAP. In addition, flexibility of IT outsourcing have a huge role to play for companies targeting higher positions in future while considering the cost effectiveness.
The growth of information technology and outsourcing
Initially, the growth of information technology (IT) and business services outsourcing (BPO) had much dominance from Indian service providers. However, retailers have shifted to other areas such as Philippines and Malaysia (call centres and other back-office BPO), China (embedded software, financial firm back-office BPO, some application development), Russia and Israel (high-end customized software and expert systems), and Ireland (package software and product development) (Bardhan et al. 2003, p. 1).
Notably, Restaurants, and Retail (R&R) industry sector had started adapting outsourcing at the commencement of 2006 and an increased contacting to service providers exceeded more than half of the contracts. The increase in outsourcing for IT, human resources and finance accounting, and BOF gained momentum in both UK and the United States in 2004. As a result, retailers have benefited from this strategy through optimization of Service Delivery Operation Framework. More businesses have embraced Business Process Outsourcing (BPO) while other service providers have ventured into the same field of retail outsourcing (Gluckman 2006). The results revealed the growth of outsourcing in UK.
Table 1: Adoption of retail and restaurant outsourcing contracts in UK and United States in 1Q six.
Year 2010 recorded some amusing results in the trend taken by the online retail marketing. The field obtained boost by about 20% retailers embracing the services, but this trend have become a bit stable as time lapse. IT outsourcing will increase the number of consumers with interests to do shopping online. These consumers will get chances to interact with the retailers through editorials and interactive content posted online.
IT outsourcing will increase flexibility among the cons
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