HR executives outsourcing decisions case analysis

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To complete this Assignment, respond to the following in a 3- to 4-page paper:

Analyze HR executives’ outsourcing decisions.

  • How would the HR skills identified in the Human Resource Competency Study aid an HR executive in assessing potential outsourcing partners?
  • How would the skills identified in the Human Resource Competency Study enable an HR executive to effectively manage outsourcing agreements?
  • How would such skills enable an HR executive to effectively advise the CEO of the organization regarding outsourcing decisions?
  • What has been left unaddressed in the Human Resource Competency Study? Explain your concern or rationale in thinking something might be missing.

The link to the Human Resource Competency Study http://hrcs.rbl.net/

All work must be original and in APA format. Please include an introduction and conclusion. I have also included some resources for your reference.

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0307-4358.htm MF 36,6 Economic impact of marketing alliances on shareholders’ wealth Foo-Nin Ho and Allan D. Shocker 534 Department of Marketing, College of Business, San Francisco State University, San Francisco, California, USA, and Yewmun Yip Department of Finance, Beacom School of Business, University of South Dakota, Vermillion, South Dakota, USA Abstract Purpose – The purpose of this paper is to examine whether marketing alliances create value for shareholders, and whether the results are robust across different business cycles. Design/methodology/approach – Using standard event study methodology, abnormal returns (AR) were computed for 402 firms which formed marketing alliances in a 12-month period covering three business time periods, namely bull, bear and post 9/11 periods. ANOVA and regression analyses were performed on cumulative abnormal returns (CAR). Findings – Significant and positive AR were found on announcement day for firms forming marketing alliances. When the sample is segmented by market capitalization, small cap firms were found to stand to benefit the most, particularly when partnering with a large firm. During the bear market period, marketing alliances tend to benefit small cap firms and firms with low profitability, whereas during the bull market period, marketing alliances benefit firms with low asset utilization. Research limitations/implications – Results are limited by the accuracy of the models used to measure AR. Practical implications – The results seem to suggest that smaller partners tend to benefit more from marketing alliance, and the effect changes with business cycle. Originality/value – The paper analyses how the benefits of forming a marketing alliance are shared between partnering firms and how the different phases of business cycle influence the distribution of benefits. Keywords Marketing, Strategic alliances, Shareholder value analysis, Business cycles Paper type Research paper 1. Introduction By definition, a strategic alliance is a formal cooperative agreement between firms designed to pursue a set of agreed upon goals so as to achieve competitive advantages for both partners. Strategic alliances in general involve either collaborative effort (nonequity) or joint venture (equity). In a joint venture alliance, both partners share equity control in a new organizational entity. In a collaborative alliance, neither partner has any equity stake since no new entity is created, and the goal is to pool and leverage on each other’s resources to achieve a common goal. Within non-equity alliances, they can be further classified by two dimensions (Chan et al., 1997): (1) horizontal vs non-horizontal; and (2) technical vs non-technical. Managerial Finance Vol. 36 No. 6, 2010 pp. 534-546 # Emerald Group Publishing Limited 0307-4358 DOI 10.1108/03074351011043017 Horizontal alliances involve partners in the same three-digit SIC class while nonhorizontal alliances are between firms from unrelated industries. Technical alliances involve the transfer or pooling of technological knowledge between the partners (e.g. licensing agreements, and research and development agreements) while non-technical alliances involve marketing and distribution agreements. An example of marketing alliance is the common practice by airlines to engage in marketing alliances to promote their frequent flyer programs such as the formation of star alliance. In times of tight budgets, an underinvestment in marketing and brands may have a long-term adverse impact on the firm. Swaminathan and Moorman (2009) find that by pooling resources together in a marketing alliance with another firm can increase the value of the partnering firms, particularly for marketing alliances in high-tech software industry. Zagnoli (1987) find that non-equity alliances account for over 50 per cent of all strategic alliances, and other researchers find that non-equity alliances offer more advantages than equity joint ventures. For example, Jensen and Meckling (1991) argue that non-equity alliances provide an organizational mechanism that aligns decision authority with decision knowledge, and that benefits and costs resulting from the decisions accrue fully to the decision maker, i.e. decisions are delegated to a level closer to the requisite knowledge. Another advantage is the organizational flexibility of such alliances where new links can be formed or current links disbanded in response to market demands. On the other hand, there are costs associated with these ‘‘symbiotic’’ alliances – those that relate to searching out reliable partners, designing contracts and other bonding mechanisms that discourage opportunism, and monitoring the behaviour of alliance partners (Chan et al., 1997; Klein et al., 1978). In such situations, companies have to balance between preserving key proprietary knowledge to maintain their competitive advantage and insuring that partners will see a need to pool their resources. This conjecture is supported by the findings of Luo et al. (2007) in that firms must carefully balance between competition and cooperation when working with their rivals in a cooperative alliance. Conversely, Harrigan (1984) notes that most strategic alliances usually involve technology or knowledge that companies know they cannot protect adequately or control. Over the years, various scholars have studied strategic alliances. For example, researchers have looked at the theoretical and conceptual foundations, motives for, and framework of strategic alliances (Varadarajan and Cunningham, 1995); economic outcome of strategic alliances (Chan et al., 1997); choice between equity and non-equity modes of alliance (Pisano, 1989); the management and structuring of alliances (Parkhe, 1993). Marketing scholars have also looked at strategic alliances such as intraorganizational cooperation between marketing and other functional areas or other business units (Ruekert and Walker, 1987) and inter-organizational relationships between firms (Adler, 1966; Swaminathan and Moorman, 2009; Luo et al., 2007). Some researchers have also identified the importance of marketing alliances in the overall realm of strategic alliances. Varadarajan and Cunningham (1995) view marketing activities as critical factors in the success of strategic alliances especially in a rapidly changing business and market environments. Other researchers have also echoed this sentiment in recognizing the importance of integrating marketing in strategic alliances (Webster, 1992; Day, 1992). 2. Economic value of strategic marketing alliances Das et al. (1998) and Chan et al. (1997) have found that while strategic alliances create value for their shareholders especially when there is sharing of technological knowhow, but that is not necessary true for marketing alliances. For technological alliances involving firms in the same industry, Chan et al. (1997) report a significant positive returns, and whereas for marketing alliances, a significant positive return is observed only when the partners are from unrelated industries. In their study on marketing alliances by high-tech software firms, Swaminathan and Moorman (2009) also find a Impact of marketing alliances 535 MF 36,6 536 significant positive return for both partnering firms. On the other hand, Das et al. (1998) do not find a significant return to shareholders for the formation of marketing alliances. Das et al. (1998) find that although investors view alliances formed by more profitable firms as detrimental to their value, marketing alliances are viewed as more detrimental than technological alliances. On the hand, Chan et al. (1997) report that firms entering into strategic alliances tend to outperform their industry counterparts in the period prior to the formation of the alliances, and therefore, they argue that the formation of an alliance is not in response to poor performance. Larger firms, especially in technological alliances, depend critically on their smaller partners for resources (e.g. technological know-how). This asymmetric dependence enhances the bargaining power of the smaller partners. This conjecture is supported by the empirical evidence provided by Das et al. (1998) in that the market reaction to smaller firms’ alliances is greater than the reaction to larger firms’ alliances. This effect is more prominent for technological alliances, where smaller partners earn significantly higher returns than their larger partners. However, there are no discernible differences in the returns earned by the small and large partners in marketing alliances. Chan et al. (1997) also report similar findings in that smaller partners tend to benefit the most from forming a strategic alliance, but their larger counterparts do not suffer a decline in value. The existing literature seems to suggest that marketing alliances do not create value unless it is forged between firms in unrelated industries. Why do we continue to observe the formation of so many marketing alliances? The apparent incongruity between marketing practices and existing empirical results lead us to investigate further the issue of whether marketing alliances create value for shareholders. The seemingly conflicting results on which types of firms benefited the most from forming a strategic alliance as reported by Chan et al. (1997) and Das et al. (1998) are perhaps due to using different sampling periods. Essentially, Das’s 1998 study covers the bear market period (i.e. from 1987 to 1991) while Chan’s 1998 study covers a longer period (i.e. from 1983 to 1992) which includes both the bear and the bull market. In this study, we hypothesize that the market reacts differently to the different characteristics of firms forming marketing alliances during different phases of the business cycle. During a bear market, the market may view the formation of an alliance by a poor performing firm as a positive move towards profitability and reward the firm for doing that. On the other hand, during a bull market, since most firms are profitable, profitability may not play as critical a role in deciding on the formation of a marketing alliance. Given the limited empirical studies on marketing alliances and their economic impact, our research objective is, therefore, to re-examine whether non-equity marketing alliances create economic value for the shareholders. In this study, we look at non-equity, non-technical marketing alliances (henceforth referred simply as marketing alliances) and their economic impact on shareholders’ value. Specifically, the marketing alliances we examined include cross-licensing, co-branding, co-marketing, and joint marketing. In addition to investigating the economic value of marketing alliances, we also examine whether there is a redistribution of wealth between partners. Third, we also examine the influence of business cycle on the economic value of marketing alliances. Therefore, our research questions about marketing alliances and their economic impact are stated as follows: RQ1. What is the economic return to shareholders from forming a marketing alliance? RQ2. Who benefits the most from such alliances? RQ3. Whether business cycle plays a role in influencing the type of firms entering into a marketing alliance? The rest of the paper is organized as follows. Section 3 presents data description and methodology. Section 4 discusses the empirical results. Finally, section 5 offers our concluding comments. 3. Research design 3.1 Data collection An event such as marketing alliance is usually well publicized in the media in the form of business wires. To obtain a sample of firms announcing strategic marketing alliances, we conduct a search of the Lexis/Nexis database including all business wires covering the following time periods: . bull market period from 1 November 1999 to 28 February 2000 (also known as the internet bubble period); . bear market period from 1 March 2001 to 10 September 10 2001; and . post 11 September from 11 September 2001 to 31 October 2001. Since marketing alliances are commonly announced in the media, within this 12-month period, our search resulted in close to 10,000 initial hits, and therefore, provided us with a large enough sample size for the study. Data collection for the study is a multi-stage process. In stage one, we search the Lexis/Nexis database using the keywords ‘‘strategic alliance’’. In stage two, we narrow the search by using a combination of four keywords; specifically, co-marketing, cobranding, joint marketing, and marketing alliance as these represent non-equity marketing alliances. From this search, there are 9,847 hits. Every announcement is then reviewed to see if it meets the criteria of a marketing alliance, i.e. a non-equity agreement that is non-technical. We exclude all alliances that involve the transfer or pooling of technological knowledge. Cases, whereby the announcement has both technical and non-technical components, are also excluded from the final sample. The filtering process identifies 311 qualified announcements of marketing alliances involving 402 firms in which at least one partner’s common stock is publicly traded, and data on daily stock returns and market capitalization are available. Stock price data are obtained from Commodity Systems Inc and Exchanges hosted on the Yahoo! Finance web site and the previous year annual financial data for each firm are obtained from the COMPUSTAT database. The Security Exchange Commission requires companies to report their financial statements no later than three months after the fiscal year ending date. To ensure that the firm’s financial data are available on the event day, we restrict the fiscal year ending date of the financial statements to be at least three months before the event date. For comparisons, firms in the final sample (Table I) are further classified by their market capitalization, which is defined as the price of a share of common stock multiplied by the number of shares outstanding. Small cap firms are defined as having a market value of less than $1 billion; mid cap firms have value of between $1 and $5 billion; and, large cap firms with market value greater than $5 billion. 3.2 Measuring abnormal returns We use an event-study methodology similar to that described in Brown and Warner (1985) to measure the stock market’s reaction to the announcements of marketing Impact of marketing alliances 537 Table I. Descriptive statistics of firm characteristics 274.26 0.80 0.05 0.76 3.99 0.24 3.50 0.25 2.73 27.18 2.45 144.38 0.89 0.05 0.00 0.00 0.02 0.03 1.03 0.89 5.21 307.54 0.00 1.12 Small cap firms SD Min Mean 1,078.65 0.19 0.00 0.03 0.25 0.02 1.02 0.29 5.77 6.04 0.04 0.67 Mid cap firms SD Min 57 934.49 2,789.69 1,104.38 3.48 1.23 0.95 0.21 0.07 0.07 6.12 0.48 0.45 37.33 1.81 1.51 0.96 0.58 0.24 25.99 4.15 6.55 0.33 0.02 0.10 26.37 0.04 0.85 5.63 0.15 0.89 15.27 1.23 1.03 778.58 298.46 1325.08 Max 4,851.00 3.40 0.31 2.54 7.64 0.98 47.09 0.21 1.11 0.25 4.65 6373.00 Max 207 85,672.57 1.57 0.03 0.20 1.94 0.53 3.18 0.08 0.16 0.11 0.89 58.04 Mean 101,367.01 0.86 0.03 0.21 1.44 0.22 2.90 0.10 0.32 0.40 0.63 271.44 5,049.28 0.01 0.00 0.01 0.26 0.08 1.09 0.66 2.70 1.81 0.05 0.95 Large cap firms SD Min Notes: The reported F-statistic is for testing if the means of three independent samples are equal; *p-value < 0.10; **p-value < 0.05 n 138 Market cap 278.66 Beta 1.21 Earnings-price ratio 0.06 Book-to-market 0.59 Current ratio 3.16 Debt ratio 0.39 Equity multiplier 2.69 Return on assets 0.11 Return on equity 0.01 Profit margin 3.73 Asset turnover 1.51 Time interest earned 64.54 Mean 538 Firm characteristics 460,770.51 4.39 0.19 1.59 10.48 0.93 15.12 0.28 1.46 2.71 3.98 3362.09 Max 67.85** 8.35** 24.76** 26.41** 9.56** 18.98** 2.78* 51.11** 0.59 2.55* 6.63** 2.95* F-stat MF 36,6 alliances. The day when a press release is issued on the formation of a marketing alliance is defined as the event day (i.e. t ¼ 0). We then examine the behaviour of stock returns 60 days before the event day, and 60 days after the event day (i.e. t ¼ 60, þ60). For each of the 402 previously identified stocks, the daily risk-adjusted returns are estimated using both the market model and the market-adjusted returns (see, Brown and Warner, 1985). For market-model risk-adjusted return, the parameters of the single index market model are estimated over a 200-day period (t ¼ 260, . . ., 61) using the S&P 500 index as the market index. The parameter estimates are then used to calculate the abnormal returns (ARt) for the period from 60 days before to 60 days after the announcement day. However, the results based on a single-index model can be biased due to model misspecification, as pointed out by Roll (1977). To avoid specification bias, we also compute the market-adjusted returns for each of the 402 stocks, and again the S&P 500 index is used as the market index. The cumulative abnormal return CARj (–m, þn) for event window from Day m to Day þn is then computed for each stock using the following equation: CARj ðm; þnÞ ¼ tþn X ARj;k k ¼ tm 4. Empirical results 4.1 Sample characteristics Table I presents the characteristics of firms in the sample. As shown by their profitability measures, such as returns on assets and profit margin, small cap firms have lower profit margin as compared to their larger counterparts. In fact, more than half of the small cap firms are unprofitable prior to their entering into a marketing alliance, compared to only 5 per cent for the large cap firms. In addition, the common stocks of small cap firms are not as highly priced by investors as indicated by their high earnings-price and book-to-market ratios. Perhaps, because of their low profitability, these small cap firms are not as highly leveraged as indicated by their average debt ratio of 39 per cent as compared to 53 per cent for large cap firms. They also have higher liquidity as measured by a high average current ratio of 3.16. Surprisingly, the small cap firms are also more efficient in the use of asset as shown by their higher asset turnover ratio. On the other hand, the lower earnings-price ratios for the large cap firms may indicate that investors expect these firms to have a higher potential growth rate. The stock returns of these large companies are also more risky as shown by their higher betas. 4.2 Stock price response to announcement of marketing alliances For compatibility reasons, we adopt the same event windows as those used by Das et al. (1998). Since the results using market-adjusted AR are very similar to those using market-model-adjusted AR, we report only the market-model-adjusted CAR. Table II presents the average CAR calculated for various event windows. For all firms in the entire sample period, our results show that, on average, the market reacts positively to the announcements of marketing alliances for all event windows. On the event day (Day 0), firms entering into marketing alliances earn, on average, a significant abnormal return of 0.66 per cent. When we partition the firms in the sample into three Impact of marketing alliances 539 MF 36,6 540 Table II. Average cumulative AR over different event windows All firms Small cap Mid cap Large cap Event window Mean t-statistic Mean t-statistic Mean t-statistic Mean t-statistic F-statistic Full sample n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Bull market n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Bear market n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Post 9/11 n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 402 2.52% 2.45% 1.82% 1.35% 0.66% 1.12% 1.90% 2.27% 2.32% 2.04% 3.54** 3.77** 3.45** 2.97** 2.03** 2.76** 3.20** 3.44** 3.86** 3.28** 138 4.17% 4.63% 3.07% 2.74% 1.00% 1.32% 3.70% 4.07% 3.86% 3.06% 142 4.10% 2.99% 2.52% 1.43% 0.89% 1.98% 2.76% 3.64% 2.75% 2.98% 3.22** 2.77** 2.94** 2.18** 1.80* 3.06** 2.90** 3.42** 2.76** 2.62** 45 7.09% 5.17% 4.10% 2.02% 1.79% 3.86% 5.39% 6.53% 3.89% 4.65% 19 2.24** 3.82% 1.37 2.01* 3.56% 1.43 2.01* 2.07% 1.08 1.30 2.19% 1.29 1.42 0.38% 0.29 2.76** 0.50% 0.32 2.35** 2.07% 0.98 2.64** 4.02% 1.56 1.62 3.56% 1.69 1.61 1.87% 0.84 219 1.97% 2.70% 1.78% 1.54% 0.51% 0.75% 1.74% 1.64% 2.67% 2.03% 2.10** 2.96** 2.42** 2.27** 1.11 1.34 2.03** 1.74* 3.23** 2.61** 76 4.72% 6.54% 4.22% 4.39% 1.12% 0.94% 4.36% 4.07% 6.19% 4.62% 1.89* 2.71** 2.28** 2.55** 0.97 0.68 1.94* 1.64 2.88** 2.33** 41 0.15% 0.80% 0.40% 0.08% 0.67% 0.20% 0.25% 0.85% 1.02% 1.20% 0.07 0.49 0.26 0.06 0.60 0.13 0.18 0.51 0.56 0.59 17 7.18% 5.63% 4.79% 2.73% 1.65% 3.70% 4.19% 3.31% 6.36% 7.84% 2.30** 2.85** 2.45** 2.47** 1.30 1.43 2.50** 2.47** 2.61** 2.01** 57 3.10% 3.41% 1.48% 1.22% 0.51% 0.77% 1.85% 2.77% 3.03% 1.81% 32 2.27% 2.88% 0.63% 0.57% 1.38% 1.43% 1.27% 1.52% 2.24% 1.38% 2.40** 3.09** 1.62 1.58 0.93 1.04 1.86* 2.37** 3.12** 1.65 207 1.31% 0.77% 1.08% 0.46% 0.47% 1.09% 0.74% 0.96% 1.12% 1.43% 2.09** 1.33 2.03** 1.07 1.39 2.39** 1.37 1.64 1.94* 2.39** 1.70 3.84** 1.50 2.59* 0.28 0.10 2.56* 2.33* 2.26 0.72 78 2.44% 1.59% 1.72% 0.90% 0.67% 1.49% 1.41% 1.88% 1.90% 2.28% 1.96* 1.41 1.87* 1.32 1.60 1.99** 1.45 1.67* 1.78* 2.06** 1.35 1.13 0.79 0.39 1.03 2.54* 1.83 1.96 0.45 0.51 111 1.50 0.09% 0.14 2.35** 0.11% 0.19 0.57 0.44% 0.73 0.62 0.13% 0.25 2.45** 0.16% 0.39 1.74* 0.41% 0.84 1.04 0.11% 0.17 1.12 0.03% 0.04 2.05** 0.45% 0.75 1.02 0.51% 0.80 6 18 1.94* 5.24% 1.60 3.91% 2.51** 5.76% 2.07* 1.31% 2.70** 4.13% 2.22* 2.24% 1.66 1.62% 1.29 2.23% 1.87* 1.30% 2.54* 3.53% 2.68** 1.21% 0.51 3.54% 2.59** 4.29% 2.43* 1.73% 1.08 5.47% 2.67** 2.78% 2.58** 5.60% 1.94 1.82% 2.62** 3.91% 1.27 3.37% 1.67 0.51 0.81 0.93 1.55 1.28 0.69 1.22 0.62 1.15 2.52* 5.28** 2.96* 4.89** 1.10 0.22 2.58* 1.91 5.15** 2.96* 4.48** 2.22 3.78** 3.08* 3.30** 1.74 2.76* 2.92* 3.74** 4.54** Notes: The reported t-statistic is for testing if the mean of the sample is zero; the reported F-statistic is for testing if the means of three independent samples are equal; *p-value < 0.10; **p-value < 0.05 groups based on their market capitalization, the average AR of firms on the event day in all three groups were statistically indistinguishable from zero. Except for the event day and the day after the announcement, small cap firms enjoy significant AR for all event windows. Over a seven-day period, from Day  3 to Day 3, small cap firms participating in a marketing alliance, on average, earn an excess return of 4.17 per cent. For mid cap and large cap firms, although the results are not as robust, significant positive AR are also observed for event window Day 3 to Day 3. Furthermore, the results of ANOVA F-tests show that small cap firms enjoy significantly higher AR for the windows 2 to 2, 1 to 0, 1 to 2, and 1 to 3. During both the bull and the bear market periods, the market reacts positively and significantly to the formation of marketing alliances. In the bull market period, large cap as well as small cap firms enjoy positive significant AR, whereas mid cap firms show no significant reaction to the news. However, the AR for large cap firms during the bear market are statistically not significant. Small cap firms, on a whole, show positive AR for both the bull and the bear market periods. In the post 9/11 period, small cap firms experience significant negative AR for most of the event windows, and on the event day they lost 1.65 per cent of their value. Also, the market does not show any significant reaction to large cap firms engaging in marketing alliances. When we examine all the firms in the post 9/11 period together, the AR for firms engaging in marketing alliances are not statistically significant. Similar to the findings of Chan et al. (1997) and Swaminathan and Moorman (2009), our results show that marketing alliances create value for shareholders. The results hold for both the bear market and the bull market period. Small firms participating in a marketing alliance benefit the most. However, in the post 9/11 period, small firms suffer a significant decline in value. 4.3 Cross-sectional regression analyses In this section, we examine whether firm characteristics such as profit margin, debt ratio, asset utilization, and firm size can explain some of the market reaction to the announcements of the marketing alliances. Table III reports the results of two regression models. To allow for possible leakage of information and similar to the procedure used by previous researchers (Chen et al., 2002; Huang and Walking, 1987), we use CAR(–1, 0) as the dependent variable. Our results for the full sample show that small cap firms enjoy a statistically significant positive abnormal return of 3 per cent. The coefficient for asset turnover was negative and statistically significant which shows that firms with lower asset utilization can benefit from increasing their sales through joint marketing, and as a result, will be able to use their assets more efficiently. Taken together, the results show that small firms and firms with low asset turnover tend to benefit more from forming a marketing alliance. However, when we perform the same analysis on different sub-periods, the dummy variable for small cap firms is significant only during the bear market period. During the bull market period, firms with low asset turnover benefit the most from forming a marketing alliance. The results make sense because firms with low asset utilization tend to have excess capacity, and through forming a marketing alliance, their assets can be utilized more efficiently. In addition, profitability is not significant, and this is consistent with the evidence presented by Chan et al. (1997), that is, firms do not enter into marketing alliances because of poor profitability. However, the results for the bear market period show that small cap firms and firms with low profitability can gain from entering into a marketing alliance, and the results is consistent with those reported by Impact of marketing alliances 541 MF 36,6 Independent variables INTERCEPT DSIZE1 542 DSIZE2 DEBT RATIO PROFIT MARGIN ASSET TURNOVER n Adjusted R2 F-value p-value Table III. Regressions of announcement-period AR All 0.002 (0.184) 0.030 (2.809)** 0.009 (0.674) 0.018 (1.005) 0.000 (0.716) 0.008 Model 1 Bull Bear Post 9/11 0.018 0.008 0.084 (0.883) (0.521) (2.293)** 0.016 0.037 0.033 (1.054) (2.233)** (1.044) 0.016 0.001 0.032 (0.794) (0.065) (0.739) 0.002 0.022 0.150 (0.061) (0.937) (1.695)* 0.000 0.015 0.030 (1.116) (3.306)** (0.848) 0.010 0.006 0.003 (2.709)** (1.693)* (1.417) 396 142 215 0.019 0.003 0.092 2.530 0.920 5.320 0.029 0.472 0.000 (0.282) 42 0.074 1.620 0.181 All 0.017 (1.664)* 0.006 (0.367) 0.000 (0.440) 0.006 Model 2 Bull Bear 0.027 (1.511) 0.009 (0.637) 0.004 0.005 (0.133) (0.229) 0.000 0.019 Post 9/11 0.073 (2.003)* 0.139 (0.819) 0.044 (1.005) (4.375)** (0.000) 0.009 0.003 0.004 (2.128)** (1.549) (0.751) 397 147 216 0.004 0.001 0.078 1.560 1.060 6.980 0.198 0.369 0.000 (0.453) 42 0.052 1.710 0.182 Notes: *p-value < 0.10; **p-value < 0.05; the dependent variable is CAR(1, 0), the two-day announcement-period AR for the firms that announce the formation of a marketing alliance. The announcement period AR is estimated using the standard market model procedure with parameters estimated for the period 260 days to 61 days before the announcement. DINTERNET equals one if the announcing firm engages in an internet marketing alliance, and zero otherwise. DTIME1 equals one if the announcement date is between 1 November 1999 and 29 February 2000, and zero otherwise. DTIME2 equals one if the announcement date is between 1 March 2001 and 10 September 2001, and zero otherwise. DSIZE1 equals one if the firm’s market capitalization is less than $1 billion, and zero otherwise. DSIZE2 equals one if the firm’s market capitalization is greater than $1 billion and less than $5 billion, and zero otherwise. DEBT RATIO is the total debt divided by total assets. PROFIT MARGIN is net income divided by sales. ASSET TURNOVER is sales divided by total assets. The numbers in the parentheses are the t-statistics of the parameter estimates. The number of observations varies across different regression models due to availability of data Das et al. (1998) in that profitability is detrimental to the value of firms forming a marketing alliance. Our results seem to suggest that the different sample periods covering different business cycle may be able to explain the contradicting results reported by Chan et al. (1997) and Das et al. (1998). In the post 9/11 period, the only variable that is statistically negatively significant is debt ratio. A possible explanation is that after a catastrophic event, firms that can stand to gain the most from forming a marketing alliance are firms which are not heavily burdened by debt, and hence, are in a better position to fund such marketing alliance. 4.4 Analysis of wealth effects by relative partner size Finally, we examine if the gain by small cap firms is due to an expropriation of wealth from its larger partners, and therefore, we compared the change in wealth of pairs of partner firms. In our sample, we are able to identify 87 alliances with financial information on the two partners involved in a marketing alliance. We further subdivide the sample based on the disparity in the market capitalization of the alliance partners, and dummy coded the difference in the size. If firms from the same market capitalization group (e.g. alliance between two small cap firms) entered into a marketing alliance, the size difference code is equal to 0. The size difference code is equal to 1 if the alliance is between large cap and mid cap or between small cap and mid cap firms. If the alliance is between small cap and large cap firms, the size difference code is equal to 2, which represent partners with the greatest size disparity. In alliances where the differences in market values of the partners is not substantial, the paired t-test results reported in Table IV show that on average, the CAR’s for the alliance partners are not different from each other, and the alliance partners do not experience a significant change in their stock value. However, if the marketing alliance is formed between a large cap firm and a small cap firm, our results show that smaller partners enjoy a significant increase in value while the larger partners experience a negative but statistically insignificant decline in value. The pair test results show that smaller partners earn greater returns than their substantially larger partners, and the results are statistically significant for all event windows. When marketing alliances are formed between partners with a large disparity in size, our results are consistent with those reported by Chan et al. (1997) in that smaller partner firms in a strategic alliance enjoy a statistically significant increase in value but not at the expense of their larger partners. When marketing alliances are formed between firms of similar sizes or when the disparity in size is small, marketing alliances do not create any value for the participating firms. 5. Conclusions and discussion Our results show that marketing alliances do create value for shareholders. We also find that small cap firms stand to benefit the most from forming a marketing alliance, particularly with a large partner. However, when a marketing alliance is formed between firms of similar sizes, both partners do not gain any wealth from the marketing alliance. Our findings are in agreement with those reported by Chan et al. (1997) who also find that small partners in a strategic alliance enjoy a significant increase in value but not at the expense of their larger partners. Contradicting empirical evidence are provided by Chan et al. (1997) and Das et al. (1998) on the effect of prior operating performance of a firm on the value of an alliance. However, when we re-examined their results by segmenting the sample into bull market and bear market periods, we are able to reconcile their findings. The sample period of Das et al. (1998) study covers the period after the 1987 market crash to the end of Gulf War, which coincides with the bear market. Our results showed that during the bearmarket period, marketing alliances tend to benefit small cap firms and firms with low profitability; and, this is consistent with Das et al.’s (1998) findings in that marketing alliances are more detrimental to profitable firms. On the other hand, the sample period of Chan et al.’s (1997) sample period starts with the Reagan’s years to the end of the Gulf War, which include both the bull and bear market periods. Our results for the bull market show that profitability is not significant in explaining the observed AR which is consistent with Chan et al. (1998) results. In bull market period, our results indicate that firms with low asset turnover benefit the most from forming a marketing alliance. In the bull market, firms that are not operating at full capacity are seeking ways to increase its sales. Investors viewed that forming a marketing alliance is a step in the right direction for the company, and hence rewarded the companies for taking the step. The important implications from our findings are that during a recession, it makes economic sense for small firms with poor financial performance to seek out larger Impact of marketing alliances 543 MF 36,6 544 Table IV. Analysis of wealth effects by relative partner size Event window Full sample n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Size difference ¼ 0 n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Size difference ¼ 1 n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Size difference ¼ 2 n Days 3 to 3 Days 2 to 2 Days 1 to 1 Days 1 to 0 Days 0 Days 0 to 1 Days 1 to 2 Days 1 to 3 Days 2 to 1 Days 3 to 1 Small partner Mean t-statistica 87 3.22% 2.87% 2.81% 2.34% 1.41% 1.89% 2.93% 3.65% 2.76% 2.38% 1.82* 1.97* 1.96* 1.75* 1.47 1.68* 1.96* 1.99** 1.88* 1.62 Large partner Mean t-statistica 87 0.35% 0.35% 0.37% 0.57% 0.44% 0.24% 0.21% 0.22% 0.22% 0.50% 0.33 0.41 0.57 0.95 1.15 0.52 0.25 0.22 0.32 0.65 t-statisticb 1.38 1.93* 1.59 1.25 0.97 1.37 1.89* 1.75* 1.57 1.06 43 0.20% 0.76% 0.16% 0.57% 0.42% 0.01% 0.57% 0.06% 0.35% 0.42% 0.10 0.50 0.11 0.45 0.38 0.01 0.34 0.03 0.23 0.23 43 1.13% 0.08% 0.55% 0.92% 0.62% 0.24% 0.27% 0.88% 0.35% 0.79% 0.65 0.06 0.57 1.11 1.03 0.34 0.20 0.52 0.34 0.73 0.55 0.43 0.41 1.04 0.95 0.20 0.42 0.37 0.41 0.56 17 4.40% 3.87% 3.77% 2.61% 1.35% 2.50% 3.09% 4.59% 4.55% 3.58% 1.19 1.05 1.22 1.45 0.82 0.84 0.89 1.11 1.38 1.34 17 2.36% 0.46% 0.91% 1.15% 1.11% 0.87% 0.14% 1.49% 1.51% 1.78% 0.86 0.21 0.50 0.61 1.37 0.93 0.06 0.69 0.81 0.72 0.42 0.77 0.83 0.76 0.13 0.51 0.79 0.69 0.80 0.46 27 7.91% 8.02% 6.95% 6.80% 4.38% 4.53% 8.40% 8.78% 6.57% 6.08% 1.93* 2.56** 2.10** 1.96* 1.93* 1.93* 2.62** 2.08** 1.94* 1.85* 27 2.15% 1.56% 0.26% 0.36% 0.26% 0.16% 1.02% 1.64% 0.79% 0.77% 2.45** 1.41 0.30 0.46 0.44 0.21 0.93 1.45 0.85 0.86 2.32** 2.99** 2.12** 2.01* 1.96* 1.78* 2.96** 2.48** 2.06** 1.84* Notes: aThe reported t-statistic is for testing if the sample mean is equal to zero; bthe reported t-statistic is for testing if the paired sample mean is equal to zero; *p-value < 0.10; **p-value < 0.05 firms to form a marketing alliance. This strategy to partner with larger firms allows smaller firms the access to market and resources that otherwise will be very expensive to build, and as pointed out by Swaminathan and Moorman (2009) in tough economic conditions, it makes economic sense for firms to pool resources together to achieve a set of common goals. Larger firms, on the other hand, can be more selective in their partnerships. They should try to pick firms that provide some value-added services or access to certain markets in which they are not currently operating. During an economic boom, firms with low asset utilization will benefit most from forming a marketing alliance, especially those that will help expand the marketability and channel of their products and services. Even though the results do not show a significant impact of strategic marketing alliances on the value of large firms compared to smaller firms; however, the value may be seen elsewhere especially when other studies have found that other forms of strategic alliances do add value in conjunction with marketing alliances. References Adler, L. (1966), ‘‘Symbiotic marketing’’, Harvard Business Review, Vol. 44, pp. 59-71. Brown, S.J. and Warner, J.B. (1985), ‘‘Using daily stock returns: the case of event studies’’, Journal of Financial Economics, Vol. 14, pp. 3-31. Chan, S.H., Kensinger, J.W., Keown, A.J. and Martin, J.D. (1997), ‘‘Do strategic alliances create value?’’, Journal of Financial Economics, Vol. 46, pp. 199-221. Chen, S.S., Ho, K.W., Ik, K.H. and Lee, C.F. (2002), ‘‘How does strategic competition affect firm values? A study of new product announcements’’, Financial Management, Vol. 21, pp. 67-85. Das, S., Sen, P.K. and Sengupta, S. 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(2007), ‘‘Working with rivals: the impact of competitor alliances on financial performance’’, Journal of Marketing Research, Vol. 44, pp. 73-83. Parkhe, A. (1993), ‘‘Strategic alliance structuring: a game theoretic and transaction cost examination of interfirm cooperation’’, Academy of Management Journal, Vol. 36, pp. 794-829. Pisano, G. (1989), ‘‘Using equity participation to support exchange: evidence from the biotechnology industry’’, Journal of Law, Economics, and Organization, Vol. 5, pp. 109-26. Roll, R. (1977), ‘‘A critique of the asset pricing theory’s test: Part I: on past and potential testability of the theory’’, Journal of Financial Economics, Vol. 4, pp. 129-76. Ruekert, R.W. and Walker, O.C. (1987), ‘‘Marketing’s interaction with other functional units: a conceptual framework and empirical evidence’’, Journal of Marketing, Vol. 51, pp. 1-19. Swaminathan, V. and Moorman, C. (2009), ‘‘Marketing alliances, firm networks, and firm value creation’’, Journal of Marketing, Vol. 73, pp. 52-69. Impact of marketing alliances 545 MF 36,6 546 Varadarajan, P.R. and Cunningham, M.H. (1995), ‘‘Strategic alliances: a synthesis of conceptual foundations’’, Journal of the Academy of Marketing Science, Vol. 23, pp. 282-96. Webster, F.E., Jr. (1992), ‘‘The changing role of marketing in the corporation’’, Journal of Marketing, Vol. 56, pp. 1-17. Zagnoli, P. (1987), ‘‘Inter-firm agreements as bilateral transactions’’, paper presented at the Conference on New Technology and New Intermediaries: Competition, Intervention and Cooperation in Europe, America and Asia, Center for European Studies, Stanford University, June, pp. 4-6. About the authors Foo-Nin Ho is a Professor of Marketing at San Francisco State University. Ho received his PhD in Marketing from the University of Mississippi. His research interests include marketing and consumer ethics, advertising, healthcare marketing, ethnic marketing and consumer decisionmaking. His work has previously appeared in the Journal of the Academy of Marketing Sciences, Journal of Business Ethics, Marketing Health Service, Journal of Pharmaceutical Marketing and Management, Journal of Marketing Theory and Practice, Journal of Consumer Marketing, Journal of Promotion Management, Health Marketing Quarterly, as well as various national proceedings. Allan D. Shocker is a Visiting Professor of Marketing at San Francisco State University. Shocker received his PhD from Carnegie Mellon University. His research interests lie in the areas of customer decision-making, product planning, new product design and development, market structure analysis, diffusion modelling, and brand equity. His work has appeared in Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, Marketing Science, Management Science, and various other journals. Yewmun Yip is an Associate Professor of Finance at the University of South Dakota. Yip received his PhD in Finance from the University of Wisconsin, Milwaukee. His research interests include market anomalies, Asian financial markets, foreign exchange markets and government intervention. His work has previously appeared in the International Review of Economics and Finance, Review of Accounting and Finance, Managerial Finance, Global Business and Economics Review, and various national and regional proceedings. Yewmun Yip is the corresponding author and can be contacted at: yyip@usd.edu To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Human Resource Outsourcing: Long Term Operating Performance Effects From The Provider's Perspective Butler, Maureen G;Callahan, Carolyn M;Smith, Rodney E Journal of Applied Business Research; Sep/Oct 2010; 26, 5; ProQuest Central pg. 77 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-7154.htm Managing business processes through outsourcing: a strategic partnering perspective K.B.C. Saxena and Sangeeta S. Bharadwaj Managing business through outsourcing 687 Management Development Institute, Gurgaon, India Abstract Purpose – The purpose of this paper is to discuss business processes as building-blocks of organisational capabilities and outsourcing of business processes as a viable management approach to building strategic organisational capabilities. Design/methodology/approach – The paper develops a conceptual framework based on “strategic partnering” to successfully implement “global sourcing” of organisational capabilities and validates this framework using multiple case studies research. Findings – The paper identifies business process management, relationship management and the outsourcing value propositions as the key dimensions for business process outsourcing (BPO) success. Research limitations/implications – The paper is based on case studies of seven European clients and ten Indian service providers of BPO services. A larger survey of BPO clients and service providers may further strengthen the proposed framework and make the findings more conclusive. Practical implications – The proposed framework helps both the BPO client and the service provider organisations in understanding the critical role of relationship management in realising the intended BPO service outcomes. It also helps the BPO clients and the service providers to understand the risk and business value implications of BPO value proposition. Originality/value – The paper addresses a dearth of literature on BPO service provision and establishes the need for dyadic study of BPO services from both the client and the service provider perspective simultaneously for understanding the dynamics of this emerging service sector. Keywords Process management, Outsourcing, Strategic alignment, Partnership Paper type Research paper 1. Outsourcing of business processes for enhanced competitiveness For a long time business processes were considered as the means through which organisations carry out their work, and improving the performance of business processes would improve the productivity and quality of the organisations, thereby making them more competitive (Harrington, 1991). However, with the emergence of the business process reengineering movement, many organisations have successfully been able to compete on the basis of organisational capabilities, which are largely made instrumental through the organisation’s business processes (Stalk et al., 1992; Garvin, 1995). According to this view, the building blocks of corporate strategy are not the products and markets but business processes, and competitive success depends on transforming an organisation’s core processes into strategic capabilities that The research reported in this paper is funded by the European Union under EU-India Small Project Facility (SPF) programme for the project “Business Process Outsourcing (BPO) as Strategic Partnering: Building Win-Win Relationship between European Customers and Indian Service Providers” (Contract No. IND SPF/191002/965/95-830). Business Process Management Journal Vol. 15 No. 5, 2009 pp. 687-715 q Emerald Group Publishing Limited 1463-7154 DOI 10.1108/14637150910987919 BPMJ 15,5 688 consistently provide superior value to the customer (Stalk et al., 1992). With this strategic focus on business processes, outsourcing of business processes is emerging as a viable approach to acquire strategic capabilities for enhanced competitiveness. Business process outsourcing (BPO) in simple terms is defined as the movement of business processes from inside the organisation to external service providers (Click and Duening, 2005). According to Gartner Group (2004), BPO is the delegation of a business process to an external service provider who owns, administers and manages it, according to a defined set of metrics. Specifically, BPO involves contracting with one or more BPO service providers (vendors) for the provision of execution of business process operations as per the client organisation’s requirements (Linder, 2004; Kshetri, 2007; Youngdahl et al., 2008). In the initial stages of BPO, organisations outsourced only their non-core peripheral processes primarily to reduce their costs and improve their performance. Though this type of outsourcing delivered benefits to the organisation and impacted directly upon the bottom line; it did not help them in impacting their competitive position. However, lately with the emerging strategic focus on the business processes, BPO is extended to non-core yet mission critical processes such as finance and accounting, human resources and customer support (Linder, 2004). For instance, British Petroleum’s outsourcing of finance and accounting to Accenture has helped it to speed up its post-merger integration of Amoco and Arco (Tan and Sia, 2006). Many organisations such as United Parcel Service, Solectron and Hewitt Associates have transformed their core business processes into entirely new industries (Gottfredson et al., 2005). Thus, BPO is evolving into a strategic process for organising and fine-tuning the value chain. For many of the forward-thinking organisations – the question is no longer whether to outsource a “process” (embodiment of an organisational capability) to a service provider (who is more capable in that process) but rather how to outsource every single process in the value chain! This would be possible only when for every process to be outsourced, it is possible to find a “capable” service provider. This newly emerging philosophy of process outsourcing is being called as “global capability sourcing” (Gottfredson et al., 2005) or strategic sourcing (Holcomb and Hitt, 2007). Greater focus on capability sourcing can improve an organisation’s strategic position by reducing costs, streamlining the organisation and improving quality, and can help them in exploiting their business processes for strategic advantage. In the global capability sourcing, the role of service provider is no more limited to the traditional role of an “agent” who is delegated the responsibility of business process operations for gaining cost efficiencies. Rather the role changes to a “partnering” role, where the service provider ensures competency-based service delivery to the client to help them improve their strategic position (Lacity et al., 2004; Kedia and Lahiri, 2007). This “partnering” process is also mutual in the sense that the service provider may also plan to succeed in knowledge-based branding and long-term customer retention (Figure 1). Furthermore, “global capability sourcing” makes it clear that it is a form of inter-organisational relationship, in that it involves two separate and distinct organisations – the BPO client and the BPO service provider – in a contractual arrangement characterised by a series of interrelated and ongoing exchanges. Inter-organisational relationships have been studied from several different perspectives such as organisation theory (Oliver, 1990), marketing (Anderson and Narus, 1990) and information systems (Henderson, 1990). A common theme in all these Business process outsourcing Client Service provider Capability sourcing Competency-based service delivery Managing business through outsourcing 689 Strategic partnering Improved strategic positioning Knowledge-based branding + long-term customer retention perspectives has been that relationships are characterised by a series of ongoing linkages and transactions that make the relationship participants interdependent, and thus require coordinated action and cooperation in order to achieve mutual benefits (Goles and Chin, 2005). We call such a BPO relationship as “win-win relationship” or partnership (Klepper, 1995; Ploetner and Ehret, 2006), which can be defined as: an ongoing linkage between a BPO service provider and client arising from a contractual agreement to provide execution of operations of the specified business process as per the contract, with the understanding that the benefits attained by each organisation are at least in part dependent on the other. This partnership is called “strategic partnership” if the partnering process results into: [. . .] successful, long-term, strategic relationship (in the sense that it is critical to the well-being of both the partners because of its high degree of interdependence) and is based on mutual trust and sustainable competitive advantage for both the partners (Lendrum, 2003). In spite of the highly promising potential of “strategic partnering” approach to global capability sourcing, there are very few published case studies of successful BPO strategic partnering (Lacity et al., 2004; Gottfredson et al., 2005). There is, therefore, an urgent need to explore in detail the BPO strategic partnering approach and develop a conceptual framework which may help in mitigating the risks associated with this approach and encourage more organisations to adopt this approach. Oddly enough, in spite of the increasing importance of BPO service provider in the success of BPO initiatives, historically research on BPO has largely focused on the BPO client side – either on the sourcing decision itself, or on choice of location or choice of processes to be outsourced, etc. (Aron et al., 2008; Balakrishnan et al., 2008; Ellram et al., 2008; Graf and Mudambi, 2005; Stratman, 2008; Tan and Sia, 2006; Youngdahl et al., 2008), but rarely on the BPO service provider, and never on the dyadic of BPO client and the service provider. This paper describes such a dyadic study of BPO clients and service providers using multiple case studies, and proposes Figure 1. BPO as strategic partnering BPMJ 15,5 a conceptual framework for strategic partnering in BPO initiatives. The paper is organised as follows. Section 2 describes the theoretical background using which a conceptual framework for strategic partnering can be developed. Section 3 of the paper develops such a conceptual framework, identifying its various components in different sub-sections. Section 4 describes a multiple case study based validation of the proposed framework, which is followed by the conclusion. 690 2. Theoretical background Characterising BPO as a form of inter-organisational relationship, various theories of inter-organisational relationship can be utilised from organisational economics, organisational theory and relationship marketing literature. In this section, some of the major theories – agency theory, transaction cost theory, resource-based theory and relationship theories are briefly reviewed to understand BPO from an inter-organisational relationship perspective. 2.1 Agency theory According to this theory, an agency relationship is present whenever one party (the principal and the BPO client) depends on another part (the agent and the BPO service provider). This theory is concerned with resolving two problems that can occur in agency relationships (Eisenhardt, 1985). The first arises when the goals of the BPO client and the service provider conflict, and it is difficult or expensive for the client to verify what the service provider is actually doing. An example could be that the client organisation wants to reduce the process operating costs but the service provider wants to maximise its profits. The second is the problem of risk sharing that arises when the client and the service provider have different risk preferences. This problem may arise in BPO because of the different attitudes of client and service provider towards the use of new (improved during transition) process design using new technologies. The agency theory assumes that goals, self interest and risk preferences diverge between the BPO client and the service provider (Eisenhardt, 1989a), but it gives little attention to the cooperative aspects of social life. It is criticised because it assumes social life is a series of contracts and ignores the existence of social and authority relationships in economic transactions. However, in BPO most contracts happen to be somewhat incomplete and social relationships form a major strategy for mitigating the risks in BPO (Spencer, 2005). Thus, agency theory is not considered a strong theory for developing a conceptual framework for BPO. 2.2 Transaction cost theory According to this theory, the properties of a transaction determine what constitutes the efficient governance structure – market, hierarchy, or alliance (Coase, 1937; Williamson, 1975, 1979). In selecting a governance mode, organisations attempt to minimise transaction costs. A market governance mode is preferred when transactions costs are low and internal governance mode is preferred when transaction costs are high. This is because in this theory the market is always considered the lowest cost producer of good or service due to economies of scale and scope. Similarly, the production cost advantage of the market is overwhelmed by the high transaction costs. Though this theory provides a sound theoretical basis for understanding market versus hierarchical governance mechanisms for determining the boundary of the firm, it is limited because it focuses on single transactions as the unit of analysis (Doz and Prahalad, 1991). In BPO, the underlying concept is the acquisition of “process execution” services through continuous interaction between the client and the service provider to the agreement. However, transaction cost theory at its core views the two parties as not interacting with each other but directly with the market. Furthermore, transaction cost theory fails to recognise the role of complex and collaborative relationships that involve high levels of asset specificity as well as uncertainty and opportunism, as in BPO. Relational mechanisms such as trust are regarded as substitute for complex, explicit contracts and hierarchical governance in such situations (Adler, 2001). For explaining the BPO relationships, we need more than purely an economic view as we need to understand the ongoing episodes of exchanges from an individual’s stand point, which is guided by the contract and lapses into voluntary exchanges (Håkansson, 1982). 2.3 Resource-based theory Prahalad and Hamel (1990) article has generated substantial interest in the notion of core competencies and capabilities and has helped popularise a new school of thought called the resource-based view of the firm. This theory emphasises that resources internal to the firm are the principal driver of a firm’s profitability and strategic advantage (Barney, 1991; Wernerfelt, 1984). It rejects traditional economic assumptions that resources are homogeneous and perfectly mobile. Instead, it argues that resources are heterogeneously distributed across firms and are imperfectly transferred between firms (Barney, 1991). Barney (1991) categorised resources into three groups: physical resources such as plant, equipment, location and assets; human resources such as management team, knowledge and skills; and organisational resources such as culture and reputation. Resources enable a firm to conceive of and implement strategies to improve its efficiency and effectiveness (Daft, 1983). Organisations can obtain above-normal returns if they can use their existing resources to sustain competitive advantage by exploiting opportunities in the market or neutralising threats from competitors’ strategic resources. Therefore, organisations retain strategic resources internally that enable them to sustain competitive advantage (Mahoney and Pandian, 1992). Strategic resources enable organisations to sustain competitive advantage, if the resources are valuable, rare, imperfectly imitable and non-substitutable. Resources might be imperfectly imitable if they involve unique history, causal ambiguity, or social complexity (Barney, 1991). Similarly, resources are non-substitutable if another organisation is not able to implement the same strategies by using alternative resources. The capabilities sourcing approach and its relationship with BPO have evolved from the resource-based view of the firm. Organisational capabilities and competencies are important to the study of BPO, as it proposes the internal competences of the firm as the potential for competitive advantage. However, Prahalad and Hamel (1990) have used the concept of capability, competence and core competence as synonymous. Stalk et al. (1992) attempted to differentiate between core competencies and capabilities, but they could not provide a meaningful and useful operational definition of these important concepts. Therefore, for the purpose of this paper, we subscribe to the definition of Amit and Schoemaker (1993) because it is precise and fits with the distinction between the concepts of resource, competence and capability. They define Managing business through outsourcing 691 BPMJ 15,5 692 resources as “stocks of available factors that are owned or controlled by the firm”. In the context of BPO, the information technology (IT) infrastructure is an important resource but resources like knowledge and skills residing in the employees are even more critical. Central to the Resource Based Theory is the fact that resources, per se, do not create value (Bowman and Ambrosini, 2000; Porter, 1991); value is created by an organisation’s ability (or competence) to utilise and mobilise those resources. However, there are many definitions of competence used by various authors on the subject. According to Amit and Schoemaker (1993), competence refers to “a firm’s capacity to deploy resources, usually in combination, using organisational processes, to effect a desired end” and thus represent “[. . .] a bundle of skills and technologies rather than a single, discrete skill or technology” (Hamel and Prahalad, 1994). Competence can therefore be portrayed as the ability to deploy combinations of firm specific resources to accomplish a given task (McGrath et al., 1995). Finally, organisational capability refers to the strategic application of competencies, i.e. their use and deployment to accomplish given organisational goals (McGrath et al., 1995). Within this context, defining and creating the desired organisational capability would be determined by its future goals; which in turn establishes the need for improving or developing specific competencies. 2.4 Relationship theories These theories propose that inter-organisational relationships are a means of understanding how firms can gain and sustain competitive advantage. For example, Dyer and Singh (1998) argue that it is possible for organisations to combine resources in unique ways across organisational boundaries to obtain an advantage over their competitors. They define relation rent as: [. . .] a supernormal profit jointly generated in an exchange relationship that cannot be generated by either firm in isolation and can only be created through the joint idiosyncratic contributions of the specific alliance partners. Relational rents are possible when the alliance partners combine, exchange, or invest in idiosyncratic assets, knowledge and resources/capabilities. The relational view argues that the firm can develop valuable resources by carefully managing relationships with external entities including suppliers, customers, government agencies and universities. Therefore, a firm can gain and sustain competitive advantage by accessing its key resources in a way that spans the boundaries of the firm. Competitive advantage can be embedded in a set of relationships across the boundaries of the firms, rather than residing inside an individual firm. Relational theories are important for the study of BPO, as the clients and the service providers that make relation-specific investments and are able to combine resources in unique ways to generate relational rents, can gain competitive advantage over the BPO clients and service providers that are unable to do so. 3. Developing a conceptual model of BPO strategic partnering Any BPO initiative starts with the BPO client expecting a value delivery in the process operations (such as cost reduction, process performance improvement, etc.) as proposed by the service provider as well as the service provider also expecting a business value addition (such as business growth, longer client retention, etc.) (Saxena and Bharadwaj, 2007). However, the BPO project may provide the expected outcome only to the client, or only to the service provider, or to none of the two. In such a case the BPO project is considered as failed. However, if both the client and the service provider are able to realise the BPO outcome as expected, the project is considered successful and may lead to a “strategic partnership” between the client and the service provider. Our objective here is to develop a conceptual model of the strategic partnering process. The theoretical foundation for model development is from the resource-based and the relational views, as described before. Building on the resource-based view, the model takes into account the competencies required in the client and the service provider organisations for BPO success. Building on the relational view, the model takes into account the relationship maturity required between the client and the service provider for BPO success. Finally, being a dyadic perspective, the model takes into account the outsourced process characteristics (Niranjan et al., 2007) and the value propositions from the outsourcing initiative, which are likely to determine the competency levels and relationship maturity required for successful BPO outcome. 3.1 Outsourced process characteristics In order to understand the management implications of the present enhanced BPO complexity, it is desirable to develop a classification of business processes as viewed by both the client and the service providers. There have been a number of classifications of business processes but all of them have been either from the client perspective or from the service provider perspective. For instance, from the clients perspective, processes have been classified as traditional, peripheral, critical and strategic (Jenster et al., 2005); as core, critical but non-core and non-core non-critical (Dole and Switser, 1998); critical, key and support (Click and Duening, 2005). Similarly, from the service providers perspective, processes have been classified by NASSCOM, India as IT-enabled services, BPO; and knowledge process outsourcing (KPO); functionally classified as finance and accounting, customer interaction services, human resource management, etc.; industry verticals such as banking financial services and insurance; legal process outsourcing, engineering process outsourcing, etc. Thus, there is an acute need for developing a business process classification from an outsourcing perspective which is easily understood by both the BPO client and the service provider. An organisation has a number of processes, and theoretically all of them could be outsourced. However, some of these processes may be more important to the organisation in the sense that operation failure of such a process may have a higher business risk. Similarly, some business processes may be easier to understand by the service provider and therefore easy to migrate to the service provider’s site. We call these two dimensions of a business process as the criticality and complexity dimensions (Niranjan et al., 2007). Some authors such as Mani et al. (2006) have classified processes on its strategic dimension. However, strategic importance of a business process becomes a somewhat nebulous concept from the service provider’s perspective, and is not considered a useful basis for a dyadic study of BPO. In this context, criticality of a process refers to its degree of essentiality without which the very existence of the client organisation as a functioning business would immediately cease. Criticality includes the strategic importance of the process as well as its Managing business through outsourcing 693 BPMJ 15,5 694 importance in the context of all the business processes in general (Pandey and Bansal, 2004). Critical processes are not necessarily a source of competitive advantage (Hinks, 2002), and when outsourced, it is often only to achieve cost savings rather than for strategic reasons. An example of a critical process from the manufacturing sector, which is the process of power supply maintenance for the manufacturing plant. Failure of power supply will cause an immediate, severe and certain damage to the client, though it may not have any strategic significance. Thus, the measures of the criticality of a process are the quickness, magnitude and certainty of the adverse impact on the client’s business when the service provider fails to deliver the process operations. Complexity of a business process has been excessively studied by researchers in organisation design/theory (Niranjan et al., 2007). Woodard (1958) defined technical complexity of a process as the extent to which it can be programmed so that it can be controlled and made predictable. Perrow (1970) introduced two dimensions of complexity: task variability, i.e. the number of exceptions encountered; and task analysability, i.e. the degree to which search activity is needed while performing the task. Thus, a complex outsourced process is one characterised by low technical complexity, high task variability and high task analysability. Such tasks depend primarily on humans and their skills, knowledge and judgment and not on task automation. Complex processes are frequently, but not necessarily, a source of competitive advantage, or critical in the sense used above. An example of a complex process from the manufacturing sector, which is also a source of competitive advantage, is the process of engine design. A contrasting example of a complex process is the process of budgeting in an automobile-manufacturing organisation, which is seldom a source of competitive advantage to the manufacturer. Neither of these two complex processes is very critical in the sense defined above. Thus, the dimensions of criticality and complexity of a business process are orthogonal, i.e. an increase along one dimension is not necessarily associated with an increase in the other dimension. 3.2 Value proposition Value is a useful basis for determining the importance level of business processes. A useful approach for understanding value is the “perceived use value” approach, which defines the value of a product or service as the perceptions that a customer has of the usefulness of the product or service (McIvor, 2005; Bowman, 1998). According to Walters and Lancaster (1999), value is determined by the utility combination of benefits delivered to the customer less the total costs of acquiring the delivered benefits. For the supplier, value addition will mean that the cost of providing the customer benefits is less than the price charged, as well as the supplier perceiving other business value additions such as business growth, improved business relationships, etc. A value proposition in the context of a win-win relationship is a statement of how value is to be delivered to the customer and also how the supplier perceives value addition for its own business. Internally, it defines the “value drivers” the supplier is offering to a target customer group along with the activities involved in producing the value, along with other perceived value addition for supplier’s business, together with the cost drivers involved in the value-producing activities. Externally, it is the means by which the organisation positions itself in the minds of its customers. The contribution of value proposition in promoting a win-win relationship is catalytic if: . . value proposition as understood by the client in terms of proposed value addition through outsourcing is the same as understood by the service provider in terms of proposed value delivery; and the service provider also perceives some value addition to its own business in some form, such as profits, business growth, brand building, longer customer retention, etc. Managing business through outsourcing 695 Table I shows a categorisation of value propositions which we have found common in BPO sector. This categorisation of value proposition has implicit in it an increasing level of realisation difficulty from transactional to strategic levels. That is to say, transactional level of value proposition is relatively easy to deliver by a service provider compared to strategic level of value proposition, which may be very difficult (if not impossible) to deliver! Often the failure in reaching a win-win relationship could be because of the failure in aligning the value propositions as understood by the client and the service provider. Therefore, an important requirement of a win-win relationship is the congruence in understanding the value proposition by both the client and the service provider. Another implication of value proposition categorisation is its perceived attractiveness in the context of a particular candidate process for outsourcing. For a non-critical non-core process, a transactional value proposition may be adequate and a transformational or a strategic value proposition may not be feasible because of high resource requirements and more intense change management requirements. However, for a core as well as critical business process, a transactional value proposition may not be very attractive, and any thing less than a transformational or a strategic value proposition may not be even worth considering for outsourcing. 3.3 Management competencies Shi (2007) states that a BPO service provider’s competence in managing business process, BPO project and technology bears direct impact on the success or failure of a BPO project. Thus, management competencies form another important variable which determines the success or failure of the BPO project (or the BPO outcome). Consequently, even though the BPO service providers still focus on the level of their products (service), the BPO clients are getting more interested in service providers’ competencies, such as the “availability” of the service provider, the efficient delivery of Client’s value proposition and service provider’s value delivery Transactional. Cost and process throughput Transformational. New business competencies through process transformation Strategic. Opportunity for business transformation through strategic alliance Service provider’s value addition Business growth. Opportunity to increase sales; opportunity to get outsourcing of other processes Longer customer retention. Opportunities for longer term customer tie in; new business opportunities New value adding services. Creating new services from newly developed core competencies; very long-term relationship with clients Table I. Categorisation of BPO value propositions BPMJ 15,5 696 the service provider’s solution and the service provider’s expertise in the client’s own business (Golfetto and Gibbert, 2006; Möller, 2006). This market-based competences view requires the service provider to develop a clear understanding of its own competencies, not so much in “internal terms”, but in terms of client benefits (Golfetto, 2003). In a BPO initiative two competencies are a must in both the client and the service provider – process management competency, and outsourcing management competency. These competencies are described below. 3.3.1 Business process management competencies. Business process management (BPM) competencies are at the heart of the BPO service provision, though it is also of major concern for the client organisation. For the client organisation, BPM competencies in their increasing order of criticality are: . Process knowledge. It is a well-known fact that when a process is in operation internally for a long time and is not being formally managed, the very knowledge about how the process actually operates is scanty and distributed across the entire set of process operators (Bitici and Muir, 1997; Harmon, 2003). Obviously such an unmanaged process if outsourced, is unlikely to deliver any of the benefits of outsourcing let alone building a win-win relationship. Therefore, when a process is considered as candidate for outsourcing, the first thing which needs to be acquired by the client is the knowledge about the process in insourced form. . Process measurement and monitoring. It is also well-known that in an unmanaged or informally managed process environment, even if process knowledge is available, performance measurement (such as process cost, process cycle time, etc.) is also either missing or informal (Valiris and Glykas, 2004). This means that either the performance data are not collected, or if collected, process performance indicators are not calculated, or even if they are calculated, they are not monitored to see if the performance is at an acceptable level. Thus, the next critical requirement for process outsourcing is that the client must have a process performance measurement system in place so that it could ensure that the process performance standards defined in the service level agreements (SLAs) indeed provide performance benefits of an acceptable degree to the client organisation. . Process performance exploitation. The last and most critical competency for the client is the capability to exploit a process operating at the desired level of performance to deliver the business benefits it was intended to give (Malone et al., 2003). If that does not happen, it is very unlikely that the client will get the intended business benefits when the process is outsourced and operating at a much higher performance level (Power et al., 2006). In short, the candidate process must be formally managed to yield its intended business impacts, before it is outsourced for providing enhanced business benefits. Next, for the service provider, the process management competencies play even more critical role as they form the very basis of service provision. According to our research, the following BPM competencies are considered most critical for the service provider: (1) Process transition. Process transition or migration refers to moving the insourced version of the candidate process from the client site to the service provider site in an (improved) mutually agreed upon outsourced form, and to demonstrate it to perform at the agreed upon performance level. This seemingly simple process migration is in fact very complicated, and even some of the very experienced service providers often seem to make mistakes in it, at least initially. Its complexity comes out of the following implicit activities, which are also very error-prone: . acquiring the process knowledge, if the candidate process is unmanaged at the client organisation; . improving the candidate process so as to bring its performance at the agreed upon level; and . to implement this improved version of the process at the service provider’s site in an error-proof manner so that it can pass the demonstration test. (2) Process performance management. This competence refers to the capability of improving the operations of the outsourced process to the agreed upon level or even better. The performance measures which need to be managed fall in three categories: . process cost performance, which is required to ensure that process operation cost leaves the expected level of profitability for the service provider; . process output performance, which is often specified in the form of key performance indicators (KPIs) in the SLAs of the contract; and . process outcome performance, which refers to the effectiveness of the process in meeting the intangible business impacts, which were intended through the outsourcing of the process. 3.3.2 Outsourcing management competencies. Many executives and managers believe BPO to be a technical innovation best left to the technology administrators. This belief results from the IT origins of BPO, when the outsourcing adopters used outsourcing for software development or to staff help-desks and call centres. BPO has evolved far from IT-specific roots and now encompasses nearly every business process. Though the implementation of a BPO initiative will always involve a technology component, but for that matter so does implementation of an accounting system at a super market chain. That is to say, nearly every modern business innovation comprises both a technical and a social component, involving human interfacing with technical systems. Likewise, BPO is also a socio-technical business innovation that provides a rich new source of competitive advantage. That is, BPO requires skilful management of both people and technology (Click and Duening, 2005), and therefore management of BPO requires a diverse set of skills in order to be successful. For the client organisation, outsourcing management competencies identified in our research are: . Vendor due diligence, which refers to assessment of service provider in terms of their capability in the process domain, past experience, successful track record, etc. The success of strategic partnering depends on the fact that the service provider has the capability and the history of delivering the proposed value additions in the outsourced process; and any mistakes in service provider selection could be very expensive for the client organisation. Managing business through outsourcing 697 BPMJ 15,5 . . 698 . . Outsourcing management structure, which refers to the existence of a formal structure to manage outsourcing. Contract facilitation and monitoring, which is required in case of multiple service providers for coordination and synchronisation of various services, resolving conflicts between various users and service providers in a collaborated manner, and managing both excessive user demands and cost overruns by service providers. Performance monitoring and control, which refers to monitoring and controlling performance of every individual process outsourced. Vendor development, which is required when the client organisation is looking beyond existing contractual arrangements to explore the long-term potential for service providers to create win-win relationships. For the service provider, the outsourcing management competencies required are: . process due diligence, which refers to assessment of the candidate process by the service provider from the perspective of inhouse capability to deliver the services demanded as well as its profitability; . contract negotiation and monitoring; and . performance monitoring and control, which is the same as in the case of client organisations. 3.4 Relationship management BPO client and service provider relationship becomes a critical factor for BPO success when the process to be outsourced is both complex and critical, and it is not possible to envisage all possible scenarios in the service contract (Webb and Laborde, 2005; Shi, 2007; Niranjan et al., 2007). Relationship management thus becomes important in outsourcing when it is no longer an incremental activity, and presents challenges to both the BPO client and the service provider. Unlike the traditional buyer-supplier relationship, the BPO relationship must be meticulously planned and managed from the beginning of the project with a strategic intent. Very often BPO agreements focus on the contractual structure used to formalise the BPO relationship. However, as BPO becomes a strategic way of capability sourcing and spans across regional borders, the contractual structure may not sufficiently align incentives across the firms nor effectively coordinate their activities. BPO relationship management involves four fundamental characteristics: (1) Depth of relationship. The closer the outsourced process impacts upon client’s business success, the greater the strategic importance of the business process being outsourced, and therefore, the higher is the client’s risk in outsourcing. Hence, the more strategic the outsourced process for the client, the greater the depth required in the BPO relationship. Based on this criticality, the depth of BPO relationship can be categorised as follows: . arm’s length relationship, which is largely driven by the outsourcing cost and the SLAs in the contract; . cooperative, which necessarily involves intense dialogue between the client and the service provider; and extension of client’s organisation, where the client service provider relationship has a high level of dependency and commitments from each other. (2) Scope of the relationship. This is defined by the number of service providers working with the BPO client in the outsourcing of different business processes. Multiple service providers give more and diversified opportunities for knowledge sharing between the client and the service providers. (3) Choice of assets to use. BPO requires handing over the control and maintenance of the outsourced process. Therefore, it raises the issue of whose assets (especially people, physical infrastructure and technological assets) to be used by the service provider. (4) Choice of business culture to adopt. This issue becomes important when the process is outsourced offshore, and therefore, the business culture in the two countries, such as business regulatory environment and business practices may be different. . Relationships have a number of perceptive and measurable outcomes that indicate the relative success to both the clients and the service providers. It will, therefore, be helpful to develop a BPO relationship maturity model which can be used to describe an evolutionary improvement path that guides an organisation in terms of how to manage its maturity growth from the initial level to the highest maturity level (Harmon, 2003; Gottschalk and Solli-Saether, 2006). The maturity model adopted in this research identifies the following four maturity levels of BPO relationships: (1) supplier relationship; (2) extended supplier relationship; (3) partner relationship; and (4) strategic partner relationship (Lendrum, 2003). Supplier relationship is largely characterised by the service provider having a cost-plus strategy and mentality, delivering services on thin margins with little or nothing differentiating them in a positive way from their competitors. The extended supplier relationship, the level (2) of BPO maturity, is characterised by delivery services in full, on-time and to the specifications. It involves meeting and servicing process outsourcing requirements via cost reduction and value adding initiatives such as service enhancements, maximising responsiveness, etc. Partner relationship is characterised by high client’s reliance on the quality, consistency, reliability and dependability of external skills and services to ensure that client meets their own business requirements. Lastly, strategic partner relationship, which is the highest level of relationship maturity, is characterised by all the “win-win” partnering relationship as well as shared visions, strategies and a wealth information sharing among the client and the service provider. 4. Validation of the BPO strategic partnering model through case studies Case study research is particularly well suited to new research areas or research areas for which existing theory seems inadequate (Eisenhardt, 1989b). It is also a method of choice when the phenomenon under study is not readily distinguishable from its Managing business through outsourcing 699 BPMJ 15,5 context, and when a how or why question is being asked about a phenomenon over which the researcher has no control. Since, BPO is a new research area where existing theories may not be adequate, case study is used in this research. The research questions on which the case study research is focused, are: RQ1. Whether “strategic partnering” leads to BPO success? 700 RQ2. If yes, what are the factors which lead to successful “strategic partnering”? 4.1 Selection of case studies Selection of cases is an important aspect of building theory from case studies (Eisenhardt, 1989b), as an appropriate selection of case studies controls extraneous variation and helps define the limits for generalising the research findings. However, since the purpose of these case studies was to validate a theory (conceptual model) of BPO, the choice of cases was based on theoretical sampling rather than statistical sampling (i.e. cases are chosen for theoretical rather than statistical reasons) (Glaser and Strauss, 1967). The goal of theoretical sampling is to choose cases such as extreme situations and polar types in which the process of interest is “transparently observable” (Pettigrew, 1988). As this research is about the win-win relationship among European BPO clients and Indian service providers, case studies were selected using the following criteria: . BPO clients. Dutch or British organisations that have outsourced at least one business process to an Indian service provider or have a BPO captive centre in India. . BPO service providers. BPO service providers who have major operations in India and have at least one Dutch or British organisation as their client. A total of seven client and ten service provider organisations were studies. The list is given in Table II. The selection was made on the basis of sub-classification within both the client and the service provider categories, as explained below. The sub-classification was based on organisational attributes of interest, such as size, process management style, BPO or KPO, etc. These sub-classifications are described below: (1) Sub-categories of BPO clients: . small versus large organisations, in order to see if organisation size makes any difference in strategic partnering; Table II. BPO client and service provider organisations BPO client organisations BPO service provider organisations Cendant Corporation/eBookers, UK InDraft Solutions, UK Thames Waters, UK Elsevier Publishers, The Netherlands NedTech, The Netherlands Barclays Bank, UK ABN-AMRO Bank, The Netherlands Technovate eSolutions, Delhi COMAT, Bangalore and The Netherlands Xansa, NOIDA Thomson Digital, NOIDA CADSE, Bangalore Tata Consultancy Services, The Netherlands Logica CMG, Bangalore, UK and The Netherlands Exëvo, Delhi Ram Tech, Delhi ZenSaar, Bangalore outsourcing for processes versus process portfolio management, in order to see the difference in outsourcing management approaches and their impact on strategic partnering; and . BPO versus KPO, in order to see how knowledge intensity in a process impacts strategic partnering. (2) Sub-categories of BPO service providers: . captive centres versus third-party service providers, in order to see if the governance structure plays a role in strategic partnering; . BPO and IT outsourcing versus pure BPO, in order to see how outsourcing service provision of both IT and business processes impacts strategic partnering; and . service providers of BPO versus KPO, in order to see how knowledge intensity in a process impacts strategic partnering. . 4.2 Development of case study protocol The general way to achieve reliability in case study research is to conduct the research so that another researcher could repeat the procedures and arrive at the same conclusions. One prerequisite for allowing other researchers to repeat an earlier case study is the need to document the procedures followed in the earlier case. Yin (2003) proposes to create a case study protocol to increase reliability. A case study protocol is a document which contains an overview of the project (objectives, issues and topics being investigated), field procedures, interview guides and/or survey questions (instrument) as well as a guide for case study report (Paré, 2004). Consequently, separate protocols were made one for the client organisations and the other for the service provider organisations, which were based on the conceptual model of BPO strategic partnering given above. Unfortunately, operationalising the protocol, especially the interview instrument, posed many problems. First was the confidentiality issue. The service providers showed their inability to provide details related to clients identification as well as to provide financial figures related to business performance (except for those who were listed on the stock exchange and their financial information was publicly available). The second major problem was the number of people who could be interviewed, and the details they provided in response to our questions. Some organisations (both clients and service providers) allowed us to visit multiple offices and interviewing two to three persons of senior management cadre, whereas many others gave access to only one person and whatever details that person could provide in response to the interview questions, was the only information available for research. As for secondary information available from business magazines and web sites, it varied from one organisation to others. Generally, not much information was available from secondary sources for the small organisations (whether clients or service providers), and whatever information was available, it was generally financial or marketing-oriented in nature, and therefore not of much use to the context of our study. In view of this limitation, there emerged an acute need for revising the protocols. Since, the main thrust of this research is on “win-win relationship” or strategic partnering, it was decided to retain the dyadic nature (both clients and service providers together) of the case study research and limiting its scope on the basis of Managing business through outsourcing 701 BPMJ 15,5 702 available common information (which could be obtained through the interviews) for all the client and service provider organisations. These revised protocols are given in the Appendix. 4.3 Analysis of case studies Since, a detailed analysis of all the cases cannot be included here, only an indicative analysis of the case studies is given below. 4.3.1 BPO client organisations. Reasons for outsourcing. Most client organisations had outsourced more than one processes except NedTech who had outsourced only one process, which is “product design”. In fact, many clients such as Cendant Corporation/eBookers, Barclays Bank, Elsevier, etc. were of the view that they could outsource any of their processes if they could find a competent service provider. In terms of types of the processes outsourced, most outsourced processes were of “support” or non-critical type, but some client organisations such as Cendant Corporation/eBookers, Thames Waters, Elsevier and Barclays Bank have also outsourced processes which fall in the “non-core but critical” category. There was one client organisation – NedTech, who had outsourced the product design process, which for them was a “core as-well-as critical” process. As for reason for outsourcing, it was cost reduction for all the processes, but for non-core but critical processes, it was also process performance improvement in addition to the cost reduction. However, in case of NedTech who had outsourced a core as-well-as critical process (product design), their expectation was that they would be able to enhance their business through outsourcing as NedTech is a medium-size company and they themselves were not able to do all the product design work which they could have got from their customer (which was a major aeroplane manufacturer in Europe). The outsourcing process is generally taken through a service provider due diligence process. Many client organisations who have outsourced a larger number of their business processes, had a separate organisational function for managing the BPO function. For instance, in Cendant Corporation, it was the operations department; in ABN-AMRO, it was the strategic sourcing department, and so on. BPO outcome. All the client organisations were able to realise the intended benefits of BPO. Many clients who had outsourced a large number of processes, had access to many service providers. These organisations followed a “process portfolio” approach and were continuously monitoring the performance of all their processes. Whenever they found that a particular service provider is not able to provide the desired level of process performance, they decided to bring the process back in-house or to outsource it to some other vendor working with them. BPM competency. Whereas all the clients stated that they use a structured due diligence process for evaluation and selection of service providers, most of them were either not able to provide the details of the process or refused to reveal the details saying the process is internal and confidential. However, the client organisations who had outsourced a large number of processes and followed a process portfolio approach for managing the outsourced approach, had a specific department or group of people for the process management function. For example, Cedant Corporation allocated this job to their global operations department; ABN-AMRO had a separate strategic sourcing department and a vendor selection group for process outsourcing and management; Barclays Bank also had their global operations department looking after it, and so did Elsevier Publishers. Outsourcing management competency. The contracts with the service providers were negotiated through the legal or contracts department, but the monitoring of the contract was done by the department/person responsible for monitoring the outsourcing process. As for the expectations of additional service provision, the clients who outsourced only one or two processes and/or worked with only one service provider had this expectation. Examples of such clients were InDraft Solutions and Thames Waters. Relationship management. As the scope and nature of BPO has expanded from its focus on cost and process efficiency to encompass BPO as a means of improving the client organisation’s overall business performance and furthering its strategic goals, there has been a growing realisation that the relationship between the client and the service provider organisation plays a critical role in the success or failure of the BPO arrangement (Quinn, 1999; Kern, 1997). Thus, relationship management is a very critical success as well as failure factor for win-win relationship. Relationship has a formal dimension, which is contractual in nature. In other words, what type of governance structure is there between the client and the service provider organisation? However, it has been seen that proper contractual or governance structure is only a necessary condition but not a sufficient one for win-win relationship. There is also an informal dimension of BPO relationship which is characterised by a series of ongoing linkages and transactions that make the client and the service provider organisations interdependent, and thus require coordinated action and cooperation in order to achieve mutual benefits (Goles and Chin, 2005). Consequently, relationship management in the client cases was evaluated by: . how the relationship with the service provider was monitored; . what type of governance structure was in place with the service provider; and . what type of processes, if any, were in place for relationship management/ knowledge sharing. The monitoring of relationship was mostly informal and subjectively judged by the person in charge of process management and outsourcing. Generally, the quality of relationship was judged by...
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Explanation & Answer

Attached.

Running head: HUMAN RESOURCE SKILLS

Human Resource Skills
Student Affiliation
Institution Affiliation

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HUMAN RESOURCE SKILLS

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Human Resource Skills

Organizations are improving the performances of their business processes in order to
improve quality and productivity of the organization. This improvement is essential as it
increases their competitive advantage. For businesses to achieve this competitive edge, they have
to transform the core processes of the organization to strategic capabilities. Outsourcing has been
proven to be a viable approach for a business to gain strategic capabilities that will in turn boost
its competitiveness (Butler et al., 2010). Organizations rely on the skills and competencies of
human resource practitioners to effectively identify, assess, and appoint outsourcing partners that
will provide quality services.
Business process outsourcing is an emerging trend in the world of business today. Simply,
it is the transfer of certain internal functions of a business to an external service provider. By
transferring these functions the external provider becomes the owner, manager, and administrator
in accordance with a predefined set of metrics. Organizations have moved from just outsourcing
the non-peripherals functions to sourcing out the core critical processes such as finance and
accounting (Savena & Bharadwaj, 2009). Therefore the process of outsourcing has become very
important in a business as it determines the quality of service the organization will be receiving
from the external provider.
An organization depends on Human Resource (HR) executive to identify and assess an
outsourcing partner. Therefore, it is essential for the HR executive to be; a paradox navigator,
compliance manager, culture and change champion, technology and media integrator, analytics
designer and interpreter, credible activist, total rewards steward, human capital curator, and to be
a strategic positioner. This is according to Dave Ulrich competency model.

HUMAN RESOURCE SKILLS

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By being a credible activist, the HR executive is able to make decisions based on sound
data and thoughtful opinion established in the course of the interaction between the HR and the
potential provider. Secondly, strategic positioning enables the executive to understand the
business context in the social, political, economic, technological, demographic, and
environmental aspect. Hence able to translate these trends into business implications. Their
understanding of structures and logics of the industry puts them in a position of what the
organization needs. This makes it easy to find the right outsourcing partner. Thirdly, being
change champions HR practitioners are able to develop their organization to a capacity of
receiving change that will lead to a sustainable competitive advantage. The change is solely
based on market and business realities hence have to ensure the availability of all the needed
resources. Therefore, the HR will have a clear picture of what the business needs and the
eligibility of potential outsourcing providers to meet this needs. Lastly, integrating into
technology and media puts the executive on top of the game. They are able to improve their
operational competencies making it easier to keep track of outsourcing provider thereby able to
assess their credibility (Savena & Bharadwaj, 2009).
Global capability sourcing is an inter-organizational relationship between a business
process outsourcing (BPO) client and the BPO service provider. The two firms agree to work
together in a contractual agre...


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