ID 1565097
Saltanat Sultanbayeva
Global sourcing and innovation
Final assignment
Question 1
It is argued that there is a plenty of literature available on the topic of outsourcing from client’s perspective (Lewin and Volberda, 2011). Compared to that, it is suggested that discussion about certain important trends from vendors’ perspective were quite omitted, such as the matter of a vendor’s choice between moving up the value chain or remaining down-market. The issue is raised because companies started extensively outsourcing not only non-core processes but also vital business activities. ExlService, an Indian based outsourcing company, was facing the dilemma on the edge of its split from Conseco (Spitzer et. al, 2006). Both options for the company are discussed below in the light of transaction cost economics (TCE) and resource-based view (RBV) theories. Additionally, some general considerations are discoursed on as well.
According to Tebboune and Urquhart (2016), to make a decision based on TCE three basic dimensions need to be considered. Brief description of each is provided below:
i) Asset specificity refers to the uniqueness of resources possessed by a firm and possibility of their use for purposes other than the transaction in consideration. Hence, a highly specific service wins a vendor significant competitive advantage (ibid).
ii) Behavioural uncertainty describes the opportunity cost of using firm’s resources for a transaction, that is, if their use for other objectives will bring more value (ibid);
iii) Frequency defines the occurrence of transaction. For instance, if a transaction is frequent and not specific, other vendors could easily provide it, which escalates the competition (ibid).
Based on the case study, it can be stated that the major asset of ExlService is human capital (Spitzer et. al, 2006). However, it is fair to assume that human capital of ExlService mainly consists of high-skilled employees because the company already heavily invested in building capacity to move up-market which required extensive employee trainings and retention of experienced managers (ibid). Hence, company’s asset could be regarded as specific; therefore, sticking to the ambition of moving up the value chain could reasonably win a competitive advantage in the market. Additionally, complexity of up-market service makes it not frequent and quite specific compared to call centre establishment; moreover, use of employees for call centre service brings less value than on the higher end of the value chain. Therefore, it can be concluded that based on TCE theory it is more beneficial for ExlService not to move down-market.
On the other hand, RBV theory contains four dimensions, which are:
i) Value: resources enable a company to increase its efficiency and effectiveness (ibid);
ii) Rarity: uniqueness of resources possessed by a company (ibid);
iii) Imitability describes the extent to which resources provided by a firm could be reproduced by other firms (ibid);
iv) Substitutability refers to the “difficulty of substituting one firm’s resources for another’s, and achieving the same value, and thus the same competitive advantage” (Tebboune and Urquhart, 2016: p. 35).
It is not quite straightforward from the case study to what degree of efficiency and effectiveness high-skilled employees have attained through servicing Conseco. However, based on the case study it could be stated that human resources of ExlService are rare, hard to reproduce and difficult to substitute: “most of the independent outsourcing players were stuck at the lower end of the spectrum, operating call centres and lacking any means to move up-market” (Spitzer et. al, 2006: p. 10). Thus, it is concluded that based on RBV ExlService should remain on its ambition to move up-market because, according to all four dimensions, higher end of value chain gets more competitive advantage in the outsourcing market.
Nonetheless, there are some general factors to consider. For example, ExlService did not have enough clients to generate adequate revenue to continue operating and developing (ibid). Moreover, taking into account the fact that Conseco, the major client that contributed 95% of ExlService’s total revenue, declared itself bankrupt, it is expected that revenue of ExlService drop substantially (ibid). On the contrary, contract with Dell was estimated to contribute around $10 million of revenue each year (ibid). Therefore, it could palpably improve the situation.
Furthermore, through providing excellent service to a client and establishing trustworthy relationships it might become possible for a vendor to offer more complicated outsourcing services in addition to call centre (Sengupta and Gupta, 2012). It is suggested that unwritten social contract, such as trust, are extremely important and hard to cultivate (John et. al, 2014). Therefore, it plays an important role for beneficial collaboration between the vendor and the client, which adds to the decision of undertaking the contract with Dell.
In addition, since the company did not develop a robust client base, it might be stated that for some time it might be quite difficult to sign new firms. The reason is that although ExlService built necessary capacity for complex tasks, it did not acquire solid professional reputation and develop favourable relationships with potential significant clients (Spitzer et. al, 2006). According to the case study by Spitzer et. al, (2006), clients did not only choose vendors based solely on their existing capacity but the reputation and experience as well. Hence, contracting a large and well-known company as Dell would assist in winning more clients. Moreover, through Dell ExlService could possibly expand to secotrs beyond financial and insurance.
Also, an important factor to mention is that despite the fact that ExlService does not have a cost structure for call centre service (ibid), its establishment does not require recruitment of high-skilled labour and significant investments which also adds to the decision of undertaking the contract with Dell.
In conclusion, it can be stated that based on literature review, ExlService should not move down-market because it does not win a competitive advantage in the market. However, from the practical point of view it would be beneficial to establish a call centre to solve existing cash-flow problems, gain reputation and end the association with the bankrupt company.
Question 2
The impact of Sarbanes-Oxley Act on corporate reporting, structure and governance is undeniably huge. While it influenced the withdrawal of securities from public trading by some companies, it enlarged the type of service provision by consulting and audit firms (Holmes and Neubecker, 2006). Companies in the outsourcing market also turned their attention to the possibility of offering audit services. ExlSevice was not an exception (Spitzer et. al, 2006). Notwithstanding new opportunities, certain difficulties emerge for the companies that are located offshore. The discussion below gives a brief examination on potential challenges for ExlService of offering SarbOx business and considers the prospect of expanding to other strategically appealing business lines.
SarbOx Act of 2002 altered the way companies present their financial reports and perform control procedures over the company’s business processes (ibid). Auditing is a complex task, which demands high-skilled labour, which, in turn, would force ExlService to acquire the required expertise. ExlService could achieve that via training current staff or recruiting new employees.
On the one hand, existing workers obtained firm-specific knowledge and possess the knowledge related to corporate culture and the way the service should be delivered in line with company’s vision and presence in the outsourcing market (Chan, 1996). Therefore, it is regarded to be easier to train current employees to perform tasks such as auditing financial reports and internal controls of a client.
Moreover, the information in the company that new employees would be coming might create ambiguity among workers and challenge their future promotion to more complex tasks performance in the future.
It is argued that in order to evaluate the effectiveness of design and implementation of controls in the company, it requires the physical observation and presence of an auditor at a client’s field (Omoteso, 2013). However, with offshoring an audit service this would be quite difficult. Furthermore, invest more funds into training existing staff or recruiting new workers.
In both cases, it might turn out to be costly and time-consuming.
As a result, it could be a better option for ExlService instead of entering new business segment remain in financial and insurance and improve performance. Based on research conducted by Blaskovich and Mintchik (2011), cost savings and necessary skills availability were the major factors influencing firm’s decision to outsource. Both could be provided by ExlService company. Therefore, it is suggested that it is best for ExlService to focus on current issues that ExlService has, such as cash-flow problems and lack of clients. Therefore, it would be one possibility for ExlService to expand to business activities, such as establishing commoditised services in line with more complex work. According to Exhibit 7 of the case study (Spitzer et. al, 2006), four out of six listed industries demand call centre operations service. Hence, it might be suggested that signing the contract with Dell and gaining reputation on that matter could potentially expand to sign more clients for call centre. This would boost revenue and keep employees engaged in work.
Moreover, since adoption of SarbOx led to the standardisation and optimisation of business processes in the companies (Wagner and Dittmar, 2006), improvement of IT services including monitoring of cyber security might be a services option to offer by ExlService. For instance, ExlService could service a company on integration of data from different systems and further maintenance and governance of that unified IT system. Additionally, the proposition of expanding to offer more IT-related services is supported by the survey prepared by Deloitte (2016) where IT took the third largest direction to where different business segments plan to increase outsourcing in the future. Also, according to Bhattacharjee and Chakrabarti (2015), IT services outsourcing steadily increased in all its aspects, especially in information systems outsourcing. Hence, provision of service in that area by ExlService seems to be quite promising.
In conclusion, it can be stated that performing Sarbanes-Oxley business would be quite difficult for an offshore company as ExlService. The major reason is remote location of employees. On the other hand, instead of trying to capture and develop in the new business field, it is supposed that for ExlService it would be more beneficial to focus and upgrade current business niche in order to improve its financial and operational activities.
Question 3
It is generally known that due to rapid expansion of Indian outsourcing market, the employee turnover rate became one of significant issues that companies have to tackle with (Sengupta and Gupta, 2012). ExlService encountered high attrition rates due to several factors, such as instability of the company’s business, lack of work available and absent of robust, individual market reputation (Spitzer et. al, 2006). Taking into account the fact that for Indian employees working experience and prestige are important, there are numerous opportunities available for them to move and search for the best firm practices outside the ExlService (Sengupta and Gupta, 2012; Spitzer et. al, 2006). As a result, ExlService had to find effective methods to decrease the turnover rate, especially among managers who “built significant firm-specific knowledge” (Spitzer et. al, 2006: p. 4).
One of the ways to reduce the attrition rate is to improve the corporate reputation. According to the case study, it can be suggested that damaged reputation of the firm had a major impact on the increased turnover rate (ibid). It is supported by the fact that although ExlService arranged a variety of facilities to retain employees, such as free meals, transportation, outdoor activities and trainings, it is seen that the turnover rate achieved its highest point when ExlService was separating from Conseco (ibid).
First of all, the bankruptcy of Conseco meant that the company would lose almost 95% of its revenue. For employees, this might signal of the lack of work to do in the nearest future. Research done by Adhikari (2009: p. 43) found that “factor related to work related issues have the highest effect on attrition”. The solution might be signing the call centre contract offered by Dell, which could provide additional work to employees. On the other hand, high-skilled employees might find it quite discouraging moving from performing complex tasks to commodity service. The other answer is to adopt an aggressive strategy to sign new clients, such as active advertisements, use of networking or offer reduced prices for services provided.
It is fair to note that it could be a challenge for a company to be able to find new clients and recover. This creates uncertainty regarding the overall future of ExlService, which could make the attrition rate even worse. The reason is that workers might find it waste of time investing time and skills without prospective career growth opportunities, which are also an important factor (Sengupta and Gupta, 2012). Therefore, it is vital for the company to assure employees of company’s future stability. The fact that Oak Hill Capital Management bought ExlService and invested $10 million might have improved the company’s picture (Spitzer et. al, 2006). Furthermore, payment of benefits to key employees and provision of trainings could have increased the belief in the future recovery (ibid).
In conclusion, it can be suggested that overall ExlService’s problem of attrition is not influenced by low salaries, lack of trainings and other recreational activities or silence of top management regarding the issues surrounding the company. On the contrary, main impact on high turnover rate is current and future corporate picture negatively distorted by the Conseco bankruptcy and transition to separate entity. As a result, it is of high priority for ExlService to assure its employees of company’s robust future recovery and growth.