Describe about the Outsourcing contract, Logic map of Outsourcing and analysis of decision making using the 5 performance objectives by British Petroleum?
The reports the choice and results of the study conducted on three successive outsourcing by British Petroleum. The IT outsourcing helps the BP to explore its technological capabilities and to act as a broader initiative to reshape the department of IT. This study conducted defines the key notions of IT outsourcing and efficacy of its risk management and defines the various techniques adopted to assess the study. The report demonstrate the three significant IT outsourcing contracts by BP along with the assessment of distinctive levels of risks and decision logic map that assist in making effective decisions on outsourcing.
British Petroleum (BP) reputed as the world’s largest integrated oil and gas companies meet the growing demand of energy in a safe and responsible way (Alsouri et al. 2011). As the operations manager of British Petroleum, I have prioritized value over volume and it has always been the prime factor by actively managing the upstream and downstream portfolio and investment only where distinctive strengths, capabilities and technologies can be applied.
The first major venture of BP that is decided to outsource is BPX contract. This project would cover the telecommunications, data center, management, systems development and maintenance. This has been decided for outsourcing, as the project encompass all the BP exploration offices across the globe, 42 businesses and 8 major sites. The major objective of this outsourcing arrangement decided is to ensure that suppliers would act as the single “Virtual supplier” with the focus to provide seamless services to customers (Bentounsi et al. 2012). In spite the area of expertise for each contractor, major business sites of BP would act as the key contractor and would coordinate services provided by the other two.
The next outsourcing would consider the BP’s corporate center. This project is undertaken to outsource its data center management and telecommunications. The implementation of this outsourcing strategy involve negotiations with three suppliers i.e. One for its WAN services and two for its site services (Chen et al. 2013). The outsourcing decision and management of BPCC focus to build partnerships with the suppliers, facility management relationship and detailed analysis of the contract design that is common in outsourcing of IT.
BP global contract is another outsourcing decisions made to besides the BPX and BPCC contract. This outsourcing arrangement was decided to replace the fragmented assortment of existing suppliers as well as regrouping of different contracts and all infrastructures. In this outsourcing plan, the supplier is anticipated to provide similar IT environments at all operating regions of BP (Cooper et al. 2012). This outsourcing contract is decided to envisage for five years.
BPX, BPCC and BP global contract is the three successive IT outsourcing decide at the BP. The aforementioned outsourcing was further evaluated by using decision logic and risk analysis of the outsourcing contracts.
The decision of outsourcing is add significant value to the organization’s bottom line in terms of increased efficiency, cost savings and enhanced services to customers. Outsourcing at BP is done to enhance the organizational performance, increase its competitive advantage and add value to customers (Dhar, 2012). Moreover, the decision logic of outsourcing presented here will acknowledge the BP business processes that are kept in-house and the ones that are safely outsourced.
(Diagram is modified)
This quadrant is high in strategic importance and has little contribution in operational performance. BP forms strategic alliance on its data center management. The company induces effort to retain control of the technology and ensure that tasks are done accurately, getting the expected quality, however, the outsource tasks are relatively insignificant in terms of effective operation and cost, hence it is not worth of in-house focus.
BP retain its oil production processes and data that contains the mechanism of refining and processing crude oil into an usable product, that include chemicals and high quality items gasoline utilized in daily items. Tasks in this particular quadrant are of high strategic importance and considered to have significant impact on operational performance of BP (Ge, 2011). This particular task is kept in-house so that the company can gain maximum control. The production and refining process of oil should be retained in-house as it is strategically critical and constitute the core competency of organization. Moreover, in-house product planning process makes huge contribution to the effective performance of the company.
BPX, BPCC and BP global contract are the essential elements for successful operational performance; however, they are not strategically important. All of these three outsourced contracts include significant areas of IT management such as telecommunication, system development and maintenance, etc. On the other hand, the outsourcing of BPCC management emphasize on developing partnership with the suppliers and facility management relationships. Moreover, BP global outsourcing management was done to regroup the existing contracts, infrastructures and in focus to replace the fragment assortment of various in-house suppliers at BP (Isaksson et al. 2014). The IT management processes such as telecommunication, data center, system development and maintenance plays a significant part in improving the customer experience with the company. Outsourcing or working with an offshore supplier for IT or technical support allows the efficient use of resources, thus improving the overall services and through this BP achieve the ability to work with efficient experts in the field of non-core business operations.
BP removed the several project co-ordination tasks from the BP project engineers. The removal of task freed up the BP’s personnel, which in turn allows them the opportunity to become program managers so that they can engage in higher value work (Jain and Natarajan, 2011). At the higher level of BP business processes, elimination of coordination tasks helped the renowned oil company to improve its procurement of petrol stations.
Services outsourcing to various countries that are comparatively cheaper in respect to UK leads to cost effective solutions for companies like BP. Countries like India, Philippines offers similar level of services with high quality, however the cost is comparatively less that UK. Thus BP focus to gain an overall cost advantage by outsourcing its IT management services and telecommunications to countries like India (Kumar et al. 2013).Outsourcing of data center management and call center services allows BP to save upto 60% of total cost on IT. Offshore outsourcing of IT services that cost $100 an hour in UK can be accomplished at the rate $20 an hour when done in cheaper countries like India or Beijing. Moreover, Outsourcing relief BP from the cost of maintaining IT infrastructure, this is essential for catering customer services (telecommunication) and data Center management. In addition, outsourcing the requirements of business to a trusted vendor help the company to reduce its capital expenditure thereby, minimize time and also reduce the extra effort and money spend on personnel (Lacity et al. 2014). Nonetheless, BP is no longer liable to invest on training its IT executives, investment in latest technologies or purchase the expensive software that is essential for telecommunication, system development and maintenance and data center management, is It is of no surprise that, outsourcing offers expert services at a cost effective rate.
The decision of outsourcing can be effective if the process is reliable and offers dependable delivery. Considering this particular determinant of performance objectives, it becomes difficult to rely and outsource the management of data center that contains valuable data and information of production and refining processes implemented by BP (Leeney et al. 2013). It holds the main privacy factor of BP and hence reliability on outsourcing is less.
The third-party outsourcing on IT management offers seamless services at a reasonable cost. The outsourcing of telecommunication, call center activities, development of systems and its maintenance does not incur considerable risks with maintenance of privacy, uncertainty or hidden service costs.
Quality of outsourced activities varies widely depending on the type of task outsourced. Data solutions involve cloud computing and highly relies on sharing of resources to achieve economies of scale and coherence. Moreover, cloud computing is a broader concept of sharing services and converged infrastructure. The quality of cloud computing to store, manage and process the production and refining mechanism is highly uncertain due to the security, privacy compliance and legal compliance (Mohr et al. 2011). It is undesirable to outsource the data management activity of BP’s prime production due to the unpredicted costs, Lock Ins and incompatibility. As a result, the company seems to lose control and reliability on the suppliers that can negatively affect its organizational performance.
Outsourcing of telecommunication activities and system development allows the opportunity to receive expert and skilled services. Functions that are outsourced may not be the core competency for BP but offers proficient services in areas of customer services and system development. After sales services by offering customer care services is an important aspect that brings that offers profit and productivity for long term.
Outsourcing is incorporated with the typical objective to save cost and gain timely delivery of quality services executed by skilled professionals and experts. Speed is important in order to address customers in time. This attribute is viewed positively as the customers are likely to return with more business. Thus, the impact of speed has much to do with cost reduction of the operations (Pellegrini et al. 2012). Speed reduces the cost in two significant areas such as reduction in inventory and risks as well. In case of BP, faster throughput of information to customers will be effective in reducing the cost. However, the facility of inventory cost reduction due to fast throughput and short delivery lead-time is not considered in case of data center management, hence it is kept in-house.
Flexibility allows the outsourcing operation to fit variety of products and services for its customers. The flexibility in volume and delivery allows the operations to adjust its level of output and procedure of delivery in order to cope with the unexpected changes in telecommunication and system development services to BP (Percy, 2013). Thus, it is decided to outsource its telecommunication and system development services as flexibility is associated with three significant benefits such as flexibility allows saving of time, flexibility maintain the dependability and flexibility speed up the response.
The risks involved in decision making of IT outsourcing in IT management of BP considers the following:
Hidden cost of service was the major threat in this particular scenario. The hidden cost of services is expected to be high due to large extent of contract and the huge number of activities outsourced in the process (Ravi et al. 2011). The Outsourcing of IT management tasks include worldwide locations; hence, the cost rate fluctuates according to the changing economy of countries.
Outsourcing of IT management is complex as the needs are likely to change anytime in future, being unsure of the needs, hence uncertainty was significantly high. However, the risk of uncertainty can be decreased significantly, if the outsourcing is decided on limited term contract. Thus, it allows the flexibility to alter technology solutions matching the needs of business within the reasonable period (Saunders, 2013). Moreover, the risk of uncertain needs in future can be mitigated by selecting suppliers with entrepreneurial and innovative abilities and by the adoption of best practices.
Loss of organizational competencies is another significant risk associated with outsourcing. As BP decided to become the knowledge organization by proficient management of information, hence IT related activities are close to core competencies of organization. Outsourcing will result into loss of IT skills from the company (Shi, 2013). Moreover, the outsourced activity is an indication of high level of interdependence.
To minimize the loss of expertise, BP evaluated its entire staff prior to transition and retained the skills it needed. The company hired single supplier to remain associated with the quality and skills of suppliers, their technology, and management services.
The risk of service debasement can materialize in three significant ways i.e. poor resolution of problems, slowdown of services and declination in staff skill of supplier. The risk factor associates with factors such as task complexity, lack of supplier expertise, interdependency and financial stability of supplier. The risk-mitigating tool considers deployment of more than one supplier and spreading of service between two or three outsourced company to mitigate the risk of service slowdown (Tanriverdi and Uysal, 2011). The interdependent characteristics of activities can be reduced by assignment of clear field of responsibilities. BP can mitigate the risk factors by asking one outsourcing supplier to take the key responsibility for problem solving activities at each of its site.
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