Describe about the Logic map for outsourcing, Factors influencing decision of outsourcing and Evaluation of risk associated with process of decision making?
As the business organizations are becoming more conscious about cost and quality of their activities, organizations working in any sector are giving importance to outsource some of their operational activities. As stated by Aas, Buvik and Cakic, (2008) involving external partners to execute non-core activities of the organization not only enhances profitability but implementation of such strategies also enable organizations to improve quality of the tasks. It is evident that outsourcing some activities reduces pressure on organizations. As an impact, management of such organizations can focus on their core activities more effectively due to implementation of outsourcing strategies. The current assignment deals with analysis on the outsourcing strategies of BP. BP, being one of the largest organizations in petroleum industry of UK, requires conducting complex upstream and downstream activities (Bp.com, 2015). However management of the organization is giving importance on out sourcing some of the operational activities so that cost of running the organization reduces (Bp.com, 2015). The report contains analysis on the factors which influence decisions regarding out sourcing strategies. The report also includes some recommendations regarding out sourcing activities of BP.
Although the organizations are giving importance on involving external organizations with operational activities, the strategies are influenced by several factors. Analysis on the strategy development process at BP indicates that management of the organization analyses contribution of any activities on operational performance (Bp.com, 2015). However Adams and Youdal, (2007) stated that implementation of outsourcing strategies also impact on future profitability of the organization. As stated by Capasso, Cusmano and Morrison, (2013) analyzing strategic importance of outsourcing activities also require being analyzed prior to implementation of such strategies.
The operational activities of BP can be categorized as upstream and downstream activities. Upstream activities of the organization include natural gas and oil exploration and development of field. However the upstream sector of BP is also responsible for production of oil and gas. Some mid stream activities such as processing of crude oil and gas as well as storing the gas is also executed by upstream sector of the organization. Downstream activities of BP mainly include manufacturing and marketing different products from crude oil and gas.
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Out sourcing activities
Influence of upstream and downstream activities on operational performance of BP:
Figure 1: Logic Map for out sourcing
As BP is a part of international oil and gas industry, operational activities of the organization are highly complex. Apart from this, presence of hazardous material also increases difficulties for operational activities. Upstream activities such as exploration of oil and gas fields are effective to renewal of the resource bases possessed by BP management. As the management is giving importance on increasing the number of clients in international market, the organization also require increasing their resource bases to meet increased demand of clients.
Analysis on the activities related with exploration of crude oil and gas reservoirs indicates that execution of such activities not only enables the organization to serve their clients efficiently, but execution of such activities is also effective for supplying products uninterruptedly to customers. Currently the management of BP executes all tasks related with exploration of natural oil and gas by their own staffs. However the organization can involve external organization for conducting the tasks related with oil and gas exploration. It is evident that operational activities of BP are highly dependent on availability of resources. Management of the organization can form strategic alliances with other organizations in order to execute the tasks related with exploration of oil and gas reservoirs. Apart from this, the activities related with preparation of oil and gas fields can also be done by other organizations.
Upstream sector of the organization is also responsible for production of refined oil and gas. Quality of the final products depends on the activities related with production. It indicates that the efficiency of production activities influences quality of final products. As performance of business is highly influenced by production activities, involving external organizations with these activities may not be effective for present and future profitability of the organization.
Employees working in the organizations of oil and gas industry require handling with highly hazardous material. The organization requires implementing highly advanced infrastructure for transporting oil and gas. However management of BP also gives importance on ensuring that none of the organizational activities is impacting on the environment. Outsourcing such activities may lead to degradation of quality of such activities.
As the management of BP gives importance on retention of clients, marketing activities are important for informing customers about products and services offered by the organization. Out sourcing these activities to external organizations will not only be effective to reduce costs, but the tasks can be conducted more efficiently due to implementation of outsourcing strategies.
Although the management of BP gives importance on outsourcing some of the activities, the management also ensures that quality of the products and services is not affected due to implementation of outsourcing strategies. Choobineh, Mohebbi and Salim, (2013) opined as managements of different organizations are giving importance on reducing time required for completing a task, the tendency of using out sourcing strategies is increasing. As stated by Größler et al., (2013) reliability of the out sourcing service vendors requires being analyzed before implementing strategies. The analysis indicates that the organizations give importance on quality, cost and time required for completion of tasks prior to implementation of outsourcing strategies. However the managements also give importance on assessing reputation and trustworthiness of the out sourcing vendors before involving any external organization on its own activities.
Quality: Quality of the products and services offered to staffs is considered as the most important factors while developing out sourcing strategies. As stated by Kutlu, (2012) maintaining quality of products and services lead to reduction of customer complaints. Management of an organization requires giving importance on reducing the number of errors while executing operational activities in order to improve quality of products and services. It is evident that the organizations which are going to implement outsourcing strategies require ensuring that the outsourcing vendor is able to complete the tasks without affecting quality. In case of BP also, the management gives importance on maintaining quality of products and services which are offered to clients. Involving other organizations with the production, processing and distribution may impact negatively on quality of the final product. The management needs to utilize its own resources and infrastructure efficiently to execute these tasks. However making strategic alliances with other partners will enable BP management to find new sources of natural gas and oil more effectively. As marketing activities are important for informing customers about the products and services, involving any external organization in these activities will be effective to increase quality of the tasks.
Speed: Analysis on the trends of outsourcing industry indicates that the organizations become able to reduce time required for executing a task due to implementation of outsourcing strategies. As stated by Lacity and Willcocks, (2014) reduction of time to complete tasks for responding to the customers within less time. Providing services to customers within less time increases their satisfaction level. However reducing the time of service delivery also enables organizations to increase the price of offered product and services. Managements of most of the organizations tend to outsource some of their noncore activities as it enables them to finish these tasks within short time. Executing the tasks related with finding new resources can be out sourced as it will reduce complexity of operational activities of BP. In case of marketing also, implementation of outsourcing strategies will also enable the organization to reduce time and complexity of operational activities (Whitfield, 2014).
Cost : Implementation of outsourcing strategies is not only effective for reducing time and complexity for conducting operational activities , development of such strategies will also lead to reduction of costs (Whitfield, 2012). If BP management makes strategic alliances with other organizations, the management will be able to expertise and infrastructure of its partners. It will enable the management to improve quality of the tasks without investing large capital. Outsourcing of marketing activities will also be effective to avoid increase in costs caused by advertisements and other promotional activities.
Reliability of service vendors: Although the BP management gives importance on involving other organizations to different operational activities, it is important to analyze whether the partners are able to maintain quality of the tasks. However the tasks which impact directly on quality of final products require are not outsourced in order to avoid any degradation in quality (Sharma and Sharma, 2012).
Flexibility: As availability of the technologies is increasing, organizations which are doing business in oil and gas industry require changing their operational activities regularly (Muhindo, Zhou and Kapute Mzuza, 2014). Apart from this, the management of BP also gives importance on implementing innovation in their operational activities to enhance efficiency of the activities. The BP management can implement innovation in the activities related with production, processing and distribution for developing better products. However, depending on other organizations for execution of such activities may restrict BP from implementing innovation in these activities.
Although implementation of the decisions regarding outsourcing leads to more efficient operational activities, effectiveness of these strategies may be reduced due to presence of several risks. Often the benefits caused due to development of outsourcing strategies are over focused (Schmitt and Van Biesebroeck, 2013). As an impact dependency of management on external organizations will increase. Extensive focus on outsourcing strategies may lead to loss of knowledge. However extensive focus on implementation of outsourcing strategies may also impact on quality of products and services. Ineffective selection of outsourcing strategies may degrade performance of the organization.
Oshri, (2011) opined that effectiveness of outsourcing strategies depend on capabilities of the outsourcing service vendors. It indicates that the management requires selecting the external service provider efficiently so that any degradation of organizational performance can be avoided. Often the service providers try to create good impression at the initial stages of contract (Raman and Ahmad, 2013). Later quality of the out sourced services may be degraded. It indicates that the management requires analyzing reliability of the service providers before making contracts.
Development of decision making framework: Plunkett, (2013) stated that lack of proper framework often reduces effectiveness of the out sourcing strategies. Lack of proper framework not only restricts the organization to evaluate benefits of outsourcing properly, but it also leads to ineffective selection of out sourcing service providers. The BP management should develop proper methodology for developing outsourcing decisions. The management should give importance on analyzing strategic impacts of outsourcing strategies before implementation of such techniques. However the management also can give importance on out sourcing noncore activities only so that the risks generated due to loss of quality reduces.
Analysis made in the assignment indicates that the organizations are giving importance on involving external partners for execution of operational activities. However the process of strategy development is influenced by several factors. BP is a part of international oil and gas industry. As an impact operational activities of the organization are highly complex. The analysis also indicates that presence of hazardous material enhances difficulties for operational activities. As management of the organization is giving importance on increasing number of clients in international oil and gas market, the management also needs to increase their resource bases for meeting increased demand of clients. The discussion made in this assignment also indicates that the organizations are giving focus on quality, cost and time for implementation of outsourcing strategies. However the management of B also give importance on assessment of reputation and trustworthiness of the service vendors prior to involve any external organization on its own activities. Recommendation made in this assignment also indicates that BP management should develop proper methodology for developing outsourcing decisions.
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