77465 402..411 - The perceived Impact

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Unformatted text preview: The perceived impact of successful outsourcing on customer service management K012 Wei Khng Monash University Malaysia, Petaling Jaya, Malaysia Abstract Purpose — The purpose of this paper is to examine the perceived impact of outsourcing on customer service management. Desigm'methodologylapproach — The examination was conducted via a survey on 124 companies in Malaysia. Using the framework from Elmuti, factors manifesting customer service management were regressed on the key factors manifesting successful outsourcing. Hence a model was contrived. Structural equation modelling {SEM} was used to estimate the model. Findings — The model was able to provide predictive implications on customer service management. given the activities of key factors manifesting successful outsourcing. In other words to improve customer service management. companies could control their outsourcing activities. Originalitytvalue — This paper offers an approach to measure the effects of multiple independent variables on multiple dependent variables. Using SEM, multivariate analyses were mathematically represented in a single equation. In this equation. companies could holistically compose strategies to optimise their management in customer service. Keywords Outsourcing, Customer service management, Business performance Paper type Conceptual paper Introduction Outsourcing otherwise known as subcontracting is the strategic use of resources outside the company to perform tasks that are usually handled internally by the company itself. In today‘s competitive world, successful outsourcing is a powerful tool for companies to generate value and gain competitive edge over rivals. Companies can focus on their core competencies and rely on their outsourcing partners for non-critical processes and operations. The formed strategic alliance can normally create synergy amongst companies that can lead to short and long term benefits. Some benefits are monetary and some are non-monetary. However, one of the common non-monetary benefits of successful outsourcing is customer service. Although the positive impacts of outsourcing are evident in many academic literaturcs and texts, empirical findings particularly in countries like Malaysia are scarce. This paper attempts to examine the effectiveness of successful outsourcing on the aspects of customer service management. It must be highlighted that the efi'ectiveness of outsourcing is measured using perceived measures as described by Elmuti {2003). literature concerning outsourcing Two important constructs are discussed, i.e. successful outsourcing and their impact on customer service management. Successful outsourcing refers to what The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at Supply Chain Management: An international journal tots (2905) 402—411 9 Emerald Group Publishing limited [ISSN 1359—8510] [DOI 10.]108313593540510024223] Emerald 402 implementation factors the company undertakes in order to achieve its objectives, goals and expectations (Elmuti1 2003). Customer service management (CSM) refers to how well the enterprise manages its customer service in terms of effectiveness, productivity and quality (Kl-long and Richardson= 2003). It must be stressed that the measures of both outsourcing and CSM are perceptual in nature. Discussion of the two constructs follows. Outsourcing Outsourcing is essential to companies. Successful companies share the same success factors; they have clear understanding of their core-activities (Barthelcnly, 2003); have done adequate research and planning; and most importantly have developed clear objectives, goals and expectations of outsourcing activities (Eh'nuti, 2003). Another important ingredient for success is a good partner. Essentially in outsourcing agreements, the reiationship between the companies and their partners are based on trust and contracts. So it is essential that the right partners are selected based on criteria like credibility, expertise, and reliability (Elmuti, 2003). This will eventually lead to closer ties and relationships (Barthelemy, 2003). It is also important to get the right people involved in managing outsourcing efforts (Elmuti, 2003). Therefore adequate training, infrastructure and facilities are essential (Elmuti, 2003). One of the most serious problems a company can face when outsourcing is resistance from its employees. To make outsourcing work, there has to be eifective and well— coordinatcd communication among cross-functional areas, support, commitment, and involvement from the top management {Elmuti, 2003). Employees must be treated appropriately by providing adequate support and reasonable remuneration deals (Barthelemy, 2003). At the same time the management needs to keep high morale and performance among remaining employees (Barthclemy, 2003). Other factors affecting outsourcing in successful organisations are emphasis on short— and longuterm benefits, adequate and The perceived impact of successful outsourcing on 1351 Supplyr chain Management An International Journal Kola WciKkang obiective performance criteria, feedback and control mechanism, effective use of performance incentives and penalties, and flexibility in anticipating change (Elmuti, 2003). Conversely factors afiecting outsourcing in unsuccessful companies are unclear objectives and expectation, inadequate and sketchy plans, poor choices of outsourcing partners, poor contract, inadequate skills and lack of support infrastructure to deal with outsourcing, insufficient involvement from top— management, poor organisational communication, cross functional political problems, inadequate control systems, employee’s fear of job lost. and change, decline in morale and performance of remaining stall“, and lack of flexibility (Eltnuti, 2003). Unsuccessful companies are also those who adopt the tactical rather than strategic approach in dealing with outsourcing (Elmuti, 2003). Companies should also take heed of hidden cost and risks that can increase the cost of developing the outsourcing programmes (Barthclemy, 2003). For some companies, outsourcing has enabled them to focus on their core competencies and improve overall performance while leaving the non~core activities to specialised third—parties (Thomas, 2004). Outsourcing can also provide companies with competitive advantage like better access to new markets, bigger pool of resources, higher level of skills and leading technology (Kolawa, 2004). Overall successful implementation of outsourcing strategy will help companies to improve organisational competitiveness and financial performance, out cost, increase capacity, productivity, efficiency, and profitability (Elmuti, 2003). Based on the discussion above, a probable table of key factors manifesting successful outsourcing can be depicted. Table I shows these factors. Table II depicts the sources where the variables manifesting successful outsourcing were found. Although the variables were derived by Elmuti (2.003), the author believes that these variables can succinctly describe the key success factors of successful outsourcing. (ISM Customers are the driving force of companies striving for success. Survival of these companies evidently depends on their customers (Lewis, 2000; Kotler at at, 200]; Kotler, Table I The perceptual measures of successful outsourcing Key factors manifesting successful outsourcing A1 Clear objectives and expectations of outsourcing activities A2 Choice of right outsourcing partners A3 Adequate skills to negotiate a sound contract A4 Adequate planning during all various phases of outsourcing A5 Effective organisational communication A6 Well coordinated effort among tross~functional areas A? High and effective support and involvement by top management All Effective use of performance incentives and penalties A9 Getting the right people involved A10 Adequate supporting infrastructures A11 High morale and performance of the remaining employees A12 Emphasis on short— and long—term benefits A13 Adequate and objective parfonnanca criteria and feedback A14 Flexibility in anticipating change Source: Elmuti (2003} 403 meme it? ' Number 5 ‘ 2005 - 402—4” 2000). As competition intensifies, customers find themselves relishing the options and alternatives various companies can offer them. It d1cy are not satisfied with the current products or services, they can easily switch to others. Therefore it is important to ensure customers continue to rc-buy products and services. Consequently the need for good CSM is essential. According to Khong and Richardson (2003), appropriate CSM can expedite and enhance customer re— buys, hence leading to improved customer satisfaction, customer retention and management of customer relationship. An appropriate CSM should constitute important variables such as market research into consumer behaviour and expectations, customer databases and records, complaint and suggestion systems, management of service quality to meet customer expectations, product or service improvements, efficient customer handling, and lost customer analysis. Table III shows the variables manifesting good CSM. These manifesting variables were based on the scopes derived by various sources shown in Table TV. As mentioned, the paper aims to examine the perceived impact of successful outsourcing on CSM. It is expected that the former will positively improve the latter (Elrnuti, 2003; Quinn, 2000; Lambert at at, 1998). The surveyr and method A survey was conducted on 1,000 companies across Nialaysia. The selection of these companies is based on random sampling. A questionnaire was delivered to each company via post. Participants from these companies were expected to response in three weeks time. After which, a reminder will be sent all the companies to expedite participation. Participants were asked to answer two important sections in the questionnaire; one with regards to successful outsourcing and the other to CSM. In successful outsourcing, they were asked to rate the degree of usefulness of l4 variables derived by Elmuti (2003) in association with their companies’ outsourcing strategies (see Table I). In CSM, they were asked to rate ten variables in relation to their companies’ customer service management. 'lhe rating was based on an interval scale from J to 10, where 10 is “strongly agree” while 1 is “strongly disagree”. Of the 1,000 questionnaires sent to the 1,000 companies, 124 questionnaires were returned: a 12.4 per cent response rate. This was after reminders were made to the companies. Completed questionnaires continued to trickle in for another two months after the day the questionnaires were sent out. Of the 124 questionnaires, 124 questionnaires were empty and some pages were missing from the questionnaire; hence omitted from analysis. The author believes that the response rate is considerably decent since no assistance was sought fi'om non-profit and semi-owned government organisations. This rate is considered acceptable (Hague and Jackson, 1999, Churchill, 1995). In addition, the required sample size was within the threshold of 100-150 for further analysis (Hair at 01., 1998}. In order to formulate an appropriate statistical procedure, the methodologies recommended by Hair at 01. (1998), Bontis (1998), and Khong and Richardson (2003) were used. From these methodologies, causal relationships between key success drivers of outsourcing and its impact, i.e. customer service management, will be established. The recommended methodologies, in sequential order, are: The perceived impact of successful outsourcing on 13M Supplyr chain Management An International Journal Kola Wei Kiting Table II The sources deriving the variables of successful outsourcing meme it? ' Number 5 ‘ 2005 - 402—4” Variables manifesting successful outsourcing Sources A1 Clear objectives and expectations of outsourcing activities Emqu (2003}; Corbett (1999} A2 Choice of right outsourcing partners E muti (2003} A3 Adequate skills to negotiate a sound contract Emuti (2003}; Sinderman (1995) A4 Adequate planning during all various phases of outsourcing Emuti (2003}; Guterl (1999} A5 Effective organisational communication Emuti (2003} A6 Well coordinated effort among cross-functional areas Emuti (2003} A? High and effective support and involvement by top management Emuti (2003}: Foster (1999}: Jones [199?) A8 Effective use of performance incentives and penalties E muti (2003}: Foster (1999}: Jones [199?) A9 Getting the right people involved Emuti (2003} A10 Adequate supporting infrastructures Emuti (2003} A11 High morale and performance of the remaining employees Emuti (2003} A12 Emphasis on short— and long-term benefits Emuti (2003} A13 Adequate and objective performance criteria and feedback Emuti (2003}; Ramarapu et al. {199?} A14 Flexibility in anticipating change Emuti (2003} Soilrce: Elmuti (2003} Table III The measures of CSM Variables manifesting CSM B1 Market research is conducted to discover customers' expectation B2 Market research is concluded to monitor changes in customer satisfaction B3 There is a record of customers' requests, complaints and transactions for future reference B4 Customers are requested to provide feedback on the products.l services BS Customers' complaints and feedback are used to improve tire productsiservices BE There is a review of mistakes [post—modem} when a customer is lost Bi‘ Customers are satisfied with the producetlsenrices; thus no complaints B8 Customers are satisfied with the customer service; thus no complaints B9 Customers are the most important factor in the organisation B10 Customer relationship is well managed by the enterprise Source: Khong and Richardson (2003) (1) Reliability analysis. (2) Factor analysis. (3) Structural equation modelling (SEM). Descriptive findings Based on the 124 questionnaires, dd {35.5 per cent) were from industrial products companies, 24 (19.4 per cent) were from consumer products companies, 4 (3.2 per cent) were from insurance companies, 8 (6.5 per cent} were from retail companies and 44 (35.5 per cent) were from other primary businesses like agriculture, banking and finance, construction, transportation and government organisations. Table V shows the breakdown of participating companies. The total number of employees in the company is shown in Table VI. It shows that most participating companies have employee thresholds of less than 50 employees, 50 to 100 employees and 100 to 500 employees. They represent 80.6 per ccnt of the total response rate (12.4 per cent). The annual revenue and total operation costs of participating companies are shown in Table VTI. Referring to the table, most companies have their annual revenue and total operation costs within the thresholds of less than RM 10 million and RMIO million to '50 million. They represent 7] per cent and 83.9 per cent of companies within the above- mcntioncd thresholds of annual revenue and total operation costs respectively. Since the recommended sample size when using further analysis such as SEM is 100 and 150, the sample size of 124 from the survey is deemed sufficient (Ding err (11., 1995; Hair at at, 1998}. Findings Reliability analysis In order to measure the internal consistency of variables, measured by interval scale items, in a summath scale, reliability analysis is conducted. Therefore the summated scales, which are the concepts or constructs, should be measured by highly correlated manifesting variables (see Tables I and III). In short, the summated scale of the manifesting variables is consistently measuring their respective constructs. In this paper, the summated scales are successful outsourcing and CSM. The results of reliability analysis using SPSS are shown in Tables VIII—X. Tables VIII—IX depict the internal consistency of both successful outsourcing and CSM. Their item—total correlations show respectable values of above the 0.5 threshold. In addition, their Cronbach’s or is above the 0.? threshold (see Table X). Consequently all variables were retained for next analysis. These results reflect the reliability and consistency of the survey instrument (questionnaire) in measuring the two concepts (constructs). Factor analysis The purpose of this analysis is to reduce the 24 variables, of which [4 are manifesting successful outsourcing and ten are manifesting CSM, to a more manageable set of factors (Aaker and Day, 1986). At this stage no constraints are made on the The perceived impact of successful outsourcing on GM Supplyr Chain Management An International lournai Kola Wei Khan: Table IV the scope and sources deriving the variables of CSM Variables manifesting CSM Worn: 10 ' Number 5 ‘ 2005 - 402—411 Scope Sources B1 B2 B3 34 B5 B6 B7 BB B10 Market research is conducted to discover customers' expectation Market research is conducted to monitor changes in customer satisfaction There is a record of customers' requests. complaints and transactions for future reference Customers' are requested to provide feedback on the products1 services Customers' complaints and feedback are used to improve the products1sen1ices There is a review of mistakes {postmortem} when a customer is lost Customers are satisfied with the productsi'services: thus no complaints Customers are satisfied with the customer service; thus no complaints Customers are the most important factor in the organisation Customer relationship is well managed by the enterprise Source: Khong and Nair (2004} Market research Khong and Richardson (2003}; Kotler er a1. (2001}; Cateora and Graham (1 999} Customer assessment {evaluati on. monitoring and control) and handling of customers Khong and Richardson (2003}: Kotler et a1. (2001): Cateora and Graham (1999} Customer satisfaction Khong and Richardson (2003): Kotler et a1. {2001) Customer relationship management {CRM} Khong and Richardson (2003): Hammer and Champy (1993}: Hammer and Stanton (1995] Table \1 Types of primary businesses that participated in the survey Primary business Frequency (11} '15 Cumulative '11: Industrial products 44 35.5 35.5 Consumer products 24 19.4 548 Insurance 4 3.2 581 Retail 8 6.5 64.5 Others primary businesses 44 35.5 100.0 Total 124 100.0 Table VI No. of employees in participating companies No. of employees Frequency {in} % Cumulative '11: Less than 50 32 25.8 25.8 50-100 20 16.1 419 100-500 43 38.? 80.6 500—1 .000 12 9.11 90.3 1.000—5.000 12 9.7 1 000 More than 5,000 0 0 100.0 Total 1 24 100.0 Table VIII Results of reliability analysis for successful outsourcing Corrected Cronbach's item-total alpha (3) Variables correlation if item deleted A1 0.361 0.984 A2 0.848 0.984 A3 0.399 0.983 A4 0.92? 0.982 A5 0.905 0.983 A6 0.882 0.983 A? 0.899 0.983 A8 0.83? 0984 AB 0.92? 0.982 A1 0 0.91 2 0.983 A1 1 0.929 0.982 A1 2 0.937 0.982 A1 3 0.944 0.982 A1 4 0.874 0.983 Reliability statistic of Cronbach's alpha 0.984 Table VII The frequency of participating companies classified within the respective thresholds of annual revenue and operation costs Amount annual revenue1operation costs Frequency in} ‘15 Cumulative '11: Less than RM 10 million (M) 44112 35.51581 35.51581 RM 10M~RM 50M 44132 35.51258 71.01839 RM SUM—RM 100M 1218 9716.5 80.61903 RM MOM—RM 50011.! 1618 12916.5 93.51968 RM 500M-RM 1,000M 414 3. 213.2 96.810 More than RM1,000M 410 3.210 100011000 Total 124 100.0 405 The perceived impact of successful outsourcing on GM Supplyr chain Management An International Journal Kola WeiKfiarrg Table IX Results of reliability analysis for CSM Corrected Cronbach's item-total alpha (3) Variables correlation if item deleted Bl 0.725 0.959 82 0.812 0.956 83 0.849 0.955 84 0.834 0.956 85 0.850 0.955 86 0.747 0.959 ET 0.894 0.954 [18 0.889 0.953 89 0.786 0.958 810 0.90? 0.952 Reliability statistic of Cronbach's alpha 0.960 Table X Reliability internal consistency test {Cronbarh's alpha} Concepticonstruct Cronbach's a Recommended Cronbach's a Successful outsourcing 0....
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  • Spring '13
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  • Management, Marketing, Customer relationship management, successful outsourcing, Management An International Journal

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