Outsourcing ICT is quite commonly used by organisations as an approach to strategic management. Assess the advantages and disadvantages that outsourcing can bring in developing effective uses of information systems in an organisation such as Tesco.
What do you understand by knowledge management and knowledge management systems? Analyze how useful such a system could be to Tesco and why it is often difficult to persuade employees to use such systems.
As markets evolve the companies that are in the top seats are the ones that excel in organizing human resources and material’s, also forecasting the possible changes in markets. To manage this many companies use the help of other companies to grow in this straggle of competition. This is called Outsourcing. If a firm does not want to use its internal resources to build or operate information systems, it can hire an external organization that specializes in providing these services to do the work. The process of turning over an organization’s computer center operations, telecommunications networks, and/or applications development to external vendors is called outsourcing (Laudon & Laudon, 2005).
This definition covers the greatest part of Outsourcing, but what happens when we refer to ICT Outsourcing?
First of all, what is ICT?
Information Technology (IT) is probably one of the most used terms in business nowadays. Information shouldn’t be confused with knowledge, unfortunately this happens occasionally.
The term information is used extensively in no formal speech. This, and the different meanings used, makes it hard to define. From my point of view after studying on this subject, information covers data to which meaning is assigned, according to context and assumed conventions. Knowledge is derived from information. (Miller, 1999)
Any equipment or interconnected system or subsystem of equipment, that is used in the automatic and digital acquisition, storage, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of data or information. The term information technology includes computers, ancillary equipment, software, firmware and similar procedures, services (including support services), and related resources.
Taking under consideration the above we conclude that ICT Outsourcing can be defined as follows.
Information Technology outsourcing is the concept of an organization contracting-out IT activities to a third party vendor, who in return provides and manages the services for a certain period of time in exchange for a monetary fee. The deal can include the transfer of IT assets and people involved with IT to the external entity. (Roland Booijen 2006)
The main trend in international businesses nowadays is to outsource their production process as well as some of their services outside of their base country. The term ‘outsourcing’ basically refers to the process of subcontracting goods and services from an outside supplier, usually from a different country. Most companies choose to outsource because of its many advantages over the traditional process of production. This article will show you some advantages that outsourcing can do for your business.
Most companies choose to outsource because it lowers the cost of production and other expenses such as IT services and customer services. China and Vietnam, popular off shoring countries do not have strict labor laws allowing relatively cheaper wages. This guarantees that the company will get the most out of the capital invested in the business.
A consequence of the advantage mentioned, outsourcing will reduce the overhead cost of maintaining the business. Outsourcing will allow you to reduce the number of your employees which will lead to savings in utilities, a save in taxes and less insurance among others. This will increase the funding of your company that can be invested in any other parts of the business. Another advantage of outsourcing is gives you better control of your business. Outsourcing can significantly reduce the number of your employees, thus making the rest of the staff easily manageable. By that, you can increase the responsibility of your workers inside your company and make them feel like a part of the business, something they have put their effort to bloom. Outsourcing gives you the chance to focus on other business aspects like the marketing process. By taking other parts of the business like production and other process away, you have more time to plan others steps of your company like how to sell your products in a more efficient way. This can give you the weapons to become a recognizable marketing power company.
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Another advantage of outsourcing is that it allows you to choose professional level of processing or utilization according to the needs of your company. Since you choose expertise in their field, the quality of your service will also improve. Outsourcing would mean to expose your production to external procedures that you may not know or considered looking into. This can provide innovation capabilities for your business. This provides useful information on how to improve your products by using the earned technological info and professional production means. These are some of the benefits that outsourcing can brink to your business. In companies like Tesco using outsourcing can benefit in many ways as this huge business colossus always needs innovation, using outsourcing provides fresh ideas for them and also can keep them focused on other parts of the business like promotion or marketing.
As you study your way through using outsourcing you will have to keep in mind that there are advantages to outsourcing and disadvantages of outsourcing. Some of the disadvantages of outsourcing are the following:
One disadvantage is loss of management Control .Whether you sign a contract to have another company perform the function of an entire department or single task, you are turning the management and control of that function over to another company. True, you will have a contract, but the managerial control will belong to another company. Your outsourcing company will not be driven by the same standards and mission that drives your company. They will be driven to make a profit from the services that they are providing to you and other businesses like yours.
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Another disadvantage is hidden costs .You will sign a contract with the outsourcing company that will cover the details of the service that they will be providing. Anything not covered in the contract will be the basis for you to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign. Remember, this is the outsourcing company’s business. They have done this before and they are the ones that write the contract. Therefore, you will be at a disadvantage when negotiations start. Yet another drawback may be the threat of Security and confidentiality .The life-blood of any business is the information that keeps it running. If you have payroll, medical records or any other confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge, this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.
One more disadvantage may be quality problems. The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business environment. The contract will be very specific and you will pay extra for changes. Another disadvantage is to be tied to the financial well-being of another company. Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. It wouldn’t be the first time that an outsourcing company could go bankrupt and leave you holding-the-bag. One more disadvantage is bad publicity and Ill-will .The word “outsourcing” brings to mind different things to different people. If you live in a community that has an outsourcing company and they employ your friends and neighbors, outsourcing is good. If your friends and neighbors lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the remaining work force. Companies like Tesco can use ITC outsourcing in their intercompany communications, by using a system of comlinks or anything like that. Another possible use is better organizing stock and storage of items by using computer based systems, databases for storage and self items would be a great effective way of ICT usage etc.
2.
Knowledge management and Knowledge management systems ( KMS) are a class of informational systems that refer to the application of managing informational knowledge in an organization. That is, they are IT-based systems developed to support and enhance the organizational processes of knowledge creation, storage/retrieval, transfer, and application. Although not all KM initiatives involve an implementation of IT, and admonitions against an emphasis on IT at the expense of the social and cultural facets of KM are not uncommon (Davenport and Prusak 1998; Malhotra 1999; O.Dell and Grayson 1998), many KM initiatives rely on IT as an important enabler. While IT does not apply to all of the issues of knowledge management, it can support KM in many ways. A very common application of knowledge management systems is the creation of knowledge networks (Ruggles 1998). For example, when Chrysler reorganized from functional to platform based organizational units, they quickly Knowledge management and Knowledge management systems (KMS) are a class of informational systems that refer to the application of managing informational knowledge in an organization. That is, they are IT-based systems developed to support and enhance the organizational processes of knowledge creation, storage/retrieval, transfer, and application. Although not all KM initiatives involve an implementation of IT, and admonitions against an emphasis on IT at the expense of the social and cultural facets of KM are not uncommon (Davenport and Prusak 1998; Malhotra 1999; O.Dell and Grayson 1998), many KM initiatives rely on IT as an important enabler. While IT does not apply to all of the issues of knowledge management, it can support KM in many ways. A very common application of knowledge management systems is the creation of knowledge networks (Ruggles 1998). For example, when Chrysler reorganized from functional to platform based organizational units, they quickly realized that unless the suspension specialists could communicate easily with each other across platform types, expertise would deteriorate. Chrysler formed Tech Cul, bringing people together virtually and face-to-face to exchange and build their collective knowledge in each of the specialty areas. In this case, the knowledge management effort was less focused on mapping expertise or benchmarking than it was on bringing the experts together so that important knowledge was shared and amplified. Providing online forums for communication and discussion may form knowledge networks.
The idea of a KM system is to enable employees to have ready access to the organization’s documented base of facts, sources of information, and solutions. For example a typical claim justifying the creation of a KM system might run something like this: an engineer could know the metallurgical composition of an alloy that reduces sound in gear systems. Sharing this information organization wide can lead to more effective engine design and it could also lead to ideas for new or improved equipment.
A very good example in Tesco’s case is when they decided to implement an online ordering system that connected the customers with the warehouses and the suppliers. Some of the benefits of KMS systems are: Increased order processing capacity, Reduced hardware cost , Increased flexibility in maintaining supplier relationships , Better integration of programs, increased reliability in day to day operations.
The key aspect of KM and KMS is to convince existing long term employees to make use of such systems in order to produce/sell more and drive profits upwards. Such a challenged is described in the Tesco Case Study as far as the living service scheme is described in the context of making employees comfortable with the new changes in the way they operates so far. This was achieved by implementing their managers in the process, in order to encourage employees that they have some ownership over their workplace and was achieved with 3 day workshops.
However one of the major drawbacks was that the managers had to face was the skepticism of the employees who viewed the whole scheme as suspicious. Trilogy, the group of companies that was outsourced for this purpose made sure that the whole process would like a completely internal Tesco-like procedure to ensure that they had the employee’s full trust on the living service program.
that unless the suspension specialists could communicate easily with each other across platform types, expertise would deteriorate. Chrysler formed Tech Cul, bringing people together virtually and face-to-face to exchange and build their collective knowledge in each of the specialty areas. In this case, the knowledge management effort was less focused on mapping expertise or benchmarking than it was on bringing the experts together so that important knowledge was shared and amplified. Providing online forums for communication and discussion may form knowledge networks.
The idea of a KM system is to enable employees to have ready access to the organization’s documented base of facts, sources of information, and solutions. For example a typical claim justifying the creation of a KM system might run something like this: an engineer could know the metallurgical composition of an alloy that reduces sound in gear systems. Sharing this information organization wide can lead to more effective engine design and it could also lead to ideas for new or improved equipment.
A very good example in Tesco’s case is when they decided to implement an online ordering system that connected the customers with the warehouses and the suppliers. Some of the benefits of KMS systems are: Increased order processing capacity, reduced hardware cost, Increased flexibility in maintaining supplier relationships, Better integration of programs, increased reliability in day to day operations.
The key aspect of KM and KMS is to convince existing long term employees to make use of such systems in order to produce/sell more and drive profits upwards. Such a challenged is described in the Tesco Case Study as far as the living service scheme is described in the context of making employees comfortable with the new changes in the way they operates so far. This was achieved by implementing their managers in the process, in order to encourage employees that they have some ownership over their workplace and was achieved with 3 day workshops.
However one of the major drawbacks was that the managers had to face was the skepticism of the employees who viewed the whole scheme as suspicious. Trilogy, the group of companies that was outsourced for this purpose made sure that the whole process would like a completely internal Tesco-like procedure to ensure that they had the employee’s full trust on the living service program.
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