1. Introduction
Contemporary approach to competitive management
The irruption of the new information and communication technologies, with the Internet as the maximum exponent, has allowed to amplify the effects of the current phenomenon of globalization and to distinguish the current era - the Information and Globalization Era - from the preceding ones in that it supposes a radical change in the economic and social order that affects the actions of nations, companies and individuals. In fact, in the economic sphere, not only have the rules of the game been modified (principles of the market economy with a global dimension, of intense competition and of rapid succession of diverse changes) and, consequently, the values for the social development of both individuals as well as organizations (quick adaptability to change),but also the main factors of economic development (from tangible to intangible resources of information and knowledge).
The role that companies maintain as critical elements in shaping this new economic and social order as the basis for growth and employment in a developed economy, together with the consideration that the intensification of competition experienced in the markets during the recent decades can boost economic progress, have motivated that the predominant objective in economic governance is the need to increase the competitiveness of companies in the new global environment. Undoubtedly in these times, both states and companies must try to understand and dominate competition (Porter, 1999), directing their economic policies and strategies to favor the conditions in which business organizations compete.
In particular, in the face of the turbulence of the current business environment, where there are a large number of relevant variables (high complexity) that change very quickly (dynamism) in such a way that there is increasing difficulty in predicting future trends (uncertainty), companies They have needed, and need, to adapt to these changes in the environment through transformations in their ways of competing, and it imposes on them the objective of excellence in business management.
Faced with the reality of the 60s and early 70s, in which the main problem for companies was where to compete, which allowed the existence of a traditional hierarchical structure and a management-by-functions perspective; In a situation of increasing complexity of competition, under the described conditions of turbulence of the present business environment, the main question for companies is how to compete, that is, how to achieve success with respect to their most direct competitors, how to achieve a competitive advantage sustainable. And this fact entails for companies the substitution of management and management approaches as well as traditional organizational models for their inadequacy to respond to new demands, and consequently, the redefinition of their processes and structures, of their forms. to work,to produce and to direct.
The challenge of competitiveness for companies involves meeting a series of conditions and activities in order to continue generating positive returns and holding advantageous positions compared to their competitors. But before the panorama of the business environment of the last two decades and to this day, the characteristics that a company must have to be competitive are those that allow the organization to equip itself with the necessary capacity to adapt to the continuous changes in its environment. And the adaptability of companies to changing environment as a prerequisite for success, today consists of their ability to anticipate what their customers want and change their organizations and processes, quickly and efficiently, in order to respond better than their competitors to new ones. requirements.
This means that the key to the success of the current company to compete effectively is synthetically assimilated to its ability to permanently launch new products "tailored" to the consumer's taste, at the lowest possible cost, with the as much anticipation as possible and the best product-service quality. And it is that today, it is unthinkable to stay competitive on the basis of only one of the two traditional basic strategies (cost leadership, productive differentiation) considering that the integration of both is necessary and, therefore, the joint pursuit of cost minimization and deadlines and maximization of quality and service, articulating all of this in a strategy that prioritizes continuous customer satisfaction.
Under this competitive management approach, initially they are identified as strengths of business competitiveness: the ability to quickly assimilate technological innovation, the flexibility of the production system, speed of execution, competitive prices, creativity and originality of production processes, product quality and customer technical assistance (Bueno, 1987). In these years, as the possibilities of competing via prices have been reduced - a fact accentuated in recent years by the phenomenon of price transparency brought about by the incorporation of the Internet and by the adoption of the euro - the competition factors that They have been highlighted as strengths of the competitiveness of companies have been: quality understood in a broad sense and innovation.
A logical consequence of all the foregoing that is observed in companies is the empowerment of Strategic Management, whose process came to be explained in the eighties with the Theory of Resources and Capabilities, which has enriched the focus of Competitive management in force when opting for intangible resources and the development of distinctive capacities (knowledge that resides in the organization) as key conditions to achieve business competitiveness, aspects that have led to the prioritization of the human factor over the technological factor. as a resource generating sustainable competitive advantage. In these years, as the provision of new technologies has become easier and its incorporation has become generalized to most companies,The technological factor has come to be considered as a necessary but not sufficient condition for achieving competitiveness as it is understood as a factor that enables change in the company. Consequently, the human factor has regained its primacy in the attention of business management since it is considered as the driving element behind this change (Senge, 1996), while the human factor is the generator of the routines in which internal capacities are established and the one that stores, to a large extent, the uncoded organizational knowledge.the human factor has recovered its primacy in the attention of business management since it is considered as the driving element behind this change (Senge, 1996), while the human factor is the generator of the routines in which the internal capabilities and the one that largely stores uncoded organizational knowledge.the human factor has recovered its primacy in the attention of business management since it is considered as the driving element behind this change (Senge, 1996), while the human factor is the generator of the routines in which the internal capabilities and the one that largely stores uncoded organizational knowledge.
During the last two decades, there has been a proliferation of numerous adaptive management solutions that, accommodated in the current management approach, have progressively attacked the "problem" of the search for greater competitiveness and flexibility of the organization. Chronologically and synthetically we will highlight some of them.
In the 1980s, the emphasis was especially placed on quality - an imperative that remains today - coupled with the elimination of waste, which was reflected in the rise of just-in-time systems and management and control systems. of total quality. In these years the first companies that successfully responded to the current turbulent environment appeared, those named by Porter and Aker (1987), «world class» or world-class companies. These companies modified both their internal configuration - adopting just-in-time production systems, total quality control and advanced technology - and the projection of their behavior in the market, enhancing the strategic management process (Fernández, 1993).
The changes that took place in this type of companies - a paradigm of the companies that were successful in the 1990s - acted as a breeding ground for new information management techniques that proliferated in these years (new measurement and control systems, cost systems and of quality management, cost systems and activity-based management, etc.), although such techniques have been successfully exported to any type of company (Fernández, 1994).
This being the case, in the 1990s this was maintained but facing the challenge of flexibility understood in its broad sense -ability to adapt to changes demanded by customers, the market and the competitive environment- which justified the boom that the so-called Reengineering of the company or redesign of processes.
Given the new variables of competition and the technological potential available, a radical transformation in the company is considered essential, as Bueno (1994) points out, since it has to redesign and redefine its processes, structures and systems; introducing new criteria, values and ideas, therefore betting on innovation, creativity and discontinuous thinking, which allow achieving the necessary flexibility, efficiency and effectiveness in the organization. This approach, called reengineering of the company, implies, as said author, the beginning of a revolution in the ways of structuring and operating companies, of conceiving a new way of managing them and of rethinking with authenticity and vigor, remaining everything in short,in the hands of people and how they know how to take advantage of the potential of innovative technologies at their service.
Thus, there is talk of the need to integrate the diffuse set of business management approaches, methods and tools that have appeared in recent years, in a systemic and, therefore, coherent and global process, which has come to be known as Knowledge Management. (Knowledge Management) (Good, 1999). Let's think that the reengineering of the company, as it has been explained previously, that is, as the beginning of a revolution in the company that leaves everything in the hands of human resources as exploiters of technological resources is, in our opinion, the logical prelude to the development of an integrative approach such as Knowledge Management.
This trend of progressive attack of the current problem of the company from partial solutions to global solutions, has also manifested itself in the organizational structure and thus, since the first approaches that emerged in the late 1980s (downsizing, rightsizing, lean management) have been passed today to the development, in business theory and practice, of new structural models that seek the immediate adaptation of companies to the new environment, to the needs of customers: flexible, variable or virtual organizational structures, such as federal model, clover model and network model.
Obviously, this changing situation has also spread to the organization's internal information systems. The intensification of competition together with the availability of new information technologies, added the need to the possibility of more and better information for business management, which has been manifesting itself in the development of new internal information systems in organizations. that allow taking advantage of the competitive advantages derived from good information. In this sense, the formalized information systems in the company have had to take on the challenge of adapting to new organizational and management approaches by redesigning their models and rethinking their instrumentation, so that their usefulness as a tool at the service of business managers,was guaranteed.
In the described context, the Enterprise Resource Planning systems (ERP systems) have been seen as powerful informational tools that enable the optimization of processes (with the consequent reduction in costs and improvement in profitability) and the exchange and integration of the internal information of the company (with the consequent improvement in the coordination of activities). According to Deepinder et al. (2004) ERP systems are seen as information technology solutions that make it possible to integrate the competence processes of organizations. Along with this, and related to it, it has been observed for a few years, the re-emergence among business fashions of “outsourcing” or outsourcing of certain processes or services of an organization.
Deepening the current concept of "outsourcing", analyzing the reasons for its resurgence among managerial fads, as well as the potential effects -direct and indirect- of its implementation in organizations, constitutes an interesting task of reflection as it has connection with other elements of the organizations and suggests some future trends in them. In this work we intend to carry out this analysis, which, together with the study of a particular case of cost evaluation in the decision on outsourcing in a given organization, will allow us to finally draw some conclusions regarding the topic.
2. A conceptual approach to outsourcing
In the 1950s and 1960s, companies tended to concentrate as many activities internally as possible, seeking economies of scale and external independence that resulted in lower costs and more effective processes. It is in the seventies, when the current idea of “outsourcing” was born in the United States. In these years, the technological take-off and its repercussion in the different areas of the companies, together with the continuous search for competitiveness (lower costs and more quality in the execution of activities and processes), led to companies rethinking frequently the classic decision of whether to continue carrying out certain activities internally or to contract their execution to other external hands and experts in a specific area.It is in these years when the number of outsourcing service provider companies began to grow, a trend that has been shown to this day. Over the years and at the pace of globalization, the joint search for cost efficiency and differentiation, the demand for flexibility, the flattening of organizations and closer relationships with suppliers have, in many cases, favored companies in For those without large economies of scale, the decision to "buy" versus that of manufacturing.they have favored, in many business cases in which there were no large economies of scale, the decision to "buy" over that of manufacturing.they have favored, in many business cases in which there were no large economies of scale, the decision to "buy" over that of manufacturing.
The idea of “outsourcing” is simple, it means doing outside the company those activities that are necessary but not central to the business of an organization and for which you do not have special capabilities. This concept should be clarified as currently proposed, so we will highlight the following three aspects of it:
I. Outsourcing is an option or a tool that has evolved from a merely tactical approach (in search of only greater cost efficiency) to a strategic approach, as it responds to the need of the organization for greater adaptability to a global environment characterized by uncertainty and complexity. In other words, the strategic outsourcing decision is made in the search for cost reductions along with increases in quality and flexibility, concentrating on the main business, that is, specializing or concentrating on what we know how to do best. This idea fits into the current context of competitive management described in the previous section, in which,The outsourcing decision can also be considered as a tool for process reengineering or as a result of benchmarking practice.
II. In the proposed shallow definition, “doing outside” means not only using resources external to the organization (owned by a third party) to carry out certain activities of the organization, but also that such activities are carried out and managed outside the company by the outsourcer. This is what has been called “outsourcing” of activities and processes. This nuance allows to differentiate the concept of outsourcing from others that have been coined to specify some variants of it. According to Professor Díaz (XX), there is talk of “insourcing” to refer to hiring the activity to a third party that incorporates own personnel within the company to carry out said activity. Also, "cosourcing" is used to refer to the case of service shared by several companies.
When an activity or process is outsourced, the costs of such activity or process can go from having a fixed behavior to a variable behavior in the short term in relation to the volume of activity, which translates into an improvement in the economic structure of costs and an "approach" to the break-even point or profitability threshold. If, in addition, as Professor Díaz (2004) points out, the relationship with subcontracted companies is properly managed (with generally tighter variable costs), the cost of sales is reduced and this will result in a further reduction of the point of economic equilibrium. Finally, the lower investment in resources - less assets - that outsourcing entails,It will improve the relationship between profit (improved by the decrease in cost of sales) and the investment made to obtain that benefit, that is, it will improve economic profitability.
From the financial point of view, if an activity is outsourced, the initial treasury needs are less and later, in the development of the activity, the periods of payment of external resources are longer than those that would correspond to the payment of resources. internal if the activity had not been outsourced.
In the current market, there are many options offered for activities and processes that can be outsourced by organizations. As examples, we can cite, among other areas, the following: product distribution, accounting, labor, tax and legal matters, advertising and telemarketing, computer technology and systems, selection and training of personnel, logistics, purchasing, etc.
III. In a given organization, the activities or processes that may be outsourced or outsourced are those activities that are necessary -contribute to the achievement of the organization's objectives- but that are not central or critical to your business and for which you do not have special capabilities. This leads to talk of "targeting" of the business, that is, to identify which is the core or core business of the company ("core business") in which to concentrate its resources and capabilities. It is about delimiting in which activities of the value chain the company's business is considered to reside because they are the ones that add value to the business, the so-called key, core or central activities of the business. A detailed analysis of the company's activities, such as that proposed in ABC & systemsM (Activity Based Cost & Management systems), would help in the discrimination of activities with and without added value, main activities and secondary activities, necessary activities and superfluous activities. Without a doubt, this correct identification of the company's activities is essential in the decision about outsourcing some of them –necessary but not core activities– due to the strategic risks that an error entails in this matter.This correct identification of the company's activities is essential in deciding on the outsourcing of some of them –necessary but non-core activities– due to the strategic risks that an error entails in this matter.This correct identification of the company's activities is essential in deciding on the outsourcing of some of them –necessary but non-core activities– due to the strategic risks that an error entails in this matter.
From this point of view, outsourcing can be considered as a kind of subcontracting in which the outsourcing company is specialized in the efficient execution of certain activities of the value chain of the client-company that do not belong to its central core of business, reason why the outsourcer contributes an improvement of the productivity in the contracting company. Thus, we can differentiate the above from other types of subcontracting where the subcontractor company performs the same activities of its client but without a special difference either in technological means or in human resources.
3. The outsourcing decision: advantages and disadvantages
Once we have defined what is meant by outsourcing in the current context of organizations, we will now focus on the outsourcing decision, responding to: who is making this decision, why is it being made and how is it being adopted.
Regarding the type of organizations that have opted for outsourcing, we must point out that the practice of outsourcing is not exclusive to private companies - large or SMEs - immersed in the current context of competitive management, also public entities have considered this decision in line with its objectives of effectiveness, efficiency and economy. In advanced societies, the sphere of the public economy has been affected by the unstoppable trend of change that presides over the current economic and social reality. Specifically, the rethinking of the so-called Welfare State in these advanced societies revealed, among other aspects,the need to carry out reforms in the area of public entity management that respond to the greater demands for quality in social benefits and the concern to reduce public spending.
In the field of public entities that produce non-pure public goods, whose provision is -totally or mainly- public and that are financed through the budget (health, education, etc.) the demand for an improvement in public performance (specified in terms of a triple objective in the use of resources: effectiveness, efficiency and economy) has led to the proposal of new management models that approximate those proposed in the case of the current private company. In this sense, the models of public management proposed in the European states have had in common, in general, the assumption of the concept of efficiency as a guiding principle of public action. But what are the main aspects to consider in the efficiency-based public management approach? As Díaz Zurro (2001, p.22) “the application of efficiency criteria in the public sphere must be more than reducing public spending; it forces to improve the organization, its procedures, the way of allocating resources; to separate the necessary from the accessory, overcome duplication, evaluate public performance, identify responsibilities for results. In short, the application of this criterion must mean a substantial improvement in the performance and use of public money, or if you want, it must allow you to do more and better with less. ”identify responsibilities for results. In short, the application of this criterion must mean a substantial improvement in the performance and use of public money, or if you want, it must allow you to do more and better with less. ”identify responsibilities for results. In short, the application of this criterion must mean a substantial improvement in the performance and use of public money, or if you want, it must allow you to do more and better with less. ”
Regarding the reasons that motivate the approach of an outsourcing decision, these are derived from the description of this concept that we made in the previous section and that we can explain as follows:
a) Linked to outsourcing, the advantages associated with access to external resources are presented, that is: cost reductions and improvements in the cost structure, greater availability of cash flows, improved economic profitability and risk sharing.
b) Linked to specialization, the above relationship of advantages is completed with those derived from access to world-class skills and knowledge: improving the quality and execution times of certain activities and processes, and therefore improving the overall efficiency of processes, as well as, greater possibilities to focus on the business.
c) Access to or incorporation of resources, capabilities and knowledge external to the company must respond to a search for greater competitiveness in the results of business processes. Thus, together with the strategic nature of this decision, the most important reason to undertake outsourcing agreements is the achievement of greater flexibility or better ability to respond quickly to market changes, since it implies the ability to resize its productive capacity and accommodate it to each phase of the cycle.
A classic example of outsourcing is that of the automotive sector, where the main companies (Ford, Smart, etc.) have outsourced most of the component manufacturing, concentrating on other areas where it considers that its main business resides (eg design of new products).
Likewise, it is worth noting the case of ERP outsourcing due to its growing importance in today's business world. Since the introduction of these ERP systems in companies began to be observed in the 1990s, with an emphasis on this issue; Currently, the main concern seems to focus on that its maintenance and management are adequate so that it translates into the expected results with the implementation of an ERP project. Such effective maintenance and management requires the collaboration of resources, capacities and specialized knowledge that make the ERP outsourcing option attractive for many of the companies that have undertaken the implementation of these systems. For these purposes, Paul (2000) proposes a cost model that helps companies in their decision to outsource this service,dividing the total cost of outsourcing into the following concepts: cost of the information processing service (according to estimated market value), set-up and contract costs (cost related to choosing the appropriate technological partner and institutionalization relationship), cost of controlling and coordinating the activities of the technological partner; and lastly, the cost of failure in choosing the technological partner (cost of switching to another provider).the cost of failure in choosing the technology partner (cost of switching to another provider).the cost of failure in choosing the technology partner (cost of switching to another provider).
In line with the latter, we will address the question of how to make an outsourcing decision. In a recent article by Mintzberg and Westley (2004), based on the fact that decision-making in practice does not always follow a rational method, the authors advocated combining the three basic forms of business decision-making. These are: "think first" (point of view of the science that provides the plan, fruit of reflection), "see first" (point of view of art that provides the overview or vision, promotes creativity) and "do first ”(Craft perspective, linked to action). Even accepting the idea of the aforementioned authors, for an outsourcing decision it is only recommended to “think first” and analyze it both in the short and long term in the context of a clearly defined strategy.Succinctly, it can be stated that the possibility of outsourcing must be analyzed in line with the company's strategy, once the capabilities of the company have been defined (what is really good) and its activities have been evaluated in terms of cost-quality-time- added value from a business process perspective.
Outsourcing is not exempt from possible damages or problems (risks derived from rigid relationship structures with external providers, involved employees, etc.). The problem derived from the conflict of interest between the seller or service provider, linked to a contract with little flexibility, and the customer or company that has outsourced the service, with increasing needs to maintain its competitiveness, is especially evident in the case of information technologies. One answer to this problem is to offer the service "on demand" so that companies can contract their IT needs as they appear and can pay for them based on their use and efficiency (hence the signing of contracts,under this “on demand” model among large high-tech companies with consulting companies for systems integration and outsourcing). In the field of new technologies, efforts today seem to be directed towards SMEs, where similar solutions have to be offered at lower prices.
In short, all this leads us to affirm that in each particular case, the outsourcing decision must be made on the basis of a cost-benefit or advantage-disadvantage analysis that considers all the quantitative and qualitative aspects, strategic and operational, financial and not financial, technical and behavioral with which the decision is involved.
When evaluating a decision such as outsourcing, the cost part is the easiest to quantify against the benefits, whose valuations are sometimes very subjective. However, a study of costs within is essential in the global analysis that is made for the outsourcing decision.
For the adoption of a business decision of this type, the relevant costs must be available, these being generally the predetermined differential costs, that is, the future costs calculated for a decision alternative and which are different from the rest of alternatives. As Rosanas and Ballarín (1986) point out, the following should be highlighted: The concept of differential cost is closely related to a specific decision, taking one of the alternatives as a point of reference; Differential costs are not always variable costs (mainly depends on which is the main decision variable) or direct costs of a product (they are when the decision is whether or not to manufacture a certain product).
A specific case taken from the actual practice of a company, a hotel, can be seen in Hernando (2004) where the cost report prepared to decide on the option "External laundry" or "Internal laundry" is presented.
4. Final considerations
After a few years in which business solutions have been presented, on some occasions, as miraculous potions that solved the company's ills; We cannot consider outsourcing to be just another fashion. It is a classic option now renewed that, in some organizations, both private and public and of any dimension or sector, given the competitive conditions and the requirements that derive from them, it can be a way that, well managed, translates into economic and financial, operational and strategic improvements.
Outsourcing is the outsourcing of company activities but with specialization, and seeking the flexibility of the organization necessary to compete in today's market. Outsourcing, as explained in the previous text, is characterized by its strategic vocation and its desire for flexibility.
To the traditional advantages of an outsourcing practice (cost reductions and improvements in the cost structure, greater availability of cash flows, improving economic profitability and sharing risks), other more specific outsourcing can be added, such as:
• improve the quality and execution times of certain activities, and therefore improve the overall efficiency of the processes.
• Greater possibilities of focusing on the business.
• Greater flexibility or better capacity to respond quickly to changes in the market as it involves the ability to resize its production capacity and accommodate it to each phase of the cycle.
Currently, it is precisely this last advantage that has favored that in our country, faced with the problem of "offshoring", outsourcing is proclaimed as a solution, among others, to retain multinational companies on Spanish soil, abandoning the offer based on lower costs and giving way to an offer based on greater flexibility.
Certain companies have spread their conversion to an “on demand” business model characterized by an operational restructuring that adjusts to the rhythm of market or customer demands, by integrating processes in an appropriate technological environment. This model is combined with the practice of outsourcing certain processes and advocates achieving a rapid reaction to change as a solution to the competitiveness of companies. We accept that the ability to adapt to change is, today more than ever, the cornerstone in the business world; But is it possible to achieve this capacity only with an appropriate technological model? Is it possible to put into practice in our companies a response model in real time with the current legislative context ?.
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According to a 1999 Xerox company report, 80% of Fortune 500 companies were practicing information technology outsourcing and for some or all of the information management functions.
