Electronic Business: Concepts, Methodologies, Tools, and Applications (4-Volumes) P181 ppsx

1734 Sourcing and Outsourcing Arithmetic WR PHGLFDO ¿QDQFLDO RU SHUVRQDO LQIRUPDWLRQ A survey conducted by the UK-based research agency, Mori, on behalf of the unions of Lloyds TSB Group, has concluded that half of the bank’s customers would consider moving their accounts to a different one if they discovered the calls were being managed from India. These are short-term isolated issues. Long-Term Trends Business process outsourcing services worldwide reached US$405 billion in 2003. Forecasts based on client survey by the International Data Cor- poration shows it will grow 11% through 2008, reaching $682 billion. A. T. Kearney released a study on March 30, 2004, ranking various offshore locations for EDFNRI¿FHZRUN,QGLDHPHUJHVRQWRSE\DZLGH margin among the 25 countries in Kearney’s ³2IIVKRUH/RFDWLRQ$WWUDFWLYHQHVV,QGH[´ZKLFK employs 39 criteria to rank the locations. China is ranked second, followed by Malaysia and the Czech Republic. This result is consistent with other surveys by other consulting companies. For India, BPO employs 0.1% of the labor force, but it contributes 2% of GDP and a substantial 20% of its exports in 2004. There are a number of JURZWKDUHDVEDQNLQJEDFNRI¿FHZRUNVXFKDV DFFRXQWLQJZRUN¿QDQFLDOVHUYLFHVDQGLQVXUDQFH (such as claims processing), telecom, healthcare (billing, claims management, accounting), human resources (payroll processing), retail (managing payables and receivables). How much of it will come to India? A study released by McKinsey-NASSCOM showed some 140 billion dollars could be com- ing to India by 2008. The result of their survey is reproduced in Table 3. Black Clouds in the Long Run Legislative changes in the United States/United Kingdom pose the biggest threat to this growth Table 3. Estimate of outsourcing market size in India by 2008 (Source: McKinsey NASSCOM Survey, 2002) Type of service Value Customer interaction services 15.0 Finance & Accounting services 15.0 Animation 2.0 Translation, Transcription & Localization 1.2 Engineering & Design 5.0 HR Services 44.0 Data search, Integration and Management 18.0 Remote education 15.0 Total 140.0 Note: Figures in billions of U.S. dollars 1735 Sourcing and Outsourcing Arithmetic Box 1. Terminologies BPO Business process outsourcing. An entire line of business such as automobile design or insurance claims management process is farmed out. IT Information technology. ITeS Information technology enabled services. Services that use information technology intensively. CMM Capability maturity model articulated by the Software Engineering Institute (SEI) at the Carnegie Mellon University. The CMM/SEI framework aims to distinguish mature processes from immature processes. Level 5 is the highest grade. Box 2. List of outsourced services (Adapted from the United Nations Conference on Trade and Develop- ment E-Commerce and Development Report, 2003) Banking Services Asset Management Services Account opening services Account creation Account information capture Account maintenance Customer queries Transfers and additions Check clearing Dividend payments Check payment reconciliation Brokerage payment Statement processing MIS reporting ATM reconciliation Customer service Investment account management Customer Care Management reporting Customer service Loan administration Customer analysis Credit debits card services Call centers Check processing Consumer information services Collections Customer relationship management Customer account management Human Resources Services Mortgage Services 3D\UROODQGEHQH¿WVSURFHVVLQJ $SSOLFDWLRQYHUL¿FDWLRQDQG processing Training and development Disbursals and collections 5HWLUHPHQWLQYHVWPHQWDQGEHQH¿WVPDQDJHPHQW Payment reconciliation +LULQJDQGVWDI¿QJ Account information updates Recruitment screening Mortgage loan servicing Administration and relocation services Financial Services Payroll processing Document management Compensation administration Billing %HQH¿WVSODQQLQJ Shareholder services Administration and regulating compliance Claims processing Sales and Marketing Services Accounts receivable Telemarketing services Accounts payable Direct marketing and sales campaigns 1736 Sourcing and Outsourcing Arithmetic of BPO. These changes could take the form of EDQQLQJWUDQVIHURIFRQ¿GHQWLDOLQIRUPDWLRQWR a foreign country. This would mean payroll or medical bills cannot be processed outside the country. RISKS OF OUTSOURCING Outsourcing is not without its risks. When East- man Kodak decided to outsource many of its core businesses, it did not realize that it lost key skills and capabilities. Short-term advantage was Box 2. continued General ledger Web-Related Services Accounting services Web site designing Treasury operations management Web site management Credit Card Services Site personalization Applications screening and card issuance Site marketing Customer account management Search engine, directory optimization and position- ing services Collections and customer follow-up Catalog/content management Account queries and limit enhancements Web analytics Accounting and payment reconciliation Database design Insurance Services Web security services and integration with CRM Policy owner services %DFNRI¿FHV\VWHPVIRULQYHQWRU\PDQDJHPHQW Claims processing Web enablement of legacy applications Transaction & reinsurance accounting Electronic bill presentment and payment services Statutory reporting Graphics/animation Annuities processing Web-based e-mail processing %HQH¿WDGPLQLVWUDWLRQ Web-based help desk Customer information capture Web-based chat support Risk assessment and premium computation E-learning: Web-based online education services Policy processing and account monitoring E-publishing Claims management Payment reconciliation Health Care Medical transcription services Diagnostics 1737 Sourcing and Outsourcing Arithmetic their prime concern at the time. Similarly, IBM outsourced PC-related business too early. It did not recognize that the market was not mature enough. Many innovations were to come. 0RGHUQEXVLQHVVLVDOODERXW³NQLWWLQJWRJHWKHU people, processes and platforms” (Aron, 2003). If the risks of the processes are not properly evalu- ated and priced, outsourcing will simply not be the right solution. Consider the backlash some companies suffered when they moved their call centers to India. Clearly, these companies did not value the risk properly. The cost due to the loss of XQKDSS\FXVWRPHUVFDQRXWZHLJKWKHEHQH¿WVRI cutting the cost of delivering the service. Simi- larly, future possible backlash through legislative FKDQJHV WKDW SURKLELW ³H[SRUWLQJ´ FRQ¿GHQWLDO client information need to be fully evaluated. Therefore, Aron (2003) suggests that instead of RXWVRXUFLQJEXVLQHVVVKRXOGHPSKDVL]HRQ³ULJKW sourcing.” By outsourcing, companies can lose control of their own processes and the people (both customers and employees). Thus, outsourc- ing may lead to higher risk and therefore loss of future revenue. Microlevel risks taken by a company are the following: (1) exposure of sensitive and critical information of a company; (2) exposure of cus- tomer information; (3) exposure of a company’s intellectual property such as source code, pat- ented processes; (4) relocation of IT equipment from a known, safe environment to an unknown environment; (5) no direct control over business continuity of the outsourced processes (Twing, 2005). Like any other risk management process, WKHULVNVDUHWREHLGHQWL¿HGPHDVXUHGDQGVWHSV for mitigation are to be taken. CONCLUSION Outsourcing of any service requires trust. Indian companies, over the past decade, have worked at earning that trust. It requires a high volume of sophisticated human resources. India has provided such a workforce. The Indian IT industry has been moving from low-end simple tasks to high-end complicated tasks in outsourcing in the form of BPO. Could Indian experience be duplicated in other countries? Many elements in India were present at the right place at the right time. Thus, it would be unlikely that some other country will be able to emulate India’s experience. India has already made inroads into core business in VRPHLQGXVWULHVHVSHFLDOO\LQ¿QDQFLDOVHUYLFHV All indicators point to more consolidation in the future. ACKNOWLEDGMENTS We thank Bradly J. Condon and Rebecca Bene- dict for their comments. Our thanks to the many participants from the Indian IT Industry, who generously gave their time to discuss various issues. We thank the Asociación Mexican de Cultura AC for supporting this research. Com- ments from anonymous referees have allowed us to refocus the chapter. However, we alone are responsible for the opinions expressed. They do not represent the views of the institutions with ZKLFKZHDUHDI¿OLDWHG REFERENCES Aron, R. (2003, June 1-14). Sourcing in the right light. Optimize. Retrieved January 11, 2005 from http://www.optimizemag.com/issue/020/manage- ment.htm?_loopback=1 Condon, B. J., & Sinha, T. (2003). Drawing lines in sand and snow: Border security and North American economic integration. M. E. Sharpe. Diamond Cluster. (2004). 2004 Global IT Out- sourcing Study. Retrieved January 11, 2005 from http://www.diamondcluster.com 1738 Sourcing and Outsourcing Arithmetic Farrell, D. (2003). Offshoring: Is it a win-win game? McKinsey Global Institute. Feenstra, R. (2005, January 16-18). The future of business outsourcing, Sixth Annual NBER- NCAER Neemrana Conference. Heckscher, E. F. (1919). Utrikeshandelns verkan pa inkomstfordelningen (The effect of foreign trade on the distribution of income) Ekonomisk Tidskrift, 21, 497-512. Kakabadse, N., & Kakabadse, A. (2000). Out- sourcing: A paradigm shift. Journal of Manage- ment Development, 19(4), 670-728. .RIÀHU.0DUFK%XVLQHVVFRDOLWLRQ rewrites lexicon for jobs outsourcing. Congress Daily. Retrieved January 11, 2005 from http://na- tionaljournal.com Leavy, B. (2004). Outsourcing strategies: Op- portunities and risks. Strategy and Leadership, 32, 20-25. Maranjian, S. (2004, March 11). Thoughts on off- shoring and outsourcing. Motley Fool’s News and Commentary. Retrieved January 11, 2005 from http://www.fool.com/news/commentary/2004/ commentary040311SM.htm McCarthy, J. C. (2002, November 11). 3.3 million US service jobs to go offshore. Whole View Tech Strategy. Forrester Research. Retrieved January 11, 2005 from www.forrester.com Miller, H. (2003, November). The new competi- tive reality. Presentation of the ITAA. Retrieved January 11, 2005 from http://www.itaa.org Odindo, C. et al. (2004). Outsourcing in the UK ¿QDQFLDOVHUYLFHVLQGXVWU\7KH$VLDQRIIVKRUH market. U n i v e r s i t y of N o t t i n g h a m S c h o o l o f B u s i - ness, CRIS Discussion Paper Series—2004.I. Re- trieved January 11, 2005 from www.nottingham. ac.uk/business/cris/discussionpapers.html Ohlin, B. (1928, April). The reparations problem. Svenska Handelsbanken, 28, 2-23. Phillips, M. M. (2004, March 15). More work is outsourced to U.S. than away from it, data show. Wall Street Journal. Retrieved January 11, 2005 from http://www.wsj.com Twing, D. (2005, September). Reviewing the security aspect of outsourcing. Network World, 22-31. Retrieved September 30, 2005 from http:// www.networkworld.com/newsletters/asp/2005/ 0905out1.html Wilson, D., & Purushothaman, R. (2003, October). Dreaming with BRICs: The path to 2050. Gold- man and Sachs, Global Economics Paper No. 99. Retrieved September 30, 2005 from http://www2. goldmansachs.com/insight/research/reports/re- port6.html This work was previously published in E-Business Process Management: Technologies and Solutions, edited by J. Sounder- pandan and T. Sinha, pp. 186-203, copyright 2007 by IGI Publishing (an imprint of IGI Global). Section VI Managerial Impact This section presents contemporary coverage of the managerial implications of e-business implementa- WLRQ3DUWLFXODUFRQWULEXWLRQVDGGUHVVWKHOLQNEHWZHHQHEXVLQHVVOHDGHUVKLSDQG¿UPSHUIRUPDQFHDQG HEXVLQHVVULVNPDQDJHPHQWLQ¿UPV7KHPDQDJHULDOUHVHDUFKSURYLGHGLQWKLVVHFWLRQDOORZVH[HFX- tives, practitioners, and researchers to gain a better sense of how e-business research and processes can inform their practices and behavior. 1740 Copyright © 2009, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited. Chapter 6.1 Virtual Communities and E-Business Management Carlos Flavián University of Zaragoza, Spain Miguel Guinalíu University of Zaragoza, Spain INTRODUCTION As a result of the new possibilities offered by Internet managers are increasing options provided by the new technologies in strategic planning. The virtual community has become one of the more interesting options. The general aim of this article is to explain the concept of virtual community, paying special attention to the most important strategies and m a n a g e m e n t s u g g e s t i o n s . F i r s t l y, we w i l l a n a l y z e the concept of community from a sociological YLHZSRLQW:HWKHQGH¿QHDYLUWXDOFRPPXQLW\ and what causes an individual to belong to one. Secondly, we will show the main strategic implica- tions of the development of virtual communities. Next we will detail a series of recommendations for the proper management of virtual communi- WLHV 7KH WZR ¿QDO VHFWLRQV SUHVHQW WKH IXWXUH trends of research and the main conclusions of the article. BACKGROUND From a sociological perspective, Muñiz and O’Guinn (2001) consider that a community may EHGH¿QHGDVKDYLQJWKUHHSULQFLSDOHOHPHQWV • Consciousness of Kind: This refers to the feeling that binds every individual to the other community members and the com- munity brand (e.g., admiration for Elvis Pre- sley, or the passion for owning and driving a Volkswagen Beetle). It is determined by two factors: (1) legitimization, the process of establishing a difference between true and false members, that is, those who have opportunist behaviors and those who do not; and (2) opposition to other brands. In IDFWLGHQWL¿FDWLRQZLWKWKHUHVWRIWKHJURXS is mainly based on opposition; in other ZRUGVEUDQGFRPPXQLW\LVXVXDOO\GH¿QHG in comparison with another brand (e.g., the 1741 Virtual Communities and E-Business Management rivalry between fans of The Beatles and The Rolling Stones). • Rituals and Traditions: These are processes carried out by community members which help to reproduce and transmit the com- munity meaning in and out of the commu- nity. Members relate to each other with the memory of major events in the history of the brand and certain behaviors. All these processes help to reinforce brand conscious- ness and improve instruction on communal values. • Sense of Moral Responsibility: 7KLVUHÀHFWV the feelings which create moral commitment among community members. A sense of moral responsibility encourages conjoint behaviors and enables stronger group co- hesion. As a result of moral responsibility, there are two types of fundamental actions: (1) integration and retention of members, which guarantees the community survival (e.g., by spreading bad experiences suffered by those individuals who chose a different brand); and (2) support in the correct use of the brand (e.g., by sharing resources and information about product properties). Thanks to the Internet, social relationships can be developed in a new environment. Thus appears WKHLGHDRIYLUWXDOFRPPXQLW\7KH¿UVWYLUWXDO FRPPXQLW\ZDVFUHDWHGLQWKHVHYHQWLHVVSHFL¿- cally with the Talkomatic software, designed by Doug Brown of the University of Illinois in the autumn of 1973. However, it was not until the nineties that there was an exponential growth of this type of organization. 6HYHUDO DXWKRUV RIIHU GH¿QLWLRQV RI YLUWXDO FRPPXQLW\&RWKUHOGH¿QHVLWDVDJURXS of individuals which uses computer networks as a form of primary interaction. Kardaras, Kara- kostas, and Papathanassiou (2003) consider it to be a group of individuals who communicate by electronic means such as the Internet, who share interests, without needing to be in the same place, or having physical contact, or belonging WRDSDUWLFXODUHWKQLFJURXS0RUHVSHFL¿FDOO\ WKHFRQFHSWRIYLUWXDOFRPPXQLW\LVGH¿QHGE\ 5KHLQJROGDVD³VRFLDODJJUHJDWLRQRULJL- nated in the Internet when people discuss in this communication channel.” Similarly, Yap (2002) explains that a virtual community is a social group originated in the Internet with certain be- liefs, social forms (language, etc.), and traits that creates an emergent culture among its members. With a greater degree of complexity, Muñiz and Schau (2005) point out that a common aspect of virtual communities might be the potential for transcendent and magic-religious experiences. Finally, Preece (2000) states that a virtual com- munity is formed by people: • with a wish for interaction among them in order to satisfy their needs, • that share a particular interest which is the reason for the community, • with certain norms that guide the relation - ships, and • with computer systems that favor interaction and cohesion among the members. THE MANAGEMENT OF VIRTUAL COMMUNITIES Strategic Issues Related to Virtual Communities The exploitation of virtual communities may be implemented by means of two different market- ing strategies: offering support or becoming a member of the group. Strategy 1: Offering Support to the Community This strategy supposes that a company manages the platform on which the community exchanges 1742 Virtual Communities and E-Business Management take place. This company is not a member of the community, but simply facilitates its existence by offering a Web site for communication purposes. For the development of this strategy, the main step should be an analysis of the real possibilities of creating a community via the Internet. These possibilities derive either from the particular characteristics of a product or brand, or else the S UH  H [ L VW HQ FH R I W K HF RP PX Q LW \RI À L Q H, Q W K H ¿ UV W FDVHWKHFRPSDQ\VKRXOGGH¿QHWKHDVSHFWVZKLFK characterize the product or brand to ascertain to what extent these are likely to create an attendant community (e.g., the company Apple, http://www. apple.com/usergroups/, exploits the characteristics of Apple computers). In the second case, a new, better quality method of communication is of- fered to a group of individuals who are already linked outside the Internet (e.g., MarketingProfs. com, http://www.marketingprofs.com, facilitates communication between marketing consultants and educators). Strategy 2: Become a Member of a Community In this case, the company attempts to be perceived as a virtual community member. In this respect, obtaining the level of membership of a community will depend on the trustworthiness perceived in the company. According to established literature on trust (e.g., Roy, Dewit, & Aubert, 2001; Sako & Helper, 1997; Morgan & Hunt, 1994; Ander- son & Narus, 1990; Dwyer, Schurr, & Oh, 1987; Anderson & Weitz, 1989; Bhattacherjee, 2002; Cheung & Lee, 2001; Gefen, 2000; Kolsaker & Payne, 2002; Luo, 2002; Walczuch, Seelen, & Lundgren, 2001; Geyskens, Steenkamp, & Ku- mar, 1998; Sabel, 1993), the organization needs to demonstrate its honesty (i.e., that it is sincere and delivers its promises); benevolence (being concerned for the welfare of the other members of the community, not acting in an opportunistic manner, and attempting to have compatible objec- tives); and competenceWKDWLVLWKDVVXI¿FLHQW capability for its contributions to the community WREHVLJQL¿FDQWDQGWRJHQHUDWHYDOXH Hagel and Armstrong (1997) and Flavián and Guinalíu (2005a) show the virtual community as a tool that can increase the chances of success in the marketing and distribution of products over the Internet. The virtual community can boost a company’s product differentiation by increasing commitment and emotional ties with the brand. Furthermore, brand awareness is increased, since the community acts as a catalyst in the transmis- sion of word-of-mouth messages. Thirdly, the virtual community brings about a more effective market segmentation, increases consumer trust and security, acts as an information source, and can even become a major source of direct income. In a more detailed way, we can distinguish these managerial implications: • New Forms of Communication: Hoffman and Novak (1996) notice the replacement of traditional communication models (one-to- many) with others in which the interactions between all the participants in the market are constant (many-to-many). The virtual com- munity represents these changes. Thanks to social network and the use of the Internet, messages are transmitted to the community within a short period of time, obviating the need for costly investments in the mass media and thus reducing promotional costs (Barnatt, 2001; Guthrie, 2000; Kardaras et al., 2003; Wang, Yu, & Fesenmaier, 2002). • Information Source: The virtual commu- nity becomes a relevant information source for the decision-making process (Hagel & Singer, 1999; Holmström, 2000; Barnatt, 2001; Kardaras et al., 2003). • The Creation of Barriers Preventing the Entry of New Competitors: The virtual community creates barriers against new competitors (Barnatt, 2001; Hagel & Arm- strong, 1997; Kardaras et al., 2003). • Increased Security and Trust: The commu- 1743 Virtual Communities and E-Business Management nity creates a climate of security based on reputation and mutual trust. This phenom- enon may be clearly seen in online auction communities (e.g., eBay), and in communi- ties with risk-management systems based on reputation (Dellarocas, 2001; Kollock, 1999). • Facilitating the Development of Relation- ship Marketing Strategies: According to certain authors (e.g., Guthrie, 2000; Wang et al., 2002), virtual communities are an ideal environment for implementing relationship marketing strategies. • Becoming a Source of Indirect Income (Wang et al., 2002): In the case of vir- tual communities, it is customary to offer, through mailing lists, forums, or Web sites supported by the community, third-party products which might be of interest to the group. In this way, the business supporting the communication infrastructure of the FRPPXQLW\LV¿QDQFHGHJWKHFRPSDQ\ which supports the CRM professional com- munity, http://crm.insightexec.com/). Like- wise, some communities charge a fee in order to participate in debates (e.g., http://www. well.com). • A Source of New Clients (Kardaras et al., 2003): Membership to a community creates a favorable predisposition towards the company supporting the platform for community interchange. For this reason, the community encourages members to recruit new members who ultimately will become new consumers. E-Business Management Recom- mendations Flavián and Guinalíu (2005a) identify the ex- istence of some key aspects to guarantee the VXFFHVV RI YLUWXDO FRPPXQLWLHV 6SHFL¿FDOO\ these actions might be determined in light of the following issues: • Analyzing the Members’ Needs: The community should be created and managed according to the needs of its members, not the needs of the company which promotes it, the advertisers, or any other group not involved in the community. • Fostering Self-Management: If self-man- agement is technically impossible, they should try to create a situation in which the contents of the community are generated and published directly by its members. • Minimizing Control: It is not advisable to establish control mechanisms on how the community members should mix with each other or the topics they should discuss in their conversations. 1 • Using the Most Suitable Technological Structure: The type of technology used to manage a virtual community has a lot of implications. Flavián and Guinalíu (2005b) recommend using technological systems that DUHÀH[LEOHHDV\WRPDQDJHDQGYLVXDOO\ attractive. • Specializing Roles: Several sociological research studies have shown that inside a community it is common for individuals to adopt different roles which give the com- munity a greater dynamism. Taking these ¿QGLQJVDVDUHIHUHQFH)ODYLiQDQG*XLQDOtX (2005a) suggest the advisability of having this role assignment inside virtual communi- ties. 2 FUTURE TRENDS For the immediate future, research into the concept of virtual communities is faced with some interest- ing challenges. Firstly, there is a need to analyze WKHLQÀXHQFHRIQHZPHWKRGVRIFRPPXQLFDWLRQ (e.g., Wi-Fi, Bluetooth, UMTS, or i-Mode), as well as the recent spread of other devices (e.g., Tablet PC, PDA, or Smartphones). Wireless technology will afford community members new means of . personalization Applications screening and card issuance Site marketing Customer account management Search engine, directory optimization and position- ing services Collections and customer follow-up. strategies: Op- portunities and risks. Strategy and Leadership, 32, 20-25. Maranjian, S. (2004, March 11). Thoughts on off- shoring and outsourcing. Motley Fool’s News and Commentary. Retrieved. practitioners, and researchers to gain a better sense of how e-business research and processes can inform their practices and behavior. 1740 Copyright © 2009, IGI Global, distributing in print or electronic