The Outsourcing Fundamentals For Dell Computers

The Outsourcing Fundamentals For dingle Computers dingle is iodine of the lead-in PC producers in the world. Its melodic phrase scheme involves outsourcing a number of its trading surgerys such(prenominal) as sales identify carry out, distribution, after(prenominal) sales military serve up. The center on of this report impart be to criti mentiony evaluate and analyse single such outsourcing vomit of dingle of its adept sustenance which was considered a failure. at that place argon a number of sources why dell chose to source its expert resist call centre. The main reason for doing so is that dingle maxim this go against of its operations as non load. It decided to outsource in order to concentrate on its amount of money business processes which were manufacturing and de statusination. The salute savings that an outsourcing necessitate offered also was a major factor in it doing so. Other factors such as to gain accesses to world class facilities , t o share the risk involved, to travel rapidly redesign engineering process were also critical. aft(prenominal) having decided to outsource a deal with flow rate Global Services was struck. swarm took its call centre in India to operate the entire tech certification of Yankee the States. After the first term of the withdraw the deal was called off and dingle decided to back source the tech reward from sprout and lease it back in-house. The report analysis the key issues for the failure of this deal. One of the around important issues that resulted in the failure of this outsourcing deal is the drop in shade of service. After initial period the property of service provided by Stream went down considerably which resulted in unsatisfied node and complaints. This resulted in spillway of sales and departure of merchandise share. Other issues such as loss of control all oer the operations and loss of tacit knowledge, unable to parallel the customer demand due to large i ncrease in customer base, loss of able property, lack of expertness too played a critical factor in its failure. The tip of the iceberg came when negotiating a issue extension and Stream demanding more(prenominal), which lead to dell calling off the in all deal. Critical analysis shows that tech support whitethorn be a core competency of dingle, which they had to retain more control e actuallyplace. The possible recommendations are to onshore the call centre to a salute efficient pickle rather than outsource it. Put in a confidentiality agreement in place in order to protect from loss in keen property. Negotiate smaller lengths of contract and to choose quality everywhere expenditure as main criteria plot of land evaluating sellers for outsourcing in the future.Contents 3 world 4Why Outsource 5Non core function 5Gain Access to initiative Capabilities 6 cost Saving 6Accelerate Reengineering Benefits 6Share Risks 6Re bespeak Resources to more strategic Activities 7The S tream level 7What went wrong 8 tone of voice of Service 8Loss of Control 8Viability of Service provider 8Relative Size of Customer 8The Issue of sureness 9Lack of expertise 9Hidden and Uncertain be 9Tip of the Iceberg 9Conclusion pass 101 . Offshore non out-source 102. Confidentiality Agreements 113. persona over expenditure 114. Short term contracts 11References 12 adjunct 13Appendix I 14Sales of dingle from 1999- 2007 14Appendix II 14Market Share of PC Manufacturers 14IntroductionDell is a multinational computer connection which has managed to sojourn in the first place of computer system sales for over a decade. Ranked in the top 50 among the Fortune 500, Dell offers a range of IT products and services, including hardware, software, consulting services, support services, and managed services. Dell employs more than 100,000 employees at services, manufacturing, and design locations around the world. Its strong and revolutionized strategy of direct selling computers t o the customers increased its victor in the computer companies field providing it with a agonistical reinforcement. Dell was founded in 1984 by Michael Dell a 19-year old teenager and it was named as PCs Limited. first with a majuscule of $1000 and the aim of selling IBM PC-compatible computers he managed to make believe Dell as one of the intimately worldwide successful and useful companies only after the first years of its function. The first year megascopic revenues amounted to $6 million. In 1985 Dell introduced the first computer of its own design- the Turbo PC. In 1988 the society do its initial public go at $8.50 a share and was renamed to Dell Computer Corporation. By 1990 it had been expanded in 12 different countries. Six years later(1996), Dell began selling computers via its web invest and offered online technical support at the same meter and by the 1997 Dell was one of the top five computer makers in the world. As one of the worlds leading direct compute r systems companies and a premier supplier of technology for the Internet infrastructure, Dells hawkish advantage is its direct customer snap. Constant interaction with its customers online and via the telephone gives Dell the ability to understand rum computing require that drive individual and enterprise productivity. Even though growth range for the computer industry are expected to be less than forward years, Dell elicit still successfully operate, enjoying healthy sustainable ease upss.With its alone(predicate) operation strategy and reduced inventory levels gives Dell a competitive edge over its rivals. Dell chooses to outsource a whole sight of its processes of its operations. Right from most of its production line to sales order processing to distribution to after sales service. Outsourcing allows companies to focus on broader business issues while having operational details assumed by an outside expert. The main focus of this report will be around the outsourci ng of its call centre for the technical support.Why OutsourceThe reasons why Dell chose to outsource its technical support are as followsNon core functionThe main reason for its choosing to outsource this aspect of its operations is that Dell saw the technical support operation as not part of its core competency. A core competence provides a competitive advantage through being competitively unique and making a contribution to customer value or cost (Prahalad Hamel, 1990). Long Vickers-Koch (1995) expand the idea of core competences to core capabilities. They distinguish these 2 by noting that competencies relate to the skills, knowledge, and technological know-how that give a special advantage at specific backsheeshs of the value chain, which, in combination with the strategic processes that touch on the chain together, form core capabilities, (p. 12). Dell clearly identified techincal support or the call centre as a non core part of its operations. They saw themselves as clea rly being a computer manufacturer who sold customised computers to the users directly and chose to concentrate on this aspect of its business which g set outing out to be a mistake, we will font at why this was the case in the later part of this report.Gain Access to World-Class CapabilitiesBy the very nature of their specialization, outsourcing providers bring ampleworld-class resources to concourse the call for of their customers. Dell wanted to fully utilise this specialization that galore(postnominal) of the outsourcing traffickers had to offer. Partnering with an cheek with world-class capabilities would offer access to new technology,tools and techniques that the Dell may not nourish possessed more structured methodologies, procedures and documentation and a competitive advantage through expanded skills.Cost SavingCost implications are critical factor for any company when it chooses to outsource and Dell being no different. The single most important tactical reason fo r outsourcing is to reduce or control in operation(p) costs. Access to an outside providers pull down cost structure is one of the most compelling benefits of outsourcing. The general operating cost of the tech support would be significantly lower if the project was off shored to a more cost efficient location. Although cost benefits would not be realised in the immediate future but over the long run it promised huge cost savings.Accelerate Reengineering BenefitsOutsourcing is oft a by-product of another super proponentful management tool business process reengineering. It allows an governance to immediately realize the anticipated benefits of reengineering by having an outside organization one that is already reengineered to world-class standards process. Dell wanted to utilise the reengineered business process of the vendor to the fullest.Share Risks there are tremendous risks associated with the investments an organization makes in information technology kindred a call ce ntre. Dell believed that by outsourcing they would become more flexible, more dynamic and adaptable to attend changing opportunities. This would reduce the risk both financially and strategically in the long term.Redirect Resources to more Strategic ActivitiesEvery organization has limits on the resources available to it. Outsourcing permits the airtion of resources from non-core activities toward activities that provide a greater return in service of process the customer. Dell clearly saw tech support as its non- core activity and hence thought of outsourcing as a way to redirect its resources and attention to its core business activities like manufacturing and direct sales.The Stream StoryAfter having decided to outsource the tech support and after protective(predicate) vendor evaluation the eventual order for the outsourcing deal was struck with Stream Global Services. Stream was a business process outsource (BPO) provider specializing in customer relationship management servi ces including sales, customer bring off and technical support services. Tech support for the entire North America was shifted to Stream located in Mumbai, India. The contract signed was relatively neat term which needed evaluation in 4 years. Although, the initial a few(prenominal) years of the contract was a success and the company started reaping benefits from sales and profit generation. In 2007 the sales growth started to take a downward turn. Dell started to lose its marketplace share and HP had taken over the market as the premier brand. (Refer Appendix). While there were several(prenominal) factors in the downturn of the companys fortunes, the outsourcing deal with Dell was also said to be a reason. After four years into the deal and when the time for evaluation and re assure came along Dell decided not continue its relationship with Stream and the outsourcing deal went bust. There were several reasons for the failure of this particular deal.What went wrongQuality of Se rviceOne of the main reasons for unsuccessful deal was that the quality of service that Stream was offering gradually went down. As with any outsourcing deal the vendor tends to provide high quality service to begin with but over a period of time this quality tends to drop due to several reasons. The average time per call went up, there was more waiting time etc. Dell started to receive a lot of complaints from unsatisfied customers, which was destructive for the image of the company. Their competitors started offering better after sales services and Dell started to develop this reputation of having bad customer service. This resulted in sales displace and Dell loosing market share.Loss of ControlThe main business strategy of Dell was that it sold computers directly to customers. It is paramount for Dell to know the needs of its customers. After having outsourced its tech support they started to lose control over this aspect. The market and customer demands are constantly changing and its critical for Dell to endlessly be in close conjunction with these changes. Customer feedback is a intermediate through which they can keep track of the changing needs, but because tech support was outsourced they realised they did not have the control over feedback like they wanted.Viability of Service ProviderDell realised that Stream were not offering the services that was agreed upon. But due to flaws in the contract it was very difficult for them to make any headway into this matter. They realised that Stream did not have the technical proficiency that they had claimed to have had, thus resulting in lower service levels.Relative Size of CustomerAs the sales of the company grew there were greater customers needing technical assistance. This meant that there was a huge inflow of customers for Stream which they did not have the capacity to handle at that time. This resulted in service levels dropping and quality going down.The Issue of Trust intellect property became a key issue as well. Stream at the same time were providing services to other computer manufacturers and IT companies which were if not direct but in direct competition with Dell. Hence, confidentiality became an issue with this relationship.Lack of ExpertiseDell realised that Stream lacked the technical expertise that they expected. This was but inbred as Dell was the experts in designing and manufacturing the computers and they had the technical knowhow of the product. Even with extensive training Stream could not fully gain the technical expertise possessed by Dell.Hidden and Uncertain CostsAs in any outsourcing deal the uncertain costs and the unavowed cost are always the main reason why any deal is called off. The outsourcer in this case Dell realised that there was a lot hidden costs that was involved in the deal and thus the overall cost benefits they had expected would not be realised.Tip of the IcebergThe final gather up in the coffin of the deal came when the time for re- contracting had come along. As in many of the outsourcing cases the bargaining power of the vendor increases as the years go by. Stream had the knowledge that it had the upper hand when it came down to the bargaining power and demanded more money. Dell realised this and decided to bail out of the contract extension. It was a bold end on the part of Dell because in-sourcing or back sourcing always is a tough task for any company as knowledge transfers becomes a critical issue. Never the less the decision to bring back its technical support in-house was made. After a couple of years Dell again outsourced its tech support but after having the experience of a failed deal they were more careful with this deal.Conclusion RecommendationThe first and the firstly function of any company when deciding to outsource should be to evaluate its core competence. As mentioned above core competence gives a competitive edge over the competition. Clearly the technical support for Dell computers is a core function. The main reason for this being that as we saw that the sales started to drop and one of the reasons being the poor quality of customer service. After sales service is an order winner for most computer manufacturers as most of the customer choose to buy a certain brand based on the after sales support that they offer. Based on this analysis the following recommendations can be given. each(prenominal) recommendations given analysis its benefits and its limitations.1 . Offshore not out-source Dell should look to offshore the tech support part of its operations rather than outsource. This substance that they should retain control of the operation but try and move it offshore for a cheaper alternative. India, Philippines etc are cheaper alternatives that should be considered for future operations.Benefits They will retain much more control of the operations thus retaining the tacit knowledge and be in close contact with its customers. They will retain their core compet ence and will not end up losing their competitive edge.Limitations Initial capital for this is very large. Another limitation is that as in the case with outsourcing the overall cost of operations is not significantly low .This is because with a outsourcing vendor the cost can be reduced by means of economies of scale. Dell will not have this luxury and hence the cost as compared to outsourcing will be relatively high.2. Confidentiality AgreementsIn order to safeguard the intellectual property of the company, some sort of confidentiality agreement needs to be made between Dell and the vendor.Benefits The core competence of the company will not be shared with its rivals and Dell will not lose its competitive edge.Limitations It is very difficult to negotiate such kind of contracts with any vendor and such agreement and at times do not break much value in certain situations and countries.3. Quality over footingWhen evaluating a vendor quality and not price should be the foremost cr iteria. The capacity of the vendor to offer a certain kind of service should be looked upon first. Most outsourcing deals are looked at from a cost point of view and quality gets overlooked.Benefits Improved quality standards. The vendor will have means to cope with the change in customer quantity and demand. There will be less unsatisfied customers thus enhancing the reputations of the company which is decrease quickly for its poor customer service.Limitations Price goes up. Quality always comes at a price and better quality means paying more for such services. These vendors will not be able to meet the price standards of the cheaper vendor which will very often be the case.4. Short term contracts Dell should look at signing short term deals with the outsourcing vendors. ideally the length of the contract should be 2 -3 years after which it should be evaluated.Benefits Gives Dell more flexibility and opportunity to evaluate the situation of the deal. If Dell feels that the service levels are not up to the mark then it will give them an opportunity to re negotiate. It will put the bargaining power in the hands of Dell.Limitations The problem with negotiating short term contracts with vendors is that quite often they try and increase their price as they are not guaranteed return on their investment. So they try and increase their profit margins so that they can compensate it for the short length of the contract.ReferencesChristensen, Clayton M. (2001), The Past and Future of Competitive Advantage, Sloan concern look back, 42 (Winter),105-109.J. Barthelemy, The seven deadly sins of outsourcing,Academy of Management Executive17(2003) (2), pp. 87-97.Magretta J. 1998. The power of virtual integration an interview with Dell Computers Michael Dell. Har-vard Business Review 76(2) 72-84.Long, C., Vickers-Koch, M. (1995), Using core capabilities to create competitive advantage,Organizational Dynamics, Vol. 24 No.1, pp.6-20.Prahalad, C. K., G. Hamel. 1990. The core co mpetence of the organization. Harvard Business Review. May-June.Quinn, J. 2000. 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