The perceived impact of successful outsourcing on ...

Supply Chain Management: An International Journal The perceived impact of successful outsourcing on customer service management Kok Wei Khong

Article information: To cite this document: Kok Wei Khong, (2005),"The perceived impact of successful outsourcing on customer service management", Supply Chain Management: An International Journal, Vol. 10 Iss 5 pp. 402 - 411 Permanent link to this document: http://dx.doi.org/10.1108/13598540510624223 Downloaded on: 02 March 2015, At: 21:26 (PT) References: this document contains references to 28 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 3590 times since 2006*

Downloaded by Howard University At 21:26 02 March 2015 (PT)

Users who downloaded this article also downloaded: Mark Barratt, (2004),"Understanding the meaning of collaboration in the supply chain", Supply Chain Management: An International Journal, Vol. 9 Iss 1 pp. 30-42 http://dx.doi.org/10.1108/13598540410517566 Eric G. Olson, (2010),"Supply chain opportunity in an uncertain economic recovery", Supply Chain Management: An International Journal, Vol. 15 Iss 6 pp. 488-492 http://dx.doi.org/10.1108/13598541011080464 Charles G. Petersen, Charles Siu, Daniel R. Heiser, (2005),"Improving order picking performance utilizing slotting and golden zone storage", International Journal of Operations & Production Management, Vol. 25 Iss 10 pp. 997-1012 http:// dx.doi.org/10.1108/01443570510619491

Access to this document was granted through an Emerald subscription provided by 172684 []

For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download.

The perceived impact of successful outsourcing on customer service management Kok Wei Khong Monash University Malaysia, Petaling Jaya, Malaysia


Abstract Purpose – The purpose of this paper is to examine the perceived impact of outsourcing on customer service management. Design/methodology/approach – The examination was conducted via a survey on 124 companies in Malaysia. Using the framework from Elmuti, factors manifesting customer service management were regressed on the key factors manifesting successful outsourcing. Hence a model was contrived. Structural equation modelling (SEM) was used to estimate the model. Findings – The model was able to provide predictive implications on customer service management, given the activities of key factors manifesting successful outsourcing. In other words to improve customer service management, companies could control their outsourcing activities. Originality/value – This paper offers an approach to measure the effects of multiple independent variables on multiple dependent variables. Using SEM, multivariate analyses were mathematically represented in a single equation. In this equation, companies could holistically compose strategies to optimise their management in customer service. Keywords Outsourcing, Customer service management, Business performance Paper type Conceptual paper

implementation factors the company undertakes in order to achieve its objectives, goals and expectations (Elmuti, 2003). Customer service management (CSM) refers to how well the enterprise manages its customer service in terms of effectiveness, productivity and quality (Khong and Richardson, 2003). It must be stressed that the measures of both outsourcing and CSM are perceptual in nature. Discussion of the two constructs follows.

Introduction Outsourcing otherwise known as subcontracting is the strategic use of resources outside the company to perform tasks that are usually handled internally by the company itself. In today’s competitive world, successful outsourcing is a powerful tool for companies to generate value and gain competitive edge over rivals. Companies can focus on their core competencies and rely on their outsourcing partners for non-critical processes and operations. The formed strategic alliance can normally create synergy amongst companies that can lead to short and long term benefits. Some benefits are monetary and some are non-monetary. However, one of the common non-monetary benefits of successful outsourcing is customer service. Although the positive impacts of outsourcing are evident in many academic literatures and texts, empirical findings particularly in countries like Malaysia are scarce. This paper attempts to examine the effectiveness of successful outsourcing on the aspects of customer service management. It must be highlighted that the effectiveness of outsourcing is measured using perceived measures as described by Elmuti (2003).

Outsourcing Outsourcing is essential to companies. Successful companies share the same success factors; they have clear understanding of their core-activities (Barthelemy, 2003); have done adequate research and planning; and most importantly have developed clear objectives, goals and expectations of outsourcing activities (Elmuti, 2003). Another important ingredient for success is a good partner. Essentially in outsourcing agreements, the relationship between the companies and their partners are based on trust and contracts. So it is essential that the right partners are selected based on criteria like credibility, expertise, and reliability (Elmuti, 2003). This will eventually lead to closer ties and relationships (Barthelemy, 2003). It is also important to get the right people involved in managing outsourcing efforts (Elmuti, 2003). Therefore adequate training, infrastructure and facilities are essential (Elmuti, 2003). One of the most serious problems a company can face when outsourcing is resistance from its employees. To make outsourcing work, there has to be effective and wellcoordinated communication among cross-functional areas, support, commitment, and involvement from the top management (Elmuti, 2003). Employees must be treated appropriately by providing adequate support and reasonable remuneration deals (Barthelemy, 2003). At the same time the management needs to keep high morale and performance among remaining employees (Barthelemy, 2003). Other factors affecting outsourcing in successful organisations are emphasis on short- and long-term benefits, adequate and

Literature concerning outsourcing Two important constructs are discussed, i.e. successful outsourcing and their impact on customer service management. Successful outsourcing refers to what The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal 10/5 (2005) 402– 411 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540510624223]

402


The perceived impact of successful outsourcing on CSM

Supply Chain Management: An International Journal

Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

objective performance criteria, feedback and control mechanism, effective use of performance incentives and penalties, and flexibility in anticipating change (Elmuti, 2003). Conversely factors affecting outsourcing in unsuccessful companies are unclear objectives and expectation, inadequate and sketchy plans, poor choices of outsourcing partners, poor contract, inadequate skills and lack of support infrastructure to deal with outsourcing, insufficient involvement from topmanagement, poor organisational communication, cross functional political problems, inadequate control systems, employee’s fear of job lost and change, decline in morale and performance of remaining staff, and lack of flexibility (Elmuti, 2003). Unsuccessful companies are also those who adopt the tactical rather than strategic approach in dealing with outsourcing (Elmuti, 2003). Companies should also take heed of hidden cost and risks that can increase the cost of developing the outsourcing programmes (Barthelemy, 2003). For some companies, outsourcing has enabled them to focus on their core competencies and improve overall performance while leaving the non-core activities to specialised third-parties (Thomas, 2004). Outsourcing can also provide companies with competitive advantage like better access to new markets, bigger pool of resources, higher level of skills and leading technology (Kolawa, 2004). Overall successful implementation of outsourcing strategy will help companies to improve organisational competitiveness and financial performance, cut cost, increase capacity, productivity, efficiency, and profitability (Elmuti, 2003). Based on the discussion above, a probable table of key factors manifesting successful outsourcing can be depicted. Table I shows these factors. Table II depicts the sources where the variables manifesting successful outsourcing were found. Although the variables were derived by Elmuti (2003), the author believes that these variables can succinctly describe the key success factors of successful outsourcing.

2000). As competition intensifies, customers find themselves relishing the options and alternatives various companies can offer them. It they are not satisfied with the current products or services, they can easily switch to others. Therefore it is important to ensure customers continue to re-buy products and services. Consequently the need for good CSM is essential. According to Khong and Richardson (2003), appropriate CSM can expedite and enhance customer rebuys, hence leading to improved customer satisfaction, customer retention and management of customer relationship. An appropriate CSM should constitute important variables such as market research into consumer behaviour and expectations, customer databases and records, complaint and suggestion systems, management of service quality to meet customer expectations, product or service improvements, efficient customer handling, and lost customer analysis. Table III shows the variables manifesting good CSM. These manifesting variables were based on the scopes derived by various sources shown in Table IV. As mentioned, the paper aims to examine the perceived impact of successful outsourcing on CSM. It is expected that the former will positively improve the latter (Elmuti, 2003; Quinn, 2000; Lambert et al., 1998).

The survey and method A survey was conducted on 1,000 companies across Malaysia. The selection of these companies is based on random sampling. A questionnaire was delivered to each company via post. Participants from these companies were expected to response in three weeks time. After which, a reminder will be sent all the companies to expedite participation. Participants were asked to answer two important sections in the questionnaire; one with regards to successful outsourcing and the other to CSM. In successful outsourcing, they were asked to rate the degree of usefulness of 14 variables derived by Elmuti (2003) in association with their companies’ outsourcing strategies (see Table I). In CSM, they were asked to rate ten variables in relation to their companies’ customer service management. The rating was based on an interval scale from 1 to 10, where 10 is “strongly agree” while 1 is “strongly disagree”. Of the 1,000 questionnaires sent to the 1,000 companies, 124 questionnaires were returned: a 12.4 per cent response rate. This was after reminders were made to the companies. Completed questionnaires continued to trickle in for another two months after the day the questionnaires were sent out. Of the 124 questionnaires, 124 questionnaires were empty and some pages were missing from the questionnaire; hence omitted from analysis. The author believes that the response rate is considerably decent since no assistance was sought from non-profit and semi-owned government organisations. This rate is considered acceptable (Hague and Jackson, 1999; Churchill, 1995). In addition, the required sample size was within the threshold of 100-150 for further analysis (Hair et al., 1998). In order to formulate an appropriate statistical procedure, the methodologies recommended by Hair et al. (1998), Bontis (1998), and Khong and Richardson (2003) were used. From these methodologies, causal relationships between key success drivers of outsourcing and its impact, i.e. customer service management, will be established. The recommended methodologies, in sequential order, are:

CSM Customers are the driving force of companies striving for success. Survival of these companies evidently depends on their customers (Lewis, 2000; Kotler et al., 2001; Kotler, Table I The perceptual measures of successful outsourcing Key factors manifesting successful outsourcing A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12 A13 A14

Clear objectives and expectations of outsourcing activities Choice of right outsourcing partners Adequate skills to negotiate a sound contract Adequate planning during all various phases of outsourcing Effective organisational communication Well coordinated effort among cross-functional areas High and effective support and involvement by top management Effective use of performance incentives and penalties Getting the right people involved Adequate supporting infrastructures High morale and performance of the remaining employees Emphasis on short- and long-term benefits Adequate and objective performance criteria and feedback Flexibility in anticipating change

Source: Elmuti (2003)

403



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

Table II The sources deriving the variables of successful outsourcing

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12 A13 A14

Variables manifesting successful outsourcing

Sources

Clear objectives and expectations of outsourcing activities Choice of right outsourcing partners Adequate skills to negotiate a sound contract Adequate planning during all various phases of outsourcing Effective organisational communication Well coordinated effort among cross-functional areas High and effective support and involvement by top management Effective use of performance incentives and penalties Getting the right people involved Adequate supporting infrastructures High morale and performance of the remaining employees Emphasis on short- and long-term benefits Adequate and objective performance criteria and feedback Flexibility in anticipating change

Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti Elmuti

(2003); (2003) (2003); (2003); (2003) (2003) (2003); (2003); (2003) (2003) (2003) (2003) (2003); (2003)

Corbett (1999) Sinderman (1995) Guterl (1999)

Foster (1999); Jones (1997) Foster (1999); Jones (1997)

Ramarapu et al. (1997)


Source: Elmuti (2003)

employees and 100 to 500 employees. They represent 80.6 per cent of the total response rate (12.4 per cent). The annual revenue and total operation costs of participating companies are shown in Table VII. Referring to the table, most companies have their annual revenue and total operation costs within the thresholds of less than RM 10 million and RM 10 million to 50 million. They represent 71 per cent and 83.9 per cent of companies within the abovementioned thresholds of annual revenue and total operation costs respectively. Since the recommended sample size when using further analysis such as SEM is 100 and 150, the sample size of 124 from the survey is deemed sufficient (Ding et al., 1995; Hair et al., 1998).

Table III The measures of CSM Variables manifesting CSM B1 B2 B3 B4 B5 B6 B7 B8 B9 B10

Market research is conducted to discover customers’ expectation Market research is conducted to monitor changes in customer satisfaction There is a record of customers’ requests, complaints and transactions for future reference Customers are requested to provide feedback on the products/ services Customers’ complaints and feedback are used to improve the products/services There is a review of mistakes (post-mortem) when a customer is lost Customers are satisfied with the products/services; thus no complaints Customers are satisfied with the customer service; thus no complaints Customers are the most important factor in the organisation Customer relationship is well managed by the enterprise

Findings Reliability analysis In order to measure the internal consistency of variables, measured by interval scale items, in a summated scale, reliability analysis is conducted. Therefore the summated scales, which are the concepts or constructs, should be measured by highly correlated manifesting variables (see Tables I and III). In short, the summated scale of the manifesting variables is consistently measuring their respective constructs. In this paper, the summated scales are successful outsourcing and CSM. The results of reliability analysis using SPSS are shown in Tables VIII-X. Tables VIII– IX depict the internal consistency of both successful outsourcing and CSM. Their item-total correlations show respectable values of above the 0.5 threshold. In addition, their Cronbach’s a is above the 0.7 threshold (see Table X). Consequently all variables were retained for next analysis. These results reflect the reliability and consistency of the survey instrument (questionnaire) in measuring the two concepts (constructs).

Source: Khong and Richardson (2003)

(1) Reliability analysis. (2) Factor analysis. (3) Structural equation modelling (SEM).

Descriptive findings Based on the 124 questionnaires, 44 (35.5 per cent) were from industrial products companies, 24 (19.4 per cent) were from consumer products companies, 4 (3.2 per cent) were from insurance companies, 8 (6.5 per cent) were from retail companies and 44 (35.5 per cent) were from other primary businesses like agriculture, banking and finance, construction, transportation and government organisations. Table V shows the breakdown of participating companies. The total number of employees in the company is shown in Table VI. It shows that most participating companies have employee thresholds of less than 50 employees, 50 to 100

Factor analysis The purpose of this analysis is to reduce the 24 variables, of which 14 are manifesting successful outsourcing and ten are manifesting CSM, to a more manageable set of factors (Aaker and Day, 1986). At this stage no constraints are made on the 404



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411


Table IV The scope and sources deriving the variables of CSM Variables manifesting CSM

Scope

Sources

B1 Market research is conducted to discover customers’ expectation B2 Market research is conducted to monitor changes in customer satisfaction B3 There is a record of customers’ requests, complaints and transactions for future reference B4 Customers’ are requested to provide feedback on the products/ services B5 Customers’ complaints and feedback are used to improve the products/services B6 There is a review of mistakes (post-mortem) when a customer is lost B7 Customers are satisfied with the products/services; thus no complaints B8 Customers are satisfied with the customer service; thus no complaints B9 Customers are the most important factor in the organisation B10 Customer relationship is well managed by the enterprise

Market research

Khong and Richardson (2003); Kotler et al. (2001); Cateora and Graham (1999)

Customer assessment (evaluation, Khong and Richardson (2003); Kotler monitoring and control) and handling et al. (2001); Cateora and Graham (1999) of customers

Customer satisfaction

Khong and Richardson (2003); Kotler et al. (2001)

Customer relationship management (CRM)

Khong and Richardson (2003); Hammer and Champy (1993); Hammer and Stanton (1995)

Source: Khong and Nair (2004)

Table V Types of primary businesses that participated in the survey Primary business

Table VIII Results of reliability analysis for successful outsourcing

Frequency (n)

%

Cumulative %

44 24 4 8 44 124

35.5 19.4 3.2 6.5 35.5 100.0

35.5 54.8 58.1 64.5 100.0

Industrial products Consumer products Insurance Retail Others primary businesses Total

Variables A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12 A13 A14 Reliability statistics of Cronbach’s alpha

Table VI No. of employees in participating companies No. of employees

Frequency (n)

%

Cumulative %

Less than 50 50-100 100-500 500-1,000 1,000-5,000 More than 5,000 Total

32 20 48 12 12 0 124

25.8 16.1 38.7 9.7 9.7 0 100.0

25.8 41.9 80.6 90.3 100.0 100.0

Corrected item-total correlation

Cronbach’s alpha (a) if item deleted

0.861 0.848 0.899 0.927 0.905 0.882 0.899 0.837 0.927 0.912 0.929 0.937 0.944 0.874

0.984 0.984 0.983 0.982 0.983 0.983 0.983 0.984 0.982 0.983 0.982 0.982 0.982 0.983 0.984

Table VII The frequency of participating companies classified within the respective thresholds of annual revenue and operation costs Amount annual revenue/operation costs Less than RM 10 million (M) RM 10M-RM 50M RM 50M-RM 100M RM 100M-RM 500M RM 500M-RM 1,000M More than RM 1,000M Total

Frequency (n)

%

Cumulative %

44/72 44/32 12/8 16/8 4/4 4/0 124

35.5/58.1 35.5/25.8 9.7/6.5 12.9/6.5 3.2/3.2 3.2/0 100.0

35.5/58.1 71.0/83.9 80.6/90.3 93.5/96.8 96.8/0 100.0/100.0

405



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

Table IX Results of reliability analysis for CSM

Variables


B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 Reliability statistics of Cronbach’s alpha

Table XII Rotate component matrix of variables manifesting CSM

Corrected item-total correlation

Cronbach’s alpha (a) if item deleted

0.725 0.812 0.849 0.834 0.850 0.747 0.894 0.889 0.786 0.907

0.959 0.956 0.955 0.956 0.955 0.959 0.954 0.953 0.958 0.952

B1 B2 B3 B4 B5 B6 B7 B8 B9 B10

Successful outsourcing CSM

0.960

CSM. Based on the factor analysis, two factors were extracted. Consequently, factor A will manifest the construct of successful outsourcing while factor A will CSM. To confirm how the variables should manifest the construct, the next stage of factor analysis is conducted. In this stage of factor analysis variables were assigned, based on the results of the previous factor analysis, to specified factors that are called constructs now. Variables with high factor loadings will be assigned to manifest the respective constructs. Variables manifesting the constructs with low factor loadings will be constrained to zero (Hair et al., 1998, pp. 616-17). Carmines and Zeller (1979) suggested that the acceptable threshold for factor loadings is 0.7 or above. However the author suggested that the acceptable threshold for factors loadings be increased to 0.9 to make analysis more feasible. In short, variables manifesting constructs with loadings less than 0.9 will be constrained to zero. Results of this stage of factor analysis are shown in Tables XIII-XIV. Results in Table XIII show that variables A3, A4, A5, A7, A10, A11, A12, and A13 manifesting successful outsourcing were retained because their factor loadings are above the 0.9 threshold. Results in Table XIV show that variables B7, B8 and B10 manifesting CSM were retained for further analysis after having factor loadings higher than the recommended 0.9 threshold. The retained variables will be estimated using AMOS, a statistical package for SEM.

Cronbach’s a Recommended Cronbach’s a 0.984 0.960

0.7 or above threshold

variable loadings. In short, each variable will have indicative loadings on the set of factors reduced. The results of this factor analysis are shown in Tables XI and XII. It must be highlighted that the factors were extracted and rotated via principal components method and varimax method respectively. The component matrix for successful outsourcing and CSM revealed only two significant factors, i.e. factors A and B respectively. Therefore the solution was not rotated. Referring to the literature mentioned earlier, the two concepts (constructs) examined were successful outsourcing and Table XI Component matrix of variables manifesting successful outsourcing Variables A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12 A13 A14

0.772 0.851 0.879 0.861 0.876 0.789 0.921 0.919 0.834 0.935

Note: The extraction method is principal component analysis. The solution was not rotated because there only one component was extracted

Table X Reliability internal consistency test (Cronbach’s alpha) Concept/construct

Component Factor C1

Variables

Component Factor A 0.883 0.872 0.916 0.938 0.918 0.898 0.914 0.857 0.938 0.924 0.939 0.945 0.950 0.891

Table XIII Variables retained to manifest successful outsourcing Variables A3 A4 A5 A7 A9 A10 A11 A12 A13

Note: The extraction method is principal component analysis. The solution was not rotated because there only one component was extracted

Component Construct A (successful outsourcing) 0.916 0.938 0.918 0.914 0.938 0.924 0.939 0.945 0.950

Note: Variables A1, A2, A6, A8 and A14 were omitted from further analyses

406



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

where j is the exogenous construct and d is the measurement error for successful outsourcing (note that E ðdÞ ¼ 0) (Anderson and Fornell, 2000; Arbuckle and Wothke, 1999). Lx is the corresponding loadings of successful outsourcing. The corresponding equation for (1) can be written as: 0 1 x1 B C B x2 C ð2Þ @ A x3

Table XIV Variables retained to manifest CSM, i.e. customer management and customer assessment Component Construct B (CSM)

Variables B7 B8 B10

0.924 0.932 0.934


Note: Variables B1, B2, B3, B4, B5, B6 and B9 were omitted from further analyses

In order to observe CSM (endogenous construct), the equation is given as:

SEM SEM is used to estimate “multiple and interrelated dependence relationship and the ability to represent unobserved concepts in these relationships and account for measurement error in the estimation process” (Hair et al., 1998, p. 584). SEM was used in this paper because it can estimate “a series of separate, but interdependent, multiple regression equations simultaneously” in a specified structural model (Hair et al., 1998, p. 584). It can estimate the extent of causal relationships between successful outsourcing, customer management and customer assessment. For simplicity purposes in mathematical notations, variables in constructs A and B will be relabelled (see Table XV). Let the variables manifesting successful outsourcing and CSM be defined as vectors, where X ¼ ðx1 ; :::; x9 Þ and Y ¼ ð y1 ; :::; y3 Þ respectively. Let the loadings for successful outsourcing and CSM be defined as Lx ¼ ðlx1 ; . . . ; l9x Þ and Ly ¼ ðly1 ; . . . ; ly3 Þ respectively. In order to examine the causal relationships between successful outsourcing and CSM, the following general equations are given below. To observe the general equation of successful outsourcing (exogenous construct), the equation given is: X ¼ Lx j þ d

Y ¼ Ly h þ 1

where h is the endogenous construct and 1i is the measurement error for CSM (note that E ð1Þ ¼ 0) (Anderson and Fornell, 2000; Arbuckle and Wothke, 1999). Ly is the corresponding loadings of CSM. The corresponding equation for (3) can be written as: 0

1 0 y1 0 1 l1 y1 11 B C B yC B C B y2 C ¼ B l2 Ch þ B 12 C @ A @ A @ A ly3 y3 13

Construct A

Construct B

h ¼ Gj þ bh þ z

CSM B7 B8 B10

h ¼ Gj

Relabelled variables

ð6Þ

Equation (6) elucidates the presence of only one endogenous and exogenous construct. To simplify it, the following equation can be give as:

X1 X2 X3 X4 X5 X6 X7 X8 X9

0.924 0.932 0.934

ð5Þ

where h and j are vectors of unobserved endogenous and exogenous variables respectively (Anderson and Fornell, 2000; Hair et al., 1998). bðnxnÞ and jðnxmÞ are matrix coefficient parameters for h and G respectively (where “m” is the number of exogenous constructs and “n” is the number of endogenous constructs). Also note that E ðzÞ ¼ 0 (Anderson and Fornell, 2000; Arbuckle and Wothke, 1999). Based on the previous equations, the general equation for the structural model comprising the relationships between the exogenous construct and endogenous construct can be given as follows:

ð1Þ

Successful outsourcing A3 0.916 A4 0.938 A5 0.918 A7 0.914 A9 0.938 A10 0.924 A11 0.939 A12 0.945 A13 0.950

ð4Þ

Generically the general equation for the structural model is:

Table XV The relabelled variables manifesting the two constructs, i.e. successful outsourcing and CSM (customer management and customer assessment) Variables

ð3Þ

h ¼ g11 j

ð7Þ

Referring to equation (7), g11 shows the relationship of successful outsourcing to CSM. The relationships between successful outsourcing, customer management and customer assessment are depicted in Figure 1. It holistically shows the entire relationships in a causal format specifying the structural and measurement models given in the previous equations. Referring to Figure 1, the structural and measurement models forms the “conditional expectation of predictands for given values of the predictors” (Anderson and Fornell, 2000). Inevitably these models are stochastic in nature as they impart prediction over the observed variance-covariance matrix of the dataset (Hair et al., 1998; Anderson and Fornell, 2000).

Y1 Y2 Y3

Note: X and Y are vectors of constructs A and B respectively

407



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

Figure 1 The SEM path diagram of successful outsourcing and CSM

Based on the results in Table XVI, the equation of the structural model can be specified as:


h ¼ 0:77j

ð8Þ

According to Figure 2, square multiple correlations (R2) of the construct CSM is reported at 0.59. This means that the construct successful outsourcing accounts for 59 per cent of the overall variation in the construct CSM. The remaining 41 per cent denotes external factors and influences that are beyond the scope of this paper. These external factors and influences are denoted as z as suggested in equation (5). The lower z the more likely the structural model is able to explain the causal relationships between the two above-mentioned constructs. Degrees of freedom (df) is 53 while chi-square is 84.365. The overall results are displayed in Figure 2. It shows the degree of relationship of successful outsourcing to CSM. Other important results are shown in Table XVII. The table shows the standard regression weights of the latent variables manifesting the construct successful outsourcing and CSM. These regression weights denote the degree of association between the construct and the manifesting variables. For example if CSM increased by 1 standard deviation, the standard deviation of X1 will increase by 0.894. These results are important to identify key outsourcing factors that can improve CSM. Discussion follows. Figure 2 The structural equation modelling of CSM and perceived measures of business performance for Malaysian banks and finance companies

Modelling and hypothesis testing The structural model was estimated using the Maximum Likelihood Estimation (MLE) procedure. According to Hair et al. (1998) and Wright (2000), results of MLE correspond to events that are likely to happen based on the observed variance-covariance matrix. In this paper SPSS AMOS was used to estimate the relationship of Successful Outsourcing to CSM. In order to examine the relationship, the following hypotheses are set. H0. Successful outsourcing has no positive effects on CSM (g ¼ 0). H1. Successful outsourcing has positive effects on CSM (g $ 0). Results in Table XVI shows that the exogenous construct (j) has a positive and significant association with the endogenous construct (h) (g ¼ 0:83; p ¼ 0:000). Based on this result, there is sufficient evidence to conclude that that successful outsourcing (j) has positive effects on CSM (h) of banks and finance companies (do not reject H1).

Table XVI Testing the hypothesis Standardised parameter Construct a estimates Significant associations level (SPE) (g) p-value (yes/no) Hypothesis

j to h 0.05

0.77

0.000

Yes

Reject H0 Assert H1

Note: a level denotes significant level (probability of committing a Type I error)

408



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

Table XVII Standardised regression weights between the manifesting variables and the construct CSM and successful outsourcing

Performance criteria and feedback should also be made adequate, objective and measurable. In an overall pack 1 has emphasis on the strategic planning, implementing and controlling of outsourcing efforts. These approaches are often looked at in a short and long-term perspective. Similarly, pack 2 functions like a facilitator in expediting the effectiveness of outsourcing efforts, strategic planning, implementing and controlling. The key drivers of the facilitator are effective communication, adequate infrastructures, top management support and involvement, and skilful contract negotiation. The packs complement each other and form an efficient mechanism towards successful outsourcing. Referring to Figure 3, successful outsourcing can be achieved when there are appropriate outsourcing efforts, i.e. strategic planning, implementing and control. Strategic planning refers to the adequacy of comprehensive planning during phases of outsourcing. Implementing refers to getting the right people involve in the job and maintaining high moral and performance standards of staff. Controlling refers to the adequacy and objectivity in setting performance criteria and how frequent feedbacks are made to improve the outsourcing efforts. There should also be appropriate facilitations to support these efforts. When outsourcing efforts are appropriately carried out, companies can reap the shortand long-term benefits. Subsequently, successful outsourcing is expectedly attained. The suggested strategic approach in Figure 3 may not fundamentally underlie a particular theoretical framework, but the dataset provided sufficient evidence to elucidate a practical and logical approach. Referring to the factor analysis in Table XV, only three manifesting variables of CSM were retained, i.e. B7, B8, and B10. These variables refer to the satisfaction and relationship management of customers (see Table IV). When the outsourcing effort is successful, customers are likely to be satisfied with their products or services. Furthermore, customers are also likely to be satisfied with the customer services offered by a company. In both instances, complaints are likely to be lesser. A successful outsourcing effort can also enable the company to better manage its customer relationship. Referring to the literature previously mentioned, it is pervasive that successful outsourcing should result in positive CSM. Therefore, a successful outsourcing effort can lead to improved customers’ relationship management and satisfaction (see Figure 4).

Standardised regression weights Y1 Y2 Y3 X1 X2 X3 X4 X5 X6 X7 X8 X9

ˆ ˆ ˆ ˆ ˆ ˆ ˆ ˆ ˆ ˆ ˆ ˆ

CSM CSM CSM Outsourcing Outsourcing Outsourcing Outsourcing Outsourcing Outsourcing Outsourcing Outsourcing Outsourcing

Estimate 0.929 0.957 0.956 0.894 0.931 0.915 0.911 0.932 0.913 0.944 0.952 0.942


Discussion Referring to the findings in the survey, successful outsourcing can positively affect CSM. Exploratory factor analysis shows that the factor loadings of successful outsourcing are high in each manifesting variables (see Table XVIII). In short, the factor extracted from the analysis can describe successful outsourcing sufficiently. Referring to Table XVIII variables A1, A2, A6, A8 and A14 were omitted from further analyses due to the setting of 0.9 threshold. The factor loadings of the omitted variables exhibited lower values compared to the rest of the manifesting variables of successful outsourcing. Therefore, the factor should maintain the fundamental nature of successful outsourcing. In order to see the extent of variables manifesting successful outsourcing, Table XVIII is exhibited. From the remaining nine variables manifesting successful outsourcing, they can be ranked according to their importance in the construct. The variance of standardised regression weights among the nine variables is not large. However A12, A11, A13, A9 and A4 are among the highest in terms of SRWE, i.e. pack 1, while A5, A10, A7 and A3 are in pack 2. Pack 1 is likely to involve appropriate planning in all outsourcing phases. The planning should emphasise on short and long-term benefits. Pack 1 also implores the need for high moral and performance from employees. In order to do so, companies should have the right employees for the right jobs.

Table XVIII The ranking derived from the extent of variables manifesting successful outsourcing

Variables manifesting successful outsourcing

Ranking (1 being the most important)

Packs based on small variances in (SRWE)

A12 Emphasis on short- and long-term benefits A11 High morale and performance of the remaining employees A13 Adequate and objective performance criteria and feedback A9 Getting the right people involved A4 Adequate planning during all various phases of outsourcing A5 Effective organisational communication A10 Adequate supporting infrastructures A7 High and effective support and involvement by top management A3 Adequate skills to negotiate a sound contract

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6 Rank 7 Rank 8 Rank 9

Pack 1

409

Pack 2

Standardised regression weights estimates (SRWE) 0.952 0.944 0.942 0.932 0.931 0.915 0.913 0.911 0.894



Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411


Figure 3 The strategic approach of outsourcing

Figure 4 The impact of a successful outsourcing effort on customers’ relationship management and satisfaction

References Aaker, D.A. and Day, G.S. (1986), Marketing Research, 3rd ed., John Wiley & Sons, New York, NY, pp. 443-53. Anderson, E.W. and Fornell, C. (2000), “Foundations of the American customer satisfaction index”, Total Quality Management, Vol. 11 No. 7, pp. 869-82. Arbuckle, J.L. and Wothke, W. (1999), AMOS 4.0 User’s Guide, SmallWaters Corporation, Chicago, IL. Barthelemy, J. (2003), “The seven deadly sins of outsourcing”, Academy of Management Executive, Vol. 17 No. 2, pp. 87-99. Bontis, N. (1998), “Intellectual capital: an exploratory study that develops measures and models”, Management Decision, Vol. 36 No. 2, pp. 63-7. Carmines, E.G. and Zeller, R.A. (1979), Reliability and Validity Assessment, Sage Publications, Thousand Oaks, CA, pp. 59-70. Churchill, G.A. (1995), Marketing Research: Methodological Foundations, 6th ed., The Dryden Press, London, pp. 661-85. Corbett, M.F. (1999), “Multiple factors spur outsourcing growth”, available at: www.outsourcing-journal.com/ jan1999-analysta.html Ding, L., Velicer, W.F. and Harlow, L.L. (1995), “Effects of estimation methods, number of indicators per factor and improper solutions on structural equation modelling fit indices”, Structural Equation Modelling, Vol. 2 No. 2, pp. 119-43. Elmuti, D. (2003), “The perceived impact of outsourcing on organisational performance”, Mid-American Journal of Business, Vol. 18 No. 2, pp. 33-7. Foster, T.A. (1999), “Lessons learned”, Logistics Management and Distribution Journal, Vol. 38 No. 4, pp. 67-9. Hague, P. and Jackson, P. (1999), Market Research: A Guide to Planning, Methodology and Evaluation, 2nd ed., Kogan Page, London, pp. 155-7. Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1998), Multivariate Analysis, 5th ed., Prentice-Hall, Englewood Cliffs, NJ. Jones, W. (1997), “Outsourcing basics”, Information Systems Management, Vol. 14 No. 1, pp. 66-9.

Conclusion In this paper, an empirical framework was created to assess the impact of successful outsourcing on CSM in Malaysian companies. As a result, a measurement and structural equation was contrived. It offers a mathematical interpretation of how outsourcing can affect CSM. Results show that successful outsourcing can effectively lead to improved CSM. The paper also associated the impact of successful outsourcing effort to improved customer satisfaction and relationship management. The two manifested the construct CSM. The questionnaire used is evidently reliable as results show that it can consistently measure the respective constructs, i.e. successful outsourcing and CSM. Since the paper is exploratory in nature, in an empirical manner using SEM, a second phase of this research can entail the impact of how successful effort of outsourcing can improve perceived measures of business performance as well as CSM. The modelling framework will be more complex. The stochastic nature of the model can entail a more realistic and holistic view of the impact of outsourcing. 410




Kok Wei Khong

Volume 10 · Number 5 · 2005 · 402 –411

Khong, K.W. and Nair, M. (2004), “The effects of customer service management on business performance in Malaysian banking industry: an empirical analysis”, International Journal of Bank Marketing. Khong, K.W. and Richardson, S. (2003), “Business process re-engineering (BPR) in Malaysian banks and finance companies”, Managing Service Quality, Vol. 13 No. 1, pp. 54-71. Kolawa, A. (2004), “Outsourcing is not the enemy”, Wall Street Journal (Eastern Edition), February 24, p. 2. Kotler, P. (2000), Marketing Management, 10th ed., Prentice Hall, Englewood Cliffs, NJ. Kotler, P., Armstrong, G., Brown, L. and Adam, S. (2001), Marketing, 5th ed., Prentice-Hall, Sydney. Lambert, D.M., Stock, J.R. and Ellram, L.M. (1998), Fundamentals of Logistics Management, McGraw-Hill, New York, NY. Lewis, S. (2000), “Customer-centred business key to survival”, Asian Business, Vol. 36 No. 10, p. 63. Quinn, B.J. (2000), “Outsourcing innovation: the new engine of growth”, Sloan Management Review, Vol. 41 No. 14, pp. 13-23.

Ramarapu, N., Parzinger, M.J. and Lado, A.A. (1997), “Issues in foreign outsourcing: focus on applications development and support”, Information Systems Management, Vol. 14 No. 2, pp. 27-31. Sinderman, M. (1995), “Outsourcing gains speed in corporate world”, National Real Estate Investor, Vol. 37, pp. 42-50. Thomas, P. (2004), “Small business – case study: the time to diversify is before it’s too late”, Wall Street Journal (Eastern Edition), March 2, p. B4. Wright, R.E. (2000), “Survival analysis”, in Grimm, L.G. and Yarnold, P.R. (Eds), Reading and Understanding More Multivariate Statistics, American Psychological Association, Washington, DC, pp. 363-407.

Further reading Bank Negara Malaysia (2002), “BNM: about the bank”, available at: www.bnm.gov.my/en/About/index.asp (accessed 13 March 2002). Guterl, F. (1996), “How to manage your outsourcer”, Datamation, Vol. 42, pp. 79-83.

411


This article has been cited by: 1. Riyad Eid, Hatem El-Gohary. 2014. Testing and Validating Customer Relationship Management Implementation Constructs in Egyptian Tourism Organizations. Journal of Travel & Tourism Marketing 31, 344-365. [CrossRef] 2. Elaine Ee, Hasliza Abdul Halim, Thurasamy Ramayah. 2013. HR outsourcing success: does partnership quality variables matter?. Journal of Business Economics and Management 14:4, 664-676. [CrossRef] 3. Ooi Ee, Hasliza Abdul Halim, T. Ramayah. 2013. The effects of partnership quality on business process outsourcing success in Malaysia: key users perspective. Service Business 7:2, 227-253. [CrossRef] 4. Riyad Eid, Hatem El-Gohary. 2013. The impact of E-marketing use on small business enterprises' marketing success. The Service Industries Journal 33:1, 31-50. [CrossRef] 5. kimchangbong, 장장장. 2012. An Empirical Study on Factors Affecting Global Sourcing Usage and its Performance in Korean Export-Import Company. The e-Business Studies 13, 101-119. [CrossRef] 6. Hatem El-Gohary. 2012. Factors affecting E-Marketing adoption and implementation in tourism firms: An empirical investigation of Egyptian small tourism organisations. Tourism Management 33:5, 1256-1269. [CrossRef] 7. Alessio Ishizaka, Rebecca Blakiston. 2012. The 18C's model for a successful long-term outsourcing arrangement. Industrial Marketing Management 41:7, 1071-1080. [CrossRef] 8. Hasliza Abdul‐Halim, Noor Hazlina Ahmad, T. Ramayah. 2012. Unveiling the motivation to outsource among SMEs. Business Strategy Series 13:4, 181-186. [Abstract] [Full Text] [PDF] 9. Hasliza Abdul‐Halim, Norbani Che‐Ha. 2010. HR outsourcing among Malaysian manufacturing companies. Business Strategy Series 11:6, 363-370. [Abstract] [Full Text] [PDF] 10. T. R. Ramanathan. 2009. The role of change management in implementing the offshore outsourcing business model: a processual view. Service Business 3:4, 341-358. [CrossRef] 11. Brian J. Fifarek, Francisco M. Veloso, Cliff I. Davidson. 2008. Offshoring technology innovation: A case study of rare-earth technology. Journal of Operations Management 26:2, 222-238. [CrossRef]