Wall-e and 9 movie
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Watch at least two of the following movies:
• Make a comprehensive reaction paper for the two movies in no less than
300 words each.
• Make a comparative ...
13 years ago
Tuesday, October 13, 2009
The decade of the 1990s was one of constraint for higher education. Declining student enrollments, state budget cuts, decreased funding for research, and increased pressure to limit tuition growth resulted in diminished revenue sources for colleges and universities (Ender and Mooney, 1994). To remain competitive and to improve service in the face of declining resources, higher education has increasingly turned to several popular management approaches, including outsourcing (Jefferies, 1996).
Outsourcing, also referred to as contracting, is a form of privatization that refers to a university's decision to contract with an external organization to provide a traditional campus function or service. The contractor then either takes over the employees of the university, paying the group according to its standards, or replaces the university employees with its own staff (Ender and Mooney, 1994).
Outsourcing assumes that if an institution cannot provide a service or product at less cost than, and of equal quality to, an external provider, then it should purchase the service or product from an external provider. Advocates of outsourcing argue that the private sector provides service more efficiently and at lower cost than the public sector, which is unmotivated by profit (Jefferies, 1996). They point out that outsourcing to a contractor can reduce a college's or university's labor and benefits costs, provide a single point of accountability, and provide predictable costs; the resulting savings allows the institution to focus more resources on its core educational operations -- teaching and research (Ender and Mooney, 1994). Colleges and universities are testing these theories, increasingly outsourcing more of their functions in an effort to reduce costs, increase service efficiencies, and boost income (Jefferies, 1996).
WHAT FUNCTIONS ARE BEING OUTSOURCED?
Outsourcing has traditionally been used to operate campus bookstores and dining services. It has more recently become a legitimate option for additional campus functions, including facilities operation, computer services, security, child care, residence halls, teaching hospitals, remedial classes, and even entire institutions (Goldstein, Kempner, Rush and Bookman, 1993; Gilmer, 1997).
To some observers, there seems to be an announcement every week about a college being among the first to outsource an operation (van der Werf, 2000). For example, the University of Miami recently contracted with Strategic Distribution, Inc., to acquire all materials required for repair, maintenance, and operations at its main campus and medical center; Chatham College hired a contractor to run its library and hire most of the library staff (van der Werf, 2000).
PROBLEMS WITH OUTSOURCING
Critics of outsourcing point out its human resource consequences. Jobs may be shifted from the college or university to the contractor performing the outsourced function, which may result in decreased salaries or benefits (Gilmer, 1997).
A recent experience at The University of North Carolina is a case in point. The University planned to outsource its housekeeping staff; consultants expected the contractors to pay the housekeeping staff less and to provide fewer benefits than the University offered them. The plan ultimately led to charges of racism since, in contrast to other University employees, the housekeeping staff was predominantly African-American (Gilmer, 1997).
Other critics feel that contract staff may have less loyalty to the university than if they were employed directly by the institution and express disappointment with the resulting inadequate service by contractors. Inadequate service by contractors can affect the campus community in myriad ways; uncomfortable teaching facilities, shortages of textbooks in the campus bookstore, and lack of skilled technical staff to manage computer networks are just a few possibilities.
Ender and Mooney (1994) suggest that the greatest barrier to outsourcing is lost jobs and the resulting negative impact on institutional morale. They offer a set of guidelines for mitigating the negative impact of outsourcing:
1) outsource management personnel only,
2) downsize the staff by attrition,
3) involve employees in selecting the contractor, and
4) re-bid the contract often.
Filling senior management positions with contract staff for a defined period of time, they say, can eliminate conflict inherent in outsourcing an entire operation. Existing staff can remain with the university while receiving training that may eventually enable them to move into the outsourced management positions.
OUTSOURCING SUCCESS STORIES
According to Manuel Cunard, executive director of the National Association of College Auxiliary Services, college outsourcing is growing so quickly that there has been very little time to step back and determine its effectiveness (van der Werf, 2000).
The privatization of college services is currently chronicled primarily through anecdotal evidence, and campuses nationwide continue to debate the merits of outsourcing (Gilmer, 1997).
Though research about outsourcing is scanty, anecdotal evidence does make it clear that many institutions have found outsourcing to be an effective means of reducing costs, assuring financial results, upgrading program quality, gaining access to special expertise, increasing customer satisfaction, and obtaining capital for facility improvements (Dillon, 1996).
George Mason University in Fairfax, Virginia and the University of Tennessee at Knoxville are two institutions that have used outsourcing to advantage. George Mason University is one of the nation's most aggressive contractors. The University has contracts, totaling more than $30 million, for 50 campus services and operations (Gilmer, 1997).
The University of Tennessee at Knoxville contracts for the installation of blinds, carpet, ceilings, fences, and elevator maintenance. The University saves an estimated $565,000 per year through outsourcing all of its custodial services (Gilmer, 1997).
RETHINKING OUTSOURCING
Some institutions have outsourced campus functions only to realize that outsourcing was not the panacea they had hoped it would be. Consistency and cost issues were key in Whitworth College's decision to abandon outsourcing. The College virtually eliminated its communications office in the late 1980s when it outsourced the office, reducing its staff from seven to one. In 1992, a presidential task force reevaluated the situation and the College returned to a centralized on-campus communications shop. Lack of coordination was cited as the major problem with outsourcing, with wide gaps in quality and cost the result. The administration ultimately realized the importance of coordinated communications to the College's success since the communications office was tied into fund raising, alumni relations, recruitment and all other facets of campus life (Schreiber, 1994).
The University of Pennsylvania recently scaled back its contract with the Trammel Crow Company for operations and maintenance of its campus buildings. Professors at the University say housekeeping functions never improved and roofs still leaked. Penn and company officials agreed that the key flaw in the school's outsourcing strategy was that Trammell Crow was asked to maintain buildings in such bad repair that they were essentially unmaintainable (van der Werf, 2000)
HOW WIDESPREAD IS OUTSOURCING?
Statistics about outsourcing in higher education are few, but the need for such data has been recognized. The National Association of College Auxiliary Services has recently opened a center to try to track overall figures for outsourcing in higher education (van der Werf, 2000).
Gilmer (1997) reports that a 1996 survey by American School & University found that colleges and universities are increasingly turning to outsourcing. More than one-half expect to contract for more services in the coming years. Only 5.9% of colleges and universities produce all services in-house; 62.4 % of colleges contract for four or fewer services; 31.7 % outsource five or more services. The most popular outsourced services include food (74.3%), vending (65.3%), bookstore operations (33.7%), custodial work (30.7%), and laundries (18.8%). Recent figures also show that the building of on-campus housing by private companies was a $500 million business in 1999, with no indication of a decrease in 2000 (van der Werf, 2000).
HOW SHOULD MANAGEMENT DECIDE WHETHER TO OUTSOURCE?
Whether or not to outsource a function is not an institution's most important question. Instead, management should examine the full array of options and select the operating and management approach best for the institution. Focusing first on understanding how the functional area in question is currently operated and examining all its strengths and weaknesses enables the institution to make a fully informed choice. (Goldstein, Kempner, Rush and Bookman, 1993). A core set of issues and questions must be explored when institutional management is deciding whether to outsource any function. Rush, Kempner and Goldstein (1995) group these core "decision factors" into six categories:
1) Human Resources - How employees will be affected.
2) Financial - The direct and indirect cost to the institution.
3) Service Quality - How each alternative will meet campus needs.
4) Legal and Ethical Considerations - The level of risk and potential liability posed by each option, any tax ramifications, any potential conflicts of interest.
5) Mission and Culture - The effects of choosing an option inconsistent with the institution's culture and historical mission.
6) Management Control and Efficiency - The likely effect of each option being considered on the institution's ability to control the direction and priorities of the functional area.
The relative importance of these six decision factors will vary with the institution and among functional areas. However, regardless of the institution's size, location or affiliation, and no matter what functional area is under consideration, campus decision makers need to use a structured methodology when making the decision to outsource. Rush, Kempner and Goldstein (1995) also offer a ten-phase methodology for outsourcing which focuses on the following actions:
Phase 1: Identify Key Participants
Phase 2: Develop an Analytical Framework
Phase 3: Assess the Current Environment
Phase 4: Identify Customer Requirements
Phase 5: Develop an Operational Design
Phase 6: Identify Possible Alternatives
(Peterson's Contract Services for Higher Education (1995) provides information on various types of contract and outsourcing services available to colleges and universities.)
Phase 7: Review Legal, Ethical, and Community Considerations
Phase 8: Compare Proposed Operating Alternatives
Phase 9: Select the Preferred Alternative
Phase 10: Establish a Continuous Improvement and Assessment Process
CONCLUSIONS
The growing use of outsourcing in higher education reflects a general acceptance by campus administrators that it will reduce costs while continuing to provide essential university services (Jefferies, 1996).
Successfully outsourcing a function requires careful, comprehensive evaluation and planning by management. The answer to whether or not to outsource is what best serves the institution--not only what is most cost efficient, but also what will provide the most consistency, timeliness and overall quality in meeting the college's or university's goals (Schreiber, 1994).
To outsource or not outsource - strategic decision making
Conventional wisdom regarding the outsourcing decision states that you should outsource your "non-core" business activities. The difficulty with this approach, however, is that it provides no guidance for deciding which activities are "non-core". Ultimately, in many organizations adopting this approach, the discussion about what is "core" and what is "non-core" ends up being highly subjective, and in the end, one person?s opinion ends up prevailing over another?s. A better approach, and the one that Price Waterhouse Coopers typically adopts in advising clients about the outsourcing decision is to look at the decision in terms of a two-by-two matrix, as shown below.
I consider the outsourcing decision along two dimensions. The first, Strategic-Non Strategic, considers how important the activity proposed for outsourcing is to the organization in achieving long term strategic competitive advantage in its chosen marketplace. In terms of maintenance, this will clearly vary from organization to organization, depending on the industry that it competes in, and its chosen strategy for competing in that industry. For example, for a contract mining organization, where competitive advantage in the industry is largely driven by being the lowest cost producer (and in which maintenance and asset ownership costs typically equate to 55-60% of total costs), maintenance clearly is of strategic competitive importance to the firm. Outsourcing maintenance in this environment would, in effect, be handing over control of this potential source of competitive advantage to an external party. On the other hand, maintenance to a hospital may be of less strategic importance, and therefore could, potentially be a candidate for outsourcing. The second dimension, Competitive-Non Competitive, relates to how competitively the function being considered for outsourcing is currently being performed compared to the external competitive marketplace. This relates primarily to the cost of the service, but could also be extended to include service elements such as response time.
Putting the two elements together gives four possible outcomes.
1. Those functions that are of Strategic importance to the firm, and which are currently being performed competitively require no further action - the status quo should be retained.
2. Those functions that are of Strategic importance to the firm, but which are not currently being performed competitively with the external marketplace should not (in the long run) be outsourced. Instead, a better long-term option is to re-engineer them to ensure that they are performed at a competitive cost. It is possible that, as an interim measure to speed the transition process, a tactical decision is made to outsource the function in the short term, but as stated previously, in the long term the function, as a source of potential competitive advantage, should be retained in-house.
3. Those functions that are not of Strategic importance to the firm, and which are not currently being performed competitively with the external marketplace should be outsourced. There is little value in investing in improving this function.
4. The final combination, those functions that are not of Strategic importance to the firm, but which are being performed competitively with the external marketplace is more interesting. A number of options exist for this function, including
o selling the function as a going concern,
o extending the function to provide services to external customers,
o outsourcing the function, or
o raise the profile of the function to turn it into a source of strategic competitive advantage.
The preferred option depends largely on the function being considered. Does a competitive outsourcing market exist?
A second consideration for outsourcing, that is related to the above model, is to decide whether a competitive market for the outsourced services actually exists. In particular, when dealing with highly specialized maintenance services (such as specialized turbine maintenance) or maintenance occurring in remote areas (such as at remote mine sites), once an outsourced maintenance service provider has been selected, this may create large barriers to entry for other potential maintenance service providers wishing to enter into this market. While these barriers may be overcome, by adopting an appropriate outsourcing strategy (such as letting work to two or more contractors, rather than to one exclusively), awareness of this possible outcome prior to establishing the outsourcing strategy is vital if the outsourcing organization is not to find itself "locked in" to a sole provider. How much maintenance to outsource
An important consideration in making the maintenance outsourcing decision is what aspects of maintenance to outsource. If we consider the maintenance management process as consisting of six major steps, as shown below, then a number of options exist.
A World Class Maintenance Management System
In the first instance, organizations may choose simply to outsource the work execution step, while retaining the remaining steps inhouse. This is often done on a limited basis, for example, when employing contractors to supplement an inhouse work force during times of high workload, during major shutdowns, for example. This is the minimalist approach to outsourcing.
An alternative approach is to outsource all of the above activities with the exception of the analysis and work identification steps. In this approach, the contractor is permitted to plan and schedule his own work, and decide how and when work is to be done, but the outsourcing organization retains control over what is to be done.
A third approach is to outsource all of the above steps, thus giving control over the development of equipment maintenance strategies (ie Preventive and Predictive Maintenance programs) to the contractor. In this instance, the contract must be structured around the achievement of desired outcomes in terms of equipment performance, with the contractor being given latitude to achieve this to the best of his ability.
There are advantages and disadvantages to each approach, and the most appropriate approach will depend on the client?s particular situation.
Looking at how maintenance fits into the wider asset management strategy of an organization (as illustrated below) also raises interesting challenges.
For example, one challenge that needs to be met is how the maintenance contractors will interface with the production operators, and the relative responsibilities and duties of each party. Many organizations today are adopting Total Productive Maintenance principles, which encourage Production operators to take a higher level of responsibility for equipment performance, and also encourage them to perform many minor maintenance tasks. There is also a growing realization that the manner in which equipment is operated can have a huge bearing on maintenance costs and the maintenance activities required to be performed if equipment performance targets are to be met. A high level of teamwork between the Maintenance contractors and the Production operators is, therefore, vital to the successful completion of the contract. This leads to the view that an alternative, and possibly better, approach to the outsourcing of maintenance is to include plant operation in the scope of the contract. Hence the letting of Operations and Maintenance contracts, particularly in the Power Generation industry.
Finally, taking things one step further again, there is also a growing realization that maintenance is limited in achieving higher equipment performance by the fundamental design of the equipment being maintained. The best that maintenance can achieve is the inherent reliability and performance of the equipment that is built in by design. There is, therefore, a school of thought that says that the best way to overcome this limitation, in an outsourcing environment, is to also give the contractor responsibility for the design of the equipment. This can be done either by giving him responsibility for ongoing equipment modifications, or by giving him responsibility for the initial design of the equipment, as in a BOOM (Build, Own, Operate and Maintain) contract, which is gaining favor in many infrastructure projects. Establishing an appropriate tendering process
The tendering process for a major outsourcing contract is likely to be different to the contracting process for major capital works in a few key aspects.
Of particular importance will be the explicit consideration of risk at various key points in the contracting process, and the identification of appropriate strategies for managing those risks. These could take the form of either shaping or hedging actions. Shaping actions are those action undertaken to minimize the likelihood of the risk factor occurring. Hedging actions are those actions undertaken to minimize the impact of the risk factor, should it occur. In addition, the evaluation criteria for the selection of an appropriate maintenance contractor are likely to be quite different from those for a major capital project. It is likely that significant work will be required to develop appropriate criteria, and to ensure that sufficient information is obtained from tenderers to be able to make an informed decision.
Establishing an appropriate specification of requirements
The specification of requirement during the tendering process will need to be carefully considered. In particular, for those contracts involving large-scale outsourcing of most maintenance functions, there will be a requirement to ensure that the requirements specification is outcome-based, rather than input-based. In other words, the specification will need to detail what is to be achieved from the contract, not how it is to be achieved, or what inputs will be required for its achievement. In Price Waterhouse Coopers' experience, ensuring that all the required outcomes are specified is a major undertaking. Agreeing how the achievement of all of these outcomes will be measured is also, potentially, a huge undertaking. For example, in one recent outsourcing contract, a desired outcome was the achievement of long-term plant integrity. Deciding how to measure that was a difficult process.
Establishing an appropriate contract payment structure
There are a number of alternative contract payment structures. These include:
• Fixed or Firm price
• Variable Price
• Price ceiling incentive
• Cost plus incentive fee
• Cost plus award fee
• Cost plus fixed fee
• Cost Plus Margin
Each of these price structures represents a different level of risk sharing between the contractor and the outsourcing organization, and a number of considerations will need to be made in determining the most appropriate payment structure. These include:
• The extent to which objective assessment of contract performance is possible
• The ease with which realistic targets can be set for contractor performance
• The administrative effort involved with each payment option
The degree of certainty with which the desired contract outcomes can be specified
Transition arrangement may be put in place to gradually transfer the payment structure from one method to another over time, as a greater degree of certainty over the requirements of the contract, and more accurate knowledge of target levels of performance is established. Establishing an appropriate contract administration process and structure Before the contract is let, the client will need to have decided on the appropriate contract administration process, and the roles and responsibilities of his own staff in managing the contract. He will also need to establish the structures, processes and equip his people with the skills to perform the required duties. We have seen many potentially successful outsourcing contracts fail, simply because the client did not manage those contracts effectively.
Establishing an appropriate structure for the contract document
In our experience, most standard contracts in place at most organizations, are not appropriate for large outsourcing contracts. Many Standard Terms and Conditions are inappropriate for large, long-term service-related contracts - particularly those that are of a partnering or gain-sharing nature. We have found that it is best to combine Special Conditions of Contract with revised Standard Conditions of Contract to develop a new contract structure that is appropriate for the particular contract being let. Managing the transition to the outsourced arrangement
There are many issues to be addressed by the outsourcing organization in the transition to the new arrangements. Among these are matters such as:
• Staff - which will be retained by the organization, which will be employed by the contractor, which will be let go?
• Drawings - who has responsibility for ensuring that drawings are kept up to date, who will be the custodian of site drawings?
• Computer systems - will the contractor have access to the client?s Computerized Maintenance Management system? Will they maintain their own computerized Maintenance records? Who is responsible for ensuring that all data in the Computerized Maintenance Management systems are accurate?
• Materials Management - will the contractor provide his own materials, or will the client provide these?
• Workshop facilities and tools - who owns and maintains these?
Agreeing contract termination arrangements
Another critical issue that needs to be addressed before the contract is let, is how the situation will be managed if the decision is made to terminate the existing contract. In particular, agreement needs to be reached regarding the duties and obligations of the outgoing contractor in handing over to the incoming contractor (or the client organization, should they decide to bring maintenance back in-house).
Conclusion
While these are some of the major considerations for organizations considering outsourcing maintenance, there are many others that cannot be covered in this paper due to restrictions in time and space. Needless to say, the decision to outsource any major function, such as maintenance, is not one that should be taken lightly, and careful consideration of all major issues is vital, if the transition to contracted maintenance is to be smooth and satisfactory to both parties.
http://www.ericdigests.org/2001-3/outsourcing.htm
http://www.maintenanceresources.com/referencelibrary/maintenancemanagement/outsourcing.htm#section1
Outsourcing, also referred to as contracting, is a form of privatization that refers to a university's decision to contract with an external organization to provide a traditional campus function or service. The contractor then either takes over the employees of the university, paying the group according to its standards, or replaces the university employees with its own staff (Ender and Mooney, 1994).
Outsourcing assumes that if an institution cannot provide a service or product at less cost than, and of equal quality to, an external provider, then it should purchase the service or product from an external provider. Advocates of outsourcing argue that the private sector provides service more efficiently and at lower cost than the public sector, which is unmotivated by profit (Jefferies, 1996). They point out that outsourcing to a contractor can reduce a college's or university's labor and benefits costs, provide a single point of accountability, and provide predictable costs; the resulting savings allows the institution to focus more resources on its core educational operations -- teaching and research (Ender and Mooney, 1994). Colleges and universities are testing these theories, increasingly outsourcing more of their functions in an effort to reduce costs, increase service efficiencies, and boost income (Jefferies, 1996).
WHAT FUNCTIONS ARE BEING OUTSOURCED?
Outsourcing has traditionally been used to operate campus bookstores and dining services. It has more recently become a legitimate option for additional campus functions, including facilities operation, computer services, security, child care, residence halls, teaching hospitals, remedial classes, and even entire institutions (Goldstein, Kempner, Rush and Bookman, 1993; Gilmer, 1997).
To some observers, there seems to be an announcement every week about a college being among the first to outsource an operation (van der Werf, 2000). For example, the University of Miami recently contracted with Strategic Distribution, Inc., to acquire all materials required for repair, maintenance, and operations at its main campus and medical center; Chatham College hired a contractor to run its library and hire most of the library staff (van der Werf, 2000).
PROBLEMS WITH OUTSOURCING
Critics of outsourcing point out its human resource consequences. Jobs may be shifted from the college or university to the contractor performing the outsourced function, which may result in decreased salaries or benefits (Gilmer, 1997).
A recent experience at The University of North Carolina is a case in point. The University planned to outsource its housekeeping staff; consultants expected the contractors to pay the housekeeping staff less and to provide fewer benefits than the University offered them. The plan ultimately led to charges of racism since, in contrast to other University employees, the housekeeping staff was predominantly African-American (Gilmer, 1997).
Other critics feel that contract staff may have less loyalty to the university than if they were employed directly by the institution and express disappointment with the resulting inadequate service by contractors. Inadequate service by contractors can affect the campus community in myriad ways; uncomfortable teaching facilities, shortages of textbooks in the campus bookstore, and lack of skilled technical staff to manage computer networks are just a few possibilities.
Ender and Mooney (1994) suggest that the greatest barrier to outsourcing is lost jobs and the resulting negative impact on institutional morale. They offer a set of guidelines for mitigating the negative impact of outsourcing:
1) outsource management personnel only,
2) downsize the staff by attrition,
3) involve employees in selecting the contractor, and
4) re-bid the contract often.
Filling senior management positions with contract staff for a defined period of time, they say, can eliminate conflict inherent in outsourcing an entire operation. Existing staff can remain with the university while receiving training that may eventually enable them to move into the outsourced management positions.
OUTSOURCING SUCCESS STORIES
According to Manuel Cunard, executive director of the National Association of College Auxiliary Services, college outsourcing is growing so quickly that there has been very little time to step back and determine its effectiveness (van der Werf, 2000).
The privatization of college services is currently chronicled primarily through anecdotal evidence, and campuses nationwide continue to debate the merits of outsourcing (Gilmer, 1997).
Though research about outsourcing is scanty, anecdotal evidence does make it clear that many institutions have found outsourcing to be an effective means of reducing costs, assuring financial results, upgrading program quality, gaining access to special expertise, increasing customer satisfaction, and obtaining capital for facility improvements (Dillon, 1996).
George Mason University in Fairfax, Virginia and the University of Tennessee at Knoxville are two institutions that have used outsourcing to advantage. George Mason University is one of the nation's most aggressive contractors. The University has contracts, totaling more than $30 million, for 50 campus services and operations (Gilmer, 1997).
The University of Tennessee at Knoxville contracts for the installation of blinds, carpet, ceilings, fences, and elevator maintenance. The University saves an estimated $565,000 per year through outsourcing all of its custodial services (Gilmer, 1997).
RETHINKING OUTSOURCING
Some institutions have outsourced campus functions only to realize that outsourcing was not the panacea they had hoped it would be. Consistency and cost issues were key in Whitworth College's decision to abandon outsourcing. The College virtually eliminated its communications office in the late 1980s when it outsourced the office, reducing its staff from seven to one. In 1992, a presidential task force reevaluated the situation and the College returned to a centralized on-campus communications shop. Lack of coordination was cited as the major problem with outsourcing, with wide gaps in quality and cost the result. The administration ultimately realized the importance of coordinated communications to the College's success since the communications office was tied into fund raising, alumni relations, recruitment and all other facets of campus life (Schreiber, 1994).
The University of Pennsylvania recently scaled back its contract with the Trammel Crow Company for operations and maintenance of its campus buildings. Professors at the University say housekeeping functions never improved and roofs still leaked. Penn and company officials agreed that the key flaw in the school's outsourcing strategy was that Trammell Crow was asked to maintain buildings in such bad repair that they were essentially unmaintainable (van der Werf, 2000)
HOW WIDESPREAD IS OUTSOURCING?
Statistics about outsourcing in higher education are few, but the need for such data has been recognized. The National Association of College Auxiliary Services has recently opened a center to try to track overall figures for outsourcing in higher education (van der Werf, 2000).
Gilmer (1997) reports that a 1996 survey by American School & University found that colleges and universities are increasingly turning to outsourcing. More than one-half expect to contract for more services in the coming years. Only 5.9% of colleges and universities produce all services in-house; 62.4 % of colleges contract for four or fewer services; 31.7 % outsource five or more services. The most popular outsourced services include food (74.3%), vending (65.3%), bookstore operations (33.7%), custodial work (30.7%), and laundries (18.8%). Recent figures also show that the building of on-campus housing by private companies was a $500 million business in 1999, with no indication of a decrease in 2000 (van der Werf, 2000).
HOW SHOULD MANAGEMENT DECIDE WHETHER TO OUTSOURCE?
Whether or not to outsource a function is not an institution's most important question. Instead, management should examine the full array of options and select the operating and management approach best for the institution. Focusing first on understanding how the functional area in question is currently operated and examining all its strengths and weaknesses enables the institution to make a fully informed choice. (Goldstein, Kempner, Rush and Bookman, 1993). A core set of issues and questions must be explored when institutional management is deciding whether to outsource any function. Rush, Kempner and Goldstein (1995) group these core "decision factors" into six categories:
1) Human Resources - How employees will be affected.
2) Financial - The direct and indirect cost to the institution.
3) Service Quality - How each alternative will meet campus needs.
4) Legal and Ethical Considerations - The level of risk and potential liability posed by each option, any tax ramifications, any potential conflicts of interest.
5) Mission and Culture - The effects of choosing an option inconsistent with the institution's culture and historical mission.
6) Management Control and Efficiency - The likely effect of each option being considered on the institution's ability to control the direction and priorities of the functional area.
The relative importance of these six decision factors will vary with the institution and among functional areas. However, regardless of the institution's size, location or affiliation, and no matter what functional area is under consideration, campus decision makers need to use a structured methodology when making the decision to outsource. Rush, Kempner and Goldstein (1995) also offer a ten-phase methodology for outsourcing which focuses on the following actions:
Phase 1: Identify Key Participants
Phase 2: Develop an Analytical Framework
Phase 3: Assess the Current Environment
Phase 4: Identify Customer Requirements
Phase 5: Develop an Operational Design
Phase 6: Identify Possible Alternatives
(Peterson's Contract Services for Higher Education (1995) provides information on various types of contract and outsourcing services available to colleges and universities.)
Phase 7: Review Legal, Ethical, and Community Considerations
Phase 8: Compare Proposed Operating Alternatives
Phase 9: Select the Preferred Alternative
Phase 10: Establish a Continuous Improvement and Assessment Process
CONCLUSIONS
The growing use of outsourcing in higher education reflects a general acceptance by campus administrators that it will reduce costs while continuing to provide essential university services (Jefferies, 1996).
Successfully outsourcing a function requires careful, comprehensive evaluation and planning by management. The answer to whether or not to outsource is what best serves the institution--not only what is most cost efficient, but also what will provide the most consistency, timeliness and overall quality in meeting the college's or university's goals (Schreiber, 1994).
To outsource or not outsource - strategic decision making
Conventional wisdom regarding the outsourcing decision states that you should outsource your "non-core" business activities. The difficulty with this approach, however, is that it provides no guidance for deciding which activities are "non-core". Ultimately, in many organizations adopting this approach, the discussion about what is "core" and what is "non-core" ends up being highly subjective, and in the end, one person?s opinion ends up prevailing over another?s. A better approach, and the one that Price Waterhouse Coopers typically adopts in advising clients about the outsourcing decision is to look at the decision in terms of a two-by-two matrix, as shown below.
I consider the outsourcing decision along two dimensions. The first, Strategic-Non Strategic, considers how important the activity proposed for outsourcing is to the organization in achieving long term strategic competitive advantage in its chosen marketplace. In terms of maintenance, this will clearly vary from organization to organization, depending on the industry that it competes in, and its chosen strategy for competing in that industry. For example, for a contract mining organization, where competitive advantage in the industry is largely driven by being the lowest cost producer (and in which maintenance and asset ownership costs typically equate to 55-60% of total costs), maintenance clearly is of strategic competitive importance to the firm. Outsourcing maintenance in this environment would, in effect, be handing over control of this potential source of competitive advantage to an external party. On the other hand, maintenance to a hospital may be of less strategic importance, and therefore could, potentially be a candidate for outsourcing. The second dimension, Competitive-Non Competitive, relates to how competitively the function being considered for outsourcing is currently being performed compared to the external competitive marketplace. This relates primarily to the cost of the service, but could also be extended to include service elements such as response time.
Putting the two elements together gives four possible outcomes.
1. Those functions that are of Strategic importance to the firm, and which are currently being performed competitively require no further action - the status quo should be retained.
2. Those functions that are of Strategic importance to the firm, but which are not currently being performed competitively with the external marketplace should not (in the long run) be outsourced. Instead, a better long-term option is to re-engineer them to ensure that they are performed at a competitive cost. It is possible that, as an interim measure to speed the transition process, a tactical decision is made to outsource the function in the short term, but as stated previously, in the long term the function, as a source of potential competitive advantage, should be retained in-house.
3. Those functions that are not of Strategic importance to the firm, and which are not currently being performed competitively with the external marketplace should be outsourced. There is little value in investing in improving this function.
4. The final combination, those functions that are not of Strategic importance to the firm, but which are being performed competitively with the external marketplace is more interesting. A number of options exist for this function, including
o selling the function as a going concern,
o extending the function to provide services to external customers,
o outsourcing the function, or
o raise the profile of the function to turn it into a source of strategic competitive advantage.
The preferred option depends largely on the function being considered. Does a competitive outsourcing market exist?
A second consideration for outsourcing, that is related to the above model, is to decide whether a competitive market for the outsourced services actually exists. In particular, when dealing with highly specialized maintenance services (such as specialized turbine maintenance) or maintenance occurring in remote areas (such as at remote mine sites), once an outsourced maintenance service provider has been selected, this may create large barriers to entry for other potential maintenance service providers wishing to enter into this market. While these barriers may be overcome, by adopting an appropriate outsourcing strategy (such as letting work to two or more contractors, rather than to one exclusively), awareness of this possible outcome prior to establishing the outsourcing strategy is vital if the outsourcing organization is not to find itself "locked in" to a sole provider. How much maintenance to outsource
An important consideration in making the maintenance outsourcing decision is what aspects of maintenance to outsource. If we consider the maintenance management process as consisting of six major steps, as shown below, then a number of options exist.
A World Class Maintenance Management System
In the first instance, organizations may choose simply to outsource the work execution step, while retaining the remaining steps inhouse. This is often done on a limited basis, for example, when employing contractors to supplement an inhouse work force during times of high workload, during major shutdowns, for example. This is the minimalist approach to outsourcing.
An alternative approach is to outsource all of the above activities with the exception of the analysis and work identification steps. In this approach, the contractor is permitted to plan and schedule his own work, and decide how and when work is to be done, but the outsourcing organization retains control over what is to be done.
A third approach is to outsource all of the above steps, thus giving control over the development of equipment maintenance strategies (ie Preventive and Predictive Maintenance programs) to the contractor. In this instance, the contract must be structured around the achievement of desired outcomes in terms of equipment performance, with the contractor being given latitude to achieve this to the best of his ability.
There are advantages and disadvantages to each approach, and the most appropriate approach will depend on the client?s particular situation.
Looking at how maintenance fits into the wider asset management strategy of an organization (as illustrated below) also raises interesting challenges.
For example, one challenge that needs to be met is how the maintenance contractors will interface with the production operators, and the relative responsibilities and duties of each party. Many organizations today are adopting Total Productive Maintenance principles, which encourage Production operators to take a higher level of responsibility for equipment performance, and also encourage them to perform many minor maintenance tasks. There is also a growing realization that the manner in which equipment is operated can have a huge bearing on maintenance costs and the maintenance activities required to be performed if equipment performance targets are to be met. A high level of teamwork between the Maintenance contractors and the Production operators is, therefore, vital to the successful completion of the contract. This leads to the view that an alternative, and possibly better, approach to the outsourcing of maintenance is to include plant operation in the scope of the contract. Hence the letting of Operations and Maintenance contracts, particularly in the Power Generation industry.
Finally, taking things one step further again, there is also a growing realization that maintenance is limited in achieving higher equipment performance by the fundamental design of the equipment being maintained. The best that maintenance can achieve is the inherent reliability and performance of the equipment that is built in by design. There is, therefore, a school of thought that says that the best way to overcome this limitation, in an outsourcing environment, is to also give the contractor responsibility for the design of the equipment. This can be done either by giving him responsibility for ongoing equipment modifications, or by giving him responsibility for the initial design of the equipment, as in a BOOM (Build, Own, Operate and Maintain) contract, which is gaining favor in many infrastructure projects. Establishing an appropriate tendering process
The tendering process for a major outsourcing contract is likely to be different to the contracting process for major capital works in a few key aspects.
Of particular importance will be the explicit consideration of risk at various key points in the contracting process, and the identification of appropriate strategies for managing those risks. These could take the form of either shaping or hedging actions. Shaping actions are those action undertaken to minimize the likelihood of the risk factor occurring. Hedging actions are those actions undertaken to minimize the impact of the risk factor, should it occur. In addition, the evaluation criteria for the selection of an appropriate maintenance contractor are likely to be quite different from those for a major capital project. It is likely that significant work will be required to develop appropriate criteria, and to ensure that sufficient information is obtained from tenderers to be able to make an informed decision.
Establishing an appropriate specification of requirements
The specification of requirement during the tendering process will need to be carefully considered. In particular, for those contracts involving large-scale outsourcing of most maintenance functions, there will be a requirement to ensure that the requirements specification is outcome-based, rather than input-based. In other words, the specification will need to detail what is to be achieved from the contract, not how it is to be achieved, or what inputs will be required for its achievement. In Price Waterhouse Coopers' experience, ensuring that all the required outcomes are specified is a major undertaking. Agreeing how the achievement of all of these outcomes will be measured is also, potentially, a huge undertaking. For example, in one recent outsourcing contract, a desired outcome was the achievement of long-term plant integrity. Deciding how to measure that was a difficult process.
Establishing an appropriate contract payment structure
There are a number of alternative contract payment structures. These include:
• Fixed or Firm price
• Variable Price
• Price ceiling incentive
• Cost plus incentive fee
• Cost plus award fee
• Cost plus fixed fee
• Cost Plus Margin
Each of these price structures represents a different level of risk sharing between the contractor and the outsourcing organization, and a number of considerations will need to be made in determining the most appropriate payment structure. These include:
• The extent to which objective assessment of contract performance is possible
• The ease with which realistic targets can be set for contractor performance
• The administrative effort involved with each payment option
The degree of certainty with which the desired contract outcomes can be specified
Transition arrangement may be put in place to gradually transfer the payment structure from one method to another over time, as a greater degree of certainty over the requirements of the contract, and more accurate knowledge of target levels of performance is established. Establishing an appropriate contract administration process and structure Before the contract is let, the client will need to have decided on the appropriate contract administration process, and the roles and responsibilities of his own staff in managing the contract. He will also need to establish the structures, processes and equip his people with the skills to perform the required duties. We have seen many potentially successful outsourcing contracts fail, simply because the client did not manage those contracts effectively.
Establishing an appropriate structure for the contract document
In our experience, most standard contracts in place at most organizations, are not appropriate for large outsourcing contracts. Many Standard Terms and Conditions are inappropriate for large, long-term service-related contracts - particularly those that are of a partnering or gain-sharing nature. We have found that it is best to combine Special Conditions of Contract with revised Standard Conditions of Contract to develop a new contract structure that is appropriate for the particular contract being let. Managing the transition to the outsourced arrangement
There are many issues to be addressed by the outsourcing organization in the transition to the new arrangements. Among these are matters such as:
• Staff - which will be retained by the organization, which will be employed by the contractor, which will be let go?
• Drawings - who has responsibility for ensuring that drawings are kept up to date, who will be the custodian of site drawings?
• Computer systems - will the contractor have access to the client?s Computerized Maintenance Management system? Will they maintain their own computerized Maintenance records? Who is responsible for ensuring that all data in the Computerized Maintenance Management systems are accurate?
• Materials Management - will the contractor provide his own materials, or will the client provide these?
• Workshop facilities and tools - who owns and maintains these?
Agreeing contract termination arrangements
Another critical issue that needs to be addressed before the contract is let, is how the situation will be managed if the decision is made to terminate the existing contract. In particular, agreement needs to be reached regarding the duties and obligations of the outgoing contractor in handing over to the incoming contractor (or the client organization, should they decide to bring maintenance back in-house).
Conclusion
While these are some of the major considerations for organizations considering outsourcing maintenance, there are many others that cannot be covered in this paper due to restrictions in time and space. Needless to say, the decision to outsource any major function, such as maintenance, is not one that should be taken lightly, and careful consideration of all major issues is vital, if the transition to contracted maintenance is to be smooth and satisfactory to both parties.
http://www.ericdigests.org/2001-3/outsourcing.htm
http://www.maintenanceresources.com/referencelibrary/maintenancemanagement/outsourcing.htm#section1
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