Strategic Management Analysis: A Case of Offshoring by Suncorp – Page 1

For too long, most financial service companies in Australia maintained their back-office activities within the domestic borders more than their kind companies from the Western nations. Despite the presence of shared-service centers being a common phenomenon in the Australia, most local companies in the financial sector prioritized less outsourcing of their key service to external providers in the previous decades. Characteristically, the trend in the Australian financial sector has been identified by subduing competition by oligopolistic markets and an ever growing economy presenting a receptive business environment for most service providers (Drummond, 2012). Nonetheless, a second wave of outsourcing equated to the philosophical bursting of the dam-walls, has locked the financial firms owing to the deteriorating environmental growth, rising costs of meeting operations within the local market and coping with the globalization influence. Outsourcing (including offshoring) presents a strategic decision of the corporate leaders in the financial sector, reflecting on the influence on the firm’s operations and the impact of the key trends of the information age – globalization and digitization- against the success possibilities.

In today’s global economy, offshore hub centers have gradually revolutionized the global market by presenting a set of low cost operations combined with exemplary expertise. This has reshaped the rules of operating in the Australian financial sector with stiff competition from other financial institutions around the rim of Indian Ocean growing in popularity of delivering improved financial services at globally competitive costs. Consequently, with cost minimization and improving service delivery topping the list of priorities, aligning the company to offshore service center has caught the strategic team of Suncorp Group with a significant decision to settle. In particular, the company is underway to initiate an increasingly service-focused strategy meant to adapt a large-scale outsourcing processes and back office functions (Tay, 2011).

External Issues Influencing Its Offshore Strategy

Over the years, Suncorp Group strategic management has been facing difficulties to sustain the company operations as the leading general insurance provider, banking services, superannuation and other investment brands owing to rising operation costs. Unfortunately, its long history of corporate social responsibility in supporting various community activities and charity work is not saving the company from withstanding global competition and the unforgiving trend of rising costs. In addition, the continual association with the sweeping outsourcing wind across the Australia is damaging its reputation of a specialized service provider with the increasing speculation heightening the public awareness of the rooming intent.At this point, a breakdown of the situational case emerging from the external issues influencing the offshore decision is essential to understand in detail the change of approach in providing globally focused services.

Firstly, it is now a compelling reality that the service providers are feeling the heat of the dynamic environment changing the mode of operations at an increasing pace.Such as has been the scenario demanding flexibility in Suncorp services to adapt rapidly to changing environment where the informed customers seek an intimate relationship with the services provided. For the company to attain long term strategic outcomes from the opportunity change-offers, it has reinvented its services through a modified delivery model, more integrated and customer centric (Hill, 2013). Although the benefits of embracing such modifications to its existing service models are enormous, the company is placed in a tricky situation to strike the balance in meeting the operating costs. For instance, the traditional finance roles could be contracted for a good price of $ 30000 in Asia compared to $ 130, 000 a year for a full time finance employee cost (Drummond, 2012).

Secondly, with most global companies embracing technology in their service provision, this trend has rapidly eaten and blurred the company’s competitive advantage. This has demanded devising a new approach in the technology-driven market to revamp its existing products as an ever-digitalizing enterprise under new technologies to maintain its economic strength rather than watch its clientele base fades into the control of rival providers. Particularly, moving the company to a multi-tower has seen the company require a customer centric model which brings all components of the back office together as an intelligent enterprise (Hill, 2013). In addition, the company is struggling with the rising Australia’s high cost characterized by an environment ravaged by natural disasters sending claims soaring to a gross cost of around A$ 4 billion, leaving the company with a tight safety margin within which to operate (Somasundaram, Bendeich, & Driskill, August). With the Australian financial sector having to deal with a sequence of weak asset growth, volatility and increasing hazards, offshoring most of the company’s functions would be an ideal shock absorber and halt further disruptions of its service delivery.

Furthermore, the company increasing clientele spreading across the globe has seen a growing need to establish offshore call centers to offer timely customer contacts despite the difference in global time zones. For example, establishing a call center in India guarantees the lower cost of doing business while simultaneously offering extended hours of contact to customers living in the Western nations (Insurance News, 2011). Lastly, the company has come under severe pressure to introduce strong risk frameworks with features to withstand the rapid changes denting the value of services. For example, the company had to implement Agile and LEAN techniques to ensure the SSO retains the strong risk management in the light of the regulatory environment post-GFC (Hill, 2013).

Internal Issues affecting Suncorp in Moving Jobs Offshore

Each company aims to maximize its revenue while minimizing cost of operations in order to yield the highest returns for the shareholders’ investment. For that reason, the group is seeking offshoring its back office roles to exploit the high quality expertise from international hubs at a competitive cheaper cost compared to the domestic labor costs. Although the declining revenue is attributed to the rising cost of reinsurance and unprecedented occurrence of natural disasters, increasing cost of maintaining permanent employees was an overwhelming burden for the company to bear. The labor costs of maintaining a permanent employee annually was a locking high of $ 130, 000 compared to $ 30 000 that the company would incur as outsourcing costs (Drummond, 2012).

Secondly, with the company having to cope with the Australia’s high cost base eating into its profit margins, sustaining efficiency and effectiveness in back office roles would offer the company solace to the unforgiving circumstances. For instance, delivering future growth plans within the company reach implies running traditional back-office functions more efficiently and effectively to withstand the increasing margin pressures (Hill, 2013). Offshoring would not only solve its rising operating costs, but would also provide missing efficiency for the company would enjoy professional services at relatively cheaper cost. Moreover, stretching the company operations to new markets presented the company with the accelerating complexity of multiple training and development programs that were difficult to standardize (Drummond, 2012). This exerted internal pressure for the firm to embrace offshore call centers providing superior customer services and better data analysis than the domestic employees.

Impact of the Strategy on Stakeholders

Offshoring its back office functions to external service providers presents the company to reap from superior expertise in service delivery and at a lower cost. Nevertheless, the company should evaluate the impact of such a decision rather than blind in short term gains that may jeopardize the entire investment in the future. For instance, offshoring major activities of the firm mean immense job cuts in the domestic market where the company has significant investments. Such an approach generates national resistance since a large lay-off is witnessed as demonstrated when the company sent part of the back-office functions to India in 2007. Categorically, since the idea of outsourcing was initiated in Suncorp, the Financial Service Union has continuously criticized the move as a slap in the face of employees who have dedicated their individual effort in to see the company to the present height (McCarthy, 2011).

Similarly, permitting the company offshore its back-office functions to overseas providers may alter the entire financial sector given the scale and the influence Suncorp has in its brands. Here, this may be a floodgate for others to follow suit exposing the employment levels in the country to a large layoff and thus reducing the general revenue of the government revenue from income tax from the domestic workers. Normally, offshoring such jobs is a throttle to the employment pipeline of young workers with half of those working in the Australian call centers being university qualified and suited to progressing to higher level positions in the firm (Howard, 2013). Further, the company shareholders anticipate the lower cost to translate into higher returns for their investments owing to the cost minimization strategy of the firm. Lastly, although the investors will earn better returns in the short term, the strategy may negatively reduce the long term benefits especially when the customers experience disconnectedness during conversations with the outsourced call center team (Howard, 2013).

Strategic Advantages and Disadvantages from Moving Jobs Offshore:

Reaching an offshoring decision demands an in-depth and strategic incision to reveal both direct and indirect gains and costs attributed to the approach. Firstly, with revenue increments hard to come by, an organization moving jobs offshore stands to gain from cheap and quality services for professionals working in the international call centers at a bargained cost. Here, the company gains through superior client services and better data and trend analysis at lower costs. Secondly, outsourcing identifies the company services with the current level of technology and reflects the key trend of digitization. Subsequently, the high wage structure and high dollar in Australia combined with the constrained post-GFC world; the financial institutions cannot grow sufficiently to meet investor expectations without the support of offshore markets, particularly in the Asia-Pacific region (Howard, 2013).

Additionally, offshoring back-office functions shedding of the huge costs associated with the labor costs contributing to overall operational costs. For instance, offshoring jobs to India and Philippines call centers involves a 25-30% cost savings based on wages and overheads (Howard, 2013). Further, offshoring presents a forward-looking opportunity to maintain its economic strength by replacing its traditional back-office functions with expertise services, running more effectively and efficiently, to reduce the operating costs while taking the advantage of new innovations in mobility, cloud and big data analytics (Hill, 2013).

Contrariwise, offshoring has never been easy in practice as it seems in theory; it has invisible disadvantages. To begin with, offshoring jobs to external providers imply exporting available employment opportunities to foreigners, thus decreasing the employment levels. Secondly, often offshore customer services are associated with ignoring customers and disconnectedness during conversations which subsequently breaks the customer relationship with the service provider (Adonis, 2011). Besides, since the company lacks the ability to generate efficiency and effectiveness in the domestic workforce, offshoring involves dealing with a foreign workforce which may hamper the delivery efficiency and customer service all together.

Moreover, offshoring its back-office functions have generated sharp criticism from the Financial Union accusing the company of ripping it reputation apart beyond repair in its backyard. This puts pressure to sack employees immediately despite being part of the society where most operations which helped it weather tough times and retain its profitability are concentrated (Murdoch, 2012). Offshoring generates a trend of public resistance which would see its brand performance deteriorate in the domestic when individuals develop a negative feeling that the company is contributing to the unemployment rate in the Australian labor market.

Reasons for Retaining the Job Onshore:

Following the return of back-office functions back to India in 2007, the company reconsidered halting the offshoring program and sustaining some of the jobs onshore for various reasons. For instance, offshoring demands high levels of partnering between the firm and the outsourcer which may never be forthcoming in the ordinary circumstances. Further, off shoring requires proactive communication with all stakeholders to avoid tarnishing the brand, reputation and image of the Australian firm with customers and employees alike, and affected employees need to be given every chance to be supported and move to a different role (Howard, 2013).

Additionally, most offshore strategies are based on cost minimization strategy where the firm seeks to obtain expertise services at relatively cheaper costs. Nevertheless, this may not be realizable with the general trend in countries considered as haven for cheap labor such as China raising the minimum wages. In addition, the trend reveals that most organizations offshore functions that are never working for them, raising the question of their ability to manage offshore activities that which they would not meet with the immediate workforce (Howard, 2013). Likewise, the company is required to retain direct contact with its local clientele by retaining a number of employees performing front-end services, to avoid losing customer intimate connection in its domestic activities (Murdoch, 2012).

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