Management Science Letters

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1 Management Scence Letters 2 (2012) Contents lsts avalable at GrowngScence Management Scence Letters homepage: A hybrd algorthm of BSC and QFD to determne the crtera affectng mplementaton of successful outsourcng Mohammad Hemat *, Azm Zare, Mosayeb Karam and Hamdreza Karkehabad Department of Industral Engneerng, Semnan Branch, Islamc Azad Unversty, Semnan, Iran A R T I C L E I N F O A B S T R A C T Artcle hstory: Receved July 25, 2011 Receved n Revsed form October, 19, 2011 Accepted 29 October 2011 Avalable onlne 5 November 2011 Keywords: Outsourcng BSC Performance apprasal QFD Successful organzatons share some dentcal factors that pave the way for ther success. Among these factors, strategc management s the key to success for organzatons to contrbute more to the compettve world market of today. In ths respect, the pvotal role of outsourcng cannot be dened. Ths research parallelzes the crtera affectng the outsourcng success as presented n Elmut model wth the Balanced score card method n the Tose'e Ta'avon Bank. In ths research, questonnares and ntervews wth experts helped determne the strategc goals at four perspectves of balanced score card method (at Tose'e Ta'avon Bank) and the relatve weghts were computed for each of balance score card (BSC) perspectves by usng AHP method. As the next step, the ndexes were prortzed by applyng the qualty functon development(qfd) technque and consderng strategc goals at four perspectves n secton "WHAT" and the outsourcng success crtera of Elmut model n secton "HOW". At the end of algorthm, the results are compared wth the Elmut method. Based on the results, the hybrd proposed technque seems to perform better than Elmut Growng Scence Ltd. All rghts reserved. 1. Introducton In recent years, usng the modern servces management methods, ncludng outsourcng, s known as one of the hghly mportant processes. Outsourcng, therefore, sounds a crucal ndcator n determnng the crtera such as relablty, experence and the proper performance (Elmut, 2003). Overall, executng the successful outsourcng strategy can help frms enhance organzatonal competton and fnancal operaton, lower the costs, and mprove the capacty, effectveness as well as ftness of the actvtes (Kolawa, 2004). Investgatons show that f outsourcng s conducted approprately, t can be proftable for organzatons. It can decrease the costs, and the need for nvestment at faclty, equpment and human force. On the other hand, there are some evdences that an ncrease n outsourcng can decrease nnovaton and control the affars (Elmut, 2003). Successful outsourcng s attaned through proper mplementaton of strategc plannng, executon and control. In ths regard, strategc plannng refers to comprehensve and sutable plans wthn the * Correspondng author. Tel: E-mal addresses: mo928hem@yahoo.com 2012 Growng Scence Ltd. All rghts reserved. do: /j.msl

2 656 outsourcng phases. The balance score card (BSC) method can create a conceptual framework to convert dfferent components nto executve operatons. There are four dfferent components assocated wth any BSC mplementaton, whch starts from learnng, nternal process, customer and fnancal. Qualty functon development (QFD), on the other hand, s another technque for assessng processes. The proposed model of ths paper uses a hybrd method, whch conssts of BSC and QFD to determne the most mportant crtera affectng the successful mplementaton of outsourcng. 2. Lterature Revew 2.1 Outsourcng Lacty and Hrschhem (1993) stated outsourcng as a form of contract actvty, whch has prevously been performed at a frm, and now other frms perform t. As Rasheed (2000) defned, outsourcng as a contract agreement wth an external frm for performng the actvtes whch were prevously performed at the frm, or performng the actvtes, whch are fully new. The term outsourcng s usually appled when the frm breaks down the actvtes or attempts vertcal analyss. The term was coned at the end of the 1980 and t was appled for mnor contracts of management nformaton systems. In the past, many contract servces assocated wth nformatve segments or systems, but n recent years, many other functons n varous sectons ncludng departmental servces, human forces actvtes, remote relatons, customer servces, logstc and even securty have been outsourced. Successful organzatons share the same factors of success and they have a correct understandng of ther own prncpal actvtes. They have proper and competent plannng and researches, and most mportantly, they have extended expectatons, ntents and objectves (Elmut, 2003). Another mportant element whch s mportant n successful outsourcng s the proper external organzaton suppler. It s necessary to select the sutable suppler based on crtera lke the proper performance, experment, and relablty (Elmut, 2003). A hgher access to new markets, more compettve advantages, tradng wth greater supplers, as well as a more advanced technology and skll are some other advantages of successful outsourcng (Thomas, 2004). In a study on outsourcng, Ndubs (2011) examned the cultural dfferences n Malaysa and factors ncludng commtment and trust n outsourcng. The results showed that cases ncludng commtment and trust at Indan and Chnese samples had a sgnfcant dfference. In another study, Ullah Khan et al. (2011) sought to dentfy and analyze the mportant factors for successful outsourcng n Asa, North Amerca and Europe. The results ndcated savng the costs as the most mportant factor, whle factors ncludng the skllful human force, proper substructures and servces as well as product were reported as the next prortes, respectvely. In another study, Koskela and Stenbacka (2009) attempted to examne the effect of outsourcng on the amount of unemployment and dstrbuton of wages n an effort to ncrease the outsourcng and drect external nvestment. In Japan, a study was conducted on 396 outsourcng projects by promnent frms lke Toshba, Htach, Fojtso and Mtsobsh (Bush et al., 2008). These researchers presented an analytc model for antcpatng successful outsourcng at varous projects. In another study n Japan, Sh et al. (2011) sought to elct experts perceved rsk of software offshore outsourcng ncorporatng ndvdual heterogenety. They ntervewed 20 people and observed the ndvduals heterogenety and requrement volatlty as the most mportant factor n makng software outsourcng decsons n Japan. Addtonally, they made an attempt to answer the queston whether country preferences are n software outsourcng of Japan or whether dfferent knds of outsourcng software nfluence dfferently on rsk percepton. It was found that skllful managers have quet neutral atttude toward knds of software and vendor country aspects. Sh et al. (2011) suggested an ncorporated approach of lnear model (LMM) to make ndvdual s heterogenety explct by the use of conjont analyss expermental framework. Karm et al. (2011) nvestgated the reasons why transacton cost theory (TCT) for studng nformaton technology outsourcng created mxed results. For ths purpose, they nvestgated 25 related studes between 1995 and 2011 from 19 dfferent journals. As t was ndcated

3 M. Hemat et al. / Management Scence Letters 2 (2012) 657 n ther analyss of emprcal ITO models, not all transacton cost theores were appled as a conceptualzaton n TCT and not all TCT relatons were taken nto account. Tjader et al. (2010) nvestgated the best polcy for outsourcng busness actvtes. They used analytcal network process (ANP), a mult crtera decson makng method and ANP super decson software for developng the decson model. The model provdes both short term and long term perspectves of the correspondng outsourcng ssue to all groups. They examned four polcy optons n decson makers, stockholders and nfluence groups vews wth respect to 50 economc, poltcal, technologcal and other factors. They proposed an approprate framework for nvestgatng legal optons wth regardng offshore outsourcng and observed that provdng dsplaced workers assstance program s the best approach n US government. In a study n Tawan, James et al. (2011) employed an ncorporated model (new hybrd multple crtera decson makng (MCDM) model) for approprate selecton of outsourcng provders usng the Tawan avaton data. They mplemented ANP for weghtng and DEMATEL was employed for selectng outsourcng provders. They reported that the most mportant crtera appeared to be nformaton securty (15.9%), followed by on-tme rates (14.9%), lack of management control (14.4%), and customer satsfacton (12.2%). These results do not necessarly mean that lttle attenton should be pad to other factors lke compatblty. Moon (2010) developed a model for partal outsourcng under a market uncertanty to provde a frm wth an outsourcng strategy and makng a correspondng support decson system. Based on ths model, management mplcatons were provded on how outsourcng tmng strategy should vary when outsourcng envronments such as market uncertanty change. As Moon (2010) reports, when market becomes more stable, hgher margnal profts are expected from outsourcng. When a frm outsources more shares and ts effort at the preparaton stage s more effcent, t can outsource earler. Furthermore, Moon (2010) conducted a comparatve study of a real opton approach and a net present value method to conclude that NPV underestmates the frm s values and proposes the earler partal outsourcng. Hotels are approprate places for nvestgaton of effectve factors on outsourcng actvtes by extensve range of servces n ths ndustry. Lammnmak (2011) nvestgated the factors motvatng hotel outsourcng usng ntervews and questonnares. In ths research, 20 related factors to transacton cost economcs and outsourcng ncentves were consdered. Out of these factors, 10 were categorzed as ncentve outsourcng factors whle the others were classfed as leadng concerns of outsourcng actvtes. Lee and Cho (2011) studed the effects of ntal and ongong trust n IT outsourcng from outsourcers and servce provders. Data were collected from 148 servce provders and recevers n a 6-month perod and were analyzed by PLS Graph verson3 software. The results ndcated that ongong trust and dstrust between the provder and recever was necessary n proft earnng and that output was nfluenced by partcpants perceptons at the frst stage of outsourcng process. They also proved that knowledge sharng experence medated the effect of prmary trust and dstrust, and n constant, trust and dstrust among groups n dfferent ways. They concluded that changes n servce provders prmary perceptons were apparently more postve and vsble than those recevng servces, however, both prmary perceptons were cogntvely compatble Balanced score card method Performance evaluaton and performance management are the result of strategc and operatonal plans of the organzaton. Although, complaton of strategc and operatonal plans s an ntrcate and complcated process, ther successful executon s more dffcult (Makhjan & Creelman, 2008).Snce one of the prncple objectves of ths artcle s to prortze the outsourcng crtera wth balanced scorecard (BSC) process, performance apprasal and BSC are brefly examned.

4 Defntons of the performance apprasal and BSC The performance apprasal s defned as the process of quantfyng the operaton effectveness and effcency (Neely et al., 1996). Optmal allocaton of sources to an organzaton, foundaton or ndustry nvolves measurng the performance of ther unts. Bank dscplne has a very heavy responsblty at market-based economcs. It offers servces, wthout whch the country bank dscplne stops. The captal present n banks s the prncple source for buyng the products and servces, and ther offered facltes s a source for provdng credt for all the economc unts lke famles, occupatons, frms and the government. Banks hold the certan acreage and provde the customers wth a set of nvestment, technologcal, research and servce unts, partcpaton n economcs, teachng, nformng, counclors and commerce. One of the mportant reasons why organzatons use the appled plans s acqurng and long-term conservng the customer and gvng value for hm/her called customer relatonshp management (CRM) (Huang, 2009). The performance measurement can be defned as a system by whch the organzaton controls and assesses ts routne performance; that s, whether the organzaton acheves ts objectves (Wu et al., 2009). There are two tradtonal prncples and modern vews for performance apprasal dscussons. The tradtonal vew, wth an order style targets the performance remndng and judgng as well as the assessed controllng. The modern vew targets teachng, growng and extendng the assessed capactes, mprovng and refnng the ndvduals and the organzaton and ts performance, presentng the counselng servces and publc benefcares partcpaton, creatng ncentve and responsblty for mprovng the qualty and refnng the actvtes and operaton. Its bass s to dentfy the weakness and strength as well as elevatng the qualty of the organzaton. Among the known performance measurement frames, whch are broadly used s EFQM. Ths frame ncludes two separate classes, whch are generally dvded nto "Enablers" and "results". Enablers nclude leadershp, polces and strateges, partnershps and resources, people and processes. Results nclude people results, customer results, socety results and key performance results. The other method s BSC presented n 1996 by Davd Norton n Norton Nolan nsttute and by Robert Kaplan, a Harvard unversty professor. Ths method measures the organzaton performance from four perspectves: fnancal, learnng and growth, customers, nternal process and relatng to four types of performance: accountng, fnancal, marketng, value chan and human resources (Wu et al., 2009). BSC ncludes four crtera classes: fnancal, learnng and growth, customer and nternal process, whch consttute ts four perspectves. Balance term n BSC means: - Creatng the balance between fnancal and non-fnancal crtera, - Creatng the balance between external and nternal crtera. Today, BSC s recognzed as a strategc management system and also a learnng system whch s based on the comprehensve objectves of a corporaton and consders creatng value n loge-term. BSC prncple core s formed by perspectve and strategy. These two are, n fact, a bass for formng four BSC perspectves and the fnancal results are attaned through other three BSC components. BSC nnovators at ther second artcle n 1993 ntroduced BSC as not only a measurng system but also a management system and emphaszed the organzaton strategy, commsson and respectve role n t (Rgby, 2001). Some of the studes conducted by usng BSC are brefly presented here. Davs and Albrght (2004) examned the effect of dsmountng BSC on mprovng the fnancal performance of a bank and acqured ths result that by executng the strategc plan, the fnancal performance s sgnfcantly mproved. Wu et al. (2009) compared the results of dsmountng BSC n three banks and attempted to prortze them by usng fuzzy decson-makng methods, and concluded that the order of settng four dmensons for assessng the banks performance s as customer (0.4101), fnancal (0.3271), nternal process (0.1314) and growth and learnng (0.1314). Wu et al. (2011) attempted to assess the performance some teachng centers by usng BSC. They conducted ther research at three unverstes n Tawan and attempted to examne the causalty relatonshp among ndexes by usng DEMATEL technque.

5 M. Hemat et al. / Management Scence Letters 2 (2012) Methodology 3.1. Executve research procedures In ths artcle, for accessng the hybrd outsourcng algorthm and BSC, sx steps are followed: 1. Determne the outsourcng ndexes based on Elmut method and statstcal technques, 2. Determne the strategc objectves based on four BSC perspectves, 3. Determnng the relatve weghts of BSC perspectves, 4. Use Qualty Functon Development technque: By applyng the Qualty Functon Development (QFD) technque, frms can allocate ther resources n accordance wth ther customers desres and coordnate the varous organzaton sectons as well as ther experts sklls (Almanna et al., 2008). 5. Determne the prortes of the outsourcng ndexes wth the strategc atttude, 6. Compare the results and analyze the data. The procedures are summarzed n Fg. 1. Start Determnng the strategc objectve at BSC perspectves Determnng the outsourcng ndexes of Almanna model Determnng the Weght of the four BSC perspectves Prortzng the outsourcng ndexes usng questonnares Determnng WHAT at QFD matrx Determnng HOW at QFD matrx Formng QFD method Prortzng the outsourcng ndexes through the strategc process Comparng the attaned results Data analyzng and concludng The end of algorthm Fg. 1. The executon of the proposed algorthm

6 Introducng Tose'e Ta'avon Bank In executon of subsecton of amendment of the Natonal Budget Law enacted on 1990, and to provde facltes for the goal of mentoned above subsecton and n executon of credt facltes ndcated n amendment of artcle of the Cooperatve Sector Law of the IRIN Economy enacted on 1992, the Cooperatve Fund establshed n The Fund and ts doman of operaton provdes the fnancal resources by gatherng proceeds from the resources of payng back of the government loans to centers n charge of productve and constructve servces expanson and ther relevant cooperatves or canddates members who by organzng such nsttutons wth busness plans for unemployed people occupaton takng advantage of the mentoned loans. Tose'e Ta'avon Bank has 346 branches around Iran. These branches have a total of 2,479 personnel, ncludng the accountng staff and guardanshp workers. The managers, experts and branch drectors consttute the research populaton as the organzaton elte personnel. A total of 32 partcpants from the gven branch drectors, experts and managers were selected. Wth regard to the hgh amount of contracts that Tose'e Ta'avon Bank has had n recent years, ths bank has been selected for the case study of ths artcle. Data analyss Stage 1: Determnaton of the outsourcng ndexes After developng the questonnare, t was tested through a plot study, whch nvolves admnsterng the nstrument to 20 target partcpants selected from the sample. The relablty of the questonnare s measured by usng Cronbach`s Alpha test. The attaned Alpha was 89.72%, whch s well above the mnmum acceptable level of 70%, suggestng that the relablty of the nstrument was hgh. For specfyng the approprate statstcal test, tests of normalty were executed. For ths purpose, Kolmogorov-Smrnov T test (KS test) was run and because, n all tests, the p value was more than.05, t was concluded that the observaton dstrbuton followed a normal dstrbuton. In addton, n order to prortze each value, Fredman and one-way ANOVA tests were run. The results showed that p value was less than 5%, t was concluded that the effect of 9 ndexes on the customer servces management was sgnfcant. In order to prortze factors, whch affects the outsourcng, we have used the mean rate. Table 1 presents the results by usng of mean scores. Table 1 Prortzng the factors affectng outsourcng Prorty Factors n reference to ther prorty Mean rate Percentage 1 Emphaszng on long-and short-term nterest The sutable crtera for measurng the performance Holdng the cooperaton sprt among workers Payng the sutable wage to workers Proper plannng among the varous outsourcng phases Effectve organzaton communcaton Recevng the proper feedback from organzaton performance Supportng the senor manager Proper skll at performng the talks Stage 2 The strategc objectves at four BSC perspectves At ths stage, the BSC team collected the necessary nformaton from the branch drectors, experts and managers at the strategc postons of the organzaton. After collectng the responses, BSC team assgned the followng strategc objectves used at the next stages. In Fg. 2 the strategc objectves at BSC perspectves has been represented.

7 M. Hemat et al. / Management Scence Letters 2 (2012) 661 Four BSC perspectves Internal process Customer Fnancal Growth and Learnng Equppng the fnancal resources Increasng the customer satsfacton Increasng the servces ncome Enhancng workers tranng level Decreasng the delayed calls Acqurng more share from the Decreasng costs Usng nformaton technology Increasng the effcent forces Stage 3: The relatve BSC weghts Fg. 2. Strategc objectves at BSC perspectves Accordng to the eltes' vews the relatve BSC weghts were determned. Table 2 presents the results of the par-wse comparsons matrx. It shows the eltes' pont of vew toward the four BSC perspectves. The nconsstence degree s about 0.05 that s less than 0.1 and s acceptable. Table 2, shows the weghts produced from the par-wse comparsons matrx the eltes' pont of vew toward the four BSC factors. Snce, the Tose'e Ta'avon Bank s a government bank, the nternal process aspect, accordng to the present msson of government and non-government organzatons, enjoys a hgher prorty. Table 2 Weghts attaned from the par-wse comparsons matrx Macro- objectves Weght Fnancal aspect Internal process aspect Customer-based aspect Growth and learnng aspect Stage 4: QFD mplementaton At ths stage, the strategc objectves (objectves presented n BSC perspectves) were nserted n part WHAT and the success models of Elmut model were nserted n part WHO at QFD. The relatonshps among each of the strategc objectves and Elmut model were assgned ponts followng the scorng method presented by Lee et al. (2000). The method nvolves allocatng score 9 for the hghest relatonshp, score 3 for an average relatonshp, score 1 for a weak relatonshp, and zero for no relatonshp. A = ((F1 +F2)/2) W 1 + ((C1 +C2)/2) W 2 + ((P1 +P2)/2) W 3 +((L1 +L2)/2) W 4 where A = The ndex score affectng on outsourcng by accountng for BSC objectves F = Fnancal perspectve objectves

8 662 C = Customer perspectve objectves P = Internal process perspectve objectves L = Growth and Learnng perspectve objectves W = Weght of each of BSC perspectves n Table 2 Table 3 Score of each outsourcng ndex, by accountng for the weghts of the four BSC perspectves BSC A1 A2 A3 A4 A5 A6 A7 A8 A9 Score Increasng the ncome produced from servces Decreasng the costs Index score by accountng for the weght of each Fnancal perspectve Increasng customer satsfacton Acqurng more share from the market Customer Index score by accountng for the weght of each perspectve Equppng the fnancal resources Process Decreasng the delayed calls Index score by accountng for the weght of each perspectve Enhancng the workers Growth and Learnng tranng level Usng modern technology and IT nformaton technology Index score by accountng for the weght of each perspectve Score sum of each ndex Score of each ndex by accountng for the weght of each BSC perspectve Percentage of each ndex by accountng for the weght of each BSC perspectve A1: emphaszng on the long- and short-term organzaton nterest A2: holdng the cooperaton sprt among workers A3: recevng the proper feedback from the organzaton performance A4: payng the proper wages to workers A5: the proper plannng of the outsourcng phases A6: the proper crtera for measurng the organzaton performance A7: the proper organzaton communcaton A8: supportng the senor managers of organzaton from the outsourcng actvtes A9: the proper skll at performng the outsourcng dscussons Stage 5: The outsourcng ndexes wth a strategc vew At ths stage, after QFD was developed, t was admnstered n the form of a questonnare, to the organzaton eltes and the results are summarzed n Table. Accordng to the fndngs, the followng ponts can be concluded that an outsourcng postvely nfluence customer servce management. The mportant factors nclude emphaszng on the long and short term organzaton nterests, the proper crtera for measurng the performance, holdng the cooperaton sprt among workers, far payments

9 M. Hemat et al. / Management Scence Letters 2 (2012) 663 to workers, proper plannng n varous outsourcng phases, effectve organzaton communcaton, havng proper feedback from the organzaton performance, supportng the senor manager, and fnally the proper skll at dong the dscussons. In terms of prorty of the factors the factors nclude emphaszng on the long and short term organzaton nterests, recevng proper feedback from the organzaton performance, holdng cooperaton sprt among workers, supportng senor managers, proper crtera for measurng the performance, effectve organzaton communcaton, payng the proper wage to the workers, and proper skll for dong the talks. Table 4 Prortzng the factors affectng the outsourcng wth BSC process Prorty Identfed factors wth respect to ther prorty Percentage 1 Emphaszng on long-and short-term nterest The sutable crtera for measurng the performance Holdng the cooperaton sprt among workers Payng the sutable wage to workers Proper plannng among the varous outsourcng phases Effectve organzaton communcaton Recevng the proper feedback from organzaton performance Supportng the senor manager Proper skll at performng the talks 4.01 Table 5 presents the results of the comparson of the two BSC and statstcal methods. Table 5 Comparson of the results obtaned from the two BSC and statstcal methods Prorty Identfed factors wth respect to ther prorty Mean percent wth the statstcal methods Mean percent wth BSC method 1 Emphaszng on long-and short-term nterest The sutable crtera for measurng the performance Holdng the cooperaton sprt among workers Payng the sutable wage to workers Proper plannng among the varous outsourcng phases Effectve organzaton communcaton Recevng the proper feedback from organzaton performance Supportng the senor manager Proper skll at performng the talks Concluson In ths paper, we have presented a new method, whch s a hybrd of balanced score card and qualty functon deployment. The hybrd method has been used to study the mportant factors nfluencng successful mplementaton of outsourcng n bankng ndustry. The proposed study of ths paper has been mplemented for real-world case study of an Iranan bank ndustry and the results are compared wth another exstng method. The prelmnary results ndcate that the proposed model of ths paper performs better than the alternatve one. The results ndcated that dfferent factors play mportant roles for the successful mplementaton of outsourcng and we hope the results of ths survey could help bankng ndustry. References Almanna, B., Greenough, R.M., & Kay, J.M. (2008). A decson support tool based on QFD and FMEA for the selecton of manufacturng automaton technologes. Robotcs and Computer- Integrated Manufacturng, 4(24), Bush, A.A., Tawana, A., & Tsuj, H. (2008). An emprcal nvestgaton of the drvers of software outsourcng decsons n Japanese organzatons. Informaton and Software Technology, 50(6),

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