OUTSOURCING VENDOR PERSPECTIVE: EXPLORATION OF VENDOR EFFECTIVENESS IN MEETING CLIENT OBJECTIVES.
The overview of outsourcing includes the definition of outsourcing as a practice of moving or contracting out some or all of the products, or service operations, to outside companies that specialize in outsourcing operations (Adegbie & Adeniji, 2011; Benito et al, 2012). The two types of outsourcing are international and local outsourcing. International outsourcing consists of the manufacture of goods and provides services in a foreign country. Local outsourcing is domestic outsourcing, where suppliers within the country manufacture products (Mortensen, 2010). Outsourcing goods and services is pervasive in the United States economy (Bouchet, 2010). The concept gathered momentum with the publication of many research studies on the following topics: the growth in the outsourcing marketplace, a cross-sectional approach to outsourcing, managing outsourcing alliances, and evaluation of outsourcing decisions.
Many businesses fail to complete necessary background checks on outsourcing vendors before outsourcing relationship begins (Hall & Symon, 2012). Taking precaution in the selection of outsourcing vendors, checking on progress, and maintaining relationships may lead to fewer outsourcing failures (Peh & Low, 2013). The execution of client objectives and the establishment of strong communication channels while performing, monitoring, and reporting could ensure the success of outsourcing relationships. In this qualitative study, the phenomena that may cause trends in outsourcing success come available for organizations that seek to pursue contracting out an internal business process to a third-party organization. Data from personal interviews with vendor employees provide an understanding to other organizations in vendor outsourcing business with concerns of meeting client objectives. For the purposes of the current research, organizations are reference as pseudonyms. This research study included an inshore vendor outsourcing company contracted by a client company located in the United States. The pseudonym for the client company was Red14 Enterprise (R14E). R14E was the client firm that outsourced claim processing to the vendor firm. The pseudonym for the vendor company was HIHO Management (HHM), which referred to the company that processed warranty claims for R14E.
The current problem was that HHM was failing on an element within the organization to achieve the target goal of hold claims. The impact of non-processed claims caused the company to fail in achieving the target goal of payment to the authorized service centers that repaired R14E consumer units. The increase of R14E's market share that coordinated with a growth in service exacerbated the problem and did not relate with change on claim hold in the warranty claim outsourcing. In 2011, outsourcing activity had grown 82% for medium-sized and large firms in Asia, Europe, and North America (Pouder, Cantrell, & Dally, 2011).
The success of outsourcing intervention determines the nature of the interplay between the contracting organization and the third-party service provider (Hunter & Hall, 2011). Decision makers in downsizing organizations pursue outsourcing on the decision criteria that outsourcing can lead to a 20% to 40% cost reduction (Blumberg, 1998). The decision makers from organizations that fail to consider long-term propositions may mortgage their organization's future opportunities for short-term advantage (Kumar, Kwong, & Misra, 2009).
The purpose of this case study is to explore the components that may contribute to service firm's personnel performing inadequately in meeting the goals of the outsourcing firm or client. The proposed results could contribute to improving business by illuminating the components associated with personnel's inadequate performance in meeting client's goals.
Outsourcing is a method to improve firm performance. Companies initiating outsourcing collaborations must decide not only between insourcing versus outsourcing and near shoring versus far shoring; leaders must consider the scope of global projects (Smite & Wohlin, 2011). Outsourcing helps speed up a firm's innovation process. Companies such as Cisco Systems and Dell that are in high technology outsource much of product design to specialized companies (Niranjan & Rao, 2011). The companies maintain control over the final assembly, test, and customization of the product to customer requirement. For example, Dell strongly believes these activities have little value to the end user (McIvor, 2010). Another example is that a number of carmakers such as BMW and Volkswagen are pursuing similar strategies in use of modular production (McIvor, 2010).
In comparison, outsourcings in Information Technology (IT) services are globally increasing after a slowdown because of the recession. Unavailability of resources (material and or labor) is a compelling reason to outsource (Niranjan & Rao, 2011). Resource based theory of the firm had a major influence on business strategy in the last decade by postulating unique capabilities to create a competitive advantage. Resource based theory receives significant attention in the operations and production management area (McIvor, 2010).
Management relationships between partners is important because relationship contributes to the success of outsource projects. Task characteristics and relational exchange characteristics such solidarity, commitment, role integrity, flexibility, and monitoring have an impact on the success of the outsourcing relationship (Pannirselvam & Madupalli, 2011). Leveraging vendor relationship-building skills and spending time in helping clients determine needs require a wealth-relationship manager's role. Approximately 78% client and vendor partnerships fail in the end from inflicting high transition costs on clients (Mehta & Mehta, 2010).
In contrast, the rapid outsourcing growth supported by technology led to changes in ways that companies form and maintain partnership (Wu & Lee, 2012). The two critical determinants of successful client-partnerships are the outsourcing objective and its fit with the vendor's capabilities (Mehta & Mehta, 2010). The success of outsourcing relationships relates to business establishment within the organization and across client and vendor organizations and at every level (Hutzschenreuter, Lewin, & Dresel, 2011).
In a modern business environment, many companies entrust a third party with operations of an entire process, instead of managing all processes directly (Lee & Choi, 2011). The selection and managing of third-party relationship should occur in a proper way (Aktas et al., 2011). Strong due diligence process is necessary to gain confidence in business, including training programs, management style, and insurance coverage (Mosher & Mainquist, 2011).
Outsourcing requires careful management of client-vendor relationships. The routine contacts between both parties create ways to build working relationships based on trust, confidence, and comfort. Establishing good communication between client and vendor enables continuity through design of relations that anticipate change, set up relationship structure, and manage mechanisms that ensure successful work with outsourcing vendors (Gonzalez, Gasco, & Llopis, 2010).
The guidance for selecting appropriate research method for this study is based on the existing literature. Qualitative research requires an attempt to capture the wholeness of experience followed by an attempt to communicate this understanding to others and requires an interest in some aspect of social life (Hunt, 2011). Thus, the most appropriate design for this study is a qualitative method for this single-case study because the nature of this study is designed to explore the elements that could serve outsourcing organizations' employees to perform adequately in meeting the clients' claim processing goals.
The qualitative method works appropriately for a researcher when exploring vendor operating effectiveness and its effect on meeting client objectives (Hammer, 2011). The justification to use qualitative research method, as opposed to the quantitative method, has support from the research in the literature review on authors who utilized qualitative method to explore outsourcing organizations (Hunt, 2011). Previous qualitative research included exploratory studies as an important criterion in offshore supply chain sourcing decisions (Pentz, 2011).
Qualitative methodology application in Pentz's (2011) study utilized face-to-face and telephone interviews with participants in the southern United States to explore the leadership perceptions. The process of exploring leadership perceptions may influence decisions of the offshore supply chain outsourcing firms. In the interviews conducted of 13 mid-to-upper management operational professionals, the organizational decision-making leaders stated the need to articulate a strategy that guides organizational movement of production and services of offshore firms (Pentz, 2011).
In this case study the pseudonym company name Red14 Enterprise (R14E) represents the client company in the United States that is outsourcing the service of warranty claims processing to the vender HIHO Management (HHM). The most appropriate design for this study is the "qualitative single-case study approach" because the nature of this study is to explore the elements that could help outsourcing organizations' employees to perform adequately in meeting the clients' claim processing goals. The authors of this study selected the exploratory single-case to explore those situations that have no clear, single set of outcomes. The qualitative single-case study included data collection from a purposeful sample from the employee, previous employee, and manager population of the vendor firm.
The authors used semi-structured interviews for a sample size of 20 employees. The data collected within this study facilitated the exploration of relevant outsourcing factors that contribute to vendor efficiency in claim processing and the execution of client objectives. The use of the version 10 of NVivo enabled collection, analysis of the data, and presenting the finding from the qualitative single-case study research data.
NVivo is a qualitative data analysis computer software package produced by QSR International. It has been designed for qualitative researchers working with very rich text-based and/or multimedia. QSR International is a qualitative research software developer based in Melbourne, Australia, with offices in the United Kingdom, the United States and Japan.
The authors analyzed results using a pattern-matching technique to determine whether factors preventing service-outsourcing organizations from achieving the clients' goals existed. The use of theoretical triangulation occurred to establish validity by checking of participants and integrating perspectives from various participants who have knowledge in outsourcing. The following method segment includes the basis for determining why the qualitative research method was appropriate for this study compared to the quantitative research method.
The total population available within the vendor's organization includes the claim processors, accounting receivable, and ticket management employees. The eligibility criterion for research participation included participants with knowledge of claim processing, who were current working vendor employees, or past employees of the vendor. To obtain dependable knowledge from the research, the priority was to select varied participants based on the level of experience working for the vendor organization. The varied years of experience enabled me to compare and contrast participant feedback. The coding of participants distinguished the participants' years of experience by using the participant coding, DS1, DS2, DS3, to DS20. The participant coding also included coding for years of experience, such as DS1.1 for 1-year experience, DS2.2 for 2 years' experience, and so on.
Allowance of previous employees to participate in the research occurred since the vendor company was experiencing high employee turnover. To improve accuracy in purposeful sample sizes different selections of populations use different frequencies (He et al., 2011). The population of the vendor firm consisted of a sample size of 20 employees. The employees at the vendor's firm perform specific duties of processing consumer warranty claims submissions by the authorized service centers that perform repairs on behalf of the manufacturer. The suitability of the sample size relates to recommendation that 20 participants were appropriate for qualitative research (Boeije, 2010), or until theme saturation became evident.
Selection of sample size relied on the purposeful sampling strategy (Boeije, 2010). The research selection gave the understanding of the research problem and central phenomenon. Semi-structured interviews promoted a conversational interview style. The semi-structured interviews provided the interviewees space to build their own ideas and express them succinctly (Iaquinto, Ison, & Faggian, 2011). The choice to use open-ended interviews allowed me to ask questions in an order applicable to each participant. The instrument contains validated questions developed by Otley (2009).
The following overarching research question guided the study: What elements affect the vendor organization's employees from not achieving the clients' claim processing goals? To answer the overarching research question, this research study included validated open-ended questions to collect data using Interview Questions Based on Research by Otley (2009) and Ferreira (2009). Open-ended questions which elicited in-depth explanations of particular issues were used (Bhatti et al, 2011). The research instrument, presented in Appendix-A, contained validated questions developed by Otley (2009) and Ferreira (2009) to explore issues addressed in developing a framework for managing organizational performance (Appendix A).
The validated questions give a conceptual definition of the management results and the management determinants of the meaning of these results (Broadbent & Laughlin, 2009). The publisher Rightslink granted the authors permission to use the validated questions excerpt as the data collection instrument. The validated questions customization for the current research study occurred by masking the name of the organization and altering the original two-part questions into one question.
The collection of data occurred using the semi-structured validated questions developed by Otley (2009) and Ferreira (2009). The process to collect data from participants included (a) participants receiving invitation to participate, (b) participants signing consent forms to take part in research, (c) scheduling an appropriate time and place for face-to-face interview, and (d) attending and participating in application of instrument while digitally recording with the participants' permission. The conduction of a process check was important in improving the questions, structure, and measures of the instrument.
A process check occurred after interviewing three of the 20 vendor employee participants to evaluate the interview process in this research setting to make any necessary adjustments to the interview setting. The coding of participants names was DS1, DS2 to DS20, and continued to ensure participant confidentiality. The same coded names enabled me to contact the participants for any follow-up interviews. The follow-up interviews followed for clarification of participant responses and did not include new interview questions. The application of the research instrument in this single-case study allowed transcription of the responses from the in-depth open-ended questions obtained from interview recordings.
Sample and Data Collection
The sample consisted of 20-vendor employees who participated in this study. Data collection was from semi-structured open-ended informal interview either in person or by telephone. Open-ended questions elicited in-depth explanations of particular issues (Bhatti et al., 2011). The data collection process included face-to-face interviews with participants' using a list of questions collecting participant knowledge in outsourcing. We scheduled and conducted formal face-to-face interviews to collect data at the vendor facility at each participant's most convenient time. In cases in which the participants were not available at the vendor facility or no longer worked for the vendor, we used telephone interviews.
The interview questions were few in number, with an intention to elicit views and opinions from participants (Boeije, 2010). To encourage participant readiness and eagerness to share their outsourcing experiences, we confirmed commitment to the participant's confidentiality for the research. Once the participant was comfortable, the shift to focus on the interview started by describing the role of research and influences of the participant's experience and understanding of outsourcing.
Data analysis in this qualitative single-case study research consisted of transferring the data into themes with coding and condensing the codes. The coding followed a final representation of data in figures, tables, or discussion. The data analysis was an inductive process in which themes and patterns emerged based on the interview transcripts without a pre-existing framework. For this research study, an inductive content analysis of the data involved coding, categorizing, and abstracting. The identification of themes and patterns helped the authors in the understanding the formation of vendor outsourcing operates.
Data organization in the NVivo 10 software by the participants, the handwritten n or data recording d designator, the question number, and the element number were coded as follows DS1, DS2 to DS10. To identify handwritten notes, the recorded data were coded as follows DS1n, DS2n for handwritten notes and DS3d, DS4d, for recorded data. For data triangulation, the participants coding distinguished the years of experience by following coding DS1.1 for 1-year experience, DS2.2 for 2 years' experience, and so on.
Data analysis in the current research study occurred from transcribing and coding the data from participants' completed interview templates. we uploaded the document files into NVivo 10 software for qualitative content analysis. In this study, data from participants underwent an analysis using a pattern-matching technique to determine participants' perceptions of factors preventing outsourcing organizations from achieving the clients' goals. The data coding and organizing the transcribed interview using NVivo 10 software helped in determining the specific themes and patterns derived from the interviews.
The inductive content analysis approach measured the meaning of data from participant interviews relative to the research questions (Simmons et al., 2011). The use of content analysis was active in this research to review the open-ended responses from the in-depth with participants from the vendor organization. The authors of this study used NVivo 10 software to create units representing segments of meaning and group each distinct segment of meaning in a sub-file of the software.
Reliability and Validity
The validity and reliability of qualitative research confirm that the results are believable from the participants' perspectives (Lapan, Quartaroli, & Riemer, 2011) and other researchers may dependably repeat the study. The authors of this study demonstrated the validity of this research study by (a) collecting and analyzing data properly; (b) assuring accurate characterization of the participant's responses by coding collected data; and (c) reflecting, concluding, and contributing to the outsourcing knowledge with elements that help outsourcing organizations' employees perform adequately in meeting the clients' goals.
To ensure the reliability of their studies, researcher can use the synchronic reliability method to test the similarity of observations within the same period (Lapan et al., 2011). The participants may know each other and could provide some information about each other that may influence reliability (Perks, 2010). To verify the reliability of data from the interview template, the authors verified (a) the exploration of business concepts; (b) the use of validated questions for data collection; and (c) the process of transcribing, checking, and rechecking of data entered in Nvivo 10. The reliability of data contributes to assuring that other researchers could replicate the application of the case study design, to contribute to outsourcing knowledge. The use of validated questions provides a means for other researchers to replicate the interview process and to thereby strengthen the reliability of the research.
Previous research used the validated questions to measure behaviors of subjects and to protect studies from risks to internal validity (Leedy & Ormrod, 2001). To account for internal validity, in the data analysis phase, a comparison of participant interview responses occurs to highlight responses that exhibit important differences and similarities. A distinction of important factors from the differences and similarities can produce the patterns. The authors conducted each interview with each participant and used follow-up interview when clarification was needed to support the validity of the study. According to Yin (2003), conducting follow-up interviews for clarification adds credibility to this study's findings. Latter, Roe and Just (2009) confirmed this notion.
Research accounts for external validity during research design, data collection, and data analysis phases of the case study (Robson, 2011). Minimizing threats to addressing external validity in this study was through defining the scope and boundaries that establish reasonable analytical generalization of the research limitations and delimitations. To help minimize threats to external validity, and thereby enable the possible application and comparison of the research findings to similar organizations, a purposeful sample representative of the total population of outsource employees underwent selection. Then, research steps occurred using a carefully planned data collection, and analysis to ensure validity of the research findings (Yin, 2011). We also used a process check to ensure external validity. The use of the process checks was to test the data analysis process and compare emerging themes from the theoretical triangulation.
The purpose of this qualitative case study was to explore the elements that may contribute to a vendor organization's personnel to perform adequately in meeting their client's claim processing goals. The data collection from the process check and final study using semi-structured in-depth interviews contributed to the findings. The process check involving three participants from the vendor firm occurred first. The process check participants signed the consent form and voluntarily participated in the research. The inductive content analysis contained the process check data because the data collection and analysis followed the same procedure as the final study (Yin, 2011). For the current study, the findings from the process check and final study were inclusive of data relevant to the overarching research question and 10 validated questions to explore participants' outsourcing experiences.
Seventeen participants signed the consent form and voluntarily participated in the research. Data coding on the process check and final study's participant data occurred to protect the participants' confidentiality. Transcription of all the recordings and written data using Microsoft Office Word 2007-word processing software occurred. To perform a qualitative content analysis, the document files upload into NVivo 10 software occurred. Six themes emerged in the analysis to explore the elements that the participants perceived as causing service-outsourcing organizations personnel from meeting the clients' claim processing goals. In the study findings, 17 or more participants commented on the primary themes while 14 or fewer participants commented the secondary themes.
The following are participant responses to the 10 validated investigative questions and the findings revealed during data analysis process:
Interview Question 1: How did the organization's vision and mission create interest by managers and employees?
The participants did not have a written or enforced vision or mission that would create interest by managers and employees. Participant DS4 and DS11 stated, "I am not even sure what our organization's vision is." Participants DS12, DS15, and DS20 shared that in their years of service at the vendor location there had never been an emphasis on the vendor's vision and mission statements. Participant DS7 stated, "The employees are never informed of the official vision and mission statements of the company." Participants DS8, DS9, and DS10 stated, "our objective is to complete client's assigned tasks timely." The completed tasks increase the potential to maintain and develop business relationships instead of termination of contracts. The participants DS13 and DS11 shared that even though the vendor did not have a vision and mission in place, the client's initiation of connecting quarterly bonuses to claim processing increased team members and manager's motivation to achieve client goals.
Interview Question 2: What are important factors central to HHM future success?
The participants expressed that the future of HHM solely depends on fulfilling the client's claim processing requirements at a lower cost within a limited time. Participants established awareness that the client uses multiple other vendor organizations to handle other aspects of its business. Participant DS4 stated, "Since we are not the only outsourcing organization for this client, it is important to stand out above the rest so we will be in a good position for future dealings with the client." The team members stated that their daily objective was to process incoming claims, reduce hold count, and maintain their employment contract with the vendor company.
The factors shared by participants DS2, DS5, DS8, DS11, and DS17 that would promote future success were (a) creation and maintenance of positive business working relationship between the vendor and client, (b) practicing and encouraging diversity within both organizations, and (c) effective communication in a professional manner among teams, managers, and the client. The success factors of the vendor firm shared by participants DS6, DS8, DS12, DS13, and DS19 tied to (a) vendor self-management and elimination of micromanagement by the client company, (b) implementation of strict claim submission policies by the client on its service centers, and (c) proficiency in claim processing. Participants DS7, DS13, and DS18 shared that with sufficient knowledge on how to process claim error codes, open lines of communication, and being included in policy change meetings that may provide success in attaining service-outsourcing goals.
Interview Question 3: What processes and activities has HHM implemented to ensure success?
The data from participant interviews confirm that the vendor holds weekly and monthly meetings with team supervisor to brainstorm on how to meet the client's goals. Participants DS4, DS7, DS12, and DS18 shared that the vendor has implemented the following processes (a) audit system to check all approved claims for efficiency, (b) collaboration meetings to discuss and set up quarterly targets to meet client goals, and (c) open communication between the vendor and client to address hold errors. Participant DS4 stated, "Audit results are sent to individuals in order to address key areas of improvement and to ensure quality is up to par." To meet the client goals, the following are implemented (a) weekly training by the client company to provide knowledge on claim processing, (b) implementation of hold count board for public knowledge of daily targets, (c) adding of a vendor supervisor as a liaison to share policies routed by the client and monitor employee performance. The participants DS5, DS8, DS16, and DS18 shared that the collaboration among vendor supervisor and the team members has contributed to policy clarification and redirection when processing claims incorrectly.
Interview Question 4: What influence does the HHM organization structure have on the claim processing and use of the performance management and control system?
The participants shared that HHM organization structure did not influence the claim processing, performance management, and control system. The participant-collected data confirmed that the HHM organization receives treatment as a third-party company with limited control of the client company procedures. The client company assigns a contract agreement with the vendor to process claims and meet a target of 3,000 claims on hold each day.
The evidence of the client company micromanagement exists in all aspects of claim processing even to assigning of daily targets. The client company solely sets up of the vendor performance measures. The team member's target assignments occur not based on their strengths but on the ability to meet the set performance standards. The team member performance monitoring happens through the day, and target reassignment those who are not meeting the client's goals. In cases where the team does not meet goals, participants DS2, DS7, DS12, DS15, and DS19 expressed that the vendor does not support team members in fear of losing the client's business. The vendor emphasizes that team members have to meet a performance goal of 200 claims processed each day. The claim payments routed to the service centers should not contain mistakes that would contribute to the client's loss of money. The performance-index control system set in place by the client company was an effort to meet claim-processing goals. Participant collected data provided evidence that monetary bonus payment to vendor team members occurred every 6 months after client reviews the vendor's performance.
Interview Question 5: How does the HHM organization structure influence and is influenced by the process of strategy implementation?
The interviewees stated that the vendor organization does not take any initiative to design and implement claim-processing strategies. Participant DS12 stated, "There is no leadership at HHM, their "management" only knows to follow orders and hope for good results." In cases where the vendor wants to implement strategies, they have to obtain permission from the client. Participant DS7 stated, "HHM has little influence on the process of strategy implementation. Because we are a third party company, in many instances we must obtain approval from the client company before being able to implement a new strategy."
In addition, participant DS19 stated, "HHM does not have any influence on the process of strategy implementation, the client has full control." Evidence in collected data confirms that the client company communicates strategies to the vendor manager and provides a timeline of when and how the strategies implementation should happen. Participant DS14 stated, "The goals and targets of the client company creates are on a very restrictive schedule, time off (whether it be a few hours or a whole day) have to be timed with more precision than the moon landing."
Participants DS1, DS3, DS6, and DS13 provided that the vendor followed the client's detailed guidelines to avoid taking fault if the strategies do not provide efficient results. Participants DS1, DS8, and DS17 noted that ineffective communication between the vendor and client on strategy implementation guidelines contributes to increase of hold count because the team has to wait for processing guidelines from the client.
Interview Question 6: How does the HHM organization assess and measure its success to achieve goals and objectives?
The respondents provided that the client company is responsible for designing the measurement and assessment of goals and objectives. Participant DS12 stated, "the assessment and measurement comes from client company and a comparison occurs against other processors." Manager at the client company provide assessment criteria's that they require without consulting the vendor. Participants DS3, DS4, DS10, DS11, DS18, and DS20 shared the two criteria set by the client are that (a) each team member should meet a goal of 200-processed claim per day, and (b) the total hold count should not exceed 3000 claims per day.
The vendor supervisor downloads the claims processed to excel for review and confirmation of goal attainment. The team members received notification of their processing status and additional targets. Reassignments occurred to those who had not met the daily goal of 200 claims. Participants DS2, DS5, DS9, and DS17 confirmed that the client takes into consideration the logged phone calls to service centers during the measurement period. The review occurs to determine if the vendor met the performance index for the 6-month term.
Interview Question 7: How does HHM go about setting appropriate performance levels for team members to achieve their claim processing goals?
Reviewing the participants' data confirmed that the client company is solely responsible for setting performance levels for the vendor. Participant DS2 stated, "HHM's performance goals are set by client company and HHM has little to no say in the goals." The vendor consultation during the planning stages to assist in performance levels development does not occur. The interviewees noted that the client set a performance level of 200 processed claims each day for each team member. Participant DS14 stated, "The work seems daunting at first with an initial reaction of oh my how the heck am I going to do all of this?"
The participants maintained that the client holds the vendor liable of meeting the set claim processing goals. The client does not take into consideration the system-generated error codes that prevent claim approval. Participant DS13 stated, goals are seemingly set by the client company without reference to hold counts regardless of why the claim was on hold such as service center's fault, system error in processing, system error making it impossible to process or ineffective to process, newly uploaded, and newly claims placed back into hold without HHM's knowledge or involvement.
Interview Question 8: What processes does HHM use for evaluating claim processing for individual, group, and organizational performance?
The respondents provide that the evaluation process is number driven, and no yearly evaluations occur. Participant DS6 and DS12 stated, "they use spreadsheets containing data provided from an internal program utilized to process claims, however, there were no individual goals set." The respondents provided that the vendor supervisor is responsible in evaluating each team member's performance. Participant DS7 stated, "HHM has department leads who track performance by providing management with the amount of claims processed by each processor."
The process of evaluation is manual downloading of the total claims from the internal database in the morning in comparison to processed claims at the end of the day. The processed claims grouping happens in categories of (a) approved, (b) rejected, and (c) reminder hold claims. The supervisor provides an Excel file that contains the team members' processed claims and their rank in meeting individual performance.
Interview Question 9: What rewards (both financial and non-financial) will managers and other employees gain by achieving performance targets?
The participants provided that the reward that brought interest to managers and employees is eligibility of financial bonus by the client company. Participant D13 stated, "the rewards include increased confidence in abilities, increased knowledge on how to succeed, increased trust in the ability of HHM from client company and bonus checks." The client performs a detailed evaluation of the processed claim counts and ratios prior to approving and paying out the monetary bonus that occurs every 6 months.
The participants shared that factors such as system claim errors, non-responsive service centers, and ineffective response from the client on escalations prevent the team from reaching the clients claim processing goals. Respondents also shared that on one occasion, the client held their monetary bonus rewards for 3 months after the payment approval. Participant DS6 stated, "There was supposed to be a bonus given to employees for keeping the claim count below a certain number. However, management (do not know exactly who is responsible) did not want to actually give the employees their bonuses. It ended up taking over 3 months for the employees to receive the bonuses they had earned."
Interview Question 10: What penalties will the managers and other employees suffer by failing to achieve performance targets?
The participants provided that the vendor is liable for achieving the client's claim processing goals. Close monitoring by vendor managers occur and the team members that fail to achieve performance targets are subject to scrutiny. Participant DS 13 stated, "You are treated as a probationary processor, for example, being required to report daily activities without receiving follow-up. Increasing time spent meeting with advisors. Not receiving bonus checks and loss of employment."
The respondents confirmed that the client requested team members to provide factors that affected meeting the performance goal of 200-processed claims each day. Terminations of team members that fail to achieve targets may occur without official warnings. Participant DS12 stated, "Processors working under short-term contracts will be terminated. Processors who have been deemed assets by client management standards are subject to termination or will lose any possibility of receiving a pay increase or bonus for the year."
EMERGENT PATTERNS AND THEMES
The data provided evidence of the factors and themes that the participants perceived as contributing to outsourcing vendor efficiency issues in claim processing and in meeting the client's objectives. The conclusions made within this research are exclusively on the results of the data analysis. The interview data contains elements that affect service-outsourcing organizations' employees from not achieving the client's claim processing goals. The impact of non-processed claims causes the company to fail in achieving the target goal of payment to the authorized service centers that repair clients' consumer units. The data analysis identifies emerging themes that demonstrate inefficient service outsourcing organizations in modern hyperactive competitive markets that lead to company failures. The following patterns and themes emerged from data analysis of each validated question.
1. Vendor management in the allocation of hold claims for processing adversely affected the organization employees' ability to achieve the client's claim processing goals.
2. Work environment that entails lack of motivation and mediocre pay with no benefits and limited room for advancement contributes to the service-organization's employees and managers not achieving the client's claim processing goals.
3. Lack of sufficient training on effectively processing error codes affect the service-outsourcing organization's personnel from achieving the client's claim processing goals.
4. Micromanagement of vendor by the client company on what claims to process contributes to service-organization's manager's inability to achieve claim-processing goals.
5. Ineffective communication between client and vendor on guidelines to use in processing claims affect the service-organization's managers ability to achieve the client's claim processing goals.
6. System incapability to process new claim error codes to approved status adversely affects the vendor organization's employee's ability to achieve the clients' claim processing goals.
The primary themes contain data content patterns where the majority of the respondents offered similar perspectives. Vendor management in the allocation of hold claims for processing adversely affected the organization's ability to achieve the clients' claim processing goals. The emphasis that occurs at the vendor is the execution of the policy and procedures routed by the client company without modification. Participant DS6 stated, "The weak management from HHM only knows to follow orders dictated by Client Company. There is no leadership in that aspect." The findings are in line with the vendor's understanding of complexities and challenges of outsourcing. The process involves requesting clarity about clients' requirements, and revision of strategies to fit the vendor's firm prior to execution that can contribute to efficiency in vendor management (Dhar, 2012).
A work environment that entails lack of motivation and mediocre pay with no benefits and limited room for advancement contributes service-organization's employees not achieving the client's claim processing goals. The team members incur stress from management for not achieving the client's performance index expectation of 200 processed claims each day. Participant DS8 stated, "There exist stress of not living up to expected performance standards set by the client company." Increased scrutiny on team members daily claim processing occurs with limited feedback on progress on their performance. The team member ranking becomes a probationary claim processor, receives exclusion from the organizational performance goal to attain financial rewards, and may face termination.
The findings from this study correlate with previous authors' findings that lack of authority to make decisions, management unrealistic expectations, and unrealistic work schedules contribute to low morale and dissatisfaction among front line employees (Abdullah & Verner, 2012).
Lack of sufficient training on effectively processing error codes affect the service-organization's personnel from achieving the client's claim processing goals. The internal system for processing service repair claims designation is to route claims that contain errors to a hold status and to display the reasons for non-approval. The examples of hold error codes include (a) invalid products model, (b) invalid serial number, (c) product has a return history, and (d) invalid delivery number.
The complex error codes contribute to vendor not meeting client-processing goals because of the lack of knowledge on how to research and process the claims for payment." Participant DS19 stated, "There exists, lack of training to ensure all claims are processed without errors." The administration of training resources contributes to the accuracy in claim processing and development of a strong experienced team to meet goals and improve the quality of vendor service. The study results are in accord with providing training to outsourcing vendors would eliminate risks, failures, and increase the level of superior service expected by clients (Quinlan, Hampson, & Gregson, 2013).
Micromanagement of vendor by the client company on what claims to process contributes to the service-organization not achieving claim-processing goals. The micromanagement of claim processing occurs to ensure the vendor meets the client's expectations. Participant DS19 stated, "We cannot make a move without notifying the client." The client evaluates vendor performance every 6 months to determine eligibility of financial rewards. The issuance of warnings for multiple offenses of not meeting client's claim processing goals occurs and may lead to the client company's leaders' deciding to terminate the service outsourcing contract. The study findings are in line with the existing problem of the vendor not always meeting expectations because of lack of control over outsourced activity (Lair, 2012). Limiting the involvement of service-outsourcing vendors in strategy design and implementation contributes to failure of executed tasks (Dhar, 2012).
In the data analysis, secondary themes emerged Ineffective communication between client and vendor on guidelines to use in processing claims affects the service-organization's ability to achieve the client's claim processing goals. Communication allows the vendor team to understand the requirements of processing claims and measurement of performance levels. The interviewees shared that the client completes the evaluation process and rarely communicates feedback on the vendor's performance level and the future improvement plans.
The study results from participants DS1, DS3, DS10, and DS18 in relation to ineffective communication show that: (a) discrepancy in communicated policies and procedures, (b) disagreement in the delegation of targets, (c) lack of business relationships, and (d) nonexistence in collaboration during decision making contribute to service-organizations from not achieving the clients claim processing goals. The findings are in line with failed success and relationships because of ineffective communication and uncovering of hidden charges in a logistic outsourcing organization (Tsai et al, 2012).
System incapability to process new claim error codes to approved status adversely affects the service organization's ability to achieve the clients' claim processing goals. The participants shared that the system functionality contributes to an increase in hold claims. Participant DS12 stated, "The elements that affect claim approval most of the time is the pending system issues." The findings from participants DS6, DS8, and DS13 in relation to system incapability show that (a) client system restrictions of what claims to process, (b) escalation of complex errors such as product history with delayed responses, and (c) unavailability of claim processing system accessibility contribute to the service-organization's personnel not achieving the client's claim processing goals. The results of this study correlate with the offshore aircraft maintenance incapable of dealing with emergency system problems with failing systems and lack of access to updates (Quinlan, Hampson, & Gregson, 2013).
The purpose of this qualitative case study was to explore the elements that may cause the service organization's personnel to perform inadequately in meeting clients' claim processing goals. The outsourcing practices give outsourcing organizations' managers' opportunities to improve performance, gain efficiencies, lower costs, and focus on core competencies. Many businesses fail because of inflexible contracts, poor communications, ineffective project management, and inflexible contracts (Cordella & Willcocks, 2010; Susarla, 2012). Exploring outsourcing issues was essential to understand the elements that can contribute to outsourcing failure.
The findings stemmed from formal, semi-structured interviews with 20 participants from a vendor firm using 6 validated research questions. The interview questions solicited participants to share their knowledge and perceptions of important outsourcing issues. The research findings revealed that six factors were perceived as precluding the vendor firm from meeting its client's objectives. The six factors were (a) vendor management, in allocation targets; (b) work environment that entails limited incentives; (c) lack of sufficient training; (d) micromanagement of vendor by client, (e) ineffective communication; and (f) system incapability.
The research findings indicate that factors individually and collectively could cause servoce organization's personnel to inadequately meet their clients' claim processing goals. The service-outsourcing decision makers can also use the results of this study to review and evaluate vendor performance capability and existing levels as a guide in vendor selection and enhancement of the success rate of service-outsourcing organizations. The outsourcing decision makers should collaborate with the vendors in the design, implementation of strategic goals, and understanding of the vendors' capabilities in meeting clients' requirements.
Outsourcing decision makers could begin to improve the outsourcing decision-making process and reduce the levels of outsourcing failures by implementing the results of the current study. Outsourcing managers could ensure that vendor and client contracts specifications are prepared and incorporate the recommendations represented in this study. The study recommendations may contain appropriate information for domestic and global outsourcing decision makers. The study results can contribute to training programs to educate and train outsourcing managers on how to proceed in the selection of outsourcing vendors, monitoring progress, and maintaining relationships to increase outsourcing contracts success rates.
Based on this study, the recommendation that can contribute to adequate performance within the vendor organization include offering employee training, motivation, and effective vendor management as they work on the allocated claims to meet set objectives. Additionally, employee's adequate performance can be achieved by minimized micromanagement by the client company (Red14 Enterprise) to the vendor company (HIHO) Management), ensuring that software upgrades are done to handle the processing of complex errors, and promoting effective communication between client and vendor as they work on claim processing.
APPLICATION TO PROFESSIONAL PRACTICE
The findings of this study support the body of knowledge from the business practice concerning the elements that can cause service organizations' personnel to perform inadequately in meeting the clients' claim processing goals. The success or failure of the outsourcing agreement depends on the choice of the vendor. Client decision makers' evaluation and selection of the potential vendors before signing of the contract is important (Lacity, Khan, & Willcocks, 2009). The addition of knowledge on elements that cause vendor organizations' personnel to perform adequately in meeting clients' objectives would contribute the success rate of vendor selection and maintaining of outsourcing relationships (Jain, 2011; Peh & Low, 2013).
The improved knowledge of the elements that cause service organizations' personnel to perform adequately in meeting their clients' claim processing goals contributes to improving service-outsourcing management decisions. The results of this study contributed to the understanding of the elements that can cause service organizations' personnel to perform adequately in meeting clients' claim processing goals. The outsourcing decision makers should consider evaluation of vendor organizations as a mechanism for determining vendor capabilities in meeting clients' goals.
Leaders of the client company may have concerns of how the vendors work environment would influence service-organizations from not achieving the clients claim processing goals. The findings demonstrated a mandatory workload by client managers without motivating the vendors' team or sharing the company's aspirations, lack of individual performance review, and scarcity of incentives. The findings confirm that the client and vendor should not operate as a separate entity (Kara, 2011). The vendor and client collaboration in strategic design and implementation could increase team members' morale and could lead to positive work environment and an increased level of trust between vendor-client business relationship and achievement of set objectives.
EFFECTIVE BUSINESS PRACTICE
Outsourcing to an inappropriate vendor has led to a 50% worldwide failure of outsourcing initiatives within 5 years, which causes poor quality of work performance and a cost increase rather than cost savings (Khan, Niazi, & Ahmad, 2011). We anticipate the current study may fill gaps in business knowledge. This knowledge provides an enhanced base for understanding servicer organizations and encourages decision makers to assess vendors' performance capabilities prior to awarding contracts. The single-case study design analysis of the vendor organization provides knowledge that contributes to improving business practices by increasing an understanding of how inefficient performance at outsourcing vendors can affect client firms.
In the research findings, we identified the potential negative effects of work environment elements including lack of motivation and mediocre pay with no benefits and limited room for advancement. Such negative elements can influence team members from not achieving clients' claim processing goals. The decision makers can use the finding to determine what strategies they should use when comparing vendors' bids for service-outsourcing contracts. The decision makers could use the findings to assess the team member's claim processing abilities to achieve their clients' goals efficiently.
The research findings confirm the existence of micromanagement on the vendor by the client company regarding the claims to process. The performance levels, set by the client, without consideration of process capability and claim hold reasons, system errors in processing, and limited knowledge of vendors' credibility contributes to not meeting client objectives. Service-outsourcing decision makers could use the research findings to explore the vendor firms in domestic and global locations to gain insights in the likelihood of losing control over the outsourced activity. Leaders in other outsourcing industries can use the results to gain an understanding of vendor not meeting expectations in relation to the need for, and potential effects of, micromanagement by the client company prior to signing contracts.
Outsourcing decision makers can explore the outsourcing vendors' existing contracts in comparison to performance to determine if the vendor is not meeting the client's objectives. The findings suggest that building a working relationship with the client company can occur when client and vendor maintain open communication; collaborate in strategy design and implementation.
The information provided by participants revealed that ineffective communication existed between client and vendor on guidelines to use in processing claims occurs. The vendor team members perceive the vendor's system as being incapable of processing claims' with error-codes effectively and efficiently. The vendor and client should use the results to establish business relationships that have a common goal of increasing effective communication among vendor, client, and other business partners with a focus of meeting the outsourcing firms' objectives.
The results of this study would help business practices in improving their understanding of the relationships between the formation of outsourcing and decision-making processes among organizations involved in outsourcing. The business managers within other organizations can utilize the study findings to understand outsourcing effectiveness as they work to ensure that their operations are operating effectively to meet set objectives. In addition, the study results can help benefit organizational leaders that are involved in making outsourcing decisions to take into consideration the outsourcing companies risk factors and efficiencies before signing outsourcing business contracts.
IMPLICATIONS FOR SOCIAL CHANGE
Success of outsourcing firms may lead to a stable economy for communities where outsourcing firms exist (Dzever & Gupta, 2012). The current study served to expand the knowledge of outsourcing from vendor employees' perceptions by exploring insights into how team members perceive operating efficiencies and effectiveness. The findings from this study can serve as a means for defining the essential needs of outsourcing organizations and providing a blueprint that decision makers can use to enhance the effectiveness of outsourcing partnerships. The findings could benefit domestic or offshore outsourcing organizations leaders, employees, and their communities by increasing the likelihood of successful outsourcing operations.
The contribution of research results to social change may create the ability for firms' leaders and employees to avoid premature termination of outsourcing contracts. The results may provide an understanding of how employee performance creates significant influence on relationship quality, and providing advantages mutually beneficial to vendor and client's partnerships (Qi & Chau, 2012). The increased understanding of factors that contribute to service outsourcing failures allows both domestic and offshore outsourcing decision makers to build successful vendor-client partnerships.
LIMITATIONS OF THE STUDY
This study included (a) exploring only one vendor's operating effectiveness in claim processing, (b) interview responses from 20 participants that worked at the one vendor organization, and (c) the business environment in which the problem occurs. The subjective explorations of the research questions and the geographical location of the outsourcing phenomenon were part of the study limitations which precludes the generalization of these study results.
RECOMMENDATIONS FOR FURTHER STUDY
We used a single-case study methodology to explore and draw conclusions from the perspectives and experiences of outsourcing vendor employees. The results of the current study offer opportunities for further exploration in several dimensions. In this single exploratory case study, the objective was to identify and explore factors in an organization where the vendor was not meeting the client's goals. Using the same research questions, other researchers could use qualitative research to explore a policy problem focusing on the outsourcing client concept. The participant population for the envisioned study would consist of individuals currently working for the outsourcing client firm. The exploration of the outsourcing client may elicit alternative perspectives and factors relevant to outsourcing firms that could lead to fewer outsourcing failures.
Future researchers can also explore service-outsourcing organizations by using a multiple-unit case study design. The multiple purposeful sampling should come from employees of vendor and client organizations. The organizations can entail domestic and offshore with a focus on either private or government sectors. Future researchers can explore multiple vendors, multiple clients, and even vendor and client comparison (Mohiuddin, 2011). The use of multiple-site case design could afford researchers an opportunity to explore the multiple vendor and client outsourcing organizations for literal replication of the results. The multiple-site case design may reveal as appropriate in exploring both sides of the vendor and client relationship. Concentrating on the sample participants from the vendor and client employees from both the domestic and offshore outsourcing organizations may lead to different perspectives.
A quantitative research study that either rejects or confirms the conclusions using a quasi-experimental design could include the analyses for naturally occurring groups (Johnson & Christensen, 2008). A qualitative researcher that explores the perceptions of vendor and client outsourcing organizations might identify why outsourced projects fail to deliver measurable benefits within the appropriate time, budget, and desired quality. A quantitative researcher could examine and verify the factors identified in a qualitative research in order to establish or verify the factors' relevance and/or the existence of other factors that could result in reducing outsourcing failures (Johnson & Christensen, 2008).
The author(s) would like to acknowledge and thank Dr. Charles Needham for valuable insight into this research and each participant for their willingness to partake in this explorative case study.
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Validated Interview Questions
1. How did the organization's vision and mission bring interest to the managers and employees?
2. What are important factors central to human resource management (HHM) future success?
3. What processes and activities has HHM implemented to ensure success?
4. What influence does the HHM organization structure have on the claim processing and use of the performance management and control system?
5. How does the HHM organization structure influence and is influenced by the process of strategy implementation?
6. How does the HHM organization assess and measure its success to achieve goals and objectives?
7. How does HHM go about setting appropriate performance levels for team members to achieve their claim processing goals?
8. What processes does HHM use for evaluating claim processing for individual, group, and organizational performance?
9. What rewards (both financial and non-financial) will managers and other employees gain by achieving performance targets?
10. What penalties will the managers and other employees suffer by failing to achieve performance targets?
Jet Mboga is professor at Bloomsburg University, Bloomsburg PA.
Charles Needham is a Dissertation Chair at Walden University, Minneapolis MN.
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|Author:||Mboga, Jet; Needham, Charles|
|Publication:||International Journal of Management and Human Resources|
|Article Type:||Case study|
|Date:||Dec 22, 2018|
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