Apple Inc. could successfully adopt different outsourcing disciplines

Apple Inc.

Apple Inc. is a multinational in the business of consumer electronics that builds on its abilities to innovate and further utilizes its rather strong flexibility in the development of products to create competitive market capabilities. Apple has been named by Fortune as the most admired company globally. Within the first four years of Apples iPod, the company managed to introduce seven different versions of it. Apple has continually utilized its innovative capabilities to leverage its expertise in the iWork’s, iPod, iTunes and iPhone suite of products. The company, however, scores less favorably on the critical issues of asset utilization, global competitiveness, and social responsibility. There is definitely a lot that Apple would stand to gain from outsourcing.

Today, outsourcing has become an important component of business globalization in different sectors. Research has shown failures in carrying out globalization as a result of mismanagement of control and the different outsourcing disciplines. This study will come up with ways through which Apple Inc. can effectively carry out the different outsourcing disciplines for optimal results.

Research project objectives

• Identify the importance of outsourcing in relation to globalisation.
• Identify the benefits a company can accrues from outsourcing.
• Come up with ways through which Apple Inc. can effectively adopt outsourcing disciplines.

To outsource or not to outsource?

There are few companies that have a global presence that can claim to be self-sufficient in the different activities that make up their value chain (Dinu, 2015). Companies are forced to focus only on the activities they deem critical for their success and excel at core capabilities in which they have distinct competitive advantages by the ever-growing global competitive pressures. There are a number of factors, for example, the dominant value discipline and the nature of the core strategy of a company, that determine which activities are to be outsourced within a company and which ones are to be kept in-house.

The ability to focus on core activities internally frees up resources such that the company is able to entirely focus its strengths on those activities in which it has distinctive experience, scale, and capabilities, such that economic benefits can be yielded (Schniederjans, 2015). What this implies, is that focusing creates an opportunity for a company to concentrate its efforts towards the creation of relative advantage so as to maximize total value and also allow others to produce goods and services that are supportive.

The complexity of supply chains required to span different countries with different regulations, laws, time zones and cultures has been increased by globalization. The customers of today expect services that are in every aspect innovative from their providers and value is the new keyword and not cost. Such value would only be driven by how companies make innovation a key element in their growth. In the past, outsourcing was largely considered as a strategy of cutting costs; today, however, organizations utilize outsourcing as a tool for business efficiency and innovation acceleration (Stamenovic and Dobraca, 2017).

Principally, all value-addition and functional activities, usually are, candidates for outsourcing, from research to manufacturing to customer service. It would, however, be hard to imagine that company`s whose operations are excellent would put into consideration outsourcing activities which are critical to their supply chains efficacy. The same way, such companies that operate business models that are customer-intimate would be expected to be reluctant to outsource functions related to customer service.

It is necessary that firms concentrate their investments in global value chain activities that make a direct contribution to their competitive advantage while also helping them to retain their flexibility strategically. Offshoring and outsourcing of component manufacturing have the potential of offering financial and strategic advantages that are compelling like greater flexibility, lower costs, greater discipline, enhanced expertise and the freedom of focusing on the business activities that are core (Lahiri, 2017).

Savings may come about from lower inherent, realized systemic or structural costs. Analyzing each of these categories of cost in detail could be pivotal in identifying the potential sources of advantage.

For instance, greater scale benefits may be captured by large suppliers than would be captured by the internal organization. There is some risk here; however, in that efficiency gains tend to lead to lower reliability and quality. Typically, outsourcing offers labor and infrastructure cost advantages that are significant. Through outsourcing, organizations get access to a wider range of resources and skills that have the potential of complementing and further enhancing their own offering (Vining and Globerman, 2017). The traditional model where a company could create everything in-house, from the onset of research to production, no longer is an efficient model. Outsourcing has the potential of granting organizations access to technologies that are innovative and expertise that they could not possibly bring in-house for facilitation of new businesses or introduce in a manner that is timely.

Additionally, using outside suppliers has the potential of adding flexibility to a company in such a way that it adjusts the scale and scope of production at costs that are low rapidly. There are also suppliers who may have proprietary access to technology and other intellectual property advantages that a firm could not access on its own (Al-Shammari, Rasheed, and Gilley, 2017). Such technologies could be used to improve the reliability of operations, efficiency, productivity, and production. The separation of purchasers and providers also helps with accountability and transparency in identifying certain activities true benefits and costs. That could enable transactions under market-based contracts where the focus is shifted on output and not input. Increased competition among suppliers provides purchasers with options and goes a long way in encouraging the adoption of practices that are innovative.

How to successfully adopt different outsourcing disciplines

There are, however, factors that any company that outsources services needs to be cautious about; communication, regulations compliance, systems integration, and security. Such collaborations involve the sharing of data and information that is sensitive regarding the scope of work. This implies that efficient logistics are required for proper coordination (Cullen, 2016). The integration of systems and information between organizations is never an easy process, and quite common, are concerns about the protection of intellectual property and security of data. To successfully adopt the different outsourcing disciplines in a manner that would ensure its profitability, there are factors that Apple Inc. needs to consider carefully;

Setting clear goals

When outsourcing, Apple should always ensure that there are clear goals, objectives and some set expectations from the side of the client. There exist numerous reasons as to why firms make the decisions to partner with external providers, with each situation being unique. It is necessary that Apple always has a clear understanding of its priorities and drivers and should subsequently rank and rate their criteria. It is always important that such a determination is an inclusive process characterized by stakeholder participation and communication. The same way failure of involving stakeholders is recognized as a key reason for the failure of projects, unacceptable risks for outsourcing programs would come about from lack of inclusion. Outsourcing, in addition to unleashing the typical resistance to change commonly associated with projects also risks inflaming internal politics and emotions because outsourcing places jobs and their responsibilities on the line.

Vitasek (2016) proposes that any firm that considers outsourcing should think through their motives in four different levels:

1. The setting of goals, which are business results at the macro-level that the company hopes to achieve.
2. Setting objectives, which includes the granular outcomes the company expects.
3. Determination of the critical success factors which are those elements that have the most leverage and that the company intends to focus on in its measurement of the outcomes outsourced.
4. Set the criteria: the attributes the outsourced partners are expected to bring to the table.

This will go a long way in helping the organization to build consensus on the business intentions for outsourcing internally. This will further ensure that the set expectations are clear on both the sides of the providers and the client. Through this, a proper stage is set for the processes of selection and negotiations, and that puts the client company in a good position to state its criteria for success unambiguously which is then contractually codified.

Being aware of the lure of outsourcing

There are numerous organizations today that outsourced certain segments of their business and ended up enhancing the competitive capabilities of their rivals. Apple is one such good example as its outsourcing activities helped create Samsung and Samsung Electronics and Foxconn. The associations between Foxconn and Samsung and Apple saw their revenues increase by 6,002 and 11,461 respectively (Doval, 2016). To get a better understanding of the rise to dominance of Samsung, it would be prudent to go back to the turn of the new millennium, in 2001 when the first generation iPod was released by Apple and the iTunes store in 2002 (Lo, 2008). Apple which was then largely publicized as the only alternate computing platform to the then dominant Wintel alliances of IBM, Dell, Microsoft, and HP, had a cult-like following even though it did not really have the revenues to match.

Back then, Apple was the bullish underdog that constantly nipped at the Wintel alliances heels that seldom appeared in any of their competitive planning sessions. Ten years forward, Apple managed to sell up to 320 million iPods and with their continued introduction of new products, their revenues annually grew from $5 billion to $171 billion (Clelland, 2014). The insights of Apple and its growth helped Foxconn and Samsung to craft their spectacular rises to fame.

From the start of Apple`s journey, the company`s executive board led by Steve Jobs shaped it into an innovative design company, and that was always an important distinction to make. The focus of design companies is normally on the creation of products that are beautiful and frictionless. Apple outsourced its assembly and margin manufacturing operations. Critical components of Apple like its Flash and Dram memory and screens were outsourced to Samsung Electronics while the responsibility for assembling iPad, iPhone and iPod were outsourced to Foxconn which was a long-standing partner of Apple.

In the early days, when Apple-branded products volumes were relatively low, Foxconn and Samsung were happy; however, with the continued growth of Apple`s stake, the ambitions of their boards grew. Over the years, Samsung and Foxconn were able to develop global supply chains that were highly efficient and that were capable of fully supporting their aspirations and as such it was now just a matter of filling the capability gaps in their value chain; design and brand development (Khanna, Song and Lee, 2011). Over time, when manufacturing and assembling products for Apple, their employee skills, processes and manufacturing, and assembly plants had been honed, and it became inevitable that any products they decided to invest in themselves would end up putting them in direct competition with Apple, their largest customer.

The first company to come out of the blocks was Samsung in 2009, and they adopted strategies that put them on collision firmly with Apple. Samsung struck a relationship with Google Android and spent billions and was able to boost their innovation and design practices. Samsung ultimately created the Galaxy S3 and S4 models which were once considered as the world`s best-selling smartphones and Galaxy Note which is the number two tablet in the world currently.

In 2013, Foxconn settled for an approach that was not as confrontational and created a venture capital-backed programme for hardware acceleration (Liang, 2016). This programme was designed to help innovators and designers of interest to refine their products in readiness of the mass market, and they went ahead and invested in smart watches.

With the rise of Samsung and Foxconn as competitors, Apple was forced to put in place tough measures which were to a big extent complicated by the depth of relationships these companies had (Gobble, 2012). From the case scenario of Apple, Samsung and Foxconn it can be drawn that while outsourcing has the clear scale and cost advantages, outsourcing key areas of an organizations processes is quite risky. All companies should clearly think about the areas of their operations to outsource and entirely focus on the areas of outsourcing that have a low value to them and also low values to future outsourcers who may one day aspire to become a competitor. In the event that a company outsources areas of its operations which could be leveraged by the provider and used to compete them, it would be necessary that they work diligently to determine the downstream, long-term implications and build a time-sensitive risk register that is comprehensive and even adopt a multisourcing strategy (Feng, Jia, and Shanthikumar, 2019).

Being well aware of strengths and weaknesses

This is another key factor for success that would place Apple in a better position in the negotiating table as they would have a proper understanding of their assets, deficiencies, talents, current operating procedures and vendor relationships. No company should ever make the error of waiting for their vendors to perform due diligence and discovering that there is some form of disorganization, which would bring about internal tension and start the relationship on the wrong foot. The same way it is important for a company to perform its own internal audit, it is also important for the potential vendor to perform due diligence (Zailani et al., 2017). That would put them in a better position to make sure that they are not in any way giving the client an opportunity to throw problem functions over the wall.

Any provider performing extensive due diligence demonstrates the seriousness with which they take their commitments and responsibilities. It is further a clear indication that the provider in no way intends to dilute the on-going relations with contract exceptions and ad hoc behaviors, that they have a proper understanding of management of risk and that their sole intentions are to entirely support the function the client company has made the decision of outsourcing (Oshri, Kotlarsky, and Willcocks, 2015). Proper knowledge of the as-is state puts partners in a better position to get into outsourced relations that are pragmatic and further avoid disappointments, delays, and unforeseen expenses when the providers decide to carry out their due diligence.

The change needs to be evangelized

The decision to outsource needs to be marketed and socialized and, this is especially important as a result of the potential impact of outsourcing on the livelihoods of employees and their daily work life. There is a higher probability that a company would be successful in its outsourcing activities, it decides to communicate and market the outsourcing rationale, making use of such an opportunity to generate enthusiasm and not resentment and fear for the decision to outsource. There further exists a higher probability that such internal marketing efforts would succeed when organisations senior managers demonstrate their belief in, and commitment to the efforts to outsource in a way that is clear (White and James, 2017).

It would be crucial that such outreach programs were participative processes and not just one-way broadcasts. While this minimizes the chances of resistance, it also facilitates cooperation of the entire stakeholder community which facilitates the success of the entire process (Grossman and Helpman, 2005). Outsourcing partners with proper experience, often, assist their clients in developing campaigns that are both persuasive and elegant that would help them reinforce their corporate strategies and further encourage cooperation and enthusiasm from end users.

Carefully consider the benefits that are not tangible

It is important for companies to look beyond the cost-saving benefits of outsourcing to other subsidiary benefits. It has been observed that inflexibility brought about by the excessive focus on cost reduction leads to disruption of up to 30% of the outsourcing deals. It is clear that there are sound reasons as to why firms should consider external services. Those firms that put outsourcing into consideration are more likely to achieve success when their expectations are clearly outlined in their search processes with regard to procedural, financial and technical issues. While one of the key elements in the selection process is a checklist of expectations and benefits, it is important that potential clients focus more than just on the expected benefits. It is important that intangible attributes of the providers related to balance and passion are also considered. Through interviews and references, the client should seek to know whether the potential providers;

• Have a passion for excellence and not just satisfaction.
• Have a strong commitment to the success of the relationship.
• Take the ownership of the works.
• Bring creativity and brainstorming to the table
• Go way beyond and above the expectations set in the contract.

The attributes included in balance are;

• Compromise facilitation.
• Search of a happy medium in the face of challenges and disputes.
• Implementation of joint ownership of issues and win-win approaches to solutions.

These characteristics, even though they are a bit challenging to uncover and articulate, go a long way in ensuring that misunderstandings and challenges that are inevitable are resolved in collegiality atmospheres.

Management of the relationship

Outsourced relationships are able to deliver the reduced quality of service and tend to cost more whenever the aspects of oversight and management are put into consideration. This highlights the importance of relationship management as a key factor for success. It is important that client firms always, in a realistic way, assume managing their partner relationships will need a strategic understanding of goals, specialized skills and sophisticated capabilities for relationship mediation and negotiation (Holcomb and Hitt, 2007). Apple should expect to gain subsidiary benefits from outsourcing, like enhanced agility and creativity and must invest the management time to define such benefits and to periodically hurdle with their providers to facilitate continued delivery of these benefits.

Management of outsourcing relations requires an entirely new set of skills from the management. Such managers who are only used to managing the resources that are under their control directly would need to develop their facilitation and influencing skills. Additionally, it would also be prudent they put into consideration strategies for integrating the members of staff who have been outsourced into the teams already in existence to facilitate addressing and resolving of conflicts and resentments and to maintain team spirits further.

Non Service Level Agreements (SLAs) have been gaining traction in monitoring external provider’s performance. Complying with SLAs is never a guarantee of enhanced service or reduction of cost (Cullen, 2016). A balanced scorecard including strategic, relationship, financial and quality quadrants would be better.

Applying a structured transition

The phase of transition is one which either facilitates the long term success of outsourcing or threatens to derail the relationship of clients and providers. The phase is also a key indicator of the direction of the relationship. All outsourcing engagements usually are custom relationships, and the ability and willingness of the outsourcer to provide specific sets of services that are culturally appropriate and not just a one-size-fits-all model for engagement would tell more about their willingness to continue being flexible throughout the entire life of the relationship (Williams and Durst, 2018). Proper practices for outsourcing transitions would involve;

• The adoption of properly defined methodologies for the transition.
• Development of success criteria and series of milestones that determine the potential of the transition team to move forward.
• Establishment of a backup plan from the onset.
• Creation of a joint team for the transition.
• Sensitivity to transitions cultural elements.

Ultimately, outsourcing is a people-centric business. Most provider and client companies err in assuming that it is a simple business transaction or event that is process-centric. While the successful transition of the responsibilities that have been contracted to the provider is important, it is not enough; the focus of the most efficient outsource providers is on retention, resistance, cultural evolution, morale and strict adherence to KPIs and SLAs.

Conclusion

Appropriate practices revealed in this study point out that disciplined selection of providers, judicious planning and commitment to collaborative management of relationships are key factors for success in outsourcing.

Making outsourcing decisions with goals that are not clear tends to lead to expectations that are not properly aligned, satisfaction issues with the end users and increased management overhead which are risky for projects (Cullen, 2016). Through the application of properly structured processes for planning, documentation of objectives and goals and proper inclusion of all stakeholders in the process of outsourcing, Apple can set itself up for resistance and not disappointment. Those firms that employ scorecard-based measurement schemes have a higher likelihood of achieving those intangible benefits they seek, like agility and creativity. Through engaging with outsourcing partners who apply approaches that are consultative and flexible and that bring to the relationship balance and passion and technical competence, Apple can be able to position itself properly to achieve the full range of benefits outsourcing relationships that are properly structured can potentially deliver.

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