Analysis of Telstra’s Outsourcing Needs and Strategy

Company Overview

Telstra is the largest provider of telecommunications and information services in Australia headquartered in the city of Melbourne (Telstra 2009). The core business of the entity is to offer phone (fixed and mobile) and data services (internet access) to businesses and homes in Australia; with mobile services being the largest revenue earner for the company after toppling the fixed telephony sector (Telstra 2009). The company has undergone many transformations including phased sale of its commonwealth shareholding that ensured it become listed in different stock exchanges in 1999 (Telstra 2009). Currently the entity’s stocks are listed on the Australian and New Zealand stock exchanges (Telstra 2009).

Since 2005; the entity’s revenue has grown steadily with the revenue for the 2009 financial period being $ 25371 million (Telstra 2009, p. ii). The profit attributable to the entity had also followed a similar trend after its drop in 2006 (Telstra 2009, p. ii). Such growth in performance has coincided with the entity’s transformation programme that started in 2005 on change of the leadership team at the company (Mallon 2008). This was informed on the need to change the way of doing business to curtail the decreasing revenues from the entity’s traditional fixed telephony business (Mallon 2008). As such the company embarked on a strategy to simplify its business processes with a resultant decrease in the workforce being one of the cost reduction successes (Telstra 2009).

Outsourcing Needs and Benefits from Outsourcing

Telstra outsourcing needs arise primarily out of its diverse business operations. With the growth of a company to an enormous size the need for efficiency in its operations arise due to associated cumulative losses in cases inefficiency. For Telstra the number of individuals needed to effectively provide its broad range of services is enormous (IBM 2008). To cater for such high human resource needs, the entity has in its employ a workforce that exceeds 30,000 individuals in Australia whereas the global workforce comprising employees of its foreign entities exceeds 40,000 (Telstra 2009, P. IV). However such high number of employees increase the costs of doing business and when not well coordinated leads to duplication of functions (IBM 2008). For Telstra; it was noted that before its outsourcing of indirect procurement services to IBM, various units of business worked independently curtailing establishment of optimal practices since similar goods and services were often being supplied to the entity at different costs (IBM 2008). This prevented the entity from obtaining relevant forecasts such as total supplies and labour costs requirements (IBM 2008). Such inefficiency necessitated the need for partnership with organizations that had established procurement systems to optimize the entity’s procurement procedures (IBM 2008).

On affirming the need to transform its services in the year 2005, the company also focused on employee training and reduction of labour cost as core drivers of the transformation (Telstra 2009). With relation to employees training, it was noted that the entity’s employees were – at the time – not well equipped for the level of transformation required thus employee training was outsourced to Accenture – a global management consulting company (Mallon 2008). On the other side however the entity also needed to reduce its labour costs (Telstra 2009). To achieve such reduction the company has continually explored outsourcing of a variety of its services through independent entities (Han 2000; IBM 2008; Mishra 2009). Further by streamlining the field workforce and eliminating some of the marketing and management support positions that decreased the number of workforce at the entity’s employ has also aided the company in its labour cost reduction quest (Telstra 2009).

Benefits and Challenges from Outsourcing

Various benefits have arisen out Telstra’s outsourcing decision. By outsourcing employee training services to Accenture, the company has for instance been able to develop a learning academy that develops talent in the entity (Mallon 2008). Through its procurement outsourcing, the company has also been able to increase efficiency and compliance in procurement via the use of a single process (IBM 2008). Outsourcing of services to low wage countries has also helped the company reduce its labour costs as evident in the latest financial report (Telstra 2009).

Despite such benefits outsourcing has provided the company with numerous challenges. First among these is the choice of appropriate provider who can meet the entity’s human resource needs effectively (Gonzalez, Gasco & Llopis 2005; IBM 2008; Weimer & Seuring 2008). Outsourcing of processes that were previously being performed in-house by the entity’s staff has also brought some conflicts in the employees unions and other governance structures (Rossi 2003; Rose 2004; Canberra 2004). These conflicts have been advanced on the loss of jobs within the host country and also the exploitation of the individuals who are performing the outsourced services at lower costs (Rossi 2003; Rose 2004; Canberra 2004). For the job losses it is argued that the entity’s aggressive outsourcing leads to the contracted procurement companies such as IBM shifting their focus to low wage countries such as India thus denying Australian citizens jobs (Canberra 2004; Rose 2004). However due to the resultant low payment that the entity parts with after such outsourcing claims of exploitation of workers arise (Rossi 2003). Such perceptions of unfair treatment of employees could lead to loss of reputation hence curtail the entity’s business operations (Yang & Huang 2000; Claver, et al. 2002; Gonzalez, et al. 2005).

Secondly an outsourcing challenge for Telstra has been with regard to lower quality of services. It is argued that due to lower fees that the provider may offer for outsourced services; the quality of the services offered may be suspect (Claver et al, 2002; Weimer & Seuring 2008). Such quality flaws in offshore outsourcing are for instance been advanced to be the reason behind Telstra’s move to pull its outsourced services from the Philippines (Keall 2009). It is advanced that resulting from poor language skills, the interaction between the entity’s customers and Filipino staff was sub-optimal driving customer dissatisfaction (Keall 2009). Such indications reveal that maintaining the balance between cost reduction and quality service is vital to successful outsourcing strategies Yang & Huang 2000). go to conclusion here.

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