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Q1. Recently a major transportation company in Canada approached NorOnt and
indicated that they could provide all the organization’s transportation needs between
plants and to customers for a thirty percent decrease in their transportation costs. To
this point in its history NorOnt had managed transportation internally and this
outsourcing opportunity looks like a great deal. Is it? The VP Finance, Dean Ellerton has
asked you to look into it. Explain in detail the implications of NorOnt proceeding with
this outsourcing decision. (20 marks)
Ans. Outsourcing can be defined as a contractual agreement within an organization and
a third party solely for the purpose of delegating a part of the organization’s task,
processes or at times a full department for the purpose of cost savings and increasing
efficiency.
On one hand though outsourcing is beneficial to the organization, it is also found to be
lacking on a lot of portions. An aggressive marketing company like NorOnt would greatly
benefit from outsourcing the administration and customer services department but every
pro comes with a likely chance of creating a gap. Before considering outsourcing,
NorOnt should look at the likely advantages and disadvantages which may come as the
implications off going with the outsourcing decision.
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Some of the major advantages that an organization seeks from outsourcing are
described as below:
1. Limiting the number of human resources required
The most easily debatable decision that affects the lives of millions is recruitment and
getting fired from job. From an organizational point of view, outsourcing a part of the
organization’s activities helps the organization get rid of routine activities like paper
work, filling forms and reports and taking care of customer service. Outsourcing relieves
the organization of the need for recruiting additional number of people. This eases the
load on the company payroll and allows the organization to focus the department’s work
strengths on core and strategic activities.
e.g. If payrolling is outsourced, the HR Department can work on strategic manpower
planning to fill the anticipated personnel needs for any new ventures of NorOnt.
2. Ease of Recruiting: While outsourcing saves manpower requirements on one hand, it
also relieves the organization of going in the job markets or indeed and researching
time to find the right kind of candidates. E.g. Outsourcing Recruitment of Shop Floor
level needs to a manpower staffing agency saves the organization from spending, time,
money and resources behind these routing activities.
3. Advanced Technology: Another reason for outsourcing is for rapid digitalization
requirement in modern times. The organizations are always on the lookout to try and
implement newer technologies for increasing the speed and efficiency of their
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operations. Buthowever, it may want it is not possible to convince all employees and
train them on the newer technologies. Especially when it comes to senior employees
who are well trained and experienced on manual tasking that it may be difficult for them
to accept and adopt this newer technology. Also, some of the employees are not tech
savvy. However, with proper change management, these technology, software and
apps available in the market help a lot to stay current with the organization’s internal
and external environment.
4. Improved Service:
Lets take examples from real life. Huge companies like Rogers,Bell, Banks like Scotia
Bank, TD etc. outsource a large part of their sales and customer service to different call
centers. These vendors after entering a contract, deliver the sales and customer
services required by customers in day to day life like account related queries, name
changes, problems related to bills and charges. Outsourcing not only saves the
company of hiring a huge task force for maintaining service executives but it allows the
company to develop and research newer products which can be done after a need
analysis of the current market conditions in the business market. It also helps keep a
tab on the competitor’s activities and coming out with strategies to outsmart the
competition.
5. Specialized services:
Outsourcing activities allow the organizations to take advantage of the advance
research and special abilities and best practices adopted by vendors. Third party
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vendors generally have access to larger databases and sources of raw information from
the market. Their employees are people with years in hands on experience on providing
expert selected services as required by the clients.
Having said all this there are also some downsides to the decision in case the
outsourcing decision is taken:
1. Expectations V/s Reality:
A reality check and survey of respondents indicated that organizations have found it
increasingly difficult to maintain any level of savings as the costs for getting additional
services are found to be exorbitant. Also, unlike expectations it was discovered that the
quality of the service was also found to be poor. E.g. My personal experience. I used to
work in a Rogers Call Centre in Windsor Ontario. In some cases, in call centers, there
are executives with attitude issues who are unable to properly respond to a query and
sometimes while talking to a senior citizen or an odd person they have been found to
get really frustrated.
2. Competitor within:
An access to confidential client information can lead a vendor to develop their own
technologies and enter the market as a potential competitor to the main client. This
leaves the organization at a serious bottleneck because sometimes while outsourcing,
the company has to layoff the people currently working within the department. So, it
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becomes like a lose-lose situation for the organization. Companies can lessen this risk
by erecting strategic blocks—terms in the contract that limit the replication of certain
competitive advantages, such as propriety technology—or spreading the outsourcing
among many vendors.(Belcourt: Chapter on outsourcing Page 352 Para 2).
3. Hostility:
Outsourcing most of the times requires layoffs. Unless people are compensated
adequately and sent out with placements at other places, retraining for new skills etc.
the employees and consequently the stakeholders internal and external to an
organization may turn hostile. E.g. Recent news of GM Motors exiting Canada was a
shocker for many. However, on 22nd January the CEO of the company in a press
interview announced that they would be giving a car to each employee, dues and
benefits along with retraining for new skills so that the workers could find alternative
employment at other places.
4.Instability – Due to poor business if an outsourcing company could go out of business,
then it would be havoc for the company because till a new vendor is found, the
company must look at the outsourced part of the business on its own which may then
lead to a heavy investment of time, money, energy and people.
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Q2. NorOnt is considering the acquisition of a food company in Japan that produces
some similar products but operates on a much smaller scale than NorOnt. What are the
benefits of an acquisition of the Japanese firm? To NorOnt? (5 marks) To the Japanese
firm? (5 marks)
Ans. A strategic acquisition is not a very common phenomenon that happens in a day in
business. It is a carefully planned strategic move for moving to newer unexpected
markets. It comes with a lot of Advantages.
Lets look at the advantages for NorOnt and the Japanese Firm separately
1. Expansion-A company is always striving for vertical growth and this requires
maximizing the sales of the company. However, due to the laws or limited business
space in any country, there is a need to move to newer markets. Acquisition of an
organization in another country gives NorOnt the advantage of making a doorway into
another country for doing and expanding their scale of operations
2. Speed of acquiring new resources: Every organization needs new resources and
competencies for growing. With an acquisition, such competencies automatically grow
within an organization. Due to the entry in the new market, new product lines can be
found and open with ready access to large clientele. Also, the risk of failing gets
radically reduced.
3. Meeting Stakeholder expectations: In all companies, the stakeholders whether
financer or equity shareholder, all expect profits for their investments in the company. If
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the investors and shareholders feel that the company is losing its profitability, then the
stock of the company may be largely sold back leading to loss in reputation and stock
price in the market. With international acquisition, NorOnt can reassure its trust in the
minds of the shareholders by declaring the company’s intent to go international which
keeps the optimism going in the mind of the stakeholders.
4. Acquiring new technologies: The strategic focus of any enterprise is to operate and
achieve economies of scale. For doing this they require newer technologies. Acquiring
new software and technology for production in the market may turn out to be a very
costly affair for the organization. By acquiring overseas, the company can gain access
to local technology, custom made and at very competitive prices, which can accelerate
its current operations.
For Japanese Firm:
Getting taken over does not leave much of an advantage to the acquired Japanese firm.
In a sense they are being ended legally as all their business interests are getting taken
over. It would have been different if the case was a merger. However, some small
advantages that the Japanese firm can make are as below:
1. Rid of liabilities: As the firm gets taken over, they are completely relieved of liability
and debts as there business gets taken over by NorOnt.
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2. Favorable terms for takeover: The Japanese firm can sell their business at a profit
and dictate the terms of the takeover, owing to their command and knowledge of the
local area. They can demand a price for making NorOnt pay for taking care of affairs in
the local country and helping NorOnt to settle down.
3. Upgradation of skills of their employees and new culture: The Japanese firm can
stand to take advantage of the culture of NorOnt and their existing employees who get
selected to work with NorOnt can stand to get an upgradation of their skills. Also, the
good points NorOnt’s work culture and Canada’s work culture and a cultural exchange
will benefit both the companies.
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Q3. What are the risks to each company? (10 marks)
Ans. In the case of acquisition there are also disadvantages to both the companies.
Let us try to look at the disadvantages to both. If we compare, the Japanese firm stands
to lose much less than NorOnt.
Japanese Firm:
1. Loss of public trust: Getting acquired will make the Japanese firm vulnerable to
hostile reactions from their stakeholders and community. It would be difficult for the
owners of the Japanese firm to start a new business as everyone would mistrust them
of their ability to run a business successfully and may even be labelled as “sellers of
Japanese firms”.
2. Loss of customer base: NorOnt now has access to the entire clientele of the
Japanese firm. The Japanese firm may immediately loose customers trust since
Japanese people are stringent with their culture in case of takeover of their firms.
3. Loss of Assets. While transfer of liabilities is an advantage, the transfer of assets is
not so much of an advantage to the company who might be making significant revenues
and profits from their assets. Even though it may not desire, the profitable performing
assets are to be handed and transferred to NorOnt.
4. Unemployment: The employees of the Japanese firm may not be absorbed in entirety
by NorOnt who may choose to retain only a selected amount of smart and intelligent
white-collar employees. This may lead to an unemployment and the local unions may
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turn hostile. This may pose a huge issue as the Japanese firm is required to do the
“golden handshake” properly.
NorOnt:
1. Loss of Goodwill: A hostile takeover (if that is the case) can ruin the goodwill of
NorOnt amongst the current stakeholders and the business and investors in the
Japanese market. This will limit NorOnt’s ability to create partnerships with local
suppliers and small businesses.
2. Liability overload: NorOnt requires to take over the business interests of the
Japanese firm. That means it is required to take over the liability of debts of the firm too.
Such a measure can severely limit NorOnt’s ability to expand in the future since the
liabilities can eat up a lot of funds of the company.
3. Employees V/s Employees: The takeover would mean to the people of NorOnt and
the Japanese firm working together. The employees of the Japanese firm and NorOnt
both might not like the idea with the others due to difference in culture, beliefs, values
and life style. While NorOnt is business minded, the Japanese prefer mutual respect
and family style of life and doing business. Buddhism is widely recognized in China and
the followers of this religion prefer to abstain from eating meat, while Canadians are
hard core meat lovers. This and many more differences may create a hard time for the
human resources to gel up their employees with the local culture.
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4. Training: NorOnt would require doing the training of the Japanese employees. That
would require the training material to be converted in to Japanese, appointment of local
training firms and gelling the local employees with Canadian culture and work style. Tis
would require a considerable amount of investment of time, money, energy and people.
5. Unions: Local unions may pose a problem with NorOnt as some of them would like to
represent the employees of Japanese NorOnt. Negotiating new agreements with union
might seriously affect NorOnt’s ability to make some decisions like layoffs during winter
time.
6. Cartels: Looking at the takeover, many Japanese firms may unite and form a cartel
against NorOnt to prevent from getting taken over. This may pose a problem with
NorOnt in acquiring resources easily from the local market.
7. Breakeven: It would be difficult for NorOnt to get a break even for the new acquisition
if all the above costs keep mounting and circumstances are hostile.
8. Public hostility: If the takeover does not come on favorable terms, the local
community might not support NorOnt. Many bright employees would reject offers from
NorOnt and the company might not be able to source raw human resources from the
market.
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Q4 You have been assigned by the Seguins to head the consulting team that will lead
the transition. What advice will you give both companies so that the acquisition has the
best chance of success? (20 marks)
Ans. The acquisition of a firm, though exciting may come with a set of challenges. The
acquiring firm has to shake a friendly hand and refrain from using an iron fist while doing
a takeover. To have the best chance of success, I would offer the following advices
1. Employee meetings of Japanese firm: Meeting only with the owners and managers of
the new firm would not be enough terms to do a takeover. NorOnt’s HR and Senior
managers(if possible) should try and have a meeting with the executives of the new
firm. They must be allowed to voice their fears, concerns and ambitions. This will instill a
sense of confidence in them regards to their job security, making a successful career
and retaining chances of upward promotions in the new organization.
2. Hire a local expert firm: For doing the transition, it would be best to consult with the
Japanese firm and hire a local expert in doing peaceful and positive transitions. The
local agent having know-how of the local market can easily help both the firms to come
to agreement on amicable terms. The expert would also be able to use their means to
propagate the positive impacts of the takeover in the new market and open the good
looks of the local community towards NorOnt as a respectful and honest company.
3. Handling the speed: The operational synergy between both the firms must be
achieved. Sometimes some firms rush to complete the takeoverand, in the process, it
turns out to be an ugly and bad bargain. Old experts say that it takes 9 months for a
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baby to be properly nourished, fed and born. If the baby is tried to be taken out in the 6th
or 7th Month of pregnancy, all chances that the baby might have some physical or
mental deformity even if it stays alive and all chances are that the bay may die.Same is
the case with acquisitions. Blending with the cultures, team composition and team size
need to be structured well ahead so that when the acquisition is complete there remains
nothing to be taken care of.
4. Importance of local support. Before completing the acquisition, NorOnt must take the
Japanese firm into confidence and look to create positive partnerships with their
stakeholders so that the company can gain a lot of support and allies in the Japanese
market. These stakeholders will in turn be able to spread the goodwill of NorOnt by
word of mouth in the local community. This would win NorOnt a favorable image even
before the completion of the deal.
5.Fianancial dealings: There should be a transparency and agreement between both
the parties with regards to the payrolls and costs associated with the deal. The financial
dealings must be transparent. It should comply with the financial dealing standard of
Japan’s Tax authorities so that there is no dilemma with the financial agreements and
transfers after completion of the deal.
6. British East India Company strategy: The British ruled a lot of parts of south east asia
with a smart strategy. They used to create alliances with the local kings and let them
rule in their own names while the actual authority lies with the British. This system was
called the subsidiary alliance system, a brain child of Lord Wellesley, one of the
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governors of India in British times. I have nothing against the British, but I admit that this
can be a smart strategy. If we were to innovative, we can acquire the Japanese firm
without actually changing the current organization. The decisions can be taken from
Canada without changing the culture or people of the organization. The Japanese firm
can be allowed to operate with their style in the market only with the name of NorOnt.
This will allow NorOnt to refrain from mingling with Japanese affairs and stay away from
most of their liabilities on one hand while reaping the profits and spreading their
business of the other hand.
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References:
https://under30ceo.com/making-acquisition-smooth-beneficial-companies/
https://www.assetworks.com/the-benefits-of-acquisition/
Course Textbook Strategic HR Planning Belcourt.