A newspaper publishing enterprise, Deal International Group, is undergoing a review of its business processes with the aim of improving its competitiveness and financial performance.
It has already decided to outsource its internal legal department, which is used, as required, on a case-by-case basis, either to defend the company when someone brings an action against it, or to check whether it breaches any laws when publishing an article. The company believes that outsourcing this process is the correct decision, as the requirement for the work is infrequent and unpredictable. It currently has to maintain the necessary legal skills within the company, together with funding the continuous professional training needed to keep those skills up-to-date. It believes that outsourcing will be cheaper and will allow the appropriate legal expertise to be utilised as and when required.
The company has identified three further processes which it feels are in need of a review:
Publication of the Daily Finance newspaper
This is one of the key brands within the Deal Group. The company prides itself on providing detailed financial news items from all over the world. The paper is well known amongst finance professionals and company leaders. However, the popularity of the paper has been declining, with complaints from its readers that it lacks sufficient high level editorial analysis and comment, instead simply reporting the facts. Readers have suggested that most of this information can now be found online, so the paper needs to provide something more.
The newspaper publication process uses many reporters, who work from numerous locations worldwide. When a story breaks, the editor of the newspaper commissions an article from the nearest reporter geographically. These reporters work for all the newspapers within the Deal Group as required and so are not specialist finance professionals. The reporters submit articles by email. The deadlines for submission are tight, as the articles still have to be typeset for the final production. The tight deadlines mean that editorial members of staff, responsible for the final article, often do not have time to check the quality of the article or to add high level commentary.
Subscriber managemen
Although the Deal Group has a wide distribution network, selling the Daily Finance and its other newspapers through supermarkets and newspaper sellers, the majority of its income comes from regular subscribers to whom the newspapers are delivered directly. The subscribers are managed by a client relationship team who operate from a central office. Each member of the team is responsible for a number of subscribers. If the appropriate team member is unavailable when a subscriber calls with a query, the subscriber is asked to call back later. As a result of this policy, a number of subscribers have recently been lost and the revenue from this stream is falling. The subscriber queries tend to be fairly simple, such as incorrect billing, or delivery issues.
Payrol
The Deal Group has an internal payroll department, which is struggling to deal with the variety of payment terms for its different employees. Some reporters get paid on a per article basis, whereas others are paid a regular monthly salary. Additionally, there are bonus payments to staff if weekly sales surpass stated target figures. There are regular errors in these payments and staff, including reporters, are increasingly spending time trying to sort out these errors with the payroll department.
The Deal Group has identified three process areas for improvement: publication of the Daily Finance newspaper, subscriber management and payroll.
Required:
Evaluate each of the three process areas identified above using Harmon’s process-strategy matrix. Recommend and justify an improvement strategy, for each of the three processes, which addresses the problems each face.
The Deal Group has already decided that its legal processes would be improved through outsourcing.
The Deal Group could assess the priority of the three processes on Harmon’s process-strategy matrix. The matrix has two axes. The vertical axis is concerned with process complexity. Low process complexity refers to simple or routine procedures with few inputs, whilst highly complex processes can be considered to need a high level of skill, be non-routine and use a variety of different inputs.
The horizontal axis considers the strategic importance of these processes. Low importance processes are concerned with things which must be done but which add little value to products or services. However, the high value processes are very important to success and are often considered to be the core processes. From these two axes, Harmon categorises four quadrants and makes suggestions about how processes should be tackled in each quadrant, as summarised in Figure 1.
Explain the disadvantages and risks associated with outsourcing the legal department and discuss how these risks could be managed.
The Deal Group has already decided to outsource its legal department, so it needs to be aware of the disadvantages and risks involved in doing so, in order that it can try to manage those risks.
Legal services are likely to be costly, given the level of expertise required. Outsourcing providers need to earn a profit margin on their services. Thus, the opportunity for overall cost savings will depend on how often, and for how long, this service is necessary.
It is likely that an annual fee would have to be paid, which may or may not, include all services.
There is a risk of increased costs in the future, if a single supplier is used, as it may be difficult for the Deal Group to switch to another provider at the end of the contract period.
There are numerous firms to select from and the risk is that the Deal Group fails to select the best provider for their needs. Legal firms offer a variety of services and often specialise in specific areas. If the company has not needed a specific legal service before, it may be that their selected provider cannot meet these needs.
Legal services are highly confidential, especially if the group is considering legal advice on articles not yet published. It may be concerned that the content of the articles be leaked in some way to competitors, especially if they share the same outsourcing company.
Given the expertise required, it will be difficult for the group to return this process in-house should the outsourcing provision not work out. There may also be problems in outsourcing the process, as it will require making legally trained employees redundant, who will have full knowledge of their rights and may make it difficult, or expensive, for the company.
Outsourcing can also lead to a loss of control over the quality of the provision. However, a legal firm with access to many staff should be capable of delivering a high-quality service, probably of a higher quality than a small legal department within an unrelated company.
In order to manage the cost risk, the Deal Group should ensure that it has a fully agreed service level agreement (SLA) which details everything included in the fees and the detailed charges for any additional services.
Similarly, a signed agreement can be used to ensure there is no risk to confidentiality.
The risk of a supplier being unable to meet their needs could be overcome by a decision to outsource to a variety of law firms rather than a single one. This would also overcome any supplier power in the future, if the contract was coming to an end.