Outsourcing Shipping Management Outsourcing Is a Process

Outsourcing Shipping Management Outsourcing is a process by which an organization takes the services of an external party to perform some of its operations or functions. Outsourcing is also done by shipping firms all over the Globe (Outsource Freight, 2012). Ship owners generally outsource their operations and management functions to the external parties against for a particular period of time and against a specific sum of money (Lorange, 2009).

Outsourcing of the shipping management enables the ship owners to focus on their core competencies and hand over the strategic decision making and policies to the outsourcing parties (AB Crewing, 2012). Ship owners select the outsourcing parties by analyzing the different aspects of their operations and business environment (Outsource Freight, 2012). There is a full fledge selection criteria which helps the ship owners throughout the outsourcing party selection process (National Freight Management, 2012).

The process starts with analyzing the business environment of the shipping firm and the outsourcing party so as to evaluate the different environmental forces that may impact the outsourcing process (Logistic Cluster, 2012). The business model, methodology, and track record of the outsourcing party must match the shipping firm's business strategies (Taylor, 2012). This paper gives a comprehensive description of the key selection criteria which ship owners use while outsourcing their shipping management to external parties.

The second part of the paper gives an explanation to why shipping management should be separated from the ship ownership. All the discussion has been made in the light of recent research studies and reliable internet sources from the relevant field. Importance of Outsourcing Outsourcing is any function, process, or task that can be performed by an organization itself but assigned to some external party against a particular sum of money (Hitt, Ireland, & Hoskisson, 2009). Outsourcing has become a common practice among business organizations all over the world (Lorange, 2009).

Companies generally outsource some of their operations to some external parties working in regions or geographical boundaries other than their home country. However, outsourcing can also be performed by those external parties in the same country where the company operates (AB Crewing, 2012). Outsourcing is sometimes referred to as off-shoring which includes contracting some functions, services, or jobs to outsourcing companies in other countries. Outsourcing brings a number of benefits for an organization; the biggest of all is the saving of time and expenses.

Business organizations believe that outsourcing give them an opportunity to focus on their biggest strengths and core competencies and outsource the less important projects (Lorange, 2009). Outsourcing decision in Shipping Management Shipping firms have also engaged themselves in outsourcing practices since the evolution of Globalization and internationalization of businesses. They are more engaged in outsourcing their logistic services, supply chains, and materials to external parties. Moreover, vessel management is also outsourced by a large number of shipping firms around the Globe.

Outsourcing is not an easy process; it requires a careful analysis of all the important factors of the business environment that may directly or indirectly affect the ship owner's business operations and profitability (Lin, Wen, & Ting, 2012). The success of outsourcing in any type of business solely depends upon the assessment of all the key factors before taking the decision to outsource a particular type of service or job (Hitt, Ireland, & Hoskisson, 2009). Outsourcing may benefit the ship owners in a variety of ways.

For example, it enables them to save their costs that are incurred on multiple shipping operations and focus on the most profitable and important operations (Lorange, 2009). It also enables them to keep their full attention towards bringing improvements in the core strengths, overcoming their weaknesses, and availing the potential opportunities by using the core strengths.

Keeping in view these major benefits, ship owners can outsource their shipping operations or shipping management to outside parties so that they can only focus on specific aspects of their business (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011). The Key Selection Criteria in Outsourcing Shipping Management Outsourcing the shipping management involves a careful analysis of the internal environment of the shipping firm itself as well as the current market standing of the vendor or outsourcing firm.

A shipping firm can take the outsourcing decision in three different ways: The complete shipping business operations and the Management functions are outsourced to the third party Only shipping business operations are outsourced but the Management remains with the owner of the business, i.e. The shipping firm The Shipping Management is outsourced to the third party but all the business operations are performed by the shipping company itself. Among all the above three outsourcing decisions, shipping management outsourcing is considered as the most crucial decision for a ship owner.

Reason being, all the financial capital and shipping services are utilized and rendered under the supreme supervision of the third party which is totally independent of shareholding or any stake with that shipping firm. Therefore, a ship owner has to take this decision with full scrutiny and care. The shipping management outsourcing is a complex process with respect to phases of analysis and the time constraints a ship owner may face during this process.

The following sections explain the key selection criteria which ship owners should use while outsourcing the shipping management to some third party. The selection criteria is specifically explained for the shipping management process, however it can also be used while outsourcing some functions or operations of the shipping business. 1. Assess the Key Business Needs: The shipping management outsourcing process starts with a deep analysis of the business environment of the shipping firm. It includes the analysis of both internal and external environments.

The analysis of business environment is performed in order to analyze the current position of the shipping firm in its industry, the key business requirements of its day-to-day operations, and the shortcomings in any aspect of the firm's functions (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011). The internal environment consists of strengths and weaknesses of the shipping business operations while the external environment is composed of potential threats and available opportunities in the shipping industry or market.

Both these analyses give deep insights into what has the shipping firm already achieved and what does it want to achieve in the short run and long run (Hitt, Ireland, & Hoskisson, 2009). a. Analysis of the Financial Position of the Firm: While outsourcing the shipping management of his firm, a ship owner should first look at the financial position of the firm by analyzing its financial statements.

The shipping management is a crucial decision; therefore a ship owner has to keep a regular check and balance on the financial position of his firm. The analysis can be made by comparing and contrasting the assets ad liabilities of the firm and the long-term borrowings which it has made in the recent past. This analysis will help the ship owner in deciding that whether his firm is in a position to bear the financial burden of outsourcing costs or not. b.

Formation of a Project Management and Evaluation Team: The analysis of business needs or requirements is not carried out by the shipping owner himself; rather he has to take the services of a team of managers who can analyze the different aspect of the business operations and present their views on the shipping management outsourcing decision. First of all, the ship owner has to formulate a team of managers from all the concerned departments and units of his shipping business.

The team may consist of 7-10 members so that the scope of thinking and presenting ideas may be broadened (Lorange, 2009). c. Objectives and Policies of the Outsourcing Project: After formulating a team of managers, the ship owner has to communicate the main objectives and policies of the outsourcing project in a well-documented form to all the members of the team.

It helps the team members in realizing the significance of the outsourcing project as well as the policies to be followed during the whole process (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011). d. Function of the Project Management and Evaluation Team in Outsourcing Shipping Management: The project management and evaluation team is basically formed to present a comprehensive but concise report to the ship owner regarding all the facts and figures that need to be considered while selecting the most potential outsourcing party for their its shipping management.

The report presented by the team is generally called 'evaluation report' and consists of all the key selection criteria which the ship owner should use to select the best party for its project. Critical Factors to be analyzed in the selection of an Outsourcing Party In addition to the aforementioned components of the selection criteria, there are certain factors that need to be considered while outsourcing the management functions of a shipping business.

These factors are comprehensively discussed below: The Macro Environment of the Shipping Firm: The Macro environment of a shipping firm is composed of the political, legal, socio-cultural, demographical, economic, and technological forces. These forces need to be analyzed for the shipping firm in order to assess whether the shipping firm has a sustainable future in its industry or not.

If the Project Management and Evaluation team assesses these key forces and finds out a high level of feasibility for its firm, it can recommend the ship owner to proceed with the outsourcing project (Hitt, Ireland, & Hoskisson, 2009). In addition to analyzing and assessing the macro environment of the shipping firm, the project management and evaluation team also has to analyze the same for the outsourcing firm, i.e. The firm that will be contracted for the outsourcing services.

The Macro environment of the shipping firm consists of the following components: Political environment of the shipping firm: Political environment consists of all the factors that are directly or indirectly related to the Governmental behavior of the country in which the shipping firm operates. Political factors are generally considered as the most crucial forces in any type of business environment. The behavior of the Government may change any time during the course of the business; either in favor or against the shipping firm.

The Government may change its policies and regulations for any type of industry depending upon the circumstances and economic situation of its country. Thus, the political environment may turn in favor of the shipping business if the Government gives relaxations to the shipping industry in different aspects of its business operations. On the other hand, the political environment may further put the shipping firm's business into serious situation if the Government decides to cease some of the shipping firm's functions or put heavy taxes on its profitability.

The political environment needs to be analyzed in order to assess the sustainability of the shipping firm in the short run as well as in the long run (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011). Depending upon this analysis of sustainability of the shipping firm in its industry, the ship owner may decide whether to outsource some operations or management functions to outside parties or not.

The ship owner only decides to outsource the shipping management functions if he, on the basis of sustainability analysis, anticipates that the Government will not change its behavior or positive attitude towards shipping business. Conversely, the ship owner may retrench some of the business operations of the shipping firm in order to save costs and put focus on the core competencies.

The political environment of the Outsourcing party: In addition to analyzing the political environment for its own business, the ship owner must assess the same for the outsourcing party which is to be contracted for outsourcing services for the shipping firm. The analysis of the political environment of the outsourcing party is far more important for the ship owner than the analysis for its own firm. Reason being, giving the control of one's business to an outside party is a risky task for any owner.

Therefore, a ship owner must carefully assess whether the political environment of the outsourcing party will favor his business in that party's country or not (Hitt, Ireland, & Hoskisson, 2009). In case a ship owner does not feel the political environment in the favor of his business, he may look for another outsourcing party that operates in some other country than the previous party. This analysis finishes when the ship owner finds the best outsourcing party with respect of political stability and governmental behavior.

Shipping Firm's Size of Operations and Structure: The second most important factor in this analysis is the firm's own size of operations and organizational structure. The decision to outsource the shipping management operations heavily depends upon the size and complexity of a shipping firm's organizational structure. A large shipping firm has a more complex organizational structure than a small shipping firm.

Therefore, the owner of a large shipping firm will look for the outsourcing party that will be able to handle and control the business operations and management functions of such a large organization (Taylor, 2012). Outsourcing Party's Size of Operations and Structure: The ship owner may screen the outsourcing parties on the basis of their size of operations and organizational structures. The best way to screen these parties is to conduct a market survey through the project management and evaluation team.

The team will list out all the outsourcing parties operating in a particular region and screen out the best party that could match the exact business requirements and needs. Assessment of the Business Model of the Shipping Firm: In the next step, the Project Management and Evaluation team assesses the business model which the shipping firm has adopted and executed at its workplace and the business environment in which it operates.

The business model consists of the track record, execution practices, corporate business principles, and sustainability efforts of the shipping firm. These factors are analyzed in a view to reach the conclusion that the shipping firm has the potential to grow in the industry and compete with the Top-Notch competitors in the business environment (Taylor, 2012). Assessment of the Business Model of the Outsourcing Party: The assessment of the business model of the shipping firm is useless if the Project Management and Evaluation team does not assess it for the outsourcing party.

There should be business model match between the shipping firm and the outsourcing party so that the former finds out the best outsourcing party that has the same track record and policy execution practices as the firm itself has. A good business model match leads to a successful business relationship between both the parties in terms of operational growth and financial strength (Taylor, 2012).

The Financial Stability of the Shipping Firm: The financial stability of the shipping firm can be analyzed by looking at its cash reserves and revenues in the past few years. Financial stability can also be predicted by looking at the financial performance of a firm, but a ship owner generally gives more importance to the cash reserves and revenues of his firm during the last five years. The analysis of financial stability also helps the ship owner in judging the potential of the firm for future expansion and growth strategies.

The Financial Stability of the Outsourcing party: The analysis of financial stability of the outsourcing party is also important for the ship owner; especially when he decides to outsource the Management functions to his firm. The ship owner hands over the management to an external party when he thinks that the new management heads will be able to maintain the same control and performance of the shipping firm as it was before the outsourcing project.

CMMI Certification: CMMI certification gives a guarantee to the ship owner regarding the feasibility of his outsourcing project. It helps the owner in deciding whether the project will be profitable for a long period or time or not. CMMI Certification also guarantees for the long-term relationship between the ship owner and the outsourcing party. Therefore, it has become a common practice in the business world that organizations obtain a CMMI certification in addition to the analysis of their macro environment (Ship Management International, 2012).

Try to choose the Top level outsourcing companies: Outsourcing the management functions of a shipping business is a risky and complex decision for a ship owner. Ship owners look for outsourcing parties that have a good track record as well as a strong market standing in the crowd of a large number of competitors and the presence of strict rules and regulations by the governing authorities.

As the ship owner's financial capital remains at stake in the outsourcing process, he must choose those outsourcing companies that are ranked at the top in the shipping outsourcing services industry. It will minimize the risk of failure of the outsourcing project (Taylor, 2012). Manage the cultural diversity: When a ship owner outsources the management functions or some aspect of business operations of his shipping firm to an external party from some other geographical regions, he observes a great level of cultural diversity in the workplace.

This cultural diversity is observed at all organizational levels; from lower level employees to the Top level management of both the firms. In outsourcing the management functions of the shipping firm, the owner and his project management and evaluation team must manage the differences in communication patterns and channels between both organizational setups. The Methodology Match between both the firms: A methodology match refers to the degree to which both the firms use the same management practices and organization wide policies.

For this particular type of business, a methodology match will refer to the degree to which shipping operations are customized and molded as per the firm's business needs and requirements (Taylor, 2012). The shipping firm must look for the outsourcing party that can easily execute the organization wide policies which it has been adopting since its inception.

The Composition of the Management Team of the Outsourcing party: The composition of the management team must be analyzed for the outsourcing party in a view to assess whether it consists of professionals with the same expertise, qualification, skills, and competencies as required and needed for the management functions of the shipping firm. If the management team of the outsourcing party has business management professionals from diverse areas and skill competencies, the ship owner will still look whether they have expertise in the shipping management field or not.

Ideally, the management team should compose of members from the following areas: 1. Audit and Taxation professionals 2. Foreign Exchange and Trading experts 3. Legal Advisors 4. Financial Analysts 5. Head of the Shipping Engineering Department The outsourcing project management and evaluation team will be dedicated with the responsibility of assessing the skills and competencies of all the management team professionals in the outsourcing company (Taylor, 2012).

Training and Development of the Management team: In the management outsourcing project, the newly contracted management team is not aware of the organizational policies, practices, and cultural values in the shipping firm. Therefore, the team members must be undergone through a training and development session before they are given the full control of the management functions in the shipping firm. The training and development session may consist of workshops, lectures, and in-door Company visits for all the management team members of the outsourcing party.

Workshop Sessions: In the workshop sessions, the members of the management team will learn the corporate wide policies and practices of the shipping firm. For example; the mission and vision statement of the shipping firm, the long run organizational objectives, the business methodology, the business model, and the current financial strength and standing in the industry (Taylor, 2012). Lecture sessions and short classes: The management team will also undergo through lectures sessions and short classes on the business process management of the shipping firm.

These lecture sessions will acquaint them with what practices the shipping firm executes in its day-to-day business operations. In-door Company visits: Similarly, the in-door visits are also arranged for the management team professionals so that they can personally observe the efficiency and structure of the firm's business units at different locations in the country.

Security of Company information and resources: The ship owner outsources the shipping management to external parties with a confidence that the management team of that party will keep the informational resources of his firm safe and secure from misrepresentation, theft, or misuse. In the training and developing sessions, the management team is also taught that they are contracted with a confidence that they will take the management control with integrity and honesty. This is another component of the key selection criteria for a shipping management outsourcing party.

A ship owner must choose the management team from an outsourcing party that has never remain engaged in any fraudulent activities or misrepresentations of financial information in the course of its services in any industry (Taylor, 2012).

Other factors to consider while selecting an outsourcing party for the shipping management: In addition to the above mentioned factors in the macro environment and internal environment of the shipping firm and the outsourcing party, the ship owner should also analyze the socio-cultural, demographical, and economic forces that are present in the macro environment of the outsourcing party.

Economic, social and demographical factors: The ship owner should analyze the different economic forces in the outsourcing party's country that may impact the business operations of his shipping firm in one way or another. The economic forces generally impact the profitability and financial position of a firm. Thus, they need to be analyzed and managed in a tactful and effective way so that their adverse impacts can be minimized to the maximum extent (Panayides & Cullinane, 2002).

The economic forces consist of inflationary pressures, unemployment level, industrial growth, exchange rate stability, trade barriers, etc. A successful outsourcing project takes place when all or most of the economic forces go in favor of the shipping firm's business. Organizations generally outsource their business operations and management functions to outsourcing parties in the developed or developing countries. It is because they enjoy more favorable economic conditions than under-developed countries. Similarly, socio-cultural and demographical forces also impact the proper functioning of a management in a shipping firm.

Customers' attitude, life styles, income levels, etc. impact the way the Management team makes decisions and executes its strategies in a particular business landscape. The Outsourcing Party Selection Practices among Shipping Firms: In today's highly uncertain business environment, shipping companies are always in a quest to find ways to maximize their revenues and control their costs of running operations. Outsourcing is one of the most effective ways of saving business operational costs.

Although every ship owner uses his own selection criteria for outsourcing the shipping management for his firm; there is a general criterion which is followed in every situation and circumstances. This criterion is discussed in the following section: 1. Assess the needs and requirements of the management functions in the shipping firm 2. Formation of an Outsourcing Management and Evaluation team 3. Preparation of a proposal for the outsourcing project decision 4. Analyze the business environment of the shipping firm 5. Analyze the business environment of all the bidding outsourcing parties 6.

Screen out the top 5 outsourcing parties 7. Analyze the composition of Management team in every outsourcing party 8. Analyze the track record, execution practices, and effectiveness of policy decisions of the Management teams 9. Screen out the outsourcing parties that contain the most business professionals from the shipping management area. 10. Assess the methodology and business model of all the screened outsourcing parties 11. Find the best business model-match and methodology-match between the shipping firm and each of the outsourcing parties 12.

Obtain a CMMI Certificate to rank these outsourcing parties on the basis of level of guarantee 13. Choose one outsourcing party that best meets the selection criteria 14. Arrange training and development sessions for the Management team 15. Hand over the Management control to the team 16. Periodically evaluate the team's performance in order to evaluate the effectiveness of the outsourcing decision (Lun, & Lai, & Cheng, 2010).

Why should the Shipping Management be in separate hands than the Shipping Ownership? It is widely believed that the management of the business organizations should be in separate hands than their ownership. The majority of researchers and analysts in the business management field is of the view that management and ownership should be separated so that there is no conflict of interest in the policies and practices at the organizational level (Cariou & Wolff, 2011).

The Shipping industry: In the shipping industry, it has been observed that the shipping management is generally done by the representatives of the ship owners that have an indirect stake in that shipping company. However, a large number of shipping firms outsource their management functions to outside parties; either in the same region or on off-shore grounds (Waggoner, 2011). If a ship owner decides to separate the shipping management from ownership, he may choose to elect the management team from some associate shipping business concern or from an external outsourcing party.

Alternatives for the Ship Owners: When an outsourcing projects gets to an end, the shipping management may return back to the ship owners. Now the ship owners have two options; either to outsource the management functions again, or take its control back. The former option may further be analyzed as whether the pervious outsourcing party should be contracted for the shipping management or search some new party for same (Waggoner, 2011).

The Best Management Practices in the World: On the other hand, the ship management completely gets back to the ship owner. Keeping in view the best management practices around the Globe, it can be argued and recommended that the ship owners should not keep the management control in their hands; rather they should hire a separate management team or outsource the management functions to some external parties in the home country or international markets (Lun, & Lai, & Cheng, 2010).

Focus on the Business Operations and give away the Management Control: When the shipping management is in separate hands than the ship ownership, the ship owners are better able to run the business operations of their firm. It is because they are totally free from making policies and procedures for the shipping business when there is a separate team to perform these functions. In addition,.