Outsourcing Strategies in the Bulgarian State Railways

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ABSTRACT

The world has gone through a tremendous change and advancement in technology, invention and innovation. As the world undergoes transformation, so is the business realm. Every business organization strives to maintain its market share while increasing its revenue growth. This doesn't come easily as new businesses, products and services emerge which require consumer shift from those products which have proved monotonous and outdated. A lot has taken place in the locomotive industry as new and better means of transport have been promulgated. For instance air travel, road travel in which case people tend to ignore railway transport.

As a result we notice a lot of changes that have taken place in the Bulgarian State Railways with regard to outsourcing and their impact on the overall business and the economy in general. Within this paper we will see how the company has rightfully executed their goals in an economical and efficient manner. It has outsourced its various responsibilities as will be observed in its organization structure. This has in turn given the organization a great opportunity to engage strongly in more technical matters such as training and publication but still retaining its authority over the railway transport. The research therefore provides an introduction to the organization afterwards, it analyzes the environment within which the BDZ EAD operates and the impact it bears on the company. Eventually I will analyze the various outsourcing strategies as used and how they have contributed to the success of the company. I shall also give my course of action in which I assert the need to adopt new technologies and the need to outsource more on locomotives, Sales and marketing, Information and Technology especially with regard to ticketing as envisioned in their strategic plan.

EXECUTIVE SUMMARY

Purpose: This report aims at introducing the reader to the Bulgarian State Railways, the various outsourcing strategies that have been embraced by the company. It also aims at analyzing the alternative outsourcing strategies to be adopted, or rather, which area of the company that should better be outsourced hence I intend to give recommendation and courses of action to improve the company progress:

Approach: introduction to the company and its structure, environmental analysis, and the outsourcing realm which are in the Repair and Maintenance, Transport, Cargo transport, to name but the major ones.

Findings: Owing to the growth in the economy after the economic crunch, it is evaluated that outsourcing in Sales and marketing, Customer Care, Logistics should provide a major boost in the company's overall progress.

INTRODUCTION TO THE BULGARIAN STATE RAILWAYS

Bulgarian State Railways is commonly referred to as BDZ EAD. It is solely owned by the government in terms of capital. It was established as a result of an act of parliament in 1885. It is located in the Sofia city which is actually the capital city. It is involved in passenger and freight transport. It has met serious challenges but it has countered them in the due course of history. It has incorporate a number of companies in areas of passenger transport, cargo, locomotives, BDZ EAD has continuously preserved its duties as an international passenger carrier, special transport, as well as goods carrier, that is, both in the country and abroad.

ORGANIZATION SRUCTURE OF THE BDZ EAD

The organization is structured as any other typical company with the Board of Directors being at the top in terms of hierarchy, followed by the Executive Director to whom the following answer to directly as they execute their mandate: BDZ passenger Service Ltd, BDZ Freight Services Ltd, BDZ Transaction rolling stock (locomotives) Ltd. The Executive Director also has control over the head office, which is responsible which is responsible for professional training and publications.

Under these various units as I have identified them above, lies the other smaller departments as will be observed in figure 1.1 below:

Figure1.1: Organization Structure of BDZ EAD

Again as I identified earlier the Executive Director is in charge and heads the following: Safety Control and Internal Security division, International Affairs, Administration division, finance division, Technological support division, rolling stock division, Operation division.

All this is meant to show you the level of sophistication of the Bulgarian State Railways. It is so vast and very complicated in its structure that it covers a lot of disciplines ranging from service, technological, administrative, operations, among others, which thus require a lot of manpower and special skill. It is at the hallmark of this that I engender to explicate the various strategies that the corporation has adopted to curb the inherent need for growth, to counter competition and sustain itself amidst changing environment characterized by advancement in technology.

ENVIRONMENTAL ANALYSIS

The Bulgarian nation occupies 110,910 sq. km and is bordered by Turkey and Greece to the south, Macedonia and Serbia to the west, Romania to the north, the Black Sea to the east. It has Sofia as its capital city. Its economy according the 2009 estimate indicates a GDP of $48.7 billion. Inflation rate according to the state record stands at 1.6%. Unemployment rate stands at 9.1% in 2009. Bulgaria is governed by a Parliamentary democratic government with the President as the head, assisted by the Prime Minister, followed by the Council of Ministers. (Bureau of European and Eurasian Affairs, 15 June 2010)

Roaf (2004) acknowledges the International Monetary Fund statement that Bulgaria up to the mid 2008 indicated:

A relatively low rate of inflation, efficient government financing

Well executed privatization process

Well planned government expenditure and budget balance

Increasing foreign investment and free trade

Active pro-competitive policy, specific competition laws.

On the other hand PEST analysis of the external environment shows that the country benefits from:

Economic stability

Reduced corporation tax

Growth of consumer export

Growth in employment level

Reduction in labour costs in the manufacturing departments

Remuneration in service professions

Investment in telecommunications

Growth in foreign direct investment flows and tourism receipts

On the contrary the PEST analysis presents the following as the weaknesses of the external environment:

Current account deficits

Inadequate regulations on goods, services and the labour market

Gray economy and unfair competition

Inefficient customs

Productivity and efficiency of business

Poor availability of skilled labour to take up senior management portfolios

The economy is energy-intensive

Poor support for new technologies

Poor infrastructure

The educational system not being able to meet up with the needs of the competitive economy.

Another environmental report is that of Edmonds (17th April 2009) who in his monthly report about southeast European countries provides the following information regarding Bulgaria:

Contribution to GDP: Edmonds asserts the impact of the economic crisis on GDP by specifying that it reduces transactions, thereby decreasing the demand for products and services, hence consequently impacting the functions of the company by demanding the there be more sales and marketing campaign to assist in bringing more orders and customers.

Consumption and investments: The economic crisis also decreased investment as forecast in the figure below:

This negatively affects companies as it shrinks sales due to cause and effect.

Unemployment: Unemployment according to Edmonds (2009) is expected to decrease hence this demands companies to look for mechanisms to cost cut.

The above analysis therefore leads us to the following conclusions about the way forward: Cost reduction, high productivity of the business, the need to come up with new methods and technologies to serve customers.

OUTSOURCING STRATEGIES

INTRODUCTION

This section sets out to identify and analyze the various outsourcing strategies that have been adopted by the BDZ EAD. But before that it is important to explicate clearly what outsourcing means and its impact to the overall performance of an organization both in terms of output, service delivery and product quality.

OUTSOURCING

Basically when defining outsourcing as rightfully given by Chamberland (2003) we can say that it is a transfer of a company's business activities to an external organization that has similar services. And therefore the external service provider handles these activities that have been transferred while taking responsibility for their action.

It is important to note that companies outsource with an agenda in their plan. Two general targets are identified by both Cloth (2004) and Murphy (2004):

Short-term or tactical outsourcing - this aims to improve the operational efficiency, maximize the effect of the daily activities or to decrease costs of given operation.

Long-term/strategic outsourcing - this seeks to improve business in general. It exceeds mare cost saving by supporting company's long-term strategic goals which are creation of competitive advantage, and focusing on core activities.

Outsourcing serves organizations tremendously. First is saves costs through the acquisition of cheaper but efficient workforce as a result of differences between different regions in terms of wages. Industrialized nations differ from developing nations in terms of wages. The second reason as to why outsource is that outsourcing enables organizations to concentrate on core business goals while giving opportunities to other organizations to provide specialized services. Outsourcing restructures organizational costs by laying more emphasis on variable costs as opposed to fixed cost, and also by making these costs easier to forecast. Outsourcing also promotes the quality of service or product as better standards are acquired in the due course. Some operational expertise are difficult to build within the organization but more convenient to adopt them from those organizations that are skilled in the field. Outsourcing speeds up the process of transformation as the outsourcing contract acts as a major step for change. Innovation also gains a major enhancement as competition and the struggle for market sustainability takes center stage. Outsourcing is also a risk management mechanism. A great deal of companies engage in venture capitalism whereby they assist companies with special ideas with funds to make those ideas real and in the process use those companies to add flavor to their own companies. There is no business that can survive without experiencing risk, and this is another reason for outsourcing as it helps to mitigate risks by partnering.

OUTSOURCING STRATEGIES ADOPTED BY BDZ EAD

For any strategy to be formulated it requires a goal to which it tends, without which, there is no need for it. Any company that needs to excel always sets out clear goals on improving its performance, effectiveness, and also to strengthen its competitiveness.

Bulgarian State Railways EAD in its strategic action has to a greater percentage utilized outsourcing through various strategies. It is indeed a typical example of an organization that has embraced outsourcing with an aim of promoting its business agenda. We noticed at the beginning that BDZ reserves the authority to manage transportation of passengers, goods, and other services both with and outside the Bulgarian nation. It has however, contracted the following companies to be in charge of various operations:

BDZ-Cargo EOOD: It is engaged in railway transport of goods within the country, it rents out locomotives and railway wagons. It also repairs and maintains rolling stock. This is actually its mandate as assigned upon payment from BDZ EAD

BDZ-Passenger Transport EOOD: This Company rents from BDZ EAD freight and passenger railway wagons ad locomotives. In the process BDZ-Passenger Transport EOOD carries out maintenance and repair of the rolling stock.

BDZ -Transaction Rolling Stock (Locomotives) EOOD: This Company is engaged in the provision of locomotive services for transport of passengers and goods both domestically and internationally. It also repairs and maintains these locomotives. There is moreover a projection that in its restructuring plan, this company will merge into BDZ EAD.

BDZ EAD carries harbors a Passenger services, Freight services, and Projects and Tenders

Therefore BDZ EAD has clearly showed how it has outsourced its repair operations to BDZ-Transport EOOD as well as transportation of people both within and outside the state. This has promoted better service delivery, risk mitigation, and increased economies of scale characterized by provision of services by experts. This has seen various steps through especially the ticketing with portable computers which is actually a clear manifestation of today's cutting edge technology.

BDZ EAD has also outsourced the services of transportation of passengers alongside that of cargo both in the BDZ-Cargo EOOD, and BDZ- Transport Rolling Stock. This is ostensibly a strong step in the outsourcing real. Moreover, the Bulgarian State Railways still remains the one in charge as clearly indicated by the organizational structure in which the executive officers still oversee the progress ensued by those contracted organizations.

One thing which keeps on coming out clearly is the fact that as the company outsources it also asses the risk of this plan with the outcome. For instance there is always a risk of loosing focus especially when having your operations done by an outside world but it is also equally important that some of those operations when left to outside companies are optimized.

CHOICE OF SOLUTION

Under this section I shall proceed to identifying other areas which have not yet been explored and which if looked at can lead to better service delivery.

For instance the publication unit, which is the one unit people have never considered important but as organizations are moving more and more to sales and marketing orientation, there is need to re-evaluate this unit because it really bears a great impact on the stability of the organization. If left to experts (even though I don't want to imply that the organization doesn't have experts) it can be promoted to greater heights. However still it doesn't have to be left absolutely under the control of other companies. It rather should be done in such a way that though the network various requirements are relayed to the outsourced company for polishing. This as well should be promoted by seminars and trainings so that the third party contracted works in line with the contracting organization's vision, mission and objectives.

Another area that needs to be promoted more and more is that of customer care, especially Calling Centre departments which in a number of organizations have been outsourced to experts in the area of Call Center operations. This should be done in such a way that organizational confidentiality is maintained so as to avoid possible takeovers from the outsiders.

CONCLUSION

In conclusion, the Bulgaria State Railways as I have demonstrated from the beginning manifests a true example of a company which has utilized extensively outsourcing as a strategic tool for its growth and sustainability. Right at the beginning I identified the organization after which I went ahead to expounding on its structure and the various strategies it has put in place to ensure it has maintained a steady optimal growth despite the changing environment both internal and external. That is why I had to acknowledge the environment within which the Bulgarian State Railways operates in. I acknowledged the various factors both within the organization and outside the organization that have promoted the organization. But still we notice that there are other factors which have hindered its growth. And that is why the last part of this report shows the solution to the pending problems. As these problems have to be addressed so as to ensure that BDZ EAD has kept pace with the other organizations; for instance the stiff competition which has in turn required vigorous sales and marketing. Outsourcing in call center operations should also be given a chance to promote the organization's stability. Thus outsourcing is a good tool which should be employed but not in all businesses but should be used in a manner that it doesn't make the organization to loose focus.

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