An integrated DEMATEL and Fuzzy ANP techniques for evaluation and selection of outsourcing provider for a telecommunication company

Highlights

• An integrated DEMATEL and Fuzzy ANP multi-criteria decision making techniques were used in combination.

• The methodology is proposed for outsourcing provider selection and obtained useful results.

• The approach can be applied for other MCDM problems.

• Three hierarchical level for the criteria were applied while in the literature it is mostly two levels.

Abstract

In recent years, strategy aspects related to core competency, risk analysis and organizational flexibility especially have been growing. This trend has led researchers and industries to become more interested in the multi-criteria decision making (MCDM) models for selecting outsourcing providers. The efficiency of decision-making mostly depends on the ability of decision-makers analyzing the complex cause and effect relationship between criteria and taking effective actions based on the analysis. Using an analytical method to select the most eligible outsourcing provider is significant for a company which desires to improve its competitiveness. In this study, a fuzzy integrated multi-criteria decision making method for evaluation and determination of an outsourcing provider for a telecommunication company is analyzed by using DEMATEL and Fuzzy ANP multi-criteria decision making techniques. First, DEMATEL method is used in order to put forward the interrelationship among the main criteria which are determined in the study for outsourcing selection process. Then, local weights of the sub-criteria and sub-subcriteria are calculated by Fuzzy ANP approach on the basis of cause-effect relationships that are exposed through DEMATEL method. The local weights are put into ANP supermatrix, and calculations are implemented to select out the most eligible outsourcing provider.

Introduction

Outsourcing can be defined as the complete transfer of a business process that has been traditionally operated and managed internally to an independently owned external service provider (Handley, 2008). It is the act of reversing a previous decision to make or perform a particular function internally. Outsourcing is a good strategy for firms that need to reduce operating costs and improve competitiveness and it is important that firms scientifically select appropriate outsourcing providers. (Liou, Wang, Hsu, & Yin, 2011).

As outsourcing is closely related to the traditional make or buy decision, we can rely on contributions from this classic set of literature to provide insights as to what may or may not be good strategic candidates for outsourcing. This notion is emphasized by Doig, Ritter, Speckhals, and Woolson (2001) who indicate that the first step in the make or buy decision is to understand the strategic value of activities. As a result, firms’ increased efficiencies and abilities to focus on core competencies have produced real profits and increased customer satisfaction. Nevertheless, ineffective outsourcing activities, derived from improper strategies or methods, will lead to a loss of core competencies and capabilities, exposure to unexpected risk, and business failures (Wang & Yang, 2007). Therefore, a scientific decision making process for choosing the most proper outsourcing provider is essential for increasing the success rate of outsourcing. Initially, outsourcing decisions predominantly involved standardized processes, commoditized products, and activities of extremely low strategic value. However, (Gottfredson, Puryear, & Phillips, 2005) indicates that firms are increasingly considering more strategic “capabilities” for outsourcing, making the strategic evaluation much more complex. They argue that outsourcing can provide short term competitive benefits and it can be compiled a list of factors that are relevant to the outsourcing decision making. They are reducing costs, improving core competency focus, increasing flexibility, creating variable cost structures, improving productivity, gaining competitiveness accessing external talents, sharing risk improving quality, conserving capital and stimulating innovation. It implies that upon outsourcing, a firm is accepting a position of competitive parity, for the activity in question. It has been posited that firms should concentrate on the development of a few core competencies and strategically outsource the rest (Quinn & Hilmer, 1994). Further, Barthélemy (2001) identifies outsourcing of core activities as one of the “deadly sins” of outsourcing. Thus, the concept of core competencies along with the resource based view of the firm provides the basis for the assertion that in considering outsourcing, the decision making team must have a thorough understanding of core and non-core capabilities and how they relate to a firm’s competitive advantage.

In this study, an integrated multi-criteria decision making approach for choosing the most eligible outsourcing provider is used for a telecommunication company which had decided to outsource some maintenance activities in order to gain more competitive advantages. The integrated method uses Fuzzy Analytic Network Process (FANP) technique in combination with Decision Making Trial and Evaluation Laboratory (DEMATEL) technique for increasing the sensitivity of interrelationships between the factors for choosing the outsourcing providers.

DEMATEL is a comprehensive technique for constructing and analyzing a structural model involving cause and effect interrelationships between complex factors or criteria. The DEMATEL method is based on digraphs, which can separate involved factors into cause and effect groups.

The ANP is an extension of analytic hierarchy process (AHP), and it is the general form of AHP. The ANP method has been widely and successfully implemented in various project selection cases such as information system project selection (Lee and Kim, 2000, Liang and Li, 2007); project selection (Cheng & Li, 2005); logistics service provider (Jharkharia & Shankar, 2007); urban renewal project selection (Wey, 2008); partner selection (Wu, Shih, & Chan, 2009), etc.

Fuzzy ANP method is developed to deal with uncertain human judgments (Mikhailov and Singh, 1999a, Mikhailov and Singh, 2003). The FANP method has been applied in order to increase the capabilities of the ANP for dealing with inconsistent and uncertain judgments. The FANP method has been implemented for group prioritization, partnership selection, competitive bidding, evaluation of services, project selection and so forth (Mikhailov, 2004, Mikhailov, 2002, Mikhailov and Singh, 1999b, Mikhailov and Tsvetinov, 2004, Mohanty et al., 2005).

Herein, first the DEMATEL method is applied to derive cause and effect interrelationship between main criteria of outsourcing provider selection for a telecommunication firm in Turkey. Then, based on the information gained from the DEMATEL method, FANP method is implemented to select the most eligible outsourcing provider for the firm in an uncertain environment to deal with inconsistent and vague judgment of decision makers of the firm. The proposed model can be easily used for other industries, to help other firms to evaluate and select their outsourcing providers.