**4. The Indian coal mining organization and outsourcing**

As coal is an important source of primary energy in India, the demand for coal has always been on the rise. The demand for coal has further aggravated in view of

*Outsourcing and Offshoring*

mining organization in India.

**2. Outsourcing: state-of-the-art in India**

multinational companies (MNCs) located abroad. However, studies on outsourcing practices followed by the Indian firms may be inadequate in the extant literature. It was observed that the decision of outsourcing is often taken in an aggressive manner with an emphasis on short-term cost advantage rather than giving due consideration in realizing the significant contribution of such decisions over the long-term competitiveness of the organization [42]. The present study provides a structured approach to investigate the appropriateness of outsourcing, as a strategic decision, in accord with the organizational strategy for performance improvement in the context of an Indian coal mining organization. Therefore, the objectives of the present study are to provide a general overview of outsourcing in the backdrop of the Indian outsourcing scenario focussing on the coal mining organization and manufacturing and service industries in general. The study then discusses the significant contribution of the coal mining organization in reference to the growing importance of coal in the country. Subsequently, the relevance of outsourcing in view of the improved organizational performances for the Indian coal mining organization has been elucidated. Finally, the study proposes an outsourcing decision model that may provide a comprehensive approach towards evaluating the appropriateness of such strategic decision as outsourcing in consistent with the organizational strategy for performance improvement for the coal

As aforementioned, the extant literature on outsourcing in the Indian context mostly highlights outsourcing of IT, IS, and BPO that are offshored to Indian IT firms by the MNCs located overseas [43, 44]. However, studies on outsourcing practices by the Indian firms may be inadequate in the extant literature. According to the outsourcing survey by Deloitte, the business functions that are recently being outsourced are IT, operations, finance, human resources, legal, real estate/facilities, procurement, and sales/marketing support [45]. As reported

in this survey, while IT, finance, and operations are expected to be heavily

outsourced in offshore locations, business functions such as procurement, human resources, sales and marketing, legal, and real estate/facilities are likely to be outsourced within the national boundaries (India). Some of the publicly known cases of outsourcing by Indian firms are (a) IT outsourcing contract to IBM by Airtel [46], (b) outsourcing of business process and technology by Indian banking sector [47], (c) outsourcing of mining operations by Hindustan copper Ltd. and Mahanadi Coalfields Ltd. [48, 49], (d) outsourcing of back-office operations to Tata Consultancy Services (TCS) by Passport Seva, Ministry of External Affairs [50], (e) outsourcing of passenger services by Indian Railways [51], and (f) human resources management system outsourcing contract to TCS by the Indian Railways [52]. Some of the recent cases of outsourcing reported in Indian context that are more transformational in nature are relocation of high-tech industries like pharmaceutical industry outsourced to India [53], study of professional service outsourcing in India while examining the impacts of task traits (complexity, connectivity and security) and their alignments with inter-firm governance control mechanisms in improving service capabilities by Jayaraman and Liu [54], the impact of employer branding strategy on employee engagement consideration a case of a business process outsourcing (BPO) in India [43], and R & D offshore outsourcing to India, the service provider, taking into account their innovation performance gained through learning from their clients for a biophar-

**26**

maceutical industry [55].

#### *Outsourcing and Offshoring*

the increasing power sectors and steel and cement industries growing nationwide. Despite the fact that India has been ranked fourth in terms of the total coal reserve and is also considered as the third largest coal producing country in the world, India is still chasing to encounter the escalating demand of coal.

As per the Coal India Report (2014–2015), between 2007–2008 and 2014–2015, the demand for coal in India has increased from 492.5 million tons (MT) to 787.03 MT showing an increase of 60% over a period of seven years. **Figure 1** illustrates the year-wise details of overall demand for coal and the corresponding share of ICMO, SCCL, and other indigenous sources contributing to the overall demand while the gap is met through import [57].

From **Figure 1** it may be observed that the share of demand met by ICMO, SCCL, and other indigenous sources have always been substantially below the expected demand which has necessitated the coal mining organization to depend on coal imports from the neighbourhood countries. The gap, bridged by import between the period 2007–2008 and 2012–2013 has increased from 30.61 MT to 192.54 MT, showing a rise of 529% over a period of five years.

The Ministry of Coal articulates several reasons for such dependency on imported coal. As stated, increasing unavailability of indigenous coal, limited availability of coal with desired quality, environmental consideration in combining the low-quality coal with good quality imported coal, and locations-based cost issues are among the primary influencers [57]. However, coal imports are associated with certain risks and challenges that include fluctuations in global spot prices and foreign exchange rates, law and order issues in exporting countries, and many more [60]. In view of the growing inclination towards the import of coal from oversea sources, there have been several initiatives to enhancement in-house coal production to the outmost possible which are within the ICMO's 12th Five-year plan. The strategies within the 12th Five-year plan include enhancement of exploration drilling capacity, introduction of new mines, and fast initiation of activities related to projects in-process [57]. However, the improvement and expansion of in-house domestic mines involve a substantial amount of investment resulting in a considerable increase in the price of coal [60]. At the same time, it has been also noticed that service providers have facilitated firms in enhancing their business processes though their technical efficiency, expertise, cost-saving techniques, and flexibility when they were deployed for operational activities. Likewise, the captive mines

**29**

*Outsourcing: State-of-the-Art in India and an Insight to Coal Mining Industry*

have realized competitive advantage through deployment of modernized equipment, adoption of new technologies, and utilization of experience and expertise of the service providers [60]. The presence of these third-party private agencies has also been noteworthy in the development and operation of coal mines through

In view of the significant participation of the third-party providers, the coal mining organization in India have started several interventions involving such organizations to delegate some of the key operational activities. This, in turn, is expected to diminish the ever increasing demand–supply gap through increase in operational efficiency, cost-reduction techniques, sustainability of operations and minimization of wastes [56]. Considering the above, outsourcing of operational activities has been introduced by ICMO to suffice the growing energy demand. One of the primary objectives of ICMO is to enhance its internal exploration drilling operation to accomplish the expected target as mentioned in the 12th Five-year plan. Outsourcing of drilling operation by CMPDIL has increased from 0.07 lakh meter in 2007–2008 to 2.86 lakh meter in 2012–2013 over a period of five years that has further increased to 6.15 lakh meter in 2013–2014 showing a significant increase of 115%. For the year 2014–2015 the drilling operation has further increased to 8.28 lakh meter realized through departmental resources and outsourcing [57]. The estimated target for the year 2015–2016 has considerably increased to 15 lakh meter where the departmental capacity has been raised to 4 lakh meter and the rest through outsourcing [61]. According to the report, a total of 50 blocks involving 17.7 lakh meter of drilling was awarded since 2008–2009, however, drilling has been performed in only 24 blocks. The rest of the blocks are remaining non-functional because of reasons like local law and order problems and

As reported, ECL, a coal producing subsidiary within ICMO, produced 141.73 lakh tons of coal and raised 587.91 lakh cubic meter of overburden (OB) from 27 outsourcing opencast patches in 2014–2015 that increased to 171.12 lakh tons of coal and 882.20 lakh cubic meter of OB in the year 2015–2016 from 31 outsourced opencast patches [62]. CCL, another subsidiary, has already outsourced several opencast mines and have been outsourcing a number of activities like OB removal, exploration, and monitoring of geological exploration. NCL has been planning to outsource OB removal along with departmental outsourcing which is within their 2015–2016 production program [63]. As reported, MCL has been also planning to outsource activities for the expansion of the opencast projects [64]. Further, it has been clearly stated by ICMO and MoC that they have already engaged an international agency for studying the mine operations in order to modernize the existing mines through

Thus, the above-stated facts emphasize the importance of outsourcing as a strategic decision of the organization in view of the improved organizational performances. However, while conducting the site visits and interacting with the company executives, the researcher discovered several lacunas related to the absence of strategic perspectives in regard to the outsourcing decisions of operational activities. It was observed that the decision of outsourcing is often taken in an aggressive manner with an emphasis on short-term cost advantage rather than giving due consideration in realizing the significant contribution of such decisions over the long-term competitiveness of the organization. Management of the company ought to have recognized the need to develop a logical step-wise approach towards

*DOI: http://dx.doi.org/10.5772/intechopen.96420*

contract mining and related technical services.

non-availability of forest clearance [61].

the implementation of state-of-the-art technology [57].

**5. Research issues and scope of work**

**Figure 1.**

*Year-wise demand and supply of coal.*

#### *Outsourcing: State-of-the-Art in India and an Insight to Coal Mining Industry DOI: http://dx.doi.org/10.5772/intechopen.96420*

have realized competitive advantage through deployment of modernized equipment, adoption of new technologies, and utilization of experience and expertise of the service providers [60]. The presence of these third-party private agencies has also been noteworthy in the development and operation of coal mines through contract mining and related technical services.

In view of the significant participation of the third-party providers, the coal mining organization in India have started several interventions involving such organizations to delegate some of the key operational activities. This, in turn, is expected to diminish the ever increasing demand–supply gap through increase in operational efficiency, cost-reduction techniques, sustainability of operations and minimization of wastes [56]. Considering the above, outsourcing of operational activities has been introduced by ICMO to suffice the growing energy demand.

One of the primary objectives of ICMO is to enhance its internal exploration drilling operation to accomplish the expected target as mentioned in the 12th Five-year plan. Outsourcing of drilling operation by CMPDIL has increased from 0.07 lakh meter in 2007–2008 to 2.86 lakh meter in 2012–2013 over a period of five years that has further increased to 6.15 lakh meter in 2013–2014 showing a significant increase of 115%. For the year 2014–2015 the drilling operation has further increased to 8.28 lakh meter realized through departmental resources and outsourcing [57]. The estimated target for the year 2015–2016 has considerably increased to 15 lakh meter where the departmental capacity has been raised to 4 lakh meter and the rest through outsourcing [61]. According to the report, a total of 50 blocks involving 17.7 lakh meter of drilling was awarded since 2008–2009, however, drilling has been performed in only 24 blocks. The rest of the blocks are remaining non-functional because of reasons like local law and order problems and non-availability of forest clearance [61].

As reported, ECL, a coal producing subsidiary within ICMO, produced 141.73 lakh tons of coal and raised 587.91 lakh cubic meter of overburden (OB) from 27 outsourcing opencast patches in 2014–2015 that increased to 171.12 lakh tons of coal and 882.20 lakh cubic meter of OB in the year 2015–2016 from 31 outsourced opencast patches [62]. CCL, another subsidiary, has already outsourced several opencast mines and have been outsourcing a number of activities like OB removal, exploration, and monitoring of geological exploration. NCL has been planning to outsource OB removal along with departmental outsourcing which is within their 2015–2016 production program [63]. As reported, MCL has been also planning to outsource activities for the expansion of the opencast projects [64]. Further, it has been clearly stated by ICMO and MoC that they have already engaged an international agency for studying the mine operations in order to modernize the existing mines through the implementation of state-of-the-art technology [57].

## **5. Research issues and scope of work**

Thus, the above-stated facts emphasize the importance of outsourcing as a strategic decision of the organization in view of the improved organizational performances. However, while conducting the site visits and interacting with the company executives, the researcher discovered several lacunas related to the absence of strategic perspectives in regard to the outsourcing decisions of operational activities. It was observed that the decision of outsourcing is often taken in an aggressive manner with an emphasis on short-term cost advantage rather than giving due consideration in realizing the significant contribution of such decisions over the long-term competitiveness of the organization. Management of the company ought to have recognized the need to develop a logical step-wise approach towards

*Outsourcing and Offshoring*

gap is met through import [57].

the increasing power sectors and steel and cement industries growing nationwide. Despite the fact that India has been ranked fourth in terms of the total coal reserve and is also considered as the third largest coal producing country in the world, India

As per the Coal India Report (2014–2015), between 2007–2008 and 2014–2015, the demand for coal in India has increased from 492.5 million tons (MT) to 787.03 MT showing an increase of 60% over a period of seven years. **Figure 1** illustrates the year-wise details of overall demand for coal and the corresponding share of ICMO, SCCL, and other indigenous sources contributing to the overall demand while the

From **Figure 1** it may be observed that the share of demand met by ICMO, SCCL, and other indigenous sources have always been substantially below the expected demand which has necessitated the coal mining organization to depend on coal imports from the neighbourhood countries. The gap, bridged by import between the period 2007–2008 and 2012–2013 has increased from 30.61 MT to

The Ministry of Coal articulates several reasons for such dependency on imported coal. As stated, increasing unavailability of indigenous coal, limited availability of coal with desired quality, environmental consideration in combining the low-quality coal with good quality imported coal, and locations-based cost issues are among the primary influencers [57]. However, coal imports are associated with certain risks and challenges that include fluctuations in global spot prices and foreign exchange rates, law and order issues in exporting countries, and many more [60]. In view of the growing inclination towards the import of coal from oversea sources, there have been several initiatives to enhancement in-house coal production to the outmost possible which are within the ICMO's 12th Five-year plan. The strategies within the 12th Five-year plan include enhancement of exploration drilling capacity, introduction of new mines, and fast initiation of activities related to projects in-process [57]. However, the improvement and expansion of in-house domestic mines involve a substantial amount of investment resulting in a considerable increase in the price of coal [60]. At the same time, it has been also noticed that service providers have facilitated firms in enhancing their business processes though their technical efficiency, expertise, cost-saving techniques, and flexibility when they were deployed for operational activities. Likewise, the captive mines

is still chasing to encounter the escalating demand of coal.

192.54 MT, showing a rise of 529% over a period of five years.

**28**

**Figure 1.**

*Year-wise demand and supply of coal.*

adopting outsourcing through a clear understanding of the contribution of each operational activity and its relation to organizational core competencies. Second, the need to analyse the appropriateness of the organization's outsourcing decision in the context of organizational strategy and its effect on organizational performance is another area of concern. There is absence of any performance evaluation framework for identification of the attributes (drivers) and their relative rank order for assessing organizational performance as a consequence of an outsourcing decision. In view of the advantages and short-term as well as long-term challenges, it may be worthwhile to develop a framework that can provide guidance to the practitioners faced with the dilemma of retaining activities in-house, or enter into outsourcing in a transactional manner, or to maintain an alliance relationship with the service provider. Last but not the least, one of the primary challenges of the organization is how to maintain an outsourcing arrangement with the service providers so that current competitive position along with a sustained business performance is maintained over an extended period of time. So, the identification of critical success factors for developing and maintaining a sustainable outsourcing relationship between the service provider and the client may be another area of research.

In this reference, it may be noted that apart from few studies conducted by the management consulting firms like the Indian Chamber of Commerce and Deloitte Consulting, there has been very limited studies on outsourcing for the coal mining organization specific to the Indian context. The existing literature does not adequately focus on the outsourcing decision support based on a strategic perspective that may facilitate the mining managers in outsourcing decision-making for the organizational activities. Adequate studies with a focus on the identification of key drivers for the assessment of organizational performance as a consequence of an outsourcing decision are limited in the extant literature. Studies on organizationlevel outsourcing decision strategies in the context of the coal mining organization in India have been rarely considered. Further, the literature on a structured approach that takes into account the sustainable relationship management aspect of the coal mining organization and its service providers in regard to the long-term competitiveness of the organization is also limited. Thus, reviewing the existing literature and considering the above-mentioned gaps, a comprehensive outsourcing

**31**

*Outsourcing: State-of-the-Art in India and an Insight to Coal Mining Industry*

decision model has been formulated to address the salient issues emerged from the

**6.1 Decision support to facilitate the outsourcing of organizational operational** 

The study emphases on developing an outsourcing decision support to help management make a more informed decision on outsourcing of the operational activities. The decision support is in regard to the outsourcing decision of operational activities to be strategic rather than an aggressive one. Besides, defining the candidates for outsourcing, the decision support may contribute towards the identification of core, partial core, and non-core activities through a logical phased approach based on their contribution towards the organizational competencies. Thus, comprehending the contribution of each operational activity towards the organizational competencies allows the management to check for its strategic soundness and thus help in retaining the competitive position of the organization.

**6.2 Identification of key drivers for evaluation of organizational performance** 

Outsourcing is considered to be one of the strategic options for organizations to improve their business performance. Determination of the unexplored attributes (drivers) and their comparative rank order for the assessment of organizational performance out of an outsourcing decision is another area of research to be taken into consideration [65]. The analysis comprising of both quantitative and qualitative attributes based on the cognition of the decision makers may contribute to a thorough understanding of a practical real-life problem and could help managers in long-term decision making. Understanding the effect of the unexplored attributes may also benefit management of the organization to develop policies in maintaining

**6.3 Determination of optimal outsourcing strategy for the operational activities**

The outsourcing decision problem, also known as the make-buy decision of an organization is well-considered as one of the strategic decisions of any organization. The extant literature on the make-buy decision has been predominantly classified into two categories. The first one is related to the financial issues based on Transaction Cost Theory (TCT) whereas the second rests on strategic issues. There are several methods and approaches conferred in the earlier studies addressing such make-buy decision problems. The present study emphasizes on an organizational decision support to assess the optimal outsourcing strategy among insourcing (in-house), outsourcing (involving external service provider), and strategic alliance (partnership) relationship for operational activities of an organization [66].

The focus is to identify the factors responsible for establishing and maintaining a sustainable relationship between the third-party service provider and the client organization. In this era of globalization, when service providers are value-adding

**6.4 Sustainable relationship management in view of the long-term** 

**competitiveness of the organization**

*DOI: http://dx.doi.org/10.5772/intechopen.96420*

identified gaps as presented in **Figure 2**.

**6. The outsourcing decision model**

**on account of an outsourcing decision**

competitive advantage in the market.

**activities**

**Figure 2.**

*The graphical representation of the outsourcing decision model.*

*Outsourcing: State-of-the-Art in India and an Insight to Coal Mining Industry DOI: http://dx.doi.org/10.5772/intechopen.96420*

decision model has been formulated to address the salient issues emerged from the identified gaps as presented in **Figure 2**.
