BIS2 Assignment 2

1002631

Student Number:

Review of GlobShops
IT outsourcing strategy
Beginning with an end in mind
(What is the desired outcome?)
Globshop is a niche retailer in the travel industry. After Lux bought a majority
ownership stake in 2000, Globshops IT functionality changed in many ways. The
first change was a deliberate decision by management to reorganise and move from
a decentralised business model to a more centralised one. The implications on IT
were that a part of application support and maintenance was outsourced to ISS. The
second change occurred as a result of the terrorist attacks on the World Trade
Centre in September 2001.
This brings us to the current situation at the firm where all production support for
the merchandising system and some retail applications have been controlled by ISS
for the last few years as well as development. A 3 year contract is now due to either
be renewed, extended or altogether terminated.
The diagram below shows the process undertaken to achieve desired outcomes. We
first assess what Globshop is looking to achieve. Then Analyse whats currently
being done to meet these goals, and how effectively this is being done. Next we
analyse other options and form a strategy based on all this information. Globshop
can then implement the strategy based on performance and the cycle continues.

The
If yes, continue

Goals
Roger Deen, the current CIO at Globshop is continuously developing and
implementing an outsourcing strategy, mainly focused at reducing company costs,
while simultaneously improving productivity, quality, speed and agility. He also
wants to ensure that throughout this process the global IT team at Globshop is
responsible and accountable for IT outcomes.
An Analysis of the current IT outsourcing strategy
(How are the goals being met?)
Outsourcing offshore to ISS: what employees are saying about the current
outsourcing scenario:
- Data warehouse: Globshop requested a new data warehouse to be created. This
was to improve functionality and transfer of information and reports within the
organisation at higher levels. Business leaders were pleased with visible results
in productivity and efficiency. Time was saved and hence overall costs were
reduced.
- Overall costs reduced by 35% so far
- Working with Business Partners: When requested, more team members were
brought onsite by ISS to allow a smoother integration of work with business
partners. ISS dealt with the situation with agility and the outcome was effective.
- Concerns that Globshop is becoming heavily dependent on ISS for IT operations
- Concerns about role of internal IT department in Globshop
- Concerns about quality of current and future onshore team
Initially all goals have been met. Costs have been reduced. Productivity has been
increasing overall so far and the work is of a higher quality than in the past. ISS
have provided flexible support adjusting to Globshops needs as and when asked.

However, there are new rising concerns due to the size increase in ISS. Employees
within IT are also finding it difficult to see possible future roles in the company.
Analyzing alternative development strategies
(What else can be done to achieve the goals?)
Outsource to a new company: Globshop can restart the research process and
completely change to a new company in a similar position to ISS when they started
off. This would rid the problem of a growing firm, however would involve heavy time
and cost investments, as well as new risks being undertaken. ISS is already in
operation and Globshop as happy overall with the progress to date.
Outsource everything: Globshop could extend its contract completely and give all IT
responsibility to ISS, keeping a small inshore IT team to monitor ISS. This comes
with higher risks than rewards however. Costs may significantly reduce due to
benefits from using a large highly skilled workforce, which is also cheaper and
benefits from economies of scale. However a scenario similar to that of the US Navy
may occur where EDS/HP took complete control of the IT systems and gave
extremely poor service. The problem was that the Navy became so dependent on
EDS/HP that they were unable to leave even when they wanted to, have to put up
with all the inconveniences caused. ISS could too become more and more relaxed
and lapse in the service provision. The implications of this could not only be
expensive form Globshop, but could completely disturb operations.
Outsource to more than one (3) firm(s): Globshop could team up with other partners
(bidding would not achieve overall company outcomes as seen in the report). It
could choose 2 other companies, offshore or onshore and outsource alternative IT
functions to them as well as ISS. This would instigate healthy competition and keep
each firm on its toes. The risks will be spread across 3 companies and ISS can
slowly be given reduced responsibility.
The other 2 firms would have to be chosen carefully so as to make the transition
and combination of work as smooth as possible. Using ISS, an American company
and a Chinese company could cause great cultural differences and conflict when
operating. IT would also find this more difficult to manage. Using 3 Indian
companies, on the other hand would mean similar styles of working, as well as
culture. Indian firms are also cheaper and more resourceful as Globshop has already
seen. The IT department will also find it easier to manage an arrangement of this
nature. This has the added advantage that responsibilities can be transferred if one
firm performs better than another, also, if anything happens in a firm, there will
always be 2 others who have the knowledge needed to prevent a complete loss of
operation.
In the short run there will be transitional costs incurred which is a fear mentioned by
Sally Curry, VP of Finance. But this option will help achieve productivity, quality,
efficiency, agility and also cost effectiveness in the long run if managed
strategically.

Increased internalisation: this would involve reducing ISS responsibility and moving
it back within the firm. Globshop already started with a decentralised in-house IT
system and moved to a centralised now when it partnered with ISS. In house IT
would increase costs but there may be some benefits to this. Globshop can control
its own IT and quality. Speed and agility will all be internal too and loss of control
will no longer be a problem. The problem is that Globshop would stop benefitting
from reduced costs due to economies of scale. Skilled labour would be more
expensive to hire, not to mention the additional administrative costs of hiring
globally. It would be too time consuming and expensive for Globshop to attempt to
create an internal decentralised IT strategy, not to mention their current
dependency on ISS. It seems like a backwards step in essence.
Interpreting our analysis
(To formulate an optimum strategy for present case)
Achieving outcomes via strategic offshore outsourcing
As we know, the fundamental objective for Globshops every action is to reduce
costs. The savings on Application Management relationships can average up to 40%
if a firm in India or China is chosen in comparison to the USA. Labour is significantly
cheaper and so are the relative overall operating costs.
Another fundamental reason would be to partner with a firm able to support
Globshops global nature and meet its complex international requirements. As we
know; Globshop is a global firm with offices and retail outlets worldwide. A firm
onshore in Boston or USA would still need to position a workforce in major offices
around the world. There will be obvious benefits of having the IT company close by,
however a the firm would have to match offshore company prices and promise to
provide onshore staff to support the overall process.
Internalisation clearly doesnt come highly recommended. Globshop experienced
35% lower costs and improved efficiency after teaming up with ISS. Returning to the
old system has little strategic benefit and will not achieve the desired outcomes
within an acceptable timeframe.
The current offshore outsourcing agreement with Indian company, ISS, has
benefitted Globshop overall despite minor hiccups along the way. Outsourcing
should relieve IT staff of time consuming activities, allowing them to focus on
strategic and long term outcomes. IT staff can continue working alongside
outsourcing companies to meet company needs, without having to worry the day to
day operational tasks, as well as having minimum resistance to partnering with the
ISS IT team.
The future of IT in Globshop; A future with ISS?
-

ISS, though based in India, already provide an offshore workforce to main offices
in Asia and USA and Globshop benefits from the lower labour costs incurred by
Indian companies as well as tapping into the vast IT knowledge base in the
country.

So far ISS has given Globshop good service and is helping them to reduce costs
35% already in the current amount of time. This is congruent with the main
goal of the firm. Other strategic goals are being met too, with ISS responding
quickly to needs, showing speed and agility, as well as overall added
productivity. The company has finally begun to understand Globshops
requirements and business activities, making it highly inefficient to choose a
new outsourcing company now.

ISS has shown commitment and shown results. They already have established
working teams and systems in place, so, despite growth of the firm, chances of
negligence are already low despite losing Rahul.

The current win-win strategy has Globshop reinvesting savings from offshore IT
services back into IT which then can be used to give ISS more business and
revenue, however this now seems less significant compared with the Fortune
clients ISS has.

Globshop has become heavily dependent on ISS. If ISS crashes, Globshop loses
everything causing catastrophes unimaginable. Globshop has no influence on
how ISS is run. ISS may experience internal diseconomies and organisational
issues as it grows larger and larger, affecting performance in all areas,
overlapping to Globshop.
Summary and Case recommendation

Spreading the risks

When making a strategic decision, it is difficult to predict the outcome of any
choice. IT outsourcing has been a great way so far to reduce firm costs, but
Globshop need to stay on their toes to keep up with changes in the markets and to
keep risks low.
Globshop used thorough research and a good strategy when choosing ISS and
outsourcing IT functions to other firms in India. It remains the most strategic
solution due to its vast resource base and low costs. By renewing the contract,
Globshop can reap the current rewards of an existing outsourcing arrangement built
over the past few years with ISS. Meanwhile they can transfer responsibilities to the
new companies as they familiarise themselves with Globshop operations. This is an
example of spreading risks and also ignites healthy competition amongst the
companies.
However, in order to maintain a degree of control, it is recommended that Globshop
keep some IT tasks it is efficient at within the firm. Roger mentioned the risks
involved of outsourcing supply chain management, if it can be effectively managed
by internal IT staff, then there would be no need to outsource this. Using multiple
firms gives the internal IT staff plenty to manage and coordinate simultaneously,
creating a win-win situation for existing employees too.

Meanwhile as for the concern about becoming too dependent on outsourcing

companies, CIO, Roger can create an IT outsourcing team, responsible for managing
and coordinating with the outsourcing companies. Assigning a member of staff to
each function ensures a degree of awareness of every area of IT outsourced. Having
internal staff monitoring can also ensure efficient usage of time and productivity.
It is vital to remember that there are always risks involved when outsourcing IT, but
if managed well they can be contained and continuous benefits will be seen. If each
firm is tied up in a healthy win-win contract, with great coordination from IT staff
then Globshop will stay on an upward progress curve, as other firms have
experienced too.
References:
- Research Paper by neoIT: Onshore versus Offshore Outsourcing: Significant
differences require unique approaches
- Management and Information Systems by Eff Oz and Andy Jones
- http://itoutsourcingstrategy.com
- http://www.techeye.net/hardware/us-navy-learns-the-terrors-of-outsourcing-to-hp
- Class Lecture notes
- http://www.outsourcemagazine.co.uk/
- Crafting and Executing an Offshore IT sourcing strategy.. Globshops experience,
by C Ranganathan, Poornima Krishnan and Ron Glickman