GlobShop IT Sourcing Strategy

BIS2 Assignment 2

Student Number: 1002631

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 functionalitychanged functionalitychanged 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 a pplication support and maintenance 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 applicationshave been controlled by ISS for the last few years as well as development. A3 year contract is now due to either be renewed, extended or a ltogether terminated. The diagram below shows the process undertaken to achieve desired outcomes. We first assess what Globshop is looking to achieve. Then Analyse whats 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 all this information. Globshop can then implement the strategy based on performance and the cycle continues.

If yes, continue

The

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 -

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saying about the current outsourcing scenario: Data warehouse: Globshoprequested 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 s aved 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 o nshore 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 diff icult 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 i nvestments, 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 c ould 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 c ompanies, offshore

or onshore and outsource alternative IT functions to them as well as ISS. This would instigate healthy competition and keep each firm on its toes. The ris ks 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 I T department will also find it easier to manage an arrangement of this nature. This has the a dded 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 its own IT and quality. Speed and agility will a ll 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 h ire, not to mention the additional administrative costs of hiring globally. I t 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 s avings 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 fundamentalreason would be to partner with a firm able to support Globshops global nature and meet its 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 doesnt 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 I ndian 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 I T team. The

future of IT in Globshop; A future with ISS?

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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.

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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.

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

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The current win-win strategy has Globshop reinvesting savings from offshore IT services back into I T 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.

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Globshophas 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 strateg y 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 c osts. By renewing the contract, Globshop can reap the current rewards of an existing outsourcingarrangement 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 i nternal IT staff, then there would be no need t o 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 t oo 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 eve ry 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: -

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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