Why offshore outsourcing? The events of September 11, 2001 in New York severely affected the air-travel sector. All the major airport retailers, including Globshop were hit hard by the drop in passenger traffic. The cash flow crunch, store closures and halting expansion made cost cutting that much more imperative for the firm. These provided the trigger for off shoring IT tasks and realizing significant saving.
Less of a financial and operational burden allowed Globshop to concentrate on the core business and leave IT to a specialist company who can provide a better service for a lower price.
Financially – Allowed them to reduce their fixed IT cost. As part of the centralisation plan business unit was already being closed but offshore allowed redundancies. Under a flexible/fixed contract Globshop employed ISS for the duration of a project, opposed to employing staff full time, incurring fixed overhead when capacity was not always utilise.
Non-financially – the effective firm devoted additional efforts and had a clear agenda to manage user expectationAlternatives: in-house sourcing Onshore outsourcing In-house sourcing: this decision is made after the organization has performed independent benchmarking to determine that its costs and efficiencies are in line or better than those achieved by comparable organizations.
The following graph shows the relationship between company size and potential need for outsourcing.
As a company reaches 1,000-10,000 employees, the potential need for outsourcing drops dramatically. In organizations of this size, sufficient resources can usually be found in-house to perform a function, as well as having resources to handle backup coverage. Once you look at all the things a company must do to handle a service in-house, it becomes more evident why many companies choose outsourcing versus operating a service in-house.
If a service is provided in-house, a company must: * Locate a qualified employee * Train the employee * Pay employee wages and benefits * Provide the employee a physical workspace * Provide the required technology items (computer, phone, Internet access, copier, fax machine, etc. ) In some cases, services are required continuous coverage and dedicated resource because responses are generated on a random basis by outside forces, rather than on an internal, controlled schedule. Services of this type would also require coverage during absences of the primary resource, such as: * Scheduled
vacations * Unscheduled sick days ……With outsourcing, the company must only: * Locate a reliable and high-quality vendor * Pay the vendor for the services provided| | Onshore outsourcing: Onshore outsourcing limits the outsourced work within the locality or the country of origin, but it will not impose as much risk as offshore outsourcing. It brings more benefits to the firm compared with in-house sourcing, but the benefits that the firm would enjoy are not as great and as rewarding as its foreign counterpart.
It is a compromise choice Onshore outsourcing Vs. Offshore * Geographical Advantage * More comfortable communication ( No culture diversity) * Same legal rules The biggest edge over onshore over offshore is its geographical advantage. Onshore outsourcing is only limited to the country of origin, making outsourcing providers more accessible and is nearer to the company itself. There will be no problem with traveling and it makes communication between you and the outsourcing team more comfortable and available.
Onshore outsourcing business can help your company save on office space, cost and be more efficient. The geographical limits may just allow you to come in contact with the team every day and supervise their operation. Aside from that, when it comes to intellectual property rights, you and the outsourcing company that you are working with are covered by the same legal rules while in the practice of legality and ownership of intellectual properties. Onshore & In-house Vs. Offshore Offshore outsourcing beats onshore outsourcing when it comes to the operational cost and efficiency.
The monetary requirement to have your back room tasks run is a world of difference when it comes to onshore and in-house. It is without a doubt cheaper to outsource in foreign countries like the Philippines and India. You can save 50% or more to get the whole process done for you, despite the miscellaneous expenses that come with it. This will help the firm have more savings while at the same time boosting its productivity rate. Conclusion: Offshore outsourcing may come with more risk than getting it done nearby.
But if the firm has been cautious and wise in choosing the right vendor, everything would surely turn out fine. Offshore outsourcing business outplays onshore outsourcing and in-house sourcing because it is rapidly picking up in today’s modern business trends due to the great advantages that it promises to every small, starting or even big business that desires success. Vendor Selection: The dynamics of managing vendor relationship is fundamental since the relationship encounters greater challenges such as cultural difference, property rights protection and other geographical variations.
Globshop began by looking at potential offshore locations and vendors. Location: It assessed Canada, Eastern, Europe, China and India. The management thought that Eastern Europe was a bit unstable. China was emerging but it has IT protection and intellectual property issues. India was the most matured segment with lots of players and a god legal system in place. Vendor: It is vital for offshore vendor selection to guarantee systematic elimination of potential client-vendor mismatch and reduce search costs for future projects.
Therefore, the firm thought about several criteria such as the vendor’s technical skill set, flexibility, delivery models, internal management, pricing structures, and industry know-how. ISS was a medium-sized yet growing company headed by a regional IT Director who reported to the President of the regional business unit with a dotted relationship to the corporate CIO. Each regional unit funded local IT projects and operated under a distinct IT budget. Globshop tried to mitigate risk by choosing this kind of mid-tier firm growing company opposed to industry leader.
Accounted for a large proportion of ISS work would make them a meaningful client (or partner) gain more attention. ISS also had a presence in USA thus had an understanding of western culture and have knowledge of the systems used. Initially, Globshop outsourced only a small piece of production support in order to minimized risks and assess the benefits from offshore outsourcing. ISS started with little responsibility but 9. 11 sped up the need for cost reduction. Globshop then extended its relationship with ISS to hand over all of its production support for its merchandising system.
Satisfied with ISS’s performance in providing production support, Globshop decided to further experiment by focusing on more value-added projects. The firm engaged ISS to architect a data warehouse that would enable faster reporting and provide business leaders with a view of enterprise-level data. Globshop had current arrangement with ISS, employed in 2000 for on-site maintenance and enhancement of merchandising systems. Agreement: Agreement provides a mutually agreed upon platform that specify a range of accepted behaviours in an outsourced relationship.
Globshop conducted an effective contract that customized according to the needs of the offshore project. Globshop and ISS had separate 90-day agreements for the initial support and data warehousing activities. Globshop preferred these agreements to be on a fixed-price basis because the requirements are specific and straight-forward. The firm did not want any cost overruns or unanticipated surprised. In November 2002, Globshop entered into a 3-year global offering agreement through which ISS became responsible for selected new application development and support.
One of the hallmarks of the Globshop-ISS agreement was the implicit gain-sharing incentives for the vendor. Rather than sharing a proportion of the saving s on a one-time basis, Globshop agreed to reinvest the savings from offshoring back into IT, which could translate into continued revenue generation for ISS. Another hallmark of this agreement is that the flexibility to plug-and-play IT resources according to the needs of IT initiatives. Under this agreement, ISS committed to maintain a talednted pool of offshore staff with retail and Globshop-specific knowledge. Under the 3-year deal, several IT tasks were offshored to ISS.
Apart from consolidation, maintenance and ongoing support for core merchandising system, projects that were given to ISS included support for the ERP modules and point-of-sales systems, development of intranet site and content management processes. Communication: Vendor: (knowledge transfer, culture diversity, to overcome these problems— increased cost) Managing and integrating internal IS resources with vendor resources demand the firm to develop abilities to understand ethnic and corporate cultures, appreciate individual psychological variations and work routines that accommodate cross-cultural diversities.
Meanwhile, knowledge transfer was a serious concern. The firm needs to carefully assess the extent to which it needs to share its internal knowledge with the offshore vendor, in addition to developing mechanisms for knowledge transfer. Initially working arrangement was informal but as more responsibility was passed over formal structure formed . There is a clear communication between ISS and Globshop at a senior staff, management and level. When ISS was entrusted with the responsibility of production support for core merchandising systems, ISS sent its personnel to each region.
These people spent several weeks’ on-site, learning and documenting the processes, systems and related issues. Globshop’s IT staff worked closely with ISS’s personnel to enable easy knowledge transfer and transition. Globshop also took specific step to help overcome the cultural and social differences between the offshore staff and the global IT team. Specific training sessions were conducted to impart an understanding of multiple cultures and value systems and ways of addressing cultural differences. Workshops on diverse teams and teamwork were also organized. Users.
Globshop conducted a user satisfaction study that showed an improvement from 2 to 3. 5 on a 5-point scale since they started offshoring. Workforce: layoffs 50% of the internal IT workforce has been cut. To reengineer the old structure and accelerate the consolidation, an aggressive offshore strategy was implied to reduce a significant portion of the IT workforce. The staff retention was vital because of the need for transforring critical knowledge from affected workers to other staff and the vendor. Globshop had well-established process for dealing these changes. The firm adopted an open communication policy.
The CEOand the senior management reached out to the employees, had proactive and open communication, and worked out a severance pay structure for employees affected by downsizing. They conducted the downsizing in multiple phases, and the employees were informed well in advance. The firm also afforded career transition assistance through a third party. The firm formed transition teams with offshore vendor staff and internal IS employees to extract and transfer knowledge of the systems and applications before the staff were re-assigned or retrenched. The retained IT staffs was trained in newer skill and tools.
Cite this Globshop – Offshore Outsourcing
Globshop – Offshore Outsourcing. (2016, Sep 03). Retrieved from https://graduateway.com/globshop/