IT550 Southern New Hampshire GlobShops Decision to Offshore Paper Read the following case study on IT sourcing: Crafting and Executing an Offshore IT Sourc

IT550 Southern New Hampshire GlobShops Decision to Offshore Paper Read the following case study on IT sourcing: Crafting and Executing an Offshore IT Sourcing Strategy: GlobShop’s Experience. Summarize the case and answer the following questions:What factors led to GlobShop’s decision to offshore significant portions of its IT infrastructure to India?How well did GlobShop manage the change process after making the decision to offshore?Was the decision to offshore successful? Defend your answers.Attached is the guidelines and rubrics for this case study as well as the case study itself if the link doesn’t work. IT 550 Case Study Three Guidelines and Rubric
Read the following case study on IT sourcing from The Journal of Information Technology (2007): Crafting and Executing an Offshore IT Sourcing Strategy:
GlobShop’s Experience. Summarize the case and answer the following questions: What were the factors that led to GlobShop’s decision to offshore significant
portions of its IT infrastructure to India? How well did GlobShop manage the change process after making the decision to offshore? Was the decision to offshore
successful? Defend your answers.
Specifically, the following critical elements must be addressed for this assignment:





Summary: Briefly summarize the case.
Deciding Factors: What factors led to GlobShop’s decision to offshore significant portions of its IT infrastructure to India?
Change Process: How well did GlobShop manage the change process after making the decision to offshore?
Success: Was the decision to offshore successful?
Research: Incorporate external research to support your position.
Guidelines for Submission: The case study must follow these guidelines: double spacing, 12-point Times New Roman font, one-inch margins, and APA citations.
Page-length requirements: two to three pages, not including cover page and references.
Critical Elements
Summary
Exemplary (100%)
Meets “Proficient” criteria and
extends summary to include
reasons for potential interest
Deciding Factors
Meets “Proficient” criteria
substantiated with specific
examples to support rationale
Change Process
Meets “Proficient” criteria and
includes specific examples
Success
Meets “Proficient” criteria and
includes additional economic
reasons
Meets “Proficient” criteria and
exemplifies the position taken
Research
Proficient (90%)
Provides an overview summary
of the case study and discusses
the key issue(s) highlighted by
the case study
Identifies the factors that led to
GlobShop’s decision to offshore
significant portions of its IT
infrastructure to India
Evaluates GlobShop’s
management of the change
process after making the
decision to offshore
Evaluates if the decision for
GlobShop to offshore was
successful
Incorporates external research
that supports and is directly
relevant to selected position
Needs Improvement (70%)
Minimally describes the aspects
that comprise the case study
Not Evident (0%)
Does not describe the aspects
that comprise the case study
Minimally identifies the factors
that led to GlobShop’s decision
to offshore significant portions
of its IT infrastructure to India
Minimally evaluates GlobShop’s
management of the change
process after making the
decision to offshore
Minimally evaluates if the
decision for GlobShop to
offshore was successful
Incorporates external research
that indirectly supports the
selected position
Does not identify the factors
that led to GlobShop’s decision
to offshore significant portions
of its IT infrastructure to India
Does not evaluate GlobShop’s
management of the change
process after making the
decision to offshore
Does not evaluate if the decision
for GlobShop to offshore was
successful
Does not incorporate external
research
Value
20
20
20
20
10
Articulation of
Response
Submission is free of errors
related to grammar, spelling,
syntax, and organization and is
presented in a professional and
easy-to-read format
Submission has no major errors
related to grammar, spelling,
syntax, or organization
Submission has major errors
related to grammar, spelling,
syntax, or organization that
negatively impact readability
and articulation of main ideas
Submission has critical errors
related to grammar, spelling,
syntax, or organization that
prevent understanding of ideas
Total
10
100%
Journal of Information Technology (2007) 22, 440–450
& 2007 JIT Palgrave Macmillan Ltd. All rights reserved 0268-3962/07 $30.00
palgrave-journals.com/jit
Teaching case
Crafting and executing an offshore IT
sourcing strategy: GlobShop’s experience
C Ranganathan1, Poornima Krishnan1, Ron Glickman2
1
Department of Information and Decision Sciences, University of Illinois at Chicago, Chicago, IL, USA;
The Glickman Group LLC, California, USA
2
Correspondence:
C Ranganathan, Department of Information and Decision Sciences, University of Illinois at Chicago, 2402 University Hall,
601 South Morgan Street, Chicago, IL 60607-7124, USA.
Tel: 312 996 2847;
Fax: 312 413 0385;
E-mail: ranga@uic.edu
Abstract
This teaching case discusses the decisions facing GlobShop, a global travel-retail
company, in its efforts to offshore a significant portion of its information technology (IT)
work. In response to the business challenges that arose due to the September 11, 2001
terrorist attacks, the company decided to outsource many of its IT activities to an Indian
vendor. This case traces the key decisions made by the CIO and the challenges that were
encountered during the planning and execution of the company’s offshore sourcing
strategy. These decisions pertain to the choice of tasks to be offshored, decisions about
the vendor and the nature of sourcing arrangement, managing the vendor relationship and
change management issues induced by offshoring. As GlobShop nears the completion of
its 3-year agreement with the offshore vendor, the CIO is faced with decisions regarding
continuing offshore outsourcing, extending the contract and related implications for the
future of IT organization at GlobShop.
Journal of Information Technology (2007) 22, 440–450. doi:10.1057/palgrave.jit.2000113
Keywords: offshore outsourcing; sourcing strategy; retail industry; IT outsourcing; vendor relationship; outsourcing governance; offshoring decisions; change management
Introduction
n November 2005, Roger Deen, the CIO of GlobShop, and
his team of information technology (IT) Directors sat in a
conference room at the company’s headquarters in Boston
to discuss the imperatives facing them. GlobShop was a five
billion dollar firm that operated over 200 duty-free and
general merchandise shops in airports, hotel lobbies and
downtown locations across Asia, Australia, North America
and Europe.1 Being a niche player in the travel-retail
industry, the company’s performance swayed with changes
in air travel, tourist traffic and related economic events.
Since the events of September 11, 2001, GlobShop has been
engaged in a series of cost-reduction efforts, including
offshoring a significant portion of its IT work.
Roger was contemplating moving more IT work offshore.
GlobShop has been working with an Indian vendor,
Indo-Systems Solutions (ISS), to take care of application
development, support and maintenance of merchandising
and retail systems, and technical support for the company’s
IT infrastructure. These initiatives have helped reduce
IT expenses by over 35%. The business leadership
has demanded additional cost reductions and has suggested
I
that Roger examine the possibility of pushing more
projects offshore.
Within the next few weeks, Roger will have to decide
whether GlobShop should extend and renew its outsourcing
agreement with ISS. To reduce the risk of becoming ‘overdependent’ on ISS, the company has been mulling over
using multiple offshore vendors rather than exclusively
relying on ISS.
Another issue that needed Roger’s attention was the
future role of the internal IT function at GlobShop. If the
company decides to move more IT activities offshore, it
should carefully assess its implications for the internal IT
group. GlobShop had reduced its IT workforce by over 50%
and additional cuts could simply decimate the IT function.
With over 60% of the IT spending concentrated on offshore
activities, Roger wondered about the future steps.
Background
‘Duty’ is a generic term used to describe a variety of taxes
imposed on goods. Duty-free shopping enables international
Crafting and executing an offshore IT sourcing strategy
C Ranganathan et al
441
travelers to purchase foreign goods at lower prices.
Merchandise such as liquor, perfume, tobacco products
that are subject to high taxes and duties are hot products in
duty-free stores. Duty-free shops are typically located in
international airports, selected hotels, tourist attractions
and other areas that are designated as ‘foreign trade zones.’
Founded in the 1950s, GlobShop sold foreign cars and
liquor in US military bases abroad. As the idea of duty-free
shopping picked up in Europe, the company opened stores
in selected European and Asian airports in the 1960s.
Spurred by the growth in international travel in the 1970s
and 1980s, GlobShop expanded its presence to airports in
Australia, New Zealand, USA and UK. Soon, the company
became a profitable player in the small but growing travelretail market. Despite the entry of several global competitors, GlobShop remained one of the leading players in this
niche segment. The company expanded into several
countries by acquiring smaller players. In the late 1980s,
the company opened large, duty-free specialty stores in a
few major cities in USA and Europe. These stores were
multi-department luxury retail outlets that carried a range
of items including tobacco products, wines, liquor, confectionary, perfumes, jewelry, silverware, gift items, souvenirs,
memorabilia, travel goods and other products.
The Gulf War in 1991 severely affected international
tourism. Since airport retail formed a major portion of
GlobShop’s revenues, its sales slumped by over 15%. To
compensate for the losses, GlobShop closed a few specialty
stores and halted its expansion plans. As the business
picked up, GlobShop acquired some smaller players as a
means to enter additional countries. Soon, the company
was organized into 10 regional business units as a
decentralized set-up. However, acquisitions and expansion
left considerable diversity in business processes, managerial
practices, supply chain structures and systems across the
company. Dan Cwik, Vice President of Retail Operations,
elaborated:
Our organization was very diverse in terms of business
processes and practices. Different countries had different
ways to handle duty-free shopping. In some nations, a
customer could take duty-free products straight out
of the store. In some other countries, they had to buy it
in-store and get it delivered on the flight or at their
destination. Some countries supported the concept
of duty-free as well as duty-paid products. We had to
deal with different supply chain structures and retail
processes.
In the 1990s, Asian tourists, who had been targeted as the
focused customer segment by the company, represented a
high potential market. GlobShop was successful in attracting and establishing its name among Asian travelers. While
this worked well initially, the changes in the global
economy in the late 1990s caused considerable hurdles to
GlobShop. In particular, the East-Asian economic crisis in
1997 created ripple effects in several Asian nations affecting
stock markets, currencies and exchange rates, subsequently
leading to economic recession. Triggered by these events,
international travel and tourist spending declined, creating
a snowball effect on GlobShop’s revenues.
Corporate restructuring
In 2000, a leading luxury retailer (Lux) bought a majority
stake in GlobShop. Lux owned several brands in wines
and spirits, perfumes, cosmetics, watches, jewelry, fashion
and leather goods. Through this acquisition, GlobShop
gained access to famous brands and premier luxury items.
GlobShop also had a new executive team. A troika of CEO,
CFO and CIO took over the management of GlobShop.
Their immediate task was to address the decline in corporate performance. An obvious challenge was to reduce costs
drastically as well as improve profitability.
Instead of relying solely on airport stores, the management sought to actively expand into sea-travel retail.
GlobShop acquired a cruiseline firm that operated port
stores as well as on-board ferry shops. However, revenues
from sea-travel retail formed only a small proportion of
overall revenues. Therefore, the executive team began to
aggressively pursue cost-reduction efforts. Proliferation of
retail operations at different regions highlighted the
growing need for more effective coordination of diverse
operations. The senior leadership at GlobShop heavily
debated on the merits and demerits of a centralized vs
decentralized business set-up. Roger explained:
Our airport retail is essentially a concession-driven
business. In such a business, one must re-win the
business every five years or whenever Government (or
an airport authority) commences a RFP process for retail
space. Decentralized operations allow all costs to be
added or eliminated with each win or loss. A centralized
structure has fixed costs associated with operations that
cannot be reduced 100% when business is lost. Therefore,
in a volatile environment, decentralized organization
gives us the flexibility to add or reduce our operations
and scale it according to business fluctuations.
A decentralized set-up also implied duplication of efforts
and lack of standard processes that ultimately increase the
operational costs. The leadership sensed significant savings
by centralizing a number of activities. As a result, the management announced a reorganization by which GlobShop
would streamline its business processes and reduce
redundancies by adopting a major restructuring. This
meant redefining a number of operational and management
processes and centralizing them at the corporate level. Dan
Cwik, Vice President of Retail Operations, noted: ‘We had
duplication of systems, people and processes throughout.
We figured that we could consolidate a number of these and
do them in a common way. So, we decided to take the costs
out by standardizing and centralizing a number of our
processes. And it was clear that information technology was
the best route to achieve this.’
IT organization at GlobShop
IT operation at GlobShop was highly decentralized
(Figure 1). Each region had its own IT division that catered
to the local needs. A corporate IT group served the needs of
the global headquarters in USA, in addition to providing
shared IT services like email. Each of the 10 regional IT
divisions functioned independent of each other and was
Crafting and executing an offshore IT sourcing strategy
C Ranganathan et al
442
Corporate IT
Shared Services
Operations
Help Desk & Support
Regional Business
Unit (Presidents)
Infrastructure
Retail Operations
Finance
Development
Analysts
Project Management
Finance
Regional IT
(IT Directors)
Development
Finance
Help Desk &
Support
Operations
Figure 1 Decentralized IT organization.
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. A natural outcome of such a decentralized set-up
was duplication of applications, services and technology
resources. Neal Parker, Director of IT, observed: ‘We had
several legacy applications that ran in different regions that
were expensive to maintain and couldn’t communicate with
each other. We had multiple versions of the same
application. Despite a corporate IT, the regional IT units
functioned independently. This resulted in many redundant
resources – infrastructure, software, hardware and people.
All these added to our IT overhead costs.’
GlobShop had several legacy merchandising systems in
the 10 regions. Each region also had a data center storing
unit-level sales information. Further, GlobShop had SAP
financials and Peoplesoft HR systems. For retail processes,
the company had two different point-of-sales applications
across the stores worldwide. GlobShop had a resource pool
of over 300 IT employees across the 10 regions.
Centralizing IT management
In 2000, in order to facilitate the corporate restructuring
effort, Roger was entrusted with the responsibility of
consolidating the IT organization. Roger’s mandate was to
spearhead the realignment of GlobShop’s regional IT set-up
into a global unit, along with associated changes in business
processes. A major IT reorganization would not only
facilitate streamlining diverse business processes and
systems worldwide, but also pave the way for significant
cost savings. Roger’s background was also particularly
suited for the reorganization initiative: he knew the
company’s retail business well and had seen how an
integrated operation could achieve efficiencies; he also had
an international background with significant work experience in Asia-Pacific and North American regions.
Roger and his team embarked on an extensive study of
regional IT units. Detailed information on the IT resources,
applications and spending was gathered. Neal elaborated,
‘It was an eye-opener for us. We had over 250 internally
developed applications across the ten regions. These
applications had over 15000 objects such as programs,
databases etc and had over 5 million lines of code. We
dissected our IT dollars and precisely knew how much each
of the IT services cost us. We were spending much more
than what we ought to be.’ The analysis revealed that
GlobShop was spending over 60 million dollars annually on
IT. Reorganization would help them save more than onethird of these costs.
Roger had extensive discussions with IT Directors and
business unit leaders at each of the 10 regions. Further,
Roger convened planning retreats and brainstorming
workshops that helped discover a number of issues. The
presidents of the business units were concerned that
the consolidation would distance the regional users from the
IT group. Moreover, centralization also implied a significant loss of control over IT. Neal remarked: ‘There was a
lot of reluctance and resistance to give up local IT
resources to a global pool. They felt they won’t be any
longer able to walk to a programmer’s desk, make a request
and get it fulfilled on-demand. There was concern that
this was going to impede their ability to do what they
have been doing and also take away their control. There was
a tremendous amount of resistance.’ Roger highlighted
another issue: ‘We were largely running our IT departments
simply by managing-by-wandering-around model. Adopting a global delivery model with a centralized set-up
required a very different set of competencies.’ However, the
high pressure to prune costs and the clear mandate from
the top helped GlobShop move forward with its IT
reorganization.
After studying the problems and issues, Roger proposed
a three-pronged approach for the reorganization. The
central idea was to consolidate the 10 regional IT units
into one global IT unit, with all of the IT operations
dispersed in two centers, one in Asia and another one in
USA. The new IT vision was to have ‘one global team
without boundaries, delivering acknowledged value and
exceeding customer expectations.’ The highlights of the
new reorganization were:
Centralized global IT budget: Under the new arrangement, the funding for IT would be centralized. The
regional IT units would no longer pay for the IT services
Crafting and executing an offshore IT sourcing strategy
C Ranganathan et al
443
directly but through corporate allocation and a chargeback system.
Streamlined IT governance: Neal Parker, Director of IT,
commented: ‘We planned a new set of centralized,
formalized processes in place about how we were going
to manage our IT. Any major application development or
IT-related service request had to be centrally submitted.
It would be assessed, prioritized and resource allocation
be made accordingly.’ This implied serious changes in
the way different functional and regional units interacted
with IT. Further, all the IT initiatives would be classified
into three categories: capital initiatives, expense initiatives and support related. While capital initiatives wer…
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