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Crafting and executing an offshore IT sourcing strategy: GlobShop’s experience
C Ranganathan1, Poornima Krishnan1, Ron Glickman2
Department of Information and Decision Sciences, University of Illinois at Chicago,Chicago, IL, USA; The Glickman Group LLC, California, USA
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: firstname.lastname@example.org
Abstract This teaching case discusses the decisions facing GlobShop, a globaltravel-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 planningand 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 regardingcontinuing 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
IIntroduction 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, NorthAmerica 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. GlobShophas 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
that Roger examinethe 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 futurerole 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....