This week's case is Globshop, which is in your red book. As usual, answer ONE of the two questions by 1:30pm Monday by commenting on this post or creating a new post of your own.
Option 2: What do you see as the main risks of Globshop's outsourcing strategy and why?
With ISS’s growth, will Globshop continue to receive special treatment? Their influence is causing changes in management and relationships. Since the growth of ISS, relationships may change between Globshop and maintaining these relationships may become harder for Globshop due to the power imbalance brought about by the growth of ISS.
ReplyDeleteGlobshop’s reliance on ISS gives ISS too much power. There is a risk with only having one offshore vendor. Having multiple vendors will spread work out, and ISS wont have as much power over Globshop, but may not be cost effective (will drive overheads up).
These are the main concerns, which are unable to be controlled very easily, despite the various outsourcing strategies in place by Globshop.
Also, the innovation of new IS in future and its relevance to Globshop is another major issue and possibly a risk they may face for purposes of having an internal IT unit in place. Outsourcing in this sense is the better way to go with negotiated contracts with the vendors on the aspects of innovation and where Globshop will stand with this. There are outlined procedures that Globshop mentions in the case that are followed through for a thorough design of the agreement, by: laying out rules, testing other offshore vendors and design specifics within the agreement.
ReplyDeleteThis then can lead to high hidden future cost for Globshop if their vendors are not chosen appropriately, impacting on their ability to output as effectively and efficiently as they are now.
ReplyDeleteI really think that Darshika has covered off most of the points here :-)
ReplyDeleteBasically Globshop is facing a loss of control over their ability to maintain their IT capabilities - in terms of Porter's Five Forces, Globshop is facing in inbalance in supplier power, being dependent on ISS.
I think that Globshop must objectively examine it's vendor selection process - essentially, the only real reason that ISS has ended up having so much control over IT resources is because they were the vendor originally selected for short-term, fixed-cost projects. If Globshop had followed through a process of internal auditing of the ability of the vendor to meet the ongoing requirements of the organization, then it is likely that Globshop would be in a safer position regarding these factors.
p.s. Did anybody else look at Globshop, start pronouncing it in their heads "glob-shop", and has not yet been able to pronounce it properly (Globe-shop, presumably), since then?
YES i did that... still not too sure.
ReplyDeleteI think maybe we'll confirm it in tute when Nicole says it. It just looks like glob not globe. But that just sounds weird.
definitely think that ISS has too much control which is a major risk or challenge also mentioned in the chapter. Globshop is facing at least 3 of the 6 challenges mentioned in Chapter 7 i think.
INFO301 IS Triangle has some very good comments on this question. There's so many though, I'm unsure what ones are right and which are not so major in terms of this question
ReplyDeleteThe main reason for globshop to outsource their IT was cost reduction but out sourcing creates the future difficulties which will cost them more. Losing the only vender because of events like 9/11 or natural disaster can be other risk for globshop. Moreover, having only one vendor is not cost effective because if the vendor realised that the globshop is relying on it, the vender might charge the globshop more money to do the same job.
ReplyDeleteGlobshop uses outsourcing to reduce the cost but being with one vendor make them to loss their opportunity cost such as using other vendors who are competent as well as cheaper. More off shoring is equal to losing control over their vendor’s staff and their process of working. Outsourcing IT may effects the knowledge of IT groups in globshop which means they are not up-to-date anymore.
Future hidden cost and the cost from unexpected events such as failure in IT system can be another risk for globshop. Also what will happen if they decided to decentralise their IT system in future which will cost them more than what it costs them now. As it is clear partnership outsourcing will be better option for globshop.
@Josh McArthur & Darshika - It is supposed to be "Globe Shop" in terms of how it's pronounced but it's pretty hard not to read it as "Glob Shop". ;-) A real danger when it comes to making up business names if you aren't careful!
ReplyDeleteThanks Nicole for clearing that up. Very true in terms of making up business names. Guess they were trying to do that merging of two words which didn't work too well in their favour.
ReplyDelete@masoud - I think that since their business is very decentralised then their IT system will go well with their business structure. But there may be loss of integration between the business due to so much decentralisation. Even though the IT system will incur more costs, the case still says that it will be better for them. I don't really understand in what view they're coming from. Having such a decentralised system may actually work out bad for them due to having such wide spread information that may probably not communicate with each other, and there may also be data duplication and too much information on hand. Where as if they keep a centralised IT system, then yes there is a risk of control loss but information will be amalgamated for better use.
I guess there are pros and cons to both strategies. It's probably just better for Globshop to go with what works with their business strategy and organisational strategies.
What do you think?
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ReplyDeleteIn my opinion Globshop runs the risk that is common to outsourcing businesses. This is the loss of key members out of the business or to other areas of the business, in the case this to the ISS manager and other key members, this results in the loss of knowledge and the need to train new staff. Another problem is the cultural differences between the American and Indian sides means that things would be done differently and that the quality and expense of effort might not be what Globshop expects. Lastly Globshops increasing dependence on ISS means that that if problems happen overseas then Globshop runs the risk of loosing business and money and that previous available services from within Globshop are now relied solely from outsourcing.
ReplyDeleteThe main risk of Glopshop’s offshore IT sourcing strategy is that it has a potential losing of its competitive advantage. The decision of changing the decentralized IT to the centralized IT means that it have to establish the whole-enterprise IT infrastructure and to achieve the data sharing, and the provider have to do the data collection to figure out the what the business really need. At the beginning, when the provider ISS do the on-site, some process of the business will be recorded by the staff from ISS. Even though it is important to do the on-site data requirements collection, the risk is that the way of doing business will be reused or copied by other company. Because ISS could also do the outsourcing do the other companies. Moreover, with Glopshop outsource its more value-added projects or core competency, it may also lose its control of IT. Some of the IT talented person will leave the company, and the company may lose its ablity of innovation.
ReplyDeleteSo Glopshop should not pay too much on the outsourcing,but must focus on the self-innvation.
My post link: http://xizhezeng.blogspot.com/2011/08/week-6-option-2.html
ReplyDeleteGlobshop’s main worries will be:
ReplyDelete• Outsourcing of IT skills (losing in-house knowledge)
• Reliance on their providers increasing
• The provider could have issues in their own IT organisation.
Reposting due to errors at Victoria -
ReplyDeletehttp://rarzo1.blogspot.com/2011/08/week-6.html
The main risks for Globshop in regard to their Outsourcing Strategy are -
1. Reliance on ISS. Globshop has become heavily dependent on ISS for many of its operations and this has caused its managers to question if outsourcing to one offshore vendor has been the right decision.
2. As highlighted in the first case, culture and language is one a major problem (in any industry). Poor communication is problematic as the quality/effort/time may be misunderstood on both sides.