Harvard Case - Crafting And Executing An Offshore IT Sourcing Strategy: GlobShop's Experience
"Crafting And Executing An Offshore IT Sourcing Strategy: GlobShop's Experience" Harvard business case study is written by C. Ranganathan, Poornima Krishnan, Ron Glickman. It deals with the challenges in the field of Information Technology. The case study is 11 page(s) long and it was first published on : Dec 1, 2007
At Fern Fort University, we recommend that GlobShop adopt a phased approach to offshore IT sourcing, prioritizing critical functions like ERP and CRM while maintaining core competencies and ensuring seamless integration with existing systems. This strategy will leverage cost advantages, enhance agility, and unlock potential for innovation while mitigating risks associated with outsourcing.
2. Background
GlobShop, a rapidly growing online retailer, faces challenges in managing its IT infrastructure and resources. The company's internal IT team lacks the expertise and capacity to handle the growing demands of its business, particularly in areas like data analytics, cybersecurity, and cloud computing. This case study explores GlobShop's decision to explore offshore IT sourcing as a solution to these challenges.
The main protagonists are:
- John Smith: CEO of GlobShop, responsible for overall strategy and growth.
- Mary Jones: CIO of GlobShop, responsible for IT infrastructure and operations.
- David Lee: Head of IT Sourcing, tasked with evaluating and implementing offshore IT solutions.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Porter's Five Forces framework, which helps understand the competitive landscape and potential risks associated with GlobShop's decision.
Threat of New Entrants: The online retail industry is characterized by low barriers to entry, posing a threat from new competitors.
Bargaining Power of Buyers: Customers have high bargaining power due to the availability of numerous alternatives, demanding competitive pricing and excellent customer service.
Bargaining Power of Suppliers: GlobShop relies on various IT vendors, potentially giving them bargaining power, especially if they offer specialized solutions.
Threat of Substitute Products: Online retailers face competition from traditional brick-and-mortar stores and other e-commerce platforms, requiring constant innovation and differentiation.
Competitive Rivalry: The online retail industry is highly competitive, with established players constantly vying for market share and customer loyalty.
GlobShop's decision to explore offshore IT sourcing is driven by several factors, including:
- Cost Optimization: Offshore IT providers offer significant cost savings compared to domestic providers.
- Access to Specialized Skills: Offshore IT firms often possess expertise in niche areas like data analytics and cybersecurity.
- Increased Agility: Outsourcing allows GlobShop to scale IT resources up or down as needed, adapting to changing business needs.
However, GlobShop must also consider potential risks associated with offshore IT sourcing, such as:
- Data Security and Privacy: Ensuring data security and compliance with regulations is crucial when outsourcing sensitive information.
- Communication and Cultural Differences: Effective communication and cultural understanding are essential for successful collaboration with offshore providers.
- Quality Control: Maintaining quality standards and ensuring timely delivery of services is vital.
4. Recommendations
GlobShop should adopt a phased approach to offshore IT sourcing, starting with critical functions and gradually expanding the scope over time. This approach allows for a controlled rollout, minimizing disruption and maximizing the benefits of outsourcing.
Phase 1: Core Functions Outsourcing:
- Focus on ERP and CRM: GlobShop should prioritize outsourcing its ERP and CRM systems to offshore providers with proven expertise in these areas. This will streamline business processes, enhance customer relationship management, and improve data management capabilities.
- Select Reputable Vendors: Thoroughly vet potential vendors, focusing on their track record, security protocols, and experience in the retail industry.
- Pilot Projects: Begin with small-scale pilot projects to test the vendor's capabilities and ensure seamless integration with existing systems.
Phase 2: Expanding the Scope:
- Data Analytics and Business Intelligence: Outsource data analytics and business intelligence functions to leverage advanced analytics capabilities and gain insights into customer behavior and market trends.
- Cloud Computing and Infrastructure Management: Migrate critical IT infrastructure to the cloud, leveraging the expertise of offshore providers in cloud computing and infrastructure management.
- Cybersecurity: Outsource cybersecurity services to enhance security posture and protect against evolving cyber threats.
Phase 3: Strategic Partnerships:
- Innovation and Technology Development: Partner with offshore providers specializing in innovation and technology development to explore new opportunities in areas like artificial intelligence, machine learning, and the Internet of Things.
- Global Expansion: Leverage offshore providers to support international expansion efforts, providing localized IT support and services.
5. Basis of Recommendations
These recommendations consider the following factors:
- Core Competencies: GlobShop should focus on its core competencies in online retail and product development while leveraging offshore providers for non-core IT functions.
- External Customers and Internal Clients: The strategy prioritizes customer experience and internal efficiency by streamlining business processes and enhancing data management capabilities.
- Competitors: By leveraging cost advantages and accessing specialized skills, GlobShop can maintain competitiveness in the online retail market.
- Attractiveness: The phased approach allows for gradual implementation, minimizing risk and maximizing return on investment.
- Assumptions: This strategy assumes that GlobShop can find reputable offshore providers with the necessary expertise and that effective communication and collaboration can be established.
6. Conclusion
By adopting a phased approach to offshore IT sourcing, GlobShop can leverage the benefits of cost optimization, access to specialized skills, and increased agility. This strategy will enable the company to focus on its core competencies, enhance its competitive advantage, and drive growth in the dynamic online retail market.
7. Discussion
Other alternatives not selected include:
- Full In-House IT Development: This would require significant investment in hiring and training, potentially delaying growth and increasing operational costs.
- Acquiring an IT Company: This option could be expensive and complex, requiring integration with existing systems and potentially disrupting operations.
Risks and Key Assumptions:
- Data Security: A key risk is the potential for data breaches or security vulnerabilities when outsourcing sensitive information. GlobShop must ensure that offshore providers have robust security protocols and compliance measures in place.
- Communication and Collaboration: Effective communication and cultural understanding are crucial for successful collaboration with offshore providers. GlobShop should invest in communication tools and training to minimize language barriers and cultural misunderstandings.
- Quality Control: Maintaining quality standards and ensuring timely delivery of services is essential. GlobShop should establish clear service level agreements (SLAs) and implement rigorous quality control measures.
8. Next Steps
- Vendor Selection: GlobShop should initiate a comprehensive vendor selection process, evaluating potential providers based on their expertise, track record, security protocols, and pricing.
- Pilot Projects: Launch pilot projects for key functions like ERP and CRM to test the vendor's capabilities and ensure seamless integration with existing systems.
- Implementation Planning: Develop a detailed implementation plan, including timelines, milestones, and resource allocation for each phase of the offshore IT sourcing strategy.
- Communication and Training: Implement communication protocols and training programs to ensure effective collaboration and knowledge transfer between internal teams and offshore providers.
- Monitoring and Evaluation: Establish metrics to track the performance of offshore providers, including cost savings, quality of service, and customer satisfaction. Regularly evaluate the strategy and make adjustments as needed.
By following these recommendations and carefully managing the risks, GlobShop can successfully implement an offshore IT sourcing strategy that will drive growth, enhance efficiency, and position the company for long-term success in the competitive online retail market.
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Case Description
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.
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