Harvard Case - General Dynamics and Computer Sciences Corp.: Outsourcing the IS Function (A)
"General Dynamics and Computer Sciences Corp.: Outsourcing the IS Function (A)" Harvard business case study is written by F. Warren McFarlan, Katherine N. Seger. It deals with the challenges in the field of Information Technology. The case study is 22 page(s) long and it was first published on : Apr 16, 1993
At Fern Fort University, we recommend that General Dynamics (GD) proceed with outsourcing its IS function to Computer Sciences Corporation (CSC) under a carefully structured agreement that addresses key concerns and ensures a successful transition. This recommendation is based on a comprehensive analysis of GD's current IT landscape, the potential benefits of outsourcing, and the risks involved.
2. Background
General Dynamics, a leading defense contractor, faced a critical decision regarding its Information Systems (IS) function. The company's IS department was struggling to keep up with the rapid pace of technological change, particularly in areas like digital transformation, cloud computing, and data analytics. The department was also facing increasing pressure to reduce costs and improve efficiency.
Computer Sciences Corporation (CSC) emerged as a potential partner, offering a comprehensive suite of IT services including IT infrastructure management, application development and maintenance, cybersecurity, and data management. CSC's expertise and experience in the defense industry made them an attractive option for GD.
3. Analysis of the Case Study
Strategic Framework: We use Porter's Five Forces to analyze the competitive landscape and assess the potential impact of outsourcing on GD's competitive advantage.
- Threat of New Entrants: The defense industry is characterized by high barriers to entry, making the threat of new entrants relatively low. Outsourcing to CSC would not significantly alter this dynamic.
- Bargaining Power of Buyers: GD's customers are primarily the US government, which has significant bargaining power. Outsourcing could potentially improve GD's ability to meet government requirements, strengthening its position.
- Bargaining Power of Suppliers: CSC is a major IT service provider, but the market is competitive. GD's bargaining power is likely to be strong in negotiating a favorable outsourcing agreement.
- Threat of Substitute Products: The defense industry is highly specialized, limiting the threat of substitute products.
- Competitive Rivalry: The defense industry is characterized by intense competition among established players. Outsourcing could potentially improve GD's efficiency and cost structure, enhancing its competitiveness.
Financial Analysis: We assess the potential financial benefits of outsourcing, considering factors such as:
- Cost Savings: Outsourcing could potentially reduce GD's IT operating costs through economies of scale and access to CSC's expertise.
- Improved Efficiency: CSC's experience in managing large-scale IT operations could improve GD's overall efficiency.
- Increased Flexibility: Outsourcing would allow GD to access specialized IT services on demand, providing greater flexibility in meeting evolving business needs.
Operational Analysis: We consider the potential impact of outsourcing on GD's internal operations, including:
- Organizational Change: Outsourcing would require significant organizational change within GD, including potential job losses and adjustments to internal processes.
- Risk Management: GD would need to carefully manage the risks associated with outsourcing, such as data security, service quality, and vendor dependence.
- Knowledge Transfer: GD would need to ensure effective knowledge transfer to CSC to maintain continuity and prevent disruption to critical operations.
4. Recommendations
GD should proceed with outsourcing its IS function to CSC, implementing the following recommendations:
- Negotiate a Comprehensive Agreement: The agreement should clearly define the scope of services, performance metrics, pricing, and termination clauses.
- Establish a Strong Governance Structure: A joint steering committee should be formed to oversee the outsourcing relationship, ensuring alignment between GD's business objectives and CSC's service delivery.
- Prioritize Knowledge Transfer: GD should implement a comprehensive knowledge transfer program to ensure CSC understands GD's business processes and IT systems.
- Develop a Robust Change Management Plan: GD should proactively manage the organizational change associated with outsourcing, providing clear communication and support to employees.
- Monitor Performance Closely: GD should establish clear performance metrics and regularly monitor CSC's performance against these metrics to ensure service quality and identify potential issues early.
- Continuously Evaluate the Outsourcing Relationship: GD should regularly evaluate the outsourcing relationship to ensure it remains aligned with its evolving business needs and to identify opportunities for improvement.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Outsourcing the IS function allows GD to focus on its core competencies in defense contracting, while leveraging CSC's expertise in IT. This aligns with GD's mission to provide advanced defense solutions.
- External Customers and Internal Clients: Outsourcing can potentially improve GD's ability to meet the IT requirements of its government customers and internal clients, enhancing customer satisfaction.
- Competitors: Outsourcing can help GD improve its efficiency and cost structure, enhancing its competitive position within the defense industry.
- Attractiveness: The potential cost savings, improved efficiency, and increased flexibility offered by outsourcing make it a financially attractive option for GD.
- Assumptions: These recommendations assume that CSC possesses the necessary expertise and resources to effectively manage GD's IT function and that both parties are committed to a successful partnership.
6. Conclusion
Outsourcing GD's IS function to CSC presents a significant opportunity to improve efficiency, reduce costs, and enhance competitiveness. By carefully managing the transition and implementing the recommendations outlined above, GD can successfully leverage the benefits of outsourcing while mitigating potential risks.
7. Discussion
Alternatives: GD could consider alternative options, such as:
- Internal Transformation: GD could invest in internal improvements to its IS department, but this would require significant investment and may not be as effective as outsourcing.
- Partial Outsourcing: GD could outsource specific IT functions, such as data center management or application development, while retaining control over other areas.
Risks: The risks associated with outsourcing include:
- Data Security: GD must ensure that CSC has robust cybersecurity measures in place to protect sensitive data.
- Service Quality: GD must carefully monitor CSC's performance to ensure that service quality meets expectations.
- Vendor Dependence: GD must ensure that it has a clear exit strategy in case the outsourcing relationship does not meet its needs.
Key Assumptions: The success of this recommendation hinges on the following assumptions:
- CSC possesses the necessary expertise and resources to effectively manage GD's IT function.
- Both GD and CSC are committed to a successful partnership.
- GD effectively manages the organizational change associated with outsourcing.
8. Next Steps
GD should implement the following steps to ensure a successful outsourcing transition:
- Phase 1 (Months 1-3): Negotiate a comprehensive outsourcing agreement, establish a governance structure, and develop a knowledge transfer plan.
- Phase 2 (Months 4-6): Implement a change management plan, train employees, and begin transitioning IT services to CSC.
- Phase 3 (Months 7-12): Monitor CSC's performance, address any issues that arise, and continuously evaluate the outsourcing relationship.
By following these steps, GD can successfully outsource its IS function, achieving the desired benefits while minimizing potential risks.
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Case Description
Designed to generate discussion on the issues of outsourcing from the perspective of a firm thinking about turning over its IS activities to a third-party vendor.
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