PowerPoint Presentation

Crafting & Executing an offshore IT sourcing strategy Globshops experienceA presentation by group 9

Radha NarayananAnkit SachdevaManishaNirmalApurv Misra

About Globshop Globshop is a niche player in the travel retail industry primary business from duty free shops in airports Present across Asia, Australia, N America & Europe with over 200 duty free & general merchandise shops Main cost drivers : Air travel, Tourist Traffic & related economic eventsChallenges faced by Globshop 1991 Gulf war affected International tourism. Globshop halted expansion plans 1997 East Asian economic crisis affected stock markets, currencies & exchange rates. International tourist spending dropped greatly. Case BackgroundChange in management In 2000 Lux a leading luxury retailer acquired a majority stake in Globshop Expanded into sea travel retail Main objective: REDUCE COST & INCREASE PROFITABILITY Decided to centralize IT operations & outsource to an offshore company ISS for a 3 year contract

Offshore Sourcing strategy Urge to focus on its core business Declining air traffic & hence revenue Offshore led to 35% lesser IT expenditure India had a mature segment with good legal systemISS was a medium sized yet growing company & had a hybrid offshore teamCentralizing IT There was redundancy of resources infrastructure, software, hardware & people due to decentralised set up 3 prong approach- Centralised Global IT budget Streamlined IT governance Consolidation & standardisation USA, Asia Pacific

BenefitsRisks Easier to implement common policies Avoids duplication of resources Easier to control budgets from center Economies of scale & overhead savings Greater use of specialization More bureaucratic Localized decision cant be made according to customer Speed in response to local circumstances is lower Lack of authority down the hierarchy could demotivate managers

Decision of centralized vs decentralized systemFramework

Decision of outsourcing

Dilemma in the caseThe protagonist Roger Dean- CIO of Globshop has to decide on the following:Should Globshop extend & renew the contract with ISS?To what extent should Globshop outsource their IT operations? Will ISS continue to deliver quality results? What will be the role of IT department in Globshop in future if everything is outsourced?

Off shoring process: Testing waters with short term agreements on fixed price terms 3 year contract to work on select applications More strategic in nature partnership approach Final accountability remained with global IT team of Globshop ISS committed to maintaining a knowledgeable off shore IT team, Just in time resources made available based on project requirement To overcome cultural & social differences between global IT team & off shore staff Communities of Practice (COPs) were introduced Ratio of on-site : off shore staff varied as 60:40 or 30:70 as per project phaseImplications to internal IT team Determine how many people & whom to retrench In how many phases to carry out the layoffs Timing of communication & down-sizing Retention pay of those whose knowledge transfer has to happen IT staff shrank by 43% in the first year and 59% in the second year of MSA Future of in-house IT is unknown

User satisfaction survey showed an improvement in score on introducing since they started offshoring. Hence they started assigning more projects to ISS

Way forwardGlobshops plan for future: Streamline global supply chain & implement advanced EDI solutions Migrating to advanced platformsBenefits of renewing contract with ISS Every penny saved on off shoring can be invested in core business Focus all resources in retail business line Complete knowledge transfer has been achieved and ISS knows all the operations & requirements Spreading the same job to multiple vendors would increase overhead costs & knowledge transfer costsRisks of renewing contract with ISS Over dependence on an external resource to deliver critical activities will be too risky Further layoffs of in-house IT personnel is not seen in positive light by employees ISS is diverting its star employees to other prestigious clients. No more special treatment from ISSRecommendations to Globshop: Globshop can form a strategic alliance or JV or acquisition with ISS in order to take advantage of ISSs knowledge of Globshop and the cost saving, especially with the new advanced projects at hand. Also this overcomes the risk of outsourcing critical activities Globshop can invest in developing in-house talent to gain the capability to execute business critical IT operations that are strategic in nature & outsource only the non-core part of business A constant check of the political and technological climate in India should be done. Other country options should be kept open so that an optimal choice can be made

Thank you