Determining Whether to Outsource or Not - Essay Example

? Case Study #5 Regardless of the choice that was made, Tegan needed to make a decision. Of the decisions presented, this one made the most sense. The accounts payable (A/P) in any business is very important if people want to be paid for work. Tegan could have done the work in house but it would have cost them more in the long run. The first part of the project was delivered for ?75,000 more than the original budget but it was still done for less than Tegan could have done it in house. Hrad was also able to do another project for Tegan that was a time and materials project which they delivered “within 10% of the estimated cost” (Upton and Staats “Tegan” 3). The most important part of determining whether to outsource or not was cost. But in this case, a better solution points to Hrad because Tegan has worked with them in the past. There are many tradeoffs that would be involved if Tegan elects to have the requirements analysis done by one of the first that was involved in bidding. They would have to start over with a new company and this would mean they would probably pay more. Also, because they did not know the newer company, the bidders would probably inflate their original bids to cover what they did not know about Tegan. Tegan needs the project completed by December and it would take more time for a new company to come up with the information. The beginning of Hrad’s work with Tegan was in 2004 when they were looking for new partners and new business. Tegan was impressed with Hrad and decided to give them a small project that both the companies could use. For Tegan it was a way to understand how Hrad worked and for Hrad it was a way to get their foot in the door with this company. This project also allowed them to build a rapport with the sponsor/coach (Upton Staats “Hrad” 2). Hrad was able to give Tegan what they needed on this pilot project and they were able to move forward and do more work with Tegan. The good news was that the project was able to pass all of the “customer acceptance tests” (Upton Staats “Hrad” 2) and the functionality was excellent. Unfortunately the bad news was that the performance speed was a problem. They fixed this problem by having the Hrad technicians work with a Tegan architect so they could better learn the process. Hrad also sent to Tegan’s offices one architect who could help them fix the problem; the performance problems were resolved. One of the challenges for the next part in the development was that the Tegan architect who had worked so closely with Hrad and who had been a bridge between the two companies, decided to leave Tegan and this meant that information that was understood between two companies was lost. Several projects were given to Tegan after the first one and they were finally given the project to re-vamp the A/P system. The program was to be finished by December of 2008 (Upton Staats “Hrad” 2) and Hrad received a fixed price contract. However, Hrad would have to bid on the project as all the other bidders. Tegan awarded the contract to Hrad after they presented a ?900,000 bid and Hrad began work in December of 2007. Hrad worked with Dunnock and with Hrad to develop the project. There were other problems that happened along the way as they developed this project and many challenges began to unravel the project. As an example, after two and a half months, Hrad insisted that Tegan had more than one person review LLDs because there were too many problems with only one person reading them. There was good communication between the two companies and they seemed to iron out the problems as they came about during the development. Unfortunately as they continued into the project, Hrad found that it would cost another ?400,000 to do the work they needed to do to meet the December deadline; Tegan’s CIO, Winston Smith was not happy with this development because Tegan was on a fixed price contract. At this juncture, there had to be negotiations between the two companies for the extra cost. Once the project commenced, Hrad Technika had scope and requirements problems because they did not take some things into consideration when they gave their initial bid. One of their challenges was they no longer had someone who would be the bridge between the two companies who knew both companies well. Another challenge was that only one person was reading the LLDs and this person was behind from the beginning. As they stated, “By the time we got one LLD back, we had ten more ready to go” (Upton Staats “Hrad” 4). In a sense, this meant Hrad was working ahead before they received the LLD; again, communication was breaking down. Although Hrad asked for more than one person to read the LLDs and they were given a second person, this second person, Ifan Mabon did not have the experience needed in this area. Mabon had worked for the finance department scoping business problems but he had no experience with outsourcing projects. As Hrad became more involved in the project, Tegan had “a lack of subject matter experts”( Upton Staats “Hrad” 4) that were devoted to this particular project. Hrad thought they had figured out the problems and began to give Jones (the expert reading the LLDs) PowerPoint slides of what they were doing and asking for her approval. Once this was done, they were able to begin coding as soon as Jones signed off on the LLDs. The statement that “leadership and commitment” was the problem in this situation is not one that I would agree with because there seems to be more of a problem with communication. Hrad was attempting to communicate as best they could with Tegan but Tegan was lax in their communication on several levels. As an example, although Hrad was brought in as the “experts” Tegan was more concerned with the money that they were spending. As long as Tegan was staying within their budget, they were okay with what was going on. However, when Hrad asked for more than one person to read the LLDs, Tegan gave them someone who was inexperienced in this area. When Hrad wanted to send more than one person in to help Tegan, Tegan said they could not afford the extra expense. It seemed that Tegan was setting Hrad up for failure although they had worked together well in the past. The A/P system project was also larger than what Hrad had originally thought and it had many problems. Tegan did not seem to be very helpful when Hrad asked for resources they felt they needed because of the expense. This created more problems that Hrad had to work around. The CIO of Tegan seemed to want a lot of things done for the money that was given but he did not seem to be helpful. As an example, Tegan hired Hrad to do the project because they handed in the cheapest bid. Hrad did not take into account everything they needed to do in order to make their bid. This created more problems for them in the long run because they had to keep backtracking and changing things to fit the system. The recommendation that I would give would be for them to stick with Hrad. If they found another vendor, they would have to start all over again. If they put in the SAP’s accounts payable module, it may not be compatible with their system. If they devote the resources to fix or patch their existing system, they are throwing money away. Sticking with Hrad seems to be the most logical and cost effective thing to do, but they would have to make some concessions. One thing that they would have to do is start over. They would need to set ground rules for communication between the two companies and Tegan would have to appoint someone specifically to the Tegan/Hrad project. This person would have to be as competent as the architect who left the firm. Tegan would also have to agree to supply the resources in both people and skill that Hrad needed in order to complete the project. When a company faces a project they have to realize that the project may come in over budget depending on many factors. These two companies would have to sit down again and talk about what was needed to finish the project. In one sense, Tegan has lost confidence in Hrad but not because Hrad has not attempted to give them what they needed. Tegan has lost confidence purely on the issue of money: Hrad wants more than they said they needed in the beginning. This is only Tegan’s perception of the situation because Hrad had no intention of charging them more since they were in a fixed price contract. Hrad simply wanted to call attention to what was happening and to what was needed. The two companies could work together again, but they would have to settle down and map out a process for the next few weeks. Although they may not make the December deadline with Hrad, they probably would make it earlier than they would if they went to a different company. Works Cited Upton, David M. and Staats, Bradley, R. “Hrad Technika”. Harvard Business School. 23 October 2008. 13 November 2011. Upton, David M. and Staats, Bradley, R. “Tegan c.c.c”. Harvard Business School. 31 October 2008. 13 November 2011. Read More