Tandem of GlobShop and ISS - Globalization of Software Development - Case Study Example

Case Study on Globalisation of Software Development Table of Contents Table of Contents 1 1.0 Introduction 2 2.0. GlobShop's Management of Outsourcing to Date 3 3.0. Critical Evaluation of GlobShop's Outsourcing Strategies Based on Literature 7 5.0. Conclusion 14 References 15 1.0 Introduction GlobShop operates in the travel-retail industry across the different continents of the world including Asia, Australia, North America and Europe. Headquarter of the company is located in Boston, United States. Since it operates in the travel-retail industry, any changes in the air travel flow of visitors and the consequent economic uncertainties have a significant impact on its performance. In his regard, the untoward event of September 11, 2001 had an adverse impact on the performance of the company. Hence, in order to prevent any further undesirable impact of the event, the company engaged in devising a set of measures directed towards cost-reduction, including outsourcing a substantial portion of its IT function (Ranganathan & et. al., 2007). Notably, GlobShop has offshored many of activities to a developing country namely India. It has been outsourcing IT function to an Indian partner Indo-Systems Solutions (ISS) and has outsourced many of its functions such as application development and other related support for the company’s IT infrastructure and maintenance of merchandising and retail system. GlobShop is near the end of its 3 years contract with ISS which has created greater requirement for Chief Information Officer (CIO) to make vibrant decisions about ‘continuing offshore outsourcing’ and ‘extending the contract.’ In the backdrop of this, the essay intends to critically evaluate GlobShop’s management of outsourcing to date using appropriate concepts from the outsourcing literature. Based on these evaluations, recommendations for GlobShop's management actions along with the rationale to the recommended management action(s) for GlobShop will be duly provided. 2.0. GlobShop's Management of Outsourcing to Date Prior to the selection of vendor namely ISS in India, the GlobShop team responsible for selecting the ideal location and vendor mainly assessed China, India, Eastern Europe and Canada in order to determine the viable option for it to outsource its IT function. During the process of assessing, the potential destination and vendors the team assigned for assessing the alternative choice visited some Indian firms providing outsourcing services encompassing tier 1 vendors such as Wipro, Infosys and other small vendors. Finally, the company decided to outsource its IT function to ISS. During the period, ISS was a medium-sized company but was growing rapidly (Kern & et. al., 2002; Ranganathan & et. al., 2007). GlobShop after assessing the different alternatives chose to outsource its IT function to Indian venture i.e. ISS portraying the most viable ground for its development. The rationale behind the decision to work with ISS was the presence of the company in the United States (USA) as well as in India. Besides, GlobShop decided not to outsource to tier1 vendors due to the reason that these companies might not place adequate attention to its needs due to their increased operation and association with other large companies. At the initial stage, the company outsourced only a small portion to the vendor firm in order to minimise any possible risks and evaluate the benefit from outsourcing. Later on, satisfied with the performance of ISS, the company extended its agreement with ISS. An aggressive offshore strategy executed by GlobShop was associated with significant portion of reductions is its IT workforce. The decision of the company to lay off employees had a considerable emotional impact. It was quite hard for the company to determine the number of employee to be retrenched. Besides, employee downsizing was challenging for the company as it had to transfer knowledge borne by the laid-off workers to other staff and the outsourcing partner. The company was significantly worried about the views held by employees, stakeholders and the community in which it operated. Radical disagreement was witnessed between the stakeholders regarding the decision of lay-off. In this regard, some managers proposed lay-off to be executed in phases while others opposed this idea stating that it will create uncertainties amid the existing employees. In order to deal with the challenges of downsizing, the company decided to frame package for the employees affected with its decision to lay-off. Moreover, severance pay structure was initiated. Prior to completely embracing the offshoring, GlobShop was engaged in setting up certain important principles that would be acting as the preamble for both ISS and GlobShop. After setting the principle, both GlobShop and ISS entered into 90-day agreement for the function related with primary support and data warehousing. During the year 2001, one of the prominent luxury retailers (Lux) bought a large portion of stake in GlobShop. This acquisition had a dramatic influence on GlobShop and had resulted in changing of many of its IT functionalities. Correspondingly, GlobShop during the year 2002 contracted ISS with 3-year global offshoring activity. When ISS was assigned with the obligation of rendering support for its major operational systems, staff members were sent by ISS to each region in order to understand the culture of the client firm. These staff members were engaged in deriving understanding regarding the work culture of the GlobShop and spent many weeks’ on-site, documenting and comprehending the processes, systems and other related aspects. The IT staff of GlobShop also worked collaboratively with ISS’s staff to ensure easy knowledge transmission. In order to overcome the challenges of cultural differences specific training were executed addressing the cultural differences and values. The initial relationship between the company and ISS was informal in nature. Later, GlobShop and ISS decided to make their informal working relationships into more formal. The formal structure provided the company with more effective and coordinated way of for the users. Both the client firm and the vendor mutually agreed for working on a common set of principles. As stated earlier, ISS was located in both US and India, it offshored 70% of GlobShop IT functions to India while only 30% inshore. It is worth mentioning that within the first one and half years of the global sourcing activities, GlobShop was able to reduce 35% of its It functions. GlobShop performed a user satisfaction assessment that indicated an enhancement from 2 to 3.5 that was measured on a 5-point gauge since their commencement of offshoring (Ranganathan & et. al., 2007). When GlobShop came near the closer to the completion of its 3-year sourcing contract with ISS, CIO faced several critical questions regarding whether to carry on with value-added IT function offshore or renew its contract with ISS. In this regard, with the commendable results achieved by GlobShop from it offshoring experiences, a few of the senior leaders in the company were willing to move newer IT projects offshore while other believed that despite the impressive outcome of offshore projects, delegating the responsibility of vital projects such as supply chain activities to an offshore vendor will amount to considerable degree of risk and fear that engaging again in aggressive offshoring will further result in considerable employee retrenchment within the company. Since the selection of ISS as an offshoring partner, it has also grown in size and has increased its clientele which consists of some of the top retailers and several Fortune 1000 firms. CIO was worried that extreme reliance on ISS for IT functions will reduce the flexibility of the company. Thus, the CIO felt that working with multiple vendors will reduce the dependency of the company on ISS. On the other hand, the Vice President of Finance believed that working with multiple vendors will hardly facilitate in achieving the goals of cost reduction. In this regard, the subsequent section of the essay will conduct a critical evaluation of GlobShop's outsourcing strategies based on literature. 3.0. Critical Evaluation of GlobShop's Outsourcing Strategies Based on Literature Kotlarsky & Oshri (2008) noted that it is crucial for a client organisation to assess the attractiveness for offshoring and offshore outsourcing. Notably, certain factors have been outlined which need to be clearly addressed before choosing the destination for outsourcing. It is imperative for client companies to assess the arrangement through which the outsourcing services would be carried out (Kotlarsky & Oshri, 2008; Lacity & et.al. 2006; Carmel & Tija, 2006; Aron, & Singh, 2005). Correspondingly, the most serious risk associated with offshoring is the country risk. The GlobShop team responsible for selecting the ideal location and vendor mainly assess China, India, Eastern Europe and Canada in order to determine the viable option for it to outsource its IT function. During the process of assessing, the potential destination and vendors the team assigned for assessing the alternative choice visited some vendors in India including tier 1 vendors such as Wipro, Infosys and other small vendors. It is worth mentioning that offshoring certain IT functions in developing and emerging nations involves higher degree of risks along with more volatility, less predictable purview and at the same time less transparency. Accordingly, it can be criticised that despite the challenges associated with offshoring of activities to emerging countries, the company decided to outsource its IT function to ISS in India (Kotlarsky & Oshri, 2008). It can also be criticised that the aggressive outsourcing strategy of the company was accompanied with significant retrenchment of employees which generated considerable level of concerns regarding perceptions of internal staff, external stakeholders as well as the community. Correspondingly, Rottman & Lacity (2004) have stressed on the fact that certain facets such as hiring a legal expert for alleviating legal risks and making open communication about the sourcing strategy to each concerned stakeholder so that political risk can be addressed need to be properly considered so that the offshoring process does not cause greater complications. It has been also stated that in order to effectively work with a supplier, cultural communication barriers need to be overcome prudently (Rottman & Lacity, 2004). Similarly, Farrell (2006); Lewin & Peeters (2006); Carmel & Agarwal (2001) have stated that, culture has a dominant role to play in offshoring or offshore outsourcing. Furthermore, it has been critically argued that differences in the culture and a lack of ability of client firm and the offshore partner to understand the cultural differences often contribute towards the emergence of miscommunications and misperceptions which reduce the advantages of the offshore destination and impede the business development process (Farrell, 2006; Lewin & Peeters, 2006; Carmel & Agarwal, 2001). Heeks & et. al. (2001) articulated that relationship management in outsourcing is crucial for ensuring successful outcome. Notably, it can be argued that GlobShop is a US based firm while ISS is an Indian vendor, certainly there exist a significant differences between the two firms which may contribute towards the emergence of conflicts that may negatively affect the business process of GlobShop. GlobShop’s IT staff operated with ISS’s staff to ensure easy knowledge and at the same time specific training was executed addressing the cultural differences and values (Heeks & et. al., 2001). Baitheiemy (2003) has stated that the selection of large vendors often results in client firms to experience reduced control over its outsourcing activities (Baitheiemy, 2003). In this regard, it can be criticised that ISS currently has grown significantly and has increased its clientele which consists of a few of the top retailers and several Fortune 1000 firms. Thus, GlobShop may have a reduced control over its outsourced activities. Later the company extended its relationship with ISS following the event of 9/11. Kern & et. al. (2002) argued that it is crucial for both client and vendor firms to enter into a contract that clearly defines the conditions and requirements in order to avert any relational trauma. Besides, it has been argued that the agreement between the client and vendor firms must be reviewed at a frequent interval in order to increase the accountability of each partner towards the other (Fenny & et. al., 2005; Kern & et. al., 2002). Moreover, the contractual agreement entered by GlobShop can be firmly criticised to reduce its flexibility. Although, it cannot be denied that contractual agreement will reduce the collaboration risks but at the same time it might contribute to the emergence of risks of inflexibility. In this regard, Schwartz (2003) has stated that a firm entering into the contractual agreement would not be able to terminate the contract unless there is a good reason to terminate it. Correspondingly, if GlobShop is not satisfied with the service of ISS, it cannot terminate the contract without demonstrating a good reason to terminate it. Thus, GlobShop will be bound to comply with the contractual agreement even if the company is not satisfied and will eventually reduce the flexibility to switch to another offshoring partners leaving ISS (Schwartz, 2003). According to Doh (2005), greater dependence on offshoring partners reduces the value of firm level advantages. Besides, it has been argued that greater dependence on offshoring partners radically erodes the capabilities and resources that can be derived from the management (Doh, 2005). In this regard, it can be criticised that GlobShop offshores 70% of its IT functions while only 30% in inshore. According to Kaiser & Buxmann (2012), heavy dependence on vendors often leads to the emergence of a situation wherein vendors tend to raise the prices of their services or lower the service quality. Besides, it has been argued that any uncertain incidence such as collapse of IT system of vendors can adversely affect the business operations of the client firms (Kaiser & Buxmann, 2012). Responsively, unwarranted situation faced by ISS resulting in the disruption of its IT system can have the tendency to unfavourably influence the operations of GlobShop. The increased dependency of GlobShop on ISS can thus be criticised as it may have a significant implication on the firm level capabilities of GlobShop (Ranganathan & et. al., 2007). 4.0. Recommendations for GlobShop's Management Actions As stated earlier, outsourcing to ISS has delivered an impressive experience to Globshop. However, as the company is near to the completion its contractual agreement thus it is required to make decisions regarding its outsourcing activities. In this regard, two pivotal alternative actions can be made which involve continuing offshore outsourcing and extending the contract to new vendor(s). Concerning the decision to continue its offshore outsourcing, it can be evaluated in relation to this alternative action that Globshop should curtail its offshore outsourcing and retain the outsourcing in inshore. This will facilitate in executing greater control over its outsourced functions. However, it is possible that inshore outsourcing may have reduced implications on its cost reduction initiatives again the company might get surrounded with the increased cost of its business operations. In terms of the other alternative action Globshop can continue its offshore outsourcing with ISS. For this purpose, GlobShop should be required to renew its contractual agreement. Continuing offshore outsourcing with ISS can facilitate GlobShop with time and cost saving associated with assessment and selection of new vendors Moreover, it would be less time consuming and will further require less investment if GlobShop works with ISS which would be otherwise not possible if it extends its contract with other vendor(s). At the same time, GlobShop and ISS over the years have developed considerable understanding regarding the culture and values of each other which would further facilitate in smooth communication and increase efficiency of their operations. It can be affirmed that GlobShop while working with ISS has been able to reduce its cost of operations to a satisfactory level which suggests that ISS has been able to meet the expectations of GlobShop. In this regard, the company while working with ISS was able to reduce the cost by 35% which was the major goal of the organisation behind its outsourcing decision (Carmel & Abbott, 2007; Carmel & Agarwal, 2001). However, it cannot be denied that during the time of offshoring to ISS, it was a medium sized enterprise but currently it has grown in size and has a number of other clientele. The bottom line here is that ISS may not be able to deliver the same quality of services to GlobShop as experienced by it in the past as it is now required to manage outsourcing activities of other client firms as well. The lapses in services along with the contractual agreement with ISS may reduce the flexibility of GlobShop to terminate the agreement and shift to other inshore or offshore vendors (Vitasek & Manrodt, 2012). Another viable alternative that can be evaluated in relation to GlobShop would be to extend its contract with other vendor or vendors. In this regard, it can be highlighted that GlobShop should involve in research process and assess the outsourcing vendors across the world. Based on the assessment and the prospect of business growth, the management can completely shift to a new vendor for meeting its future outsourcing requirements. This will reduce the increasing dependence on ISS. Nonetheless, it will require the company to devote considerable amount time as well as investment. Besides, shifting to a new vendor may also result in the emergence of certain risks which may ultimately reduce the efficiency of its overall business (Lacity & et. al., 2009). It is possible that the selected new vendor may lack in possessing adequate level of competency and skill to meet the expectations of GlobShop. In such circumstances, it would be nothing more than wastage of time, cost and effort. Moreover, it can be also evaluated that GlobShop can extend its contract with two or more vendors. Extending contract to multiple vendors will reduce the dependence of GlobShop to a single vendor. Besides, it will facilitate a sense of competition amid the vendors which will favourably impact the business operations of GlobShop in the form of increased quality services achieved by it from its vendors (Whitten & Leidner, 2006). However, extending contract to multiple vendors may also create requirement for GlobShop to further execute employee lay-off which may negatively influence the perceptions of internal staff, external stakeholders and the community to a considerable extent. Moreover, expanding contract to multiple vendors will require GlobShop to build relationships with different vendors which would be quite challenging and cumbersome tasks for the company. It cannot be denied that selecting multiple vendors would also have considerable impact on the work culture of the company. In this context, it can be stated that decision to work with different vendors would also create a requirement for the company to manage different cultures as every organisation is different from the other and the prevailing culture in these organisations also vary to a considerable extent. In such circumstances, it would not be easy for GlobShop to manage the cultural differences existing between it and the other vendor (Rottman & Lacity, 2006; (Mani & et. al., 2006; Heeks & et. al., 2001). Thus, it can be asserted that GlobShop should select the most profitable option that would be continuing its offshore outsourcing with ISS. 5.0. Conclusion The outsourcing decision of GlobShop was accompanied with layoff of employees. During the time, ISS was a medium sized enterprise. GlobShop decided to work with ISS because it believed that being a small size ISS will be able to render quality services. However, it can be critically argued that currently ISS has grown in size with a number of large clientele and it may not be able to provide the same quality of services experienced by GlobShop in the past. At the same time, ISS is an Indian company while GlobShop being a US company, there exist considerable cultural differences in between the two. In order to eliminate the cultural differences the company in the past was engaged in culture specific training activities. The agreement between GlobShop and ISS is near to end which has created significant concern regarding the decision to continue offshore outsourcing or extending its contract. Thus, it has been recommended to GlobShop to continue its offshore outsourcing with ISS due to various potential advantages offered by it over its limitations. The future potentials of this recommended action can be deemed to be manifold especially familiarity with the vendor and mutual understanding among others. 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