crafting and executing an offshore it sourcing strategy: globshop's

Teaching case

Crafting and executing an offshore IT

sourcing strategy: GlobShop’s experienceC Ranganathan1, Poornima Krishnan1, Ron Glickman2

1Department of Information and Decision Sciences, University of Illinois at Chicago, Chicago, IL, USA;2The Glickman Group LLC, California, USA

Correspondence:C Ranganathan, Department of Information and Decision Sciences, University of Illinois at Chicago, 2402 University Hall,601 South Morgan Street, Chicago, IL 60607-7124, USA.Tel: 312 996 2847;Fax: 312 413 0385;E-mail: [email protected]

AbstractThis teaching case discusses the decisions facing GlobShop, a global travel-retailcompany, 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, 2001terrorist attacks, the company decided to outsource many of its IT activities to an Indianvendor. This case traces the key decisions made by the CIO and the challenges that wereencountered during the planning and execution of the company’s offshore sourcingstrategy. These decisions pertain to the choice of tasks to be offshored, decisions aboutthe vendor and the nature of sourcing arrangement, managing the vendor relationship andchange management issues induced by offshoring. As GlobShop nears the completion ofits 3-year agreement with the offshore vendor, the CIO is faced with decisions regardingcontinuing offshore outsourcing, extending the contract and related implications for thefuture of IT organization at GlobShop.Journal of Information Technology (2007) 22, 440–450. doi:10.1057/palgrave.jit.2000113Keywords: offshore outsourcing; sourcing strategy; retail industry; IT outsourcing; vendor relation-ship; outsourcing governance; offshoring decisions; change management

Introduction

In November 2005, Roger Deen, the CIO of GlobShop, andhis team of information technology (IT) Directors sat in aconference room at the company’s headquarters in Boston

to discuss the imperatives facing them. GlobShop was a fivebillion dollar firm that operated over 200 duty-free andgeneral merchandise shops in airports, hotel lobbies anddowntown locations across Asia, Australia, North Americaand Europe.1 Being a niche player in the travel-retailindustry, the company’s performance swayed with changesin air travel, tourist traffic and related economic events.Since the events of September 11, 2001, GlobShop has beenengaged in a series of cost-reduction efforts, includingoffshoring a significant portion of its IT work.

Roger was contemplating moving more IT work offshore.GlobShop has been working with an Indian vendor,Indo-Systems Solutions (ISS), to take care of applicationdevelopment, support and maintenance of merchandisingand retail systems, and technical support for the company’sIT infrastructure. These initiatives have helped reduceIT expenses by over 35%. The business leadershiphas demanded additional cost reductions and has suggested

that Roger examine the possibility of pushing moreprojects offshore.

Within the next few weeks, Roger will have to decidewhether GlobShop should extend and renew its outsourcingagreement with ISS. To reduce the risk of becoming ‘over-dependent’ on ISS, the company has been mulling overusing multiple offshore vendors rather than exclusivelyrelying on ISS.

Another issue that needed Roger’s attention was thefuture role of the internal IT function at GlobShop. If thecompany decides to move more IT activities offshore, itshould carefully assess its implications for the internal ITgroup. GlobShop had reduced its IT workforce by over 50%and additional cuts could simply decimate the IT function.With over 60% of the IT spending concentrated on offshoreactivities, Roger wondered about the future steps.

Background‘Duty’ is a generic term used to describe a variety of taxesimposed on goods. Duty-free shopping enables international

Journal of Information Technology (2007) 22, 440–450& 2007 JIT Palgrave Macmillan Ltd. All rights reserved 0268-3962/07 $30.00

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travelers to purchase foreign goods at lower prices.Merchandise such as liquor, perfume, tobacco productsthat are subject to high taxes and duties are hot products induty-free stores. Duty-free shops are typically located ininternational airports, selected hotels, tourist attractionsand other areas that are designated as ‘foreign trade zones.’

Founded in the 1950s, GlobShop sold foreign cars andliquor in US military bases abroad. As the idea of duty-freeshopping picked up in Europe, the company opened storesin selected European and Asian airports in the 1960s.Spurred by the growth in international travel in the 1970sand 1980s, GlobShop expanded its presence to airports inAustralia, New Zealand, USA and UK. Soon, the companybecame a profitable player in the small but growing travel-retail market. Despite the entry of several global competi-tors, GlobShop remained one of the leading players in thisniche segment. The company expanded into severalcountries by acquiring smaller players. In the late 1980s,the company opened large, duty-free specialty stores in afew major cities in USA and Europe. These stores weremulti-department luxury retail outlets that carried a rangeof items including tobacco products, wines, liquor, confec-tionary, perfumes, jewelry, silverware, gift items, souvenirs,memorabilia, travel goods and other products.

The Gulf War in 1991 severely affected internationaltourism. Since airport retail formed a major portion ofGlobShop’s revenues, its sales slumped by over 15%. Tocompensate for the losses, GlobShop closed a few specialtystores and halted its expansion plans. As the businesspicked up, GlobShop acquired some smaller players as ameans to enter additional countries. Soon, the companywas organized into 10 regional business units as adecentralized set-up. However, acquisitions and expansionleft considerable diversity in business processes, managerialpractices, supply chain structures and systems across thecompany. Dan Cwik, Vice President of Retail Operations,elaborated:

Our organization was very diverse in terms of businessprocesses and practices. Different countries had differentways to handle duty-free shopping. In some nations, acustomer could take duty-free products straight outof the store. In some other countries, they had to buy itin-store and get it delivered on the flight or at theirdestination. Some countries supported the conceptof duty-free as well as duty-paid products. We had todeal with different supply chain structures and retailprocesses.

In the 1990s, Asian tourists, who had been targeted as thefocused customer segment by the company, represented ahigh potential market. GlobShop was successful in attract-ing and establishing its name among Asian travelers. Whilethis worked well initially, the changes in the globaleconomy in the late 1990s caused considerable hurdles toGlobShop. In particular, the East-Asian economic crisis in1997 created ripple effects in several Asian nations affectingstock markets, currencies and exchange rates, subsequentlyleading to economic recession. Triggered by these events,international travel and tourist spending declined, creatinga snowball effect on GlobShop’s revenues.

Corporate restructuringIn 2000, a leading luxury retailer (Lux) bought a majoritystake in GlobShop. Lux owned several brands in winesand spirits, perfumes, cosmetics, watches, jewelry, fashionand leather goods. Through this acquisition, GlobShopgained access to famous brands and premier luxury items.GlobShop also had a new executive team. A troika of CEO,CFO and CIO took over the management of GlobShop.Their immediate task was to address the decline in corpo-rate performance. An obvious challenge was to reduce costsdrastically as well as improve profitability.

Instead of relying solely on airport stores, the manage-ment sought to actively expand into sea-travel retail.GlobShop acquired a cruiseline firm that operated portstores as well as on-board ferry shops. However, revenuesfrom sea-travel retail formed only a small proportion ofoverall revenues. Therefore, the executive team began toaggressively pursue cost-reduction efforts. Proliferation ofretail operations at different regions highlighted thegrowing need for more effective coordination of diverseoperations. The senior leadership at GlobShop heavilydebated on the merits and demerits of a centralized vsdecentralized business set-up. Roger explained:

Our airport retail is essentially a concession-drivenbusiness. In such a business, one must re-win thebusiness every five years or whenever Government (oran airport authority) commences a RFP process for retailspace. Decentralized operations allow all costs to beadded or eliminated with each win or loss. A centralizedstructure has fixed costs associated with operations thatcannot be reduced 100% when business is lost. Therefore,in a volatile environment, decentralized organizationgives us the flexibility to add or reduce our operationsand scale it according to business fluctuations.

A decentralized set-up also implied duplication of effortsand lack of standard processes that ultimately increase theoperational costs. The leadership sensed significant savingsby centralizing a number of activities. As a result, the manage-ment announced a reorganization by which GlobShopwould streamline its business processes and reduceredundancies by adopting a major restructuring. Thismeant redefining a number of operational and managementprocesses and centralizing them at the corporate level. DanCwik, Vice President of Retail Operations, noted: ‘We hadduplication of systems, people and processes throughout.We figured that we could consolidate a number of these anddo them in a common way. So, we decided to take the costsout by standardizing and centralizing a number of ourprocesses. And it was clear that information technology wasthe best route to achieve this.’

IT organization at GlobShopIT operation at GlobShop was highly decentralized(Figure 1). Each region had its own IT division that cateredto the local needs. A corporate IT group served the needs ofthe global headquarters in USA, in addition to providingshared IT services like email. Each of the 10 regional ITdivisions functioned independent of each other and was

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headed by a regional IT Director who reported to thePresident of the regional business unit, with a dottedrelationship to the corporate CIO. Each regional unitfunded local IT projects and operated under a distinct ITbudget. A natural outcome of such a decentralized set-upwas duplication of applications, services and technologyresources. Neal Parker, Director of IT, observed: ‘We hadseveral legacy applications that ran in different regions thatwere expensive to maintain and couldn’t communicate witheach other. We had multiple versions of the sameapplication. Despite a corporate IT, the regional IT unitsfunctioned independently. This resulted in many redundantresources – infrastructure, software, hardware and people.All these added to our IT overhead costs.’

GlobShop had several legacy merchandising systems inthe 10 regions. Each region also had a data center storingunit-level sales information. Further, GlobShop had SAPfinancials and Peoplesoft HR systems. For retail processes,the company had two different point-of-sales applicationsacross the stores worldwide. GlobShop had a resource poolof over 300 IT employees across the 10 regions.

Centralizing IT managementIn 2000, in order to facilitate the corporate restructuringeffort, Roger was entrusted with the responsibility ofconsolidating the IT organization. Roger’s mandate was tospearhead the realignment of GlobShop’s regional IT set-upinto a global unit, along with associated changes in businessprocesses. A major IT reorganization would not onlyfacilitate streamlining diverse business processes andsystems worldwide, but also pave the way for significantcost savings. Roger’s background was also particularlysuited for the reorganization initiative: he knew thecompany’s retail business well and had seen how anintegrated operation could achieve efficiencies; he also hadan international background with significant work experi-ence in Asia-Pacific and North American regions.

Roger and his team embarked on an extensive study ofregional IT units. Detailed information on the IT resources,applications and spending was gathered. Neal elaborated,‘It was an eye-opener for us. We had over 250 internallydeveloped applications across the ten regions. These

applications had over 15000 objects such as programs,databases etc and had over 5 million lines of code. Wedissected our IT dollars and precisely knew how much eachof the IT services cost us. We were spending much morethan what we ought to be.’ The analysis revealed thatGlobShop was spending over 60 million dollars annually onIT. Reorganization would help them save more than one-third of these costs.

Roger had extensive discussions with IT Directors andbusiness unit leaders at each of the 10 regions. Further,Roger convened planning retreats and brainstormingworkshops that helped discover a number of issues. Thepresidents of the business units were concerned thatthe consolidation would distance the regional users from theIT group. Moreover, centralization also implied a signi-ficant loss of control over IT. Neal remarked: ‘There was alot of reluctance and resistance to give up local ITresources to a global pool. They felt they won’t be anylonger able to walk to a programmer’s desk, make a requestand get it fulfilled on-demand. There was concern thatthis was going to impede their ability to do what theyhave been doing and also take away their control. There wasa tremendous amount of resistance.’ Roger highlightedanother issue: ‘We were largely running our IT departmentssimply by managing-by-wandering-around model. Adopt-ing a global delivery model with a centralized set-uprequired a very different set of competencies.’ However, thehigh pressure to prune costs and the clear mandate fromthe top helped GlobShop move forward with its ITreorganization.

After studying the problems and issues, Roger proposeda three-pronged approach for the reorganization. Thecentral idea was to consolidate the 10 regional IT unitsinto one global IT unit, with all of the IT operationsdispersed in two centers, one in Asia and another one inUSA. The new IT vision was to have ‘one global teamwithout boundaries, delivering acknowledged value andexceeding customer expectations.’ The highlights of thenew reorganization were:

� Centralized global IT budget: Under the new arrange-ment, the funding for IT would be centralized. Theregional IT units would no longer pay for the IT services

Corporate IT

Development Analysts

Project Management Finance

Shared Services

Operations

Help Desk & Support

Infrastructure

Regional IT

(IT Directors)

Development Finance Help Desk & Support

Operations

Regional BusinessUnit (Presidents)

Retail Operations Finance

Figure 1 Decentralized IT organization.


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directly but through corporate allocation and a charge-back system.

� Streamlined IT governance: Neal Parker, Director of IT,commented: ‘We planned a new set of centralized,formalized processes in place about how we were goingto manage our IT. Any major application development orIT-related service request had to be centrally submitted.It would be assessed, prioritized and resource allocationbe made accordingly.’ This implied serious changes inthe way different functional and regional units interactedwith IT. Further, all the IT initiatives would be classifiedinto three categories: capital initiatives, expense initia-tives and support related. While capital initiatives were tobe decided and driven by business, expense and supportinitiatives would be handled by the IT unit.

� Consolidation and standardization: IT operations at the10 regional centers were to be consolidated into twohubs, one in USA and one in Asia-Pacific. Twenty AS 400systems operated at the regional centers would beconsolidated into the two hubs. Multiple instances ofthe applications would be minimized and informationstored in a centralized data repository.

As a part of the reorganization, GlobShop decided to cut itsIT costs by outsourcing a part of application support andmaintenance. In November 2000, GlobShop hired an Indianvendor, Indo-Systems Solutions (ISS), for on-site main-tenance and enhancements of the merchandising system.The vendor’s responsibilities included documenting thesystem, deploying its staff on-site in USA for technicalsupport and undertaking minor enhancements.

The journey offshore – formulating an offshore sourcingstrategy

Impetus for offshoringThe events of September 11, 2001 in New York severelyaffected the air-travel sector. There was a sharp decline inpassenger traffic as several airlines cut back their flightschedules. Movement of international tourists reduceddrastically (Figures 2 and 3). All the major airport retailers,including GlobShop, were hit hard by the drop in passengertraffic. This made cost cutting that much more imperative

for GlobShop. The company suffered a severe setback whenit was still implementing its reorganization. Dan Cwik said:‘9/11 created havoc. Fewer passengers meant fewer dollars,cash flow crunch, store closures, halting expansion. We hadto cut costs drastically. We realized we had to make someradical changes.’ These provided the trigger for offshoringIT tasks and realizing significant savings. Roger explained:‘After 9/11, we looked down the barrel of having totransform the way we run our business. We looked atoffshoring as a means to do that.’

Finding the partnerRoger and his team began by looking at potential offshorelocations and vendors. They assessed Canada, EasternEurope, China and India. Roger recounted: ‘I looked atdifferent geographies and at that time Eastern Europe was abit unstable. China was emerging but I had concerns aboutIT protection and intellectual property issues. India was themost matured segment with lots of players and a goodlegal system in place.’ The team visited a few vendors inIndia, including tier-1 vendors like Infosys, Wipro, othersmaller vendors, and decided to work with ISS. Explainingthe choice of ISS, Roger said: ‘At that time, ISS was amedium-sized, yet growing company. I didn’t want to work

Index 100 = 1996

Asia economic crisis

EU abolition 9/11 Iraq WarSARS

Global economic recession

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Figure 2 Major economic events and airport retail sales.Source: Generation Group, Sweden.

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Figure 3 Global duty-free and travel retail sales.Source: Generation Group, Sweden.


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with any tier-1 Indian vendors because I didn’t want to beso small that I was insignificant to them. I wanted to be ameaningful client to the partner so that I could get theattention I needed. Moreover, we were only starting out onoffshoring so I had to have the flexibility to change or pullout when needed.’ Another factor that weighed in favor ofISS was that it was a ‘hybrid’ offshore firm with presence inboth USA and India.

Testing the offshore watersInitially, GlobShop outsourced only a small piece ofproduction support, in order to minimize risks and assessthe benefits from offshoring. After the events following 9/11, GlobShop decided to extend its relationship with ISS tohand over all of its production support for its merchandis-ing system and few retail applications. The basic idea was toachieve a complete ‘follow the sun’ model for productionsupport where ISS began taking requests from data centersand business users from around the geographical regions.GlobShop entered into short-term agreements with ISS onfixed-price terms as it learned about the vendor andexperimented with the best ways of making offshoringwork. There were some initial kinks that had to be workedout. Neal remarked: ‘We found that the on-site resourceswere not as effective working with our business partners aswe had hoped. So we sat down with ISS and talked to themabout that, and two things happened. They changed someof the people and their process. And, we took moreresponsibility for the relationship and adapted the onshore/offshore model to work better in our environment.’ ISSdeputed Rahul Sharma as the on-site manager to coordinateand oversee the projects at GlobShop. Rahul brought twomore managers from ISS to work on-site. These managersacted as the liaison between GlobShop’s managers and theoffshore staff. These measures improved the workingarrangements between the two companies.

Satisfied with ISS’s performance in providing productionsupport, Roger decided to further experiment by focusingon more value-added projects. GlobShop engaged ISS toarchitect a data warehouse that would enable fasterreporting and provide business leaders with a view ofenterprise-level data. This project was very successful and ithelped win the confidence of business leaders. Roger said:‘When we offshored production support, it broughtvisibility and credibility from end users. When peoplesaw the results from data warehousing, we had the buy-infrom senior business stakeholders.’ He further elaborated:‘When you try a new offshore sourcing strategy, the projectneeds to be visible and to be meaningful to thestakeholders. However, the project cannot be so importantthat you are betting your entire business on it. That is veryrisky. What we achieved through data warehousingresonated throughout the organization and set the stagefor me to do a whole lot with offshoring.’

Laying the ground rulesBefore completely embracing offshoring, GlobShop had tohave some basic tenets in place. Roger explained: ‘As westarted thinking about offshoring, it became clear to methat we could do a lot with global offshoring that wasstrategic in nature and not merely cost-oriented, like 24� 7

productivity, costs moving from fixed to variable and thenotion of variable skills etc. We wanted to capitalize on thestrategic side of offshoringy therefore, we adopted an‘‘and’’ philosophy. That is, we had to reduce costs andimprove productivity, quality, speed and agility.’ He furthercautioned: ‘Outsourcing does not mean transferring theaccountability of IT to a third party. Always, the global ITwill be responsible and accountable for the IT outcomes.’

Roger developed an additional set of principles foroffshoring. The focus was to be on the business outcomes ofthe projects rather than on the specific activity offshored.Rather than enforce competitive bidding for every project,GlobShop would adopt a partnership approach to workwith a single vendor over a long term. Justifying thisapproach, Roger remarked: ‘If costs were the only focus,one can go with a bidding race among vendors. But ifoffshoring needs to be strategic, then a partnershipapproach is more appropriate. Partnership means treatingvendors as colleagues than as contractors.’

Designing the agreementGlobShop and ISS had separate 90-day agreements for theinitial support and data warehousing activities. GlobShoppreferred these agreements to be on a fixed-price basis.Neal explained: ‘We opted for a fixed-price model as therequirements were specific and very straight-forward.Payments to our partner were tied to specific milestonesand deliverables. We did not want any cost overruns orunanticipated surprises.’ In November 2002, GlobShopentered into a 3-year global offshoring agreement throughwhich ISS became responsible for selected new applicationdevelopment and support. The companies entered into amaster services agreement (MSA) that enabled creation ofseparate work orders or statement-of-work (SOW) for eachnew project or extensions of ongoing projects (see Figure 4).ISS’s responsibilities included analysis, documentation,knowledge transfer, guided support and stand-alone sup-port. Neal elaborated: ‘The standard business and legalterms that do not change over time were taken care of bythe MSA. Under the MSA, we did SOWs for each individualproject. The logic was that the typical legal stuff gotnegotiated once under MSA; however the CIO had theauthority to sign off on the SOWs – he could use differentstaffing models, rate structures and service levels in eachSOW.’

One of the hallmarks of the GlobShop–ISS agreement wasthe implicit gain-sharing incentives for the vendor. Ratherthan sharing a proportion of the savings on a one-timebasis, GlobShop agreed to reinvest the savings fromoffshoring back into IT, which could translate intocontinued revenue generation for ISS. Given GlobShop’sdifficulties in expanding the IT budget or makingsubstantial IT investments, the strategy was to channelthe cost savings realized from IT offshoring back into newervalue-added IT initiatives. Roger remarked: ‘As ISS helps usreduce our costs, we redeploy those dollars into other ITprojects. We are going to go back to ISS first to getthose projects done. This was a win-win situation for bothof us.’

Another noteworthy part of the relationship was theflexibility to plug-and-play IT resources according to the


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needs of IT initiatives. Under the global offshoringagreement, ISS committed to maintain a talented pool ofoffshore staff with retail and Globshop-specific knowledge.Depending on the specific project requirements, thecompany would have just-in-time IT resources. Nealcommented: ‘We get a well-educated, knowledgeable andscalable IT team using a just-in-time global sourcingphilosophy where we get the best talent, as needed, quickly.We don’t mind paying more for this kind of flexibility. Weare using fewer hours of the best available skills andexperience, rather than employing moderately skilled talentfull time and using only a portion of the available capacity.’

Under the 3-year deal, several IT tasks were offshored toISS. Apart from consolidation, maintenance and ongoingsupport for core merchandising system, projects that weregiven to ISS included support for the ERP modules andpoint-of-sales systems, development of intranet site andcontent management processes.

Executing offshoring – managing the change processWithin GlobShop, the offshoring effort was to be imple-mented as a part of its overall IT reorganization. Thebusiness impacts of the September 11 event forced thecompany to adopt a more aggressive strategy and accelerateits reorganization efforts. Senior management demanded afaster reorganization and quicker results. The IT leadershiphad to not only accelerate cost reductions but also copewith increased demands from corporate management toimprove the speed and quality of IT offerings. Roger said:‘When we came up with our strategy for global IT re-organization, we anticipated a 36-month period for thecomplete re-organization. However within weeks after 9/11,business mandated drastic cuts across entire enterprise.Our goal was accelerated to 9 months.’

Handling workforce reductionsReengineering the old structure and accelerating theconsolidation was more difficult than initially anticipated.An aggressive offshore strategy implied reducing asignificant portion of the IT workforce. Dave Blanks, anIT manager, recollected the mindset that prevailed: ‘Noneof it was comfortable. GlobShop was a great organization towork for and we had people with over 25 years of

experience in the company. The decision to layoff had veryserious emotional impacts.’ GlobShop had to determinehow many people and whom to retrench, whether to carryout the workforce reduction in multiple phases, and how tocommunicate its intentions to the employees. The timing ofthe downsizing was critical because GlobShop had to workon transferring critical knowledge from affected workers toother staff and the vendor. Roger elaborated:

A big issue that we faced was how to handle peoplechanges. We had to worry about perceptions of internalstaff, external stakeholders as well as the community.Some managers wanted to do the layoffs in phases,hoping that the business would turn around so thatfuture cuts can be avoided. Others opposed the ideaarguing that phased cuts will create lots of uncertaintyamong remaining employees. We also wrestled with‘telling-them-now’ or ‘tell them at the last minute’. Therewas staff who had to be cut but whose knowledge had tobe transferred. We tussled with how to convince them tostay for a specific time period.

Quick retrenchment was problematic as GlobShop did nothave a good documentation of its IT systems andapplications. Knowledge transfer was a serious concern.Neal noted: ‘There wasn’t much documentation and a lot ofknowledge was in people’s heads, those who had beenaround for a long time.’

The initial hesitations not withstanding, the companycommunicated its intentions to accelerate offshoring andreduce a significant number of employees. Over a period oftime, three out of four IT jobs were to move offshore. Thesenior management took charge of the process to ensure itdid not turn out to be a very painful experience. Roger said:‘open communication is very important. We were open andhonest with people about what we were doing.’ Commend-ing the senior management’s role, Neal remarked: ‘Our CEOplayed a very critical role in how well he reached out to theemployees and communicated with them in this process.’

GlobShop’s management worked out a package foremployees affected by downsizing. A severance paystructure was put in place. Another key element wasretention pay for the IT staff whose knowledge had to be

Master Service Agreement

OperatingPrinciples

SOW 1 SOW 1 SOW n

SLA 1 SLA 2 SLA n

Shared procedures and processesbetween client and vendor

Broad, legal terms ofthe agreement

Acceptance Criteria

Specifics of the work to be performed

Metrics Metrics Metrics

Technology and Business metrics for performance assessment

Figure 4 Structure of agreement.


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extracted and transferred. Neal elaborated: ‘We had totransfer the knowledge from people’s heads to eitheranother employee or to our offshore vendor. We signifi-cantly increased their bonuses if they stayed for a timeperiod to productively transfer the knowledge they had.’ Inaddition, GlobShop also offered career transition assistancethrough a third party by which the employees couldidentify and apply for appropriate positions in otherorganizations.

Reflecting on his actions, Roger believed that thesemeasures greatly helped the transition process: ‘I personallymet with everyone who was going to leave our company.We told people well in advance that layoffs were coming.The employees, though discontent, were happy that we toldthem the truth. In addition, we gave them some runway andalso provided significant support for them to find new jobs.That was key – to be honest and open, and offer additionalsupport.’

Soon after the announcement of layoffs, a number ofoffshore-implementation issues demanded managementattention. These issues concerned many elements ofgovernance process between ISS and GlobShop and theday-to-day working arrangements.

Improving vendor relationship and governance processWhen ISS was entrusted with the responsibility ofproduction support for core merchandising systems, ISSsent its personnel to each region. These people spentseveral weeks on-site, learning and documenting theprocesses, systems and related issues. GlobShop’s IT staffworked closely with ISS’s personnel to enable easy knowl-edge transfer and transition. Rahul Sharma, projectmanager from ISS, commented: ‘Tracing and documentingthe entire set of systems was tedious and time consuming,but was necessary for us to take over the productionsupport. GlobShop was very co-operative and offered fullsupport.’

Roger took specific steps to help overcome the culturaland social differences between the offshore staff and theglobal IT team. Specific training sessions were conducted toimpart an understanding of multiple cultures and valuesystems and ways of addressing cultural differences.Workshops on diverse teams and teamwork were alsoorganized (Figure 5 presents a snapshot of outcome fromsuch a workshop). An analyst commented: ‘We haddiversity experts who taught us how cultures vary andhow to recognize and work with such differences.’

The relationship between GlobShop and ISS expandedsignificantly. From a transactional mode, Roger wanted toforge a tighter partnership so that ISS could play a moreproactive role in providing value-added services as well asin identifying newer IT opportunities. He created teamscalled the ‘communities of practice’ (COPs). The COPsconsisted of core project participants drawn from thebusiness, IT and the offshore vendor. Roger explained:‘Each COP is made of different entities with specific areas offocused expertise, and all COPs are integrated by theGlobShop IT management team, to contribute interdepen-dently towards accomplishing overall business goals.’ Therewere two fundamental objectives behind the formation ofCOPs: (1) To ensure that the offshore vendor is completely

infused into GlobShop so that the vendor works as a mereextension of GlobShop’s IT unit. This implied that theoffshore vendor personnel were treated as internal collea-gues rather than as external contractors. (2) To bring thetechnology, user and vendor personnel together.

Commenting upon his role in the COP, Rahul (ProjectManager, ISS) said: ‘Through the communities of practice, Igot a seat at the table where GlobShop made key IT-business decisions. I felt I belonged to GlobShop.’ When theCOPs were initially set up, considerable concerns wereexpressed about the changed roles of the vendor. Rahulrecollected: ‘I was invited to top-level meetings and sawmany people wonder what I am doing in that meeting. Isensed a silent uneasiness.’ However, as GlobShop’sexecutives started seeing some promising results, the ideaof COPs gained quick and widespread acceptance. TheCOPs also helped change the mindset of the vendor. Rahulremarked: ‘We had to re-orient ourselves and see what wecould really do to improve the bottom line of their business.If we were on some sales-mode trying to simply sell oursolutions or services, they’d have thrown us out.’

Onshore/offshore management structureIn the initial days of their relationship, working arrange-ments between GlobShop and ISS were largely informal.However, as ISS took over the maintenance of a significantportion of GlobShop’s merchandising system, the twocompanies decided to develop a more formal structurefor working together. The structure provided a morecoordinated way for the business users, GlobShop’s ITstaff, ISS’s on-site specialists and the offshore team to worktogether (Figure 6). The two companies also agreed on acommon set of principles for onshore/on-site/offshorestaffing. Neal explained:

The ratio of onsite/offshore/onshore staff varies on eachproject as we progress through the different phases ofthe project lifecycle. The appropriate team ratio for aproject is arrived by jointly taking into account the cost,services, project needs and effort. For any new work, wetypically start with a larger on-site staff that slowlytransitions offshore as the requirements of the projectbecome more stable.

For most maintenance projects, ISS followed a typicalsequence: analysis and documentation, knowledge transferand service phase. While more on-site staff was required inthe analysis phase, this staff was transitioned offshore as theknowledge transfer and learning improved. The offshoreteam became more independent in the service phase. Forsome of the early application support and maintenanceprojects, 30% of ISS’s staff was dispersed on-site with 70%offshore. Gradually, most of the application supportprojects achieved on-site to offshore ratios of 10% to90%. For application development projects, the on-site-offshore ratio varied from 60–40 to 30–70.

Initial results from offshoringWithin 18 months of the global sourcing arrangement,GlobShop reduced its IT expenses by 35%. As planned, the


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IT organization at GlobShop was reorganized and con-solidated in two locations – one in USA and one in Asia,with an extended offshore team located in India. The globalIT staff shrank 43% in the first year, and 59% in the secondyear of MSA. The legacy applications that resided in over 24

AS400 machines in 10 regions were consolidated into onemachine and the support work was moved offshore.GlobShop conducted a user satisfaction study that showedan improvement from 2 to 3.5 on a 5-point scale since theystarted offshoring.

Commitments

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Affirmation

Support

Team work

Value diversity

Trust

Benefit of doubt

Be inspirational

Strive for excellence

Take ownership

Share responsibilities

Understand

Leverage

Blend

Value styles

Trustworthy

Trusting

Understand others

Early involvement

Continuous Improvement

Understand your role

Understand the processes

Challenges & course correct

Share priorities & goals

Work within the organization

Gain commitment

defined

Understand purpose

& direction

Understand priorities

& outcomes

Communications

Text

RelationshipsOrganisation

Blame

Don’t

Embarrass

Say one thing &do

another

Confrontational

Defensive

Agree & Align

Learn

Challenge

Be proactive

Be Positive

Collaborative

Empower

Respect

Be Patient

Have fun

Celebrate success

Be compassionate

Take vacations

Do’s Then to be understood

Seek first to understand...

Behaviour

Active

Figure 5 Enhancing global teamwork: snapshot of output from workshop.Source: Internal company records.


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Expanding the relationshipEnthused by these results, GlobShop decided toaward additional projects to ISS under the broader MSA(Figure 7 presents the key IT responsibilities at GlobShop).ISS studied a number of IT opportunities and suggestednew initiatives for GlobShop. Subsequently, ISS wasasked to work on several projects – development ofGlobShop’s internal and external web sites, improvingthe technical architecture, site performance, navigationand content management processes and also performinginfrastructure tasks. As a value-added service, ISScreated a web-based knowledge management systemabout GlobShop’s systems that was required for ongoing

maintenance and support, and a web-based task manage-ment system to capture detailed project activity. Theinformation captured from these two systems enabledGlobShop to better assess the offshore projects. Thenumber of ISS staff who worked on GlobShop’s projectsalso trebled.

Taking stock and moving forwardAs GlobShop neared the end of its 3-year sourcingagreement with ISS, Roger confronted several seriousquestions. Should GlobShop continue to move morevalue-added IT work offshore? Should it renew itsagreement with ISS? The company had managed to weathereconomic storms and gained incremental revenue growth.The company had plans to streamline its global supplychain and implement some advanced EDI solutions. It alsoneeded to work on migrating from legacy environment tomore advanced platforms.

Pleased with the offshoring results thus far, the seniorleadership at GlobShop was willing to move newer ITprojects offshore. Dan Cwik, Vice President of RetailOperations, remarked: ‘I am very impressed by ouroffshoring experience and I think it is a very good solutionto have our IT work done in India. Offshore outsourcinghelps us focus on exactly what our business is – globaltravel-retail. I don’t believe doing this work internally isgoing to make us more competitive.’ Sally Curry, VicePresident of Finance, expressed similar sentiments: ‘In thevolatile environment in which we operate, our main task isto focus on improving our retail business. That means

ISS OffshoreDelivery Manager

IT Directors

Project Managers

IT Staff

ISS On-SiteCoordinator

ISS ProjectManagers (On-site)

Business Users

Analysts /Developers (On-site) Project

Manager

CIO

ISS

OffshoreTeam

Figure 6 On-site/offshore management structure.

Global IT

Operations

Global Support

LocalSupport

Vendor

Offshore

GlobShopIT

Orgn

Projects

Global

Apps

Global ITManagement

VendorDevt

IT-Business

Align.

Servers

Desktop

User Req. Mgt

Maint &

Enhance

App Support

Adhoc Queries

Reports

Variable Resources

Specialist Expertise

Security

Network Mgmt

S/W Licensing

H/W

S/W

Upgrades

Design

DB & DW

BusinessRelationships

Contracts

SLAs

Reviews

Business

Strategy

IT Purpose

Direction

Management

Projects &

Enhancements

Budget

Strategy/Vision

Partnerships

Communiques

Policies/Procedures/

Standards

App. Profiles

IT Performance

Reviews

Change mgmt

Development

PC

Figure 7 Key IT activities at GlobShop.


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expanding geographically and into other travel-channels tobuffer against economic events, improving efficiency inoperations and streamlining supply chain. Informationtechnology, while obviously an important part of ouroperations, can be handled well by our offshore partner.Each dollar that is saved from offshoring can be reinvestedin our business.’

However, a section of executives believed that despite thesuccess of offshore projects, entrusting the responsibility ofcritical projects like supply chain initiatives to an offshorevendor is ‘too risky.’ Roger noted: ‘We have a few projectsin our pipeline that are quite critical in nature, for example,advanced EDI linkages with vendors. Some businesscolleagues have expressed apprehensions about givingthese projects entirely to our offshore partner. We are stilldebating what should be retained internally and whatshould be offshored.’ Some of the IT managers wonderedwhether increased offshoring would simply erode theirrelevance in the company. Neal argued: ‘This can be veryrisky. You’re talking about more offshoring and that mayplace our mission critical tasks with the external vendor.This could also mean further layoffs and reduction of ourIT group. So, what is our future?’

Over the past few years, ISS has grown to become one ofthe leading offshore vendors in India. Its clientele hasexpanded to include top retailers and several Fortune 1000firms. In 2004, Rahul Sharma and two of ISS’s on-siteproject managers were promoted and transferred to otherISS clients. Some of GlobShop’s IT staff felt that ISS wasdiverting its ‘star employees’ and resources to moreprestigious clients. Neal said: ‘We had some new managers[from ISS] but I felt it wasn’t like our old team. These newguys also had a steep learning curve. They were no match tothe group we had earliery. There was also an instancewhere we had to request them [ISS] to replace one of the[ISS] managers.’ Dave Blanks added: ‘These [Rahul and histeam] people were very valuable. They knew our business,systems, formed good relationships with our managers andusers. It cannot be replaced very easily.’ Roger wondered ifGlobShop would continue to receive the ‘special treatment’it got from ISS.

Another issue that worried Roger was the extent ofGlobShop’s reliance on ISS. The company has becomecritically dependent on ISS for many of its IT operations.Some of the GlobShop managers felt it risky to work with asingle offshore vendor and preferred to spread the work tomultiple vendors. Larry Katz, Manager at the Global DataCenter, argued:

When we started working with ISS, we wanted to be ableto pull out [of the relationship] anytime. We didn’t wanta situation where we became too dependant on them[ISS]. But now, I fear our dependence has reached acritical level. They [ISS] have grown big and can dowithout our account. For us, it may not be possible to livewithout them. I think it will be better to work with a fewvendors so that we can spread the risks.

Neal was also concerned: ‘We don’t want all our eggs in onebasket. The offshore market has grown. We can definitelyshop around for other vendors. There are others who arecompetent as well as cheaper.’

The Vice President of Finance, Sally Curry, had analternate viewpoint:

I don’t think working with multiple vendors will be cost-effective. It is going to drive our overheads up. We arehappy with what we got from ISS – Why not just continuewith them? It is going to be very expensive to find newpartners, help them learn, transfer all the knowledge. Wecannot afford that.

A larger issue that was looming in Roger’s mind was thefuture of IT organization and its relevance in GlobShop. IfGlobShop continued offshoring more value-added and coreactivities, what purpose would the internal IT unit serve infuture? It might simply be a matter of time before the entireIT function was farmed out.

Note

1 The authors have prepared this case solely to provide materialfor class discussion. The authors do not intend to illustrateeither effective or ineffective handling of the managerialsituation. The authors have disguised the names and otheridentifying information to protect confidentiality.

About the authorsC Ranganathan is an associate professor in the Departmentof Information and Decision Sciences at the University ofIllinois at Chicago. His current research interests include IToutsourcing and offshoring, IT and e-Business strategiesand business value of IT. His academic recognitions includethe best doctoral dissertation award and the best teachingcase award at the International Conference on InformationSystems, and best paper awards given by the Society forInformation Management. His work has been published injournals such as Communications of the ACM, DecisionSciences Journal, European Journal of IS, Information &Management, IEEE Transactions on Engineering Manage-ment, Information Systems Research, International Journalof Electronic Commerce, Journal of IT, MIS QuarterlyExecutive, among others. He holds a doctorate from theIndian Institute of Management, Ahmedabad, and amaster’s degree from BITS, Pilani (India).

Poornima Krishnan is a doctoral student in the Depart-ment of Information and Decision Sciences at theUniversity of Illinois at Chicago. Her research interestsinclude outsourcing governance, offshore outsourcingmanagement, IT service management and quantitativeresearch methods. She has published and presented herwork in conferences such as International Conference onInformation Systems and Academy of Management Meet-ing, among others. She has also worked in industry indifferent business/IT roles prior to entering the doctoralprogram. She holds an MBA degree from Narsee MonjeeInstitute of Management Studies, India.

Ron Glickman is the Senior Vice President of global qualityprocesses and integration at UTI Worldwide. Glickman wasmost recently responsible for the retail and hospitality


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vertical at Cognizant Technology Solutions. He has over 30years of experience in information technology manage-ment. He has held senior executive positions, including theoffice of CIO, in firms in USA and Asia-Pacific. He has beeninstrumental in numerous IT initiatives to achieve opera-

tional efficiencies, enable business growth and derivecompetitive advantage. He has been a speaker at severalexecutive forums and conferences. Glickman holds a BBAfrom National University and an MBA from the Universityof Southern California.


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crafting and executing an offshore it sourcing strategy: globshop's

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