Crafting & Executing an offshore IT

sourcing strategy Globshops experience

A presentation by group 9
Radha Narayanan
Ankit Sachdeva
Manisha
Nirmal
Apurv Misra

Case Background

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 events

Challenges 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.

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

Framework
Decision of centralized vs decentralized system
Benefits

Easier to implement common policies

Avoids duplication of resources
Easier to control budgets from center
Economies of scale & overhead savings
Greater use of specialization
Decision of outsourcing

Risks
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

Dilemma in the case

The protagonist Roger Dean- CIO of Globshop has to decide on the following:
1. Should Globshop extend & renew the contract with ISS?
2. To what extent should Globshop outsource their IT operations?
3. Will ISS continue to deliver quality results?
4. 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 phase

Implications to internal IT
team

Determine how many people &

whom to retrench
In how many phases to carry out
the layoffs
Timing of communication & downsizing
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 forward
Globshops plan for future:

Streamline global supply chain & implement advanced

EDI solutions
Migrating to advanced platforms

Benefits 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 costs

Risks 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 ISS

Recommendations 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