Martin V. Smith School of Business & Economics California State University Channel Island BUS 550 The Contemporary Firm Spring 2011 Instructor: Dr. Minder Chen, Associate Professor of MIS Student: Natalia GorbunovaOUTSOURCINGStrategic Advantages: Offshore OutsourcingSummarySlide 5Slide 6Slide 7Issues Organizational Issues:Project Level Analysis Offshore Supplier SizeProject Level Analysis Supplier Engagement ModelProject Level Analysis Contract ValueProject Level Analysis Project DurationProject Level Analysis Organizational UnitsProject Level Analysis Project TypeProject Level Analysis Project start yearFour Insights for Clients and SuppliersQuestionMartin V. Smith Martin V. Smith School of Business & EconomicsSchool of Business & EconomicsCalifornia State University Channel Island California State University Channel Island BUS 550 The Contemporary FirmBUS 550 The Contemporary FirmSpring 2011Spring 2011Instructor: Dr. Minder Chen,Instructor: Dr. Minder Chen,Associate Professor of MISAssociate Professor of MISStudent: Natalia GorbunovaStudent: Natalia Gorbunova A US Client’s learning A US Client’s learning from outsourcing IT from outsourcing IT work offshorework offshoreOUTSOURCING OUTSOURCING Today, more than 75 Today, more than 75 percent of companies percent of companies outsource some IT outsource some IT functions to outside functions to outside service providers.service providers.Strategic Advantages: Offshore Strategic Advantages: Offshore Outsourcing Outsourcing Cost Generally, outsourced services cost you a fraction of US (30-50%) costs with equal quality.  FocusThe most valuable resource within your management resources is Time. Once a process is successfully outsourced, the management gets more and effective control over time.  Rapid Migration to New TechnologyExploit the Time Zone Advantage and reap the benefits of 24-hour development cycleSummarySummaryCase present analyses of IT offshore outsourcing of the abstract Case present analyses of IT offshore outsourcing of the abstract Biotech companyBiotech companyThe company employs 15 000 people, has 400 locations in 40 The company employs 15 000 people, has 400 locations in 40 countriescountriesBiotech is a Fortune 500 company and a leading provider of Biotech is a Fortune 500 company and a leading provider of biotechnology productsbiotechnology productsIn 2001 it experienced flat revenues, and was need to cut the In 2001 it experienced flat revenues, and was need to cut the budgetbudgetFor 2002 the IT budget were reduced by 5%.For 2002 the IT budget were reduced by 5%.““Doing more with less”: became the CIO’s major challenge for Doing more with less”: became the CIO’s major challenge for 2002.2002.SummarySummaryThe CIO and IT Leads replaced domestic contractors with The CIO and IT Leads replaced domestic contractors with cheaper offshore IT workers ($65 per hour compare with cheaper offshore IT workers ($65 per hour compare with $25 per hour in India)$25 per hour in India)Biotech launched 21 projects offshore in 2003 to 2005Biotech launched 21 projects offshore in 2003 to 2005Program Management Office (PMO) always reported that Program Management Office (PMO) always reported that offshore outsourcing is successful in meeting Biotech’s cost offshore outsourcing is successful in meeting Biotech’s cost saving targetssaving targetsIT Leads and CIO did not agree with PMOIT Leads and CIO did not agree with PMOThe case is analyzing data of the company offshore The case is analyzing data of the company offshore outsourcing outsourcingSummarySummaryAnalytics interviewed 45 participants and explored 2 000 Analytics interviewed 45 participants and explored 2 000 significant documentationsignificant documentationThey asked participants to give grades for the projectsThey asked participants to give grades for the projects Considering the degree to which projects objectives were Considering the degree to which projects objectives were met, budgets and schedules and the quality of delivering met, budgets and schedules and the quality of delivering product.product.ProjectProjectNumber of participants who assign a Number of participants who assign a gradegradeLetter grades assigned Letter grades assigned by participantsby participantsAverage project rating using A=4, A-/B+=3.5, B=3, Average project rating using A=4, A-/B+=3.5, B=3, B-/C+=2.5, C=2, C-/D+=1.5, D=1, D-/F+=0.5, F=0B-/C+=2.5, C=2, C-/D+=1.5, D=1, D-/F+=0.5, F=0Standard deviation of Standard deviation of average project average project ratingratingAA33C+,D,FC+,D,F1.171.171.261.26BB11C-C-1.51.5N/AN/ACC33D+,D,A-D+,D,A-221.321.32DD55F,F,F,F,FF,F,F,F,F0000EE33F,C,BF,C,B1.671.671.531.53FF44C,B,B,DC,B,B,D2.252.250.960.96GG55A,A,A,B,BA,A,A,B,B3.63.60.550.55HH44F,F,F,DF,F,F,D0.250.250.50.5II11DD11N/AN/AJJ22B,C-B,C-2.252.251.061.06KK22F,DF,D0.50.50.710.71LL33A,A,CA,A,C3.333.331.151.15MM44C,D,C-,BC,D,C-,B1.881.880.850.85NN44C,F,F,FC,F,F,F0.50.511OO33B+,B+,B+B+,B+,B+3.53.500PP33B,C+,D+B,C+,D+2.332.330.760.76QQ99D,C,D,D,B,B,F,B,BD,C,D,D,B,B,F,B,B1.891.891.171.17RR22C+,DC+,D1.751.751.061.06SS11C-C-1.51.5N/AN/ATT11DD11N/AN/AUU33C-,B,BC-,B,B2.52.50.870.87OverallOverall1.73(mean)1.73(mean)1.75(median)1.75(median)1.021.02IssuesIssuesOrganizational Issues:Organizational Issues:•Strong social networks between Biotech IT employees and Strong social networks between Biotech IT employees and domestic contractors were not replicated with offshore domestic contractors were not replicated with offshore suppliers.suppliers. (they worked in same cubicles, attended same meetings)(they worked in same cubicles, attended same meetings)Biotech’s “sneaker-net” culture were not possible to duplicated.Biotech’s “sneaker-net” culture were not possible to duplicated.Researches could not transfer information outsideResearches could not transfer information outside (before everybody just had notebooks for the reason to avoid the (before everybody just had notebooks for the reason to avoid the licking of information)licking of information)Cultural differencesCultural differencesIT Leads summed: ‘ The place could be on fire, but Indian IT IT Leads summed: ‘ The place could be on fire, but Indian IT workers would say, ‘ Oh it’s great, a little warm, but it’s great!”workers would say, ‘ Oh it’s great, a little warm, but it’s great!”Project Level Analysis Project Level Analysis Offshore