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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Teaching case

Crafting and executing an offshore IT

sourcing strategy: GlobShop’s experience
C Ranganathan1, Poornima Krishnan1, Ron Glickman2
1
Department of Information and Decision Sciences, University of Illinois at Chicago, Chicago, IL, USA;
2
The 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]

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

Introduction
n November 2005, Roger Deen, the CIO of GlobShop, and that Roger examine the possibility of pushing more

I his team of information technology (IT) Directors sat in a

conference room at the company’s headquarters in Boston
to discuss the imperatives facing them. GlobShop was a five
projects offshore.
Within the next few weeks, Roger will have to decide
whether GlobShop should extend and renew its outsourcing
billion dollar firm that operated over 200 duty-free and agreement with ISS. To reduce the risk of becoming ‘over-
general merchandise shops in airports, hotel lobbies and dependent’ on ISS, the company has been mulling over
downtown locations across Asia, Australia, North America using multiple offshore vendors rather than exclusively
and Europe.1 Being a niche player in the travel-retail relying on ISS.
industry, the company’s performance swayed with changes Another issue that needed Roger’s attention was the
in air travel, tourist traffic and related economic events. future role of the internal IT function at GlobShop. If the
Since the events of September 11, 2001, GlobShop has been company decides to move more IT activities offshore, it
engaged in a series of cost-reduction efforts, including should carefully assess its implications for the internal IT
offshoring a significant portion of its IT work. group. GlobShop had reduced its IT workforce by over 50%
Roger was contemplating moving more IT work offshore. and additional cuts could simply decimate the IT function.
GlobShop has been working with an Indian vendor, With over 60% of the IT spending concentrated on offshore
Indo-Systems Solutions (ISS), to take care of application activities, Roger wondered about the future steps.
development, support and maintenance of merchandising
and retail systems, and technical support for the company’s
IT infrastructure. These initiatives have helped reduce Background
IT expenses by over 35%. The business leadership ‘Duty’ is a generic term used to describe a variety of taxes
has demanded additional cost reductions and has suggested imposed on goods. Duty-free shopping enables international
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
441

travelers to purchase foreign goods at lower prices. Corporate restructuring

Merchandise such as liquor, perfume, tobacco products In 2000, a leading luxury retailer (Lux) bought a majority
that are subject to high taxes and duties are hot products in stake in GlobShop. Lux owned several brands in wines
duty-free stores. Duty-free shops are typically located in and spirits, perfumes, cosmetics, watches, jewelry, fashion
international airports, selected hotels, tourist attractions and leather goods. Through this acquisition, GlobShop
and other areas that are designated as ‘foreign trade zones.’ gained access to famous brands and premier luxury items.
Founded in the 1950s, GlobShop sold foreign cars and GlobShop also had a new executive team. A troika of CEO,
liquor in US military bases abroad. As the idea of duty-free CFO and CIO took over the management of GlobShop.
shopping picked up in Europe, the company opened stores Their immediate task was to address the decline in corpo-
in selected European and Asian airports in the 1960s. rate performance. An obvious challenge was to reduce costs
Spurred by the growth in international travel in the 1970s drastically as well as improve profitability.
and 1980s, GlobShop expanded its presence to airports in Instead of relying solely on airport stores, the manage-
Australia, New Zealand, USA and UK. Soon, the company ment sought to actively expand into sea-travel retail.
became a profitable player in the small but growing travel- GlobShop acquired a cruiseline firm that operated port
retail market. Despite the entry of several global competi- stores as well as on-board ferry shops. However, revenues
tors, GlobShop remained one of the leading players in this from sea-travel retail formed only a small proportion of
niche segment. The company expanded into several overall revenues. Therefore, the executive team began to
countries by acquiring smaller players. In the late 1980s, aggressively pursue cost-reduction efforts. Proliferation of
the company opened large, duty-free specialty stores in a retail operations at different regions highlighted the
few major cities in USA and Europe. These stores were growing need for more effective coordination of diverse
multi-department luxury retail outlets that carried a range operations. The senior leadership at GlobShop heavily
of items including tobacco products, wines, liquor, confec- debated on the merits and demerits of a centralized vs
tionary, perfumes, jewelry, silverware, gift items, souvenirs, decentralized business set-up. Roger explained:
memorabilia, travel goods and other products.
The Gulf War in 1991 severely affected international Our airport retail is essentially a concession-driven
tourism. Since airport retail formed a major portion of business. In such a business, one must re-win the
GlobShop’s revenues, its sales slumped by over 15%. To business every five years or whenever Government (or
compensate for the losses, GlobShop closed a few specialty an airport authority) commences a RFP process for retail
stores and halted its expansion plans. As the business space. Decentralized operations allow all costs to be
picked up, GlobShop acquired some smaller players as a added or eliminated with each win or loss. A centralized
means to enter additional countries. Soon, the company structure has fixed costs associated with operations that
was organized into 10 regional business units as a cannot be reduced 100% when business is lost. Therefore,
decentralized set-up. However, acquisitions and expansion in a volatile environment, decentralized organization
left considerable diversity in business processes, managerial gives us the flexibility to add or reduce our operations
practices, supply chain structures and systems across the and scale it according to business fluctuations.
company. Dan Cwik, Vice President of Retail Operations,
elaborated:
A decentralized set-up also implied duplication of efforts
and lack of standard processes that ultimately increase the
Our organization was very diverse in terms of business operational costs. The leadership sensed significant savings
processes and practices. Different countries had different by centralizing a number of activities. As a result, the manage-
ways to handle duty-free shopping. In some nations, a ment announced a reorganization by which GlobShop
customer could take duty-free products straight out would streamline its business processes and reduce
of the store. In some other countries, they had to buy it redundancies by adopting a major restructuring. This
in-store and get it delivered on the flight or at their meant redefining a number of operational and management
destination. Some countries supported the concept processes and centralizing them at the corporate level. Dan
of duty-free as well as duty-paid products. We had to Cwik, Vice President of Retail Operations, noted: ‘We had
deal with different supply chain structures and retail duplication of systems, people and processes throughout.
processes. We figured that we could consolidate a number of these and
do them in a common way. So, we decided to take the costs
out by standardizing and centralizing a number of our
In the 1990s, Asian tourists, who had been targeted as the
processes. And it was clear that information technology was
focused customer segment by the company, represented a
the best route to achieve this.’
high potential market. GlobShop was successful in attract-
ing and establishing its name among Asian travelers. While
this worked well initially, the changes in the global
economy in the late 1990s caused considerable hurdles to IT organization at GlobShop
GlobShop. In particular, the East-Asian economic crisis in IT operation at GlobShop was highly decentralized
1997 created ripple effects in several Asian nations affecting (Figure 1). Each region had its own IT division that catered
stock markets, currencies and exchange rates, subsequently to the local needs. A corporate IT group served the needs of
leading to economic recession. Triggered by these events, the global headquarters in USA, in addition to providing
international travel and tourist spending declined, creating shared IT services like email. Each of the 10 regional IT
a snowball effect on GlobShop’s revenues. divisions functioned independent of each other and was
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
442

Corporate IT

Shared Services

Operations

Help Desk & Support

Regional Business
Unit (Presidents)
Infrastructure

Retail Operations Finance Development Analysts

Project Management Finance

Regional IT
(IT Directors)

Development Finance Help Desk & Operations

Support

Figure 1 Decentralized IT organization.

headed by a regional IT Director who reported to the applications had over 15000 objects such as programs,
President of the regional business unit, with a dotted databases etc and had over 5 million lines of code. We
relationship to the corporate CIO. Each regional unit dissected our IT dollars and precisely knew how much each
funded local IT projects and operated under a distinct IT of the IT services cost us. We were spending much more
budget. A natural outcome of such a decentralized set-up than what we ought to be.’ The analysis revealed that
was duplication of applications, services and technology GlobShop was spending over 60 million dollars annually on
resources. Neal Parker, Director of IT, observed: ‘We had IT. Reorganization would help them save more than one-
several legacy applications that ran in different regions that third of these costs.
were expensive to maintain and couldn’t communicate with Roger had extensive discussions with IT Directors and
each other. We had multiple versions of the same business unit leaders at each of the 10 regions. Further,
application. Despite a corporate IT, the regional IT units Roger convened planning retreats and brainstorming
functioned independently. This resulted in many redundant workshops that helped discover a number of issues. The
resources – infrastructure, software, hardware and people. presidents of the business units were concerned that
All these added to our IT overhead costs.’ the consolidation would distance the regional users from the
GlobShop had several legacy merchandising systems in IT group. Moreover, centralization also implied a signi-
the 10 regions. Each region also had a data center storing ficant loss of control over IT. Neal remarked: ‘There was a
unit-level sales information. Further, GlobShop had SAP lot of reluctance and resistance to give up local IT
financials and Peoplesoft HR systems. For retail processes, resources to a global pool. They felt they won’t be any
the company had two different point-of-sales applications longer able to walk to a programmer’s desk, make a request
across the stores worldwide. GlobShop had a resource pool and get it fulfilled on-demand. There was concern that
of over 300 IT employees across the 10 regions. this was going to impede their ability to do what they
have been doing and also take away their control. There was
a tremendous amount of resistance.’ Roger highlighted
Centralizing IT management another issue: ‘We were largely running our IT departments
In 2000, in order to facilitate the corporate restructuring simply by managing-by-wandering-around model. Adopt-
effort, Roger was entrusted with the responsibility of ing a global delivery model with a centralized set-up
consolidating the IT organization. Roger’s mandate was to required a very different set of competencies.’ However, the
spearhead the realignment of GlobShop’s regional IT set-up high pressure to prune costs and the clear mandate from
into a global unit, along with associated changes in business the top helped GlobShop move forward with its IT
processes. A major IT reorganization would not only reorganization.
facilitate streamlining diverse business processes and After studying the problems and issues, Roger proposed
systems worldwide, but also pave the way for significant a three-pronged approach for the reorganization. The
cost savings. Roger’s background was also particularly central idea was to consolidate the 10 regional IT units
suited for the reorganization initiative: he knew the into one global IT unit, with all of the IT operations
company’s retail business well and had seen how an dispersed in two centers, one in Asia and another one in
integrated operation could achieve efficiencies; he also had USA. The new IT vision was to have ‘one global team
an international background with significant work experi- without boundaries, delivering acknowledged value and
ence in Asia-Pacific and North American regions. exceeding customer expectations.’ The highlights of the
Roger and his team embarked on an extensive study of new reorganization were:
regional IT units. Detailed information on the IT resources,
applications and spending was gathered. Neal elaborated,  Centralized global IT budget: Under the new arrange-
‘It was an eye-opener for us. We had over 250 internally ment, the funding for IT would be centralized. The
developed applications across the ten regions. These regional IT units would no longer pay for the IT services
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
443

directly but through corporate allocation and a charge- for GlobShop. The company suffered a severe setback when
back system. it was still implementing its reorganization. Dan Cwik said:
 Streamlined IT governance: Neal Parker, Director of IT, ‘9/11 created havoc. Fewer passengers meant fewer dollars,
commented: ‘We planned a new set of centralized, cash flow crunch, store closures, halting expansion. We had
formalized processes in place about how we were going to cut costs drastically. We realized we had to make some
to manage our IT. Any major application development or radical changes.’ These provided the trigger for offshoring
IT-related service request had to be centrally submitted. IT tasks and realizing significant savings. Roger explained:
It would be assessed, prioritized and resource allocation ‘After 9/11, we looked down the barrel of having to
be made accordingly.’ This implied serious changes in transform the way we run our business. We looked at
the way different functional and regional units interacted offshoring as a means to do that.’
with IT. Further, all the IT initiatives would be classified
into three categories: capital initiatives, expense initia-
tives and support related. While capital initiatives were to Finding the partner
be decided and driven by business, expense and support Roger and his team began by looking at potential offshore
initiatives would be handled by the IT unit. locations and vendors. They assessed Canada, Eastern
 Consolidation and standardization: IT operations at the Europe, China and India. Roger recounted: ‘I looked at
10 regional centers were to be consolidated into two different geographies and at that time Eastern Europe was a
hubs, one in USA and one in Asia-Pacific. Twenty AS 400 bit unstable. China was emerging but I had concerns about
systems operated at the regional centers would be IT protection and intellectual property issues. India was the
consolidated into the two hubs. Multiple instances of most matured segment with lots of players and a good
the applications would be minimized and information legal system in place.’ The team visited a few vendors in
stored in a centralized data repository. India, including tier-1 vendors like Infosys, Wipro, other
smaller vendors, and decided to work with ISS. Explaining
As a part of the reorganization, GlobShop decided to cut its the choice of ISS, Roger said: ‘At that time, ISS was a
IT costs by outsourcing a part of application support and medium-sized, yet growing company. I didn’t want to work
maintenance. In November 2000, GlobShop hired an Indian
vendor, Indo-Systems Solutions (ISS), for on-site main-
tenance and enhancements of the merchandising system. Index 100 = 1996
The vendor’s responsibilities included documenting the
Global economic recession
system, deploying its staff on-site in USA for technical
158
support and undertaking minor enhancements. SARS
EU abolition 9/11 Iraq War 145
Asia economic crisis 144

The journey offshore – formulating an offshore sourcing 126 135

124 124
strategy 120
110
117
Impetus for offshoring 102 101 111
105
The events of September 11, 2001 in New York severely 100 100
102
96
affected the air-travel sector. There was a sharp decline in
passenger traffic as several airlines cut back their flight 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
schedules. Movement of international tourists reduced
Airport Sales Customer Potential
drastically (Figures 2 and 3). All the major airport retailers,
including GlobShop, were hit hard by the drop in passenger Figure 2 Major economic events and airport retail sales.
traffic. This made cost cutting that much more imperative Source: Generation Group, Sweden.

In US$ millions

30,000
27,000
25,000
25,000
21,000 20,000
20,500
20,000
20,000 18,000
16,000
15,000
15,000
11,500

10,000
8,000

5,000
5,000
3,000
2,000
450 600 800 1,000 1,300
0
70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

05
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

Figure 3 Global duty-free and travel retail sales.

Source: Generation Group, Sweden.
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
444

with any tier-1 Indian vendors because I didn’t want to be productivity, costs moving from fixed to variable and the
so small that I was insignificant to them. I wanted to be a notion of variable skills etc. We wanted to capitalize on the
meaningful client to the partner so that I could get the strategic side of offshoringy therefore, we adopted an
attention I needed. Moreover, we were only starting out on ‘‘and’’ philosophy. That is, we had to reduce costs and
offshoring so I had to have the flexibility to change or pull improve productivity, quality, speed and agility.’ He further
out when needed.’ Another factor that weighed in favor of cautioned: ‘Outsourcing does not mean transferring the
ISS was that it was a ‘hybrid’ offshore firm with presence in accountability of IT to a third party. Always, the global IT
both USA and India. will be responsible and accountable for the IT outcomes.’
Roger developed an additional set of principles for
offshoring. The focus was to be on the business outcomes of
Testing the offshore waters
the projects rather than on the specific activity offshored.
Initially, GlobShop outsourced only a small piece of
Rather than enforce competitive bidding for every project,
production support, in order to minimize risks and assess
GlobShop would adopt a partnership approach to work
the benefits from offshoring. After the events following 9/
with a single vendor over a long term. Justifying this
11, GlobShop decided to extend its relationship with ISS to
approach, Roger remarked: ‘If costs were the only focus,
hand over all of its production support for its merchandis-
one can go with a bidding race among vendors. But if
ing system and few retail applications. The basic idea was to
offshoring needs to be strategic, then a partnership
achieve a complete ‘follow the sun’ model for production
approach is more appropriate. Partnership means treating
support where ISS began taking requests from data centers
vendors as colleagues than as contractors.’
and business users from around the geographical regions.
GlobShop entered into short-term agreements with ISS on
fixed-price terms as it learned about the vendor and
Designing the agreement
experimented with the best ways of making offshoring
GlobShop and ISS had separate 90-day agreements for the
work. There were some initial kinks that had to be worked
initial support and data warehousing activities. GlobShop
out. Neal remarked: ‘We found that the on-site resources
preferred these agreements to be on a fixed-price basis.
were not as effective working with our business partners as
Neal explained: ‘We opted for a fixed-price model as the
we had hoped. So we sat down with ISS and talked to them
requirements were specific and very straight-forward.
about that, and two things happened. They changed some
Payments to our partner were tied to specific milestones
of the people and their process. And, we took more
and deliverables. We did not want any cost overruns or
responsibility for the relationship and adapted the onshore/
unanticipated surprises.’ In November 2002, GlobShop
offshore model to work better in our environment.’ ISS
entered into a 3-year global offshoring agreement through
deputed Rahul Sharma as the on-site manager to coordinate
which ISS became responsible for selected new application
and oversee the projects at GlobShop. Rahul brought two
development and support. The companies entered into a
more managers from ISS to work on-site. These managers
master services agreement (MSA) that enabled creation of
acted as the liaison between GlobShop’s managers and the
separate work orders or statement-of-work (SOW) for each
offshore staff. These measures improved the working
new project or extensions of ongoing projects (see Figure 4).
arrangements between the two companies.
ISS’s responsibilities included analysis, documentation,
Satisfied with ISS’s performance in providing production
knowledge transfer, guided support and stand-alone sup-
support, Roger decided to further experiment by focusing
port. Neal elaborated: ‘The standard business and legal
on more value-added projects. GlobShop engaged ISS to
terms that do not change over time were taken care of by
architect a data warehouse that would enable faster
the MSA. Under the MSA, we did SOWs for each individual
reporting and provide business leaders with a view of
project. The logic was that the typical legal stuff got
enterprise-level data. This project was very successful and it
negotiated once under MSA; however the CIO had the
helped win the confidence of business leaders. Roger said:
authority to sign off on the SOWs – he could use different
‘When we offshored production support, it brought
staffing models, rate structures and service levels in each
visibility and credibility from end users. When people
SOW.’
saw the results from data warehousing, we had the buy-in
One of the hallmarks of the GlobShop–ISS agreement was
from senior business stakeholders.’ He further elaborated:
the implicit gain-sharing incentives for the vendor. Rather
‘When you try a new offshore sourcing strategy, the project
than sharing a proportion of the savings on a one-time
needs to be visible and to be meaningful to the
basis, GlobShop agreed to reinvest the savings from
stakeholders. However, the project cannot be so important
offshoring back into IT, which could translate into
that you are betting your entire business on it. That is very
continued revenue generation for ISS. Given GlobShop’s
risky. What we achieved through data warehousing
difficulties in expanding the IT budget or making
resonated throughout the organization and set the stage
substantial IT investments, the strategy was to channel
for me to do a whole lot with offshoring.’
the cost savings realized from IT offshoring back into newer
value-added IT initiatives. Roger remarked: ‘As ISS helps us
Laying the ground rules reduce our costs, we redeploy those dollars into other IT
Before completely embracing offshoring, GlobShop had to projects. We are going to go back to ISS first to get
have some basic tenets in place. Roger explained: ‘As we those projects done. This was a win-win situation for both
started thinking about offshoring, it became clear to me of us.’
that we could do a lot with global offshoring that was Another noteworthy part of the relationship was the
strategic in nature and not merely cost-oriented, like 24  7 flexibility to plug-and-play IT resources according to the
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
445

Broad, legal terms of

the agreement
Master Service Agreement

Operating SOW 1 SOW 1 SOW n

Principles
Specifics of the work to be performed
Shared procedures and processes
between client and vendor
SLA 1 SLA 2 SLA n

Acceptance Criteria

Metrics Metrics Metrics

Technology and Business metrics for performance assessment

Figure 4 Structure of agreement.

needs of IT initiatives. Under the global offshoring experience in the company. The decision to layoff had very
agreement, ISS committed to maintain a talented pool of serious emotional impacts.’ GlobShop had to determine
offshore staff with retail and Globshop-specific knowledge. how many people and whom to retrench, whether to carry
Depending on the specific project requirements, the out the workforce reduction in multiple phases, and how to
company would have just-in-time IT resources. Neal communicate its intentions to the employees. The timing of
commented: ‘We get a well-educated, knowledgeable and the downsizing was critical because GlobShop had to work
scalable IT team using a just-in-time global sourcing on transferring critical knowledge from affected workers to
philosophy where we get the best talent, as needed, quickly. other staff and the vendor. Roger elaborated:
We don’t mind paying more for this kind of flexibility. We
are using fewer hours of the best available skills and A big issue that we faced was how to handle people
experience, rather than employing moderately skilled talent changes. We had to worry about perceptions of internal
full time and using only a portion of the available capacity.’ staff, external stakeholders as well as the community.
Under the 3-year deal, several IT tasks were offshored to Some managers wanted to do the layoffs in phases,
ISS. Apart from consolidation, maintenance and ongoing hoping that the business would turn around so that
support for core merchandising system, projects that were future cuts can be avoided. Others opposed the idea
given to ISS included support for the ERP modules and arguing that phased cuts will create lots of uncertainty
point-of-sales systems, development of intranet site and among remaining employees. We also wrestled with
content management processes. ‘telling-them-now’ or ‘tell them at the last minute’. There
was staff who had to be cut but whose knowledge had to
Executing offshoring – managing the change process be transferred. We tussled with how to convince them to
Within GlobShop, the offshoring effort was to be imple- stay for a specific time period.
mented as a part of its overall IT reorganization. The
business impacts of the September 11 event forced the Quick retrenchment was problematic as GlobShop did not
company to adopt a more aggressive strategy and accelerate have a good documentation of its IT systems and
its reorganization efforts. Senior management demanded a applications. Knowledge transfer was a serious concern.
faster reorganization and quicker results. The IT leadership Neal noted: ‘There wasn’t much documentation and a lot of
had to not only accelerate cost reductions but also cope knowledge was in people’s heads, those who had been
with increased demands from corporate management to around for a long time.’
improve the speed and quality of IT offerings. Roger said: The initial hesitations not withstanding, the company
‘When we came up with our strategy for global IT re- communicated its intentions to accelerate offshoring and
organization, we anticipated a 36-month period for the reduce a significant number of employees. Over a period of
complete re-organization. However within weeks after 9/11, time, three out of four IT jobs were to move offshore. The
business mandated drastic cuts across entire enterprise. senior management took charge of the process to ensure it
Our goal was accelerated to 9 months.’ did not turn out to be a very painful experience. Roger said:
‘open communication is very important. We were open and
Handling workforce reductions honest with people about what we were doing.’ Commend-
Reengineering the old structure and accelerating the ing the senior management’s role, Neal remarked: ‘Our CEO
consolidation was more difficult than initially anticipated. played a very critical role in how well he reached out to the
An aggressive offshore strategy implied reducing a employees and communicated with them in this process.’
significant portion of the IT workforce. Dave Blanks, an GlobShop’s management worked out a package for
IT manager, recollected the mindset that prevailed: ‘None employees affected by downsizing. A severance pay
of it was comfortable. GlobShop was a great organization to structure was put in place. Another key element was
work for and we had people with over 25 years of retention pay for the IT staff whose knowledge had to be
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
446

extracted and transferred. Neal elaborated: ‘We had to infused into GlobShop so that the vendor works as a mere
transfer the knowledge from people’s heads to either extension of GlobShop’s IT unit. This implied that the
another employee or to our offshore vendor. We signifi- offshore vendor personnel were treated as internal collea-
cantly increased their bonuses if they stayed for a time gues rather than as external contractors. (2) To bring the
period to productively transfer the knowledge they had.’ In technology, user and vendor personnel together.
addition, GlobShop also offered career transition assistance Commenting upon his role in the COP, Rahul (Project
through a third party by which the employees could Manager, ISS) said: ‘Through the communities of practice, I
identify and apply for appropriate positions in other got a seat at the table where GlobShop made key IT-
organizations. business decisions. I felt I belonged to GlobShop.’ When the
Reflecting on his actions, Roger believed that these COPs were initially set up, considerable concerns were
measures greatly helped the transition process: ‘I personally expressed about the changed roles of the vendor. Rahul
met with everyone who was going to leave our company. recollected: ‘I was invited to top-level meetings and saw
We told people well in advance that layoffs were coming. many people wonder what I am doing in that meeting. I
The employees, though discontent, were happy that we told sensed a silent uneasiness.’ However, as GlobShop’s
them the truth. In addition, we gave them some runway and executives started seeing some promising results, the idea
also provided significant support for them to find new jobs. of COPs gained quick and widespread acceptance. The
That was key – to be honest and open, and offer additional COPs also helped change the mindset of the vendor. Rahul
support.’ remarked: ‘We had to re-orient ourselves and see what we
Soon after the announcement of layoffs, a number of could really do to improve the bottom line of their business.
offshore-implementation issues demanded management If we were on some sales-mode trying to simply sell our
attention. These issues concerned many elements of solutions or services, they’d have thrown us out.’
governance process between ISS and GlobShop and the
day-to-day working arrangements.
Onshore/offshore management structure
In the initial days of their relationship, working arrange-
Improving vendor relationship and governance process ments between GlobShop and ISS were largely informal.
When ISS was entrusted with the responsibility of However, as ISS took over the maintenance of a significant
production support for core merchandising systems, ISS portion of GlobShop’s merchandising system, the two
sent its personnel to each region. These people spent companies decided to develop a more formal structure
several weeks on-site, learning and documenting the for working together. The structure provided a more
processes, systems and related issues. GlobShop’s IT staff coordinated way for the business users, GlobShop’s IT
worked closely with ISS’s personnel to enable easy knowl- staff, ISS’s on-site specialists and the offshore team to work
edge transfer and transition. Rahul Sharma, project together (Figure 6). The two companies also agreed on a
manager from ISS, commented: ‘Tracing and documenting common set of principles for onshore/on-site/offshore
the entire set of systems was tedious and time consuming, staffing. Neal explained:
but was necessary for us to take over the production
support. GlobShop was very co-operative and offered full The ratio of onsite/offshore/onshore staff varies on each
support.’ project as we progress through the different phases of
Roger took specific steps to help overcome the cultural the project lifecycle. The appropriate team ratio for a
and social differences between the offshore staff and the project is arrived by jointly taking into account the cost,
global IT team. Specific training sessions were conducted to services, project needs and effort. For any new work, we
impart an understanding of multiple cultures and value typically start with a larger on-site staff that slowly
systems and ways of addressing cultural differences. transitions offshore as the requirements of the project
Workshops on diverse teams and teamwork were also become more stable.
organized (Figure 5 presents a snapshot of outcome from
such a workshop). An analyst commented: ‘We had For most maintenance projects, ISS followed a typical
diversity experts who taught us how cultures vary and sequence: analysis and documentation, knowledge transfer
how to recognize and work with such differences.’ and service phase. While more on-site staff was required in
The relationship between GlobShop and ISS expanded the analysis phase, this staff was transitioned offshore as the
significantly. From a transactional mode, Roger wanted to knowledge transfer and learning improved. The offshore
forge a tighter partnership so that ISS could play a more team became more independent in the service phase. For
proactive role in providing value-added services as well as some of the early application support and maintenance
in identifying newer IT opportunities. He created teams projects, 30% of ISS’s staff was dispersed on-site with 70%
called the ‘communities of practice’ (COPs). The COPs offshore. Gradually, most of the application support
consisted of core project participants drawn from the projects achieved on-site to offshore ratios of 10% to
business, IT and the offshore vendor. Roger explained: 90%. For application development projects, the on-site-
‘Each COP is made of different entities with specific areas of offshore ratio varied from 60–40 to 30–70.
focused expertise, and all COPs are integrated by the
GlobShop IT management team, to contribute interdepen-
dently towards accomplishing overall business goals.’ There Initial results from offshoring
were two fundamental objectives behind the formation of Within 18 months of the global sourcing arrangement,
COPs: (1) To ensure that the offshore vendor is completely GlobShop reduced its IT expenses by 35%. As planned, the
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
447

Agree & Align

Learn

Challenge

Be proactive Listening
Active
Be Positive
Collaborative
Give honestly
Empower Seek first to understand...
Do’s Then to be understood Inform Accept with grace
Respect
In the moment
Be Patient
Frequent
Have fun Feedback
Communications Positive
Celebrate success
Constructive
Be compassionate
Individual
Share Knowledge
Take vacations
Organizational

Behaviour Face to Face

Priority Order
Blame Phone

Embarrass
Email as appropriate
Don’t
Say one thing &do
Pro-active
another
Confrontational Commitments Freely given

Defensive Co-operation

Support
Continuous Improvement Accept with grace

Affirmation
Understand your role
Give credit
Text
Organisation Be inspirational
Relationships Team work
Understand the processes
Strive for excellence

Take ownership
Challenges & course correct
Share responsibilities

Share priorities & goals

Understand
Value diversity
Work within the organization Leverage
defined
Blend
Gain commitment
Value styles

Trustworthy
Understand purpose
& direction Trust Trusting

Understand priorities
Understand others
& outcomes
Early involvement

Benefit of doubt

Figure 5 Enhancing global teamwork: snapshot of output from workshop.

Source: Internal company records.

IT organization at GlobShop was reorganized and con- AS400 machines in 10 regions were consolidated into one
solidated in two locations – one in USA and one in Asia, machine and the support work was moved offshore.
with an extended offshore team located in India. The global GlobShop conducted a user satisfaction study that showed
IT staff shrank 43% in the first year, and 59% in the second an improvement from 2 to 3.5 on a 5-point scale since they
year of MSA. The legacy applications that resided in over 24 started offshoring.
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
448

Expanding the relationship maintenance and support, and a web-based task manage-
Enthused by these results, GlobShop decided to ment system to capture detailed project activity. The
award additional projects to ISS under the broader MSA information captured from these two systems enabled
(Figure 7 presents the key IT responsibilities at GlobShop). GlobShop to better assess the offshore projects. The
ISS studied a number of IT opportunities and suggested number of ISS staff who worked on GlobShop’s projects
new initiatives for GlobShop. Subsequently, ISS was also trebled.
asked to work on several projects – development of
GlobShop’s internal and external web sites, improving
the technical architecture, site performance, navigation Taking stock and moving forward
and content management processes and also performing As GlobShop neared the end of its 3-year sourcing
infrastructure tasks. As a value-added service, ISS agreement with ISS, Roger confronted several serious
created a web-based knowledge management system questions. Should GlobShop continue to move more
about GlobShop’s systems that was required for ongoing value-added IT work offshore? Should it renew its
agreement with ISS? The company had managed to weather
economic storms and gained incremental revenue growth.
CIO
The company had plans to streamline its global supply
ISS
chain and implement some advanced EDI solutions. It also
IT Directors ISS On-Site
Coordinator
needed to work on migrating from legacy environment to
more advanced platforms.
Pleased with the offshoring results thus far, the senior
leadership at GlobShop was willing to move newer IT
ISS Offshore
Project Managers ISS Project
Delivery Manager
projects offshore. Dan Cwik, Vice President of Retail
Managers (On-site)
Operations, remarked: ‘I am very impressed by our
offshoring experience and I think it is a very good solution
Analysts / to have our IT work done in India. Offshore outsourcing
IT Staff Project
Developers (On-site)
Manager helps us focus on exactly what our business is – global
travel-retail. I don’t believe doing this work internally is
Business Users
Offshore going to make us more competitive.’ Sally Curry, Vice
Team
President of Finance, expressed similar sentiments: ‘In the
volatile environment in which we operate, our main task is
Figure 6 On-site/offshore management structure. to focus on improving our retail business. That means

Contracts

User Req. Mgt Vendor

Devt SLAs
Servers
Reviews
Local
Desktop
Support Business
Maint & IT- Strategy
Offshore
Enhance Business
Vendor Business Align.
App Support Relationships IT Purpose
Direction
Adhoc Queries

Variable Resources Projects &

Global IT Global IT Enhancements
Reports Projects Management
Operations
Specialist Expertise Budget

Strategy/Vision
Management
Security
GlobShop
IT Partnerships
Network Mgmt Orgn
Communiques
S/W Licensing
Policies/Procedures/
Global Support
Standards
H/W
App. Profiles
S/W PC

Upgrades Development IT Performance

Reviews
Global
Design Change mgmt
Apps

DB & DW

Figure 7 Key IT activities at GlobShop.

 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
449

expanding geographically and into other travel-channels to The Vice President of Finance, Sally Curry, had an
buffer against economic events, improving efficiency in alternate viewpoint:
operations and streamlining supply chain. Information
technology, while obviously an important part of our I don’t think working with multiple vendors will be cost-
operations, can be handled well by our offshore partner. effective. It is going to drive our overheads up. We are
Each dollar that is saved from offshoring can be reinvested happy with what we got from ISS – Why not just continue
in our business.’ with them? It is going to be very expensive to find new
However, a section of executives believed that despite the partners, help them learn, transfer all the knowledge. We
success of offshore projects, entrusting the responsibility of cannot afford that.
critical projects like supply chain initiatives to an offshore
vendor is ‘too risky.’ Roger noted: ‘We have a few projects A larger issue that was looming in Roger’s mind was the
in our pipeline that are quite critical in nature, for example, future of IT organization and its relevance in GlobShop. If
advanced EDI linkages with vendors. Some business GlobShop continued offshoring more value-added and core
colleagues have expressed apprehensions about giving activities, what purpose would the internal IT unit serve in
these projects entirely to our offshore partner. We are still future? It might simply be a matter of time before the entire
debating what should be retained internally and what IT function was farmed out.
should be offshored.’ Some of the IT managers wondered
whether increased offshoring would simply erode their
relevance in the company. Neal argued: ‘This can be very Note
risky. You’re talking about more offshoring and that may 1 The authors have prepared this case solely to provide material
place our mission critical tasks with the external vendor. for class discussion. The authors do not intend to illustrate
This could also mean further layoffs and reduction of our either effective or ineffective handling of the managerial
IT group. So, what is our future?’ situation. The authors have disguised the names and other
Over the past few years, ISS has grown to become one of identifying information to protect confidentiality.
the leading offshore vendors in India. Its clientele has
expanded to include top retailers and several Fortune 1000
firms. In 2004, Rahul Sharma and two of ISS’s on-site
project managers were promoted and transferred to other About the authors
ISS clients. Some of GlobShop’s IT staff felt that ISS was C Ranganathan is an associate professor in the Department
diverting its ‘star employees’ and resources to more of Information and Decision Sciences at the University of
prestigious clients. Neal said: ‘We had some new managers Illinois at Chicago. His current research interests include IT
[from ISS] but I felt it wasn’t like our old team. These new outsourcing and offshoring, IT and e-Business strategies
guys also had a steep learning curve. They were no match to and business value of IT. His academic recognitions include
the group we had earliery. There was also an instance the best doctoral dissertation award and the best teaching
where we had to request them [ISS] to replace one of the case award at the International Conference on Information
[ISS] managers.’ Dave Blanks added: ‘These [Rahul and his Systems, and best paper awards given by the Society for
team] people were very valuable. They knew our business, Information Management. His work has been published in
systems, formed good relationships with our managers and journals such as Communications of the ACM, Decision
users. It cannot be replaced very easily.’ Roger wondered if Sciences Journal, European Journal of IS, Information &
GlobShop would continue to receive the ‘special treatment’ Management, IEEE Transactions on Engineering Manage-
it got from ISS. ment, Information Systems Research, International Journal
Another issue that worried Roger was the extent of of Electronic Commerce, Journal of IT, MIS Quarterly
GlobShop’s reliance on ISS. The company has become Executive, among others. He holds a doctorate from the
critically dependent on ISS for many of its IT operations. Indian Institute of Management, Ahmedabad, and a
Some of the GlobShop managers felt it risky to work with a master’s degree from BITS, Pilani (India).
single offshore vendor and preferred to spread the work to
multiple vendors. Larry Katz, Manager at the Global Data Poornima Krishnan is a doctoral student in the Depart-
Center, argued: ment of Information and Decision Sciences at the
University of Illinois at Chicago. Her research interests
When we started working with ISS, we wanted to be able include outsourcing governance, offshore outsourcing
to pull out [of the relationship] anytime. We didn’t want management, IT service management and quantitative
a situation where we became too dependant on them research methods. She has published and presented her
[ISS]. But now, I fear our dependence has reached a work in conferences such as International Conference on
critical level. They [ISS] have grown big and can do Information Systems and Academy of Management Meet-
without our account. For us, it may not be possible to live ing, among others. She has also worked in industry in
without them. I think it will be better to work with a few different business/IT roles prior to entering the doctoral
vendors so that we can spread the risks. program. She holds an MBA degree from Narsee Monjee
Institute of Management Studies, India.
Neal was also concerned: ‘We don’t want all our eggs in one
basket. The offshore market has grown. We can definitely Ron Glickman is the Senior Vice President of global quality
shop around for other vendors. There are others who are processes and integration at UTI Worldwide. Glickman was
competent as well as cheaper.’ most recently responsible for the retail and hospitality
 Crafting and executing an offshore IT sourcing strategy C Ranganathan et al
450

vertical at Cognizant Technology Solutions. He has over 30 tional efficiencies, enable business growth and derive
years of experience in information technology manage- competitive advantage. He has been a speaker at several
ment. He has held senior executive positions, including the executive forums and conferences. Glickman holds a BBA
office of CIO, in firms in USA and Asia-Pacific. He has been from National University and an MBA from the University
instrumental in numerous IT initiatives to achieve opera- of Southern California.
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