"The trend of outsourcing continues to steam as firms seek alternatives and improved methodologies of leveraging their assets" (Feeny and Willcocks, 2005).
QUESTIONS 1 AND 2
The entire critical analyses of JIT's full circle sourcing has been based on various phases of the Outsourcing Life Cycle Model (Figure- 1) by Cullen, and Willcocks (2005), which describes the fundamental processes of outsourcing. According to Cullen and Seddon (2005), all the firms should ponder and walk through each phase of outsourcing life cycle model before embarking on the venture of the outsourcing.
Figure: l - The Outsourcing Life Cycle Model: Phases and Building Blocks
Source: "Managing Outsourcing: The Life Cycle Imperative" (Cullen, Seddon and Willcocks, 2005)
John Smiths decision to outsource JIT's Infrastructure section was very viable to lower their long term capital investment, attain flexibility and leverage their key competencies significantly. It was well devised to alleviate JIT's strategic vulnerability, to avoid the complications with the high staff turnover rate and the complexities of operational efficiency in Infrastructure section, which would have elevated tarnishing of JIT's sustainable competitive advantage. Johns outsourcing strategy was profound by the key strategic issue of in-housing versus outsourcing dwelled by Quinn and Hilmer (1994), whether JIT could have maintainable competitive edge by performing the Infrastructure activity internally with more timely fashion and unique capability on a continuing basis, or outsourcing to best-in-class suppliers to ensure the quality and image of their operations (Quinn and Hilmer, 1994). Johns evaluation criteria of JIT's objectives for outsourcing in the first place was well sought-after for improved services, access to expertise, improving cost control, shorten cycle and response time, and technological innovation in JIT's Infrastructure section. On the contrary John painted a positive story in regards to his outsourcing strategy without realising that idiosyncrasies of implementation could infuse anxiety, loss of trust and uncertainty among employees which was clearly evident from his vendor choice of CMPI for PC Helpdesk outsourcing. During the architect phase of Outsourcing Life Cycle Model (Figure- 1), John lacked to address the comprehensive challenge to investigate the IT outsourcing sector, collect intelligence on market conditions and to build JIT's dominating core competencies despite of getting insight from Micheal Cunningham in regards to inconsistent and immature IT outsourcing sector. John's decision of non involvement of external experts and experienced consultants to carefully examine the implication of Datacenter move and vendor selection for PC Helpdesk proved to be detrimental.
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At Engage phase of Outsourcing Life Cycle Model (Figure- 1), John's vendor selection strategy for moving Datacenter to DR Solutions was thoroughly examined by its business needs in comparison of risks and benefits associated with each vendor's configuration model (Figure- 2). According to Willcocks and Craig (2008), relationship management is the perennial challenge, creating up to 40% difference in the outsourcing ventures performance, hence John's evaluation of DR Solution's significant client base of Fortune 500 companies, diversified revenue base from its expertise in IT hosting service across varied industries, outstanding capability to answer JIT's query's along with their professionalism and flexibility in adjusting service requirements made it a flawless decision. Referring to the (Figure- 2), the choice of DR Solution over Yoshiko Hosting clearly depicted the pragmatic understanding and expertise of vendor's delivery, transformational and relationship competency. The decision was profound evaluation of DR Solution's values, infrastructure and methodologies they brought to areas of their expertise. John's decision swayed the exemplified "Winner's Curse" situation from Yoshiko Hosting where they could have restored the profitability to their flawed business model (Feeny et al, 2005), under the immense pressure of the contract and their tenured ties with JICO, as they lacked the expertise in understanding and professionalism in addressing JIT's query's (Heck and Kern, 2002).
Figure: 2 - Supplier Capabilities
Source: "Taking the Measures of Outsourcing Providers". MIT Sloan Management Review (Feeny, Lacity and Willcocks, 2005)
This framework (Figure- 2) evaluated which suppliers possess the competencies to address client's business requirements.
According to Willcocks and Lacity (2005), by benchmarking vendor's capabilities against operational and strategic intent, firms get an opportunity to built relationships which are efficiently calibrated with business objective they intend to accomplish. John's choice of CMPI over Outsourcing Solutions for PC Helpdesk outsourcing was not an informed decision. John significantly underestimated the percentage of calls escalated without penalty and CMPI's unaccountability and unwillingness to give an upper limit on the resolution time for escalated calls. John seemed to have misunderstood CMPI as a niche supplier in context of planning, organisational design and process improvement. John tend to have based his evaluation of CMPI on delivery competency's, while paying inadequate attention to relationship and transformational competency's needed to support JIT's future changes in business directions. John predominately failed to analyse the Outsourcing Solutions' core competencies, reputation as leading IT service provider, excellent client roster and business model as compared to CMPI, and focused entirely on saving cost. John's undermined the risk associated with CMPI for guarding against "mid-contract-sag", by not assessing it well against external benchmarks and standards in the contract (Willcocks et al, 2009).
Figure- 3: Clients needs and Suppliers Competencies
Source: "Taking the Measures of Outsourcing Providers". MIT Sloan Management Review (Feeny, Lacity and Willcocks, 2005)
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John apparently missed to conduct efficient due diligence in context of contract and risk associated with CMPI, as JIT being its biggest client and the capacity of calls handled by CMPI's previous customers, or use interactive evolution techniques for both the vendors for PC Helpdesk outsourcing in engage phase of Outsourcing Life Cycle (Figure- 1). Considering Client Needs and Supplier Competencies Model (Figure- 3), John's decision for choosing CMPI didn't align well with level of service required to fix an existing function or to build long term relationship (Feeny et al, 2005).
During the Operate phase of Outsourcing Life Cycle (Figure- 1), John's consideration of contracting with DR Solution and CMPI fluctuated dramatically. He didn't evaluate both the vendors with same level of proficiency over anomalies of JIT's business need which could fluctuate over time. The failed due diligence left the JIT's employees felt neglected, disappointed and taken advantage of, after the PC Helpdesk problem surfaced. The profound evaluation of the framework and description of clauses in SLA with CMPI for interparty relationship were not analysed effectively to align it with the futures uncertainties. The scenario-based predictive modelling was not utilised for vigilant identification of risk associated with the outsourcing venture nor was the systematic approach to mitigate the risk is adopted. It would have allowed John to monitor and understand various aspects of behavioural implications in the contract (Kotlarsky et al, 2009). As argued by Willcocks et al (2006), the client has immense bargaining power during the outset of vendor's negotiation and selection, John did not efficiently utilise the JIT's bargaining power as being CMPI's biggest client during the initial phase of contracting, consequently faced the complications in the subsequent phases. There was a significant lack of transparency and communication between JIT and CMPI, as it was imperative for John to dwell on both the vendor's competencies and capabilities before getting into any contract based on vendor's configuration for PC Helpdesk outsourcing (Willcocks, 2006). Moreover, John did not leverage on JIT's bargaining power even with DR Solutions to save 8% increase of the cost every year for Datacenter outsourcing by DR Solutions.
John's cost-benefit analysis of hidden cost were not evaluated considerably which unexpectedly incurred JIT significant loss of $1 Million during the transition of datacenter to DR Solutions, as there was no amount stated by either of the vendors to address the disaster recovery for Datacenter outsourcing. JIT's ROI will be significantly low as in the event of saving $237k (JIT's IT Budget in 2001, $2840k - JIT's Proposed Budget Post Outsourcing $2603k) by laying-off expert people and outsourcing the Datacentre and IT infrastructure, it did not fetch them tangible benefits. John did not draw right specifications to unearth the unforeseen hidden cost which are obvious in any venture of outsourcing, which could even be time, if not money merely (Brudenall and Davis, 2010). Another hidden cost which didn't figure in any of the budget was the loss of revenue and inefficient productivity due to training provided and learning period of two CMPI's replaced technician's onsite. Even though JIT subdued their administrative and operational expenses but exponentially elevated their PC serving budget. Considering the given budgets there was no actual benefits attained in PC Helpdesk outsourcing, entailed by CPMI employees inadequate troubleshooting skills. Additionally, there were no remnants in budget specified for a contingency plan, in an event of failure or anyÂ idiosyncrasies of outsourcing venture.
The outset of the transition management by John was well planned, but initially proved to be incapable to handle the unforeseen contingencies. The transition plan did make the transfer of IT function quite smoother with a ruthless start but was resiliently managed for Datacenter outsourcing. The choice to move the datacenter during the weekend, deployment of move specialists of DR Solutions along with JIT's IT team, and the excellent backup and coordination of logistics to move the datacenter is commendable. On the contrary, John's decisions to scrap the two phase move incurred JIT significant loss of revenue which could have been saved if he would have dwelled more into transition management by incorporating specialist transition consultants to combat the contingencies along with the pilot move. There was no transition timeframe prescribed by neither vendors nor John for any of the outsourcing. There was no effective knowledge transfer methodology adopted from any vendor and JIT to prioritise and address application dependency, as 20 % of total call volume was relating to troubleshooting which was inefficiently handled by CMPI employees and other 20% were application specific pertained to business applications of JIT. Furthermore, no significant initiative was taken to incorporate change management strategies to deal with the transition. It eventually eroded the whole cost saving mission of the outsourcing venture, rather piled up cost on cost.
ONGOING MANAGEMENT PRACTICES
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According to the last part of Operate phase in the Outsourcing Life Cycle model (Figure- 1), CMPI's employees' ongoing behaviour lacked its desirability to go an extra mile to flourish good relationship with JIT. According to Cullen et al (2005), managing portfolio configurations, risk and complexities are more imperative than managing cost merely. John did not go underneath the problem faced by JIT employees to understand whether the problem was with the training provided or the CMPI's employees working methodology. As argued by Oshri et al (2009), keeping a close track of key performance metrics help detect risks by analysis the deviations beyond acceptable range. The troubleshooting mechanism was very underrated and disappointing, entailed by the unprofessional behaviour and assistance of the CMPI employees. John seemed to have lost the sight of the fundamentals as JIT suffered great turbulence in their organisational learning due to their knowledgeable and expert staff were laid-off and were not replaced by the similar calibre technicians of CMPI as anticipated. There were no sign of effective continuous improvement even after replacement of two on-site technicians. On the contrary, even though CMPI was not in breach of the contract, comprehensive approach to relationship management was shown by CMPI's senior partner by undergoing the replacement. The SLA between JIT and CMPI had shown the erroneous calculations and assumptions, and lack of efficient strategising by John in the beginning, as CMPI technicians did not handle the work at anticipated key performance level (Kotlarsky et al, 2009).
Considering the Regenerate phase of the Outsourcing Life Cycle model (Figure- 1), JIT's governing processes and structures were inadequately facilitated to align with their objectives and CMPI's service delivery methodology. The governance metrics and their specifications were not determined by JIT's visions and strategy. John failed to investigate the uncertainties regarding the PC Helpdesk outsourcing process, hence was not able to build comprehensive contingencies in the contract at the start and was encountered by misalignments of governance capabilities which yielded poor results (Mani et al. 2006). Furthermore, no jointly staffed governance mechanisms or efficient procedures to combat the escalating unaccountability from CMPI's technicians were instituted.
The recommendation to John to fix PC Helpdesk problems is focused on the regenerate phase of the Cullen et al (2005), Outsourcing Life Cycle model. There is a possible option to transfer some of the JIT's infrastructure division's employees to CMPI which would encourage efficient knowledge transfer for both the party's to combat the persisting troubleshooting problem and would exponentially elevate the joint knowledge management and retention. It would help JIT alongside CMPI to develop their expertise while cultivating and establishing long-term relationship for potential future operations together. It would incorporate value-added services while creating "win-win" situation along with generating better revenues and learning opportunities for both. It would further subdue cultural misalignment among the employees. Secondly, a separate joint senior management panel should be created among JIT and CMPI, to handle and create effective communication channel between top management (Costello and Landon, 2004). It will encourage regular executive- level oversight meetings which would effectively monitor and improve the governance, assess and review CMPI's performance, along with creating the possibility to redefine anticipated service levels while incorporating continuous process improvements measures. It will potentially empower JIT with the rights to audit and re-assess the performance level data supplied by CMPI, before distributing it to the stakeholders and market analysts, which could deteriorate CMPI's market image and business. The joint board could substantially upgrade the services by motivating their employees through incentives and penalties for poor performance and unaccountability. It will help senior management envision higher predictability to attain superior results with minimal level of unforeseen contingencies and risks (Reynolds et al, 2009). Thirdly, to configure the persisting problem, external legal and governance specialist Consulting firm could be hired by JIT, which would relatively cost them huge sum of consultation fee, but would save on painstaking measure to renegotiate or terminate the contract with CMPI or to back-source the PC helpdesk in-house. The remedial action would be to lay immense attention on coordination measures to subdue the complexity of the PC Helpdesk outsourcing project, either by employees transfer to CMPI or with collaborative management practise.
Considering the problems JIT had with CMPI, John should not consider the option to offshore the outsourcing of the datacenter or PC helpdesk to different country. It entails the additional challenge to transfer the embedded knowledge of JIT which resides in its stand operating procedures, organising principles and routines (Nicholson et al, 2004). As argued by Aron and Singh (2005), it's imperative to choose the right process, calculate the structural and operational risks, and match organisational forms to need, not just merely base the decision to outsource on simple cost-benefit analysis. John should distinguish at the outset, which is the most crucial process as compared with others process at JIT which creates immense value for them. It would help John to establish a value hierarchy after ranking all the company's processes while giving JIT a unprecedented tool to make a viable decision whether to outsource or offshore, or to keep the process in-house.
Bringing the outsourcing of the Datacenter and PC-Helpdesk back in-house is not a viable option either, as John has to significantly invest more time and money to hire the laid-off staff and restructure the whole infrastructure division. John would be contemplating to review and reconfigure which new services to outsource this time to meet the constraint budget (Heck and Willcocks, 2002).
JIT has an option to adopt a single vendor strategy, and give its entire future outsourcing of Datacenter and PC Helpdesk to Outsourcing Solutions considering its IT services capabilities. It will improve JIT's overall quality, furthermore would minimise performance assurance cost and total cost considerably (Deming et al, 1986), but on the contrary would leave JIT with a possibility of performance failure vulnerability and opportunistic bargaining from Outsourcing Solutions (Rochester and Douglas, 1990).
JIT should resort to adopt a strategy where they are able to determine the vendor's performance and could possible craft the co-ordination and drive the level of monitoring, while restricting the shirking cost (Porter, 1985). John should leverage on JIT's past experience and make some amendments for the outsourcing venture, which would set-up a comprehensive and clear process map for project deliverables, schedule and redefined methodology for appropriate selection and negotiation of the contracts between all (Costello et al, 2004). As Lacity et al (2006), argues 75% of detailed contracts are deemed to success with greater relative frequency as compared to other exchange-based (Standard, Loose or Mixed) contracts. The outsourcing venture with Datacenter vendor should remain the same, but JIT should adopt a detailed based contract with CMPI by re-defining their precise requirements and incorporating special clauses for measurement of performance, anticipated service levels, change contingencies, liability & indemnity, and penalties' for non-performance (Lacity, Willcocks and Cullen, 2006). The ensuing renegotiations will re-align the contract to the persisting and real service demands, and further unearth various stipulated clauses that were unenforceable earlier between JIT and CMPI business terms. Most importantly, it will increase the accountability and willingness for closer cooperation, sense of openness and would increase the access to skill resources and expertise among both the party's (Kern and Heck, 2002).
Figure: 4 - Governing Structure on vendor (Outsourcing)
Source: "The Handbook of Global Outsourcing and Offshoring" (Kotlarsky, Willcocks and Oshri, 2009)
John should implement the Governance Structure Outsourcing model (Figure- 4) in consensus with CMPI for efficient correspondence and effective coordination for ongoing business practises and successful outcome of the PC Helpdesk outsourcing venture. This would help JIT and CMPI to provide constant feedbacks and monitor alignment of outsourced business objectives, work-flow and performance management between the parallel roles in the two parties. John can impeccably ensure that PC Helpdesk objectives are attained by effective liaison between application, portfolio and strategic level in JIT and CMPI with weekly SLA and status reports, monthly dashboard and milestone analysis, and balanced scorecard and quarterly meetings. This model will enthuse CMPI's employees to assume exponential accountability and responsibility to exceed or at least meet JIT's PC Helpdesk outsourcing expectations, and combats anyÂ idiosyncrasies (Kotlarsky et al, 2009).
Figure: 6 - Cost- Effective Path
Source: "Managing Outsourcing: The Life Cycle Imperative" (Cullen, Seddon and Willcocks, 2005)
John should clearly analyse his strategising activities considering the Cost-Effective Path model (Figure- 6), as it envisages the vulnerability and importance of pre-agreement and post-agreement complexities during whole outsourcing life cycle. It will sway John to built pathway inflexibilities which are irrevocable, rather will detail the impact and risk assessments of his disproportionate evaluation methodology of outsourcing venture. It will provide John due-diligence to wisely invest in the outsourcing management venture with CMPI to make considerable saving at the later stages of Outsourcing Life Cycle. Furthermore, it would envisage John to orchestrate the evidence-based outsourcing strategy and configure the contract with CMPI which would deliver on JIT's expectations and would save from expensive erosion of cost and control. Finally, John's efficient analyses of the Cost-Effective Path model, managerial judgement on outsourcing management, and the content of his plan will circumventÂ JIT from undergoing painstaking learning curves (Cullen et al, 2005).