Cultural, political and social changes have affected the rules of the functioning of the economy and markets. In this context, computer and technological outsourcing has established itself as one of the most effective formulas to adapt to an increasingly competitive environment. IT Outsourcing, also known as outsourcing services, is the execution of processes and activities related to IT of an organization by an external company that has its own structure, resources, decision-making capacity and management.
Schaeffer Corporation is a small agricultural machine manufacturer, the growth of the company was internally through their family members who took the initiative to make three franchises which are called divisions, Colbert, Kinzer and Reitzel.
Each one of them have their own product, they are responsible of developing and at the same time of marketing of their products, Colbert and Kinzer use their own manufacturing plants and distribution facilities, while Reitzel provides financial services such as loans for goods and equipment and loans for agribusiness. Colbert and Kinzer have consistently contributed to the business by having profitable and stable product lines, on the other hand Reitzel is the product line that is most productive in sales and profitability products, Schaeffer’s board of directors wants the line to expand in the next 5 years by acquiring other companies and expanding their product lines outside the United States.
Business Issues Leading Schaeffer to Consider Outsourcing
After expansion began each division had their own information technology resources such as network operations, helpdesk, data centers and customer support staff. The need of communication between them push them to create a centralized location, minimalizing their own data center and creating one big center, at this point they got rid of many network devices such as servers, by adding a headquarters helpdesk gave them the opportunity to bring their support and system people together as one entity.
Since the main issue was the miscommunication and the different types of job they would do as division, they decided to incorporate an ERP system that included packages that were separately based of the tools and resources needed per each division, the reason behind was to provide cost savings. There was a positive review, efficient and reliable even with the complaints of the performance of the wide area network were not as expected. The issue became noticeable, not because of the Colbert and Kinzer divisions but this was because of the usage that Reitzel.
This last one has triple the network capacity, triple the servers, and their help desk was hit with more than double the trouble ticket issues between the other divisions. A change was needed and it was evident that the Schaeffer board of directors noticed it. After realizing about this issue, Schaeffer started to consider outsourcing to correct the current problems, they also believe that all this process will help them to save money and improve their IT environment.
Specific Risks and Benefits of the Proposed Outsourcing Proposal
Many risks and benefits can arise when outsourcing and evaluate those risks and benefits will help the company to make the right decision.
One of the main risks that Schieffer will have to face is the long-term contract with ABC Corporation and once the contract is done ABC Corporation might decide to stop with contract and the renewal as well.
The possibility that ABC will no longer be able to provide the quality of service needed by Schieffer in the future.
Another concern is that the high-quality personnel currently employed by ABC will no longer be available, and this could be because of Schieffer may no longer be a high priority as customer.
The fact that outsourcing IT department would mean that several people employed by Schieffer will lose their employment.
Not being able to make saving is definitely another risk by outsourcing. Outsourcing portions of the IT department to ABC will cost $200 million over the next seven years which is the same that it would cost to keep all services in-house.
One of the benefits in outsourcing is that Schieffer would receive the much-needed improvements to the current infrastructure and provide the technology needed for future growth.
Another benefit is the flexibility associated with outsourcing. In other words, if the company needs additional or fewer services in the future, ABC can handle these demands. There will be a differentiation in costs, but this difference will go both ways. Meaning that if they need more services the cost will increase, and if the needs decrease, costs will decrease.
Roles and Resources Associated with an Outsourcing Proposal
The subcontracting proposals are very important for the company, this stage will not only be able to see with what the company counts, the company will also realize what will be necessary for its prompt implantation of the outsourcing. This is where all the pertinent business information is collected and an evaluation is made in order to draw a conclusion.
Hiring Gartner Consulting Group was the first step from Schieffer, the simple reason was because of the need someone to provide critical information on the outsourcing project and make the company to take a deep look into their current IT environment, including what equipment they use, what their employees do, and knowing exactly what services the departments that are going to be outsourced. The minimal knowledge of outsourcing push them to incorporate Gartner in this process. Collecting this data enabled Schieffer to create a 200-page proposal which clearly outlines the company’s needs and requirements.
Other roles in the proposal process for Schieffer were the Vice President of Human Resources, the Vice President of IT of each division, the Vice President of Finance for Colbert, and the Vice President of the Reitzel division. These individuals are key stakeholders in the outsourcing proposal because this decision has a significant impact on not only the company but for their individual departments. Each role can ask questions, provide input, and express any concerns with the proposal. This allows the company to look at the proposal from numerous points of view and to make the most informed decision. Having inputs from different sources can help to have a better decision in a positive way for the company.
Supporting Rationale for the Recommendation
Growth and expansion are the reasons that the company started to look for outsourcing options, and after looking at the cost and services they realized that ABC can provide it. Reitzel is the division of the company that brings 80% of the yearly profits and has the most potential for growth due to its International outreach. International infrastructure requires complex systems, fastest LAN connections, highly trained help desk, and personnel as well, which Schieffer is currently lacking. ABC can provide the services and the infrastructure needed, along with personnel for the same cost.
Outsourcing with ABC eliminates the high costs associated with expansion and significant waste with having additional infrastructure that is not required, because Gartner will have the flexibility to upgrade or downgrade services and infrastructure based on the needs of Schieffer.