Sacheffer Company has been running an IT department and is actually one of the most important departments in the company. Initially, each of the three divisions was responsible for its own IT infrastructure. However, later, the company purchased a new system that harnessed all the IT needs of the three divisions into one. This development led to the sharing of servers and other IT infrastructure among the three divisions. The company has now embarked on a growth trajectory mainly based on the Reitzel division which is the most promising. This growth cannot be achieved using the available IT department and therefore brings the need for outsourcing the entire IT infrastructure to a company that has more capacity.
Benefits of Outsourcing
The company hopes that outsourcing will be a solution to some of the problems and challenges that it faces in its operations. In particular, the outsourcing of the IT department was poised to help in the ambitious growth that the board had projected the company to achieve. In outsourcing the IT infrastructure, the company aimed to save substantial amounts of money (Kirk, 2010). In fact, the company projected that the expense would fall short of the current 200 million dollars if they outsourced the entire department. By contracting the services of an outsourcer, Schaeffer hoped to cut the costs incurred in the running and management of the information technology. Although they had cut the budget already, through the consolidation of the three divisions, outsourcing the IT department was identified as a way of cutting the costs further.
In addition, the company aimed to achieve its ambitious growth goals particularly in the Reitzel division. Outsourcing of the department was thus projected to aid in the achievement of these goals through improved information technology services (Gupta, 2008). The goal of expanding to new countries and regions that required extraordinary information technology would be sustained through outsourcing the IT department. The emphasis on outsourcing was driven by the thought that the outsourcer would provide a large supply of capable personnel and resources. Moreover, the company hoped to manage the crash efforts that would result from the ambitious expansion strategies.
Steps in developing the RFP
After the recommendation for the option of outsourcing the IT infrastructure, a task force was formed to look into the matter and come up with a request for proposal (RFP). However, the fact that they had no prior experience in outsourcing forced the company to hire the services of Gartner Consulting Group. The consulting company was to help in the investigation of the pros and cons of having the company’s IT infrastructure outsourced. The first step involved the detailed identification of all the IT services that the company provided (Porter-Roth, 2002). The consulting company advised that the company needed to know every piece of equipment in the entire company’s location before a decision of whether or not to outsource was reached. Moreover, the IT processes in the company were queried to understand the scope and flow of these processes.
The next step involved the entry of all the inputs of the workers with regard to the entire IT infrastructure (Westland, 2007). The inputs were recorded and included even those that were not to be outsourced in theory. Moreover, the operations to be outsourced were analyzed with an emphasis on all the services within these operation areas. The purpose of this thoroughness was to avoid the assumption of some services and not including the same in the contract with the outsourcer. Failure to record the services might lead to an additional charge if the outsourcer were to offer them to the company later (Nyrhinen, 2007). Data from these analyses were recorded in special template forms that were provide by the consulting company. It actually took several months for the workers in the IT department to collect all the data required and filling the same in the templates provided.
Next, a study of the data center, telephones, help desk, desktops and data networks was conducted and the recording of the data done. It is estimated that the company took about a year in the process of collecting data about the towers, as all the above centers were collectively known. Special care was taken to ensure that the process was done in the right way and that all aspects of the IT infrastructure were captured well. After the collection of all the requisite data, the task force the company then embarked on preparing the RFP that was to be disseminated to potential clients. The emphasis on all the towers was so thorough that they ended up with a 200 page RFP that took a year to prepare. The request for proposal captured the processes that the company wished to outsource, the IT infrastructure of the company as well as a request for bids for provision of these services.
Perceived disadvantages to outsourcing
The reception from some of the managers after the receiving of bids from different companies was negative. These mangers pointed out to the idea of outsourcing the IT infrastructure as one that had more disadvantages than it had advantages. One such perception was that outsourcing the IT infrastructure was a way of turning critical resources to an outsider organization (Kotlarsky et al., 2011). Put differently, the managers thought the union between the outsourcer and Schaeffer as a marriage that spelt no good for the latter. The concern was that although the current employees of ABC were good people, they might be changed in the near future and replaced with bad ones that did not understand the company well. In essence it meant that the good rapport that the two companies could not be guaranteed in the long run because of the possibility of the outsourcer company losing some of its employees.
In addition, there was concern that all the possible services and scenarios could not all be captured in the contract and therefore exposing the company (Kendrick, 2009). One manager observed that an instance of a scenario that is not covered in the contract would require a renegotiation with the outsourcer. In the renegotiation, the company would have lost its bargaining position thereby leaving the company at the mercy of the outsourcer. Moreover, the manager poised that the company would lose all its IT capabilities and the cost of bringing the same capabilities back would be too high if the two partners were to split. In this argument, the manager foresaw a scenario where the two partner companies would break up and therefore leading to a possible collapse of Schaeffer.
Another disadvantage of outsourcing the IT infrastructure was the loss of job for the many information technology workers in the company. The manager suggested that laying the employees off their duties would be a betrayal on their faithfulness that the company so much depended on. The outsourcing of the department would lead to the unfair dismissal of a large number of workers (Burnett, 2009) that currently work in the department. The effect of the layoff would be felt in the entire human capital as the morale of the other workers would fall due to an uncertainty in their jobs. Moreover, the dependence on an outsider organization whose control was not within the company’s grip was perceived to be a disadvantage in the long run. The outsourcer could choose to blackmail the company in case of a dispute thus bringing the entire company’s operations to a halt.
The cost of outsourcing the IT infrastructure was also perceived to be a disadvantage as it surpassed the cost incurred in running the IT department in the company. The total cost of outsourcing the IT infrastructure was estimated to be 20 million dollars more than the current cost of running the IT department within the organization. In addition, it was perceived that definition of all the complex services could not be achieved exhaustively thereby attracting additional costs to the company. Moreover, there was a perception that outsourcing companies tend to lower the cost in the first few years and then increasing the cost in later years when the host company has lost its bargaining power. Outsourcing was therefore perceived to be tantamount to offering a blank cheque to the outsourcer. The notion that outsourcing IT infrastructure would be beneficial to only one division while incurring more costs on the other divisions also led to the perception that the process was a disadvantage after all.
Outsourcing the IT infrastructure for the Reitzel division only
Managers from the other two divisions had suggested that Reitzel division outsource its IT infrastructure alone. The suggestion was driven by the feeling that the division was set to benefit more while inflicting more cost implications on the other two divisions. This suggestion is however not a viable option due to the complex nature of the operations within the company. Removing one division would be a difficult task since all the divisions had earlier on been consolidated and their IT operations merged. In addition, some of the servers were serving more than on division and outsourcing the infrastructure for a single division would have been hard.
In view of the three alternatives, the company should go with the suggestion of outsourcing the entire IT infrastructure of the company. Although the final cost was estimated to be the same as the current cost of the company’s IT department, the real cost of the services offered by the outsourcer would be lower in the long run. The services provide would be much more than the ones that are currently being offered within the company. In addition, outsourcing would provide greater flexibility and allow the management to concentrate on growing the company further (Sparrow, 2003). Obviously, apportioning for these costs is not easy and it si therefore easy to assume that these factors are not cost benefits.
Another advantage of outsourcing the entire IT infrastructure is in the quality of the services that the outsourcer would provide to the company. The large volume of experience in the outsourcer company would bring a large pool of skills to be used in the running of the company’s IT requirements. Moreover, the employees of the outsourcer company have much more skill than those of the company therefore bettering the level of output in terms of IT performance. While it is true that some employees of the company would be laid off, outsourcing would be more beneficial to the company in reducing over duplication of roles. Workers that are not needed would be sacked therefore reducing the rate of under-employment in the company. Moreover, the outsourcer is able to initiate the right kind of skills for a specific job thereby improving efficiency in the organisation.
Outsourcing the entire IT infrastructure would also save the cost per unit as compared to outsourcing for one single division or not outsourcing at all. If the company were to outsource the IT infrastructure for one particular division, the economies of scale would be reduced thereby making the cost higher. In addition, the process would result in the collapse of the entire unit at a time when it focused on improving its presence in many other countries across the world. Moreover, the process would require that the company renegotiates the terms with the outsourcer thereby reducing their bargaining power further. It is therefore necessary that the company sticks to the plan of having the entire infrastructure outsourced as a whole. It is the only way that the company can make any meaningful gains in the long run (Jenster et al., 2005).
Why do you think so many disadvantages were raised after the task force recommendation had been developed?
After the task force recommended that the company outsource its IT infrastructure, there were so many objection raised by some managers. One of the reason why the disadvantages cropped out is the fact the company is very conservative and the manager are not used to having radical changes happening in the organization. Moreover, the fact that the Reitzel division had a background of making decisions that were not profitable was also a factor contributing to the resistance. Past decisions had proved that the division had an inclination to making poor decisions that affected the entire company. This fact is notwithstanding that the division provides for about 80% of the entire company’s profits. Another reason for the negative reception if the fact that the outsourcing of the IT infrastructure was portrayed as being influenced by Reitzel division’s ambitious growth. As thus, the managers from other divisions interpreted the plan as being packaged to benefit mostly the Reitzel division.
The negative reception from the managers could have been avoided had the management of the company thought about the implications beforehand. Particularly, the manner in which the proposal was packaged should have been changed to reflect the advantages of the outsourcing process (Kehal & Singh, 2006) to all the divisions in the company. For instance, the overall growth in profits for the whole company could have been highlighted as the main advantage of the IT infrastructure being outsourced. This could have been done by packaging the proposal in a different manner and one that reflected these anticipated benefits. For instance, the ambitious growth of the company could have been highlighted instead of the Reitzel division.
In addition, the competition among the three divisions could be to blame for the negative reception that the recommendation received from some of the managers. The company could be realigned to reflect unity of purpose therefore reducing the competition between the there divisions. It is highly likely that some of the responses were driven by the feeling that one division was more favored and tasked with growth than the other division. Reducing this competition could reduce the chances of sabotage of great ideas just because they are perceived to help only one division. Essentially, the managers of the other divisions would have identified with the growth of the company as a whole if it were packaged in such fashion.
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