Founded in the 1950s, GlobShop is a company operating in the duty-free market. It started selling foreign liquors and cars in the US military bases, expanding its business to run stores in selected European and Asian airports. By the 1980s, GlobShop was a niche but solid player in the travel retail market, operating in Australia, New Zealand, the USA, and the UK besides Europe and Asia. The company even achieved to open duty-free stores in some American and European cities. However, the 1991 Gulf War and the East-Asia economic crisis of 1997 affected the travel and tourism market, causing severe hurdles to GlobShop and highlighting the need for corporate restructuring. Moreover, the events following the terroristic attack of September 11, 2001, exacerbated the challenges, pushing the management to accelerate the process.
At this moment, the company was organized in ten regional business units, and IT operation was highly decentralized and operated under a distinct budget. As a result, duplicated and legacy applications, redundant software, infrastructure, and resources rocketed the running costs. The management understood that redefining both operational and administrative processes and centralizing them at the corporate level would have led to substantial savings (Ranganathan, Krishnan, & Glickman, 2007). Roger Deen, the CIO of GlobShop, was mandated to reorganize and centralize the IT sector. After thorough studies and extensive discussion, Deen suggested an approach that consolidated the ten regional IT units into a global one through centralizing the IT budget, streamlining IT governance, and consolidating and standardizing IT operations. The plan included the outsourcing of part of application support and maintenance to reduce the costs further. The Indian company Indo-Systems Solutions (ISS) was chosen as a partner to handle application development, support, and maintenance of merchandising and retail systems, as well as provide technical support for the company’s IT infrastructure.
What Factors Led to GlobShop’s Decision to Offshore Significant Portions of Its IT Infrastructure to India?
While IT offshoring provides several benefits, the choice of the associate is crucial. Many outsourcing projects have resulted in negative outcomes as a consequence of poor selection (Khan & Khan, 2017). Hence, GlobShop needed to assess diverse opportunities to find a reliable partnership. After a weighted evaluation of different geographical areas, which also included China and Eastern Europe, India emerged as the most reliable potential offshore location. While China raised IT protection and intellectual property concerns and Eastern Europe was still in the process of readjustment after the collapse of the Berlin Wall, India has a consolidated IT segment, backed by a dependable legal system.
How Well Did GlobShop Manage the Change Process After Making the Decision to Offshore?
Once the decision to offshore as part of IT reorganization was made, GlobShop implemented three steps strategy to manage the change process. First, the management adopted an open and honest approach to the inevitable downsizing of the IT personnel, working out a satisfactory severance pay structure and staging the layoff to transfer the internal knowledge to the vendor. Then, the management improved the relationship with the vendor through implementing the governance process between GlobShop and ISS and creating training sessions to assess and understand cultural diversities and value systems (Ranganathan et al., 2007). Finally, the two companies cooperated to create a flexible and effective onshore/offshore management structure to handle both the projects and staffing for each project.
Was the Decision to Offshore Successful?
By 18 months after the offshore agreement, GlobShop had reduced IT expenditures by 35%. In two years, the IT personnel narrowed by 59% while the legacy application and the redundant resources were grouped and consolidated into one machine. The results were supported by a survey that highlighted an increment in the overall user satisfaction (Ranganathan et al., 2007). The positive outcomes indicate that the decision to offshore the IT work was successful.
References
Khan, U. S., & Khan, A. W. (2017). Critical challenges in managing offshore software development outsourcing contract from vendors’ perspectives. IET Software, 11(1), 1–11. Web.
Ranganathan, C., Krishnan, P. & Glickman, R., (2007). Crafting and executing an offshore IT sourcing strategy: GlobShop’s experience. Journal of Information Technology. 22, 440–450