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Hostile is outsourcing: The story of Manufact

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Introduction

HOSTILE IS OUTSOURCING: THE STORY OF MANUFACT This case study is concerned with issues of Hostile IS Outsourcing. It describes the situation which developed in May 1996 as problems with communication and careful planning within the organisation, resulted in a key department being outsourced. This had many implications which had a negative "knock-on" effect throughout the company. I am going to highlight these and look at issues which may minimise the risks in taking such important decisions. The ManuFact Company is a mid-sized (SME) European company in the kitchen hardware industry. (The company consists of 3500 employees of which 39 of them work in the IS department) It has a total o of 3500 employees, mainly in production and distribution and an IT department with 39 people whose budget is $4 million and a largely mainframe based portfolio. A key person in this company is Smith who was the IS director for ManuFact until March 1997, who reorganized the IS capability from a marginally successful semi-independent subsidiary to an internal department. He received good feedback about his ability to keep IT costs down and maintain a satisfactory level. What we have to keep in mind at this point is that Smith was excellent at his job, trusted within the company and was recognized and valued in the organisation. The other key person in this case is Lawler who in May 1996 became Smith's boss. ...read more.

Middle

Areas which could fall into this category could be Web site hosting, business process application development, help desk support, networking, communications and data centre operations5. Reasons to outsource selectively could also be that a particular area or a segment can't be improved and would only be perform better if completed externally. It provides greater flexibility and better service due to the competitive market. Lawler should have looked at some outsourcing models such as the classic outsourcing model. This dictates that an enterprise should outsource only those functions that do not give it competitive advantage. This would result in all the ManuFact IS employees being made redundant and offered new jobs within ISCorp. The ManuFact IS staff felt de-motivated and not wanted as later on in the case they all leave except two. As a consequence expertise knowledge was lost from within the company. Now ISCorp were worst off as they had to find new staff to replace existing members which meant they were not only less experienced, but also were not familiar with the existing systems resulting in higher costs for both training and recruitment. No new development took place for nine months. ISCorp had the cheek to demand an extra $1.5 million to cover work not specified in the contract .This indicates that the contract was not as ManuFact sought after as careful analysis of the problem was not thoroughly thought out. ...read more.

Conclusion

If they want to completely backsource try to lure ISCorp staff to stay and work them. They could offer them incentives such as better pay but at least it would retain the specialist staffs that have trained on its systems for nine months. If this is not possible try and re-negotiate the contract ensuring that there are contract managers and lawyers present so ManuFact get the best or at the minimum, exactly what they want from the contract. Given the complexities of this case I would make sure that whatever decisions are made the staff currently working on the systems, STAY. To conclude I would like to say that Before deciding to outsource the top level management of a company really need to weigh up its pro's and con's. It needs to foresee where the company is going and see what measures it should take to achieve them. They should consider the possibility of selective, full or not to outsource at all if need be. Full or selective outsourcing allows an organisation alternative top-performing IS services in-house. Cost savings or filling gaps in the organisation's IT skills are powerful drivers for outsourcing. The numerous risks involved in outsourcing arrangements must also be carefully assessed by IS and general manager alike. The Company ought to enforce a buy-out clause, if a company decides to outsource make sure the right specialist people such as lawyers are present to make sure things go according to plan, and finally: If a company decides to outsource ALWAYS check the fine print. ...read more.

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