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Introduction Pagoda.com is an Internet service provider ( ISP ) that caters to individual consumers and small businesses who require a high level of service

Introduction
Pagoda.com is an Internet service provider (ISP) that caters to individual consumers and small businesses who require a high level of service and are willing to pay a premium for it. Specifically, Pagoda.com offers state-of-the-art email applications and Web-building software, as well as plenty of storage space and the fastest access available. The marketing vice president, Jerry Hunter, puts it this way: There are a lot of companies out there promising the cheapest Internet access. But what do you get for your money? Slow- or no-access and an endless stream of system crashes. And I wont even mention the lack of support if you have a technical question! For a few dollars more a month, we give our customers the environment they need to be productive. Its no surprise, then, that we have the highest customer satisfaction and retention rates in the industry.
The Online Help Desk
One of Pagodas services is its online help desk. The online help desk works as follows: Customers who are experiencing technical problems, or who simply have questions about their account, enter a one-on-one chat room, where they can interact directly with an expert. Problems are usually resolved within 10 minutes, and customers have listed it as one of the top three reasons they stick with Pagoda.com. Presently, Pagoda has enough capacity to handle up to 900,000 requests per year, although management doesnt expect the number of requests to change much from the current level of 800,000 per year.
A firm located in New Delhi, India, has approached Pagoda about outsourcing the online help desk. The offer is attractive. The New Delhi firms own personnel would handle the help desk function. These personnel all speak English fluently and have college degrees or appropriate technical backgrounds. And because they are located in India, labor costs would be a fraction of what they are in the United States. The savings would be passed on, in part, to Pagoda. And since the help desk chat room exists on the Internet, Pagodas customers should be unaware of the switch.
Pagoda management has put together the following figures, outlining the yearly costs associated with the current system and the Indian proposal:
Current Online Help Desk
Personnel costs:40 full-time-equivalent (FTE) technical experts @ $40,000 per year (salary and benefits); 3 supervisors @ $70,000 each per year (salary and benefits)
Equipment costs:4 servers @ $2,000 per year20 PCs @ $1,000 per year
Variable costs:$1.50 per request (office supplies, fax paper, etc.)
New Delhi Proposal
Fixed cost:$1,500,000 per contract year (to cover administrative and IT costs)
Charge:$0.50 per request 1. Should Pagoda.com outsource its online help desk? Why or why not? Be sure to consider Table 7.7 and 7.8 when framing your answer.Table 7.7 Advantages and Disadvantages of Insourcing and Outsourcing
Insourcing
\table[[ADVANTAGES,DISADVANTAGES],[High degree of control,Reduced strategic flexibility],[Ability to oversee the entire process,Required high investment],[Economies of scale and/or scope,Potential suppliers may offer superior products and services]]
Outsourcing
\table[[ADVANTAGES,DISADVANTAGES],[High strategic flexibility,Possibility of choosing a bad supplier],[Low investment risk,Loss of control over the process and core technologies],[Improved cash flow,Communication/coordination challenges],[Access to state-of-the-art,Increased risk of supply chain disruption],[Droducts and services,Customer social responsibilitv (CSR) risks]]Table 7.8 Factors That Affect the Decision to Insource or OutsourceTable 7.7 Advantages and Disadvantages of Insourcing and Outsourcing
Insourcing
\table[[ADVANTAGES,DISADVANTAGES],[High degree of control,Reduced strategic flexibility],[Ability to oversee the entire process,Required high investment],[Economies of scale and/or scope,Potential suppliers may offer superior products and services]]
Outsourcing
\table[[ADVANTAGES,DISADVANTAGES],[High strategic flexibility,Possibility of choosing a bad supplier],[Low investment risk,Loss of control over the process and core technologies],[Improved cash flow,Communication/coordination challenges],[Access to state-of-the-art,Increased risk of supply chain disruption],[Droducts and services,Customer social responsibilitv (CSR) risks]]
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