Pagoda.com

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. Specifi-cally, Pagoda.com offers state-of-the-art email applications and Web-building software, as well as plenty of storage space and fast access via its high-speed servers. 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, a mailbox full of spam, and an endless stream of system crashes. And I wont even men-tion the lack of support if you have a technical question! For a few dollars more a month, we give our customers the environ-ment they need to be productivewithout having to think about whether or not they can retrieve their email, or whether their Web site has crashed. 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 tech-nical problems, or who simply have questions about their ac-count, 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, al-though 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 Pa-goda about outsourcing the online help desk. The offer is at-tractive. 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 fig-ures, outlining the yearly costs associated with the current sys-tem 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 year

20 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

Questions

1.Calculate the total cost of outsourcing the online help desk versus staying with the current solution. Which option is cheaper?

2.What other factors, other than costs, should Pagoda con-sider? How would you weigh these factors? Given the above, how might you use a weighted-point evaluation system to evaluate the two options?

3.Should Pagoda.com outsource its online help desk? Why or why not? Be sure to consider Tables 7.6 and 7.7 when framing your answer.

4.A statement of work typically specifies performance mea-surements that the buying firm can use to determine whether the service provider is meeting the terms of the contract. What performance measurements would you recommend be put in place? What should happen if the service provider fails to meet these requirements?