Question 1

As a result of outsourcing, the outsourcing company would become more dependent on the supplier.

1. What could a company do in order not to become too dependent on a supplier?
2. What would you recommend to the outsourcing company to be able to exert some degree of control over its supplier?

Question 2

Discuss some important factors (critical success factors) that an outsourcing company need to consider prior to undertaking an outsourcing strategy

Question 3: Case study

The telecom market in Tanzania and other East African countries is a playing field characterised with fierce competition. Due to the existing competition, the state-owned telecom companies in these countries have been privatised through public-private partnership model and the new players, such as Hamotel in Tanzania, have entered the market. However, the period of unprecedented growth for telecom market in most of East African countries has come to an end. As new technology and applications have become more mature, value propositions have standardised among different telecom service providers, enabling consumers to shop around for the most attractive prices and rates. Facilitated by the internet, consumers have better access to benchmark information, enabling them to go for the best rates and deals. This has put significant pressure on the fat margins of the telecom service providers, who as a result are desperately seeking for opportunity to slash cost. Moreover, most of them are seeking opportunities to improve their cash position due to their careless decisions in the recent past to win government initiated tenders to obtain new technology licences (such as UMTS and GPRS). The participation in these tenders, requiring billions of Tanzanian shillings, has consumed most of these players' cash.

Against this background a major telecom player in East African, TANZTEL, started to look for drastic measures to both reduce its operational cost dramatically and improve its cash position. After a careful selection of projects, it was decided to outsource all of its IT activities and call-centres to outside parties. The outsourcing deal for IT activities, which was closed in 2007 (just before the economic recession) with one of the large IT providers, encompassed the sale and lease back of all hardware, peripherals and other IT infrastructure, and all software. The IT provider, selected after a competitive tender, also had to take over most of the company's IT staff. The future relationship has based upon a thorough long term, service level agreement, which consisted of a detailed description of the activities to be performed by the IT provider, and the costs and rates that could be incurred. Of course the agreement described the impressive sum of money to be paid to the telecom company. It was agreed that rates and fees would be paid to the IT provider based upon a limited number of critical key performance indicators (KPIs), which would be monitored and discussed on a monthly basis between the parties involved.

For this an impressive communication structure involving several working groups, technical committees and steering platforms was built up in both organizations.

After two years it became clear to the telecom company team that things had not worked out as intended. First of all, the IT provider was dissatisfied about the sums that were paid; in hindsight, since prices of hardware and software had gone down significantly, the IT provider thought it had paid far too much when buying the hard- and software. In order to secure its margin and recoup part of the investment it started to cut costs in its services to the telecom company by putting inexperienced, lower paid staff on crucial service functions, such as helpdesks. As a result, the service level to the telecom's internal staff declined to a surprisingly low level, leading to all kinds of disruptions in simple, but crucial operational processes. Next, although the contract stipulated the use of leading-edge technology and although investment schedules were agreed upon, the IT provider postponed investments in new solutions. Furthermore, there was a constant debate about extra allowances, rates and fees to be incurred by the IT provider. They warned that if the bills were not paid by the telecom in time, this would lead to disruptions or even a temporary stop of services. All this lead to the situation where internal staff constantly started to challenge the outsourcing decision that had been made. Most of the staff felt that the IT provider was not up to its tasks and wanted to the company to insource most of IT services gain

Questions:

1. Why did TANZTEL decided to outsource some of its operations?
2. With reference to the case, discuss the risks associated with outsourcing decision