MGT 505 Module 6 Vendors, Outsourcing and Cloud Services Example

Keep the Load Board, Rent the Servers: A Selective Sourcing Plan for a Freight Brokerage

Student Name

Master of Business Administration, Aspen University

MGT 505: Managing in an Age of Information Technology Change

Instructor Name

Month Day, Year

Keep the Load Board, Rent the Servers: A Selective Sourcing Plan for a Freight Brokerage

Four States Freight, a composite freight brokerage in Joplin, Missouri, connects shippers who need loads moved with trucking companies who have capacity. Its 140 employees, mostly brokers and carrier representatives, rely on a transportation management system to quote, book and track loads; a load board where carriers find freight; a carrier vetting process that checks insurance, safety records and fraud signals; and the usual email, file servers and phones. A five-person IT team runs it all. A managed services vendor has offered to take over everything, including the IT team, for $42,000 a month, about the current cost. The chief executive is inclined to accept, to focus on brokerage. This paper evaluates the offer.

The Case for Selective Sourcing

Lacity and Willcocks (1998) studied dozens of IT sourcing decisions in American and European organizations. Selective sourcing, outsourcing some services while keeping others in-house, succeeded more often than total outsourcing or total insourcing. Success was also more likely when senior business and IT managers made decisions together, when contracts were detailed and of moderate length and when organizations kept enough expertise to manage vendors. Total outsourcing deals, often signed to cut costs quickly, more frequently disappointed.

What Drives Outsourcing Outcomes

Lacity et al. (2009) reviewed research on IT outsourcing and summarized the factors associated with good outcomes: clear reasons for outsourcing, careful contract design, the client's capability to manage vendors and the quality of the relationship over time. Outsourcing commodity services where vendors have scale tended to work well; outsourcing poorly understood or strategic work tended not to.

What Cloud Computing Offers

Marston et al. (2011) analyzed cloud computing from a business perspective. It lowers the cost of entry, converts capital spending into operating expense, scales with demand and gives small firms access to sophisticated services. Its risks include security and privacy of data held by others, dependence on a provider's availability, regulatory concerns and lock-in when data and processes are hard to move.

Evaluating Each Service

The Help Desk Decision

The help desk handles about 600 tickets a month, mostly password resets, phone problems and printer issues. A vendor with scale can answer these faster and around the clock, which matters because brokers book loads early in the morning and late at night when the in-house team is not working. This is the kind of commodity service that, in Lacity, Khan and Willcocks's review, tends to outsource well.

The Transportation Management System

The company's transportation management system is industry-standard software it already licenses. Moving to the software maker's cloud version removes the burden of running servers and applying updates. Marston and colleagues' warning about lock-in applies here, because years of load and carrier history live in this system; the contract must guarantee a full export of that data in a standard format.

Why Carrier Vetting Stays Inside

Cargo theft and carrier fraud cost brokerages heavily, and fraudsters change tactics constantly. Four States' vetting rules, refined after two costly incidents, combine public safety data with patterns its analysts have learned. These rules, and the pricing data that let brokers quote quickly and accurately, are among the few things that distinguish the company from competitors using the same software.

Why Not Accept the Offer

The all-in-one offer fails Lacity and Willcocks's tests. It would place the carrier vetting process, which protects the company from cargo theft and fraudulent carriers, in the hands of a vendor with no stake in freight. It would remove the in-house expertise needed to manage the vendor. And a single contract covering everything would make exit very difficult.

When to Revisit the Decision

Sourcing choices are not permanent. The company will review the arrangement at each contract renewal, asking whether any kept service has become a commodity worth outsourcing or whether any outsourced service has become important enough to bring back. Lacity and Willcocks found that organizations which treated sourcing as a recurring decision, rather than a one-time deal, achieved better results.

Contract Terms

Each contract will include service levels with credits for misses, such as help desk response within one hour during business hours; data ownership and export in standard formats on request; security requirements and audit rights; and a 90-day exit clause with transition assistance. Contracts will run two to three years.

Security in a Selective Model

Spreading services across several providers raises one concern: more parties hold company data. Every provider must meet the same security requirements, including multifactor sign-in, encryption and breach notification within 24 hours, and the vendor manager will review their security reports annually. Carrier and pricing data, the most sensitive, stays in systems the company controls.

Managing the Vendors

One member of the IT team will become vendor manager, reviewing service levels monthly and meeting each vendor quarterly. The remaining team will shrink from five to three through reassignment and attrition: the vendor manager, a developer for the load board and an analyst for carrier vetting and pricing data.

Transition

The changes will be phased over nine months. Email and file storage move first, as they carry the least risk. The help desk vendor starts next, with the in-house team available for a month of overlap. The transportation management system moves to the cloud version last, after a full test export of the data proves that the company could leave if needed. The two IT staff whose roles end will be offered positions as carrier representatives, where their systems knowledge is valuable, or severance.

Costs

The selective plan costs about $36,000 a month, slightly less than the all-in-one offer, while keeping control of the services that matter most.

Conclusion

The vendor's offer would trade control of the brokerage's most important capabilities for convenience. Research on selective sourcing, outsourcing outcomes and cloud computing supports sending commodity services to providers while keeping carrier vetting and pricing data in-house, under contracts that make exit possible.

References

Lacity, M. C., & Willcocks, L. P. (1998). An empirical investigation of information technology sourcing practices: Lessons from experience. MIS Quarterly, 22(3), 363-416. https://doi.org/10.2307/249670

Lacity, M. C., Khan, S. A., & Willcocks, L. P. (2009). A review of the IT outsourcing literature: Insights for practice. The Journal of Strategic Information Systems, 18(3), 130-146. https://doi.org/10.1016/j.jsis.2009.06.002

Marston, S., Li, Z., Bandyopadhyay, S., Zhang, J., & Ghalsasi, A. (2011). Cloud computing: The business perspective. Decision Support Systems, 51(1), 176-189. https://doi.org/10.1016/j.dss.2010.12.006