Case Study: Eastman Kodak Company:
Eastman Kodak Company, with headquarters in Rochester, New York, is an international manufacturer of imaging and chemical products. In 1989, the company rocked the IS world by announcing strategic relationships with four suppliers to manage significant portions of its IS organization. Until that time, outsourcing had been viewed as a desperation move to improve poorly run IS departments. Because Kodak’s unit was well run, and benchmarked accordingly, its pioneering stance caused many IS executives-and a few CEOs and CFOs as well-to seriously reconsider outsourcing. Kodak announced that one external service provider would operate its data centers and networks, another would manage its telecommunications, a third would handle PC support, and a fourth would manage voice messaging. Initially the agreement with IBM to manage the data centers was U.S based; it was later expanded to include Canadian operations, other U.S divisions, and eventually six international sites. Kodak encourages IBM to leverage its data center for both Kodak and other companies’ work for improved efficiencies. Due to efforts on both sides, the Kodak-IBM relationship has worked well. They developed trust and good processes. When issues arise, the relationship has effective processes to deal with them.
Outsourcing Management Structure:
Kodak views its outsourcing management role as exercising leadership, staying in control, and managing the high value-added functions for flexibility. Kodak sets the tone for its key IT relationships. The key themes of that relationship have been collaborative (not adversarial), long-term mutual benefits (not short-term), and making systemic improvements on a global basis (not local). The management structure has six elements: a management board, an advisory council, a supplier and alliance management group, a relationship manager for each relationship, ad hoc working groups, and client surveys.
Management Board. This board meets twice a year and includes senior management from both companies. It focuses on strategic issues in addition to any policies or practices on either side that are getting in the way of mutual success. It has dealt with international strategies, IT architectures, telecommunications directions, disaster recovery plans, and so forth.
Advisory Council. This council meets monthly and has 15 members. It handles technical and operational issues by focusing on what Kodak wants, not on how the services currently are delivered. Kodak’s trust in IBM has grown, thus it leaves more of the ‘how’ details up to this service provider. The advisory council reviews service levels, usage measurements and forecasts tactical plans, migration objectives, business recovery plans, and the like.
Supplier and Alliance Management Group. This group manages the longer term outsourcing relationships as well as other contracts with large IT suppliers. It works closely with IS management. This group of 10 people includes a manager, the relationship manager for each primary alliance, plus support staff and supplier management for other IT sourcing. Initially, this group managed only the alliances. Contacts with major vendors were handled in other groups. Eventually all of these functions were brought together to increase their focus, leverage global agreements, and align the management of alliances and suppliers. About one-half of these people have IS background; the other half come from purchasing.
Relationship Manager. This manager is key to the success of a strategic relationship, Kodak believes, because this manager is the focal point between the company and its service provider. The job of each of Kodak’s four relationship managers is to ensure that Kodak receives more than just delivery on the contract. Thus, they also manage value creation. The relationship managers negotiate, coordinate, and manage agreements and ensure that service level agreements (SLAs) are established. SLAs are very precise descriptions of each service to be delivered, when, by whom, for what price, and such. Relationship managers also assist in pricing and billing strategies.
Working Groups. These groups were not part of Kodak’s original outsourcing management structure; they were added to deal with specific technology areas. They are chartered by the advisory council. Their goals are to facilitate changes in processes, promulgate standards, achieve business recovery in case of disruption, and promote effective use, of IS services. They have proven to be effective vehicles for talking about important issues, such as the timing and appropriateness of upgrading to new releases of software. The groups are represented mainly by operational people. For example, database administrators form the major sites are in one working group.
Client Surveys. These surveys are sent out twice a year to nearly 5,000 internal users of the services. Feedback on quality, cycle time, and product and service leadership are assessed and shared with the service providers. Improvement plans are mutually developed to close perceived performance gaps.
Because Kodak’s outsourcing has such a large scope, draws on four main suppliers, and covers a large geographic area, the company has discovered that it needs all of these forms of coordination for effective supplier management.
Required:
a) Based on the examples given in the case study, discuss why managing IT outsourcing is different from managing an internal IS department.
b) Outline the key features of the outsourcing management structure adopted by Eastman Kodak that add value to its IS organisation.