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The Business Case for IT Outsourcing. Clients: Fireman’s Fund, Allmerica Financial, and FMC

The Business Case for IT Outsourcing. Clients: Fireman’s Fund, Allmerica Financial, and FMC. Group #1 Keith Vines Jeremy Boling Siva Bhattiprolu Georg Wieninger Falk Scherzer Ansel Young. Chapter 12, Case 1. Fireman’s Fund. Jeff Post, President and CEO. Joseph Beneducci, EVP & CAO.

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The Business Case for IT Outsourcing. Clients: Fireman’s Fund, Allmerica Financial, and FMC

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  1. The Business Case for IT Outsourcing.Clients: Fireman’s Fund, Allmerica Financial, and FMC Group #1 Keith VinesJeremy BolingSiva BhattiproluGeorg WieningerFalk ScherzerAnsel Young Chapter 12, Case 1

  2. Fireman’s Fund Jeff Post, President and CEO. Joseph Beneducci, EVP & CAO. IT is his responsibility.

  3. Fireman’s Fund History • Founded 1863, in San Francisco, CA. • First premium 1,000 Kegs of Boston Syrup. • $12 Cash in Advance. • Acquired by Allianz, AG of Munich, Germany in 1991.

  4. Fireman’s Fund History • Provide Business and Personal Insurance • Dec 31, 2002, Assets of $12.4B with no more than $2.2B in policyholder surplus • Insurance premiums for 2002 were $4.3B

  5. Allmerica Financial • Frederick H. Eppinger Jr. Became President & CEO in August 2003.

  6. Allmerica Financial • 3Main areas of Business • Property and Casualty • Financial Services • Asset Management • 2002 Annual Report • Net Income ($275M) • Operating Revenue $3,475B • Stock Price as of March 2, 2004 • $38.19

  7. Allmerica History • Certificate of Incorporation Jan 12, 1995 • IPO, October 11, 1995, $21.00. • Been around for 150 Years

  8. FMC Corporation • William G. WalterChairman, President and CEO. • Base pay is about 1.23 million • In 2002, William Walter raked in $3,185,544 in total compensation including stock option grants from FMC Corp. • William has another $329,325 in unexercised stock options from previous years.

  9. FMC History • 1883, John Bean invents first piston sprayer for agriculture • 1958, partners with Japan and Brazil to manufacture hydrogen peroxide • 1966, Revenues exceed $1B • 1992, Sales exceed $4B • Company currently has 5,500 employees

  10. FMC History Continued • 2000 FMC announces plans to restructure the company into two separate, publicly traded companies - a machinery business (FMC Technologies) and a chemicals business (FMC Corporation). • 2001 FMC Technologies, Inc. begins trading on the New York Stock Exchange - Ticker Symbol: FTI - on June 14. FMC Corporation completes spin-off of FMC Technologies, Inc. Bill Walter is elected Chairman of FMC Corporation.

  11. Question #1 What is the business value to Fireman’s Fund and Allmerica of outsourcing their computer operations? What are some potential limitations of such outsourcing arrangements?

  12. Question #1 Answer • Outsourcing the legacy systems freed up needed IT resources for both companies. • IT department could focus on the development of new applications. • Indirectly, both companies experienced a reduction in cost.

  13. Question #1 Answer Potential Limitations • Data centers can be easily outsourced but applications that are more involved with the company’s direct functionality would be difficult to outsource successfully. • Examples: CRM, Intranet, VPN

  14. Question #2 What is FMC’s motivation for its IT outsourcing? What is the role of an IT organization at companies like those in this case, if much of their IT operations are outsourced?

  15. Question #2 Answer • Not only based on costs but also on an increase in complexity of their IT systems They decided to hand over these complex technologies to companies who have the required know-how in order to increase effectiveness and efficiency of the systems

  16. Question #2 - Solution • If a company moves more and more operations from in-house out to outsourcing vendors, it creates dependencies to these vendors An outsourcing vendor can become a very important part for a company

  17. Question #2 - Solution As a result, companies should be careful by choosing an outsourcing vendor, so that the desired goals will be completely achieved, both now and in the future.

  18. Question #3 What are the benefits and potential limitations of offshore and near-shore IT outsourcing arrangements?

  19. Question #3 Answer • Benefits of offshore and near-shore outsourcing: • Most less developed countries have lower labor costs. • Offshore outsourcing companies prefer to locate themselves in low-tax countries.

  20. Question #3 Answer • Advantageous exchange rate developments can further decrease costs. • Near-shore outsourcing to Canada combines the benefits off lower labor costs, a favorable currency exchange rate and performing IT services nearby.

  21. Question #3 Answer • Limitations of offshore and near-shore outsourcing: • It might be difficult to recruit skilled IT staff in less developed countries. • A strong depreciation of the dollar can compensate a part of the saved labor costs and tax expenditures.

  22. Thank you,any questions?

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