Teaching Case J-TRADING: full circle outsourcing Valerie Jaiswal1, Natalia Levina2 1Regeneron Pharmaceutical, Tarrytown, NY, USA; 2Stern School of Business, New York University, New York, USA Correspondence: N Levina, Stern School of Business, IOMS Department, New York University, 44 West 4th Street, KMEC 8-78, NY 10012, New York, USA. Tel: þ 1-212-998-0850 ; Fax: þ 1-212-995-4228 Abstract J-TRADING is a US-based arm of a Japanese keiretsu that is focused on commodity trading between the East and North America counting about 350 employees in the US. It has experienced problems with its information technology (IT) infrastructure and help-desk functions. IT employees were not motivated to work on these rather mundane tasks leading to quality and cost issues. J-TRADING CIO decided to solve the problem by outsourcing both functions. The case relays J-TRADING’s outsourcing journey through its ups and downs discussing the process of vendor evaluation and selection, task transition, relationship management, and business outcomes. The case provides full financial details necessary for financial analysis and asks students to evaluate the sourcing decision itself as well as vendor selection and governance processes. It also asks students to elaborate on alternative sourcing approaches such as offshoring and cloud-based solutions. Journal of Information Technology Teaching Cases (2012) 2, 61–70. doi:10.1057/jittc.2012.11; published online 13 November 2012 Keywords: cost benefit analysis; Data center; Help desk; outsourcing; vendor selection Part A J ohn Smith, Director of Information Technology (IT), looked out of the window of his corner office on the 43rd floor of the New York City high rise. It was 8:30 PM and most people on Madison Avenue were just tourists strolling and gazing at the store window displays. He had to have his presentation for the Japanese Management ready by 9:00 AM tomorrow and he was still struggling with answers to the numerous questions that were running through his mind. A year ago he had presented to the same management group the benefits of outsourcing. He had been very excited about his new strategic direction for the IT department. There had been unanimous approval for his proposed plan. After that it had been a tumultuous year of highs and lows. Now he had to justify his new proposal, especially those parts that were the complete opposite from his prior proposed plan. JICO – a keiretsu Zaibatsus were large capitalist enterprises of Japan devel- oped between Meiji Restoration (1868) and World War II, similar to cartels or trusts but usually organized around a single family. They operated companies in all-important areas of economic and industrial activity and owned banks for mobilizing capital. The war in the Pacific ended on 2nd September 1945, with the signing of the peace treaty on board the USS Missouri in Tokyo Bay. The American occupation of Japan lasted until 1952. During this occupa- tion, the Anti-monopol.

1. Teaching Case
J-TRADING: full circle outsourcing
Valerie Jaiswal1, Natalia Levina2
1Regeneron Pharmaceutical, Tarrytown, NY, USA;
2Stern School of Business, New York University, New York,
USA
Correspondence:
N Levina, Stern School of Business, IOMS Department, New
York University, 44 West 4th Street, KMEC 8-78, NY 10012,
New York, USA.
Tel: þ 1-212-998-0850 ;
Fax: þ 1-212-995-4228
Abstract
J-TRADING is a US-based arm of a Japanese keiretsu that is
focused on commodity
trading between the East and North America counting about 350
employees in the US. It
has experienced problems with its information technology (IT)
infrastructure and help-desk
functions. IT employees were not motivated to work on these
rather mundane tasks
leading to quality and cost issues. J-TRADING CIO decided to
solve the problem by
outsourcing both functions. The case relays J-TRADING’s
outsourcing journey through its
ups and downs discussing the process of vendor evaluation and
selection, task transition,
relationship management, and business outcomes. The case

2. provides full financial details
necessary for financial analysis and asks students to evaluate
the sourcing decision itself
as well as vendor selection and governance processes. It also
asks students to elaborate
on alternative sourcing approaches such as offshoring and
cloud-based solutions.
Journal of Information Technology Teaching Cases (2012) 2,
61–70. doi:10.1057/jittc.2012.11;
published online 13 November 2012
Keywords: cost benefit analysis; Data center; Help desk;
outsourcing; vendor selection
Part A
J
ohn Smith, Director of Information Technology (IT),
looked out of the window of his corner office on the 43rd
floor of the New York City high rise. It was 8:30 PM and
most people on Madison Avenue were just tourists strolling
and gazing at the store window displays. He had to have his
presentation for the Japanese Management ready by 9:00 AM
tomorrow and he was still struggling with answers to the
numerous questions that were running through his mind.
A year ago he had presented to the same management
group the benefits of outsourcing. He had been very excited
about his new strategic direction for the IT department. There
had been unanimous approval for his proposed plan. After
that it had been a tumultuous year of highs and lows. Now he
had to justify his new proposal, especially those parts that
were the complete opposite from his prior proposed plan.
JICO – a keiretsu
Zaibatsus were large capitalist enterprises of Japan devel-

3. oped between Meiji Restoration (1868) and World War II,
similar to cartels or trusts but usually organized around a
single family. They operated companies in all-important
areas of economic and industrial activity and owned banks
for mobilizing capital. The war in the Pacific ended on
2nd September 1945, with the signing of the peace treaty
on board the USS Missouri in Tokyo Bay. The American
occupation of Japan lasted until 1952. During this occupa-
tion, the Anti-monopoly Law was passed whereby the
zaibatsu’s were to be divided into new smaller companies.
By the mid-1950s, the zaibatsu’s had reconstituted them-
selves into ‘groups’ with many of the characteristics of their
pre-war predecessors. These semiformal groupings are
today called keiretsus.
JICO is one such keiretsu. It has an extensive business
background, experience in acquiring foreign raw materials
and in importing technology, association with foreign
banks and investors, and comprehensive manufacturing
skills. During the post-war period, JICO grew 15–17%
annually with its price/earnings ratio reaching 14.1.
During the latter part of 1989 inflation in Japan began to
rise. The consumer price index was increasing at more than
3% per annum.1 This was the first sign of an economic
slowdown. The next couple of years saw a 76% plunge in the
Japanese stock market, real estate crashes, soaring bank-
ruptcies, acute recession, and a growing unemployed popula-
tion. JICO suffered huge losses in Japan and began focusing
attention on its wholly owned subsidiary in the United States,
J-TRADING. J-TRADING became JICO’s flagship company. It
tried to fuel growth by encouraging J-TRADING to expand
and invest more in US markets. In 2000 J-TRADING reported
a record $40 million profit after tax.

4. The dot com crash, followed by 9/11/2001, severely
affected J-TRADING’s revenues. In 2002, J-TRADING
Journal of Information Technology Teaching Cases (2012) 2,
61–70
& 2012 JITTC Palgrave Macmillan All rights reserved 2043-
8869/12
palgrave-journals.com/jittc/
JIT040
For the exclusive use of F. Brown, 2019.
This document is authorized for use only by Fresa Brown in
SCM 824-Strategic Procurement - Fall 2019 taught by EVELYN
THOMCHICK, The Pennsylvania State University from Aug
2019 to
Feb 2020.
began trimming down its work force and cutting down
expenses. New capital investments greater than $350,000
required approval from JICO. The business and adminis-
trative divisions were forced to cut their annual budgets by
at least 10%. J-TRADING’s IT department was greatly
affected by this. Being a cost center left it with few options.
Personnel expense was the only way to reduce expenses
by 10%. Table 1 shows J-TRADING’s IT budget in 2001.
J-TRADING
The company
J-TRADING had five trading divisions each involved in
trading commodities between the East and North America.
In addition it had a portfolio of 50 subsidiaries and affiliates

5. spread out all over North America. These subsidiaries and
affiliates operated independently and were only responsible
for rolling up their financial numbers to J-TRADING at the
end of each quarter.
J-TRADING had 350 employees. Fifty percent of the
employees were Japanese, who were originally employees of
JICO, but now on a 2–5-year international assignment in
the United States. At the end of their assignment they would
either be rotated back to JICO or to another of its
subsidiaries anywhere in the world. This helped them
develop a broad range of experience and skills. The
rotational staff primarily mingled with their counterparts
at J-TRADING or with other rotational employees at other
keiretsus in the United States. The common keiretsu culture
tended to be bonding a force not only in their private and
personal lives but also in their business dealings and
relationships. They were two very distinct cultures at
J-TRADING – the Japanese culture and the local culture.
The IT department
Sharad Patel and Amy White were the managers of the
Infrastructure Section and the Application Section, respec-
tively. Each section consisted of five team members.
Figure 1 shows the organizational structure of IT and each
member’s job responsibilities. The Application Section
maintained and configured the various business applica-
tions. In addition they also worked closely with the business
divisions gathering requirements for existing application
enhancements and new application development. The
Infrastructure Section was responsible for maintaining
J-TRADING’s LAN/WAN infrastructure and supporting
the PC Helpdesk. In order to support the rotational staff,
at any point in time at least one person manning the PC
Helpdesk had to be bilingual, speaking Japanese and
English. The LAN consisted of 40 servers comprising the

6. email server, file servers, print servers and the servers
running the various business applications. All the servers
were housed in the Datacenter located in J-TRADING’s
corporate headquarters.
All the members of the IT department were well
qualified: They were degree holders with an average of
5–7 years of industry experience. They were passionate
about IT and were always looking to learn new technology.
Members of the Infrastructure Section often disliked
working on the PC Helpdesk. They considered it a
mundane and thankless job. Most people called the PC
Helpdesk only when they had a problem and almost
always needed immediate assistance. John Smith con-
stantly received complaints from dissatisfied customers
about the performance of the PC Helpdesk. Sometimes
people came up to him at the water fountain or coffee
machine and complained about their bad experience with
the PC Helpdesk. A recent survey conducted by the
Corporate Communications Department (Table 2) re-
vealed that the average experience of J-TRADING’s
employees with the PC Helpdesk was unsatisfactory. This
was a big problem for John Smith. He had been thinking
of ways to improve the quality of the PC Helpdesk. The IT
department charged each user $180/PC/month (through
the company’s internal allocation system) to support and
maintain a PC. Since users were charged for services it was
John Smith’s responsibility to provide quality services. At
the same time Sharad was struggling with employee
retention in his section. The Infrastructure Section often
got so tied up with day-to-day maintenance and operation
Table 1 J-TRADING’s IT Budget in 2001 (in thousands)
2001

7. Administrative expenses
Salaries $1452
Benefits $160
Travel $40
Employee relocation $5
Office maintenance $17
Insurance $32
Book/Subscription $3
Stationery/Supply $26
Postage $4
Business entertainment $9
Training and education $73
Total administrative expenses $1821
Operational expenses
Datacenter and IT infrastructure
Office rent $287
Telephone $163
Computer maintenance $438
Computer Parts $28
Total Datacenter and IT infrastructure $916
Consultants $100
Depreciation $867
Total operational expenses $1883
Total expenses $3704
Income
Charge per PC (400 PCs)
pre-outsourcing @ $180/PC
post-outsourcing @ $200/PC

8. Total income ($864)
Total JIT operating result $2840
J-TRADING V Jaiswal and N Levina
62
For the exclusive use of F. Brown, 2019.
This document is authorized for use only by Fresa Brown in
SCM 824-Strategic Procurement - Fall 2019 taught by EVELYN
THOMCHICK, The Pennsylvania State University from Aug
2019 to
Feb 2020.
that they almost never had the time to spend on
infrastructure upgrade/enhancement projects. This de-
motivated them and resulted in a high turnover. This
also affected J-TRADING’s infrastructure causing it to be
several versions behind the latest releases and in dire need
of upgrades. The recent expense reduction mandate made
things worse for the Infrastructure Section and the IT
department as a whole.
(Part B follows)
Table 2 Summary of the Results of the PC Helpdesk Survey –
2001
Please rate the following Unsatisfactory Satisfactory Excellent
Our response time 10 100 15

9. Time to fix problem 100 20 5
Knowledge of technician 10 90 25
Overall experience 10 85 30
Please lets us know Yes No
Did your problem get resolved? 100 25
Did your problem get resolved in a timely manner? 10 115
Was the technician respectful of your time constraints/ 100 25
Did your problem need a follow-up call after being fixed? 50 75
Director
John Smith
Web Applications Specialist
Applications Engineer
Accounting Application
Specialist
Production Engineer
IT Services Administrator
APPLICATION SECTION
Amy White
Applications Manager
Infrastructure
Specialist/PC Helpdesk
Network Specialist/PC
Helpdesk
IT Operations

10. Administrator/PC Helpdesk
Network Administrator/PC
Helpdesk
LAN/WAN
Coordinator/PC Helpdesk
INFRASTRUCTURE SECTION
Sharad Patel
Infrastructure Manager
Figure 1 Organizational structure of IT and each members’ job
responsibilities.
J-TRADING V Jaiswal and N Levina
63
For the exclusive use of F. Brown, 2019.
This document is authorized for use only by Fresa Brown in
SCM 824-Strategic Procurement - Fall 2019 taught by EVELYN
THOMCHICK, The Pennsylvania State University from Aug
2019 to
Feb 2020.
Part B
IT outsourcing
J-TRADING’s first experience with IT outsourcing
J-TRADING had only one outsourced application, the
Corporate Intranet. In 2000 hoping to foster a cohesive

11. culture, senior management at J-TRADING decided to
introduce a Corporate Intranet. This was highly essential
because of the 50% spilt between rotational and national
staff. Management made the decision that all news articles
and items on the Intranet would be in English. This would
force the rotational staff to communicate in English. As
opposed to building the Intranet from scratch, a package
called Quik Intra was purchased from a company called
Web Communicator. This package provided core function-
ality like news and announcements, job boards, employee
directory, bulletin boards, forms bin etc. Its design and
layout could be customized and configured. The Applica-
tion Section worked closely with the Intranet task force
team (consisting of a member from each business and
administrative division in J-TRADING) to come up with a
suitable and appealing design. The Quik Intra package was
then configured to incorporate the design. The Human
Resources department was responsible for content creation
and upload. For a monthly fee of $3150, Web Commu-
nicator hosted the Intranet providing maintenance and
data backups. They could also be contracted for system
enhancements or functional upgrades that were based on
requirements from the business divisions. The contract was
structured on a retainer basis where J-TRADING purchased
a block of hours upfront for $10,000 and could use the
hours during the course of a year. Table 3 shows the initial
and recurring costs for the Intranet. The outsourced
Corporate Intranet was a success. All parties were pleased
and satisfied; management, business and administrative
divisional employees, and IT employees.
Future outsourcing strategy
John Smith felt that IT outsourcing might be the key
solution to his dilemma. While he decided not to involve
consultants specifically in his decision, he did ask Michael
Cunningham (of Ask IT professional IT Advisory Services

12. Company) for his insight on IT outsourcing. John Smith
received an email from Michael Cunningham saying:
The term outsourcing refers to letting a third-party run
the IT operation. Selective outsourcing has become a
dominant model. Many IT organizations will outsource
the entire infrastructure or send applications offshore but
others outsource specific functions such as storage,
helpdesk or security. IT outsourcing is significantly less
mature than other outsourcing sectors, (e.g. manufactur-
ing), lacking well-defined products, consistent market
definitions, and standard pricing. Effective outsourcing
depends on the current capabilities of the IT organization
(e.g. an effective IT shop might save nothing by outsourc-
ing). IT outsourcing decisions must consider internal
skills and competencies and target a specific objective
(e.g. save money, overcome obstacles, improve quality,
increase time to market). Attempts to simultaneously
achieve these objectives will result in severe disappointment.
Given the success of the Corporate Intranet, John Smith
began to design his outsourcing strategy with the aim to
steer the IT department towards lower costs, improved
quality, and a challenging professional life. Working
together with Amy White and Sharad Patel, John decided
that the IT department would:
1. move the Datacenter to a third-party location. The third
party would maintain the servers and be responsible for
day-to-day backup;
2. outsource the PC Helpdesk to a third party, thereby
improving quality and increasing the internal allocation
charge to $200/PC/month.
In doing so the Infrastructure Section could be down-

13. sized from five members to two members who would be
responsible for maintaining the infrastructure (upgrading
to the latest service pack releases, virus control programs,
etc.) as well as for special projects like software upgrades,
new technology research etc. Table 4 shows the positions
that would be eliminated with the downsizing. Dedicated
PC Helpdesk people could possibly improve the quality of
service. The IT department now had to find appropriate
outsourcing vendors and select based on cost, quality of
service, and experience.
Move the Datacenter
The scope of the move involved relocating 40 servers to a
hardened, disaster proof Datacenter. The outsourced
vendor would be responsible for doing nightly tape backups
on each server and performing basic ping services on the
servers (checking to see if the servers were alive). If any
of the servers were found to be inoperative, a predefined
list of J-TRADING Infrastructure Section employees would
be paged. Application maintenance would continue to
be under the responsibility of Amy’s team. From five
Table 3 Initial and Recurring Costs for the Intranet
Capital costs
Hardware
Linux Servers (Located at host-$5000� 2+tax) $10,862.50
Software
Quik Intra Basic Modules $123,012.50
Quik Intra Customized Modules
(Workflow; File Room)
$20,000.00

14. Staff Activity Report Application $5000.00
Annual maintenance expense
SSL Certificate (https) $1500.00
Quik Intra License maintenance $10,000.00
Quik Intra Software maintenance (retainer) $10,000.00
Annual hosting costs
Fully redundant hosting ($3150/mo) $37,989.00
CD backup ($216.67/mo) $2600.00
J-TRADING V Jaiswal and N Levina
64
For the exclusive use of F. Brown, 2019.
This document is authorized for use only by Fresa Brown in
SCM 824-Strategic Procurement - Fall 2019 taught by EVELYN
THOMCHICK, The Pennsylvania State University from Aug
2019 to
Feb 2020.
prospective vendors, the search was narrowed down to two,
DR
Solution
s and Yoshiko Hosting. Table 5 shows the cost-
benefit analysis between the two vendors and compares
them to current costs. Table 6 shows details on the pro-

15. posed service levels.
DR solutions
They were leaders in the IT Datacenter hosting industry
with revenue of $2.7 billion. They provided a wide range
of hosting services. The minimum service would involve
just renting a ‘live’ cage with redundant power supply and
network connectivity. The services could get as sophisti-
cated as application maintenance. A number of the Fortune
500 companies had their Datacenters at DR