The Business Case for IT Outsourcing. Clients: Firemans Fund, Allmerica Financial, and FMC

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The Business Case for IT Outsourcing. Clients
Firemans Fund, Allmerica Financial, and FMC
Chapter 12, Case 1

• Group 1
• Keith VinesJeremy BolingSiva
  BhattiproluGeorg WieningerFalk ScherzerAnsel
  Young

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Firemans Fund
Jeff Post, President and CEO.
Joseph Beneducci, EVP CAO. IT is his
responsibility.
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Firemans 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.

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Firemans 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

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Allmerica Financial

• Frederick H. Eppinger Jr.
• Became President CEO in August 2003.

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Allmerica Financial

• 3 Main 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

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Allmerica History

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

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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.

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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

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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.

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

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Question 1 Answer
Potential Limitations

• Data centers can be easily outsourced but
  applications that are more involved with the
  companys direct functionality would be difficult
  to outsource successfully.
• Examples CRM, Intranet, VPN

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Question 2
What is FMCs 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?
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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

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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

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

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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.

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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.

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Thank you,any questions?