Read the Pagoda.com case study from chapter 7 in the text (page 214 in the 4th edition, page 219 in the 5th edition). While not given in the case, lets all assume that Pagoda.coms annual revenue is $10 million. This will give you some context when evaluating costs, potential savings and the $$ impact on the company. Answer the following questions: 1. Show your math to calculate the total cost for the two options being discussed and identify which is least expensive. 2. List the other factors (outside of cost) that you would consider in your decision and then assign a weight to each of these factors and create a weighted point evaluation table. 3. Should Pagoda.com outsource its online helpdesk Y / N and why? The 1st part is a simple yes or no answer. The critical part of this question is why and how well you defend or rationalize your decision. 4. As part of your negotiating discussions, what performance measurements would you suggest be put in place and what are the consequences if the provider fails to meet these standards? In other words, how would you mitigate potential risk?

Introduction Pagoda.com is an Internet service provider (PSD) that caters to individual consumers and small businesses who require a high level of service and are willing to pay a premium for it. Specifically, Pagoda.com offers state of the art email applications and Web building software, as well as plenty of storage space and the fastest access available. The marketing vice president, Jerry Hunter, puts it this way: There are a lot of companies out there promising the cheapest Internet access. But what do you get for your money? Slow or no access and an endless stream of system crashes. And I wont even mention the lack of support if you have a technical question! For a few dollars more a month, we give our customers the environment they need to be productive. Its no surprise, then, that we have the highest customer satisfaction and retention rates in the industry. The Online Help Desk One of Pagodas services is its online help desk. The online help desk works as follows: Customers who are experiencing technical problems, or who simply have questions about their account, enter a one-on-one chat room, where they can interact directly with an expert. Problems are usually resolved within 10 minutes, and customers have listed it as one of the top three reasons they stick with Pagoda.com. Presently, Pagoda has enough capacity to handle up to 900,000 requests per year although management doesnt expect the number of requests to change much from the current level of 800,000 per year. A firm located in New Delhi, India, has approached Pagoda about outsourcing the online help desk. The offer is attractive. The New Delhi firms own personnel would handle the help desk function. These personnel all speak English fluently and have college degrees or appropriate technical training. And because they are located in India, labor costs would be a fraction of what they are in the United States. The savings would be passed on, in part, to Pagoda. And since the help desk chat room exists on the Internet, Pagodas customers should be unaware of the switch. Pagoda management has put together the following figures, outlining the yearly costs associated with the current system and the Indian proposal: Current Online Help Desk: Personnel Costs: 40 full time equivalent technical experts @ $40,000 each per year (salary and benefits) 3 supervisors @ $70,000 each per year (salary and benefits) Equipment Costs: 4 servers @ $2,000 each per year 20 PCs @ $1,000 each per year Variable Costs: $1.50 per request (office supplies, fax paper, etc.) New Delhi Proposal: Fixed Costs: $1,500,000 per contract year (to cover administrative and IT costs) Variable Costs: $0.50 per request