View the step-by-step solution to: Introduction Pagoda.

Introduction is an Internet service provider (ISP) that caters to

individual consumers and small businesses who require a high

level of service and are willing to pay a premium for it. Specifi-

cally, offers state-of-the-art email applications and

Web-building software, as well as plenty of storage space and fast

access via its high-speed servers. 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, a mailbox full of spam,

and an endless stream of system crashes. And I won't even men-

tion the lack of support if you have a technical question! For a

few dollars more a month, we give our customers the environ-

ment they need to be productive—without having to think

about whether or not they can retrieve their email, or whether

their Web site has crashed. It's no surprise, then, that we have the

highest customer satisfaction and retention rates in the industry."

The Online Help Desk

One of Pagoda's services is its online help desk. The online help

desk works as follows: Customers who are experiencing tech-

nical problems, or who simply have questions about their ac-

count, 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 Presently, Pagoda has

enough capacity to handle up to 900,000 requests per year, al-

though management doesn't 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 Pa-

goda about outsourcing the online help desk. The offer is at-

tractive. The New Delhi firm's own personnel would handle the

help desk function. These personnel all speak English fluently

and have college degrees or appropriate technical backgrounds.

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, Pagoda's customers should be

unaware of the switch.

Pagoda management has put together the following fig-

ures, outlining the yearly costs associated with the current sys-

tem and the Indian proposal:

Current Online Help Desk

Personnel costs:

40 full-time-equivalent (FTE) technical experts @ $40,000

per year (salary and benefits); 3 supervisors @ $70,000

each per year (salary and benefits)

Equipment costs:

4 servers @ $2,000 per year

20 PCs @ $1,000 per year

Variable costs:

$1.50 per request (office supplies, fax paper, etc.)

New Delhi Proposal

Fixed cost:

$1,500,000 per contract year (to cover administrative and

IT costs)


$0.50 per request


2. What other factors, other than costs, should Pagoda con-

sider? How would you weigh these factors? Given the

above, how might you use a weighted-point evaluation

system to evaluate the two options?

3. Should outsource its online help desk? Why

or why not? Be sure to consider Tables 7.6 and 7.7 when

framing your answer.

4. A statement of work typically specifies performance mea-

surements that the buying firm can use to determine

whether the service provider is meeting the terms of the

contract. What performance measurements would you

recommend be put in place? What should happen if the

service provider fails to meet these requirements?

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