Mistake done by AstraZeneca
Discuss about the AstraZeneca Case Study for Electronic Commerce Research.
AstraZeneca is the leading biopharmaceutical companies in the world. AstraZeneca first signed an agreement with IBM of a global outsourcing for seven years, later they decided to break the contract in 2011 which result in a court case. IBM filed a case against AstraZeneca for living the agreement before seven years was completed. The scenario turned out be one of the biggest mistake that the deemed organisation has done. Due to such mistake AsreraZeneca has terminated SLA. The IT capabilities of AsteraZeneca depends on R&D. Since the technique of AsteraZeneca has changed rapidly of which the present technique could not support the other vendor applications. For all the global vendor’s similar infrastructure were included which has changes the business rapidly. AstraZeneca did not realize that the business might change rapidly before the contract gets complete. AstraZeneca is crucially dependent on the capabilities of the IT. They have eventually failed to cover the critical path of the contract. It has even impacted the goodwill of the AstraZeneca in the commercial market citing its unprofessional nature.
It is already known by IBM that the contract of IT outsourcing that are for long-term are generally difficult to change and in the first two years they accrue the profit with major investment and then set up the service to customize and made profit in margin within two to three years. IBM was basically interested in making a global outsourcing contract with the AstraZeneca as it is the leading biopharmaceutical companies in the world. And for the outsourcing companies it was very helpful. They did not cover every details for the termination of the contract. The faults were evident for both the organisations and IBM made the mistakes in the contract and negotiation processes. However, the core mistakes done by the IBM with this agreement has been listed as follows:
Due to the outcome-based applications the deal of IBM has failed.
The designing of the contract was not done for that pace.
The contract has a ground-breaking model.
Some of the obligation for the contract was terminated.
The outsourcing vendors were not precisely dividing.
In outsourcing contracts, scientific storage and server hosting, commercial and supply chain operation, network and communications are included which had roll out the reporting systems, new technologies, and apps more quickly and efficiently. The company had a consistent infrastructure across the global site. There are huge vendors trusting and investing on contract that they had made. The vitality of outsourcing lays on the fact that the organisations who adopt outsourcing services from other wants to ease their organisational process and frequently changing the outsourcing service provider from them would be complicated. On, the contrary, the outsourcing firms also seek out for stability and keeping a shorter frame of contract makes the organisational nature volatile. The similar case has happen between the AsteraZeneca and IBM. They had a long-term outsourcing agreement that could not be change frequently as the time for investment is for a long period. The deals of the vendors were accepted for profit. At the beginning there were major investment in the plan of outsourcing, in the first two years, major investment were made by the vendors with huge outsource that has customized and set up the service. However, by the end of the contract they have expected a margin of profit within two or three years. Thus, due to this reason, large outsourcing contracts are done for five or more years.
Mistake done by IBM
The corporation parties that were involve are from two different field, the IBM is an IT application and the AstraZeneca is a biopharmaceutical company. Neither of this parties were focusing on the problem of long-term outsourcing. The most significant problem that was associated with the contract was the lack of knowledge regarding the services they were attempting to adopt. There was a lack of knowledge of outsourcing and preparation made by the client. They vision that the vendors were from the same level but the reality was just opposite of it. Later they release the issues that were made in the contract. AsteraZeneca was following a ground breaking model that was hard for maintaining a huge outsourcing contract. The deal failed for the reason of using specifications that was outcome-based that was basically used among vendors for the innovation. Also the business of AstraZeneca was achieving a rapid changes and the contract that was done between both the corporate was not for this reason.
As gone through the case study it seems that 2007 SLA was doomed to fail. The reason for this is that the AsteraZeneca did not realise what consequences would appear in future with the agreement that they have made. The contract was signed without any proper base or outline for the future sustainability of their organisational relationship with the client. The IT infrastructure of AstraZeneca is mainly based on R&D which seems to be experimental and may cause failure. Regardless of termination of the contract. The end of the contract services and fees had a vague provision. The agreement was made for about seven years. The time of agreement is most reliable for the outsourcing contract. However, when they started, it has lead behind due to the vendor growing rapidly. The investment done into the business were huge to gaining more profits. However, changes have been lead in the IT application drastically.
A new IT outsourcing model has created by AstraZeneca that replace the IBM services. The company now uses multiple contracts in relation with HCL, Wipro, AT&T and Computacenter. With the principle of ‘fix first, pay later’ the 2001 SLAs provisions protected AstraZeneca which means that when there is any urgent problem occur in IT, the corporate of AsteraZeneca and vendor first fix the issue without questioning about the cost. The IT service deals with standard provisions that covers the contracts for SLAs and pricing and for the policy of cooperation. The cooperation policy includes 13 principles of which the collaboration terms were specified. When the vendor decided to provide the solutions fast, AstraZeneca had agreed to make the payment faster to the vendor. When a conflict arises in the contract, both the parties are given a chance to appeal with the independent arbiter and oversees the policy of cooperation.
Reason for outsourcing contracts for five or more years
The main reason of preferring arbitrator by both the parties is because of it is less expensive, less time consuming, and less confrontational than filling a lawsuit. The organisational resources that includes the human, financial and other resources are also less exposed in the deemed process. Additionally, the legal matters are very complex procedures that can hamper the sustainability of the organisation in the long-run. Arbitrator has a significant advantage in court. It can control the process of the party, for shorter time and with minimum cost. It has privacy, flexibility, and awards are fair, enforceable and final. Arbitrator is ‘a fair and more just process’. Arbitration has understood that AsteraZeneca reason for breaking the agreement. Both the parties use outcome-based specifications in their contract that has encourage the vendors’ innovation. Even in the year 2007, a ground-breaking model contract was considered. However, the model had failed and there was a rapid change in the business of AstraZeneca. The pace that has occur was not the reason for making that contract.
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