The major cost factor that contributed to the choice of chief information officer (CIO) is the low operational cost of IT infrastructure at USA Group than at Sallie Mae. The executive group from the Sallie Mae made a choice based on whose IT organization is better in terms of management and cost of operations. Creg Clancy happened to be the former chief information officer at USA group. This company had several dollars portfolio of student loan hence was larger than Sallie Mae. The company therefore invested $100 million in the information technology five years prior to its merger with the Sallie Mae.
This kind of investment contributed to well performance of the information technology team at USA Group under their CIO, Creg Clancy. This excellent performance contributed to his selection as the CIO after the merger between the two companies. The expectation is that his good management style would perhaps help the new merged company to perform better. The case study reports that the IT organization at USA Group was fairly stable historically, having significant growth with 600 personnel with the majority of them being developers while the rest being operations staff.
The CIO, Creg Clancy had several years of tenure with USA Group with its IT management team of the past six to seven years being well trained and with confirmed track record for developing complex systems and keeping operational costs low. This also implies that the choice of CIO from the side of Sallie Mae staff was likely to increase the cost of operations since the IT organization at Sallie Mae was not that stable. In fact, the case study reports that the CIO turnover at Sallie Mae were high, making it hard for the company to maintain the coherent information technology architecture. Sallie Mae thus had outsourced a number of IT applications with the IT work force cut bellow 500 just before the merger was announced.
One of the financial goals of the merger according to the case study was to reduce costs by 40 per cent. At the same time, the case study also mentions that the operational cost of IT organization was low at USA group due to good management championed by Creg Clancy. Choosing Creg Clancy was therefore to ensure that the cost of IT operations is reduced according to the goals of the merger. The fact that the chosen CIO formerly came from USA Group was perhaps away of Sallie Mae wanting to take advantage of economies of scale from combining operations which would permit Sallie Mae to continue being profitable in the phase of narrowing margin. Sallie Mae leaders could also influence the information technology and marketing prowess of USA Group so as to grow further in revenues.
In comparing the two companies, Sallie Mae and USA Group, the different comes in their way of management. The several dollars invested in IT at USA Group means that the top management offers good support to the company’s IT department and its team. Therefore, the success achieved by a company in terms of cost related issues is determined by the quality of management. Good management implies Good Corporation by employees at all levels of management, resulting to more throughput hence more profit (Ngai, Chau & Chan, 2011, Schwalbe, 2013). This is why USA Group perhaps had multi billion dollars portfolio of student loans. It is therefore appears that the choice of CIO was purely based on his past performance and thus his appointment was to help in reducing cost of operations for the mew merged company while at the same time increasing profits.
The choice of Indianapolis data center also came as a result of cost related factors. At first, the choice was Reston since it was evaluated by both sides of the merger and was proved to be cheaper in terms of cost. A cording to the case study, it was found that operating the consolidated data center out of Reston, Virginia would be extra expensive than that of operating it out of the acquired Indianapolis area.. Second is that running the data center out of an expanded Indianapolis facility would save an estimated annual $2 million dollars or more in occupancy costs due to significantly lower costs in the Midwest City. The fresh Sallie Mae data center facility in Reston would also be leased out of an attractive price as per the evaluation.
Things turned out to be different later contrary to the management expectation. The challenges that came later were as result of the merger problems that always make similar kind of businesses to fall according to the case study report. These challenges made the chief information officer, Creg Clancy to advise the management to adopt the dominant company in order to reduce merger risks which came down to risk and timing. The management later agreed with his proposal. The dominant company to be adopted in this case was USA Group which was considered excellent in both management and in multi billion dollars of portfolio of student loans.
The risk in any business is always very costly if not alleviated and especially if they are likely to result to collapse of the business such as this (Butler, 2012). This means that the risks in this case could be avoided by relocating the data center back to Indianapolis as the first step to adopt the style of management for the dominant company. In other words, continuing to stay in Reston would result to total collapse due to the inherent merger problems which were associated with it. Total collapse means high cost of rebirth for the business. The excellent style of management by the USA Group would alleviate these risks, resulting to high profits for the merger company although the initial assessment showed that having data center at Indianapolis would be expensive when it comes to overall cost of operation.
Apart from reducing the cost of risk by relocating to Indianapolis, the initial evaluation also showed that the IT personnel costs in Indianapolis were approximately 30 percent less as compared to that of the Reston area. The less cost of IT operation, combined with reduction in the cost of risk to be achieved by relocating to Indianapolis was enough support for the new merger company to take advantage of finally choosing Indianapolis to be the data center location. Sallie Mae, the executive vice president also stated in the Washington post that Indianapolis has very high quality workforce and in terms of technology environment and that it could be a more stable location. The high quality work talked about here could be interpreted to mean better profits and revenues due high throughput brought about by high technology workforce.
In conclusion, the cost of relocating to Indianapolis was to be looked at in two forms. First is that the cost of relocation was to be evaluated in terms of risks to be incurred at Reston with the retention of Sallie Mae management style. Secondly, the cost of relocation was also evaluated in terms of risks to be incurred at Indianapolis with the adoption of USA Group style of management as the dominant company. The final resolution was that the second option of relocating to Indianapolis with the adoption of management style for the dominant company, the USA Group would eliminate the risks, reduce cost of IT personnel and hence high profits.
References
Ngai, E. W., Chau, D. C., & Chan, T. L. A. (2011). Information technology, operational, and management competencies for supply chain agility: Findings from case studies. The Journal of Strategic Information Systems, 20(3), 232-249.
Schwalbe, K. (2013). Information technology project management. Cengage Learning.
Butler, K. C. (2012). Multinational Finance: Evaluating Opportunities, Costs, and Risks of Operations (Vol. 729). John Wiley & Sons.
