Archive for the ‘Global IT Outsourcing’ Category

Offshoring: DO NOT Stop Sending IT Jobs Overseas

September 16, 2010

My response (and this is also posted in comments section of  George Tillmann‘s article/post on www.cio.com):

Offshoring: it’s Time to Stop Sending IT Jobs Overseas

The answer: DO NOT place a moratorium on offshoring!

Henry Ford drove the “Buggy Whip” and “Horse Cart” manufacturers out of business due to his invention of the assembly line and developing a product that could be purchased by the masses. The people who were designing and manufacturing “Buggy Whips” needed to retool their skill sets in order to be successful in a new market/economy.

I am sure that the owners of the Horse Cart and Buggy Whip manufacturers hoped that Henry Ford’s automobile would not succeed so they could continue on the status-quo. Unfortunately, similar to Henry Ford, offshoring is here to stay.

In order for US companies to be competitive in the world economy what we will need to do is retool our IT department’s skill sets!

Is there a role for the CIO in Business Process Outsourcing?

November 4, 2009

In my previous posts I spoke about outsourcing and offshoring as it pertains to IT. But what about business pocess outsourcing (BPO)? Is there a role for the CIO to play in this decision?

The answer is very simple and unequivocal – YES. Today, though the decision to outsource / offshore business processes may not be taken by a CIO, but the CIO has a significant role to play in the decision.

The role that the CIO plays in this decision is centered around the availability and access to the information for the department that is being outsourced. Information Systems are the backbone of BPO. By implementing the right Information Systems to automate business processes and creating a technology environment that can be modulated. BPO will not succeed if it is not backed by a strong Information Systems.

By implementing the right software applications / products, the CIO plays a significant role by providing transparency to the business owners on the near real time performance by the BPO Service Provider.

Without the contribution from CIO and his team, the actual BPO arrangement is more than likely face some difficulties.

OUTSOURCING 101

October 28, 2009

Outsourcing should never be considered if economic factors are the only thing that you are considering.

The ability to react to changes in the business with timely delivery of quality services and value plays a big role. Customer satisfaction, should be the IT group’s mantra and it should be instilled in everyone of the groups members.

To determine whether it makes sense to outsource, you must understand what makes for a successful outsourcing partnership.

1. Customer Satisfaction
If the customer isn’t satisfied with the goods or services you provide, you can be sure they’ll either be looking elsewhere or escalating their concerns. You must take a customer approach and insist that your outsource provider have the same commitment.

2. Align all sourcing actions to your business strategy:
A sourcing strategy must be defined in business terms.” You’ve got to get business executives on the same page.” Define ROI and critical success factor together and make sure that everyone is on the same page as to the reason for outsourcing.

3. Select the delivery model that best suits business and financial goals:
The only way to get sustainable business benefits and performance improvements is to leverage and adapt to the service provider’s operating environment. Making the right delivery model choice means you must understand the different types of delivery options (offshore, nearshore, utility and so on) and align your preferred options to the business goals.

4. Measuring Metrics
Too many organizations undertake outsourcing arrangements and attempt to focus their attention on two or three critical success factors. Intangible metrics such as Customer Satisfaction, employee retention, and application quality need to be included in any metrics management initiative. As well as the obvious metrics such as ROI, budget and impact on the enterprise.

5. Financial savings
Outsourcing in many cases provides a financially compelling alternative to providing the services in-house. However, if reducing cost year over year is a key measure, it’s essential that you craft the partnership so that the provider has the incentive to help you meet your goals.

Like every other company, the Outsourcers goals are to grow revenues with existing clients and increase profitability. There needs to be a measured balance as to how both companies are going to achieve their goals. If this is not accomplished then end user customer is the one who suffers.

6. Weigh the value of customized versus standardized services:
Customization can deliver specialization and differentiation whereas standardization can deliver agility and speed. Which one is right for you? You must evaluate the risk/benefit of each solution and determine the strategic importance of the expected outcome to determine the right fit for your firm.

7. Delivery and quality
Delivery and quality aren’t always used in the same sentence, but they should be. Be very specific and deliberate when documenting your expectations on delivery and quality. It’s not enough to say that all requests for service will be responded to within 15 minutes from time of call and closed within six hours. It is more important to articulate that if a problem occurs it will not occur repeatedly over the length of the contract.

8. Scalability
Your outsource partner needs to be positioned to meet your growth requirements, so don’t just look at their current capability—look at their ability to scale. Just as you need time to ramp up skills and staff, your outsource provider needs time to react to your needs.

9. Define the relationship model and incentives for mutual benefit:
A true partnership means accepting risk and sharing rewards on both sides and is appropriate only in strategic business-critical outsourcing relationships. Mapping outcome to payment and incentive structure, determining the mutual investments and benefits and defining “success” will help outline the relationship

10. Negotiate and renegotiate a win-win deal:
No deal stays the same. It is best to negotiate up front that certain modifications can be made to the agreement at the end of each year as the corporate environment changes. Two to three years into any deal, business drivers can and will change for both parties. It’s best to realign expectations and benefits on an annual basis.

The Rise of Nearshoring—a good outsource model for your organization?

October 22, 2009

In recent years, three outsourcing models have emerged: 

Offshoring to distant locations
Insource (or keeping the work at home)
Nearshoring (a compromise solution)—this model is increasingly offering a more competitive and attractive alternative to the other two offshoring models.

Nearshoring is simply “outsourcing” or offshoring to an offshore location that is much closer to home.  In other words, rather than a USA based company outsourcing work to a provider or shared services operation located in India or the Philippines, nearshoring would be the same company outsourcing the work to a provider or shared services operation located somewhere in Latin America or Canada.

The Benefits of Proximity.  The key benefits provided by nearshoring are all related to the proximity of the nearshore destination to the home country and these potential benefits may include:

1. Cultural Proximity inevitably brings cultural and linguistic similarities. The USA for example, has a huge Spanish speaking community and many Latin Americans have relatives in the USA. Hence, it makes sense to nearshore work, especially contact center work for the Spanish speaking community, to a location south of the border.

2. Economic Proximity and historical ties also lead to close economic ties. The rise of free trade agreements such as NAFTA (which was originally created to benefit the agricultural and manufacturing sectors) inevitably bring the same benefits to companies who decide to nearshore a portion of their work to countries covered by such agreements. Furthermore, nearshoring inevitably leads to an indirect increase in trade and business in general between the source and destination countries; thus, a win-win situation for all.

3. Political Close economic ties may also be followed by close political ties. The European Union (EU) is both an economic and a political union and hence, companies in Western European countries who nearshore to locations in Central or Eastern Europe will find familiar regulatory regimes along with friendly political environments in which to operate in. Moreover, both the EU and NAFTA offer flexible visa and other arrangements for professionals from member countries to move across borders for long periods of time. Furthermore, with intellectual property (IP) protection increasingly a critical concern, nearshoring to an EU or NAFTA member country is generally less risky as these countries have strong IP protection measures in place and these measures are generally enforced.

4. Geographic Proximity will likely mean being only a few time zones away. Hence, this will make the critical interaction necessary between all the parties involved all the more easier (and no 3 a.m. meetings).

5. Cost Furthermore, less distance means that face to face interaction is less expensive and time consuming as time is not wasted traveling from the home country to the offshore location. This inevitably leads to more face to face interaction between all critical parties necessary to make an outsourcing arrangement viable. Likewise, the inevitably additional costs (sometimes, as in the case of the Philippines, mandated by law) associated with hiring workers to work night shifts or odd hours is largely eliminated.

Which option is best for my organization: Offshore, Outsource, or Insource?

September 30, 2009

With the economy coming off of its lowest point since the great depression and CIOs being under extreme pressure to reduce cost and increase their return on investment for every project they undertake, many are asking the question of whether executing IT activities under a third party model makes sense for their organization. The answer to this question is quite complex especially when considering the third party’s experience in outsourcing, offshoring or insourcing. Allow me to first define the options that are available to most organizations.

1. Offshoring refers to sending both knowledge-based IT work (i.e. most often application development and maintenance) to third-party firms in other nations. The intent is to take advantage of lower wages and operating costs in such nations as China, India, Hungary, and the Philippines as examples. The choice of a nation for offshore work may be influenced by factors such as the language and education of the local workforce, transportation systems or natural resources. For example, China and India are graduating high numbers of skilled technicians, engineers and scientists from their universities. In addition, some nations are noted for large numbers of workers skilled in the English language, such as the Philippines and India.

2. Outsourcingcan be defined as the hiring of an outside company to perform a task that would otherwise be performed internally by a company (this can be done on an offshoring, local, or combined basis)–generally with the goal of lowering costs and/or streamlining workflow. Outsourcing contracts are often several years in length. Companies that hire outsourced services providers often do so because they prefer to focus on their core strengths while sending more routine tasks outside for others to perform. Typical outsourced services include the operation of human resources departments, telephone call centers, distribution centers, research needs, computer departments or services and design.

3. Insourcing refers to situations where an outsourced services provider moves into and sets up shop in or near a client company’s facility. It is common for major companies to sign agreements with IBM Global Services, HP, Perot Systems and other outsourcing firms whereby these firms take over and operate a client’s internal IT department. Coming up next (post): Discussion of the pro and cons of each option.

Offshore Outsourcing Facts:

September 17, 2009
  • India is the global leader in IT outsourcing, but more companies are outsourcing to China to reduce overall IT spend. Inflationary pressures and the increase in wages have caused companies to look at other places for cost effective alternatives.
  • Most Global IT Outsourcers (e.g. IBM , Infosys, HP, Cognizant) are recognizing the importance of creating a development centers in China which will service non-Chinese companies. Roughly 30% of the capacities of these companies are dedicated to internal Chinese companies, the remaining 70% is dedicated to US and European companies.
  • It is becoming more common to see development work spread across geographic areas (i.e. China and India) as a way to increase productivity within the development groups.
  • India is about 10 years ahead of China in terms of cultural awareness as it pertains to IT Outsourcing, but China is closing the gap a pace that is far faster than the time frame that India took to reach the same place.
  • There are still some obstacles associated with the infrastructure within china but “technology zones”  and government sponsorship appear to be breaking down these barriers.
  • India still dominates in the area of Call Center outsourcing and has invested a significant amount of GDP on linguistic training for its population.

Keys to Outsourcing Success are Communication, Communication, and Communication! This is especially relevant in the areas of offshore outsourcing.