OFFSHORE OUTSOURCING
By
Marcus Mitchell
Christopher Shy
Joe Willis
Laura Reiter
Thipsuda Chanlertfa
1
OFFSHORE OUTSOURCING
Introduction
Case Study – Cognizant
Case Study – DFS Galleria
Case Study – Lincoln Industrial
Case Study – Exult
Conclusion
2
Introduction
OFFSHORE OUTSOURCING
• Began in 1970s with U.S. computer manufacturers
hiring technical staff from India for service centers
(initially to save costs).
• India developed skilled base of technologists
(understand wide range of ops systems and service
a variety of hardware).
Reference 1
3
Pros of the Trade
OFFSHORE OUTSOURCING
• Cost savings – up to 80 percent
• More resources = attention to core competence,
design and business knowledge
• Offshore needs meet with competence
• Demand for temporary work and consulting met
• On-demand, at short notice, without commitments
Reference 2
4
Cons of the Trade
OFFSHORE OUTSOURCING
• Communication due to language/cultural barriers
• Time differentiations
• Technical/skill mismatches
• Quality discrepancies/lack of repeatable process
• Security issues
• Bad management/hierarchical stubborn organizations
Reference 2
5
Not Just India
OFFSHORE OUTSOURCING
Meeting growing demands for inexpensive yet
competent programming talent:
• China
• Philippines
• Russia
Reference 3
6
Just India
OFFSHORE OUTSOURCING
• Most mature here
• Holds 85-90 percent of offshore outsourcing
market today
• Maturity due to government support for past
decades and their continued improvements of the
education system built by the British
Reference 4
7
Size of Market
OFFSHORE OUTSOURCING
In 2003: 5% of the US IT services market is operating
offshore
300 of Fortune 500 have a relationship with an Indian
IT service firm
360,000 US jobs moved offshore
$7 billion dollar market
In 2005:15% of US workforce (2 million) will move offshore.
$10 billion market
In 2007: $15 billion market
By 2015: 3.3million US jobs and $136 billion in wages will
transfer offshore.
Reference 17
8
Market Trends
OFFSHORE OUTSOURCING
In 2001: Forrester Research found 12% of IT budgets
offshore, estimated to be 28% of IT budgets by
2003 (based on interviews with 50 IT
executives and survey of 145 IT Directors).
In 2001: Forrester Research found that 44 percent of
US firms with more than $1 billion in sales
performed IT work offshore, estimated to be
67% by 2003.
In 2003: Deloitte Research found that 33% of Global
Financial Institutions already sent IT work
offshore.
75% will move work offshore within next 24 months.
Reference 18
9
In 2003
OFFSHORE OUTSOURCING
In 2003: 95% of US Offshore IT sourcing activity is
taking place in these nations:
Canada
EU
Russia
Israel
Mexico
China
Japan
India
Philippines
Singapore
Brazil
Australia
Reference 19
10
Global IT Spending in 2000
OFFSHORE OUTSOURCING
Service Line
Market Size India Export India’s Market
(US$ Billion) Revenues
Share
Custom Application
Development
$18B
$2.5B
13.6%
Application
Outsourcing
$11B
$1.7B
15.8%
Packaged Software
Support
$41B
$.3B
.7%
Systems Integration
$72B
$.15B
.2%
IT Consulting
$19B
$.05B
.3%
Network Management
$20B
$.05B
.3%
$181B
$4.75B
Total
Reference 20
11
Scale of Leading Offshore Venues (2001)
OFFSHORE OUTSOURCING
Average IT Labor Estimated #
Software companies
Cost per Year
Estimated # IT
employees
China
$8,952
5,000
200,000
India
$5,880
900
415,00
Ireland
$34,000
750
23,000
Israel
$38,000
400
35,000
Malaysia
$7,200
Mexico
$1,400
Philippines
$6,565
1,000
290,000
Russia
$7,500
1,000
8,000
Reference 21
12
Thus, Labor Arbitrage is Driving Force,
OFFSHORE OUTSOURCING
But labor savings will be offset by
higher transaction costs:
• More expensive to contract
• Higher transportation costs
• Higher management costs (on site vendor staff
and in-house project management)
• Poor communication
• Cultural differences
• Lapses in technology infrastructure
13
Offshoring
OFFSHORE OUTSOURCING
Offshoring, a key element of Global Sourcing, can yield
significant benefits... Thus,
Cost Savings Realized
0%
10%
20%
30%
What Drives Offshoring?
40%
19%
0-10%
0% 20% 40% 60% 80% 100%
33%
38%
31-50%
Saving
Cost
94%
92%
10%
Improving
Quality
Quality Improvement
0%
10% 20% 30% 40% 50%
27%
23%
Significant Improvement
41%
38%
Some Improvement
25%
Unchanged
Somewhat Decreased
39%
7%
2002
51%
41%
Accessing
Skilled
Resources
Reducing
Cycle
Time
63%
41%
32%
32%
2002
2003
2003
14
Offshore Outcomes
OFFSHORE OUTSOURCING
93% of respondents expect offshore
outsourcing to reduce costs
Very Effective
Too Early to Tell
Respondents asked 100
18% 9%
32%
Somewhat Effective
(Meeting Some Goals
and Objectives)
Reference 22
Survey by A.T. Kearney,
Financial services
Executives about the
41%
Effectiveness of their
Effective
(Meeting Goals
& Objectives)
Offshore initiatives
15
Offshore Cost Savings
OFFSHORE OUTSOURCING
US Companies charge $80 to $120 per hour for programmers
Offshore providers charge about $40 per hour
More than 50%
Less than 10%
9%
Thirty to 50%
9%
Survey by IBM
Consulting Services,
Respondents asked
percentage of savings
40%
from offshore
42%
outsourcing of IT
Ten to 30%
services and software
development
Reference 23
16
Offshore Quality Improvement
OFFSHORE OUTSOURCING
Some Decrease
Unchanged
Services, Respondents asked
7%
Significant
Improvement
Survey by IBM Consulting
25%
Level of quality change
After offshore outsourcing of
27%
IT services and software
41%
development
Some Improvement
Reference 24
17
Offshore: The Quality Issue
OFFSHORE OUTSOURCING
Out of the top 400 companies, more than 272 Indian
companies have already acquired ISO 9000 or SEI
level 2 or other equivalent certification
Countries
India
China
Russia
World
Reference 25
Number of SEI Capability Maturity Organizations
Level 4
28
0
0 (2)
73
Level 5
46
2
1
69
18
Offshore: The Quality Issue
OFFSHORE OUTSOURCING
Top 5 Indian Vendors
Countries
India
China
Russia
World
Number of SEI Capability Maturity Organizations
Level 4
28
0
0 (2)
73
Level 5
46
2
1
69
Company:
Annual Revenues
Tate Consultancy Services
$689m
Wipro Technologies
$661.7m
Infosys Technologies
$413.9m
Satyam Computer Services
$308.2m
Cognizant Technology Solutions $177.8
Reference 26
19
IT Activities Moving Offshore
OFFSHORE OUTSOURCING
Data Centers
Study of 42 Current Offshore Users
By Gartner Group
BPO
Transaction Processing
Data Integration & Cleansing
Packaged Application
Implementation
Infrastructure Management
Contact Centers
Application Outsourcing
Legacy Transformation
IT Consulting
Software Testing
Application Maintenance
Application Design
And Development
0
10
20
30
40
50
60
70
Percentage of Respondents
Reference 27
20
Most Important Vendor Selection Criteria
OFFSHORE OUTSOURCING
Study of 42 Current Offshore Users
By Gartner Group
Near-shore Capabilities
Multivendor Capabilities
Significant Presence in US
Full Outsourcing Capability
Certifications
Business Process Expertise
Project Management Capabilities
Speed of Delivery
Quality of Resources
Cost
Vendor Maturity
0
1
Not
Important
Reference 27
2
3
4
5
6
7
Extremely
Important
21
Respondents indicated interest in exploring new business models
OFFSHORE OUTSOURCING
Captive
Firm’s own
offshore “shared
service center.
Examples include
GE, American
Express and
HSBC.
Highest
investment
 High management
commitment
 Potentially high
risk if no local
knowledge
 Greatest
opportunity to
realize value
 Potential to
insource

Build-OperateTransfer (BOT)
Facilities
Management
Outsourced
An offshore center
built and operated
by a third party for
a finite time period
after which the
ownership transfers
to the client firm.
An offshore center
fully owned by the
firm; facilities
management (real
estate, security,
transportation,
cafeteria, etc.)
provided by a third
party .
Popular choice for
low-end business
processes or
contact centers.
Could have ttwo or
more vendors and
multiple countries
Joint Venture
An offshore
center with joint
ownership of the
firm and a third
party
More complex to
set up
 Moderate
investment
 Opportunity to
share reward
 Local knowledge
of the JV partner
helpful




Helpful when a
firm wants to
retain control but
lacks local
knowledge
Also appropriate
when vendors
lack domain
experience
Opportunity to
realize value as a
“captive” facility



Helpful when a
firm wants to
retain control but
lacks local
knowledge
Also appropriate
when vendors
lack domain
experience
Opportunity to
realize full value
as a “captive”
facility
“Extended Organization”



Requires robust
vendor
management
Heavy
management
focus in the multivendor model
Opportunity to
employ Best of
breed providers
22
Which US companies are moving IT work offshore?
OFFSHORE OUTSOURCING
Non-IT Companies:
•
•
•
•
•
•
•
•
•
•
•
British Airways
MasterCard
GE
British Telecom
GM
Ford
American Express
Xerox
World Bank
America Online
Procter & Gamble
IT Companies:
•
•
•
•
•
Accenture
Microsoft
Intel
EDS
IBM
23
Leading the Way:
OFFSHORE OUTSOURCING
Today’s Companies
Infosys
Wipro
Cognizant
24
Current Trends
OFFSHORE OUTSOURCING
• Increasing acceptance of value and viability of
using remote programming resources.
• Companies continue to refine their approach to
global sourcing.
Reference 7
25
Outsourcing Futures
OFFSHORE OUTSOURCING
• Offshore outsourcing will grow.
(At least 25 percent in 2003)
• U.S. - based outsourcing and consulting firms will
increase offshore resource pools.
(By increasing offshore partners or existing facilities)
• India will continue to dominate.
(Indian vendors will look offshore for even cheaper help)
• Indian vendors will continue to move up the value
chain.
(By offering architecture, design, development
and technology strategy services)
Reference 7
26
Outsourcing Futures (Continued)
OFFSHORE OUTSOURCING
• Business process outsourcing in India will grow
at least 65 percent during 2003.
(Given the cost benefits and early successes of
Indian IT-enabled service outsourcing)
• Companies continue to focus on contingency
plans for offshore vendor relationships.
(New processes and workarounds to ensure safety of
their clients’ systems in the event of communications
outage or bombing in India)
Reference 7
27
Outsourcing Futures (Continued)
OFFSHORE OUTSOURCING
• Fortune-class companies will require vendors to
have mature processes in place before they
engage.
(Process maturity equals quality)
• Companies will increase investments with offshore
service providers, even first timers.
(In the past - pilot projects were small; in the future –
comfort and confidence will increase initial deals)
Reference 7
28
Outsourcing Futures (Continued)
OFFSHORE OUTSOURCING
• Companies will put in place centralized program
management offices or governance structures to
manage, monitor or consult on offshore
outsourcing relationships at the corporate level
(Today – companies often have multiple offshore
relationships with multiple vendors within
different business units or groups)
Reference 7
29
Concepts of the Past 25 Years
OFFSHORE OUTSOURCING
The evolution of
the generations
30
First Generation:
OFFSHORE OUTSOURCING
Staffing
• Syntel and Tata – main suppliers of technical
personnel.
• In the end – minimal cost or value impact.
Reference 1
31
Second Generation:
OFFSHORE OUTSOURCING
Offshore
• Tata and Wipro – providers
• Totally cost-focused
• Suffered from usability and quality issues
Reference 1
32
Third Generation:
OFFSHORE OUTSOURCING
On–site/Offshore
• Cognizant and Infosys – Today’s dominant
players.
• Technical-focused with high quality outcomes
and resourcing flexibility.
Reference 1
33
Fourth Generation:
OFFSHORE OUTSOURCING
On–site/Offshore and Business
Transformation
• Cognizant – with its u.s. and European market
base in conjunction with large development
facilities in India; pioneer and definer of the
fourth generation.
Reference 1
34
The Fourth Generation:
OFFSHORE OUTSOURCING
Transformation
and
Corporate Executives
Reference 5
35
Transformation:
OFFSHORE OUTSOURCING
Efficient Execution
• Requires close partnership-based relationship
between client and service provider
Conceptual Shifts
• Moving from technical to strategic
• Treating vendors as colleagues rather than
contractors
• Outcome focused instead of activity focused
Reference 5
36
The Fourth Generation
OFFSHORE OUTSOURCING
• Allows corps to focus more on the customer and
doing business vs. the processes that support it
• Dramatically faster flow of knowledge, greater
ease of complex strategic problems, high
motivation achieving more with less
Reference 5
37
The Fourth Generation:
OFFSHORE OUTSOURCING
Innovative Concept
Companies partner with a single integrated
provider simultaneously allowing:
• Understanding of execution
• Supply solutions
• Guidance through essential change
management process
Reference 5
38
OFFSHORE OUTSOURCING
A Fourth Generation
Case Study
Cognizant
39
Cognizant
OFFSHORE OUTSOURCING
Location: Headquartered in Teaneck, New Jersey
History: Started as subsidiary of Dun & Bradstreet
to establish a large offshore development
center for the parent company
Founder: Kumar Mahadeva – chairman and CEO
Reference 5
40
Cognizant Figures
OFFSHORE OUTSOURCING
As of September 30, 2003:
• 6,168 employees
• 260.1 million in past year’s sales
• 39.6 million in past year’s earnings
• 1.129 billion in market value
Reference 6
41
Cognizant
OFFSHORE OUTSOURCING
• Based on client relationships guided by value and
shared goals, not rigid, locked contracts.
• Operates as technology partner to client.
• Always been project oriented as opposed to
staffing oriented.
Reference 5
42
Cognizant and the Fourth Generation
OFFSHORE OUTSOURCING
How does Cognizant provide
its services to its clients?
43
Fourth Generation Services
OFFSHORE OUTSOURCING
• Vertical industry domain knowledge:
(Knowledge of business)
• State-of-the-art technology expertise:
(From legacy platforms and major enterprise applications to
Java, .net, and XML services)
• Business transformation core competency:
• Highly disciplined program management and change
management competence:
(eliminates hurdles of managing complex offshore developments)
• Organizational agility:
(speed and flexibility to coordinate local and offshore resources)
Reference 5
44
A Fourth Generation Model
OFFSHORE OUTSOURCING
• Creates ‘community of practice’ that fully
integrates business strategy with it’s execution.
• On site/offshore information technology
outsourcing combined with change management
practices is key.
• Increased speed, quality, productivity are the
outcomes (all with lower costs).
Reference 1
45
Cognizant’s Differentiators
OFFSHORE OUTSOURCING
• 100 percent end-user application focused
(most others are product and research/development
oriented).
• Focused on working with business end-users with
deep knowledge in key verticals.
• Focused on bottom line business results through IT
portfolios analysis and change management.
Reference 5
46
Cognizant Industries
OFFSHORE OUTSOURCING
First major offshore company to establish vertical
industry practices through experts who know
competitive challenges that client companies face.
Reference 5
47
Vertical Industry Practices
OFFSHORE OUTSOURCING
Healthcare
Financial Services
Sierra Health / Lifeguard / Healthnet
Philidelphia Stock Exchange / First Data Corp
Telecommunications
Manufacturing & Logistics
Media & Publishing
United States Cold Storage / Coors
Nielson Media Research / Dun & Bradstreet
Pharmaceuticals
Insurance
Retail
Reference 5
Royal & Sun Alliance / Liberty Mutual / Metlife
Ace Hardware / Radioshack / Brinker Int.
48
Some Recent Industry Awards
OFFSHORE OUTSOURCING
October 2003
topped forbes’s list of ‘hotshots’
June 2003
8th overall in business weeks’ list of ‘hot growth companies’
April 2003
15th on forbes’s ‘25 fatest growing tech companies’
(ranked by five-year totals)
October 2002
ranked 16th in fatest growing 100 tech companies list
published by business 2.0
49
Kumar Mahadeva Speaks
OFFSHORE OUTSOURCING
“Cognizant is a recognized premium player in the
offshore IT services industry and is growing faster
than its offshore peers because our model is built for
the new world of large scale offshore outsourcing.
through our industry leading fourth generation
servicing model we partner with clients on a process
we call ‘transforming while performing’ to drastically
cut IT and business costs, while better aligning
clients’ IT portfolios with business needs.”
Reference 5
50
Partners
OFFSHORE OUTSOURCING
51
OFFSHORE OUTSOURCING
Case Study
DFS Galleria
52
Case Study: DFS Galleria
OFFSHORE OUTSOURCING
• Engaged Cognizant Technology Solutions, an
Indian offshore service provider, to provide onsite support.
• Leading retailer of luxury goods and general
merchandise for international travelers.
• 6,000 + employees & several hundred stores.
Reference 8
53
Situation
OFFSHORE OUTSOURCING
• Sept 11th; Dramatic slowdown in business.
• Need for accelerated cost reductions.
• Demand for increased speed and quality of IT
services.
Reference 8
54
Approach
OFFSHORE OUTSOURCING
• Cognizant proposed its “Transformational Offshore
Outsourcing” methodology to achieve large-scale,
radical changes needed.
– Phase 1 – Mid 2000; Cognizant assumed responsibility for onsite maintenance and enhancements to retailers core
merchandising system.
• Slow and in phases to help manage risk.
• Measured in stages before making long-term commitment.
• Fully up to speed in 6 months; comfortable with operation in 12.
Reference 8
55
Approach (Continued)
OFFSHORE OUTSOURCING
– Phase 2 – Early 2001; DFS extended India support to
include the second and third shifts.
– Phase 3 – Oct 2001; Cognizant became responsible for
all the application support and new development
activities globally.
– Phase 4 – Early 2002; all financial, human resources and
email systems were added.
Reference 8
56
Results
OFFSHORE OUTSOURCING
• Overwhelming success: surpassed DFS’s
expectations on quantitative and qualitative
dimensions.
– Significant reduction in application support costs.
– Met all original objectives and delivered other
value-added services.
Reference 8
57
Critical Success Factors
OFFSHORE OUTSOURCING
• Cooperative culture: Teamwork, strong work ethics
and “can do” attitude.
• Patience: Success takes time.
• Pre-planning: Resources need to be allocated early.
• Vendor responsibility: Qualified, trained, mature
staff must be utilized in a timely fashion.
• Clarity: Roles must be clear with responsibilities
and expectations defined.
• Outside the box: Both parties must think about
advantages beyond cost savings.
Reference 8
58
OFFSHORE OUTSOURCING
Case Study
Lincoln
Industrial, Inc.
59
Part #548447 Handheld Grease Gun
OFFSHORE OUTSOURCING
• Most popular of this line
• Annual volume 48,500+
Reference 9
60
Scenario
OFFSHORE OUTSOURCING
Reference 9
61
OFFSHORE OUTSOURCING
Case Study
Exult
62
Exult’s Offshore Outsourcing Plan
OFFSHORE OUTSOURCING
• Exult, with the assistance of NeoIT Inc., signed a
deal in early 2003 to move some of its “day-to-day
application maintenance” offshore.
• Exult’s management deemed this a logical step in
their bid to stay competitive in the ever-changing
global economy.
Reference 12
63
Background - NeoIT
OFFSHORE OUTSOURCING
• NeoIT is the leading offshore advisory and
management firm.
• “Focus exclusively on assisting companies in
maximizing their returns from offshore sourcing
of both IT and business processes on either a
project or enterprise-wide basis.”
Reference 12
64
NeoIT
OFFSHORE OUTSOURCING
• “Capable of delivering results in the form of cost
savings, improved governance, reductions in
sourcing process time and decreased risks with
offshore supplier partnerships.”
• Essentially, NeoIT focuses on four factors: cost
savings, quality, risk & control.
Reference 12
65
A Perfect Match
OFFSHORE OUTSOURCING
• Exult’s VP of Business Model Architecture, Steve
Unterberger, was considering offshore outsourcing
due to three primary factors:
1. Savings- the economic environment overseas can
provide significant cost reductions.
Reference 12
66
A Perfect Match (Continued)
OFFSHORE OUTSOURCING
2. Skill- By taking application maintenance offshore,
Unterberger believed he could tap into new
sources of expertise.
3. Scale- Access to skilled offshore providers
substantially increases the available resource
base, providing the additional capacity to
accommodate Exult’s Growing business.
Reference 12
67
Exult & NeoIT
OFFSHORE OUTSOURCING
• Mr. Unterberger made it clear from the beginning that
Exult would be taking a “hands-on” approach.
• “What made the relationship even more effective
was the unique skill set that each party brought to
the table.” – NeoIT
• “Unterberger understood Exult’s business
requirements and drove the decision making
activities, while NeoIT had extensive knowledge of
offshore markets and providers” - NeoIT
Reference 12
68
Exult & NeoIT
OFFSHORE OUTSOURCING
• “NeoIT’s understanding of the Indian Vendor
environment meant that they knew which buttons to
push to create a positive supplier relationship. After
meeting the providers…I was completely convinced
that both the capabilities and the economics we
needed were there.”- Steve Unterberger
Reference 12
69
Exult & NeoIT
OFFSHORE OUTSOURCING
• Next, an intense review and due diligence process
by both parties was conducted and the supplier list
was narrowed to the three most qualified candidates.
• Then, NeoIT sent a team of veteran auditors to
perform a detailed assessment of each supplier’s
domain, technical and functional knowledge.
Reference 12
70
Evaluation Criteria
OFFSHORE OUTSOURCING
• NeoIT used a five step process to assess the
competency of each of the firms. Their evaluation
criteria included:
1. Past Projects
2. People (management of Human Resources.
3. Pricing
4. Performance
5. Platform
Reference 12
71
Final Decision
OFFSHORE OUTSOURCING
• Based on the previous criteria and the extensive due
diligence performed by both parties, Exult and NeoIT
were able to identify the two most qualified providers
and award the final contracts accordingly.
Reference 12
72
Keys to Success
OFFSHORE OUTSOURCING
• According to Harding Goodman, Global ASM
Director for Exult, “the exacting vendor process that
NeoIT had helped coordinate began paying dividend
right away. The vendors’ skills and familiarity with
our needs were excellent. They knew exactly where
we were going and how we wanted to get there.”
Reference 12
73
Keys to Success (Continued)
OFFSHORE OUTSOURCING
• According to Mr. Goodman: “the keys to a smooth
transition process are communication and
expectations. You need to have a communications
plan in place right from the beginning, and you need
to stick with it…you need to make sure everyone
involved knows your expectations fro time, quality
and other success measurements.”
Reference 12
74
Ongoing Contract Governance & Program Management
OFFSHORE OUTSOURCING
• Ongoing management responsibilities were given to
Exult’s Operations group.
• NeoIT’s work was just beginning; they were now
focused on ensuring that the savings negotiated
would be delivered consistently and on schedule.
Reference 12
75
Managing for Continued Success
OFFSHORE OUTSOURCING
• NeoIT provides ongoing program management
services to oversee the activities of the offshore
suppliers.
• With the aid of NeoIT’s Project Office tool, the
suppliers, NeoIT staff, and Exult managers have the
ability to: track milestones, allocate resources,
manage service levels, gather feedback, and see
invoicing and payment information.
Reference 12
76
Managing for Continued Success (Cont.)
OFFSHORE OUTSOURCING
• Project Office generates weekly status reports and
automatically alerts team members whenever
significant events occur – e.g. when performance
falls below service levels.
• In addition, NeoIT has a full-time program director
based in India to monitor work activities, ensure
compliance, and act as an arbitrator if any issue
arise.
Reference 12
77
Offshore Outsourcing Tips
OFFSHORE OUTSOURCING
• According to Harding Goodman of Exult, companies
considering working with offshore providers should:
“Create a single, global team. You can’t have one
onshore team and another offshore team. Everyone
has to play in the same sandbox.”
Reference 12
78
Offshore Outsourcing Tips (Continued)
OFFSHORE OUTSOURCING
• “Make sure each individual contributor knows what
is expected of the team and how their work fits into
the big picture.” – Harding Goodman, Exult
• Have a local presence. “The advice of counsel and
our NeoIT representatives in India is invaluable. Our
vendors have complete respect for them, but they
also know they are working for Exult.”
Reference 12
79
Results
OFFSHORE OUTSOURCING
• Harding Goodman believes strongly that offshore
outsourcing with NeoIT has helped Exult achieve its
goals for savings, skill, and scale:
• Savings: “With the economic model of offshore
outsourcing, we have been able to achieve
somewhat higher savings that we anticipated.”
Reference 12
80
Results (Continued)
OFFSHORE OUTSOURCING
• Skill: “One of my managers said this is the best team
of this sort she’s ever had because of the skills of
the individuals.”
• Scalability: “Our offshore vendors have good ‘bench
strength.’ If I need additional skills or people, I can
add them quickly.”
Reference 12
81
Update
OFFSHORE OUTSOURCING
• Exult finalized its deal with NeoIT in early 2003
and subsequently employed approximately 150
workers at its facility in India. Recently, Exult has
stated that they plan to “increase its workers in
its BPO facility in India to 2,000 by 2005.”
Reference 16
82
OFFSHORE OUTSOURCING
Conclusion
83
Things to Consider before Outsourcing
OFFSHORE OUTSOURCING
• Be patient – long term mindset.
• Vendor selection costs 1 to 10% premium.
– Documenting requirements
– Negotiating contracts, legal fees
– Travel expenses
• Transition period
• Cost of layoffs, morale of “survivors”
• Cultural cost, communication
Reference 10
84
Things to Consider before Outsourcing
OFFSHORE OUTSOURCING
•
•
•
•
•
•
Reference 10
Quality assurance testing
Cost of managing contract offshore
Security and privacy
Skills and expertise – talent match project
Country stability
Certification – CMMI (Capabilities Maturity Model
Integration)
85
The Latest Trends
OFFSHORE OUTSOURCING
• Multi-sourcing – Multiple service providers in different
•
•
•
countries; search for best skills for best price.
Reshuffling Skills – Rebalancing mix of in-house skills
with managerial experience and business process
knowledge.
– IT Architects – which technologies to adopt
– Contracting, negotiation, financial & accounting
Offshore Handoffs – outsourcers are outsourcing
Large savings currently
– However, demand will drive up global labor costs.
– Negotiations for extended long-terms contracts.
Reference 11
86
Offshore Outsourcing Benefits
OFFSHORE OUTSOURCING
• Cost Savings
• Increased Productivity
• Time to Market
• Access to Expertise and Skills
• 24/7 Operation
• Higher Software Quality
• Make capital funds available-Cash infusion
• Sharing of risks
87
Offshore Outsourcing Costs
OFFSHORE OUTSOURCING
• Unclear objectives and design requirements
• Lack of Control
• Time zone differences
• Language barriers
• Domestic layoffs
88
Backlash/Controversy
OFFSHORE OUTSOURCING
• There are numerous proponents for offshore
outsourcing and numerous opponents who believe
offshore outsourcing is simply a low-cost, lowquality alternative to keeping jobs in the U.S.
Reference 14
89
Opponents
OFFSHORE OUTSOURCING
• In recent years there have been a number of people
who have called for legislation that would limit the
ability of U.S. companies to move IT jobs offshore.
• Many people who oppose offshore outsourcing are,
in fact, workers who have been outplaced by the
practice.
• Other negative factors that opponents cite include
downward pressure on salaries in the IT industry
and the potential for a “reverse brain drain,” where
highly skilled IT workers choose to work in countries
other than the U.S.
Reference 15
90
Government Action?
OFFSHORE OUTSOURCING
• Recently, the Bush administration has stated that
they have “no plans to impede companies efforts to
move IT jobs to India or anywhere else.
• Thus, the government has decided that it will not, at
any time in the near future, enact any sort of
legislation that would hinder offshore outsourcing.
Reference 15
91
Proponents
OFFSHORE OUTSOURCING
• Many of those in favor believe that they can in fact
get better quality in shorter times at a lower cost by
going offshore.
• The majority, whether they agree with the previous
statement or not, believe that they can attain at least
a level of quality consistent with what they have in
the U.S., at a lower cost.
Reference 14
92
Proponents (Continued)
OFFSHORE OUTSOURCING
• Essentially, it comes down to a competitive
advantage decision for these global companies.
• As Kevin Campbell, COO of Exult states: “…if I
thought I could clobber all my [competitors] here by
just staying put in the U.S. and outsourcing work
here, why wouldn’t I do that? I am not doing that,
because that [scenario] does not exist”
Reference 13
93
Proponents (Continued)
OFFSHORE OUTSOURCING
• Again, global companies see it as a crucial element
to staying competitive in the global market place.
• Some executives, such as Gordon Coburn senior VP
and CFO of Cognizant, believe that not making the
decision to outsource offshore will eventually cost
more jobs because companies will “not be able to
survive , because they won’t be price-competitive.”
Reference 13
94
Sink or Swim?
OFFSHORE OUTSOURCING
• Ultimately, after hearing both sides of the argument,
it becomes clear that the executives that are in favor
of offshore outsourcing believe that it is a necessity
in order to stay competitive.
• Essentially, global companies must “evolve or
perish.”
95
References
OFFSHORE OUTSOURCING
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
“Tech Vendor Cognizant Harnesses the Force of Y6” by Cliff Shaffram, The Bottom Line represented from
South China Morning Post Sunday Money – Oct 27,02
www.gislen.com/services/why_outsourcing.htm by Mirael Gislen and M.C.Abruham
“Offshore Outsourcing grows to global properties” by Lassy Greenemeies 2/11/02
“More and More Its Offshore” by Jim Erricson Oct 11,2002 Line 56
www.cognizant.com
“Healthcare Informatics 100”
“IT Trends 2003: Offshore Outsourcing” by Stephanic Moose-Idea Byte Oct 21, 2002
www.gartnerconnects.com on10.08.03
Interview: Tom Johnson, Plant Manager on 11.12.03
www.web.lexis-nexis.com, www.proquest.umi.com on 10.23.03
Copyright 2003 “PR Newswire Association, Inc.”
Copyright 2003 “NeoIT, Inc.”
Copyright 2003 “Living Media India, Ltd.”
Copyright 2003 “CMP Media, LLC” Information Week
Copyright 2003 “Computerworld, Inc.”
Copyright 2003 “Financial Times Information”
Carmel, E., and Agarwal, R., “The Maturation of Offshore Sourcing of Information Technology,” MIS
Quarterly Executive, Vol. 1, 2, pp. 65-77.
Greenemeier, L., “Offshore Outsourcing Grows to Global Proportions,” InformationWeek, Feb 11, 2002
Morstead, S., and Blout, Greg, Offshore Ready, Isani Press, 2003.
Vijayan, J., “Companies Expected to Boost Offshore Outsourcing,” ComputerWorld, Feb 17, 2003.
96
References
OFFSHORE OUTSOURCING
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Rosenthal, B., “Deloitte Study Discovers 75% of Global Financial Institutions Pan to Outsource Offshore,”
Everest Partners, L.P., Dallas Texas, June, 2003
Morstead, S., and Blout, Greg, Offshore Ready, Isani Press, 2003.
Carmel, E., and Agarwal, R., “The Maturation of Offshore Sourcing of Information Technology,” MIS
Quarterly Executive, Vol. 1, 2, pp. 65-77.
NASSCOM, McKinsey Report, 2002
Morstead, S., and Blout, Greg, Offshore Ready, Isani Press, 2003.
MacSweeney, G., “Offshore Can Improve Quality,” Insurance and Technology, July 2003, Vol. 28, 7, p.39.
Thibodeau, P., “Offshore’s Rise is Relentless, ComputerWorld, Vol. 37, 25, June 30, 2003, p. 1, 16.
McCarthy, Kack, “Redefining Offshore Outsourcing,” InfoWorld, December 2, 2002, Vol. 24, 28, p. 56.
McCarthy, Kack, “Redefining Offshore Outsourcing,” InfoWorld, December 2, 2002, Vol. 24, 28, p. 56.
Auriga.com, Carnegie Mellon University, Software Engineering Institute (SEI), May 2002
http://www.sei.cmu.edu/cmm/high-maturity/HighMatOrgs.pdf
Greenemeier, L., “Offshore Outsourcing Grows to Global Proportions,” InformationWeek, Feb 11, 2002
Weiss, P., “Behind the Numbers: Offshore Outsourcing’s Cost Effective Edge, InformationWeek, Nov 25,
2002, Vol. 916, p. 66.
97