IITA Outsourcing

2007 Outsourcing Trends

2007-06-25T17:03:00.000-07:00

As outsourcing professionals we track multiple sources and research results of various organizations like Gartner, IAOP, IDC, neoIT, the Outsourcing Institute, TPI, DiamondCluster, etc. Here is a short summary of current outsourcing trends with no discussion of reasons and consequences of these trends.

1) There is an increasing trend toward multi-sourcing. Multi-sourcing means engaging multiple service providers across different geographies and business functions.

2) The market share of Big 6 (Accenture, ACS, CSC, EDS, HP, and IBM) is decreasing. This is a strong trend since 2002. More and more service providers compete for more deals resulting in remarkable increase in service provider diversity, specialization and geographies.

3) In 2006, both total contract value and number of mega-deals (>$1B) were down 8-10% in the American market, with some growth in European and Asian markets, resulting in about flat total number of mega-deals with some decrease in total contract value.

4) Overall, European and Asian outsourcing markets are expected to grow faster than American.

5) Outsourcing contracts tend to have shorter durations with more flexible contracting relationships.

6) Mid-market outsourcing, as more and more mid-size companies adopt outsourcing concepts, grows faster then the Global 2000.

7) In 2006, BPO market did not grow. Additionally, there is a trend toward fewer multi-process deals in favor of single process and even a particular industry specialized single process.

8) Main outsourcing drivers, in descending order, are: Cost Reduction; Focus of internal staff on core business and strategic projects; Decrease time to market/Expedite launch of new technologies; Standardization of technology across enterprise; Expertise shortage; Risk mitigation of heavy infrastructure investments and/or staff retraining.

9) Main CIO priorities, and respectively areas where service providers can help, are: Delivering projects that enable business growth; Aligning business and IT strategies; Building business skills in the IT department; Demonstrating the business value of IT; Attracting, developing and retaining IT personnel; Applying metrics; Improving the quality; Developing flexible technology infrastructure; Improving IT governance.

10) Areas of IT where many organizations will need help during next two years are: Legacy Modernization; ERP Implementation; Process Improvement & Certification; Application Quality; Shared Services Development; Consolidation of ESPs; Creation of PMO; ASP/SaaS Adoption; Portfolio Rationalization.

11) During 2001-2006, rates for outsourced IT services like help desk, customer support, infrastructure management decreased on 20-40% due to decrease in cost of hardware, communication channels, etc. Application development rates slightly increased.

12) Driven by both internal cost increases and growing demand, the further increase of offshore outsourcing rates should be expected. Annual growth of salaries in 2007-2010 is predicted to be about 6% in Asia and Latin America (with about 9% in India and 5% in Mexico) and about 5% in EMEA (with about 7% in Russia.)

13) Satisfaction level with outsourcing providers measured by Service quality, Performance, and Price of services on the scale of 1 (not at all satisfied) to 7 (very satisfied) is about 4.5. To improve the satisfaction, both buyers and sellers better and better understand that partnering relationships shall be established and managed during the entire contract duration. Respectively, there is a move from "sign and forget" toward co-management and building organizational trust.

14) India remains the main offshore outsourcing destination, especially for the United States companies (75-80% of US outsourcing buyers outsource to India) but growth is slowing down. China is widely anticipated to be “next” destination but real growth of outsourcing to China is far less than expectations. The fastest growth of outsourcing over next 3-5 years is expected in Eastern Europe and Latin America.

15) There is a strong consolidation trend in the outsourcing industry. In 2006, M&A activity was up on 24%.

About Intetics Co.

Intetics Co. is a leading global software development company focused on custom application development, software testing, web system design and offshore staff augmentation services. Since 1995 Intetics has completed over 500 projects for about 150 customers in more than 30 countries. The company has two ISO 9001 certified development centers in Eastern Europe. The company's innovation and growth achievements are reflected in winning prestigious Deloitte Technology Fast 50 award two years in a row. CMP-CyberMedia Global Services magazine placed Intetics on their 2007 list of the World's 100 Most Innovative Service Providers and ranked the second in the Top 5 Global Emerging Service Providers. Intetics also is listed in the Global Outsourcing Top 100 companies by IAOP and Fortune.

For more information, visit www.intetics.com

7 Myths of Outsourcing exposed by WSJ article

2007-06-20T15:34:00.000-07:00

Wall Street Journal article reveals the 7 Myths of Outsourcing

A recent Wall Street Journal Report published in April of this year helps illuminate from a senior executive point of view , what the harsh realities of Outsourcing may await the intrepid firm looking beyond it’s shores and or personnel for business processes.

There often is a great deal of misconception by the community at large about outsourcing and the following is a summary of the article. Readers of this summary are welcome to follow the link at the bottom for the full article

Written by Phanish Puranam and Kannan Srikanth, both of the London Business School, it sums up a survey in which sixty two top executives from among the 100 largest financial-services firms in the U.S. and Europe, were surveyed on expectations, goals and challenges from their firms outsourcing initiatives.

The authors found seven common myths that apply to both vendor and client when a firm out-sources some aspects of their business. . They “ range from unrealistic expectations to poor ideas about how to structure contracts to mistaken views of risk.”, according to the article.

The authors’ 7 myths also outline some of the ways to overcome the challenges encountered Here then is a brief outline of the 7 Myths.

1.Outsourcing can accomplish many objectives with one fell stroke:

The executives’ criteria for success were among other things, efficiency, cost reductions, effectiveness, or improvement in service; and flexibility ie. Increase production or decrease rapidly as needed.

The Problem? If for example a call center needs improvement in service by adding more staff on at peak periods that can only increase cost’s. The vendors evidently add to the misunderstanding by maintaining all areas will be addressed to the client’s satisfaction. ( I can’t imagine a salesperson saying such a thing but alas!)

The article states the solution may reside in communicating to the client that accomplishing one objective is often times at the cost of another.

2. Outsourcing is a commodity

Evidently the myth that outsourcing is like procuring stationery, is prevalent among some of the firms management staff. Transaction costs can mount , from the actual moving of the service to the vendor’s site, to transition costs which unfortunately can bog a firms resources down.

The article cited one offshoring manager as saying the firm still had a significant number of key personnel in India, and due to lack of confidence, they will remain there.

3. Iron Clad Contracts please…

The author’s point out that the entire process evolves over time and is not a one time transaction. The natural response is for companies legal teams to draft complicated Contracts designed to control the vendor and protect the interests of the company through a host of possibilities. ( I couldn’t imagine a lawyer not getting some billable time in here)

The Executives found out that it’s usually far too complicated and can bring a project to a standstill. Better to focus on vendor’s and clients roles and responsibilities and then define the process for negotiating changes.

4. Never mind the Contract

The next myth struck me as a bit odd, which is that a contract was not necessary. Largely due to a rush to consummate a deal the entire relationship is sometimes put together on a memorandum of understanding or letter of intent without critical operational details.

The results point out that both sides need the format of the contract to properly understand the risks, rewards and interests of both sides.

5. Outsourcing firms as a form of Insurance

How risk is shared can elevate the contentiousness of a project. Getting the project off to a more positive start is tough given the propensity of a client to want the vendor to bear greater liability for failure.

The authors offer up as a means of getting around this obstacle, clients and vendors should focus on understanding “the process as it operates. They should identify acceptable rates of error based on real data and –jointly—invest in understanding and eliminating the problems.

6. One Less Headache for the Client

Too often the client believes they can disengage from the project once outsourced. The article cited an example of one of the U.K’s largest insurance firms whose senior management team remained involved throughout the project. This strategy resulted in what the company’s spokesperson termed a very successful partnership.

Too often a client loses valuable knowledge in the area outsourced. The authors warn that a vendor could take advantage by threatening to end the relationship when the client is unable to evaluate other vendors or “even lay out how the job should be done”.

7. I’ll never Outsource again, (if this doesn’t work)

If at first you don’t succeed, try try again is the mantra of Myth 7. The article points out that very few companies report great success with their first outsourcing project. The point being that valuable experience is gained by both parties. This is good news for vendor firms and clients alike.

For a complete copy of the article from the Wall Street Journal log on to

http://online.wsj.com/article/SB118166189129632603.html

Bob Stillman is the Director of Sales for Chi Networks, a Managed IT Services Provider Headquartered in Chicago IL. He works with small and midsize businesses looking to increase efficiencies and decrease IT costs. He can be reached at 312-756-1500 xt 616

Or email him at rstillman@chinetworks.com

Practicing what you Preach!!

2007-06-07T12:40:00.000-07:00

Since my return to the downtown business community and re-immersion in the lexicon of today's business practices, I found myself struck by the clarity of my own suggestion at the recent ITA Outsourcing Roundtable.

Led by our faithful shepherd Dimatar we were discussing various ways of adding value to the Outsourcing Roundtable. Increasing subscribers, and better educating American Business icons as to the benefits of outsourcing were deemed worthwhile goals.

We also are structuring new ways to assist each other in spreading the gospel of Outsourcing, Lou Dobbs be damned.

But then the idea surfaced after the group acknowledged some of the difficulty with putting words to Blog, and I described my own experience as Blog Fright. As a first timer I found I had relatively little to say on the subject without feeling like a ton of research was in order. ( I am a bit old school) But then it occurred to me. Perhaps the infamous email from Maritz to Valentine at Microsoft came into play. I decided I was going to " eat my own dogfood", and outsource the writing. Now it seems like a fairly mundane task to most of the savvy users out there but a Micro lesson was learned and I look forward to finding more articles and research that support the core mission of the ITA's Outsourcing Roundtable.

As soon as someone points out what exactly that is..

Partnership, Not Procurement, New Path to Effective Outsourcing

2007-06-07T12:33:00.000-07:00

Source: Sdcexec.com

While outsourcing remains a critical element of the corporate strategic mix, success in today's complex outsourcing marketplace is contingent on new dynamics, specifically the customer and service provider relationship, according to a PricewaterhouseCoopers' Global Outsourcing study, "Outsourcing Comes of Age: The Rise of Collaborative Partnering."

The study explores a key issue raised by CEOs in PricewaterhouseCoopers' Annual CEO Survey at Davos and reflects insights garnered from both outsourcing customers and providers representing 19 countries across several continents.

A large majority of customers (87 percent) say today's outsourcing delivers the benefits projected in their original business plan. However, outsourcing is perceived as such an essential business practice that 91 percent of customers, whether completely happy or not, said they will outsource again.

In addition to the continued growth and significance of outsourcing, one clear trend from survey data is the frequent disconnect between the needs and expectations of customers and service providers. A quarter of customers think "many suppliers/providers" work better than "few suppliers/providers," vs. only 10 percent of service providers. While 52 percent of service providers recommend offshore outsourcing, only 20 percent of customers believe this works best in real-life outsourcing.

Success in outsourcing field will heavily hinge on shifting the customer-service provider relationship from adversarial to collaborative; from one based on procurement to one grounded in partnership."

Furthermore, customers who were defined as "high collaborators" (based on rating their providers the highest overall on the key indicators of collaboration such as "business dealings being honest and transparent") experienced the most mutual engagement with their outsourcing providers.

Other characteristics of "high collaborators" include: greater likelihood of being open-minded, enabling them to better manage around barriers to outsourcing; tendency to support the use of multi-sourcing (many suppliers/providers) over limited sourcing (few suppliers/providers) far more than other respondents; and the tendency to support shared risk and reward over traditional commercial terms.

"Outsourcing is growing fast and delivering results," continued McArdle. "High collaboration between customers and providers yields increased confidence in overcoming the challenges of outsourcing, broader business model innovation and expanded outsourcing investment in key areas of the business."

In other findings, while information technology still accounts for a predominant part of outsourced activity, the scope is extending rapidly into inherently strategic areas such as production/delivery of core products/services and innovation/ R&D, both of which are expected to experience growth during the next five years. The expansion into innovation and R&D is particularly visible in the media/telecommunications/IT sector, likely due to competitive pressures to mine every potential source of new ideas and revenue streams.

Posted By : Robert Stillman

Update Briefings on Technology 2007

2007-05-04T12:18:00.000-07:00

Self-paced Update Briefings on Technology
from CIT Equipment Leasing

We know your time is limited. Yet, you need to keep current with technology changes and their impact on your business. So, CIT Equipment Leasing has taped two recent “live” customer seminars for you to view as your schedule permits. These presentations were so well-received, we thought you would also be interested in these topics. Simply click on the links below. (See additional instructions at the bottom of this message.)

These audio presentations and accompanying slides are another value-added service from CIT’s Strategic Advisory Services group, led by Glenn Miller who has served as both a CIO and CFO during his career.

We welcome your comments about the presentations and invite you to contact your CIT Equipment Leasing account manager, Andy Penoff at 312-906-5806 with any questions you may have. Please let us know how we can assist you.

· Technology Events Q1 2007: Implications & Issues
(Presented at 4/19 Technology Teleseminar)
This session surveys the major technology events of the first calendar quarter of 2007 and point out implications and impact for our IT shops. The most important events will be covered in categories such as:
§ Architecture and Management
§ End-User Computing: Desktop & Mobile
§ Hosts: Hardware & Software
§ Microsoft and Open Source
§ Networks: Wired & Wireless
§ Processors and Components
§ Security, Storage, Tape and Backup
§ VoIP and Communications

· Top Ten Technology Shifts Over the Next Three Years
(Presented to the Association for Information Technology Professionals)
This session surveys some of the more promising technology or industry developments to watch/evaluate, as well as some of the headaches which might accompany them. Some are emerging technologies and others are already tried-and-tested, but all of these may become important for critical IT operations in the 2007-2009 timeframe. These technologies include:
§ PC virtualization
§ Merged Storage Architectures (NAS/SAN)
§ Security/Audit: Encryption, USB devices, CAS, NAC
§ Increased Storage Density: 1TB drives, De-Duplication and Thin Provisioning
§ Acceleration products (e.g., WAN, WAFS)
§ Processor Clustering/Grids
§ Management suite advances: mobile tools, M&A developments
§ Wireless/Cellular industry competition
§ Backup software finally recognizing disk
§ eSATA

Additional Instructions:
Once you have opened the presentation, the slides will automatically advance with the audio. However, you can use the bottom control bar to navigate back to previous slides or ahead, as needed. To view the slides on a full screen, select “View” (at top of screen) and then check “Full Screen”. To “turn off” full screen, select “View” and check “Full Screen” again.

Do what you do best and OUTSOURCE THE REST!

2007-03-27T13:17:00.000-07:00

Everybody is talking about outsourcing, off-shoring, yada yada yada! What does all this really mean? The easiest way to put it......if you don't know a specific function that is key to your businesses success, and not one of your core competencies, LET SOMEONE ELSE DO IT! Why waste you valuable time trying to figure out which 401(k) plan is right for your employees when there are people that spend their entire career researching retirement plans. Do you know the difference between Section 125, 129 and 132 of the Internal Revenue Code? Do you really care? How about all those employment laws that you know are out there but no one has sued you yet so you just ignore them?? All these issues can create (or avoid) legal problems as well as help you attract and retain the best employees. So how do you get your company offering the best benefits and complying with every letter of the law.....OUTSOURCE IT!

Professional Employer Organizations (PEO) offer small to medium sized employers the ability to compete for the best talent by providing them with a menu of benefits typically offered by larger organizations. 401(k) plans, flexible spending programs, health, dental and life insurance are just a few that become available when you sign up with a PEO. Don't forget about your companies compliance with all those non-business friendly employment laws. One over-sight can land you in court paying hefty fines and legal bills. Synergy puts one of their HR professionals on-site to help business owners create and communicate all the necessary policies to keep you in compliance.

We all got into business for a specific reason. I believe focusing on that reason will make any business successful. Do what you do best and Outsource The Rest!

Outsourcing with Specialized Teams

2007-03-12T12:23:00.000-07:00

The article explores the benefits of using specialized outsourcing teams as an alternative to general contractors.

In recent years, outsourcing in the Information Technology industry is gaining momentum and most of the companies are starting to discover the potential benefits of using it. Some of the key benefits of using outsourcing resources are as follows:
- Cost reduction.
- Increase in resource flexibility.
- Access to talents without the need to hire them.
- Strategic partnerships that allow penetration into foreign markets and access to new technology.

Despite the benefits that outsourcing brings many projects fail and the outsourcing users become very often frustrated with the issues that they face. Some of the issues that need to be addressed properly when dealing with outsourcing projects are as follows:
- Setting the right expectations about the benefits of the specific outsourcing project. It is unrealistic if the user is only considering the cost reduction based on the difference in the hourly rates.
- It is mandatory that the proper communication channels are established between the enterprise and the outsourcing team. There will be people assigned that will spend most of their time just to ensure the proper communication and monitoring of the projects.
- The culture differences need to be addressed and both parties need to be understanding of the cultural background of each party.
- Selecting the vendor need to be carefully considered and should be based on the size of the project. If the company has the needs a small outsourcing team it is better to research smaller outsourcing service providers instead of pursuing big established names because they may not receive the desired attention and resources from them.

More aspects about outsourcing that need to be considered are related to maximizing the results of the outsourcing relation. The aspects below are oriented more towards the outsourcing of the software projects:
- Writing software is a group effort therefore team stability and experience is a key. Despite of the efforts by some methodologies used to describe software development using manufacturing terms there are a lot more human factors involved that make it difficult to achieve good results if not considered. There are many examples of how small teams of dedicated and proficient in specific area programmers can deliver sophisticated products in a very short time frame and of very high quality. The difference between using a team assembled just for the project based on the available resources and the specialized stable team could be dramatic in terms of the quality of the code and the time need to be spend to deliver the product.
- A good communication between the user and the team is essential for the project success. Adding an additional layer to shield the project development team from the end user may require significant additional efforts and may cause substantial increase to the cost without adding any benefit. There are companies trying to use cheap and not very well trained resources to work on outsourcing projects using front end people to communicate with the client and translate the requirements to the outsourcing team. This may cause increased project time and low quality of the code that later may require a lot more effort in maintenance. Using well trained and experienced outsourcing teams with indirect monitoring of the project and consultants on site on demand can dramatically reduce the cost associated with the project and give substantially higher quality code that is easily maintained and extended.
- A proper definition for the outsourcing project. The project needs to be well defined and hopefully encapsulated. This depends on how the enterprise is operating internally with their software projects. If the enterprise is using the paradigm of building blocks for their software development that are well encapsulated it is a big advantage when defining the outsourcing work. This is giving the enterprise full control over the infrastructure used for the project and much easier definition of the outsourcing project. When possible it is highly recommended for the enterprise to own the architecture of the project to avoid being dependant from the software vendor in the future.
- Selection of the right outsourcing vendor and governance of the project are critical for the project’s success. Despite the advantages of using specialized teams for outsourcing work it is difficult to find these teams, especially in case of small size companies. It is beneficially to contact consulting companies that have established relations and offers access to group of teams specialized in different areas. Companies offering access to specialized teams could be used also for the initial setup of the project and the following governance. It is important to ensure that the company is not just a broker with a database of available resources but has well established relations and work procedures with outsourcing teams. After project inception the role of the consulting company is to monitor the project progress while minimizing its active involvement in it. The communication is better to be hold between the client and the outsourcing team under the supervision of the consulting company that should take action if the communication channel is not working as expected. This will guarantee the fastest and clearest exchange of information that is critical for the projects success.

It is very important to identify the specialized team that could be used for specific outsourcing project. But what defines a team as being specialized? In the companies that are providing only outsourcing solutions it is difficult to find truly stable specialized teams. People are switched to different projects as they come along and they are usually familiar with the technology but not necessarily with the specifics of the area that they will be involved in, for example image processing, business intelligence, telemedicine and etc. Better candidates to offer specialized teams are the companies that have products in a specific area and that offer consulting/outsourcing services in the same area. In this case the employees of the company always work in the same subject area and therefore increase their expertise over time so they can provide very efficient and quality outsourcing solutions. Examples of these types of companies are many companies located in Eastern Europe. These are usually small companies concentrated on a specific area where they have gained substantial expertise over time and they provide product solutions for their clients as well as consulting and contract software development services. The problem that needs to be considered is that these companies have limited resources and they are usually working with a small number of clients that they try to keep for a long time. Therefore it is not very efficient for a company in need of an outsourcing supplier to try to identify the companies that are providing specialized teams because this could be a long and inefficient process, but instead to use the company that is already working and offering these types of resources.

In conclusion many companies offer outsourcing solutions but finding the right resources is not an easy task, but once accomplished your company may benefit greatly from increased productivity and flexibility which will place you ahead of the competition.