Software Outsourcing

Cyndi Joiner had been responsible for GMAC's Corporate Real Estate and Facilities Management group for three months when she faced a major challenge: The large support operation appeared to be at a crossroads. The division needed to cut costs, manage suppliers' performance better, and clean up the chaos engendered by a lack of internal controls, standards, and up-to-date technology.
Joiner presented top management with three options: continue the present course, reengineer the division, or outsource the entire operation. Management selected "Door No. 3," Joiner says, primarily to reduce head count and improve processes quickly. But Joiner got more than she bargained for: GMAC executives were so excited by outsourcing's potential cost savings and apparent ease of execution that they decided to shrink the standard timeline. Whereas many firms would have allotted more than six months to complete an initiative of this magnitude, GMAC executives asked Joiner to do it in six weeks.
In spite of notable obstacles, Joiner met the challenge. In doing so, she and GMAC learned valuable lessons about launching an outsourcing initiative.
The decision to outsourceCompanies outsource noncore business functions to third-party providers for various reasons: to reduce head count, to cut expenses, and to improve service. In GMAC's case, the company believed it could not only trim personnel and other costs during a tough economic time but also might better fulfill its core purpose: ensuring that customers have a positive home-ownership experience. That meant focusing more on selling mortgages and properties. Thus, the real estate and facilities-management arm of the business became an ideal candidate for outsourcing. "The talent pool in our core competencies," Joiner says, "was much greater than in this other function. We needed a deeper 'bench' in facilities management, and outsourcing would let us get that."
Selecting an outsourcing partner As a first step in selecting an outsourcing partner, Joiner recommends canvassing your industry to come up with a handful of candidates. GMAC hired a consulting firm to handle the search, owing to the accelerated timetable. The consultants served as advisers on several levels:
Suggesting potential partners Helping GMAC develop a picture of what the new organization should look like after the software outsourcing was complete Offering recommendations for defining the partnerships Assisting GMAC in interviewing potential partners' former and current customers Then look at each company's standing in the industry, its flexibility, and its track record with firms similar to yours. "Look for companies that make a good cultural match with your own," she adds. "Find out what you can about their portfolio of talent. Make sure they're willing to explain the reasons behind both their successes and failures." Savings and speed In proposing an outsourcing initiative to senior executives, managers need to do more than just stress the potential cost savings. Why? "Savings come in three forms," Joiner says. "Immediate dollars on the P&L, eventual improvements in processes, and avoidance of costs. You won't see all the savings show up immediately on your P&L, and some of them will always be hard to quantify."
Moreover, overemphasizing the financial benefits of software outsourcing can cause firms to set too short a timetable. A rapid execution has pros and cons. As Joiner discovered, speed enables a company to get through the most painful part of the change process quickly and minimizes friction created by resisters. It also forces people to adapt quickly. As Joiner puts it, "You can't know till you jump in the middle that you don't know how to swim. But you learn how—really fast."
On the other hand, speedy implementation can deprive the organization and third-party provider of that all-important "courting" stage before the "marriage." Joiner is hard-pressed to say whether she would aim again for a six-week implementation. In some ways, "six weeks felt too short," she says. "We were trying for too much radical change at one time." Joiner speculates that it may have been better if the process had unfolded in stages rather than all at once; for example, facilities management first, then lease administration, and finally property management. Still, she concludes, "As the owner of an initiative, I'll take all my pain in six weeks rather than have it drawn out over a longer period."
Getting past culture shockGMAC's software outsourcing initiative reduced staff by 85 percent in the company's real estate and facilities-management function and saved $6.74 million in the first year. "No doubt, the staff reduction was painful," says Joiner, "not only for those who left but for those who remained."
The staff who found the layoffs the most difficult were often from other parts of the firm and hadn't known the affected workers well. In contrast, teammates of the laid-off workers were more aware of the division's lack of "bench strength," and they presented Joiner with an opportunity to manage the staff reduction's impact on morale. "This is all about change management," she says. "As fast as possible, you have to mesh the newly shaped organization with the old assets still at hand. If you immediately make the survivors see the benefits of the change and the reasons behind it, they'll become champions of the effort."
Joiner also advises constant communication with both the workforce and upper management about the program's goal and every aspect of its implementation. "Tell everyone about what's going well—and what isn't going well. Own up to your mistakes and missteps," she urges.
Communication helps to combat the human tendency to blame outsiders for our own problems, Joiner says. At GMAC, this tendency was exacerbated by the unpleasant experiences many employees had had with previous outsourcing efforts. But no outsourcing initiative can work, Joiner says, unless the company as a whole accepts the third-party provider's role.
To deflect unwarranted blame away from GMAC's providers, Joiner continually communicated her own role in the new initiative through as many channels—and to as many recipients—as possible. When functional managers complained about being asked to take on budget accountability for expenses that used to show up in the corporate income statement, Joiner made sure to point out that it was she who had initiated the chargebacks.
In communicating about software outsourcing initiative, patience is as vital as consistency. "The real benefits of outsourcing take time," Joiner says. "And before they kick in, things are going to get painful, ugly, and chaotic." Though it's easy to generate a "big bang" early in the execution of the initiative, "enduring change is harder and takes longer. People need to understand that."
Finally, Joiner recommends involving "power users" from the outset in outsourcing-implementation decisions. For example, the regional managers of the more than 300 leased properties owned by GMAC's retail organization were hugely affected by the initiative and had valuable input into its implementation. Though the speed of the effort's execution prevented Joiner from gathering these managers' input before the program rolled into action, she made sure to incorporate changes based on their insights during the execution phase.
Coalitions and championsJoiner's handling of regional managers, employees, and top executives shows the importance of building supportive coalitions. You also need a strong executive champion, she says. To cultivate champions, Joiner suggests meeting with key people frequently; telling them about "the good, the bad, and the ugly"; and laying out the short- and long-term benefits and costs of the program.
"And even after you've 'sold' the idea of the outsourcing, keep going back to touch base. Let your champions know that you're still there and still very involved."
As Joiner's experience shows, outsourcing requires top-notch change-management skills as well as the ability to select the right partners and build positive, enduring relationships with them. Managers who are charged with the software outsourcing effort will increasingly need to hone their awareness of these complex challenges. Understanding that outsourcing is a journey, not a one-time event with an instant payoff, is an important first step
By: Lauren Keller Johnson Source:[hbswk.hbs.edu]

offshore software development

Demonstrating to corporate executives the importance of building offshore plans with a long-term strategy in mind, Bill Frech, Vice President and Business Process Outsourcing Service Line Leader, discussed the present and future of business process outsourcing and offshoring with executives attending “The 2004 GCI Offshoring Summit”.

In a panel discussion on offshoring, Mr. Frech said that outsourcing could reduce operational costs by 20-30%, sometimes more. He continued to say that many companies already view offshore software development as a key aspect to their business strategy because the economics are so compelling. However, factors such as cultural issues and hidden costs are making companies consider a long-term view when contemplating moving their operations offshore.

“With offshoring, it is important to choose an outsourcer that can provide flexibility and delivery operations as labor markets change and business needs evolve,” said Frech. “Companies are able to invest cost savings from outsourcing into strategic growth areas and also react to changing business dynamics faster and smarter by being able to scale up or down as business needs evolve.”

Frech encouraged corporate executives to consider factors beyond cost when developing an outsourcing strategy. For example, it is important to understand infrastructure issues, business continuity and cultural issues when evaluating a strategy. Frech discussed CGE&Y’s RightShore™ outsourcing model, a customized blend of onshore, nearshore and/or offshore capabilities, tailored and coordinated to meet a company’s specific business goals. RightShore leverages capacity, capabilities, cost reduction, and competencies across geographies to achieve optimal customer satisfaction. To effectively validate CGE&Y methodology/philosophy, Frech highlighted case studies that proved the value of how offshore outsourcing strategies have worked for past clients.

By:John J.Patterson
Source[us.cgey.com]

Wipro enters into consulting business

One of the India's outsourcing giant Wipro started boston office for project management with plans to establish business units which specialize in providing professional consulting services like IBM. Wipro has setup office in Boston as a part of this effort to pitch it against consulting companies.
This is a strategic decision to avoid tuff competition in current business process outsourcing and software outsourcing market where chinese companies are entering with lower labor costs and already so many indian companies are competing.
Wipro is not the only one to venture into consulting business. Already, Infosys has started consulting division last year and Tata Consultancy services is also in this business. Wipro, which started as vegetable oil distributor has business expanded in many fields. Current move is inline with outsourcing fundament of saving money by executing business process in India for US and Europe. According to wipro, it is not aiming to compete against broad based consulting companies like Boston Consulting group but will concentrate on small family of niche market.
Though, salary rises are very high and in double digit in India, still an indian graduate earns a fraction of his American counterpart. This allow outsourcing providers to put several employees on single project.

offshore outsourcing boom

Offshore outsourcing company should understand try to understand how US companies are using offshore resources for outsourcing their software development. Offshore software development has many diffrent views at different level of understanding. One can read different views which appear in newspapers, magazines and on internet daily. It is a very hot topic today, but it is not going to last forever. As in all business cycles, it will also attend a peak in next few years and then slowdown to reach maturity level. So it is very important for offshore software development companies to take advantage of it as long as outsourcing boom is lasting. By joining the bandwagon in initial phase, companies always ensure their place in long term succesfful business.
Some people see offshore outsourcing as evil. Though they accept that, it must be utilized for the sake of economics and profit for share holders. It doesn't matter if its distasteful. For some others, its just a way of business. Offshore providers should remain knowledged about current trends in business. Based on that, they should adapt strategies and technology knowledge to get maximum benefit of offshor boom. Also, they can learn cultural and other sensitive issues related to outsourcing.

Outsourcing companies

COMMENTARY--Few topics are as controversial as outsourcing. This is understandable. To state the obvious, jobs are a fundamental part of our ability to lead a happy and productive life.
Unfortunately, jobs exists within the context of volatile global markets. The growth of outsourcing is the result of developing nations reaching a point in their economic evolution where they have the skills to compete in higher-skill domains traditionally served by rich country workers. The same cost advantages offered to lower-level manufacturing are now being brought up the value chain to software development.
In the United States, a number of congressmen have proposed bills which would protect American IT workers from foreign labor competition. Furthermore, though few are as overtly anti-trade as Dick Gephardt or Dennis Kucinich, it is increasingly clear that Democratic party contenders for the U.S. presidency view foreign competition as a potential winning issue in the 2004 race.
don’t deny that Western IT workers will have to make adjustments to accommodate the new global reality. However, as I explain in this article, outsourcing is not the jobs catastrophe its opponents make it out to be. Furthermore, there are a number of practical reasons to maintain an open market position which have ramifications for the future health of Western economies. In short, like it or not, Western nations need outsourcing.
Don’t overestimate the threatMy first job as a programmer was with Price Waterhouse. My memory of that time includes a frightening amount of airplane food, as I made weekly round-trip flights to client destinations from my home "base" (at the time, Dallas, Texas).
The reason for this was that Price Waterhouse assisted clients in creating custom software--and this required close interaction with the client. Whole teams of developers would be flown to the site to gather requirements, generate prototypes and write code. Real world custom development is often a trial and error process, something that works best when developers on-site can respond instantly.
Maintenance work, however, does not require such close interaction since the broad outlines of the application have already been laid out. This development was often performed off-site, therefore, saving the client airfare and housing costs.
Custom software, even under the best conditions, often must contend with "fuzzy" requirements. Likewise, most software is of the ad-hoc variety, and often is "temporary" in that the actual code written has a short life span. This means that most software will need the kind of close client interactions Price Waterhouse provided to its customers. Such interaction can’t occur when the consultants are sitting in an office in Hyderabad.
Furthermore, the people best qualified to work with American or European clients will be other Americans or Europeans, given the shared cultural context co-nationals share with their fellow citizens. In other words, most custom development will call upon local citizens, because their ingrained "skill" at dealing with local clients cannot be replicated.
Maintenance, however, can be performed off-site, including at offshore locations. This was central to the arguments made by Rahul Sood and George Gilbert in their recent article. They noted that one of the best way to use outsourced labor is as a place to offload maintenance tasks, freeing up the domestic labor force for higher-value new software development.
Even so, this doesn’t mean that domestic IT staff won’t face jobs pressure. In the long term, however, it pays not to underestimate the power of the software industry to create new jobs.
The rise in demand for software developers in the 1990s was the result of the industry’s attempt to digest the changes introduced by the spread of the Internet. Technology continues to advance, however, and it is my opinion that we have only seen the tip of the iceberg in terms of the integration of computing power into our daily lives. I spoke of the software opportunities created by the adoption of RFID technology in a previous article, but also consider the advent of smart phone technology, or even the growth of wearable processing power (SPOT watches being a good example) to be areas for future growth and jobs.
Technological advances in these and other areas will drive demand for new categories of software, and that demand will pick up any slack that results from the expansion of the global pool of developers to include citizens of developing nations.
Lastly, large economies are often their own biggest markets. Exports account for 10 percent of GDP in the United States (which is currently the world’s largest economy), compared to 43 percent in South Korea and Switzerland, 36 percent in New Zealand and 28 percent in France. This position is mostly a function of America’s size, at 300 million people, and its wealth, with a GDP of 10 trillion. As China’s 1.3 billion citizens grow in affluence, Chinese companies are bound to find that China is its biggest market.
As Asian economies grow, programmers are going to be too busy serving their own markets to offer much competition for American or European software projects. It is in the interest of Western programmers, therefore, that Asian economies develop as fast as possible.
Company competitiveness matters.Many who oppose outsourcing offer no alternative means to make up for the cost savings missed by a refusal to outsource. This matters, because modern companies compete on a global stage. Unless every company in the world decides to forego use of lower-cost software developers, companies that fail to outsource will make themselves less competitive.
Furthermore, consider the importance of software within modern business. Software is critical to the efficiency of even small companies, irrespective of industry. By forcing companies to pay more for Information Technology solutions, countries make their companies that much weaker.
One of the problems with America’s recent steel tariffs (now removed) was that it benefited 0.5 percent of the economy (steel production industries) at the expense of 13.1 percent (steel consuming industries, such as automobile manufacturing). The cost of forcing companies to pay more for software would be even greater, as far more industry uses software than consumes steel. This leads to a weaker economy that produces fewer jobs overall.
In short, preventing companies from outsourcing merely impoverishes the many to benefit the few.
China and India are the markets of the futureThe United States and Europe have been the largest and most important markets for the last 100 years. That status provides tremendous advantages to companies based in these regions, as young companies often rely on their local market for business, and residents have special knowledge of their home markets which can’t be replicated by a foreigner.
Though the United States and Europe will always be important markets, the status of most important will pass to others as 2.3 billion potential consumers (China and India combined) enter the ranks of developed nations. American and European companies are tripping over themselves to place a stake in the Chinese market, and for good reason. China is already a bigger market for personal computers than the United States, and they have managed this with a population whose average per capita GDP is $900 (though in purchasing power parity terms, the figure is closer to $3900). Imagine how much product can be sold to the Chinese when that average merely doubles, as is likely in less than 10 years?
The people who best understand that market, as discussed in a previous section, are those who actually live there. There is a lot of value, therefore, in employing developers in those markets. Such developers would apply their "special knowledge" of local market conditions to help American and European companies build products that better meet the needs of Asian consumers.
Likewise, note that foreign software is more expensive in developing countries, both as a percentage of the average income (developing world citizens earn less) and due to weaker currencies. By using lower-cost workers, Western companies build products that are more affordable in developing markets, enabling these companies to grow larger and hire more workers at home.
Local creation of software would help prevent future protectionist tendencies in these important markets. This was one of the motivations behind the decision by Japanese automakers to "outsource" manufacturing to locations around the United States. China will be as important to the health of Western economies as American and European markets are currently to the health of the Chinese economy. If Western nations take a "me first" attitude at the height of their economic power, why should we expect China or India to do anything different when their economies surpass, in terms of size, our own?
Rich nations have the chance to shape the future of economic relations by example. If we set a bad example, the economic leaders of the future are likely to follow it.
Building a globally-competitive workforceYou don’t make a champion runner by limiting with whom he trains in order to avoid stressing him too much. Similarly, you don’t make a rich nation IT workforce capable of facing foreign competition head-on by hiding them behind protective barriers.
Programmers in India and China cost less. Closing borders won't make those workers any less competitive, nor change the benefits companies derive from outsourcing to such locations.
There are ways for more expensive programmers to justify their existence, some of which Berlind mentioned in a recent article on the subject. They can move up the value chain by managing outsourced development tasks. They can spend more time in design work, as design is something that will always be kept domestic simply because requirements gathering is a very people-oriented task. And as mentioned, there will ALWAYS be a demand for local programmers to service custom domestic software needs.
What CANNOT change is the reality that exists in China and India. Rich-nation workers MUST face that reality, however painful the adjustment might prove. Failure to do so now merely harms Western businesses and forces future generations to pay more for our reluctance to face the pain of transition now.
Remember the "Big Picture"Bill Joy, a co-founder of Sun Microsystems, generated a lot of controversy when he warned in a Wired magazine article of the dangerous potential posed by nanotechnology, genetic engineering and robotics. We'll be able to change our environment, and ourselves, by altering DNA. We will build resources molecule by molecule at practically no cost (so much for non-proliferation treaties).
Such power, as Bill Joy noted, can lead to catastrophe if used improperly. Given recent events, there seems to be large numbers of people with an interest in engaging in such improper use. In what kind of world do you feel safer, one where you have a majority of poor and desperate people crushed under totalitarian regimes and aching for a decent share of global resources, or one where most of the world had decent incomes and democratic governments?
Both South Korea and Taiwan were military dictatorships until relatively recently. What changed, for the most part, is that people in both countries reached a sufficient level of affluence as to have time to pay attention to how they were ruled. No government can long face down the will of its people, and nothing boosts the will to be free than to grow accustomed to being free in one’s economic life.
Obviously, outsourcing by itself won’t make or break third world development. However, as part of a general willingness to trade with developing nations (a willingness which would be undermined by special protections for "white collar" IT workers), its part is not inconsiderable. People need to keep an eye on the bigger picture. Think globally if you truly want to create a safer future.
By:JohnCarollSource[zdnet.com]

offshore outsourcing

IT managers demand that their outsourcing vendors help them innovate and make strategic changes, not just run the back officeWhen Blue Cross Blue Shield of Massachusetts inked a 10-year, $320 million outsourcing deal with EDS in December, CIO Carl Ascenzo made it clear he wanted the service provider to do more than just keep his servers running and his help desk humming. The health insurer was looking to automate key administrative services--such as member-eligibility verification--and deliver more of the self-serve applications that benefits recipients demand. "EDS has to help us deliver value to our customers so that we maintain our business competitiveness," Ascenzo says. Businesses for years have farmed out IT and routine back-office functions such as payroll processing and call-center operations. More and more, CIOs and department heads say they want outsourcers that can help them drive strategic change throughout their companies. They want to achieve goals such as giving customers real-time information and self-service. Businesses need to respond to more-agile global competitors on budgets that have grown little since the economic downturn, and that's why this year will bring more growth in IT and business-process-outsourcing services.
To respond, vendors are pitching richer offerings that combine IT, back-office, and business-consulting expertise--services that some label business-transformation outsourcing.
Sales of business-process-outsourcing services will increase 8% this year to reach $131 billion, research firm Gartner predicts, and they're expected to hit $173 billion in 2007. The demanding business environment is driving that growth, says Gartner analyst Linda Cohen. "The whole idea is to transfer ownership of assets and get access to a capability I don't have today," she says. InformationWeek Research's first-quarter Priorities survey of 400 business-technology executives finds 35% say their companies will spend more on IT consulting and outsourcing services this year, while 15% expect to spend less. Three in 10 say they'll engage in some form of business-process outsourcing.
As part of its broad outsourcing agreement with Blue Cross Blue Shield of Massachusetts, EDS will implement its MetaVance health-care enterprise system. The software automates payer processes such as claims processing and provider management. What's most important to Ascenzo is that it will help his company keep pace with changes in the health-care industry, such as the nascent trend of individuals doing more to manage their own health-care spending. As that grows, so will the need for more individualized access to information. "In the future, members will become much more involved in determining the course of their own health care," he says. "MetaVance gives us a core data structure that allows us to meet those very personalized individual needs as the market evolves."
EDS won Blue Cross Blue Shield of Massachusetts' business as much on its health-care expertise as on its IT skills. "Outsourcing relationships are becoming more about strategic partnering, and as we go forward, we need to align with someone who brings not just computing scale but who understands our business," Ascenzo says.
EDS will roll out more services that combine IT and business-process knowledge, because savvy IT execs are demanding them, says Dave Clementz, EDS's executive VP of service delivery. "You can drive a lot of cost savings through outsourcing, but if that's all you get, then shame on you because you've left a lot of value on the table," says the former CIO at ChevronTexaco Corp. "Once you've streamlined and standardized your infrastructure, you then have an opportunity to rethink how work flows through the organization and how you connect with suppliers and customers."
CIOs are more willing to engage in strategic outsourcing deals that go well beyond technology, says Stuart Clements, a partner at consulting and outsourcing firm Accenture. "They've been in a difficult situation because they can't get the budget or operational space to make the changes that they know are needed," he says. "With [business-transformation outsourcing], they can reduce infrastructure costs and then reinvest that in modernization of other areas of the business."
Rick Hamilton, senior VP and CIO at DFS Group Ltd., which operates luxury retail outlets at airports worldwide, says that the outsourcing deals he approves increasingly will be strategic rather than tactical as the company adapts to a harsher travel market. "After 9/11, we looked down the barrel of having to transform the way we run our business. We're continuing to look to outsourcing as a means to do that," he says.
Outsourcing isn't going to have a transformational impact if it's isolated in the CIO's office. Karen Rueff, VP for executive resources at Lincoln Financial Group, and CIO Jason Glazier worked together to find a way to move more of the human-resources administration to a Web-based, self-service platform so HR staff could focus more on talent-management and -retention strategies and less on day-to-day operations. After consulting with Glazier and other executives, Rueff hired IBM to redesign and run a number of Lincoln's HR systems. "This isn't just a matter of moving the same work from one vendor to another but really creating a totally different solution so that the way we deliver HR support is different," Rueff says.
Glazier expects IBM to improve as well as run operations. "This is about business transformation for us," he says. Business-process outsourcing "is taking existing processes and letting someone else do them. This deal is significantly upgrading our process."
Under a 10-year "business-transformation-outsourcing" contract, IBM will build and deliver a number of self-service human-resources tools for Lincoln, including a portal that employees can use to access all HR, payroll, and benefits services. Some components of the project will become operational early this year. As more technology-driven business processes are delivered by third parties, CIOs expect to spend more time crafting and monitoring outsourcing deals, applying the skills they've learned managing internal projects. "The IT organizations of the future are going to be less doers than vendor managers, supply-and-demand managers, and facilitators. Those are the skill sets," says Paul Donovan, CIO at ING U.S. Financial Services. Donovan struck a seven-year, $600 million outsourcing contract with IBM last month. Among other things, Donovan will grade IBM's performance on its ability to help ING explore new service offerings such as wireless account access for customers. "The contract won't be a success if we just do IT services," Donovan says.
CIOs can play a critical role in providing a big-picture view: making sure line-of-business executives don't construct outsourcing agreements for their branch that crimp business operations elsewhere in the company. "Technology has done more outsourcing than most areas, so we're very familiar with the terms you want to have to protect [yourself]," says Lincoln Financial CIO Glazier. In hammering out the IBM contract, Glazier worked closely with Rueff on details such as service-level agreements, the frequency of software upgrades, application-development costs, and other parts of the deal heavily related to IT. He also had to make sure the plan wouldn't disrupt Lincoln's internally run networks and applications.
DFS Group CIO Hamilton says increased outsourcing at his company means that he's more often managing project groups consisting wholly of IT professionals employed by third parties. To make it work, DFS Group has called the "cops." That is, the company places outside contractors into "Community Of Practice" groups that are required to meet and conduct business as though they were internal DFS Group employees. "That way we can be sure that the people who handle our networking are out in front of our application-development contractors in terms of supporting the changes they're going to be making," Hamilton says.
As part of its efforts to control costs when the travel market was decimated following the Sept. 11, 2001, attacks, DFS turned to offshore provider Cognizant Technology Solutions Corp. to build a single inventory-management application that can be pushed to product managers worldwide. It replaces several legacy applications that ran in different regions that were expensive to maintain and couldn't communicate with each other. DFS also plans to use Cognizant for a more-advanced redesign of its business applications that could eventually have the company using Web services to tap into the supply chains of suppliers such as Louis Vuitton Malletier and Gucci Group N.V.
The emergence of offshore outsourcing providers that can deliver advanced services is another force spurring growth in the outsourcing market. Hamilton says Cognizant's use of low-cost, highly skilled Indian labor lets him consider projects that might otherwise be difficult to justify. "Offshoring brings a resource pool that I couldn't possibly replicate here," he says. "They provide skills on demand, which is essential because we're an organization that is shooting in one direction one day and another on the next day." In December, Cognizant disclosed plans to add 600,000 square feet of office space in India this year to meet booming demand for its services.
Lincoln Financial also uses foreign outsourcing to help make the numbers work on its HR project with IBM. IBM will operate an employee help desk for Lincoln from Edmonton, Alberta. The center offers a cost structure that's less than a U.S. operation but more than one located in India or another emerging market. As the company gains a comfort level with IBM's operations, the help desk may be moved to a location in a lower-cost, more-distant country, Glazier says. "There was an offshore option that would have been cheaper, but we didn't want to go there right now," he says. "That implies a lot of change. But if we make changes to the offshoring mix at a later date, we will reap the benefits. That's a key thing I put into the contract."
As more Indian IT firms develop strong business-process expertise, more of this advanced outsourcing will move offshore as the cost falls. Corporate spending on offshore business-process outsourcing will grow from $1.8 billion in 2003 to in excess of $26 billion by 2007, Gartner predicts. Operations in India are expected to capture about half of those sales.
Whether through domestic or offshore partnering, more technology and business executives are looking for providers that can offer IT, business-process, and consulting services in a single contract. Creating that sort of busi- ness-transformation capability is what drove IBM's purchase of PricewaterhouseCoopers' consulting arm in 2002. "It wasn't until we acquired them that we could provide a credible offering," says Bill Matson, general manager for HR business-transformation outsourcing at IBM.
IBM's strategy going forward will be to seek deals that require both its infrastructure and consulting services, Mat- son says. "If a customer says, 'We just want you to run payroll the way we've always run it,' we typically wouldn't be interested in that kind of deal," he contends. Matson sees no shortage of demand for such "higher-order services" because support organizations "are being told to cut costs by 10% to 15% while improving services. You run out of solutions when you try do it all by yourself
By Paul McDougall Source:[informationweek.com]

THE VALUE OF OUTSOURCING

Companies large and small, public and private, and across a wide variety of industries have embraced the practice of outsourcing within virtually all disciplines, including information technology - the sector which leads the trend.
In fact, within the past five to eight years, outsourcing has evolved from a purely tactical option - often of last resort - to an ongoing, standard business practice and strategic management tool. But what explains this dramatic evolution in such a relatively short period of time?
Weighing the Pros and Cons
For many, the decision to software outsource begins with exercise of weighing the time and expense of doing it yourself against your desired outcome. For example, if you decide to add a patio to your home, you have two basic options. You can either take on the entire job yourself - designing the space, securing the permits, purchasing the materials, and building it yourself. Or you could hire an experienced contractor to handle everything for you.
Your investment for the first option is largely in materials and a significant amount of your time, particularly if you are squeezing the patio project into a busy schedule that already includes work and family responsibilities. But how long will it take you to complete the job? What quality assurances will you have, especially if you've never tackled anything like this before? What might the short- and long-term consequences of the do-it-yourself approach be?

On the other hand, what could a professional contractor bring to the table? While the financial investment might be slightly higher to cover labor costs with an experienced builder, the completion time is likely to be much shorter and you can hold the project to agreed-upon quality guarantees.

Focus on Core Competencies
An oversimplified example? Not really. Like many business outsourcing decisions, it comes down to this: What's your core capability or service? Where is your time most highly leveraged? And what's the opportunity cost of adding another area of responsibility or of being distracted from your core capability?
Reducing and controlling operational costs remain key goals, and savvy managers increasingly look to outsourcing to improve business focus and strengthen core capabilities. A successful outsourcing relationship can help achieve this by enabling companies to focus their people and resources - which are sometimes scarce - on the areas that are mission critical to their operations. It also gives these companies access to the top talent in an outsourced discipline - talent that the client company doesn't have to recruit, train, pay benefits to or struggle to retain, thereby freeing up personnel dollars and time. In addition, companies can expect service levels in their outsourced functions to rise because, as part of forming the outsourcing agreement, they can determine specific quality standards for the provider. The agreement then serves as a quality control system that may not have existed otherwise had the company not decided to outsource.

Making the Right Decision
While the benefits of software outsourcing may seem clear, sometimes the biggest challenge for managers is how much operational control of the outsourced function they are willing to relinquish. However, if their expectations are clear from the outset, outsourcing typically offers a higher level of control than in-house solutions. By getting "out of the trenches" of day-to-day operations, management gains a much better look at the big picture.
Here are several questions to ask when considering an outsourcing arrangement:
What are the primary objectives of the department or organization? How do they relate to, support and/or add value to the organization's core services? What are the primary processes involved to support the objectives? Are you considering an outsourcer for short-term projects or long-term processes? What kind of talent do you need for the job? If the situation requires a very specific skill set with tight deadlines, outsourcing is likely to be the answer, as it enables a company to avoid the timely and costly process of recruiting, interviewing and training. How can the outsourcer improve performance? What is this function currently costing the organization?

IT - The Most Popular Outsourced Function
IT was one of the first sectors to experience significant levels of outsourcing, and continues to be the functional area where most outsourcing dollars are spent. As the largest independent provider of multivendor technology support services in North America, DecisionOne can attest to the popularity of this trend - particularly in the following five market sectors. OEMs - hardware, software and consumer electronics Channel - resellers, retailers and warranty administrators Communications - RBOC, ILEC, CLEC, cable, satellite Service Aggregators - outsourcers, system integrators, application service providers Commercial and Government Users - Fortune 1000 corporations, midsize companies and government agencies
While providers like DecisionOne tailor precise solutions to answer their users' exact IT and business objectives, the reasons these companies explore outsourcing in the first place are often strikingly similar. In fact, what these five sectors generally have in common when seeking outsourcing are: A need for direct technology support for employees or customers, and/or A desire to expand their service portfolio through an outsourcing partnership that enables them to offer additional technology services to their customers.

The Value of Direct Support
For those companies looking to enhance direct support for their employees and customers, there are a series of ways that a provider such as DecisionOne can add value to the service equation. Focus on Core Capabilities - By leveraging a provider's infrastructures and proven processes for service and support, clients can be more effective in bringing their products to market and growing their businesses. They can focus on core capabilities and concentrate corporate resources on product development, marketing, sales and operations. Avoid Service Infrastructure Investments and Planning - With an experienced provider's personnel, systems and fixed assets, companies can grow their businesses more quickly without the planning and investment that's often needed in personnel resources, support systems and capital assets to scale their infrastructure for quality service and support delivery. Enhance Product Brand - Quality service and support are important buying criterion in the technology marketplace. A client's product brand is enhanced by providing top-shelf service offerings through an outsourcer with a reputation for quality services delivery. Eliminate Competitive Conflicts of Interest - It's important for companies to look for independent service providers like DecisionOne that focus solely on support and infrastructure services for the technology industry and do not sell hardware or software. This helps eliminate possible competitive threats and reduce revenues to competitors. Manage Service Subcontractors Effectively - To minimize the time, effort and cost of managing multiple services subcontractors, clients should use their outsourcer as the single point of contact for all technology-based infrastructure services. Providers such as DecisionOne also provide clients with streamlined, proven systems for on-line service information. This approach ensures quality services are delivered to the client's customers. Preserve Investment of Technology Inventory - Clients should seek an outsourcer that offers service options designed to extend the useful life of their technology and reduce the need for investment in new equipment purchases. These options are offered through cost effective after-warranty service plans that lengthen the lifetime of systems and maintain high service levels. Speed to Deploy Technology Solutions- By augmenting a client's IT organization with selective skills or technicians in remote locations, technology solutions are implemented faster, which allows clients to realize their benefits earlier. Manage the IT Skills Shortage by Augmenting Internal IT Staff - Clients find that contracting for service delivery instead of investing in personnel for a support function provides cost effective coverage that reduces management issues of recruiting, training and maintaining certified, skilled support staff.

Expanding Service Portfolios
Software Outsourcing not only benefits internal technology operations, but it can also provide real revenue-building opportunities for companies who resell services. Expand Revenues through New Service Offerings - Clients gain the flexibility to sell more than basic support for their technology platforms by reselling the service capabilities of providers like DecisionOne. This not only opens up additional revenue opportunities for resellers, retailers and warranty administers, but also strengthens their competitive positions in the market by offering their customers complete solutions. An outsourcer's capabilities should be integrated to provide a total infrastructure support solution from initial deployment to ongoing support, from call center to onsite dispatch, from centrally managed systems to networks and desktops. Lower Cost of Sales through Service Packages and Bid Desk - An outsourcer should make it easy for clients to sell these additional service offerings through predefined packages and quick turnaround bid desk processes for custom service proposals. Enhance Product Brand - Quality service and support are important buying criterion in the technology marketplace. A client's product brand is enhanced by providing top-shelf service offerings through an outsourcer with a reputation for quality services delivery. Offer Quality Corporate Service Offerings - Clients should be confident that the services for their projects can meet the requirements of a corporate customer. Make sure an outsourcer understands the special requirements of the corporate environment. DecisionOne, for example, has experience in providing quality service for half of the Fortune 1000.

As competitive pressures and customer and shareholder expectations continue to increase, the value of outsourcing is likely to steadily rise, as well. Many companies presently outsourcing various business functions are actively searching for additional outsourcing opportunities in other areas.
On the IT front, that trend will translate into additional reliance on complete, integrated service solutions that are carefully tailored to the specific requirements and business objectives of various technology customer segments. Whether a company is motivated by speeding time to market, decreasing investment in infrastructures, making service and/or subcontractor management more effective, or enhancing their corporate and product brand, an expert technology support provider should help them stretch their capital and improve their customer service, both internally and externally.

Offshoring benefits UK job market

The UK has benefitted from the offshoring trend, a new report claims. It found that despite the regular reports of jobs going overseas, even more jobs have been created in the country as other nations offshore work here.

The report, published by the Advance Institute of Management, reveals that Britain has been more successful at exporting services than many other developed nations, and that computer services, along with recruitment, architecture and advertising, is a particularly strong sector. This, it claims, means that the idea that jobs are disappearing to India is misleading, explaining the UK has a trade surplus in business services of £17bn, while India has no surplus at all. The figures also show that the UK's surplus is larger than that of the US, while Germany and Japan show deficits in the services market.

Rachel Griffith, one of the authors told The Financial Times that although some UK jobs are going overseas, this is only half the picture: "Foreign firms also purchase business services from the UK and the net effect has been positive", she said.

Others in industry warn that while things are going well now, this is no time to rest on our laurels. BT's CEO, Ben VerWaayen, writing in today's FT, says that focusing on call centres trivialises the debate about outsourcing. He argues that in a global economy, Britain will need to be more competitive if it is to maintain its current position: "When I was last in India, a very senior Indian politician made a sobering comment. 'In your country,' he said, 'if someone is lazy, he is still rich. In India, if someone is lazy he is dead'."

He has called on the higher education sector, which he describes as "depressingly introverted and nationalistic" to make its institutions more international and more flexible so that graduates can follow the work. He also called on the government to pay attention to the kind of graduates the system produces, rather than the bare quantity.
source:[theregister.com]

Has BPO wave ebbed off?

In a bit of bad news for the BPO sector, a new study has said that hidden costs and added complexity have prompted 25 per cent participants to reduce outsourcing activities.

Various large organisations that were quick to participate in information technology and BPO are bringing operations back in-house, exploring alternatives, scrutinising new outsourcing deals more closely, re-negotiating existing agreements, and bringing functions back in-house with increasing frequency, the study released yesterday by Deloitte Consulting LLP said.
"There are fundamental differences between product outsourcing and the outsourcing of service functions, differences that were overlooked but have now come to the fore," said Ken Landis, a Senior Strategy Principal at Deloitte.
The primary reason for outsourcing boom was cost savings, ease of execution, flexibility, and lack of in-house capability. However, instead of simplifying operations, many companies found that outsourcing activities can introduce unexpected complexity, add cost and friction into the value chain, and require more senior management attention and deeper management skills than anticipated, the study said.
"In the near term, outsourcing will become less appealing for large companies because it is not delivering the value as promised, and its appeal as a cost-savings strategy will also diminish as the economy recovers from recession and companies look for differentiated solutions to support their growth," said Landis.
"Outsourcing can still deliver value to companies that enter into outsourcing for the right reasons using a right model such as centralise-standardize-outsource, transform-operate-transfer, commodities outsourcing, risk transfer, and shifting fixed costs to variable, and have superb talent in-house to manage these deals from inception to execution."
The study, "Calling a Change in the Outsourcing Market," says that 70 per cent of participants have had significant negative experiences with outsourcing projects and are now exercising greater caution in approaching outsourcing.
One in four participants have brought functions back in-house after realising that they could be addressed more successfully and/or at a lower cost internally, while 44 percent did not see cost savings materializing as a result of outsourcing.
Moreover, 57 per cent of participants absorbed costs for services they believed were included in the contracts with vendors. Nearly half of the study participants identified hidden costs as the most common problem when managing outsourcing projects.
The study conducted in person during October -- December 2004, included responses from senior executives, representing global companies, who have both decision-making and operational authority in outsourcing in their organisations.
Nearly half of the participants are part of the Fortune 500; one quarter are privately held or public sector entities and four are headquartered outside United States. Six are part of the Fortune 50, and three are ranked in Fortune Global 100.
source[sify.com]

Outsourcing to India

Exclusive IBM is exporting more UK jobs to India under "strategic" changes to an outsourcing contract with insurer Royal & SunAlliance (RSA).

Helpdesk staff based in Liverpool were told of the move last week. Due to be completed within the next five or six months, the jobs will be taken up by staff working in Bangalore, India.
According to a memo seen by The Register, "both IBM and RSA are optimistic that these agreed changes will have a positive effect for both businesses".
The Helpdesk in Liverpool is currently staffed by IBM employees and Manpower contractors. The giant IT company refused to say how many people were affected by the move and whether there would be any compulsory job losses.
In a statement to The Register, IBM said: "IBM is constantly balancing its workforce to meet its evolving clients' needs. IBM staff will be redeployed wherever possible. This may cause limited resource actions for Manpower contractor staff."
Equally reluctant to spill the beans, a spokesman for Manpower said: "We are working with IBM to find positions for these Manpower staff at other IBM locations. Where this is not possible, we will endeavour to find them alternative employment. We are communicating with all our employees on a regular basis."
IBM teamed up with Royal & SunAlliance UK in 2001 in a ten-year outsourcing deal to improve IT support and efficiency. Some 285 RSA IT employees based at sites including Liverpool, Horsham, Bristol and Halifax transferred to IBM under TUPE (Transfer of Undertakings Protection of Employment) regulations.
Last October RSA announced the transfer of 1,100 UK jobs - including call centre positions - to India to save £10m a year. The IT jobs shunted to Bangalore are understood to be in addition to those announced last year.
Last July The Register revealed plans by IBM to move 500 UK jobs to India in a reorganisation of its outsourcing business